CAPITAL REALTY INVESTORS II LTD PARTNERSHIP, 10-K, 1996-03-25

CAPITAL REALTY INVESTORS II LTD PARTNERSHIP
10-K, 1996-03-25
REAL ESTATE

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<PAGE>
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 1995
-----------------

Commission file number 0-11973
-----------------

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Maryland 52-1321492
- ------------------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

11200 Rockville Pike, Rockville, Maryland 20852
- ------------------------------------------ --------------------
(Address of principal executive offices) (Zip Code)

(Registrant's telephone number,
including area code) (301) 468-9200
--------------------

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

Name of each exchange
Title of each class on which registered
- ------------------------------------------ ---------------------
NONE N/A

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

LIMITED PARTNERSHIP UNITS
- -------------------------------------------------------------------------------
(Title of class)

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 of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K (X)

The partnership interests of the Registrant are not traded in any market.
Therefore, the partnership interests had neither a market selling price nor an
average bid or asked price within the 60 days prior to the date of this filing.
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

1995 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I
------

Page
----

Item 1. Business . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . I-6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . I-6
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . I-6

PART II
-------

Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters . . . II-1
Item 6. Selected Financial Data . . . . . . . . . . . . . II-1
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . II-2
Item 8. Financial Statements and Supplementary Data . . . II-11
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . II-11

PART III
--------

Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . III-1
Item 11. Executive Compensation . . . . . . . . . . . . . III-2
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . III-3
Item 13. Certain Relationships and Related Transactions . III-4

PART IV
-------

Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . IV-1

Signatures . . . . . . . . . . . . . . . . . . . . . . . . IV-3

Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . IV-31
<PAGE>
PART I
------

ITEM 1. BUSINESS
--------

Capital Realty Investors-II Limited Partnership (the Partnership) is a
limited partnership which was formed under the Maryland Revised Uniform Limited
Partnership Act on March 23, 1983. On May 6, 1983, the Partnership commenced
offering 50,000 limited partnership interests through a public offering which
was managed by Merrill Lynch, Pierce, Fenner and Smith, Incorporated. The
Partnership closed the offering on June 20, 1983 when it became fully
subscribed.

The General Partners of the Partnership are C.R.I., Inc. (CRI), which is
the Managing General Partner, and current and former shareholders of CRI.
Services for the Partnership are performed by CRI, as the Partnership has no
employees of its own.

The Partnership was formed to invest in real estate, which is the
Partnership's principal business activity, by acquiring and holding a limited
partnership interest in limited partnerships (Local Partnerships). As of
December 31, 1995, the Partnership has invested in twenty-two Local
Partnerships. Each of these Local Partnerships owns a federal or state
government-assisted or conventionally financed apartment complex, which provides
housing principally to the elderly or to individuals and families of low or
moderate income. The original objectives of these investments, not necessarily
in order of importance, were to:

(1) preserve and protect the Partnership's capital;
(2) provide, during the early years of the Partnership's operations,
current tax benefits to the partners in the form of tax losses which
the partners may use to offset income from other sources;
(3) provide capital appreciation through increases in the value of the
Partnership's investments and increased equity through periodic
payments on the indebtedness on the apartment complexes; and
(4) provide cash distributions from sale or refinancing of the
Partnership's investments and, on a limited basis, from rental
operations.

See Part II, Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, for a discussion of factors affecting the original
investment objectives.

The Local Partnerships in which the Partnership has invested were organized
by private developers who acquired the sites, or options thereon, applied for
applicable mortgage insurance and/or subsidies, and remain as the local general
partners in the Local Partnerships. The Partnership became the principal
limited partner in these Local Partnerships pursuant to negotiations with these
developers who act as the local general partners. However, in the event of
non-compliance with the Local Partnerships' partnership agreements, the local
general partner may be removed and replaced with another local general partner
or with an affiliate of the Partnership's Managing General Partner. As a
limited partner, the Partnership's legal liability for obligations of the Local
Partnership is limited to its investment. An affiliate of the Managing General
Partner of the Partnership is also generally a general partner of the Local
Partnerships. In most cases, the local general partners of the Local
Partnerships retain responsibility for developing, constructing, maintaining,
operating and managing the project. Additionally, the local general partners
and affiliates of the Managing General Partner may operate other apartment
complexes which may be in competition for eligible tenants with the Local
Partnerships' apartment complexes.

I-1
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------

Although each of the Local Partnerships in which the Partnership has
invested owns an apartment complex which must compete in the market place for
tenants, interest subsidies and/or rent supplements from governmental agencies
generally make it possible to offer certain of these dwelling units to eligible
tenants at a cost significantly below the market rate for comparable
conventionally financed dwelling units. Based on available data, the General
Partners believe there to be no material risk of market competition in the
operations of the apartment complexes described below which adversely impact the
Partnership, except in specific circumstances as described in Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

The following is a schedule of the apartment complexes owned by Local
Partnerships in which the Partnership is a limited partner:

I-2
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
HAS AN INVESTMENT(1)

<TABLE>
<CAPTION>
Units
Mortgage Authorized for
Name and Location Payable at Financed and/or Insured Number of Rental Asst.
of Apartment Complex 12/31/95 (2) and/or Subsidized Under Rental Units Under Sec. 8
- -------------------- ------------ ----------------------------- ------------ --------------
<S> <C> <C> <C> <C>
Arrowhead Apts. $ 3,999,439 Illinois Housing Development 200 40
Palatine, IL Authority (IHDA)

Beech Hill I 2,978,884 Federal National Mortgage 200 39
Manchester, NH Association (FNMA)/236

Beech Hill II 1,677,503 FNMA/236 120 24
Manchester, NH

Chevy Chase Park 3,851,051 Metropolitan Savings Bank 232 228
Centerville, OH (MSB)/236

Country Place I 5,014,755 Maryland Community Development 192 38
Burtonsville, MD Administration Section 221(d)(4)
of the National Housing Act (NHA)

Country Place II 3,641,662 Reilly Mortgage Group/Section 120 24
Burtonsville, MD 221 (d)(4) of the NHA

Deer Grove Apts. 10,196,004 FNMA/Housing and Urban Development/ 448 0
Palatine, IL Section 221(d)(4) of the NHA

Four Winds West 1,026,277 GMAC HUD Insured through Section 62 62
Birmingham, AL 221 (d)(4) of the NHA/Section 8

Frenchman's Wharf II 7,923,103 Department of Housing and Urban 324 31
New Orleans, LA Development

Golden Acres 1,279,960 California Housing Finance Agency 46 45
Chowchilla, CA (CHFA)

Mercy Terrace 8,679,479 Section 221(d)(4) of the NHA/ 158 158
San Francisco, CA Section 8

The Moorings 3,756,589 IHDA 216 44
Roselle, IL

Orangewood 1,826,500 CHFA 40 0
Orange Cove, CA

Posada Vallarta 13,379,772 Section 221(d)(4) of the NHA/Loan 336 70
Phoenix, AZ assigned to HUD in 1991

Princeton Community 8,457,157 New Jersey Housing Finance Agency 239 26
Village
Princeton, NJ

Rock Glen 3,837,148 Section 221(d)(4) of the NHA 241 0
Baltimore, MD
</TABLE>

I-3
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------

<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
HAS AN INVESTMENT(1)

<TABLE>
<CAPTION>
Units
Mortgage Authorized for
Name and Location Payable at Financed and/or Insured Number of Rental Asst.
of Apartment Complex 12/31/95 (2) and/or Subsidized Under Rental Units Under Sec. 8
- -------------------- ------------ ----------------------------- ------------ --------------
<S> <C> <C> <C> <C>
Rolling Green at 2,428,481 Massachusetts Housing Finance 204 15
Amherst Agency (MHFA)/236
Amherst, MA

Rolling Green at 5,462,579 MHFA/236 404 77
Fall River
Fall River, MA

Tanglewood II 1,605,145 FNMA/Section 221(d)(3) of the NHA 192 0
Westwego, LA

Troy Manor Apts. 859,174 Farmers Home Administration Section 50 50
Troy, AL 5/ Section 8

Westgate Tower Apts. $ 2,162,052 Michigan Sate Housing Develop- 148 43
Westland, MI ment Authority/236

Wexford Ridge 4,159,636 MSB/236 246 242
Madison, WI
- -------------------- ------------ -------- --------
Totals(3) 22 $ 98,202,350 4,418 1,256
============ ======== ========

</TABLE>

I-4
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued

<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Years Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arrowhead Apts. 93% 90% 83% 88% 91% $ 9,025 $ 9,282 $ 8,534 $ 8,465 $ 7,908
Palatine, IL

Beech Hill I 100% 99% 99% 100% 99% 5,343 5,352 5,220 4,798 4,815
Manchester, NH

Beech Hill II 98% 100% 98% 99% 98% 4,836 4,411 4,519 4,447 4,422
Manchester, NH

Chevy Chase Park 99% 98% 100% 99% 99% 4,224 3,938 3,953 3,771 3,617
Centerville, OH

Country Place I 92% 95% 91% 91% 97% 8,902 8,783 8,780 8,570 8,385
Burtonsville, MD

Country Place II 93% 95% 94% 89% 99% 8,833 8,965 8,903 8,878 8,612
Burtonsville, MD

Deer Grove Apts. 93% 95% 96% 96% 90% 8,383 7,831 7,714 7,274 7,243
Palatine, IL

Four Winds West 98% 95% 97% 100% 100% 4,537 4,512 5,822 4,267 4,181
Birmingham, AL

Frenchman's Wharf II 90% 88% 88% 92% 90% 4,171 4,156 4,235 4,192 4,128
New Orleans, LA

Golden Acres 100% 100% 100% 100% 96% 6,271 6,191 6,011 5,905 5,643
Chowchilla, CA

Mercy Terrace 100% 100% 100% 100% 100% 15,898 15,585 15,381 14,985 14,624
San Francisco, CA

The Moorings 97% 97% 97% 94% 94% 8,577 8,688 8,078 7,980 7,782
Roselle, IL

Orangewood 100% 98% 100% 100% 100% 2,700 2,852 2,900 2,987 2,880
Orange Cove, CA

Posada Vallarta 96% 97% 99% 90% 91% 6,616 6,257 5,807 5,714 5,385
Phoenix, AZ

Princeton Community
Village 97% 97% 98% 100% 97% 6,510 6,244 6,072 5,942 5,691
Princeton, NJ

Rock Glen 94% 96% 95% 89% 96% 4,864 4,862 4,778 4,923 4,822
Baltimore, MD
</TABLE>

I-5
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued

<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Years Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rolling Green at Amherst 100% 100% 100% 100% 100% $ 7,314 $ 7,091 $ 6,961 $ 6,683 $ 6,777
Amherst, MA

Rolling Green at 98% 99% 98% 98% 99% 7,177 7,222 7,080 5,797 6,985
Fall River
Fall River, MA

Tanglewood II 98% 99% 100% 100% 100% 4,112 3,923 3,914 3,913 3,648
Westwego, LA

Troy Manor Apts. 100% 100% 100% 100% 100% 4,681 4,596 5,261 4,365 4,251
Troy, AL

Westgate Tower Apts. 99% 98% 99% 100% 100% $ 3,471 $ 3,438 $ 3,261 $ 3,161 $ 3,075
Westland, MI

Wexford Ridge 98% 100% 100% 100% 98% 4,517 4,413 4,182 4,055 4,095
Madison, WI
---- ---- ---- ---- ---- -------- -------- -------- -------- --------
Totals(3) 22 97% 97% 97% 97% 97% $ 6,407 $ 6,300 $ 6,244 $ 5,958 $ 5,862
==== ==== ==== ==== ==== ======== ======== ======== ======== ========

</TABLE>

(1) All properties are multifamily housing complexes. No single
tenant/resident rents 10% or more of the rentable square footage.
Residential leases are typically one year or less in length, with varying
expiration dates, and substantially all rentable space is for residential
purposes.

(2) The amounts provided are the balances of first mortgage loans payable by
the Local Partnerships as of December 31, 1995.

(3) The totals for the percentage of units occupied and the average effective
annual rental per unit are based on a simple average.

For additional information regarding the real estate of Local Partnerships
in which the Partnership has invested, see Part IV, Schedule III - "Real Estate
and Accumulated Depreciation of Local Partnerships in which Capital Realty
Investors-II Limited Partnership has invested."

On January 31, 1996, the Local Managing General Partner of Palatine-
Barrington Associates Limited Partnership (Deer Grove) received an offer for the
property from an unaffiliated entity. The Local Managing General Partner is
currently evaluating this offer.

I-6
<PAGE>
PART I
------

ITEM 2. PROPERTIES
----------

Through its ownership of limited partnership interests in Local
Partnerships, Capital Realty Investors-II Limited Partnership indirectly holds
an interest in the underlying real estate. See Part I, Item 1 and Schedule III
of Part IV, Item 14 for information pertaining to these properties.

ITEM 3. LEGAL PROCEEDINGS
-----------------

Information concerning potential future legal proceedings is contained in
Part II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 6 of the notes to financial statements in Part
IV, Item 14.

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

No matters were submitted to a vote of security holders during the fourth
quarter of 1995.

ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND
-----------------------------------------------------
RELATED PARTNERSHIP MATTERS
---------------------------

(a) It is not anticipated that there will be any market for resale of
interests in the Partnership. As a result, investors may be unable to
sell or otherwise dispose of their interest in the Partnership.

(b) As of March 8, 1996, there were approximately 4,100 registered holders
of limited partnership interests in the Partnership.

(c) No distributions were declared or paid by the Partnership during 1995
or 1994. The Partnership received distributions of $870,339 and
$793,007 from Local Partnerships during 1995 and 1994, respectively.
Some of the Local Partnerships operate under restrictions imposed by
the pertinent government agencies that limit the cash return available
to the Partnership.

I-1
<PAGE>
PART II
-------

ITEM 6. SELECTED FINANCIAL DATA
-----------------------

<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Share of income (loss) from
partnerships $ 238,823 $ (121,724) $ 343,278 $ (455,139) $ (283,511)
Interest income 181,845 125,477 100,172 120,086 176,258
Expenses (6,268,596) (5,605,037) (5,148,865) (4,499,106) (3,979,811)
------------ ------------ ------------ ------------ ------------

Net loss $ (5,847,928) $ (5,601,284) $ (4,705,415) $ (4,834,159) $ (4,087,064)
============ ============ ============ ============ ============

Loss allocated to Additional
Limited Partners (97%) $ (5,672,490) $ (5,433,246) $ (4,564,252) $ (4,689,134) $ (3,964,452)
============ ============ ============ ============ ============

Loss per unit of Additional Limited
Partnership Interest based
on 50,000 units outstanding $ (113.45) $ (108.66) $ (91.29) $ (93.78) $ (79.29)
============ ============ ============ ============ ============

Cash distribution per unit of
Additional Limited Partnership
Interest based on 50,000 units
outstanding $ -- $ -- $ -- $ -- $ --
============ ============ ============ ============ ============

Total assets $ 11,550,373 $ 11,854,627 $ 12,953,688 $ 13,698,771 $ 14,746,932
============ ============ ============ ============ ============

Total remaining due on
investments, including accrued
interest on purchase money notes $ 43,470,049 $ 37,938,310 $ 33,412,704 $ 29,492,031 $ 25,760,146
============ ============ ============ ============ ============
</TABLE>

II-2
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------

General
-------

The Partnership has invested, through Local Partnerships, primarily in
federal or state government-assisted apartment complexes intended to provide
housing to low and moderate income tenants. In conjunction with such government
assistance, which includes federal and/or state financing at below-market
interest rates and rental subsidies, the Local Partnerships agreed to regulatory
limitations on (i) cash distributions, (ii) use of the properties and (iii) sale
or refinancing. These limitations typically were designed to remain in place
for the life of the mortgage.

The original investment objectives of the Partnership primarily were to
deliver tax benefits, as well as cash proceeds upon disposition of the
properties through the Partnership's investment in local limited partnerships.
Only limited annual cash distributions from property operations were projected
because of the regulatory restrictions on cash distributions from the
properties.

The original investment objectives of the Partnership have been affected by
the Tax Reform Act of 1986, which virtually eliminated many of the incentives
for the new construction of or the sale of existing low income housing
properties by limiting the use of passive loss deductions. Therefore, the
Managing General Partner continues to concentrate on transferring the source of
investment yield from tax benefits to cash flow wherever possible and
potentially enhancing the ability of the Partnership to share in the appreciated
value of the properties.

The acquisition of interests in certain Local Partnerships resulted in
purchase money note obligations of the Partnership. The purchase money notes
are non-recourse obligations of the Partnership which typically mature fifteen
years from the dates of acquisition of the interests in particular Local
Partnerships.

The Managing General Partner has been working to develop a strategy to sell
certain properties by utilizing opportunities presented by federal affordable
housing legislation, favorable financing terms and preservation incentives
available to nonprofit purchasers. The Managing General Partner intends to
utilize part or all of the Partnership's net proceeds (after 50% distribution to
limited partners) received from the sale of properties to fund reserves for
paying at maturity, prepaying or purchasing prior to maturity, at a discount
where possible, currently outstanding purchase money notes. The Managing
General Partner believes that this represents an opportunity to reduce the
Partnership's long-term obligations.

Many of the rental properties owned by the Local Partnerships have
mortgages which are federally insured under Section 236 or Section 221(d)(3) of
the National Housing Act, as amended. These properties may be eligible for sale
or refinancing, subject to numerous requirements, under the Low Income Housing
Preservation and Resident Homeownership Act of 1990 (LIHPRHA). This program may
provide incentives to owners of qualifying multifamily housing who commit to
permanently maintain their properties as low to moderate income housing.
Incentives available under LIHPRHA include selling the property to qualified
buyers or obtaining supplemental financing for the property. As of March 8,
1996, members of Congress were recommending substantial changes to the LIHPRHA

II-3
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------

program ranging from the elimination of the program to the redesigning of the
program. Substantial uncertainty exists as to whether any properties which have
already filed the notice of intent to participate under LIHPRHA will qualify
under a redesigned program or as to whether the program will continue at all.

Some of the rental properties owned by the Local Partnerships are financed
by state housing agencies. The Managing General Partner has been working to
develop a strategy to sell or refinance certain properties by utilizing programs
developed by these agencies. These programs may include opportunities to sell
the property to a qualifying purchaser who would agree to maintain the property
as low to moderate income housing in perpetuity, or may include opportunities to
refinance the property through supplemental financing. The Managing General
Partner continues to monitor these programs to ascertain whether the properties
would qualify within the parameters of these programs and whether these programs
would provide an appropriate economic benefit to the limited partners of the
Partnership.

Many of the rental properties owned by the Local Partnerships are dependent
on the receipt of housing assistance payments guaranteed by contract under the
Department of Housing and Urban Development (HUD) Section 8 program. The level
of funding for the Section 8 program, and HUD-insured multifamily housing in
general, is dependent upon the continuation of appropriations approved by
Congress for subsidy payments. In the event that the rental subsidy programs
are reduced or phased out, there is no assurance that the rental properties will
be able to maintain the occupancy levels necessary to pay debt service and
operating costs or that the rents necessary to pay debt service and operating
costs will be competitive with rents for comparable units in the rental
properties' market areas. While the Managing General Partner has no reason to
believe that HUD will not honor its obligations under the contracts, some
uncertainty exists in light of the recent Congressional scrutiny of
appropriations for HUD programs.

In 1990, CRI, as Managing General Partner of the Partnership and various
other entities, subcontracted certain property-level asset management functions
for certain properties to Capital Management Strategies, Inc. (CMS). Among
these properties were properties owned by certain of the Local Partnerships in
which the Partnership invested. CMS was formed by Martin C. Schwartzberg, a
nominal general partner of the Partnership and a former stockholder of CRI, when
he cashed out of CRI and its related businesses as of January 1, 1990. Mr.
Schwartzberg agreed not to act as a general partner with respect to any of the
CRI-sponsored partnerships, including this Partnership, and has not done so
since that time. In late 1995, a dispute arose between CRI and CMS over the
funding level of the 1996 contract for CMS. On November 9, 1995, CRI filed a
complaint against CMS to determine the proper amount of fees to be paid in 1996
under the asset management agreement. CMS answered on January 10, 1996, but
asserted no counterclaims.

II-4
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------

Mr. Schwartzberg's company, CMS, agreed to perform limited functions related to
property-level issues for a portion of CRI's subsidized housing portfolio
(including some of the properties in which the Partnership invested), by
reducing the proposed budget for 1996. The Partnership is not named as a
defendant in this action. Messrs. Dockser and Willoughby have entered an answer
denying all of Mr. Schwartzberg's claims. Messrs. Dockser and Willoughby have
publicly responded that Mr. Schwartzberg's suit is motivated by his budget
dispute with CRI and personal animosity. On February 6, 1996, CRI terminated
the CMS contract for cause. Mr. Schwartzberg and CMS responded by filing a
motion for injunctive relief in the Circuit Court, asking the court to enjoin
CRI from terminating the contract. In a ruling issued on February 12, 1996, the
Circuit Court, among other things, refused to grant the injunction requested by
CMS. A hearing in this case is scheduled for April 29, 1996. On February 12,
1996, the Circuit Court also issued a memorandum opinion and order enjoining CMS
and Mr. Schwartzberg from disclosing information made confidential under the
asset management agreement.

On February 1, 1996 and February 16, 1996, Mr. Schwartzberg sent letters to
the Partnership requesting investor lists and other forms of investor
information. On February 5, 1996, the Partnership, acting through its managing
general partner, CRI, denied Mr. Schwartzberg's request. On February 20, 1996,
counsel for the Partnership responded to Mr. Schwartzberg's second request,
denying that Mr. Schwartzberg had standing or a proper purpose for requesting
the investor lists. In view of Mr. Schwartzberg's solicitation efforts against
other CRI-sponsored partnerships, CRI anticipates that litigation may arise from
this request.

Financial Condition/Liquidity
-----------------------------

As of December 31, 1995, the Partnership had approximately 4,100 investors
who subscribed to a total of 50,000 units of limited partnership interests in
the original amount of $50,000,000. The Partnership has made investments in
twenty-two Local Partnerships. The Partnership's liquidity, with unrestricted
cash resources of $3,192,539 as of December 31, 1995, along with anticipated
future cash distributions from the Local Partnerships, is expected to meet its
current and anticipated operating cash needs. As of March 8, 1996, there were
no material commitments for capital expenditures. Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments" (SFAS 107), requires the disclosure of fair value information about
financial instruments for which it is practicable to estimate that value. The
Partnership implemented SFAS 107 in 1995, and has determined that the carrying
amount of its cash and cash equivalents approximates fair value.

During 1995, 1994 and 1993, the Partnership received cash distributions of
$870,339, $793,007 and $1,092,917, respectively, from the Local Partnerships.

As of December 31, 1995, the Partnership's obligations with respect to its
investments in Local Partnerships, in the form of purchase money notes of
$22,420,678 (exclusive of unamortized discount on purchase money notes of
$8,206,853) plus accrued interest of $29,256,224, are payable upon the earliest
of: (1) sale or refinancing of the respective Local Partnership's rental
property; (2) payment in full of the respective Local Partnership's permanent

II-5
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------

loan; or (3) maturity. Purchase money notes in an aggregate principal amount of
$2,380,000 matured on August 1, 1995 but have not been paid, as discussed below.
A purchase money note in the principal amount of $2,280,000 matured on August 1,
1995 and was subsequently paid off at a discount on January 11, 1996, as
discussed below. Purchase money notes in an aggregate principal amount of
$2,100,000 are scheduled to mature on December 31, 1996, as discussed below.
The remaining purchase money notes mature in 1998 and 1999. The purchase money
notes are generally secured by the Partnership's interest in the respective
Local Partnership. There is no assurance that the underlying properties will
have sufficient appreciation and equity to enable the Partnership to pay the
purchase money notes' principal and accrued interest when due. If a purchase
money note is not paid in accordance with its terms, the Partnership will either
have to renegotiate the terms of repayment or risk losing its partnership
interest in the Local Partnership. The Managing General Partner is continuing
to investigate possible alternatives to reduce the Partnership's long-term debt
obligations. These alternatives include, among others, retaining the cash
available for distribution to meet the purchase money note requirements, buying
out certain purchase money notes at a discounted price, extending the due dates
of certain purchase money notes, or refinancing the respective properties'
underlying debt and using the Partnership's share of the proceeds to pay off or
buy down certain purchase money note obligations.

The Partnership defaulted on its purchase money note relating to Rock Glen
Limited Partnership (Rock Glen) on August 1, 1995 when the note matured and was
not paid. A standstill agreement from the noteholder was granted until October
31, 1995. The Managing General Partner made an offer to the noteholder to
extend the purchase money note due date to August 2000. This offer was rejected
by the noteholder. On January 11, 1996, the Partnership paid off the purchase
money note at a discount, resulting in a gain on extinguishment of debt of
approximately $1.8 million.

The Partnership defaulted on its purchase money note relating to Beech Hill
Development Co. (Beech Hill I) on August 1, 1995 when the note matured and was
not paid. The default amount included principal and accrued interest of
$1,480,000 and $1,473,498, respectively. As of March 8, 1996, principal and
accrued interest totalling $1,480,000 and $1,553,687, respectively, were due.
In addition, the Partnership defaulted on its purchase money note relating to
Beech Hill Development Co. II (Beech Hill II) on August 1, 1995 when the note
matured and was not paid. The default amount included principal and accrued
interest of $900,000 and $905,047, respectively. As of March 8, 1996, principal
and accrued interest totalling $900,000 and $953,810, respectively, were due.
The Managing General Partner is currently negotiating with the noteholders of
Beech Hill I and Beech Hill II to extend the purchase money note due dates to
January 1, 1998. Under the proposed agreement, the Partnership would pay the
purchase money noteholders of Beech Hill I and Beech Hill II all annual cash
flow distributions received from the related Local Partnerships in excess of
$5,000 and $2,500, respectively. There were no annual cash flow distributions
made to the Partnership from the related Local Partnerships during 1995, 1994 or
1993. Also under the proposed agreement, transfer documents relating to
foreclosure by the noteholders upon the Partnership's interests in the related
Local Partnerships would be placed in escrow and released to the noteholders
upon a future default by the Partnership on the respective purchase money notes.
There is no assurance that an agreement will be reached between the Managing
General Partner and the noteholders. As such, there is no assurance that the

II-6
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------

Partnership will be able to retain its interest in either Beech Hill I or Beech
Hill II.

Purchase money notes relating to Chevy Chase Park Limited (Chevy Chase) in
the aggregate principal amount of $2,100,000 mature on December 31, 1996. The
Managing General Partner is currently negotiating with the noteholders to extend
the purchase money note due dates to coincide with potential future LIHPRHA
processing, or to accept a discounted pay-off. There is no assurance that any
agreement will be reached with the noteholders. As such, there is no assurance
that the Partnership will be able to retain its interest in Chevy Chase.

The uncertainty about the continued ownership of the Partnership's
interests in Beech Hill I, Beech Hill II or Chevy Chase does not impact the
Partnership's financial condition because the related purchase money notes are
nonrecourse and secured solely by the Partnership's interest in the related
Local Partnerships. Therefore, should the investment in Beech Hill I, Beech
Hill II and Chevy Chase not produce sufficient value to satisfy the related
purchase money notes, the Partnership's exposure to loss is limited since the
amount of the nonrecourse indebtedness exceeds the carrying amount of the
investment in and advances to the Local Partnerships. Thus, even a complete
loss of any of these investments would not have a material impact on the
operations of the Partnership. However, should the Partnership be unable to
retain its interest in all of the Local Partnerships, the investments in and
advances to Local Partnerships would be reduced by the Partnership's basis in
these Local Partnerships, which at December 31, 1995 was approximately 17% of
the Partnership's total investment in Local Partnerships.

SFAS 107 requires the disclosure of fair value information about financial
instruments for which it is practicable to estimate that value. The Partnership
has determined that it is not practicable to estimate the fair value of the
purchase money notes, either individually or in the aggregate, due to: (1) the
lack of an active market for this type of financial instrument, (2) the variable
nature of purchase money note interest payments as a result of fluctuating cash
flow distributions received from the related Local Partnerships, and (3) the
excessive costs associated with an independent appraisal of the purchase money
notes.

The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
In 1995, the receipt of distributions from Local Partnerships was adequate to
support operating cash requirements.

In 1994, the receipt of distributions from Local Partnerships was adequate
to support operating cash requirements. Cash and cash equivalents decreased in
1994 from 1993.

Results of Operations
---------------------

The Partnership's net loss increased in 1995 from 1994 primarily due to an
increase in interest expense as a result of the amortization of imputed
interest. Partially offsetting the increase in net loss was an increase in
share of income from Local Partnerships principally due to the loss in 1994
resulting from the pay-off of the remaining Country Place I and II purchase

II-7
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------

money notes, as discussed below. Also partially offsetting the increase in net
loss was an increase in interest income resulting from increased yields on
investments and higher cash balances during 1995.

The Partnership's net loss increased in 1994 from 1993 primarily due to an
increase in interest expense as a result of the amortization of imputed
interest. Contributing to the increase in net loss was an increase in share of
loss from Local Partnerships principally due to the loss resulting from the pay-
off of the remaining Country Place I and II purchase money notes, as discussed
above. Partially offsetting the increase in net loss was a decrease in general
and administrative expenses primarily due to the payment of 1992 expenses in
1993 and a decrease in annual report printing costs. Also partially offsetting
the increase in net loss was a decrease in proxy solicitation costs relating to
the proxy solicitation submitted to investors during the first quarter of 1993,
as well as a decrease in professional fees primarily due to the payment of 1992
expenses in 1993.

The purchase money notes originated from 1983 through 1984. When they were
issued, the market interest rate was approximately 15%, while the stated
interest rates ranged from 9% to 12%. The notes were discounted as required by
Generally Accepted Accounting Principles, and a simple/compound method was used
at the stated interest rate for tax purposes and the compound method at the
market interest rate was used for book purposes. As the book interest is being
compounded, the interest expense for book purposes will eventually surpass the
interest expense for tax purposes, thereby reducing the discount and increasing
the interest expense. In fiscal year 1995, all properties with purchase money
notes had book interest which exceeded the tax interest. This increase in
interest expense and the resulting reduction in the discount is expected to
increase in future years.

For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnerships, does not record losses from the Local Partnerships in
excess of its investment to the extent that the Partnership has no further
obligation to advance funds or provide financing to the Local Partnerships. As
a result, the Partnership's recognized losses for the years ended December 31,
1995, 1994 and 1993 did not include losses of $3,522,606, $3,493,216 and
$3,605,305, respectively. The Partnership's net loss recognized from the Local
Partnerships is generally expected to decrease in subsequent years as the
Partnership's investments in the Local Partnerships are reduced to zero. Accord-
ingly, excludable losses are generally expected to increase. Distributions of
$248,235, $113,392 and $394,949, received from six, five and six Local
Partnerships, respectively, during 1995, 1994 and 1993, respectively, were
offset against the respective years' recorded losses because these amounts were
in excess of the Partnership's investment.

II-8
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------

connection with a workout proposal. On March 1, 1994, the local general partner
submitted a nine-year workout proposal to HUD. This proposal was rejected by
HUD in December 1995. As of March 8, 1996, the local general partner is
continuing to work directly with the HUD central office to submit a five-year
workout proposal. There is no assurance that approval for a workout will be
received. If a workout proposal is not accepted and another alternative is not
found, then HUD could foreclose on the property. Frenchman's Wharf II was
notified by HUD that HUD had planned to offer its mortgage loan for sale in
September of 1995. HUD later notified Frenchman's Wharf II that its loan was
not included in the pool of loans sold by HUD in September 1995. As of March 8,
1996, Frenchman's Wharf II has not been notified as to whether HUD will offer
the Frenchman's Wharf II loan for sale at a later date. If the mortgage is
eventually sold by HUD, a new mortgagee would service the loan and could
foreclose on the property. Currently, debt service payments are being made from
available cash flow. To cover operating deficits incurred in prior years for
Frenchman's Wharf II, the Partnership advanced funds totalling $324,410 as of
both December 31, 1995 and 1994. The last advance was made to Frenchman's
Wharf II in March 1987. The Partnership does not expect to advance any
additional funds in connection with Frenchman's Wharf II's loan workout with
HUD. These loans, together with accrued interest of $187,372 as of both
December 31, 1995 and 1994, are payable from cash flow of Frenchman's Wharf II
after payment of first-mortgage debt service and after satisfaction by the
Partnership of certain other interest obligations on the purchase money notes
due from the Local Partnership. There is no assurance that the Local
Partnership, upon expiration of any workout, will be able to repay any loans in
accordance with the terms.

In addition, the Local Partnership has entered into an agreement with the
Frenchman's Wharf II's purchase money noteholder which, among other things,
provides that, in the event of a default under the purchase money note and
related pledge agreement, the noteholder will not exercise any rights or
remedies under the purchase money note and related pledge agreement during the
term of any subsequent loan modification or workout agreement, as long as HUD
does not commence foreclosure action under the mortgage loan. The purchase
money note was made by the Partnership in connection with its investment in the
Local Partnership, and is a nonrecourse note secured only by the Partnership's
interest in the Local Partnership.

The report of the auditors on the financial statements of Frenchman's Wharf
II for the years ended December 31, 1995 and 1994 indicates that substantial
doubt exists about the ability of Frenchman's Wharf II to continue as a going
concern due to the property's recurring operating deficits and the Local
Partnership's default on its mortgage. The uncertainty about the Local
Partnership's continued ownership of the property does not impact the
Partnership's financial condition because the related purchase money note is
nonrecourse and secured solely by the Partnership's interest in the Local
Partnership. Therefore, should the investment in Frenchman's Wharf II not
produce sufficient value to satisfy the related purchase money note, the
Partnership's exposure to loss is limited since the amount of the nonrecourse
indebtedness exceeds the carrying amount of the investment in and advances to
the Local Partnership. Thus, even a complete loss of this investment would not
have a material impact on the operations of the Partnership.

II-9
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------

In September 1995, HUD sold the mortgage of Palatine-Barrington Associates
Limited Partnership (Deer Grove) to a new mortgagee. The new mortgagee now
services the loan and Deer Grove is no longer subject to HUD regulatory
requirements.

On January 31, 1996, the local general partner of Deer Grove received an
offer for the property from an unaffiliated entity. The Local Managing General
Partner is currently evaluating this offer.

Posada Associates Limited Partnership (Posada Vallarta Apartments) is
currently operating under an extension of a three-year workout agreement with
HUD, the holder of the mortgage. The workout provides for, among other things,
a minimum monthly debt-service payment with excess cash, if any, being applied
to delinquent interest. Currently, debt-service payments are being made in
accordance with the workout. In June 1995, the three-year workout which
originally expired on October 1, 1995 was extended to October 1, 1996.

On December 15, 1995, Posada Vallarta Apartments was notified by HUD that
HUD plans to offer its mortgage loan for sale in April 1996. If the mortgage is
sold by HUD, a new mortgagee would service the loan, and Posada Vallarta
Apartments would no longer be subject to HUD regulatory requirements.

On July 7, 1992, the Partnership received a distribution from Country Place
I totalling $653,444 as a result of the removal of the limited dividend
restriction on the Local Partnership. In 1993, the Partnership purchased, at a
discount, three purchase money notes for Country Place I and II with an
aggregate original principal amount of $405,000, resulting in an aggregate loss
from extinguishment of debt of $45,452. In 1994, the Partnership purchased the
remaining six purchase money notes for Country Place I and II, two at a
discount, with an aggregate original principal amount of $495,000, resulting in
an aggregate loss from extinguishment of debt of $117,353. The losses from
extinguishment of debt are included in share of loss from partnerships in the
statements of operations.

The Wexford Ridge Associates Local Partnership (located in Madison,
Wisconsin), the local general partner, and its management agent have been named
in eight sexual harassment and discrimination complaints filed with HUD. The
Managing General Partner and the Partnership have also been named in four of the
complaints. The Managing General Partner is monitoring the situation and is
investigating its rights with regard to the local general partner and/or the
management agent if the situation is not dealt with to the satisfaction of the
Managing General Partner. The Managing General Partner believes the claims will
have no aggregate material effect on the financial statements of the Partnership
and that legal costs associated with the claims will be borne by the management
agent.

The local general partners of the following properties have each filed a
notice of intent to participate under the LIHPRHA program:

II-10
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------

Property Date of Filing
-------- -----------------
<C> <C>
Rolling Green at Amherst June 5, 1992
Tanglewood II May 23, 1994
Chevy Chase Park July 18, 1994
Wexford Ridge July 27, 1994
Beech Hill I December 21, 1994
Beech Hill II December 21, 1994
Rolling Green at Fall River March 1, 1996

</TABLE>

This program is discussed above in the General section. There is no
assurance that a sale or refinancing of these properties will occur.

Inflation
---------

Inflation allows for increases in rental rates, usually offsetting any
higher operating and replacement costs. Furthermore, inflation generally does
not impact the fixed rate long-term financing under which real property
investments were purchased. Future inflation could allow for appreciated values
of the Local Partnerships' properties over an extended period of time as rental
revenues and replacement values gradually increase.

The following table reflects the combined rental revenues of the properties
for the five years ended December 31, 1995:

II-11
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------

<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Combined Rental
Revenue $29,343,786 $28,130,763 $27,551,120 $26,823,399 $26,676,940

Annual Percentage
Increase 4.31% 2.10% 2.71% 0.55%

</TABLE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------

The information required by this item is contained in Part IV.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------

None.

II-12
<PAGE>
PART III
--------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------

(a), (b) and (c) The Partnership has no directors, executive officers or
significant employees of its own.

(a), (b), (c)
and (e) The names, ages and business experience of the
directors and executive officers of C.R.I., Inc. (CRI),
the Managing General Partner of the Partnership, are as
follows:

William B. Dockser, 59, has been the Chairman of the Board of CRI and a Director
since 1974. Prior to forming CRI, he served as President of Kaufman and Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment complexes. For a period of 2-1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for all federally insured housing production programs. Before coming to
Washington, Mr. Dockser was a practicing attorney in Boston and also was a
special Assistant Attorney General for the Commonwealth of Massachusetts. He
holds a Bachelor of Laws degree from Yale University Law School and a Bachelor
of Arts degree, cum laude, from Harvard University. He is also Chairman of the
Board of CRIIMI MAE Inc., CRIIMI, Inc. and CRI Liquidating REIT, Inc.

H. William Willoughby, 49, President, Secretary and a Director of CRI since
January 1990 and Senior Executive Vice President, Secretary and a Director of
CRI from 1974 to 1989. He is principally responsible for the financial
management of CRI and its associated partnerships. Prior to joining CRI in 1974,
he was Vice President of Shelter Corporation of America and a number of its
subsidiaries dealing principally with real estate development and equity
financing. Before joining Shelter Corporation, he was a Senior Tax Accountant
with Arthur Andersen & Company. He holds a Juris Doctorate degree, a Master of
Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota. He is also a Director and
executive officer of CRIIMI MAE Inc., CRIIMI, Inc. and CRI Liquidating REIT,
Inc.

Richard J. Palmer, 44, Senior Vice President-Chief Financial Officer. Prior to
joining CRI in 1983 as Director of Tax Policy, he was a Tax Manager at Grant
Thornton (formerly Alexander Grant & Company). He also served in the Tax and
Audit Departments of Peat, Marwick, Main and Company (formerly Peat, Marwick,
Mitchell and Company) prior to his seven years at Grant Thornton. He holds a
Bachelor of Business Administration degree from the Florida Atlantic University
and is also a Certified Public Accountant.

Ronald W. Thompson, 49, Group Executive Vice President-Hotel Asset Management.
Prior to joining CRI in 1985, he was employed at the Hyatt Organization where he
most recently served as the General Manager of the Hyatt Regency in Flint,
Michigan. During his nine year tenure with Hyatt, he held senior management
positions with the Hyatt Regency in Dearborn, Michigan, the Hyatt in Richmond,
Virginia, the Hyatt in Winston-Salem, North Carolina and the Hyatt Regency in
Atlanta, Georgia. Before joining Hyatt, Mr. Thompson worked in London, England
for the English Tourist Board as well as holding management positions in Europe,
Australia, and New Zealand in the hotel industry. Mr. Thompson received his
education in England where he received a business degree in Hotel Administration
from Winston College.

III-1
<PAGE>
PART III
--------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
--------------------------------------------------

Susan R. Campbell, 37, Senior Vice President-CRI Realty Services. Prior to
joining CRI in March 1985, she was a budget analyst for the B. F. Saul Advisory
Company. She holds a Bachelor of Science degree in General Business from the
University of Maryland.

Melissa Cecil Lackey, 40, Senior Vice President and General Counsel. Prior to
joining CRI in 1990, she was associated with the firms of Zuckerman, Spaeder,
Goldstein, Taylor & Kolker in Washington, D.C. and Hirsch & Westheimer in
Houston, Texas. She holds a Juris Doctorate from the University of Virginia
School of Law and a Bachelor of Arts degree from the College of William & Mary.

(d) There is no family relationship between any of the foregoing directors
and executive officers.

(f) Involvement in certain legal proceedings.

None.

(g) Promoters and control persons.

Not applicable.

ITEM 11. EXECUTIVE COMPENSATION
----------------------

(a), (b), (c) and (d)

The Partnership has no officers or directors. However, in accordance with
the Partnership Agreement, and as disclosed in the public offering, various
kinds of compensation and fees were paid or are payable to the General
Partners and their affiliates. Additional information required in these
sections is included in Notes 3 and 4 of the financial statements contained
in Part IV, Item 14.

Additionally, the General Partners may receive an annual distribution from
the Partnership if there is cash available for distribution, as defined in
the Partnership Agreement. The General Partners are also entitled to the
following payments:

(1) Annual incentive management fee for managing the affairs and business
of the Partnership in an amount not to exceed .25% of invested assets,
including the Partnership's allocable share of the mortgages, payable
first, in an annual amount equal to $250,000; and second, after
distributions to investors in the amount of 1% of the gross proceeds
of the offering, the balance of such .25% of invested assets. The
annual incentive management fee amounted to $249,996 for each of the
years ended December 31, 1995, 1994 and 1993.

(2) 15% of sale and refinancing proceeds remaining after the limited
partners have received a return of all their capital contributions,
adjusted as provided in the Partnership Agreement, and the General
Partners have received a return of all their capital contributions and
the property disposition fees described below. The General Partners
may also receive a return of their capital contributions and repayment
of any loans made to the Partnership. No sale or refinancing proceeds
were paid to the General Partners during the years ended December 31,
1995, 1994 and 1993.

III-2
<PAGE>
PART III
--------

ITEM 11. EXECUTIVE COMPENSATION - Continued
----------------------

(3) 1% of the aggregate selling prices, including any amounts previously
unpaid upon prior sales of apartment complexes, payable after the
limited partners have received a return of all their capital
contributions, adjusted as provided in the Partnership Agreement.
This amount and any other commissions or fees payable upon the sale of
apartment complexes shall not in the aggregate exceed the lesser of
the competitive rate or 6% of the sales price of the apartment
complexes. No such amounts were paid to the General Partners during
the years ended December 31, 1995, 1994 and 1993.

(4) In addition, the Managing General Partner and/or its affiliates may
receive a fee in an amount of not more than 2% of the sales price of
the investment in a Local Partnership or the property it owns. The
fee would only be payable upon the sale of the investment in a Local
Partnership or the property it owns and would be subject to certain
restrictions, including achievement of a certain level of sales
proceeds and making certain minimum distributions to limited partners.
No such fees were paid to the Managing General Partner and/or its
affiliates during the years ending December 31, 1995, 1994 and 1993.

(e) Termination of employment and change in control arrangements.

None.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------

(a) Security ownership of certain beneficial owners.

No person or "group", as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, is known by the Partnership to be the
beneficial owner of more than 5% of the issued and outstanding
partnership units at December 31, 1995.

(b) Security ownership of management.

The following table sets forth certain information concerning all
units beneficially owned, as of December 31, 1995, by each director
and by all directors and officers as a group of the Managing General
Partner of the Partnership.

Name of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership Units issued
---------------- ----------------------- ------------

William B. Dockser None 0%
H. William Willoughby None 0%
All Directors and Officers
as a Group (6 persons) None 0%

III-3
<PAGE>
PART III
--------

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT - Continued
-----------

There exists no arrangement known to the Partnership, the operation of
which may, at a subsequent date, result in a change in control of the
Partnership. There is a provision in the Limited Partnership
Agreement which allows, under certain circumstances, the ability to
change control.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------

(a) Transactions with management and others.

The Partnership has no directors or officers. In addition, the
Partnership has had no transactions with individual officers or
directors of the Managing General Partner of the Partnership other
than any indirect interest such officers and directors may have in the
amounts paid to the Managing General Partner or its affiliates by
virtue of their stock ownership in CRI. Item 11 of this report, which
contains a discussion of the fees and other compensation paid or
accrued by the Partnership to the General Partners or their
affiliates, is incorporated herein by reference. Note 3 of the notes
to financial statements, which contains disclosure of related party
transactions, is also incorporated herein by reference.

(b) Certain business relationships.

The Partnership's response to Item 13(a) is incorporated herein by
reference. In addition, the Partnership has no business relationship
with entities of which the officers and directors of the Managing
General Partner of the Partnership are officers, directors or equity
owners other than as set forth in the Partnership's response to Item
13(a).

None.

(d) Transactions with promoters.

Not applicable.

III-4
<PAGE>
PART IV
-------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
------------------------------------------------------
FORM 8-K
--------

(a) 1. Financial Statements Page
-------------------- ----

Report of Independent Certified Public
Accountants - Capital Realty Investors-II
Limited Partnership IV-4

Reports of Independent Certified Public
Accountants - Local Partnerships in which
Capital Realty Investors-II Limited
Partnership has invested IV-5

Balance Sheets as of December 31, 1995 and 1994 IV-6

Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 IV-7

Statements of Changes in Partners' Deficit for
the years ended December 31, 1995, 1994 and
1993 IV-8

Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 IV-9

Notes to Financial Statements IV-10

(a) 2. Financial Statement Schedules
-----------------------------

Included in Part IV of this report are the
following schedules for the year ended
December 31, 1995, which are applicable to the
Local Partnerships in which Capital Realty
Investors-II Limited Partnership has invested:

Report of Independent Certified Public Accountants
on Financial Statement Schedule IV-27

Schedule III - Real Estate and Accumulated
Depreciation IV-28

The remaining schedules are omitted because the required
information is included in the financial statements and notes
thereto or they are not applicable or not required.

(a) 3. Exhibits (listed according to the number assigned in the table
in Item 601 of Regulation S-K)

Exhibit No. 3. - Articles of Incorporation and Bylaws

IV-1
<PAGE>
PART IV
-------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
------------------------------------------------------
FORM 8-K - Continued
--------

a. Certificate of Limited Partnership of Capital Realty
Investors-II Limited Partnership. (Incorporated by
reference from Exhibit 4 to Registrant's Registration
Statement on Form S-11, as amended, dated April 28, 1983.)

Exhibit No. 4. - Instruments defining rights of security holders
including indentures.

a. Limited Partnership Agreement of Capital Realty Investors-II
Limited Partnership. (Incorporated by reference from
Exhibit 4 to Registrant's Registration Statement on Form
S-11, as amended, dated April 28, 1983.)

Exhibit No. 10. - Material contracts

a. Management Services Agreement between CRI and Capital Realty
Investors-II Limited Partnership. (Incorporated by reference
from Exhibit 10B to Registrant's Registration Statement on
Form S-11, as amended, dated April 28, 1983.)

Exhibit No. 27 - Financial Data Schedule

Exhibit No. 99 - Additional Exhibits

a. Prospectus of the Partnership, dated May 6, 1983
(Incorporated by reference to the Registrant's Registration
Statement on Form S-11, as amended, dated April 28, 1983).

(b) Reports on Form 8-K
-------------------

No reports on Form 8-K were filed during the quarter ended
December 31, 1995.

The list of Exhibits required by Item 601 of Regulation S-K is
included in Item (a)3., above.

(d) Financial Statement Schedules
-----------------------------

See Item (a)2., above.

IV-2
<PAGE>
SIGNATURES
----------

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

Capital Realty Investors-II
Limited Partnership

By: C.R.I., Inc.
General Partner

March 25, 1996 /s/ William B. Dockser
- ------------------------------ -----------------------------------
DATE William B. Dockser, Director
Chairman of the Board,
Treasurer and Principal
Executive Officer

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:

March 25, 1996 /s/ H. William Willoughby
- ------------------------------ -----------------------------------
DATE H. William Willoughby
Director, President and Secretary

March 25, 1996 /s/ Richard J. Palmer
- ------------------------------ -----------------------------------
DATE Richard J. Palmer
Senior Vice President,
Chief Financial Officer,
Principal Financial and
Principal Accounting Officer

IV-3
<PAGE>

REPORT OF INDEPENDENT CERTIFIED
------------------------------
PUBLIC ACCOUNTANTS
-------------------

To the Partners
Capital Realty Investors-II
Limited Partnership

We have audited the balance sheets of Capital Realty Investors-II Limited
Partnership as of December 31, 1995 and 1994, and the related statements of
operations, changes in partners' deficit and cash flows for the years ended
December 31, 1995, 1994 and 1993. These financial statements are the responsi-
bility of the Partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audit. We did not audit the
financial statements for nineteen of the Local Partnerships in 1995, 1994 and
1993, which are accounted for as described in Note 1c. The financial statements
of these Local Partnerships were audited by other auditors whose reports thereon
have been furnished to us, and our opinion expressed herein, insofar as it
relates to the amounts included for these Local Partnerships, is based solely
upon the reports of the other auditors.

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

In our opinion, based upon our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Capital Realty Investors-II Limited
Partnership as of December 31, 1995 and 1994, and the results of its operations,
changes in partners' deficit and cash flows for the years ended December 31,
1995, 1994 and 1993, in conformity with generally accepted accounting
principles.

Grant Thornton LLP

Vienna, VA
March 8, 1996

IV-4
<PAGE>

REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -

LOCAL PARTNERSHIPS IN WHICH

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

HAS INVESTED*

* The reports of independent certified public accountants - Local
Partnerships in which Capital Realty Investors-II Limited Partnership has
invested were filed in paper format under Form SE on March 25, 1996, in
accordance with the Securities and Exchange Commission's continuing
hardship exemption granted December 21, 1995.

IV-5
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Investments in and advances to partnerships $ 7,358,510 $ 7,990,026
Cash and cash equivalents 3,192,539 2,812,577
Acquisition fees, principally paid to related parties, net of
accumulated amortization of $407,496 and $374,162, respectively 592,504 625,838
Property purchase costs, net of accumulated amortization of
$258,343 and 236,432, respectively 398,969 420,880
Other assets 7,851 5,306
------------ ------------
Total assets $ 11,550,373 $ 11,854,627
============ ============

LIABILITIES AND PARTNERS' DEFICIT

Due on investments in
partnerships $ 14,213,825 $ 10,987,023
Accrued interest payable 29,256,224 26,951,287
Accounts payable and accrued expenses 82,324 70,389
------------ ------------

Total liabilities 43,552,373 38,008,699
------------ ------------

Commitments and contingencies

Partners' capital (deficit):

Capital paid in:
General Partners 2,000 2,000
Limited Partners 50,015,000 50,015,000
------------ ------------
50,017,000 50,017,000
Less:
Accumulated distributions to partners (1,254,612) (1,254,612)
Offering costs (5,278,980) (5,278,980)
Accumulated losses (75,485,408) (69,637,480)
------------ ------------

Total partners' deficit (32,002,000) (26,154,072)
------------ ------------

Total liabilities and partners' deficit $ 11,550,373 $ 11,854,627
============ ============

</TABLE>

The accompanying notes are an integral part
of these financial statements.

IV-6
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS

For the years ended December 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Share of income (loss) from partnerships $ 238,823 $ (121,724) $ 343,278
----------- ----------- -----------
Other revenue and expenses:
Revenue
Interest income 181,845 125,477 100,172
----------- ----------- -----------
Expenses
Interest 5,759,461 5,113,326 4,538,562
Management fee 249,996 249,996 249,996
General and administrative 128,588 104,500 155,555
Professional fees 75,306 81,970 111,747
Amortization 55,245 55,245 55,243
Proxy solicitation -- -- 37,762
----------- ----------- -----------
6,268,596 5,605,037 5,148,865
----------- ----------- -----------
Total other revenue and expenses (6,086,751) (5,479,560) (5,048,693)
----------- ----------- -----------
Net Loss $(5,847,928) $(5,601,284) $(4,705,415)
=========== =========== ===========
Loss allocated to General Partners (1.51%) $ (88,304) $ (84,579) $ (71,052)
=========== =========== ===========
Loss allocated to Initial and Special Limited
Partners (1.49%) $ (87,134) $ (83,459) $ (70,111)
=========== =========== ===========
Loss allocated to Additional Limited Partners (97%) $(5,672,490) $(5,433,246) $(4,564,252)
=========== =========== ===========
Loss per unit of Additional Limited Partnership Interest
based on 50,000 units outstanding $ (113.45) $ (108.66) $ (91.29)
=========== =========== ===========

</TABLE>

The accompanying notes are an integral part
of these financial statements.

IV-7
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

STATEMENTS OF CHANGES IN PARTNERS' DEFICIT

For the years ended December 31, 1995, 1994 and 1993

Initial and
Special Additional
General Limited Limited
Partners Partners Partners Total
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' deficit January 1, 1993 $ (909,884) $ (884,285) $(14,053,204) $(15,847,373)

Net loss (71,052) (70,111) (4,564,252) (4,705,415)
----------- ----------- ------------ ------------

Partners' deficit December 31, 1993 (980,936) (954,396) (18,617,456) (20,552,788)

Net loss (84,579) (83,459) (5,433,246) (5,601,284)
----------- ----------- ------------ ------------

Partners' deficit December 31, 1994 (1,065,515) (1,037,855) (24,050,702) (26,154,072)

Net loss (88,304) (87,134) (5,672,490) (5,847,928)
----------- ----------- ------------ ------------

Partners' deficit December 31, 1995 $(1,153,819) $(1,124,989) $(29,723,192) $(32,002,000)
=========== =========== ============ ============

</TABLE>

The accompanying notes are an integral part
of these financial statements.

IV-8
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(5,847,928) $(5,601,284) $(4,705,415)
Adjustments to reconcile net loss to net cash
used in operating activities:
Share of (income) loss from partnerships (238,823) 121,724 (343,278)
Loss on payoff of purchase money note -- (117,353) (45,452)
Payment of purchase money note interest (227,722) (226,464) (341,626)
Amortization of discount on purchase money notes 3,226,802 2,366,790 1,844,749
Amortization of deferred costs 55,245 55,245 55,243
Changes in assets and liabilities:
(Increase) decrease in other assets (2,545) (2,406) 13,921
Increase in accrued interest payable 2,532,659 2,746,535 2,800,015
Increase (decrease) in accounts payable 11,935 (23,383) 39,659
----------- ----------- -----------
Net cash used in operating activities (490,377) (680,596) (682,184)
----------- ----------- -----------

Cash flows from investing activities:
Receipt of distributions from partnerships 870,339 793,007 1,092,917
Sale of short-term investments, net -- -- 1,475,000
----------- ----------- -----------
Net cash provided by investing activities 870,339 793,007 2,567,917
----------- ----------- -----------

Cash flows from financing activities:
Pay-off of purchase money note -- (367,897) (405,000)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 379,962 (255,486) 1,480,733

Cash and cash equivalents, beginning of year 2,812,577 3,068,063 1,587,330
----------- ----------- -----------

Cash and cash equivalents, end of year $ 3,192,539 $ 2,812,577 $ 3,068,063
=========== =========== ===========

</TABLE>

The accompanying notes are an integral part
of these financial statements.

IV-9
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Organization
------------

Capital Realty Investors-II Limited Partnership (the Partnership) was
formed under the Maryland Revised Uniform Limited Partnership Act on March
23, 1983 and shall continue until December 31, 2037 unless sooner dissolved
in accordance with the Partnership Agreement. The Partnership was formed
to invest in real estate by acquiring and holding a limited partnership
interest in limited partnerships (Local Partnerships) which own and operate
federal or state government-assisted or conventionally financed apartment
complexes throughout the United States, which provide housing principally
to the elderly and to individuals and families of low or moderate income.

The General Partners of the Partnership are C.R.I., Inc. (CRI), which
is the Managing General Partner, and current and former shareholders of
CRI. The Initial Limited Partner is Rockville Pike Associates Limited
Partnership-II, a limited partnership which includes certain officers and
former employees of CRI or its affiliates. The Special Limited Partner is
Two Broadway Associates II, a limited partnership comprised of an affiliate
and employees of Merrill Lynch, Pierce, Fenner & Smith, Incorporated.

The Partnership sold 50,000 units at $1,000 per unit of Additional
Limited Partnership Interest through a public offering. The offering
period was terminated on June 20, 1983.

b. Method of accounting
--------------------

The financial statements of the Partnership are prepared on the
accrual basis of accounting in accordance with generally accepted
accounting principles.

c. Investments in and advances to partnerships
-------------------------------------------

The investments in and advances to Local Partnerships (see Note 2) are
accounted for by the equity method because the Partnership is a limited
partner in the Local Partnerships. Under this method, the carrying amount
of the investments in and advances to Local Partnerships is (i) reduced by
distributions received and (ii) increased or reduced by the Partnership's
share of earnings or losses, respectively, of the Local Partnerships. As of
December 31, 1995 and 1994, the Partnership's share of cumulative losses of
nine of the Local Partnerships exceeds the amount of the Partnership's
investments in and advances to those Local Partnerships by $24,699,157 and
$21,176,551, respectively. Since the Partnership has no further obligation
to advance funds or provide financing to these Local Partnerships, the
excess losses have not been reflected in the accompanying financial
statements. As of December 31, 1995 and 1994, cumulative cash
distributions of approximately $1,900,649 and $1,652,414, respectively,
have been received from the Local Partnerships for which the Partnership's
carrying value is zero. These distributions are recorded as increases in
the Partnership's share of income from partnerships.

Costs incurred in connection with acquiring these investments have
been capitalized and are being amortized using the straight-line method
over the estimated useful lives of the properties owned by the Local
Partnerships.

IV-10
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

d. Fair value of financial instruments
-----------------------------------

Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments" (SFAS 107), requires the
disclosure of fair value information about financial instruments for which
it is practicable to estimate that value. The Partnership implemented SFAS
107 in 1995.

e. Cash and cash equivalents
-------------------------

Cash and cash equivalents consist of all money market funds, time and
demand deposits, repurchase agreements and commercial paper with original
maturities of three months or less. The Partnership has determined that
the carrying amount of its cash and cash equivalents approximates fair
value.

f. Offering costs
--------------

The Partnership incurred certain costs in connection with the offering
and selling of limited partnership interests. Such costs were recorded as
a reduction of partner's capital when incurred.

g. Income taxes
------------

For federal and state income tax purposes, each partner reports on his
or her personal income tax return his or her share of the Partnership's
income or loss as determined for tax purposes. Accordingly, no provision
(credit) has been made for income taxes in these financial statements.

h. Use of estimates
----------------

In preparing financial statements in conformity with generally
accepted accounting principles, the Partnership is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

a. Due on investments in partnerships
----------------------------------

As of December 31, 1995 and 1994, the Partnership had acquired limited
partnership interests in twenty-two Local Partnerships, which were
organized to develop, construct, own, maintain and operate apartment
complexes which provide housing principally to the elderly and to
individuals and families of low or moderate income. The remaining
principal amounts due on investments in the Local Partnerships as of
December 31, 1995 and 1994 are as follows:

IV-11
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Purchase money notes due:
1995 $ 4,660,000 $ 4,660,000
1996 2,100,000 2,100,000
1998 14,320,500 14,320,500
1999 1,340,178 1,340,178
Less: unamortized discount (8,206,853) (11,433,655)
----------- -----------
$14,213,825 $10,987,023
=========== ===========
</TABLE>

The purchase money notes have stated interest rates ranging from 9% to
12%, certain of which are compounded annually. Unamortized discounts are
based upon an imputed interest rate of 15% to reflect market interest rates
which prevailed when the notes were issued. The resulting discount has
been recorded by the Partnership and is being amortized to interest expense
over the life of the respective purchase money notes using the effective
interest method. The purchase money notes are payable upon the earliest
of: (1) sale or refinancing of the respective Local Partnership's rental
property; (2) payment in full of the respective Local Partnership's
permanent loan; or (3) maturity. Purchase money notes in an aggregate
principal amount of $2,380,000 matured on August 1, 1995 but have not been
paid, as discussed below. A purchase money note in the principal amount of
$2,280,000 matured on August 1, 1995 and was subsequently paid off at a
discount on January 11, 1996, as discussed below. Purchase money notes in
an aggregate principal amount of $2,100,000 are scheduled to mature on
December 31, 1996, as discussed below. The remaining purchase money notes
mature in 1998 and 1999. The purchase money notes are generally secured by
the Partnership's interest in the respective Local Partnership. There is
no assurance that the underlying properties will have sufficient
appreciation and equity to enable the Partnership to pay the purchase money
notes' principal and accrued interest when due. If a purchase money note
is not paid in accordance with its terms, the Partnership will either have
to renegotiate the terms of repayment or risk losing its partnership
interest in the Local Partnership. The Managing General Partner is
continuing to investigate possible alternatives to reduce the Partnership's
long-term debt obligations. These alternatives include, among others,
retaining the cash available for distribution to meet the purchase money
note requirements, buying out certain purchase money notes at a discounted
price, extending the due dates of certain purchase money notes, or
refinancing the respective properties' underlying debt and using the
Partnership's share of the proceeds to pay off or buy down certain purchase
money note obligations.

Interest expense on the Partnership's purchase money notes for the
years ended December 31, 1995, 1994 and 1993 was $5,759,461, $5,113,326 and
$4,538,562, respectively. The accrued interest on the purchase money notes
of $29,256,224 and $26,951,287 as of December 31, 1995 and 1994,
respectively, is due on the respective maturity dates of the purchase money
notes or earlier if the Local Partnerships have distributable net cash
flow, as defined in the relevant Local Partnership agreements.

IV-12
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

The Partnership defaulted on its purchase money note relating to Rock
Glen Limited Partnership (Rock Glen) on August 1, 1995 when the note
matured and was not paid. A standstill agreement from the noteholder was
granted until October 31, 1995. The Managing General Partner made an offer
to the noteholder to extend the purchase money note due date to August
2000. This offer was rejected by the noteholder. On January 11, 1996, the
Partnership paid off the purchase money note at a discount, resulting in a
gain on extinguishment of debt of approximately $1.8 million.

The Partnership defaulted on its purchase money note relating to Beech
Hill Development Co. (Beech Hill I) on August 1, 1995 when the note matured
and was not paid. The default amount included principal and accrued
interest of $1,480,000 and $1,473,498, respectively. As of March 8, 1996,
principal and accrued interest totalling $1,480,000 and $1,553,687,
respectively, were due. In addition, the Partnership defaulted on its
purchase money note relating to Beech Hill Development Co. II (Beech Hill
II) on August 1, 1995 when the note matured and was not paid. The default
amount included principal and accrued interest of $900,000 and $905,047,
respectively. As of March 8, 1996, principal and accrued interest
totalling $900,000 and $953,810, respectively, were due. The Managing
General Partner is currently negotiating with the noteholders of Beech Hill
I and Beech Hill II to extend the purchase money note due dates to January
1, 1998. Under the proposed agreement, the Partnership would pay the
purchase money noteholders of Beech Hill I and Beech Hill II all annual
cash flow distributions received from the related Local Partnerships in
excess of $5,000 and $2,500, respectively. There were no annual cash flow
distributions made to the Partnership from the related Local Partnerships
during 1995, 1994 or 1993. Also under the proposed agreement, transfer
documents relating to foreclosure by the noteholders upon the Partnership's
interests in the related Local Partnerships would be placed in escrow and
released to the noteholders upon a future default by the Partnership on the
respective purchase money notes. There is no assurance that an agreement
will be reached between the Managing General Partner and the noteholders.
As such, there is no assurance that the Partnership will be able to retain
its interest in either Beech Hill I or Beech Hill II.

Purchase money notes relating to Chevy Chase Park Limited (Chevy
Chase) in the aggregate principal amount of $2,100,000 mature on December
31, 1996. The Managing General Partner is currently negotiating with the
noteholders to extend the purchase money note due dates to coincide with
potential future LIHPRHA processing, or to accept a discounted pay-off.
There is no assurance that any agreement will be reached with the
noteholders. As such, there is no assurance that the Partnership will be
able to retain its interest in Chevy Chase.

The uncertainty about the continued ownership of the Partnership's
interests in Beech Hill I, Beech Hill II or Chevy Chase does not impact the
Partnership's financial condition because the related purchase money notes
are nonrecourse and secured solely by the Partnership's interest in the
related Local Partnerships. Therefore, should the investment in Beech Hill
I, Beech Hill II and Chevy Chase not produce sufficient value to satisfy
the related purchase money notes, the Partnership's exposure to loss is
limited since the amount of the nonrecourse indebtedness exceeds the
carrying amount of the investment in and advances to the Local
Partnerships. Thus, even a complete loss of any of these investments would
not have a material impact on the operations of the Partnership. However,

IV-13
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

should the Partnership be unable to retain its interest in all of the Local
Partnerships, the investments in and advances to Local Partnerships would
be reduced by the Partnership's basis in these Local Partnerships, which at
December 31, 1995 was approximately 17% of the Partnership's total
investment in Local Partnerships.

SFAS 107 requires the disclosure of fair value information about
financial instruments for which it is practicable to estimate that value.
The Partnership has determined that it is not practicable to estimate the
fair value of the purchase money notes, either individually or in the
aggregate, due to: (1) the lack of an active market for this type of
financial instrument, (2) the variable nature of purchase money note
interest payments as a result of fluctuating cash flow distributions
received from the related Local Partnerships, and (3) the excessive costs
associated with an independent appraisal of the purchase money notes.

b. Interests in profits, losses and cash distributions
---------------------------------------------------

The Partnership has a 92.99% to 98.99% interest in profits, losses and
cash distributions (as restricted by various federal and state housing
agencies) of each Local Partnership. An affiliate of the General Partners
of the Partnership is also a general partner of each Local Partnership.
The Partnership received cash distributions from the rental operations of
the Local Partnerships of $870,339, $793,007, and $1,092,917 during the
years ended December 31, 1995, 1994 and 1993, respectively. As of December
31, 1995 and 1994, seventeen and sixteen of the Local Partnerships had
surplus cash, as defined by their respective agencies, in the amount of
$2,475,456 and $2,435,473, respectively, which is available for
distribution in accordance with their respective agencies' regulations.

The cash distributions to the Partnership from the operations of the
rental properties may be limited by Department of Housing and Urban
Development (HUD) regulations. Such regulations limit annual cash
distributions to a percentage of the owner's equity investment in a rental
property. Funds in excess of those which may be distributed to owners are
required to be placed in a residual receipts account held by the governing
state or federal agency for the benefit of the property.

Upon sale or refinancing of the property owned by the Local
Partnerships or upon the liquidation of each Local Partnership, the
proceeds from the sale, refinancing or liquidation shall be distributed in
accordance with the respective provisions of each Local Partnership's
partnership agreement. In accordance with such provisions, the Partnership
would receive from such proceeds its respective percentage interest of any
remaining proceeds, after payment of (1) all debts and liabilities of the
Local Partnership and certain other items, (2) the Partnership's capital
contributions plus certain specified amounts as outlined in each
partnership agreement, and (3) certain special distributions to general
partners and related entities of the Local Partnership.

c. Property matters
----------------

The following table reflects the amounts of advances made to the Local
Partnerships as of December 31, 1995 and 1994.

IV-14
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

<TABLE>
<CAPTION>
December 31,
1995 1994
----------- -----------
<S> <C> <C>
Local Partnership
-----------------
Frenchman's Wharf II:
Principal amount of funds advanced $ 324,410 $ 324,410

Accrued interest on advances 187,372 187,372
----------- -----------
Total $ 511,782 $ 511,782
=========== ===========
</TABLE>

The local general partner of Frenchman's Wharf Apartments Associates
II (Frenchman's Wharf II), in conjunction with the Managing General
Partner, applied to HUD, holder of the mortgage on the property, for a
three-year extension of the previous workout arrangement, which expired in
December 1990. The local HUD office verbally agreed to an extension
expiring December 31, 1993 and recommended approval of the extension to the
HUD central office in Washington, D.C. In December 1993, the local HUD
office requested that a new workout proposal be submitted, and in January
1994, the local general partner met with HUD to discuss the long-term
capital needs of the property in connection with a workout proposal. On
March 1, 1994, the local general partner submitted a nine-year workout
proposal to HUD. This proposal was rejected by HUD in December 1995. As
of March 8, 1996, the local general partner is continuing to work directly
with the HUD central office to submit a five-year workout proposal. There
is no assurance that approval for a workout will be received. If a workout
proposal is not accepted and another alternative is not found, then HUD
could foreclose on the property. Frenchman's Wharf II was notified by HUD
that HUD had planned to offer its mortgage loan for sale in September of
1995. HUD later notified Frenchman's Wharf II that its loan was not
included in the pool of loans sold by HUD in September 1995. As of March
8, 1996, Frenchman's Wharf II has not been notified as to whether HUD will
offer the Frenchman's Wharf II loan for sale at a later date. If the
mortgage is eventually sold by HUD, a new mortgagee would service the loan
and could foreclose on the property. Currently, debt- service payments are
being made from available cash flow. To cover operating deficits incurred
in prior years for Frenchman's Wharf II, the Partnership advanced funds
totalling $324,410 as of both December 31, 1995 and 1994. The last advance
was made to Frenchman's Wharf II in March 1987. The Partnership does not
expect to advance any additional funds in connection with Frenchman's Wharf
II's loan workout with HUD. These loans, together with accrued interest of
$187,372 as of both December 31, 1995 and 1994, are payable from cash flow
of Frenchman's Wharf II after payment of first-mortgage debt service and
after satisfaction by the Partnership of certain other interest obligations
on the purchase money notes due from the Local Partnership. There is no
assurance that the Local Partnership, upon expiration of any workout, will
be able to repay any loans in accordance with the terms.

In addition, the Local Partnership has entered into an agreement with
the Frenchman's Wharf II's purchase money noteholder which, among other

IV-15
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

things, provides that, in the event of a default under the purchase money
note and related pledge agreement, the noteholder will not exercise any
rights or remedies under the purchase money note and related pledge
agreement during the term of any subsequent loan modification or workout
agreement, as long as HUD does not commence foreclosure action under the
mortgage loan. The purchase money note was made by the Partnership in
connection with its investment in the Local Partnership, and is a
nonrecourse note secured only by the Partnership's interest in the Local
Partnership.

The report of the auditors on the financial statements of Frenchman's
Wharf II for the years ended December 31, 1995 and 1994 indicates that
substantial doubt exists about the ability of Frenchman's Wharf II to
continue as a going concern due to the property's recurring operating
deficits and the Local Partnership's default on its mortgage. The
uncertainty about the Local Partnership's continued ownership of the
property does not impact the Partnership's financial condition because the
related purchase money note is nonrecourse and secured solely by the
Partnership's interest in the Local Partnership. Therefore, should the
investment in Frenchman's Wharf II not produce sufficient value to satisfy
the related purchase money note, the Partnership's exposure to loss is
limited since the amount of the nonrecourse indebtedness exceeds the
carrying amount of the investment in and advances to the Local Partnership.
Thus, even a complete loss of this investment would not have a material
impact on the operations of the Partnership.

In September 1995, HUD sold the mortgage of Palatine-Barrington
Associates Limited Partnership (Deer Grove) to a new mortgagee. The new
mortgagee now services the loan and Deer Grove is no longer subject to HUD
regulatory requirements.

On January 31, 1996, the local general partner of Deer Grove received
an offer for the property from an unaffiliated entity. The Local Managing
General Partner is currently evaluating this offer.

Posada Associates Limited Partnership (Posada Vallarta Apartments) is
currently operating under an extension of a three-year workout agreement
with HUD, the holder of the mortgage. The workout provides for, among
other things, a minimum monthly debt-service payment with excess cash, if
any, being applied to delinquent interest. Currently, debt-service payments
are being made in accordance with the workout. In June 1995, the three-
year workout which originally expired on October 1, 1995 was extended to
October 1, 1996.

On December 15, 1995, Posada Vallarta Apartments was notified by HUD
that HUD plans to offer its mortgage loan for sale in April 1996. If the
mortgage is sold by HUD, a new mortgagee would service the loan, and Posada
Vallarta Apartments would no longer be subject to HUD regulatory
requirements.

IV-16
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

Partnership purchased the remaining six purchase money notes for Country
Place I and II, two at a discount, with an aggregate original principal
amount of $495,000, resulting in an aggregate loss from extinguishment of
debt of $117,353. The losses from extinguishment of debt are included in
share of loss from partnerships in the statements of operations.

The Wexford Ridge Associates Local Partnership (located in Madison,
Wisconsin), the local general partner, and its management agent have been
named in eight sexual harassment and discrimination complaints filed with
HUD. The Managing General Partner and the Partnership have also been named
in four of the complaints. The Managing General Partner is monitoring the
situation and is investigating its rights with regard to the local general
partner and/or the management agent if the situation is not dealt with to
the satisfaction of the Managing General Partner. The Managing General
Partner believes the claims will have no aggregate material effect on the
financial statements of the Partnership and that legal costs associated
with the claims will be borne by the management agent.

Many of the rental properties owned by the Local Partnerships have
mortgages which are federally insured under Section 236 or Section
221(d)(3) of the National Housing Act, as amended. These properties may be
eligible for sale or refinancing, subject to numerous requirements, under
the LIHPRHA program. This program may provide incentives to owners of
qualifying multifamily housing who commit to permanently maintain their
properties as low to moderate income housing. Incentives available under
LIHPRHA include selling the property to qualified buyers or obtaining
supplemental financing for the property. As of March 8, 1996, members of
Congress were recommending substantial changes to the LIHPRHA program
ranging from the elimination of the program to the redesigning of the
program. Substantial uncertainty exists as to whether any properties which
have already filed the notice of intent to participate under LIHPRHA will
qualify under a redesigned program or as to whether the program will
continue at all.

The local general partners of the following properties have each filed
a notice of intent to participate under the LIHPRHA program:

Property Date of Filing
-------- --------------
<S> <C>
Rolling Green at Amherst June 5, 1992
Tanglewood II May 23, 1994
Chevy Chase Park July 18, 1994
Wexford Ridge July 27, 1994
Beech Hill I December 21, 1994
Beech Hill II December 21, 1994
Rolling Green at Fall River March 1, 1995

</TABLE>

There is no assurance that a sale or refinancing of these properties
will occur.

IV-17
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

Some of the rental properties owned by the Local Partnerships are
financed by state housing agencies. The Managing General Partner has been
working to develop a strategy to sell or refinance certain properties by
utilizing programs developed by these agencies. These programs may include
opportunities to sell the property to a qualifying purchaser who would
agree to maintain the property as low to moderate income housing in
perpetuity, or may include opportunities to refinance the property through
supplemental financing. The Managing General Partner continues to monitor
these programs to ascertain whether the properties would qualify within the
parameters of these programs and whether these programs would provide an
appropriate economic benefit to the limited partners of the Partnership.

Many of the rental properties owned by the Local Partnerships are
dependent on the receipt of housing assistance payments guaranteed by
contract under the HUD Section 8 program. The level of funding for the
Section 8 program, and HUD-insured multifamily housing in general, is
dependent upon the continuation of appropriations approved by Congress for
subsidy payments. In the event that the rental subsidy programs are
reduced or phased out, there is no assurance that the rental properties
will be able to maintain the occupancy levels necessary to pay debt service
and operating costs or that the rents necessary to pay debt service and
operating costs will be competitive with rents for comparable units in the
rental properties' market areas. While the Managing General Partner has no
reason to believe that HUD will not honor its obligations under the
contracts, some uncertainty exists in light of the recent Congressional
scrutiny of appropriations for HUD programs.

d. Summarized financial information
--------------------------------

Summarized financial information for the Local Partnerships as of
December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994
and 1993 is as follows:

IV-18
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
------------ ------------
<S> <C> <C>

Rental property, at cost, net of accumulated
depreciation of $66,489,684 and $61,408,908,
respectively $ 83,048,981 $ 86,182,614

Land 11,322,193 11,320,405
Other assets 15,209,498 15,534,208
------------ ------------
Total assets $109,580,672 $113,037,227
============ ============

Mortgage notes payable $ 98,202,350 $ 99,514,737
Other liabilities 32,410,359 29,971,477
Due to general partners 1,618,257 1,618,257
------------ ------------
Total liabilities 132,230,966 131,104,471

Partners' deficit (22,650,294) (18,067,244)
------------ ------------
Total liabilities and partners'
deficit $109,580,672 $113,037,227
============ ============

</TABLE>

IV-19
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Rental $ 29,343,786 $ 28,130,763 $ 27,551,120
Interest 474,539 1,071,492 1,035,858
Other 778,072 567,967 631,305
------------ ------------ ------------
Total revenue 30,596,397 29,770,222 29,218,283
------------ ------------ ------------
Expenses:
Operating 20,231,119 19,663,285 19,255,045
Interest 8,458,907 8,389,307 8,265,574
Depreciation 5,435,953 5,346,581 5,330,815
Amortization 78,173 60,689 62,271
------------ ------------ ------------
Total expenses 34,204,152 33,459,862 32,913,705
------------ ------------ ------------
Net loss $ (3,607,755) $ (3,689,640) $ (3,695,422)
============ ============ ============

</TABLE>

e. Reconciliation of the Local Partnerships' financial statement net
-----------------------------------------------------------------
loss to income tax loss
-----------------------

For federal income tax purposes, the Local Partnerships report on a
basis whereby: (1) certain revenue and the related assets are recorded
when received rather than when earned; (2) certain costs are expensed when
paid or incurred rather than capitalized and amortized over the period of
benefit; and (3) a shorter life is used to compute depreciation of the
property for tax purposes as permitted by Internal Revenue Service (IRS)
Regulations. These returns are subject to audit and, therefore, possible
adjustment by the IRS.

A reconciliation of the Local Partnerships' financial statement net
loss reflected above to the income tax loss for the years ended December
31, 1995, 1994 and 1993 is as follows:

IV-20
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Financial statement net loss $ (3,607,755) $ (3,689,640) $ (3,695,422)

Adjustments:
Additional tax depreciation using accelerated methods,
net of depreciation on construction period expenses
capitalized for financial statement purposes (2,301,340) (2,534,797) (2,512,854)

Amortization for tax purposes
not deducted for financial
statement purposes 33,122 34,805 (11,427)

Miscellaneous, net 1,061,976 876,666 895,522
------------ ------------ ------------
Income tax loss $ (4,813,997) $ (5,312,966) $ (5,324,181)
============ ============ ============

</TABLE>

3. RELATED-PARTY TRANSACTIONS

In accordance with the Partnership Agreement, the Partnership paid the
Managing General Partner a fee for services in connection with the review,
selection, evaluation, negotiation and acquisition of the interests in the Local
Partnerships. The fee amounted to $1,000,000 which is equal to 2% of the
Additional Limited Partners' capital contributions to the Partnership. The
acquisition fee was capitalized and is being amortized over a thirty-year period
using the straight-line method.

In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner for its direct expenses
in managing the Partnership and to pay an annual incentive management fee (the
Management Fee), after all other expenses of the Partnership are paid. For the
years ended December 31, 1995, 1994 and 1993, the Partnership paid $84,613,
$87,104 and $81,666, respectively, as direct reimbursement of expenses incurred
on behalf of the Partnership. Such expenses are included in the statements of
operations as general and administrative expenses.

The amount of the Management Fee shall not exceed .25% of invested assets,
as defined in the Partnership Agreement, and shall be payable from the
Partnership's cash available for distribution, as defined in the Partnership
Agreement, as of the end of each calendar year, as follows:

a. First, on a monthly basis as an operating expense before any
distributions to limited partners in the amount computed as described
in the Partnership Agreement, provided that such amount shall not be
greater than $250,000 and;
b. Second, after distributions to the limited partners in the amount of
1% of the gross proceeds of the offering, the balance of such .25% of
invested assets.

IV-21
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

3. RELATED-PARTY TRANSACTIONS - Continued

For each of the years ended December 31, 1995, 1994 and 1993, the
Partnership paid the Managing General Partner a Management Fee of $249,996.

From July 1990 through January 1994, CRICO Management Corporation (CRICO),
an affiliate of the Managing General Partner, provided consulting, accounting
and other services to Country Place I and II. From August 1990 through January
1994, CRICO provided these services to Rock Glen. Fees paid or accrued to CRICO
for these services amounted to $6,704, $4,231 and $5,580, respectively, for the
month ended January 31, 1994. Fees paid or accrued were $83,566, $52,268 and
$68,140, respectively, for the year ended December 31, 1993. On February 1,
1994, CRICO contributed its consulting contracts and personnel to CAPREIT
Residential Corporation (CAPREIT). CAPREIT was formed by CRI but is not
currently owned or controlled by CRI and/or its affiliates. On April 12, 1995,
HUD approved CAPREIT as the new management agent.

4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS

All profits and losses prior to the first date on which Additional Limited
Partners were admitted were allocated 98.49% to the Initial Limited Partner and
1.51% to the General Partners. Upon admission of the Special Limited Partner
and the Additional Limited Partners, the interest of the Initial Limited Partner
was reduced to .49%. The net proceeds resulting from the liquidation of the
Partnership or the Partnership's share of the net proceeds from any sale or
refinancing of the projects or their rental properties which are not reinvested
shall be distributed and applied as follows:

(i) to the payment of debts and liabilities of the Partnership
(including all expenses of the Partnership incident to the sale
or refinancing) other than loans or other debts and liabilities
of the Partnership to any partner or any affiliate, such debts
and liabilities, in the case of a non-liquidating distribution,
to be only those which are then required to be paid or, in the
judgment of the Managing General Partner, required to be provided
for;
(ii) to the establishment of any reserves which the Managing General
Partner deems reasonably necessary for contingent, unmatured or
unforeseen liabilities or obligations of the Partnership;
(iii) to each partner in an amount equal to the positive balance in his
capital account as of the date of the sale or refinancing,
adjusted for operations and distributions to that date, but
before allocation of any profits for tax purposes realized from
such sale or refinancing and allocated pursuant to the
Partnership Agreement;
(iv) to the Additional Limited Partners (A) an aggregate amount of
proceeds from sale or refinancing and all prior sales or
refinancings equal to their capital contributions, without
reduction for prior cash distributions other than prior
distributions of sale and refinancing proceeds, plus (B) an
additional amount equal to a cumulative non-compounded 6% return
on each limited partner's capital contribution, reduced, but not
below zero, by (1) an amount equal to 50% of the losses for tax
purposes plus tax credits allocated to such limited partner and
(2) distributions of net cash flow to each limited partner, such
return, losses for tax purposes and net cash flow distributions
commencing on the first day of the month in which the capital
contribution was made;

IV-22
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued

(v) to the repayment of any unrepaid loans theretofore made by any
partner or any affiliate to the Partnership for Partnership
obligations and to the payment of any unpaid amounts owing to the
General Partners pursuant to the Partnership Agreement;
(vi) to the General Partners in the amount of their capital
contributions;
(vii) thereafter, for their services to the Partnership, in equal
shares to certain general partners (or their designees), whether
or not any is then a general partner, an aggregate fee of 1% of
the gross proceeds resulting from (A) such sale (if the proceeds
are from a sale rather than a refinancing) and (B) any prior
sales from which such 1% fee was not paid to the General Partners
or their designees and,
(viii) the remainder, 12% to the General Partners (or their assignees),
3% to the Special Limited Partner and 85% to the Initial and
Additional Limited Partners (or their assignees).

Fees payable to certain general partners (or their designees) under (vii)
above, together with all other property disposition fees and any other
commissions or fees payable upon the sale of apartment complexes, shall not in
the aggregate exceed the lesser of the competitive rate or 6% of the sales price
of the apartment complexes.

In addition, the Managing General Partner and/or its affiliates may receive
a fee in an amount of not more than 2% of the sales price of the investment in a
Local Partnership or the property it owns. The fee would only be payable upon
the sale of the investment in a Local Partnership or the property it owns and
would be subject to certain restrictions, including achievement of a certain
level of sales proceeds and making certain minimum distributions to limited
partners. No such amounts were paid to the Managing General Partner and/or its
affiliates during 1995, 1994 and 1993.

Pursuant to the Partnership Agreement, all cash available for distribution,
as defined, shall be distributed, not less frequently than annually, 97% to the
Additional Limited Partners, 1% to the Special Limited Partner, .49% to the
Initial Limited Partner and 1.51% to the General Partners after payment of the
Management Fee, as specified in the Partnership Agreement. As defined in the
Partnership Agreement, prior to the establishment of any reserves deemed
necessary by the Managing General Partner and after payment of the Management
Fee, the Partnership had cash available for distribution of approximately
$368,000, $253,000 and $310,000 for the years ended December 31, 1995, 1994 and
1993, respectively. No distributions were declared or paid during 1995, 1994 or
1993 because any cash available for distribution is currently being retained by
the Partnership, as previously discussed.

5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET LOSS TO INCOME
TAX LOSS

For federal income tax purposes, the Partnership reports on a basis
whereby: (1) certain expenses are amortized rather than expensed when incurred;
(2) certain costs are amortized over a shorter period for tax purposes, as
permitted by IRS Regulations, and (3) certain costs are amortized over a longer
period for tax purposes. The Partnership records its share of losses from its
investments in limited partnerships for federal income tax purposes as reported
on the Local Partnerships' federal income tax returns (see Note 2e), including
losses in excess of related investments amounts. In addition, adjustments

IV-23
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET LOSS TO INCOME
TAX LOSS - Continued

arising from the imputation of interest on the Partnership's purchase money
notes for financial reporting purposes are eliminated for income tax purposes
(see Note 2a). These returns are subject to audit and, therefore, possible
adjustment by the IRS.

A reconciliation of the Partnership's financial statement net loss to the
income tax loss for the years ended December 31, 1995, 1994 and 1993 is as
follows:

IV-24
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET LOSS TO INCOME
TAX LOSS - Continued

<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Financial statement net loss $ (5,847,928) $ (5,601,284) $ (4,705,415)

Adjustments:
Differences between the income tax losses and
financial statement losses related to the
Partnership's equity in the Local Partnerships'
losses (see note 2e) (4,798,458) (5,030,386) (5,538,963)

Costs amortized over a shorter period for income
tax purposes (59,561) (59,560) (59,559)

Effect of imputed interest on purchase money notes
for financial reporting purposes (see Note 2a) $ 3,031,352 2,366,789 1,720,319
------------ ------------ ------------
Income tax loss $ (7,674,595) $ (8,324,441) $ (8,583,618)
============ ============ ============

</TABLE>

6. CONTINGENCIES

Thereafter, Mr. Schwartzberg launched a hostile consent solicitation to be
designated as managing general partner of approximately 125 private partnerships
sponsored by CRI. On January 18, 1996, Mr. Schwartzberg and CMS filed a
complaint in the Circuit Court of Montgomery County, Maryland (the Circuit
Court), against CRI and Messrs. Dockser and Willoughby (who are general partners
of the Partnership) alleging, among other things, that CRI and Messrs. Dockser
and Willoughby have breached the asset management agreement pursuant to which
Mr. Schwartzberg's company, CMS, agreed to perform limited functions related to
property-level issues for a portion of CRI's subsidized housing portfolio
(including some of the properties in which the Partnership invested), by
reducing the proposed budget for 1996. The Partnership is not named as a
defendant in this action. Messrs. Dockser and Willoughby have entered an answer
denying all of Mr. Schwartzberg's claims. Messrs. Dockser and Willoughby have

IV-25
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

6. CONTINGENCIES - Continued

publicly responded that Mr. Schwartzberg's suit is motivated by his budget
dispute with CRI and personal animosity. On February 6, 1996, CRI terminated
the CMS contract for cause. Mr. Schwartzberg and CMS responded by filing a
motion for injunctive relief in the Circuit Court, asking the court to enjoin
CRI from terminating the contract. In a ruling issued on February 12, 1996, the
Circuit Court, among other things, refused to grant the injunction requested by
CMS. A hearing in this case is scheduled for April 29, 1996. On February 12,
1996, the Circuit Court also issued a memorandum opinion and order enjoining CMS
and Mr. Schwartzberg from disclosing information made confidential under the
asset management agreement.

IV-26
<PAGE>

FINANCIAL STATEMENT SCHEDULES

IV-27
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
-----------------------------------------------------
FINANCIAL STATEMENT SCHEDULE
-----------------------------

Partners
Capital Realty Investors-II
Limited Partnership

In connection with our audit of the financial statements of Capital Realty
Investors-II Limited Partnership referred to in our report dated March 8, 1996,
which is included in this Form 10-K, we have also audited Schedule III as of
December 31, 1995, 1994 and 1993. We did not audit the financial statements for
nineteen of the Local Partnerships in 1995, 1994 and 1993, which are accounted
for as described in Note 1c. In our opinion, this schedule presents fairly, in
all material respects, the information required to be set forth therein.

Grant Thornton LLP

Vienna, VA
March 8, 1996

IV-28
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION OF
LOCAL PARTNERSHIPS IN WHICH CAPITAL REALTY INVESTORS-II
LIMITED PARTNERSHIP HAS INVESTED

December 31, 1995
<TABLE>
<CAPTION>

COL. A COL. B COL. C COL. D
- -------------------- ------- ------------------------------- -------------------------------
Initial Costs Capitalized
Cost to Local Subsequent
Partnership to Acquisition
------------------------------- -------------------------------
Building
Description Encum- and Carrying
Operating Properties brances Land Improvements Improvements Costs (B)
- -------------------- ------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>

Deer Grove Apartments (A) $ 1,691,558 $ 15,098,195 $ 1,302,215 $ --
Palatine, IL
(448 units-family
apartment complex)

Frenchman's Wharf II (A) 2,543,310 6,099,825 390,446 --
New Orleans, LA
(324 units-family
apartment complex)

Mercy Terrace (A) -- 12,696,941 1,526,631 --
San Francisco, CA
(158 units-family
apartment complex)

Posada Vallarta (A) 936,579 -- 15,224,112 1,113,666
Phoenix, AZ
(336 units-family
apartment complex)

Princeton Community (A) 572,228 10,469,952 1,330,854 --
Village
Princeton, NJ
(239 units-family
apartment complex)

Rolling Green at
Fall River (A) 473,263 10,377,418 2,412,092 --
Fall River, MA
(404 units-family
apartment complex)

Aggregate of remain-
ing properties which
are individually less
than 5% of the total
of Column E 4,837,474 61,807,672 9,860,766 95,661
----------- ------------ ------------- -----------
Total $11,054,412 $116,550,003 $ 32,047,116 $ 1,209,327
=========== ============ ============= ===========
</TABLE>

IV-29
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION OF
LOCAL PARTNERSHIPS IN WHICH CAPITAL REALTY INVESTORS-II
LIMITED PARTNERSHIP HAS INVESTED - Continued

December 31, 1995
<TABLE>
<CAPTION>

COL. A COL. E COL. F COL. G COL. H COL. I
- -------------------- ------------------------------------------- ------------ ------- ------- ----------------
Gross amount at which Life upon
carried at close of period which dep-
------------------------------------------- Date reciation in
Building Accumulated of latest income
Description and depreciation Const- Date statement is
Operating Properties Land Improvements Total (C) (D) (D) ruction Acquired computed (years)
- -------------------- ----------- ------------ ------------- ------------ ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>

Deer Grove Apartments $ 1,692,651 $ 16,399,317 $ 18,091,968 $(7,125,097) 1979 8/83 5-30
Palatine, IL
(448 units-family
apartment complex)

Frenchman's Wharf II 2,543,310 6,490,271 9,033,581 (4,907,534) 1981 6/83 25
New Orleans, LA
(324 units-family
apartment complex)

Mercy Terrace -- 14,223,572 14,223,572 (5,984,960) 1983 6/83 3-30
San Francisco, CA
(158 units-family
apartment complex)

Posada Vallarta 908,458 16,365,899 17,274,357 (4,339,593) 1984 4/83 5-40
Phoenix, AZ
(336 units-family
apartment complex)

Princeton Community 572,228 11,800,806 12,373,034 (5,353,406) 1971 9/83 3-40
Village
Princeton, NJ
(239 units-family
apartment complex)

Rolling Green at
Fall River 473,396 12,789,377 13,262,773 (5,886,303) 1975 2/84 5-25
Fall River, MA
(404 units-family
apartment complex)

Aggregate of remain-
ing properties which
are individually less
than 5% of the total
of Column E 5,132,150 71,469,423 76,601,573 (32,892,791)
----------- ------------ ------------ ------------

Total $11,322,193 $149,538,665 $160,860,858 $(66,489,684)
=========== ============ ============ ============
</TABLE>

IV-30
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
OF LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP HAS INVESTED

December 31, 1995

(A) Secured by mortgage loans.
(B) Consists of capitalized construction period interest and real estate taxes
during construction.
(C) The aggregate cost of land for federal income tax purposes is $12,967,031
and the aggregate costs of buildings and improvements for federal income
tax purposes is $161,260,376. The total of the above-mentioned items is
$174,227,407.

IV-31
<PAGE>
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
OF LOCAL PARTNERSHIPS IN WHICH
CAPITAL RELTY INVESTORS-II LIMITED PARTNERSHIP HAS INVESTED - Continued

December 31, 1995

(D) Reconciliation of real estate
-----------------------------

For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $158,911,927 $157,439,291 $156,190,173

Improvements during period 2,304,108 2,193,200 1,249,118

Deletions during period (355,177) (720,564) --
------------ ------------ ------------
Balance at end of period $160,860,858 $158,911,927 $157,439,291
============ ============ ============

</TABLE>

Reconciliation of accumulated depreciation
------------------------------------------

<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $ 61,408,908 $ 56,782,505 $ 51,451,690

Depreciation expense for the period,
net of deletions 5,080,776 4,626,403 5,330,815
------------ ------------ ------------
Balance at end of period $ 66,489,684 $ 61,408,908 $ 56,782,505
============ ============ ============

</TABLE>

IV-32
<PAGE>

EXHIBIT INDEX
-------------

Exhibit Method of Filing
- ------- -----------------------------

27 Financial Data Schedule Filed herewith electronically

IV-33

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,192,539
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,550,373
<CURRENT-LIABILITIES> 0
<BONDS> 43,470,049
0
0
<COMMON> 0
<OTHER-SE> (32,002,000)
<TOTAL-LIABILITY-AND-EQUITY> 11,550,373
<SALES> 0
<TOTAL-REVENUES> 420,668
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 509,135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,759,461
<INCOME-PRETAX> (5,847,928)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,847,928)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,847,928)
<EPS-PRIMARY> (113.45)
<EPS-DILUTED> (113.45)

</TABLE>