UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 10-K

(Mark One)

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

For the fiscal year ended December 31, ~~2008~~2009

[ ] 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 registrant 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, PO Box 1089

Greenville, South Carolina 29602

(Address of principal executive offices)

Registrant's telephone number, including area code (864) 239-1000

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Units of Limited Partnership

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]

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

Indicate by check mark if ~~disclosure~~whether ofthe ~~delinquent~~registrant ~~filers~~has ~~pursuant~~submitted toelectronically ~~Item~~and ~~405~~posted ofon ~~Regulation~~its ~~S-K~~corporate Web issite, ~~not contained~~if ~~herein~~any, ~~and~~every ~~will~~Interactive ~~not~~Data beFile ~~contained,~~required to ~~the~~be ~~best~~submitted ofand posted ~~the~~pursuant ~~registrant’s knowledge,~~to inRule ~~definitive~~405 ~~proxy~~of orRegulation ~~information~~S-T ~~statements~~(232.405 ~~incorporated~~of bythis chapter) during ~~reference~~the inpreceding ~~Part~~12 ~~III~~months of(or ~~this~~for ~~Form~~such ~~10-K~~shorter orperiod ~~any~~that ~~amendment~~the registrant was required to ~~this~~submit ~~Form~~and ~~10-K~~post such files). [X ] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £

Accelerated filer £

Non-accelerated filer £(Do not check if a

smaller reporting company)

Smaller reporting company S

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

State the aggregate market value of the voting and non-voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were last sold, or the average bid and asked ~~prices~~price of such partnership interests as of ~~the~~ the last business day of the registrant’s most recently completed second fiscal quarter. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined.

DOCUMENTS INCORPORATED BY REFERENCE

None

FORWARD-LOOKING STATEMENTS

The ~~Private~~ Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Annual Report contains or may contain information that is forward-looking, ~~including~~within the meaning of the federal securities laws, without limitation, statements regarding the ~~effect~~ ~~of redevelopments, the~~ Partnership’s future financial performance, ~~including the Partnership’s ability to maintain current or meet projected occupancy~~ and ~~rent levels, and~~ the effect of government regulations. Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors some of which are beyond the Partnership’s control including, without limitation: financing risks, including the availability and cost of financing and the risk that the Partnership’s cash flows from operations may be insufficient to meet required payments of principal and interest; natural disasters and severe weather such as hurricanes; national and local economic conditions; the general level of interest rates; ~~energy costs;~~ the terms of ~~governmental~~ governmental regulations that affect the Partnership’s ~~property~~ and interpretations of those regulations; the competitive environment in which the Partnership operates; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets; insurance risk; development risks; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties ~~presently owned or~~ previously owned by the Partnership. Readers should carefully review the Partnership’s consolidated financial statements and the notes thereto, as well as the ~~section entitled “Risk Factors” described in Item 1A of this Annual Report and the~~ other documents the Partnership files from time to time with the Securities and ~~Exchange~~ Exchange Commission.

PART I

Item 1. Business

Davidson Diversified Real Estate II, L.P. (the "Partnership" or "Registrant") is a Delaware limited partnership organized in June 1984. The general partners of the Partnership 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 Apartment Investment and Management Company (“AIMCO”), a publicly traded real estate investment trust. ~~During 2008,~~The ~~the~~ Partnership Agreement ~~was~~provides ~~amended~~that ~~to extend~~ the Partnership’s ~~termination date~~is to ~~December~~terminate on December 31, 2017, unless terminated prior to such date.

The offering of the Partnership's limited partnership units (the "Units") commenced on October 16, 1984, and terminated on October 15, 1985. The Partnership received gross proceeds from the offering of $24,485,000 and net proceeds of $21,761,000. Upon termination of the offering, the Partnership had accepted subscriptions for 1,224.25 Units. Since its initial offering, the Partnership has not received, nor are limited partners required to make, additional capital contributions.

The Partnership iswas engaged in the business of operating and holding real estate properties for investment. In 1984 and 1985, during its acquisition phase, the Partnership acquired eight existing multifamily residential and commercial properties of which five ~~have~~were ~~been~~ sold and two ~~have~~were ~~been~~ foreclosed upon by the mortgage holder. Asprior ofto 2009. During the year ended December 31, ~~2008~~2009, the Partnership ~~continues~~sold toits ~~own~~last ~~and~~remaining investment ~~operate~~property, ~~one~~The ~~multifamily residential~~Trails ~~property.~~Apartments, ~~See~~to ~~“Item~~a 2.third ~~Property”~~party.

~~On May~~As ~~21,~~of ~~2008~~September 30, 2009, the ~~Managing~~Partnership ~~General~~adopted ~~Partner~~the ~~amended~~liquidation ~~the~~basis ~~Partnership~~of ~~Agreement~~accounting, due to ~~authorize~~ the ~~Managing~~sale ~~General~~of its ~~Partner~~remaining toinvestment ~~establish~~property ~~different~~in ~~designated~~August ~~series of~~2009. The ~~limited~~Managing ~~partnership~~General Partner ~~interests~~estimates that ~~have~~the ~~separate~~liquidation ~~rights~~process ~~with~~will ~~respect~~be ~~to specific~~completed ~~Partnership~~by ~~property~~September 30, 2010. AsBecause the success in realization of ~~December~~assets ~~31,~~and ~~2008,~~settlement of liabilities is based on the Managing General Partner’s ~~has~~best ~~not~~estimates, ~~amended~~ the liquidation ~~Partnership~~period ~~Agreement~~may orbe ~~the~~shorter ~~Certificate~~than ofprojected ~~Limited Partnership~~or ~~establishing~~it ~~designated~~may ~~series~~be ~~interests~~extended beyond the projected period.

The Partnership has no employees. Management and administrative services are provided by the Managing General Partner. These services were provided by affiliates of the Managing General Partner for the years ended December 31, ~~2008~~2009 and ~~2007~~2008.

A further description of the Partnership's business is included in "Item 1A7. ~~Risk~~Management's ~~Factors~~Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K.

The risk factors noted in this section and other factors noted throughout this Annual Report describe certain risks and uncertainties that could cause the Partnership’s actual results to differ materially from those contained in any forward-looking statement.

The Partnership’s existing and future debt financing could render it unable to operate, result in foreclosure on its property, prevent it from making distributions on its equity or otherwise adversely affect its liquidity.

The Partnership is subject to the risk that its cash flow from operations will be insufficient to make required payments of principal and interest, and the risk that existing indebtedness may not be refinanced or that the terms of any refinancing will not be as favorable as the terms of existing indebtedness. If the Partnership fails to make required payments of principal and interest on secured debt, its lender could foreclose on the property securing such debt, which would result in loss of income and asset value to the Partnership. Payments of principal and interest may leave the Partnership with insufficient cash resources to operate its property or pay distributions.

Disruptions in the financial markets could affect the Partnership’s ability to obtain financing and the cost of available financing and could adversely affect the Partnership’s liquidity.

The Partnership’s ability to obtain financing and the cost of such financing depends on the overall condition of the United States credit markets and the level of involvement of certain government sponsored entities, specifically, Federal Home Loan Mortgage Corporation, or Freddie Mac, and Federal National Mortgage Association, or Fannie Mae, in secondary credit markets. Recently the United States credit markets have experienced significant liquidity disruptions, which have caused the spreads on debt financings to widen considerably and have made obtaining financing more difficult. Further or prolonged disruptions in the credit markets could result in Freddie Mac or Fannie Mae reducing their level of involvement in secondary credit markets which would adversely affect the Partnership’s ability to obtain non-recourse property debt financing.

Failure to generate sufficient net operating income may limit the Partnership’s ability to fund necessary capital expenditures or the Partnership’s ability to pay distributions.

The Partnership’s ability to fund necessary capital expenditures on its property depends on its ability to generate net operating income in excess of required debt payments. If the Partnership is unable to fund capital expenditures on its property, the Partnership may not be able to preserve the competitiveness of its property, which could adversely affect the Partnership’s net operating income.

The Partnership’s ability to make distributions to its partners depends on its ability to generate net operating income in excess of required debt payments and capital expenditure requirements. Net operating income and liquidity may be adversely affected by events or conditions beyond the Partnership’s control, including:

the general economic climate;

competition from other apartment communities and other housing options;

local conditions, such as loss of jobs or an increase in the supply of apartments, that might adversely affect apartment occupancy or rental rates;

changes in governmental regulations and the related cost of compliance;

increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents;

changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing; and

changes in interest rates and the availability of financing.

Competition could limit the Partnership’s ability to lease apartments or increase or maintain rents.

The Partnership’s apartment property competes for residents with other housing alternatives, including other rental apartments, condominiums and single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. Competitive residential housing in a particular area could adversely affect the Partnership’s ability to lease apartments and to increase or maintain rental rates. The current challenges in the credit and housing markets have increased housing inventory that competes with the Partnership’s property.

Laws benefiting disabled persons may result in the Partnership’s incurrence of unanticipated expenses.

Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990, to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to the Partnership’s property, or affect renovations of the property. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although the Partnership believes that its property is substantially in compliance with present requirements, the Partnership may incur unanticipated expenses to comply with the ADA and the FHAA in connection with the ongoing operation of its property.

Potential liability or other expenditures associated with potential environmental contamination may be costly.

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property, including lead-based paint. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its property, the Partnership could potentially be liable for environmental liabilities or costs associated with its property.

Moisture infiltration and resulting mold remediation may be costly.

The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the Managing General Partner have implemented policies, procedures, third-party audits and training and the Managing General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s financial condition or results of operations.

A further description of the Partnership's business is included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K.

Item 2. Property

~~The~~On ~~following~~August ~~table~~25, ~~sets~~2009, ~~forth~~ the Partnership's sold its last remaining investment inproperty, The Trails Apartments, to a third party for a gross sale price of $11,475,000. The net proceeds realized by the Partnership were approximately $2,927,000 after payment of closing costs of approximately $186,000 and the assumption of the mortgage debt encumbering the property asof approximately $8,362,000 by the purchaser. As a result of ~~December~~the 31sale, ~~2008:~~the Partnership recorded a gain of approximately $8,711,000. In addition, the Partnership recorded a loss on early extinguishment of debt of approximately $95,000 due to the write off of unamortized loan costs.

	Date of
Property	Purchase	Type of Ownership	Use
The Trails Apartments	08/30/85	Fee ownership subject to a	Apartment -
Nashville, Tennessee		first mortgage (1)	248 units

(1) The property is held by a Limited Partnership in which the Partnership owns a 99.90% interest.

On July 31, 2008, the Partnership sold Reflections Apartments to a third party for a gross sales price of approximately $31,010,000. The net proceeds received by the Partnership were approximately $30,661,000 after payment of closing costs of approximately $227,000 and a prepayment penalty of approximately $122,000 owed by the Partnership. The Partnership used approximately $11,981,000 to repay the mortgage encumbering the property. As a result of the sale, the Partnership recorded a gain of approximately $15,471,000, which is included in gain from sale of discontinued operations, and a loss on the early extinguishment of debt of approximately $137,000 due to the write off of unamortized loan costs and a prepayment penalty, which is included in loss from discontinued operations.

On October 22, 2008, the Partnership sold Big Walnut Apartments to a third party for a gross sales price of approximately $8,300,000. The net proceeds received by the Partnership were approximately $8,262,000 after payment of closing costs of approximately $38,000. The Partnership used approximately $4,300,000 to repay the mortgage encumbering the property. As a result of the sale, the Partnership recorded a gain of approximately $3,671,000, which is included in gain from sale of discontinued operations, and a loss on the early extinguishment of debt of approximately $47,000 due to the write-off of unamortized loan costs which is included in loss from discontinued operations.

Schedule of Property

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

	Gross			Method
	Carrying	Accumulated	Depreciable	of	Federal
Property	Value	Depreciation	Life	Depreciation	Tax Basis
	(in thousands)				(in thousands)
The Trails
Apartments	$11,344	$8,960	5-25 yrs	S/L	$1,901

See "Note A" to the consolidated financial statements included in "Item 8 - Financial Statements and Supplementary Data" for a description of the Partnership’s capitalization and depreciation policies.

Schedule of Property Indebtedness

The following table sets forth certain information relating to the loan encumbering the Partnership's property.

	Principal				Principal
	Balance At	Stated			Balance
	December 31,	Interest	Period	Maturity	Due At
Property	2008	Rate	Amortized	Date	Maturity
	(in thousands)				(in thousands)
The Trails Apartments	$ 8,431	5.96% (1)	360 months	06/01/16	$ 7,385

(1) Fixed rate mortgage.

See "Item 8. Financial Statements and Supplementary Data - Note B" for information with respect to the Partnership's ability to prepay the loan and other details about the loan.

Schedule of Rental Rates and Occupancy

Average annual rental rates and occupancy for 2008 and 2007 for the property are as follows:

	Average Annual		Average Annual
	Rental Rates		Occupancy
	(per unit)
Property	2008	2007	2008	2007
The Trails Apartments	$8,206	$7,712	97%	97%

As noted under "Item 1. Business", the real estate industry is highly competitive. The Partnership’s property is subject to competition from other residential apartment complexes in the area. The Managing General Partner believes that the property is adequately insured. The property is an apartment complex which leases units for terms of one year or less. As of December 31, 2008, no residential tenant leases 10% or more of the available rental space. The property is in good condition subject to normal depreciation and deterioration as is typical for assets of this type and age.

Schedule of Real Estate Taxes and Rate

Real estate taxes and rate in 2008 for the Partnership’s property were as follows:

	2008	2008
	Taxes	Rate
	(in thousands)
The Trails Apartments	$ 141	4.04%

Capital Improvements

~~Big~~During the ~~Walnut~~nine months ended September 30, 2009, the Partnership completed approximately $144,000 of capital improvements at The Trails Apartments:, consisting primarily of exterior painting and floor covering replacement. These improvements were funded from operating cash flow. The Partnership sold The Trails Apartments to a third party on August 25, 2009.

During the year ended December 31, 2008, the Partnership completed approximately $1,025,000 of capital expenditures at Big Walnut Apartments consisting primarily of recreational facilities, interior decorating, water heater upgrades, roof and floor covering replacements and improvements related to casualties. These improvements were funded from operating cash flow. The Partnership sold Big Walnut Apartments to a third party on October 22, 2008.

The Trails Apartments:

During the year ended December 31, 2008, the Partnership completed approximately $160,000 of capital expenditures at The Trails Apartments consisting primarily of water heater and air conditioning upgrades, and appliance and floor covering replacements. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2009. Such capital expenditures will depend on the physical condition of the property and anticipated cash flow generated by the property.

Reflections Apartments:

During the year ended December 31, 2008, the Partnership completed approximately $193,000 of capital expenditures at Reflections Apartments consisting primarily of kitchen and bath upgrades, structural improvements and appliance and floor covering replacement. These improvements were funded from operating cash flow. The Partnership sold Reflection Apartments to a third party on July 31, 2008.

Capital expenditures will be incurred only if cash is available from operations, Partnership reserves or advances from AIMCO Properties, L.P., although AIMCO Properties, L.P. is not obligated to fund such advances. To the extent that capital improvements are completed, the Partnership’s distributable cash flow, if any, may be adversely affected at least in the short term.

Item 3. Legal Proceedings

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company (“the Defendants”) failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”). In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions. In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts ~~will~~have been be dismissed. During the fourth quarter of 2008, the Partnership paid ~~approximately~~ approximately $3,000 for settlement amounts for alleged unpaid overtime to employees who had worked at the Partnership’s investment properties. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The parties have selected six “on-call” claims that will proceed forward through the arbitration process and have selected arbitrators. After those arbitrations have been completed, the parties will revisit settling the on-call claims. The first two arbitrations took place in December 2009 and the Defendants received a defense verdict against the first two claimants, and plaintiffs dismissed the claims of the next two claimants. The remaining two arbitrations will take place in April 2010. The Managing General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.

ItemPART 4. Submission of Matters to a Vote of Security HoldersII

During the quarter ended December 31, 2008, no matters were submitted to a vote of Unit holders through the solicitation of proxies or otherwise.

PART II

The Partnership, a publicly-held limited partnership, offered and sold 1,224.25 Limited Partnership Units ("Units") aggregating $24,485,000. As of December 31, ~~2008~~2009, there were 584 holders of record owning an aggregate of 1,224.25 Units. Affiliates of the Managing General Partner owned 706 units or 57.67% of the outstanding Units at December 31, ~~2008~~2009. There is no established public trading market for the Units and it is not anticipated that such a market will develop in the future.

The Partnership distributed the following amounts during the years ended December 31, ~~2008~~2009 and ~~2007~~2008 (in thousands, except per unit data):

		Per Limited		Per Limited
	Year Ended	Partnership	Year Ended	Partnership
	December 31, 2008	Unit	December 31, 2007	Unit
	December 31, 2009	Unit	December 31, 2008	Unit
Sale(1)	$12,283	$10,027.36	$ --	$ --
Sale (1)	$3,542	$2,891.57	$12,283	$10,027.36

(1) Proceeds from the August 2009 sale of The Trails Apartments, the July 2008 sale of Reflections Apartments and the October 2008 sale of Big Walnut Apartments.

~~Future cash distributions will depend on the levels of net cash generated from operations, the timing of debt maturity, property sale and/or refinancing.~~ The Partnership'’s cash available for distribution iswill be reviewed on a ~~monthly~~quarterly basis. ~~There~~Future ~~can be no~~cash ~~assurance,~~distributions ~~however,~~will ~~that~~depend on the ~~Partnership~~amount ~~will~~of ~~generate~~cash ~~sufficient~~remaining ~~funds from operations,~~ after ~~required capital expenditures, to permit any distributions to~~fully ~~its~~liquidating ~~partners during 2009 or subsequent periods. See “Item 2. Property – Capital Improvements” for information relating to anticipated capital expenditures at~~ the ~~property~~Partnership.

In addition to its indirect ownership of the managing and associate general partner interests in the Partnership, AIMCO and its affiliates owned 706~~.00~~ Units in the Partnership representing 57.67% of the outstanding Units at December 31, ~~2008~~2009. 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 Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 57.67% of the outstanding Units, AIMCO is in a position to control all such voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

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

The Partnership’s financial results depend on a number of factors including the ability to attract and maintain tenants at the investment property, interest rates on mortgage loans, costs incurred to operate the investment property, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of its investment property 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, the Managing General Partner may use rental concessions and rental rate reductions to offset softening market conditions; accordingly, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Further, a number of factors that are outside the control of the Partnership such as the local economic climate and weather can adversely or positively affect the Partnership’s financial results.

Results of Operations

~~The~~As ~~Partnership recognized net income~~ of ~~approximately~~September ~~$17~~30,~~724,000~~ ~~for the year ended December 31~~2009, ~~2008,~~ ~~compared~~the toPartnership ~~net~~adopted ~~loss of approximately $1,278,000 for~~ the ~~year~~liquidation ~~ended~~basis ~~December 31, 2007. In accordance with Statement~~ of ~~Financial~~accounting ~~Accounting~~due ~~Standards~~to ~~(”SFAS”) No. 144, “Accounting for~~ the ~~Impairment~~sale ~~or Disposal~~ of ~~Long-Lived Assets”, the~~ ~~consolidated~~its ~~statement~~remaining ofinvestment ~~operations included in “Item 8. Financial Statements and Supplementary Data” for the year ended December 31~~property, ~~2007~~The ~~has~~Trails ~~been restated as of January 1~~Apartments, ~~2007 to reflect the operations of Reflections Apartments and Big Walnut Apartments as loss from discontinued operations due to their sales~~ on ~~July~~ ~~31,~~August ~~2008 and October 22~~25, ~~2008, respectively~~ 2009.

On August ~~July 31~~25, ~~2008~~2009, the Partnership sold ~~Reflections~~its last remaining investment property, The Trails Apartments, to a third party for a gross ~~sales~~sale price of ~~approximately~~ $3111,~~010~~475,000. The net proceeds ~~received~~realized by the Partnership were approximately $302,~~661~~927,000 after payment of closing costs of approximately $~~227~~186,000 and athe ~~prepayment~~assumption ~~penalty~~ of ~~approximately~~the mortgage ~~$122,000~~debt ~~owed~~encumbering by the ~~Partnership.~~ ~~The~~property ~~Partnership~~of ~~used~~ approximately $118,~~981~~362,000 toby ~~repay~~ the ~~mortgage encumbering the property~~purchaser. As a result of the sale, the Partnership recorded a gain of approximately $158,~~471~~711,000~~, which is included in gain from sale of discontinued operations on the consolidated statements of operations included in “Item 8~~. ~~Financial Statements and Supplementary Data”.~~ In addition, the Partnership recorded a loss on ~~the~~ early extinguishment of debt of approximately $~~137~~95,000 due to the write off of unamortized loan costs ~~and a prepayment penalty, which is included in loss from discontinued operations on the consolidated statements of operations included in “Item 8~~. ~~Financial Statements and Supplementary Data”.~~ In June 2008, the Partnership recorded additional property tax expense for Reflections Apartments, due to receipt of the final taxable value and rate for 2006 from the local taxing authority. Although the assessed value for 2006 is under appeal, the Partnership recorded additional property tax expense of approximately $207,000 related to the 2006 tax year and adjusted the Partnership’s estimated taxes for 2007 based on the 2006 value by approximately $214,000. At the time of the sale, the Partnership escrowed approximately $613,000 until final settlement of the 2006 tax appeal.

OnThe ~~October~~additional ~~22,~~gain ~~2008,~~from sale of discontinued operations for the nine months ended September 30, 2009 is ~~Partnership~~the ~~sold~~result ~~Big~~of ~~Walnut~~the ~~Apartments~~reversal toof a ~~third~~sale ~~party~~commission ~~for~~accrued arelated ~~gross~~to ~~sales~~the ~~price~~ sale of Shoppes ~~approximately~~at ~~$8,300,000~~River Rock in a previous year. The ~~net~~Partnership ~~proceeds~~accrued ~~received~~a byreal estate commission due to the ~~Partnership~~Managing ~~were~~General ~~approximately~~Partner of $848,~~262,~~000 ~~after~~upon ~~payment~~ the sale of Shoppes ~~closing~~at ~~costs~~River ofRock ~~approximately~~during ~~$38~~the year ended December 31,~~000~~ 1999. ~~The~~During 2002, the Partnership ~~used~~paid ~~approximately~~ $430,~~300,~~000 toof ~~repay~~this ~~the~~amount ~~mortgage~~to ~~encumbering~~an ~~the~~unaffiliated ~~property.~~third Asparty aas ~~result~~ part of ~~the sale,~~a ~~the~~settlement ~~Partnership~~regarding ~~recorded~~brokerage aservices. ~~gain~~Approximately ~~of approximately~~ $318,~~671,~~000, ~~which~~was isaccrued ~~included~~at inDecember ~~gain~~31, ~~from~~2008 ~~sale~~and ofis ~~discontinued~~included ~~operations~~in other liabilities on the consolidated ~~statements~~balance ofsheet ~~operations~~ included in “Item 8. Financial Statements and Supplementary Data”. In Payment ~~addition,~~of this commission is subordinate to the ~~Partnership~~limited ~~recorded~~partners receiving their original invested capital plus a ~~loss~~cumulative non-compounded annual return of 8% on their adjusted invested capital. During the nine months ended September ~~early~~30, ~~extinguishment~~2009, ofthe ~~debt~~Managing General Partner determined that the limited partners would not receive both their original capital contribution and applicable cumulative return. Therefore, the Managing General Partner reversed the real estate commission of approximately $4718,000 ~~due~~previously toaccrued associated with the ~~write-off~~sale of ~~unamortized~~ ~~loan~~Shoppes ~~costs~~at River Rock, which is included in ~~loss~~gain from ~~discontinued~~sale ~~operations~~of ondiscontinued ~~the consolidated statements of~~ operations ~~included~~for inthe ~~“Item~~nine 8.months ~~Financial Statements~~ended ~~and~~September ~~Supplementary~~30, ~~Data”~~2009.

On July 31, 2008, the Partnership sold Reflections Apartments to a third party for a gross sale price of approximately $31,010,000. The ~~following~~net ~~table~~proceeds ~~presents~~received by the Partnership were ~~summarized~~approximately ~~results~~$30,783,000 after payment of ~~operations~~closing ~~related~~costs of approximately $227,000. The Partnership used approximately $11,981,000 to repay the mortgage encumbering the property. As a result of the sale, the Partnership recorded a gain of approximately $15,471,000 during the year ended December 31, 2008 and a loss on the early extinguishment of debt of approximately $137,000 due to the write off of unamortized loan costs and a prepayment penalty of approximately $122,000.

~~Partnership’s~~On ~~discontinued~~October 22, 2008, the ~~operations~~Partnership sold Big Walnut Apartments to a third party for a gross sale price of approximately $8,300,000. The net proceeds received by the ~~years~~Partnership were approximately $8,262,000 after payment of closing costs of approximately $38,000. The Partnership used approximately $4,300,000 to repay the mortgage encumbering the property. As a result of the sale, the Partnership recorded a gain of approximately $3,671,000 during the year ended December 31, 2008 and a loss on the early extinguishment of debt of approximately $47,000 due to the write-off of unamortized loan costs.

As a result of the decision to liquidate the Partnership, the Partnership changed its basis of accounting for its consolidated financial statements at September 30, 2009 to the liquidation basis of accounting. Consequently, assets have been valued at estimated net realizable value and ~~2007~~liabilities (are presented at their estimated settlement amounts, including estimated costs associated with carrying out the liquidation of the Partnership. The valuation of assets and liabilities necessarily requires many estimates and assumptions and there are substantial uncertainties in carrying out the liquidation. The actual realization of assets ~~thousands):~~and settlement of liabilities could be higher or lower than amounts indicated and is based upon the Managing General Partner’s estimates as of the date of the consolidated financial statements.

	Year Ended December 31, 2008
	Reflections	Big Walnut
	Apartments	Apartments	Total
Revenues	$ 2,509	$ 1,473	$ 3,982
Expenses	(2,799)	(1,847)	(4,646)
Loss on extinguishment of debt	(137)	(47)	(184)
Loss from discontinued operations	$ (427)	$ (421)	$ (848)

During the period from October 1, 2009 to December 31, 2009, net assets in liquidation increased by approximately $299,000. The increase in net assets in liquidation is primarily due to a reduction in accrued property taxes as a result of a change in estimated real estate taxes payable to the state of Indiana for 2006, 2007 and 2008 related to Reflections Apartments and a reduction of taxes payable as a result of a change in the Tennessee entity tax amount owed for The Trails Apartments. Also contributing to the increase in net assets in liquidation is the write off of accounts payable and other liabilities, adjustments to receivables and a change in the estimated costs to liquidate.

	Year Ended December 31, 2007
	Reflections	Big Walnut
	Apartments	Apartments	Total
Revenues	$ 4,283	$ 1,789	$ 6,072
Expenses	(4,086)	(2,292)	(6,378)
Income (loss) from discontinued	$ 197	$ (503)	$ ( 306)
operations

The statement of net assets in liquidation as of December 31, 2009 includes approximately $77,000 of costs that the Managing General Partner estimates will be incurred during the period of liquidation, based on the assumption that the liquidation process will be completed by September 30, 2010. Because the settlement of liabilities is based on the Managing General Partner’s best estimates, the liquidation period may be shorter or extended beyond the projected period.

The Partnership’s ~~loss from~~distributed ~~continuing~~the ~~operations~~following ~~for~~amounts during the years ended December 31, ~~2008~~2009 and ~~2007~~2008 ~~was approximately $570,000 and $972,000, respectively. The decrease~~ (in ~~loss from~~ ~~continuing operations is due to a decrease in total expenses and an increase in total revenues. Total expenses decreased due to decreases in interest and general and administrative expenses~~thousands, ~~partially~~except ~~offset~~per byunit an increase in depreciation. Operating and property tax expense remained relatively constant for the comparable periods. Interest expense decreased due to the payoff of advances from an affiliate of the Managing General Partner in the third quarter of 2008 from the proceeds from the sale of Reflections Apartments. Depreciation expense increased due to property improvements and replacements placed into service at the property during the past twelve months. data):

The decrease in general and administrative expense is primarily due to decreases in reimbursements to the Managing General Partner as allowed under the Partnership Agreement, partially offset by increases in legal costs, taxes and fees and costs associated with the annual audit. Also included in general and administrative expenses for the years ended December 31, 2008 and 2007 are costs associated with the quarterly and annual communications with investors and regulatory agencies.

		Per Limited		Per Limited
	Year Ended	Partnership	Year Ended	Partnership
	December 31, 2009	Unit	December 31, 2008	Unit

Sale (1)	$ 3,542	$2,891.57	$ 12,283	$10,027.36

~~The increase in total~~(1) ~~revenues~~Proceeds from isthe ~~primarily~~August ~~due~~2009 tosale anof ~~increase~~The inTrails ~~rental~~Apartments, ~~income. Other income remained relatively constant for~~ the ~~comparable~~July ~~periods.~~2008 ~~Rental~~sale ~~income increased~~of ~~primarily~~Reflections ~~due~~Apartments toand ~~an increase in~~ the ~~average~~October ~~rental~~2008 ~~rate~~sale atof ~~The~~Big ~~Trails~~Walnut Apartments.

~~During~~The ~~April~~Partnership's ~~2006,~~cash ~~Reflections~~available ~~Apartments~~for ~~suffered~~distribution ~~significant~~will ~~damage~~be toreviewed ~~all~~on ~~of the property’s roofs as~~ a ~~result~~quarterly ~~of hail and wind produced by tornadoes~~basis. ~~The~~Future ~~estimated cost to~~cash ~~replace~~distributions ~~the~~will ~~roofs~~depend ~~was~~on ~~approximately $554,000. During~~ the ~~fourth~~amount ~~quarter~~ of ~~2006, the~~cash ~~Partnership~~remaining ~~received~~after ~~insurance proceeds of approximately $442,000. A~~fully ~~casualty~~liquidating ~~gain of approximately $27,000 was recognized during~~ the ~~fourth quarter of 2006 as a result of receiving insurance proceeds of approximately $442,000 offset by approximately $415,000 of undepreciated assets written off. The~~ Partnership recognized a casualty gain of approximately $111,000, which is included in loss from discontinued operations, during the year ended December 31, 2007 due to the receipt of additional insurance proceeds of approximately $111,000.

During January 2007, Reflections Apartments suffered fire damage to one of its apartment units. The cost to repair the unit was approximately $52,000. During the year ended December 31, 2007, the Partnership received insurance proceeds of approximately $42,000 related to this casualty and recognized a casualty gain of approximately $4,000, which is included in loss from discontinued operations, as a result of receiving approximately $42,000 of insurance proceeds offset by approximately $38,000 of undepreciated assets being written off.

During February 2007, Big Walnut Apartments suffered water damage to one of the property’s buildings as a result of a snow storm and leaking roofs. The cost to repair the building was approximately $29,000. During the year ended December 31, 2007, the Partnership received insurance proceeds of approximately $26,000 and recognized a casualty gain of approximately $24,000, which is included in loss from discontinued operations, as a result of receiving approximately $26,000 of insurance proceeds offset by approximately $2,000 of undepreciated assets being written off.

During August 2007, Big Walnut Apartments suffered water damage to one of its apartment units as a result of a heavy rain storm. The cost to repair the unit was approximately $29,000. During the year ended December 31, 2007, the Partnership received insurance proceeds of approximately $18,000 and recognized a casualty gain of approximately $17,000, which is included in loss from discontinued operations as a result of receiving approximately $18,000 of insurance proceeds offset by approximately $1,000 of undepreciated assets being written off.

Liquidity and Capital Resources

At December 31, 2008, the Partnership had cash and cash equivalents of approximately $1,980,000, compared to approximately $727,000 at December 31, 2007. Cash and cash equivalents increased approximately $1,253,000 due to approximately $36,956,000 of cash provided by investing activities, partially offset by approximately $355,000 and $35,348,000 of cash used in operating and financing activities, respectively. Cash provided by investing activities consisted of net proceeds from the sales of Reflections Apartments and Big Walnut Apartments, partially offset by property improvements and replacements and deposits to restricted escrow. Cash used in financing activities consisted of repayment of the mortgage notes payable encumbering Reflections Apartments and Big Walnut Apartments, distributions to partners, repayment of advances from an affiliate of the Managing General Partner, principal payments made on the mortgages encumbering the Partnership’s investment properties and a prepayment penalty paid. The Partnership invests its working capital reserves in interest bearing accounts.

In accordance with the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the Managing General Partner, advanced the Partnership various funds in the past to cover capital expenditures, operational expenses, real estate taxes and funds in connection with the refinancing of the mortgage encumbering Big Walnut Apartments. No such advances were received during the year ended December 31, 2008. At December 31, 2008, there were no advances or associated accrued interest due to AIMCO Properties, L.P. At December 31, 2007, the amount of the outstanding advance balance and accrued interest due to AIMCO Properties, L.P. was approximately $6,797,000 and was included in due to affiliates. During the year ended December 31, 2007, the Partnership made a payment of approximately $200,000 of accrued interest to AIMCO Properties, L.P. from cash reserves. The Partnership repaid in full the remaining advance balance and accrued interest of approximately $7,046,000 with proceeds from the sale of Reflections Apartments. Interest was charged at prime plus 1% and interest expense was approximately $249,000 and $537,000 for the years ended December 31, 2008 and 2007, respectively. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.

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 property to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. The Managing General Partner monitors developments in the area of legal and regulatory compliance. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2009. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

The Partnership's assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness encumbering The Trails Apartments of approximately $8,431,000 matures in June 2016 at which time a balloon payment of approximately $7,385,000 is required.

The Partnership distributed the following amounts during the years ended December 31, 2008 and 2007 (in thousands, except per unit data):

		Per Limited		Per Limited
	Year Ended	Partnership	Year Ended	Partnership
	December 31, 2008	Unit	December 31, 2007	Unit
Sale(1)	$12,283	$10,027.36	$ --	$ --

(1) Proceeds from the July 2008 sale of Reflections Apartments and the October 2008 sale of Big Walnut Apartments.

Future cash distributions will depend on the levels of net cash generated from operations, the timing of debt maturity, property sale and/or refinancing. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after required capital expenditures, to permit any distributions to its partners during 2009 or subsequent periods. See “Item 2. Property – Capital Improvements” for information relating to anticipated capital expenditures at the property.

Other

In addition to its indirect ownership of the managing and associate general partner interests in the Partnership, AIMCO and its affiliates owned 706~~.00~~ ~~limited partnership units ("~~Units") in the Partnership representing 57.67% of the outstanding Units at December 31, ~~2008~~2009. 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 Units in exchange for cash or a combination of cash and units in AIMCO Properties, L~~.~~P., the~~ ~~operating partnership of AIMCO, either through private purchases or tender offers.~~ Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 57.67% of the outstanding Units, AIMCO is in a position to control all such voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.

Critical Accounting Policies and Estimates

A summary of the Partnership’s significant accounting policies is included in "Note AB – Organization and Summary of Significant Accounting Policies" which is included in the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data". The Managing General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the consolidated financial statements with useful and reliable information about the Partnership’s operating results and ~~financial~~ financial condition. The preparation of consolidated financial statements in in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Partnership’s accounting policies in many areas. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

Impairment of Long-Lived Asset

Investment property iswas recorded at cost, less accumulated depreciation, unless the carrying amount of the asset iswas not recoverable. If events or circumstances ~~indicate~~indicated that the carrying amount of the property ~~may~~would not be recoverable, the Partnership ~~will~~made ~~make~~ an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount ~~exceeds~~exceeded the estimated aggregate undiscounted future cash flows, the Partnership ~~would~~recognized ~~recognize~~ an impairment loss to the extent the carrying amount ~~exceeds~~exceeded the estimated fair value of the property.

Real property investment is subject to varying degrees of risk. Several factors may ~~adversely~~have ~~affect~~adversely affected the economic performance and value of the Partnership’s investment property. These factors ~~include~~included, but ~~are~~were not limited to, general ~~economic~~ economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might have adversely ~~affect~~affected apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not behave been offset by increased rents; ~~and~~ changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing; and changes in interest rates and the availability of financing. Any adverse changes in these and other factors could ~~cause~~have caused an impairment of the Partnership’s asset.

Revenue Recognition

The Partnership generally ~~leases~~leased apartment units for twelve-month terms or less. The Partnership ~~will~~offered ~~offer~~ rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, iswas recognized on a straight-line basis over the term of the lease. The Partnership ~~evaluates~~ evaluated all accounts receivable from residents and ~~establishes~~established an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.

Item 8. Financial Statements and Supplementary Data

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

LIST OF FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated ~~Balance~~Statement ~~Sheets -~~of ~~December~~Net ~~31,~~Assets ~~2008~~in ~~and~~Liquidation ~~2007~~– December 31, 2009

Consolidated ~~Statements~~Statement of Changes ~~Operations~~in -Net ~~Years ended~~Assets ~~December~~in 31Liquidation for the Period from October 1, ~~2008~~2009 ~~and~~to December ~~2007~~31, 2009

Consolidated ~~Statements~~Balance ~~of Changes~~Sheet ~~in Partners' Deficit~~ - ~~Years~~December ~~ended~~31, 2008

Consolidated Statements of Discontinued Operations for the Nine Months ended September 30, 2009 and the Year ended December 31, 2008 ~~and 2007~~

Consolidated Statements of Changes ~~Cash~~in ~~Flows~~Partners' -(Deficiency) ~~Years~~Capital/Net Assets in Liquidation for the Nine Months ended ~~December~~September 3130, ~~2008~~2009 and ~~2007~~the Year ended December 31, 2008

Statements of Cash Flows for the Nine Months ended September 30, 2009 and the Year ended December 31, 2008

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

The Partners

Davidson Diversified Real Estate II, L.P.

We have audited the accompanying consolidated balance ~~sheets~~sheet of Davidson Diversified Real Estate II, L.P. as of December 31, 2008 ~~and 2007~~, and the related consolidated statements of discontinued operations, changes in partners'’ ~~deficit~~(deficiency) capital/net assets in liquidation, and cash flows for ~~each~~the year then ended, and the consolidated statements of discontinued operations, statement of changes in partners’ (deficiency) capital/net assets in liquidation and cash flows for the ~~two~~period ~~years~~from January 1, 2009 to September 30, 2009. In addition, we have audited the consolidated statement of net assets in liquidation as of December 31, 2009, and the related consolidated statement of changes in net assets in liquidation for the period ~~ended~~from October 1, 2009 to December 31, ~~2008~~2009. These financial statements are the responsibility of the Partnership'’s management. Our responsibility is to ~~express~~ express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

InAs ~~our~~discussed ~~opinion,~~in ~~the financial~~Note ~~statements~~A ~~referred~~ to the ~~above~~financial ~~present fairly~~statements, ~~in all material respects,~~ the ~~consolidated~~Managing ~~financial~~General ~~position~~Partner of Davidson Diversified Real Estate II, L.P. at ~~December~~decided ~~31,~~to ~~2008~~liquidate ~~and~~the ~~2007,~~Partnership ~~and~~effective ~~the~~September 30, ~~consolidated~~2009. As ~~results~~a ofresult, ~~its~~the ~~operations and~~Partnership changed its ~~cash~~basis ~~flows~~of ~~for~~accounting ~~each~~ as of ~~the~~September ~~two~~30, ~~years~~2009 infrom ~~the~~a ~~period~~going ~~ended~~concern ~~December~~basis ~~31, 2008,~~to ina ~~conformity~~liquidation ~~with U~~basis.~~S. generally accepted accounting~~ ~~principles.~~

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Davidson Diversified Real Estate II, L.P. at December 31, 2008, and the consolidated results of its discontinued operations and its cash flows for the year then ended and for the period from January 1, 2009 to September 30, 2009, its consolidated net assets in liquidation as of December 31, 2009, and the changes in its consolidated net assets in liquidation for the period from October 1, 2009 to December 31, 2009, in conformity with U.S. generally accepted accounting principles applied on the bases described in the preceding paragraph.

/s/ERNST & YOUNG LLP

Greenville, South Carolina

March 1931, ~~2009~~2010

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION

(in thousands)

December 31, 2009


Assets
Cash and cash equivalents	$ 730
Restricted escrow (Note B)	613
	1,343

Liabilities
Accounts payable	613
Accrued property taxes	29
Other liabilities	5
Taxes payable (Note D)	265
Estimated costs to liquidate (Note C)	77
	989

Net assets in liquidation	$ 354

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION

(in thousands)

For the Period from October 1, 2009 to December 31, 2009

Net assets in liquidation at October 1, 2009	$ 55

Adjustments to receivables	(70)

Write off of accounts payable and other liabilities	62

Reduction of taxes payable	135

Reduction of accrued property taxes	153

Reduction in estimated costs to liquidate	19

Net assets in liquidation at December 31, 2009	$ 354

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

CONSOLIDATED BALANCE ~~SHEETS~~SHEET

(in thousands, except unit data)

	December 31,
	2008	2007
		(Restated)
Assets
Cash and cash equivalents	$ 1,980	$ 727
Receivables and deposits	126	272
Restricted escrow	613	--
Other assets	165	341
Investment property (Notes B and F):
Land	586	586
Buildings and related personal property	10,758	10,598
	11,344	11,184
Less accumulated depreciation	(8,960)	(8,400)
	2,384	2,784
Assets held for sale (Notes A & D)	--	18,867
	$ 5,268	$ 22,991
Liabilities and Partners' Deficit
Liabilities
Accounts payable	$ 764	$ 167
Tenant security deposit liabilities	46	43
Accrued property taxes	592	142
Other liabilities	107	303
Due to affiliates (Note E)	--	6,822
Mortgage note payable (Note B)	8,431	8,548
Liabilities related to assets held for sale
(Notes A & D)	--	17,079
	9,940	33,104
Partners' Deficit
General partners	--	(320)
Limited partners (1,224.25 units issued and
outstanding)	(4,672)	(9,793)
	(4,672)	(10,113)
	$ 5,268	$ 22,991

December 31, 2008




Assets held for Sale:
Cash and cash equivalents		$ 1,980
Receivables and deposits		126
Restricted escrow (Note B)		613
Other assets		165
Investment property (Note F):
Land	$ 586
Buildings and related personal property	10,758
	11,344
Less accumulated depreciation	(8,960)	2,384
		$ 5,268

Liabilities and Partners' Deficit
Liabilities related to Assets held for Sale:
Accounts payable		$ 764
Tenant security deposit liabilities		46
Accrued property taxes		592
Other liabilities		107
Mortgage note payable		8,431

Partners' Deficit
General partners	$ --
Limited partners (1,224.25 units issued and
outstanding)	(4,672)	(4,672)
		$ 5,268

See Accompanying Notes to Consolidated Financial Statements

Davidson Diversified Real Estate II, L.P.

CONSOLIDATED STATEMENTS OF DISCONTINUED OPERATIONS

(in thousands, except per unit data)

	Years Ended December 31,
	Nine Months Ended	Year Ended
	2008	2007
	September 30,	December 31,
		(Restated)
	2009	2008
Loss from continuing operations	$ --	$ --
Loss from discontinued operations:
Revenues:
Rental income	$ 1,~~959~~250	~~$ 1~~5,~~846~~591
Other income	~~197~~121	~~191~~547
Total revenues	21,~~156~~371	26,~~037~~138
Expenses:
Operating	~~958~~736	~~976~~3,089
General and administrative	~~286~~127	~~283~~286
Depreciation	~~561~~385	~~542~~1,841
Interest	~~778~~337	1,~~073~~248
Property taxes	~~143~~46	~~135~~908
Total expenses	2,726	3,009
Loss on early extinguishment of debt (Note F)	95	184
Loss from continuing operations	(570)	(972)
Total expenses	1,726	7,556
Loss from discontinued
Loss from discontinued operations before gain
operations (Notes A, D and G)	(848)	(306)
from sale	(355)	(1,418)
Gain from sale of discontinued
Gain from sale of discontinued operations
operations (Note D)	19,142	--
(Notes E and F)	8,729	19,142
Net income (loss)	$ 17,724	$ (1,278)
Net income (Note D)	$ 8,374	$ 17,724
Net income (loss) allocated to
Net income allocated to general partners	$ 1	$ 327
general partners	$ 327	$ (26)
Net income allocated to limited partners	8,373	17,397
Net income (loss) allocated to
	$ 8,374	$ 17,724
limited partners	17,397	(1,252)
	$ 17,724	$ (1,278)
Per limited partnership unit:
Loss from continuing operations	$ (456.61)	$ (777.62)
Loss from discontinued operations	$ (284.25)	$(1,135.39)
Loss from discontinued operations	(678.78)	(245.05)
Gain from sale of discontinued operations	7,123.54	15,345.72
Gain from sale of discontinued operations	15,345.72	--
Net income	$ 6,839.29	$14,210.33
Net income (loss)	$14,210.33	$(1,022.67)
Distributions per limited
partnership unit	$10 2,~~027~~891.3657	$ --10,027.36

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' ~~DEFICIT~~(DEFICIENCY) CAPITAL/NET ASSETS IN LIQUIDATION

(in thousands, except unit data)

	Limited
	Partnership	General	Limited
	Units	Partners	Partners	Total
Original capital contributions	1,224.25	$ 1	$ 24,485	$ 24,486
Partners' deficit at
December 31, 2006	1,224.25	$ (294)	$(8,541)	$ (8,835)
December 31, 2007	1,224.25	$ (320)	$ (9,793)	$(10,113)
Net loss for the year ended
December 31, 2007	--	(26)	(1,252)	(1,278)
Partners' deficit at
December 31, 2007	1,224.25	$ (320)	$(9,793)	$(10,113)
Distributions to partners	--	(7)	(12,276)	(12,283)
Net income for the year ended
December 31, 2008	--	327	17,397	17,724
Partners’ deficit at
Partners' deficit at
December 31, 2008	1,224.25	$ --	$(4,672)	$ (4,672)
Distributions to partners		(2)	(3,540)	(3,542)
Net income for the nine months
ended September 30, 2009	--	1	8,373	8,374
Partners’ (deficiency) capital at
September 30, 2009	1,224.25	$ (1)	$ 161	160
Adjustment to liquidation basis
(Notes A and C)				(105)
Net assets in liquidation at
September 30, 2009				$ 55

See Accompanying Notes to Consolidated Financial Statements

Davidson Diversified Real Estate II, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Years Ended
	Nine Months	Year
	December 31,
	Ended	Ended
	2008	2007
	September 30,	December 31,
	2009	2008
Cash flows from operating activities:
Net income (loss)	$ 17,724	$(1,278)
Net income	$ 8,374	$ 17,724
Adjustments to reconcile net income (loss) to net cash
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
used in operating activities:
Depreciation	~~1,841~~385	21,~~928~~841
Amortization of loan costs	519	7251
Gain from sale of discontinued operations	(198,~~142~~729)	--(19,142)
Loss on early extinguishment of debt	~~184~~95	--184
Casualty gain	--	(156)
Change in accounts:
Receivables and deposits	~~238~~77	26238
Other assets	~~160~~61	~~(13)~~160
Accounts payable	(~~593~~139)	(73593)
Tenant security deposit liabilities	(~~153~~46)	30(153)
Accrued property taxes	86(282)	8886
Other liabilities	(~~261~~60)	34(261)
Due to affiliates	(490)	312
Due to affiliate	--	(490)
Net cash (used in) provided by operating activities	(355)	1,970
Net cash used in operating activities	(255)	(355)
Cash flows from investing activities:
Property improvements and replacements	(~~1,476~~144)	(1,~~481~~476)
Restricted escrow	(613)	--
Deposit to restricted escrow	--	(613)
Insurance proceeds received	--	197
Net proceeds from sale of discontinued operations	2,927	39,045
Net proceeds from sale of discontinued operations	39,045	--
Net cash provided by investing activities	2,783	36,956
Net cash provided by (used in) investing activities	36,956	(1,284)
Cash flows from financing activities:
Advances from affiliate	--	818
Payments on advances from affiliate	--	(6,332)
Repayments on advances from affiliate	(6,332)	--
Payments on mortgage notes payable	(69)	(330)
Payments on mortgage notes payable	(330)	(557)
Repayment of mortgage notes payable	--	(16,281)
Repayment of mortgage note payable	(16,281)	(5,053)
Prepayment penalty paid	--	(122)
Proceeds from mortgage note payable	--	4,300
Distributions to partners	(3,542)	(12,283)
Prepayment penalty paid	(122)	--
Net cash used in financing activities	(3,611)	(35,348)
Loan costs paid	--	(70)
Net (decrease) increase in cash and cash equivalents	(1,083)	1,253
Distributions to partners	(12,283)	--
Cash and cash equivalents at beginning of period	1,980	727
Net cash used in financing activities	(35,348)	(562)
Cash and cash equivalents at end of period	$ 897	$ 1,980
Net increase in cash and cash equivalents	1,253	124
Cash and cash equivalents at beginning of year	727	603
Cash and cash equivalents at end of year	$ 1,980	$ 727
Supplemental disclosure of cash flow information:
Cash paid for interest	$ ~~1,768~~371	$ 1,~~497~~768
Supplemental disclosure of non-cash activity:
Property improvements and replacements in accounts payable	$ --	$ 98
Assumption of mortgage note payable by purchaser	$ 8,362	$ --

At December 31, ~~2006~~2007, approximately $~~176~~98,000 of property improvements and replacements were included in in accounts payable and are included in property improvements and replacements ~~for~~ for the year ended December 31, ~~2007~~2008.

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2008~~2009

Note A - ~~Organization~~Basis ~~and Summary~~ of ~~Significant Accounting Policies~~ Presentation

~~Organization~~As of September 30, 2009, Davidson Diversified Real Estate II, L.P. (the "Partnership" or "Registrant") adopted the liquidation basis of accounting due to the sale of its remaining investment property (as discussed in “Note F – Disposition of Investment Properties”).

~~Davidson~~As ~~Diversified~~a ~~Real~~result of ~~Estate~~the ~~II,~~decision ~~L.P.~~to (liquidate the "Partnership", orthe ~~"Registrant")~~Partnership ischanged aits ~~Delaware~~basis ~~limited~~of ~~partnership~~accounting ~~organized~~for inits ~~June~~consolidated ~~1984~~financial tostatements ~~acquire~~at ~~and~~September ~~operate~~30, ~~residential~~2009 ~~and~~to ~~commercial~~the ~~real~~liquidation ~~estate~~basis ~~properties~~of accounting. ~~The~~Consequently, ~~general~~assets ~~partners~~have ofbeen ~~the~~valued ~~Partnership are~~at ~~Davidson~~estimated ~~Diversified~~net ~~Properties,~~realizable ~~Inc.,~~value aand ~~Tennessee~~liabilities ~~corporation~~are ~~("Managing General~~presented ~~Partner");~~at ~~Davidson~~their ~~Equities,~~estimated settlement ~~Limited~~amounts, ~~("Associate~~including ~~General~~estimated ~~Partner"); and~~costs ~~David~~associated W.with ~~Talley~~carrying ~~("Individual~~out ~~General~~the liquidation ~~Partner")~~of ~~(collectively,~~ the ~~"General Partners")~~Partnership. The ~~Managing~~valuation ~~General~~of ~~Partner~~assets isand aliabilities necessarily ~~wholly-owned~~requires ~~subsidiary~~many ~~of Apartment~~estimates ~~Investment~~ and ~~Management~~assumptions ~~Company~~and ~~("AIMCO"),~~there aare ~~publicly~~substantial uncertainties ~~traded~~in ~~real estate~~carrying ~~investment~~out ~~trust~~the liquidation. The ~~Partnership~~actual ~~commenced~~realization ~~operations~~of ~~on October 16,~~assets ~~1984,~~ and ~~completed~~settlement ~~its acquisition~~ of ~~investment~~liabilities ~~properties~~could ~~prior~~be tohigher ~~December 31,~~or ~~1985.~~lower ~~During~~than ~~2008,~~amounts ~~the~~indicated and ~~Partnership~~is ~~Agreement~~based ~~was~~upon ~~amended~~the tomanaging ~~extend~~general ~~the Partnership~~partner’s ~~termination~~estimates ~~date~~as toof ~~December~~the ~~31, 2017, unless terminated prior to such~~ date. As of ~~December 31, 2008,~~ the ~~Partnership operates one property~~ ~~located~~consolidated infinancial ~~Tennessee~~statements.

OnThe ~~May 21, 2008, the~~ Managing General Partner ~~amended~~(as ~~the~~defined ~~Partnership~~below) ~~Agreement~~estimates tothat ~~establish different~~the ~~designated~~liquidation ~~series~~process ofwill be ~~limited~~completed ~~partnership~~by ~~interests~~September ~~that~~30, ~~have~~2010. Because ~~separate rights~~the ~~with~~success ~~respect~~in torealization ~~specific~~of assets ~~Partnership~~and ~~property.~~the Assettlement of ~~December~~liabilities ~~31,~~is ~~2008,~~ based on the Managing General Partner’s ~~has~~best ~~not~~estimates, ~~amended~~ the ~~Partnership~~liquidation ~~Agreement~~period ormay ~~the~~be shorter than projected ~~Certificate~~or ofit ~~Limited~~may ~~Partnership~~be ~~establishing~~extended ~~designated~~beyond ~~series interests~~the projected period.

~~Basis~~The accompanying consolidated statements of discontinued operations for the nine months ended ~~Presentation~~September 30, 2009 and the year ended December 31, 2008 reflect the operations of The Trails Apartments as loss from discontinued operations and the balance sheet as of December 31, 2008 reflects the assets and liabilities as held for sale as a result of the property’s sale to a third party on August 25, 2009 (as discussed in “Note F”). The consolidated statement of discontinued operations for the year ended December 31, 2008 also reflects the operations of Reflections Apartments and Big Walnut Apartments as loss from discontinued operations due to their sales on July 31, 2008 and October 22, 2008, respectively.

InNote ~~accordance~~B ~~with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long~~-~~Lived Assets”, the accompanying consolidated~~ ~~statement~~Organization ~~of operations for the year ended December 31, 2007 has been restated as of January 1, 2007 to reflect the operations of Reflections Apartments as income from discontinued operations~~ and ~~the~~Summary ~~operations~~ of ~~Big~~Significant ~~Walnut Apartments~~Accounting as loss from discontinued operations and the balance sheet as of December 31, 2007 has been restated to reflect the assets and liabilities of Reflections Apartments and Big Walnut Apartments as held for sale due to their sales on July 31, 2008 and October 22, 2008, respectively (as discussed in “Note D”).Policies

~~The following table presents summarized results of operations related to the Partnership’s discontinued operations for the years ended December 31, 2008~~ Organization

The Partnership is a Delaware limited partnership organized in June 1984 to acquire and ~~2007~~operate residential and commercial real estate properties. The general partners of the Partnership are Davidson Diversified Properties, Inc., a Tennessee corporation (in"Managing General Partner"); Davidson Equities, Limited, ("Associate General ~~thousands~~Partner"):; and David W. Talley ("Individual General Partner") (collectively, the "General Partners"). The Managing General Partner is a wholly-owned subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership commenced operations on October 16, 1984, and completed its acquisition of investment properties prior to December 31, 1985. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2017, unless terminated prior to such date.

	Year Ended December 31, 2008
	Reflections	Big Walnut
	Apartments	Apartments	Total
Revenues	$ 2,509	$ 1,473	$ 3,982
Expenses	(2,799)	(1,847)	(4,646)
Loss on extinguishment of debt	(137)	(47)	(184)
Loss from discontinued operations	$ (427)	$ (421)	$ (848)

Subsequent Events

	Year Ended December 31, 2007
	Reflections	Big Walnut
	Apartments	Apartments	Total
Revenues	$ 4,283	$ 1,789	$ 6,072
Expenses	(4,086)	(2,292)	(6,378)
Income (loss) from discontinued
operations	$ 197	$ (503)	$ ( 306)

The Partnership’s management evaluated subsequent events through the time this Annual Report on Form 10-K was filed.

Principles of Consolidation

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

Allocations of Profits, Gains & Losses

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~~ 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.

Allocation of Cash Distributions

Cash distributions by the Partnership are allocated between general and limited partners in accordance with the Partnership Agreement. The Partnership Agreement provides that 98% of distributions of adjusted cash from operations are allocated to the limited partners and 2% to the general partners. Cash from operations is defined as the excess of cash received from operations less operating expenses paid, adjusted for certain specified items which primarily include mortgage payments on debt, property improvements and replacements not previously reserved, and the effects of other adjustments to reserves including reserve amounts deemed necessary by the Managing General Partner.

Distributions made from reserves no longer considered necessary by the general partners are considered to be additional adjusted cash from operations for allocation purposes.

Cash from sales or refinancings (as defined in the Partnership Agreement) shall be distributed to the limited partners until each limited partner has received his original invested capital plus an amount equal to a cumulative 8% per annum of the average of the limited partners' adjusted invested capital, less any prior distributions. The general partners are then entitled to receive 3% of the selling price of properties sold where they acted as a broker. The limited partners will then be allocated 85% of any remaining distributions and the general partners will receive 15%.

Investment Property

Investment property ~~consists~~ consisted of one apartment complex and iswas stated at cost, less accumulated depreciation, unless the carrying amount of the asset was not recoverable. The Partnership ~~capitalizes~~ capitalized costs incurred in connection with capital expenditure activities, including redevelopment and construction projects, other tangible property improvements and replacements of existing property components. Costs including interest, property taxes and operating costs associated with redevelopment and construction projects ~~are~~were capitalized during periods in which redevelopment and construction projects ~~are~~were in progress ~~in accordance with SFAS No~~. ~~34, “Capitalization of Interest~~ Costs~~” and SFAS No. 67, “Accounting for~~ ~~Costs and the Initial Rental Operations of Real Estate Properties”. Costs~~ incurred in connection with capital projects ~~are~~were capitalized where the costs of the project ~~exceed~~exceeded $250. Included in these capitalized costs ~~are payroll~~were payroll costs associated with time spent by site employees in connection with ~~the~~ the planning, execution and control of all capital expenditure activities at the property level. The Partnership did not capitalize any costs related to interest, property taxes or operating costs during the ~~years~~nine months ended September 30, 2009 or the year ended December 31, ~~2008~~ ~~and 2007~~2008. Capitalized costs were ~~are~~ depreciated over the useful life of the asset. Expenditures for ordinary repairs, maintenance and apartment turnover costs ~~are~~were expensed as incurred.

InIf ~~accordance~~events ~~with~~or ~~SFAS No.~~circumstances ~~144,~~indicated that the ~~Partnership~~carrying ~~records~~amount ~~impairment~~of ~~losses~~the onproperty ~~long-lived~~would ~~assets~~not ~~used~~be inrecoverable, the ~~operations~~Partnership ~~when~~made ~~events~~an ~~and~~assessment ~~circumstances~~of ~~indicate~~its ~~the~~recoverability ~~assets~~by ~~might~~comparing bethe ~~impaired~~carrying ~~and~~amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeded the estimated toaggregate beundiscounted ~~generated~~future bycash ~~those~~flows, ~~assets~~the ~~are~~Partnership ~~less~~recognized ~~than~~an impairment loss to the extent the carrying ~~amounts~~amount exceeded the estimated fair value of ~~those~~the ~~assets~~property. No adjustments for impairment of value were necessary for the ~~years~~nine ~~ending~~months ended September 30, 2009 or the year ended December 31, 2008 ~~and 2007~~.

Depreciation

Depreciation iswas provided by the straight-line method over the estimated lives of the apartment property and related personal property. For Federal income tax purposes, the modified accelerated cost recovery method iswas used for depreciation of (1) real property additions over 27 1/2 years, and (2) personal property additions over 5 years.

Deferred Costs

At December 31, 2008 ~~and 2007~~, loan costs of approximately $139,000 ~~and $353~~,~~000,~~ ~~respectively,~~ less accumulated amortization of approximately $35,000 ~~and $139~~,~~000,~~ ~~respectively, are~~were included in other assets. ~~During~~ ~~the~~Amortization ~~year~~expense ~~ended~~was ~~December 31, 2008, loan costs of~~ approximately $~~217~~9,000 ~~and~~for ~~amortization~~the ofnine ~~approximately~~months ~~$155,000 were~~ended ~~written~~September ~~off~~30, in2009 ~~connection with the sales of Reflections Apartments~~ and ~~Big Walnut Apartments. The loan costs are amortized over the terms of the related loan agreements. Amortization expense was~~ approximately $51,000 ~~and~~ ~~$72,000~~ for the ~~years~~year ended December 31, 2008 and ~~2007,~~was ~~respectively, and is~~ included in interest expense ~~and loss from discontinued operations~~ on the accompanying consolidated statements of discontinued operations. ~~Amortization~~ ~~expense~~During the nine ismonths ~~expected~~ended toSeptember be30, 2009, loan costs of approximately $14139,000 ~~for~~and accumulated ~~each~~amortization of ~~the~~approximately ~~years~~$44,000 ~~2009~~were ~~through~~written off in connection ~~2013~~with the sale of The Trails Apartments.

Leasing commissions and other direct costs incurred in connection with successful leasing efforts ~~are~~were deferred and amortized over the terms of the related leases. Amortization of these costs is included in operating expenses ~~and loss from discontinued operations~~.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $1730,~~937,~~000 at December 31, ~~2008~~2009 and $~~644~~1,937,000 at December 31, ~~2007~~2008 that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts.

Tenant Security Deposits

The Partnership ~~requires~~required security deposits from lessees for the duration of the lease and such deposits ~~are~~were included in receivables and deposits at December 31, 2008. The security deposits ~~are~~were refunded when the tenant ~~vacates~~vacated, provided the tenant ~~has~~had not damaged the space and is was current on rental payments.

Leases

Advertising Costs

The Partnership ~~expenses~~expensed the costs of advertising as incurred. Advertising ~~expense,~~costs ~~included~~of ~~in operating expenses and loss from discontinued operations was~~ approximately $~~134~~32,000 and $~~165~~134,000 for the ~~years~~nine months ended ~~December~~September 3130, ~~2008~~2009 and ~~2007,~~the year ended December 31, 2008, respectively, were charged to operating expense.

~~Fair~~Recent ~~Value of Financial~~Accounting ~~Instruments~~Pronouncement

~~SFAS~~In ~~No.~~June ~~107~~2009, ~~"Disclosures~~the Financial ~~about~~Accounting ~~Fair~~Standards ~~Value~~Board of(“FASB”) ~~Financial~~issued ~~Instruments",~~Statement asof ~~amended~~Financial byAccounting Standards (“SFAS”) No. ~~119~~168, ~~"Disclosures~~ ~~about~~The ~~Derivative~~FASB ~~Financial~~Accounting ~~Instruments~~Standards Codification and the ~~Fair~~Hierarchy ~~Value~~ of ~~Financial Instruments",~~Generally ~~requires~~Accepted ~~disclosure~~Accounting ofPrinciples—a ~~fair~~replacement ~~value~~of ~~information~~FASB Statement ~~about~~No. ~~financial instruments~~162, ~~whether~~ or ~~not~~SFAS ~~recognized~~No. ~~in the balance sheet~~168, ~~for~~ which it is ~~practicable~~ toeffective ~~estimate~~for ~~fair~~financial statements ~~value.~~issued ~~Fair~~for ~~value~~interim isand ~~defined~~annual inperiods ~~the~~ending ~~SFAS~~after asSeptember ~~the~~15, ~~amount~~2009. Upon ~~at which~~ the ~~instruments~~effective ~~could~~date beof ~~exchanged~~SFAS inNo. a168, ~~current~~the ~~transaction~~FASB Accounting ~~between~~Standards ~~willing parties~~Codification, ~~other~~or ~~than~~the inFASB aASC, ~~forced~~became orthe ~~liquidation~~single ~~sale.~~source ~~The~~of ~~Partnership~~authoritative ~~believes~~GAAP ~~that~~recognized by the ~~carrying~~FASB ~~amounts~~to ofbe ~~its~~applied ~~financial~~by ~~instruments~~nongovernmental ~~(except~~entities. ~~for~~Rules ~~long~~and ~~term~~interpretive ~~debt)~~releases ~~approximates~~of ~~their~~the ~~fair~~Securities ~~value~~and ~~due~~Exchange Commission, toor ~~the~~SEC, ~~short~~under ~~term maturity~~authority of ~~these~~federal ~~instruments.~~securities ~~The~~laws ~~Partnership~~are ~~estimates~~also ~~the~~sources of ~~fair~~authoritative ~~value~~GAAP offor ~~its long~~SEC ~~term~~registrants. ~~debt~~The byFASB ~~discounting~~ASC ~~future~~superseded ~~cash~~all then-existing ~~flows~~non-SEC ~~using~~accounting aand ~~discount~~reporting ~~rate commensurate~~standards, ~~with~~and ~~that~~all ~~currently~~other non-grandfathered ~~believed~~non-SEC toaccounting beliterature ~~available~~not toincluded in the ~~Partnership~~FASB ~~for~~ASC is ~~similar~~now ~~term long~~non-~~term debt~~authoritative. Subsequent ~~The~~to ~~fair~~the ~~value~~effective date of SFAS No. 168, the ~~Partnership's~~FASB ~~long~~will ~~term~~issue ~~debt at~~Accounting ~~the~~Standards ~~Partnership’s~~Updates ~~incremental~~that ~~borrowing~~serve ~~rate~~to ~~approximates~~update ~~its~~the ~~carrying~~FASB ~~value~~ASC.

Segment Reporting

~~SFAS~~FASB ~~No.~~ASC ~~131,~~Topic ~~"Disclosure~~280-10, ~~about~~“Segment ~~Segments~~Reporting”, ~~of an Enterprise and Related Information"~~ established standards for the way public business enterprises ~~report~~reported information about operating segments in annual financial statements and ~~requires~~required that those enterprises report selected information about operating segments in interim financial reports. ~~SFAS~~FASB ~~No.~~ASC ~~131~~Topic ~~also~~280-10 also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in ~~SFAS No.~~FASB ~~131~~ASC Topic 280-10, the Partnership ~~has~~had only one reportable segment.

Use of Estimates

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

~~Recent Accounting~~Restricted ~~Pronouncement~~Escrow

InApproximately ~~September 2006~~$613,000 ~~the FASB~~at ~~issued~~both ~~Statement~~December ~~of Financial Accounting Standards (“SFAS”) No. 157~~31, ~~“Fair~~2009 ~~Value Measurements”.~~and ~~SFAS~~2008 ~~No.~~is ~~157~~held ~~defines~~on ~~fair~~deposit ~~value~~with as the ~~price~~previous ~~that would be~~mortgage ~~received~~lender toof ~~sell~~Reflections anApartments, ~~asset~~pending ~~or paid to transfer a liability in an orderly transaction between market participants at~~ the ~~measurement~~resolution ~~date. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value and does not expand the use~~ of ~~fair value in any new circumstances. SFAS No. 157 establishes a hierarchy that prioritizes~~ the information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, such as the reporting entityPartnership’s ~~own data. SFAS No. 157 requires fair value~~ ~~measurements~~appeal ~~to be disclosed by level within the fair value hierarchy. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date~~ of ~~FASB~~2006 ~~Statement~~Indiana ~~No.~~real ~~157”,~~estate ~~which deferred the effective date of SFAS No~~taxes. ~~157~~ ~~for~~A ~~all~~corresponding ~~nonrecurring~~liability ~~fair value measurements~~ of ~~non-financial assets and~~ ~~non-financial~~approximately ~~liabilities until fiscal years beginning after November 15~~$613, ~~2008. The~~000 ~~provisions of SFAS No. 157 are applicable to recurring fair value measurements of financial assets and liabilities for fiscal years beginning after November 15, 2007, which for the Partnership~~ is ~~generally limited~~included toin ~~annual~~accounts ~~disclosures~~payable ~~required~~at byboth ~~SFAS~~December ~~No. 107. The Partnership adopted the provisions of SFAS No. 157 effective January 1~~31, ~~2008,~~ 2009 and ~~at that time determined no transition adjustment was required~~2008.

Note BC -– ~~Mortgage~~Adjustment ~~Note~~to ~~Payable~~Liquidation Basis of Accounting

	Principal		Monthly			Principal
	Balance At		Payment	Stated		Balance
	December 31,		Including	Interest	Maturity	Due At
Property	2008	2007	Interest	Rate	Date	Maturity
	(in thousands)		(in thousands)			(in thousands)
The Trails	$8,431	$8,548	$ 52	5.96% (1)	06/01/16	$7,385
Apartments

At September 30, 2009, in accordance with the liquidation basis of accounting, assets were adjusted to their estimated net realizable value and liabilities were adjusted to their estimated settlement amount. The net adjustment required to convert to the liquidation basis of accounting was a decrease in net assets of approximately $105,000, which is included in the consolidated statement of changes in partners' (deficiency) capital/net assets in liquidation. The net adjustment is summarized as follows:

(1) Fixed rate mortgage.

	Decrease in
	Net Assets
	(in thousands)
Adjustment of other assets and liabilities, net	$(105)

~~The~~Note ~~mortgage~~D ~~note payable is non~~-~~recourse~~ ~~and is secured by a pledge of the Partnership’s rental property and~~Income by a pledge of revenues from the property. The mortgage note payable for The Trails Apartments includes a prepayment penalty if repaid prior to maturity. Further, the property may not be sold subject to existing indebtedness.Taxes

OnThe ~~September 26, 2007, the~~ Partnership ~~refinanced the mortgage encumbering Big Walnut Apartments. The~~is ~~refinancing~~classified ~~replaced~~as ~~the existing mortgage, which at the time of refinancing had~~ a ~~principal~~partnership balance of approximately $5,053,000, with a new mortgage loan in the principal amount of approximately $4,300,000. The new loan was refinanced under a secured real estate credit facility (“Secured Credit Facility”) with AEGON USA Realty Advisors, Inc., as agent for ~~Transamerica~~Federal ~~Occidental~~income ~~Life~~tax ~~Insurance Company, which has a maturity of October 1, 2010, with two one-year extension options~~purposes. ~~The new mortgage required monthly payments of interest only beginning on November 1~~ Accordingly, ~~2007, through the October 1, 2010 maturity date, at which date~~ ~~the~~no ~~entire~~provision ~~principal~~for ~~balance~~Federal ofincome ~~$4,300,000~~taxes ~~was~~is tomade bein ~~due. The new loan had a variable interest rate of~~ the ~~one-month~~consolidated ~~LIBOR rate plus 0.78% and reset~~financial ~~monthly. The~~statements ~~Secured Credit Facility provides mortgage loans on properties owned by other partnerships that are affiliated with the Managing General Partner~~ of the Partnership. ~~The~~Taxable ~~Secured~~income ~~Credit Facility creates separate loans for each property that are not cross-collateralized~~ or ~~cross-defaulted~~loss ~~with the other property loans. The loans are prepayable without penalty. As a condition~~ of the ~~Secured Credit Facility, the lender required AIMCO Properties, L.P., an affiliate of the~~ Partnership, ~~to guarantee the obligations and~~is ~~liabilities~~reported of the Partnership with respect to the new mortgage financing. In connection with the refinancing, an affiliate of the Partnership’s Managing General Partner advanced the Partnership approximately $770,000 to cover the amount needed to payoff the existing mortgage and closing costs. The mortgage balance and advance by the Partnership’s Managing General Partner were paid in ~~full from~~ the ~~proceeds~~income ~~from the~~tax ~~sale~~returns of ~~Big~~its ~~Walnut Apartments on October 22, 2008, as discussed in Note D~~partners. Total capitalized loan costs in connection with the new mortgage were approximately $73,000. The unamortized balance of these loan costs was written off in conjunction with the sale discussed in Note D. Loan costs associated with the previous mortgage were fully amortized.

~~Scheduled~~The ~~principal~~Partnership ~~payments~~adopted the liquidation basis of ~~the~~accounting ~~mortgage~~on ~~note~~September ~~payable~~30, ~~subsequent~~2009 toand accordingly, did not have a consolidated statement of operations for the year ended December 31, 2009. ~~2008~~The Federal Taxable income for the year ended December 31, ~~are~~2009 aswas approximately ~~follows~~$8,878,000 (~~in thousands~~$7,251.82 per limited partnership unit):.

2009	$ 108
2010	124
2011	131
2012	138
2013	148
Thereafter	7,782
	$8,431

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

Note C- Income Taxes

	2008

Net income as reported	$ 17,724
Add (deduct):
Depreciation differences	717
Gain on disposal of property	(584)
Unearned income	(60)
Minority interest	(891)
Other	25
Federal taxable income	$ 16,931
Federal taxable income per limited
partnership unit (1)	$11,846.88

~~The~~(1) For ~~Partnership received a~~2008, ~~ruling~~allocations ~~from~~under the Internal Revenue ~~Service~~Code ~~that~~section it704(b) isresulted toin ~~be classified as a~~the ~~partnership~~limited ~~for~~partners ~~Federal~~being ~~income~~allocated ~~tax~~a ~~purposes. Accordingly,~~non-pro norata ~~provision~~amount ~~for Federal income taxes is made in the consolidated financial statements~~ of ~~the Partnership.~~taxable ~~Taxable~~ income or ~~loss of the Partnership is reported in the income~~ ~~tax returns of its partners~~loss.

The following is a reconciliation between ~~net income~~the ~~(loss)~~Partnership's as reported inamounts ~~the financial statements~~ and Federal ~~taxable income (loss) allocated to the partners in the Partnership’s~~ tax ~~return for the years~~basis ~~ended~~of ~~December~~net ~~31,~~assets ~~2008~~ and ~~2007~~liabilities (in thousands~~, except per unit data~~):

	2008	2007
	December 31,
Net income (loss) as reported	$ 17,724	$ (1,278)
	2009	2008
Deduct:
	(in thousands)
Casualty gain	--	(166)
Net assets (liabilities) as reported	$ 354	$ (4,672)
Depreciation differences	717	1,146
Land and buildings	--	1,101
Gain (loss) on disposal of property	(584)	--
Accumulated depreciation	--	(1,584)
Unearned income	(60)	25
Other	585	756
Minority interest	(891)	--
Net assets (liabilities) - Federal tax basis	$ 939	$ (4,399)
Other	25	(2)
Federal taxable income (loss)	$ 16,931	$ (275)
Federal taxable income (loss) per limited
partnership unit	$11,846.88	$ (220.81)

~~For~~The ~~2008~~Partnership ~~and~~is ~~2007~~subject ~~allocations~~to ~~under~~Tennessee income taxes as a result of the ~~Internal~~Partnership’s ~~Revenue~~former ~~Code~~property, ~~section~~The Trails ~~704(b)~~Apartments, ~~resulted~~being located in the ~~limited~~ ~~partners~~state ~~being~~of ~~allocated~~Tennessee. The Partnership recorded a ~~non-pro~~deferred ~~rata~~tax ~~amount~~liability of ~~taxable~~approximately $14,000 at December 31, 2008 as a result of the Tennessee income ortax requirements, which is ~~loss~~classified in other liabilities. During the nine months ended September 30, 2009, as a result of the sale of The Trails Apartments, the Partnership recorded a deferred tax benefit of approximately $14,000, which is reflected as a reduction of operating expenses. In addition, the Partnership recognized current tax expense of approximately $265,000, as a result of the sale, which is reflected as a reduction of gain from sale of discontinued operations. The corresponding liability is included in taxes payable at December 31, 2009. The Partnership’s deferred tax liability at December 31, 2008 consisted primarily of temporary differences related to land, buildings and accumulated depreciation.

~~The~~Note ~~following~~E is- ~~a reconciliation~~Transactions ~~between the Partnership's reported amounts and Federal tax basis~~with ofAffiliated ~~net liabilities at:~~Parties

	December 31,
	2008	2007
	(in thousands)
Net liabilities as reported	$ (4,672)	$(10,113)
Land and buildings	1,101	2,283
Accumulated depreciation	(1,584)	(2,196)
Other	756	972
Net liabilities - Federal tax basis	$ (4,399)	$ (9,054)

The Partnership has no employees and depends 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 reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.

~~Note~~Affiliates Dof –the ~~Disposition~~Managing General Partner received 5% of ~~Investment~~gross receipts from all of the Partnership’s ~~Properties~~properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $69,000 and $305,000 for the nine months ended September 30, 2009 and the year ended December 31, 2008, respectively, which are included in operating expenses.

OnAn ~~July~~affiliate ~~31,~~of ~~2008,~~ the Managing ~~Partnership~~General ~~sold~~Partner ~~Reflections~~charged ~~Apartments~~the toPartnership ~~a third party~~ for areimbursement ~~gross~~of ~~sales price~~accountable ofadministrative ~~approximately~~expenses ~~$31,010,000.~~amounting ~~The~~to ~~net proceeds received by the Partnership were~~ approximately $3034,~~661,~~000 ~~after payment of closing costs of approximately $227,000~~ and ~~a prepayment penalty of approximately~~ $~~122~~359,000 ~~owed~~for by the ~~Partnership.~~nine ~~The~~months ~~Partnership~~ended ~~used~~September ~~approximately $11~~30,~~981,000~~ to2009 ~~repay~~and the ~~mortgage~~ ~~encumbering~~year ~~the~~ended ~~property.~~December ~~As a result of the sale~~31, ~~the Partnership~~2008, ~~recorded a gain of approximately $15~~respectively,~~471,000,~~ which is included in ~~gain~~general ~~from sale~~and ofadministrative ~~discontinued operations~~expenses, ~~and a loss on the early extinguishment of debt~~gain offrom ~~approximately~~sale ~~$137,000 due to the write off~~ of ~~unamortized loan costs and a prepayment penalty, which is included in loss from~~ discontinued operations~~. During~~ ~~2008,~~and ~~the~~investment ~~Partnership recorded additional~~ property. ~~tax~~The ~~expense~~portion of ~~approximately~~these ~~$180,000~~reimbursements ~~for~~included ~~Reflections~~in ~~Apartments,~~investment ~~due~~property ~~to receipt of the final taxable value~~ and ~~rate~~gain ~~for 2006~~ from ~~the~~sale ~~local taxing authority. The Partnership~~of ~~adjusted~~discontinued ~~the~~operations ~~estimated taxes~~ for ~~2007 based on~~ the ~~2006 value~~nine bymonths ~~approximately~~ended ~~$214~~September 30,~~000.~~ ~~The~~2009 ~~adjusted~~and ~~tax expense is included in loss from discontinued operations for~~ the year ended December 31, 2008. ~~The Partnership~~are ~~escrowed~~construction ~~approximately~~management ~~$613,000~~services ~~for~~provided ~~2007~~by ~~and 2008 taxes until final~~an ~~settlement~~affiliate of the ~~2006~~Managing ~~tax~~General ~~appeal. Subsequent~~Partner toof ~~December~~approximately 31$4,000 ~~2008,~~and ~~the~~$192,000, ~~Partnership received a refund as a result of the successful appeal of the 2006 assessed value of the property~~respectively.

OnIn ~~October~~accordance 22with the Partnership Agreement, ~~2008~~AIMCO Properties, L.P., an affiliate of the Managing General Partner, advanced the Partnership ~~sold~~various ~~Big~~funds ~~Walnut~~in ~~Apartments~~prior years to acover capital ~~third~~expenditures, ~~party~~operating ~~for~~expenses, areal ~~gross~~estate ~~sales~~taxes ~~price~~and funds in connection with the refinancing of ~~approximately~~the ~~$8,300,000~~mortgage encumbering Big Walnut Apartments. ~~The~~ ~~net~~No ~~proceeds~~such advances were received byduring the ~~Partnership~~nine months ended ~~were~~September ~~approximately~~30, $82009 or the year ended December 31,~~262,000~~ ~~after~~2008. The ~~payment~~Partnership repaid ofin ~~closing~~full ~~costs~~the advance balance and accrued interest of approximately $387,046,000. ~~The~~during ~~Partnership~~the ~~used~~year ~~approximately~~ended $4December 31,~~300,000~~ to2008 ~~repay~~with proceeds from the ~~mortgage~~sale ~~encumbering~~of ~~the~~Reflections ~~property~~Apartments. AsInterest aon ~~result~~advances ofwas ~~the~~charged ~~sale,~~at ~~the~~prime ~~Partnership~~plus ~~recorded a~~1%. ~~gain~~Interest ofexpense was approximately $3249,~~671,~~000 ~~and~~for ~~a loss on~~ the ~~early~~year ~~extinguishment~~ended ofDecember ~~debt~~31, of2008. ~~approximately~~At ~~$47~~September 30,~~000~~ ~~due~~2009 toand ~~the~~December ~~write-off~~31, of2008, ~~unamortized~~there were ~~loan~~no ~~costs,~~advances ~~which is~~or ~~included~~associated inaccrued ~~loss~~interest ~~from~~due ~~discontinued~~to ~~operations.~~AIMCO Properties, L.P.

~~Note~~The EPartnership 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 ended December 31, 1999. During 2002, the Partnership paid $30,000 of this amount to an unaffiliated third party as part of a settlement regarding brokerage services. Approximately $18,000 was accrued at December 31, 2008 and is included in other liabilities on the consolidated balance sheet. Payment of this commission is subordinate to the limited partners receiving their original invested capital plus a cumulative non-compounded ~~Transactions~~annual return of 8% on their adjusted invested capital. During the nine months ended September 30, 2009, the Managing General Partner determined that the limited partners would not receive both their original capital contribution and applicable cumulative return. Therefore, the Managing General Partner reversed the real estate commission of approximately $18,000 previously accrued associated with the sale of Shoppes at River Rock, ~~Affiliated~~which ~~Parties~~is included in gain from sale of discontinued operations for the nine months ended September 30, 2009.

The Partnership ~~has~~insured noits properties up to ~~employees~~certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and ~~depends~~liabilities onrelated ~~the~~to ~~Managing~~workers’ compensation, ~~General~~property ~~Partner~~casualty, general liability and vehicle liability. The Partnership insured its ~~affiliates~~properties ~~for~~above the AIMCO limits through insurance ~~management~~policies ~~and~~obtained ~~administration~~by ofAIMCO ~~all~~from ~~Partnership~~insurers ~~activities.~~unaffiliated ~~The~~with ~~Partnership~~the Managing General ~~Agreement~~Partner. During ~~provides~~the ~~for~~nine ~~payments~~months toended ~~affiliates~~September ~~for~~30, ~~services~~2009 and ~~reimbursement~~the ofyear ~~certain~~ended ~~expenses~~December ~~incurred~~31, 2008, the Partnership was charged by AIMCO and its affiliates approximately on$28,000 ~~behalf~~and of$128,000, ~~the~~respectively, ~~Partnership.~~for insurance coverage and fees associated with policy claims administration.

~~Affiliates~~In addition to its indirect ownership of the ~~Managing~~managing and associate general partner interests in the ~~General~~Partnership, ~~Partner~~AIMCO ~~receive~~and 5its affiliates owned 706 limited partnership units ("Units") in the Partnership representing 57.67% of ~~gross~~the ~~receipts~~outstanding ~~from~~Units ~~all~~at December 31, 2009. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. Pursuant to the Partnership’s Agreement, ~~properties~~unitholders asholding ~~compensation~~a ~~for~~majority ~~providing~~of ~~property~~the ~~management~~Units ~~services.~~are ~~The Partnership~~entitled ~~paid~~to take action with respect to ~~such~~a ~~affiliates~~variety ~~approximately~~of ~~$305~~matters that include,~~000~~ ~~and~~but ~~$397~~are not limited to,~~000~~ ~~for~~voting ~~the~~on ~~years~~certain ~~ended~~amendments ~~December~~to ~~31,~~the ~~2008~~Partnership Agreement and ~~2007,~~voting ~~respectively~~to remove the Managing General Partner. As a result of its ownership of 57.67% of the outstanding Units, ~~which~~AIMCO is ~~included~~ in ~~operating~~ ~~expenses~~a ~~and~~position ~~loss~~to ~~from~~control ~~discontinued~~all ~~operations~~such voting decisions with respect to the Partnership. AtAlthough ~~December~~the ~~31,~~Managing ~~2007~~General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing ~~approximately~~General $1Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result,~~000~~ the duties of ~~such~~the ~~expense~~Managing ~~was~~General ~~accrued~~Partner, as managing general partner, to the Partnership and ~~included~~its inlimited ~~due~~partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole ~~affiliates~~stockholder.

AnNote ~~affiliate~~F of– ~~the~~Disposition ~~Managing General Partner charged the Partnership for reimbursement~~ of ~~accountable~~Investment administrative expenses amounting to approximately $359,000 and $330,000 for the years ended December 31, 2008 and 2007, respectively, which is included in general and administrative expenses, investment property, assets held for sale and gain from sale of discontinued operations. The portion of these reimbursements included in investment properties, assets held for sale and gain from sale of discontinued operations for the years ended December 31, 2008 and 2007 are construction management services provided by an affiliate of the Managing General Partner of approximately $192,000 and $133,000, respectively. At December 31, 2007, approximately $24,000 of reimbursements was accrued and included in due to affiliates.Properties

InOn ~~accordance~~August ~~with the Partnership Agreement~~25, ~~AIMCO Properties~~2009, ~~L.P., an affiliate of~~ the ~~Managing~~ ~~General Partner, advanced the~~ Partnership ~~various~~sold ~~funds~~its inlast ~~the~~remaining ~~past~~investment ~~to cover capital expenditures~~property, ~~operational~~The ~~expenses,~~Trails ~~real estate taxes and funds in connection with the refinancing of the mortgage encumbering Big Walnut~~ Apartments~~. No such advances were received during the year ended December 31~~, ~~2008. At December 31, 2008, there were no advances or associated~~ ~~accrued interest due~~ to ~~AIMCO~~a ~~Properties,~~third ~~L.P.~~party Atfor ~~December~~a ~~31,~~gross ~~2007,~~sale ~~the~~price ~~amount~~ of ~~the outstanding advance balance and accrued interest due to AIMCO Properties, L.P. was approximately~~ $611,~~797~~475,000. ~~and~~The ~~was~~net ~~included in due to affiliates. During~~proceeds ~~the~~realized ~~year~~by ~~ended December 31, 2007,~~ the Partnership ~~made~~were ~~a payment of~~ approximately $~~200~~2,927,000 ofafter ~~accrued~~payment ~~interest to AIMCO Properties, L.P. from cash~~of ~~reserves.~~closing ~~The~~costs ~~Partnership repaid in full the remaining advance balance and accrued interest~~ of approximately $7186,~~046,~~000 ~~with~~and ~~proceeds from~~ the ~~sale~~assumption of ~~Reflections~~ ~~Apartments.~~the ~~Interest~~mortgage ~~was~~debt encumbering ~~charged~~the atproperty ~~prime~~of ~~plus 1% and interest expense was~~ approximately $~~249~~8,~~000 and $537~~362,000 ~~for~~by the ~~years~~purchaser. ~~ended~~As ~~December 31,~~a ~~2008~~result ~~and~~of ~~2007~~the sale, ~~respectively. The~~the Partnership ~~may~~recorded ~~receive~~a ~~additional advances~~gain of ~~funds~~approximately ~~from~~$8,711,000 during ~~AIMCO~~the ~~Properties,~~nine ~~L.P.~~months ~~although~~ended ~~AIMCO~~September ~~Properties~~30, L2009.P. isIn ~~not~~addition, ~~obligated~~the toPartnership recorded ~~provide~~a ~~such~~loss ~~advances. For more information~~ on ~~AIMCO~~early ~~Properties,~~extinguishment ~~L.P.,~~of ~~including~~debt ~~copies~~ of ~~its~~approximately ~~audited balance sheet~~$95,000 ~~please~~due ~~see~~to the ~~its~~write ~~reports~~off ~~filed~~of ~~with~~unamortized ~~the~~loan ~~Securities and Exchange Commission~~costs.

~~The~~On ~~Partnership~~July ~~accrued~~31, a2008, the ~~real~~Partnership ~~estate~~sold ~~commission~~Reflections ~~due~~Apartments to ~~the~~a ~~Managing~~third ~~General~~party ~~Partner~~for a gross sale price of approximately $4831,010,000. ~~upon~~The net proceeds received by the ~~sale~~ ofPartnership ~~Shoppes~~were atapproximately ~~River~~$30,783,000 ~~Rock~~after ~~during~~payment ~~the~~of closing ~~year~~costs ~~ended~~of ~~December~~approximately 31$227, ~~1999~~000. ~~During~~ ~~2002,~~The ~~the~~ Partnership ~~paid~~used approximately $3011,981,000 ofto ~~this~~repay ~~amount~~the tomortgage anencumbering ~~unaffiliated third~~the ~~party~~property. asAs ~~part~~a result of athe sale, ~~settlement~~the ~~regarding~~Partnership ~~brokerage~~recorded ~~services.~~a ~~Approximately~~ gain of approximately $1815,471,000 isduring ~~accrued~~the year atended December 31, 2008, ~~and~~which ~~2007 and~~ is included in ~~other~~gain from sale of ~~liabilities~~discontinued inoperations, ~~the~~and ~~accompanying~~a ~~consolidated~~loss ~~balance~~on ~~sheets.~~the ~~Payment~~early extinguishment of ~~this~~debt of ~~commission~~approximately is$137,000 ~~subordinate~~due to the ~~limited~~write ~~partners~~off ~~receiving~~of ~~their~~unamortized ~~original invested~~loan ~~capital~~costs ~~plus~~and a prepayment ~~cumulative~~penalty ~~non-compounded annual return~~ of 8%approximately ~~on their adjusted invested capital~~$122,000.

~~The~~On ~~Partnership~~October ~~insures~~22, ~~its~~2008, the ~~properties~~Partnership upsold toBig ~~certain~~Walnut ~~limits~~Apartments ~~through~~to ~~coverage~~a ~~provided~~third byparty ~~AIMCO~~for ~~which~~a ~~is generally~~gross ~~self-insured~~sale ~~for~~price of aapproximately ~~portion~~$8,300,000. The ofnet ~~losses~~proceeds ~~and~~received ~~liabilities~~by ~~related~~the toPartnership ~~workers’~~were ~~compensation~~approximately $8,262,000 ~~property~~after ~~casualty,~~payment ~~general~~of ~~liability~~closing ~~and~~costs ~~vehicle~~of approximately ~~liability~~$38,000. The Partnership ~~insures~~used ~~its~~approximately ~~properties~~$4,300,000 ~~above~~to repay the ~~AIMCO limits through~~mortgage ~~insurance~~encumbering ~~policies~~the ~~obtained~~property. byAs ~~AIMCO~~a ~~from~~result ~~insurers~~of ~~unaffiliated~~the ~~with~~sale, the Partnership recorded a ~~Managing~~gain ~~General~~of ~~Partner.~~approximately ~~During~~$3,671,000 during the ~~years~~year ended December 31, 2008 ~~and 2007~~, ~~the~~which ~~Partnership~~is ~~was~~included ~~charged~~in bygain ~~AIMCO~~from ~~and~~sale ~~its~~of ~~affiliates~~discontinued ~~approximately $128~~operations,~~000~~ and a loss on the ~~$202,000,~~early ~~respectively,~~extinguishment ~~for~~of ~~insurance~~debt ~~coverage~~of ~~and~~approximately ~~fees~~$47,000 ~~associated~~due ~~with~~to ~~policy~~the write-off of ~~claims~~unamortized ~~administration~~loan costs.

InNote ~~addition~~G ~~to its indirect~~- ownership of the managing and associate general partner interests in the Partnership, AIMCO and its affiliates owned 706.00 limited partnership units ("Units") in the Partnership representing 57.67% of the outstanding Units at December 31, 2008. 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 Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 57.67% of the outstanding Units, AIMCO is in a position to control all such voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.Contingencies

~~Note~~As Fpreviously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company (“the Defendants”) failed to compensate maintenance workers for time that they were required to be "on-call" ~~Investment~~(“on-call ~~Property~~claims”). In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions. In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and ~~Accumulated~~established ~~Depreciation~~a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts have been dismissed. During the fourth quarter of 2008, the Partnership paid approximately $3,000 for settlement amounts for alleged unpaid overtime to employees who had worked at the Partnership’s investment properties. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The parties have selected six “on-call” claims that will proceed forward through the arbitration process and have selected arbitrators. After those arbitrations have been completed, the parties will revisit settling the on-call claims. The first two arbitrations took place in December 2009 and the Defendants received a defense verdict against the first two claimants, and plaintiffs dismissed the claims of the next two claimants. The remaining two arbitrations will take place in April 2010. The Managing General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.

		Initial Cost
		To Partnership
		(in thousands)
			Buildings	Net Cost
			And Related	Capitalized
			Personal	Subsequent to
Investment Property	Encumbrances	Land	Property	Acquisition
	(in thousands)			(in thousands)
The Trails Apartments	$ 8,431	$ 586	$ 7,054	$ 3,704

The Partnership is unaware of any other pending or outstanding litigation matters involving it or its former investment properties that are not of a routine nature arising in the ordinary course of business.

	Gross Amount At Which Carried
	At December 31, 2008
	(in thousands)
		Buildings
		and Related
		Personal		Accumulated	Date of	Date	Depreciable
Description	Land	Property	Total	Depreciation	Construction	Acquired	Life-Years
Investment Property
The Trails
Apartments	$ 586	$10,758	$11,344	$8,960	1984-1985	08/30/85	5-25

Environmental

~~Reconciliation~~Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on ~~"Investment~~a ~~Property~~property, including lead-based paint. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and ~~Accumulated~~the ~~Depreciation"~~ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines, or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its former properties, the Partnership could potentially be liable for environmental liabilities or costs associated with its former properties.

	Years Ended December 31,
	2008	2007
	(in thousands)
Investment Property
Balance at beginning of year	$ 55,018		$ 53,691
Property improvements and replacements	1,378		1,403
Casualty write-offs	--		(76)
Sale of property	(45,052)		--
Balance at end of year	$ 11,344		$ 55,018
Accumulated Depreciation
Balance at beginning of year	$ 33,574		$ 30,681
Additions charged to expense	1,841		2,928
Casualty write-offs	--		(35)
Sale of property	(26,455)		--
Balance at end of year	$ 8,960		$ 33,574

Mold

The ~~aggregate~~Partnership ~~cost~~is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of ~~real~~which ~~estate~~have resulted in substantial monetary judgments or settlements. The Partnership had only limited insurance coverage for ~~Federal~~property ~~income~~damage ~~tax~~loss ~~purposes~~claims arising atfrom ~~December~~the ~~31,~~presence ~~2008~~of mold and ~~2007,~~for ispersonal injury claims related to mold ~~approximately~~exposure. Affiliates ~~$12~~of the Managing General Partner have implemented policies,~~445~~ procedures,~~000~~ third-party audits and ~~$57,301,000~~training ~~respectively.~~and ~~The~~the ~~accumulated~~Managing General ~~depreciation~~Partner ~~taken~~believes ~~for~~that ~~Federal~~these ~~income~~measures ~~tax~~will ~~purposes~~prevent ator ~~December~~eliminate ~~31,~~mold ~~2008~~exposure and ~~2007,~~will isminimize ~~approximately~~the ~~$10~~effects that mold may have on residents. To date,~~544,000~~ the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and ~~$35,770,000,~~subject ~~respectively~~to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold at its former property will not have a material adverse effect on the Partnership’s consolidated financial condition.

Note G - Casualty Events

During April 2006, Reflections Apartments suffered significant damage to all of the property’s roofs as a result of hail and wind produced by tornadoes. The estimated cost to replace the roofs was approximately $554,000. During the fourth quarter of 2006, the Partnership received insurance proceeds of approximately $442,000. A casualty gain of approximately $27,000 was recognized during the fourth quarter of 2006 as a result of receiving insurance proceeds of approximately $442,000 offset by approximately $415,000 of undepreciated assets written off. The Partnership recognized a casualty gain of approximately $111,000, which is included in loss from discontinued operations, during the year ended December 31, 2007 due to the receipt of additional insurance proceeds of approximately $111,000.

During August 2007, Big Walnut Apartments suffered water damage to one of its apartment units as a result of a heavy rain storm. The cost to repair the unit was approximately $29,000. During the year ended December 31, 2007, the Partnership received insurance proceeds of approximately $18,000 and recognized a casualty gain of approximately $17,000, which is included in loss from discontinued operations, as a result of receiving approximately $18,000 of insurance proceeds offset by approximately $1,000 of undepreciated assets being written off.

Note H – Partnership Income Taxes

The Partnership is subject to Tennessee income taxes as a result of the Partnership’s property, The Trails Apartments, being located in the state of Tennessee. The Partnership has recorded a deferred tax liability of approximately $14,000 at December 31, 2008 and $18,000 at December 31, 2007 as a result of the Tennessee income tax requirements. The Partnership classifies deferred tax income related to the Trails Apartments as an offset to operating expenses on the consolidated statements of operations. The deferred tax liability consists primarily of temporary differences related to land, buildings and accumulated depreciation.

Note I - Contingencies

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”). In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions. In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts will be dismissed. During the fourth quarter of 2008, the Partnership paid approximately $3,000 for settlement amounts for alleged unpaid overtime to employees who had worked at the Partnership’s investment properties. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The Managing General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.

The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment property that are not of a routine nature arising in the ordinary course of business.

Environmental

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property, including lead-based paint. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines, or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its property, the Partnership could potentially be liable for environmental liabilities or costs associated with its property.

Mold

The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the Managing General Partner have implemented policies, procedures, third-party audits and training and the Managing General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change, the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s consolidated financial condition or results of operations.

ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A(T). Controls and Procedures

(a) Disclosure Controls and Procedures

The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.

Management’s Report on Internal Control Over Financial Reporting

The Partnership’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the principal executive and principal financial officers of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, and effected by the Partnership’s management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

· pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets;

· provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Partnership’s management; and

· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Partnership’s management assessed the effectiveness of the Partnership’s internal control over financial reporting as of December 31, ~~2008~~2009. In making this assessment, the Partnership’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on their assessment, the Partnership’s management concluded that, as of December 31, ~~2008~~2009, the Partnership’s internal control over financial reporting is effective.

This annual report does not include an attestation report of the Partnership’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by the Partnership’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Partnership to provide only management’s report in this annual report.

(b) Changes in Internal Control Over Financial Reporting.

There has been no change in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of ~~2008~~2009 that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Davidson Diversified Real Estate II, L.P. (the “Partnership” or the “Registrant”) has no officers or directors. Davidson Diversified Properties, Inc. (the “Managing General Partner”) manages and controls substantially all of the Partnership’s affairs and has general responsibility in all matters affecting its business.

The names and ages of, as well as the positions and offices held by, the present directors and officers of the Managing General Partner are set forth below. There are no family relationships between or among any officers or directors.

Name	Age	Position
Steven D. Cordes	3738	Director and Senior Vice President
Harry G. Alcock	46	Director and Executive Vice President
John Bezzant	47	Director and Senior Vice President
Timothy J. Beaudin	5051	President and Chief Operating Officer
David R. Robertson	43	President and Chief Financial Officer
Ernest M. Freedman	39	Executive Vice President and Chief Financial Officer
Lisa R. Cohn	4041	Executive Vice President, General Counsel and Secretary
Patti K. Fielding	45	Executive Vice President – Securities and Debt; Treasurer
Paul Beldin	36	Senior Vice President and Chief Accounting Officer
Paul Beldin	35	Senior Vice President and Chief Accounting Officer
Stephen B. Waters	48	Senior Director of Partnership Accounting
Stephen B. Waters	47	Vice President

Steven D. Cordes was appointed as a ~~Director~~ Director of the Managing General Partner effective March 2, 2009. Mr. Cordes has been a Senior Vice President of the Managing General Partner and AIMCO since May ~~2007. Mr. Cordes was appointed Senior Vice President –~~ ~~Structured Equity in May~~ 2007. Mr. Cordes joined AIMCO in 2001 as a Vice President of Capital Markets with responsibility for AIMCO’s joint ventures and equity capital markets activity. Prior to joining AIMCO, Mr. Cordes was a manager in the financial consulting practice of PricewaterhouseCoopers. Effective March 2009, Mr. Cordes was appointed to serve as the equivalent of the chief executive officer of the Partnership. Mr. Cordes brings particular expertise to the Board in the areas of asset management as well as finance and accounting.

~~Harry~~John G.Bezzant ~~Alcock~~ was ~~appointed~~ appointed as a Director of the Managing General Partner ineffective ~~October~~December ~~2004~~16, ~~and was~~2009. ~~appointed~~Mr. ~~Executive~~Bezzant has been a Senior Vice President of the Managing General Partner ~~in February~~and ~~2004~~AIMCO ~~and~~since ~~has~~joining ~~been~~AIMCO ~~Executive~~in ~~Vice~~June ~~President~~2006. Prior ofto joining AIMCO, ~~since~~from 2005 ~~October~~to ~~1999.~~ June 2006, Mr. ~~Alcock~~Bezzant ~~has~~was ~~had~~a ~~responsibility~~First ~~for~~Vice ~~acquisition~~President ~~and~~at ~~financing~~Prologis, ~~activities~~a ofDenver, ~~AIMCO~~Colorado-based ~~since~~real ~~July~~estate ~~1994~~investment trust, ~~serving~~and ~~as Vice President~~ from ~~July~~1986 ~~1996~~ to ~~October~~2005, ~~1997~~Mr. Bezzant ~~and~~served as ~~Senior~~ Vice President, ~~from~~Asset ~~October~~Management ~~1997~~at toCatellus ~~October~~Development ~~1999.~~Corporation, a San Francisco, California-based real estate investment trust. Mr. ~~Alcock~~ ~~focuses~~Bezzant onbrings ~~transactions~~particular ~~related~~expertise to ~~AIMCO’s~~the ~~portfolio~~Board ~~of properties~~ in the ~~western~~ ~~portion~~areas of ~~the~~real ~~United~~estate finance, ~~States~~property operations, sales and development.

Timothy J. Beaudin was appointed ~~Executive Vice~~ President and Chief ~~Development~~Operating Officer of AIMCO and the Managing General Partner ~~and~~in February 2009. He joined AIMCO and the Managing General Partner as Executive Vice President and Chief Development Officer in October 2005 and was appointed Executive Vice President and Chief Property Operating Officer of the Managing General Partner and AIMCO in October 2008. Mr. ~~Beaudin was promoted to President and Chief~~ ~~Operating Officer of AIMCO in February 2009. Mr.~~ Beaudin oversees conventional and affordable property operations, ~~and~~transactions, asset ~~information technology~~management, inand ~~addition to~~ redevelopment and construction services~~. He~~ isfor ~~also~~AIMCO ~~responsible~~and ~~for asset~~the ~~management~~Managing ~~for~~General ~~conventional properties~~Partner. Prior to joining AIMCO and beginning in 1995, Mr. Beaudin was with Catellus Development Corporation~~, a San Francisco, California-based real estate investment trust~~. During his last five years at Catellus, Mr. Beaudin served as Executive Vice President, with management responsibility for development, construction and asset management.

Ernest M. Freedman was appointed Executive Vice President and Chief Financial Officer of the Managing General Partner and AIMCO in November 2009. Mr. Freedman joined AIMCO in 2007 as Senior Vice President of Financial Planning and Analysis and has served as Senior Vice President of Finance since February 2009, responsible for financial planning, tax, accounting and related areas. Prior to joining AIMCO, from 2004 to 2007, Mr. Freedman served as chief financial officer of HEI Hotels and Resorts.

Lisa R. Cohn was appointed Executive Vice President, General Counsel and Secretary of the Managing General Partner and AIMCO in December 2007. From January 2004 to December 2007, Ms. Cohn served as Senior Vice President and Assistant General Counsel of AIMCO. Ms. Cohn joined AIMCO in July 2002 as Vice President and Assistant General Counsel. Prior to joining AIMCO, Ms. Cohn was in private practice with the law firm of Hogan and Hartson LLP.

~~Patti~~Paul K.Beldin ~~Fielding~~joined ~~was~~AIMCO in ~~appointed~~May ~~Executive~~2008 and has served as Senior Vice President -and ~~Securities~~Chief ~~and~~Accounting ~~Debt~~Officer of AIMCO and the Managing General Partner insince ~~February~~that ~~2004~~time. Prior ~~and~~to of joining AIMCO, inMr. ~~February~~Beldin ~~2003. Ms.~~served ~~Fielding~~as ~~was appointed~~controller ~~Treasurer~~and then as chief financial officer of America ~~AIMCO~~First ~~and~~Apartment ~~the~~Investors, ~~Managing~~Inc., ~~General~~a ~~Partner~~publicly intraded ~~January~~multifamily real ~~2005. Ms.~~estate ~~Fielding~~investment istrust, ~~responsible~~from ~~for~~May ~~debt~~2005 ~~financing~~to ~~and~~September 2007 when the ~~treasury~~company was ~~department~~acquired by Sentinel Real Estate Corporation. MsPrior to joining America First Apartment Investors, Inc., ~~Fielding~~Mr. ~~previously~~Beldin ~~served~~was asa ~~Senior~~senior ~~Vice~~manager ~~President~~at ~~- Securities~~Deloitte and Touche ~~Debt~~LLP, ofwhere ~~AIMCO~~he was employed from ~~January~~August ~~2000~~1996 to ~~February~~May ~~2003. Ms.~~2005, including two ~~Fielding~~years ~~joined~~as ~~AIMCO~~an inaudit ~~February~~manager ~~1997~~in asSEC aservices ~~Vice~~at ~~President~~Deloitte’s national office.

~~David~~Stephen RB. ~~Robertson~~Waters was appointed ~~President~~Senior ~~and~~Director ~~Chief~~of ~~Investment~~Partnership ~~Officer~~Accounting of AIMCO inand ~~February~~the ~~2009, and~~Managing onGeneral ~~March~~Partner 1,in June 2009,. Mr. heWaters ~~also~~has ~~became~~responsibility ~~Chief~~for partnership ~~Financial~~accounting ~~Officer~~with of AIMCO and serves as the principal financial officer of the Managing General Partner. Mr. ~~Robertson~~Waters joined AIMCO as ~~Executive~~a ~~Vice~~Director of ~~President~~Real Estate Accounting in ~~February~~September ~~2002~~1999 and ~~has~~was ~~served~~appointed asVice ~~Chief~~President ~~Investment~~of ~~Officer since~~the ~~March~~Managing ~~2007. In~~General ~~addition~~Partner toand ~~serving as~~ AIMCO’s ~~chief~~in ~~financial~~April ~~officer, Mr~~2004. ~~Robertson~~ Prior isto ~~responsible~~joining ~~for portfolio strategy~~AIMCO, ~~capital allocation,~~ ~~investments, joint ventures, asset management and transaction activities. Since February 1996,~~ Mr. ~~Robertson~~Waters ~~has~~was ~~served as Chairman of Robeks Corporation,~~ a ~~150-unit~~senior ~~privately~~manager ~~held~~at ~~chain~~Ernst of& ~~specialty~~Young ~~food stores that he founded~~LLP.

~~Paul~~The ~~Beldin~~Registrant ~~was~~is ~~appointed Senior~~not ~~Vice President and Chief Accounting Officer~~ aware of ~~AIMCO and~~ the ~~Managing General~~involvement ~~Partner~~ in ~~May~~any ~~2008. Mr.~~legal ~~Beldin~~proceedings ~~joined~~with ~~AIMCO~~respect ~~in May 2008. Prior~~ to that, Mr. Beldin served as controller and then as chief financial officer of America First Apartment Investors, Inc., a publicly traded multifamily real estate investment trust, from May 2005 to September 2007 when the ~~company~~directors ~~was acquired by Sentinel Real Estate Corporation. Prior to joining America First Apartment Investors, Inc., Mr. Beldin was a senior manager at Deloitte~~ and ~~Touche LLP, where he was employed from August 1996 to May 2005,~~ ~~including~~executive ~~two~~officers ~~years~~listed ~~as an audit manager~~ in ~~SEC~~this ~~services~~Item ~~at Deloitte’s national office~~10.

Stephen B. Waters was appointed Vice President of the Managing General Partner and AIMCO in April 2004. Mr. Waters previously served as a Director of Real Estate Accounting since joining AIMCO in September 1999. Mr. Waters has responsibility for partnership accounting with AIMCO and serves as the principal financial officer of the Managing General Partner.

One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act: Further, one or more of the above persons are also officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act.

The board of directors of the Managing General Partner does not have a separate audit committee. As such, the board of directors of the Managing General Partner fulfills the functions of an audit committee. The board of directors has determined that Steven D. Cordes meets the requirement of an "audit committee financial expert".

The directors and officers of the Managing General Partner with authority over the Partnership are all employees of subsidiaries of AIMCO. AIMCO has adopted a code of ethics that applies to such directors and officers that is posted on AIMCO's website (www.AIMCO.com). AIMCO's website is not incorporated by reference to this filing.

Item 11. Executive Compensation

None of the directors or officers of the Managing General Partner received any remuneration from the Partnership during the years ended December 31, ~~2008~~2009 and ~~2007~~2008.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Except as noted below, no person or entity was known by the Partnership to be the beneficial owner of more than 5% of the Limited Partnership Units of the Partnership as of December 31, ~~2008~~2009.

Entity	Number of Units	Percentage
CooperRiverProperties, LLC	122.75	10.03%
Cooper River Properties, LLC	122.75	10.03%
(an affiliate of AIMCO)
AIMCO IPLP, L.P.	35.75	2.92%
(an affiliate of AIMCO)
Davidson Diversified Properties, Inc.	0.25	0.02%
(an affiliate of AIMCO)
AIMCO Properties, L.P.	547.25	44.70%
(an affiliate of AIMCO)

Cooper River Properties, LLC, AIMCO IPLP, L.P. and Davidson Diversified Properties, Inc., are indirectly ultimately owned by AIMCO. Their business address is 55 Beattie Place, Greenville, SC ~~29602~~29601.

AIMCO Properties, L.P. is indirectly ultimately controlled by AIMCO. Its business address is 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80237.

No director or officer of the Managing General Partner owns any Units.

Affiliates of the Managing General Partner ~~receive~~received 5% of gross receipts from all of the Partnership’s properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $~~305~~69,000 and $~~397~~305,000 for the ~~years~~nine months ended ~~December~~September 3130, ~~2008~~2009 and ~~2007~~the year ended December 31, 2008, respectively, which isare included in operating expenses ~~and loss from discontinued operations~~ on the consolidated statements of discontinued operations included in “Item 8. Financial Statements ~~and~~ and Supplementary Data”. ~~At December 31, 2007, approximately $1,000 of such expense was accrued and were included in due to affiliates.~~

An affiliate of the Managing General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $~~359~~34,000 and $~~330~~359,000 for the nine ~~years~~months ended ~~December~~September 3130, ~~2008~~ 2009 and ~~2007~~the year ended December 31, 2008, respectively, which is included in general and administrative expenses, gain from sale of discontinued operations and investment property, ~~assets~~on ~~held~~the ~~for~~consolidated financial ~~sale~~statements ~~and~~included ~~gain~~in ~~from~~“Item ~~sale~~8. ~~of discontinued~~Financial ~~operations~~Statements and Supplementary Data”. The portion of these reimbursements included in investment properties, ~~assets held for sale~~ and gain from sale of discontinued operations for the ~~years~~nine months ended September 30, 2009 and the year ended December 31, 2008 ~~and 2007~~ are construction management services provided by an affiliate of the Managing General Partner of approximately $~~192~~4,000 and $~~133~~192,000, respectively. ~~At December 31, 2007,~~ ~~approximately $24,000 of reimbursements was accrued and included in due to affiliates.~~

In accordance with the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the Managing General Partner, advanced the Partnership various funds in ~~the~~prior ~~past~~years to cover capital expenditures, ~~operational~~operating expenses, real estate taxes and funds in connection with the refinancing of the mortgage encumbering Big Walnut Apartments. No such advances were received during the ~~year~~nine ~~ended~~months ~~December~~ended ~~31,~~September ~~2008. At December 31~~30, ~~2008,~~2009 ~~there were no advances~~ or ~~associated accrued~~the ~~interest~~year ~~due~~ended ~~to AIMCO Properties, L.P. At~~ December 31, ~~2007,~~2008. The ~~the amount~~Partnership ofrepaid ~~the~~in ~~outstanding~~full the advance balance and accrued interest ~~due~~of ~~to AIMCO Properties, L.P. was~~ approximately $67,~~797~~046,000 ~~and~~during ~~was included in due to affiliates. During~~ the year ended December 31, ~~2007,~~2008 the Partnership made a payment of approximately $200,000 of accrued interest to AIMCO Properties, L.P. from cash reserves. The Partnership repaid in full the remaining advance balance and accrued interest of approximately $7,046,000 with proceeds from the sale of of Reflections Apartments. Interest on advances was charged at prime plus 1% ~~and interest~~. Interest expense was approximately $249,000 ~~and $537,000~~ for the ~~years~~year ended December 31, 2008 ~~and 2007, respectively~~. ~~The~~ ~~Partnership~~At ~~may~~September ~~receive~~30, ~~additional advances~~2009 ofand ~~funds~~December ~~from AIMCO Properties~~31, ~~L.P. although AIMCO Properties~~2008, ~~L.P.~~there ~~is not~~were ~~obligated~~no ~~to provide such~~ advances. ~~For~~or associated ~~more~~accrued ~~information~~interest ondue to AIMCO Properties, L.P.~~, including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.~~

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 ended December 31, 1999. ~~During~~ During 2002, the Partnership paid $30,000 of this amount to an unaffiliated third party as part of a settlement regarding brokerage services. Approximately $18,000 is was accrued at December 31, 2008 and ~~2007 and~~ is included in other liabilities on the consolidated balance sheet included in “Item 8. Financial Statements and Supplementary Data”. Payment of this commission is subordinate to the limited ~~partners~~ partners receiving their original invested capital plus a cumulative non-compounded annual return of 8% on their adjusted invested capital. During the nine months ended September 30, 2009, the Managing General Partner determined that the limited partners would not receive both their original capital contribution and applicable cumulative return. Therefore, the Managing General Partner reversed the real estate commission of approximately $18,000 previously accrued associated with the sale of Shoppes at River Rock, which is included in gain from sale of discontinued operations for the nine months ended September 30, 2009.

The Partnership ~~insures~~insured its properties up to certain limits through coverage provided by AIMCO which is ~~generally~~ generally self-insured for a portion of losses and liabilities related to workers’ compensation, property casualty, general liability and vehicle liability. The Partnership ~~insures~~insured its properties above the AIMCO limits through ~~insurance~~ insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the ~~years~~nine months ended ~~December~~September 3130, ~~2008~~2009 and ~~2007~~the year ended December 31, 2008, the Partnership was charged by AIMCO and its affiliates approximately $~~128~~28,000 and $~~202~~128,000, respectively, for insurance coverage and fees associated with policy claims administration.

Neither of the Managing General Partner’s directors is independent under the independence standards established for New York Stock Exchange listed companies as both directors are employed by the parent of the Managing General Partner.

Item 14. Principal Accounting Fees and Services

The Managing General Partner has reappointed Ernst & Young LLP as independent auditors to audit the consolidated financial statements of the Partnership for ~~2009~~2010. The aggregate fees billed for services rendered by Ernst & Young LLP for ~~2008~~2009 and ~~2007~~2008 are described below.

Audit Fees. Fees for audit services totaled approximately $5840,000 and $5358,000 for ~~2008~~2009 and ~~2007~~2008, respectively. Fees for audit services also include fees for the reviews of the Partnership’s Quarterly Reports on Form 10-Q.

Tax Fees. Fees for tax services totaled approximately $3021,000 and $2530,000 for ~~2008~~2009 and ~~2007~~2008, respectively.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) The following consolidated financial statements of the Partnership are included in Item 8:

Consolidated ~~Balance~~Statement ~~Sheets~~of atNet Assets in Liquidation – December 31, ~~2008 and 2007~~2009.

Consolidated ~~Statements~~Statement of ~~Operations~~Changes in Net Assets in Liquidation for the ~~years~~period ~~ended~~from ~~December~~October 311, ~~2008~~2009 ~~and~~to December ~~2007~~31, 2009.

Consolidated ~~Statements~~Balance ~~of Changes~~Sheet ~~in Partners’ Deficit for the years ended~~ - December 31, 2008 ~~and 2007~~.

Consolidated Statements of Discontinued ~~Cash~~Operations ~~Flows~~ for the ~~years~~Nine Months ended ~~December~~September 3130, ~~2008~~2009 and ~~2007~~the Year ended December 31, 2008.

Consolidated Statements of Changes in Partners' (Deficiency) Capital/Net Assets in Liquidation for the Nine Months ended September 30, 2009 and the Year ended December 31, 2008.

Statements of Cash Flows for the Nine Months ended September 30, 2009 and the Year ended December 31, 2008.

Notes to Consolidated Financial Statements.

Schedules are omitted for the reason that they are inapplicable or equivalent information has been included elsewhere herein.

(b) Exhibits:

See Exhibit Index.

The agreements included as exhibits to this Form 10-K contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

may apply standards of materiality in a way that is different from what may be viewed as material to an investor; and

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. The Partnership acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-K not misleading. Additional information about the Partnership may be found elsewhere in this Form 10-K and the Partnership’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly 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. Managing General Partner By: /s/Steven D. Cordes Steven D. Cordes Senior Vice President By: /s/Stephen B. Waters Stephen B. Waters ~~Vice~~Senior ~~President~~Director of Partnership Accounting Date: March 2531, ~~2009~~2010

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/Harry G. Alcock	Director and Executive	Date: March 25, 2009
/s/John Bezzant	Director and Senior	Date: March 31, 2010
Harry G. Alcock	Vice President
John Bezzant	Vice President
/s/Steven D. Cordes	Director and Senior	Date: March 2531, ~~2009~~2010
Steven D. Cordes	Vice President
/s/Stephen B. Waters	~~Vice~~Senior ~~President~~Director of Partnership	Date: March 2531, ~~2009~~2010
Stephen B. Waters	Accounting

DAVIDSON DIVERSIFIED REAL ESTATE II, LP

EXHIBIT INDEX

Exhibit Number Description of 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.

3C First Amendment to the Partnership Agreement of Registrant, dated May 21, 2008, incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008.

3D Second Amendment to the Partnership Agreement of Registrant, dated December 29, 2008, incorporated by reference to the Registrant's ~~Quarterly~~Annual Report on Form 10-Q K for the ~~quarterly~~fiscal ~~period~~year ended ~~September~~December 3031, 2008.

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.

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.

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.

10.9 22 ~~Multifamily~~Purchase ~~Note~~and ~~dated~~Sale ~~May~~Contract ~~31, 2006~~ between The Trails, L.P., a South Carolina ~~limited~~ limited partnership, and ~~Johnston~~White ~~Capital~~Eagle Property Group, ~~Inc.~~LLC, a ~~Texas corporation~~New ~~incorporated~~York limited liability company, dated June 24, 2009. (Incorporated by reference to the ~~Registrant~~Partnership’s ~~Quarterly~~Current Report on Form 108-~~QSB for~~K ~~the~~dated ~~quarterly period ended~~ June 3024, ~~2006~~2009).

10.1023 ~~Multifamily~~First ~~Deed~~Amendment of ~~Trust,~~Purchase ~~Assignment of Rents~~ and ~~Security~~Sale ~~Agreement~~Contract ~~dated May 31, 2006~~ between The Trails, L.P., a South Carolina limited partnership, and ~~Johnston~~ ~~Capital~~White Eagle Property Group, ~~Inc.~~LLC, a ~~Texas~~New ~~corporation~~York limited ~~incorporated~~liability company, dated August 7, 2009. (Incorporated by reference to the Registrant’s ~~Quarterly~~Current Report on Form 108-~~QSB~~K ~~for~~dated ~~the~~August ~~quarterly period ended June 30~~7, ~~2006~~2009).

10.11 Guaranty Agreement dated May 31, 2006 between AIMCO Properties, L.P., a Delaware limited partnership and Johnston Capital Group, Inc., a Texas corporation, The Trails, L.P., a South Carolina limited partnership, and Johnston Capital Group, Inc., a Texas corporation incorporated by reference to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2006.

10.15 Purchase and Sale Contract between Davidson Diversified Real Estate II, L.P, a Delaware limited partnership, and Ardizzone Enterprises, Inc., an Indiana corporation, dated May 22, 2008. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated May 22, 2008)

10.16 First Amendment to Purchase and Sale Contract between Davidson Diversified Real Estate II, L.P, a Delaware limited partnership, and Ardizzone Enterprises, Inc., an Indiana corporation, dated July 9, 2008. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated July 9, 2008)

10.17 Agreement for Purchase and Sale and Joint Escrow Instructions between Big Walnut, L.P., a Delaware limited partnership, and the affiliated Selling Partnerships and JRK Property Holdings, Inc., a California corporation and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated September 29, 2008. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated September 29, 2008)

10.18 First Amendment to Agreement for Purchase and Sale and Joint Escrow Instructions between Big Walnut, L.P., a Delaware limited partnership, and the affiliated Selling Partnerships and JRK Property Holdings, Inc., a California corporation and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated September 30, 2008. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated September 29, 2008)

10.19 Second Amendment to Agreement for Purchase and Sale and Joint Escrow Instructions between Big Walnut, L.P., a Delaware limited partnership, and the affiliated Selling Partnerships and JRK Property Holdings, Inc., a California corporation and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated October 2, 2008. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated September 29, 2008)

10.20 Third Amendment to Agreement for Purchase and Sale and Joint Escrow Instructions between Big Walnut, L.P., a Delaware limited partnership, and the affiliated Selling Partnerships and JRK Property Holdings, Inc., a California corporation and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated October 21, 2008. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated October 22, 2008)

31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of the equivalent of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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