CAPITAL REALTY INVESTORS II LTD PARTNERSHIP, 10-K, 1997-03-24

CAPITAL REALTY INVESTORS II LTD PARTNERSHIP
10-K, 1997-03-24
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, 1996
-----------------

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

1996 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-7
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . I-7

PART II
-------

Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters . . . II-1
Item 6. Selected Financial Data . . . . . . . . . . . . . II-2
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . II-3
Item 8. Financial Statements and Supplementary Data . . . II-14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . II-14

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-33
<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, 1996, the Partnership had investments 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 Expiration
Mortgage Authorized for of
Name and Location Payable at Financed and/or Insured Number of Rental Asst. Section 8
of Apartment Complex 12/31/96 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Arrowhead Apts. $ 3,927,242 Illinois Housing Development 200 40 05/31/01
Palatine, IL Authority (IHDA)

Beech Hill I 2,894,810 Federal National Mortgage 200 39 08/31/98 (4)
Manchester, NH Association (FNMA)/236

Beech Hill II 1,625,533 FNMA/236 120 24 08/31/98 (4)
Manchester, NH

Chevy Chase Park 3,754,306 Metropolitan Savings Bank 232 228 09/23/97 (4)
Centerville, OH (MSB)/236

Country Place I 4,942,034 Maryland Community Development 192 38 08/09/99
Burtonsville, MD Administration Section 221(d)(4)
of the National Housing Act (NHA)

Country Place II 3,597,873 Reilly Mortgage Group/Section 120 24 08/29/00
Burtonsville, MD 221 (d)(4) of the NHA

Deer Grove Apts. 10,041,687 FNMA/Housing and Urban Development/ 448 0 --
Palatine, IL Section 221(d)(4) of the NHA

Four Winds West 1,007,795 GMAC HUD Insured through Section 62 62 10/17/97
Birmingham, AL 221 (d)(4) of the NHA/Section 8

Frenchman's Wharf II 7,923,103 Department of Housing and Urban 324 31 09/30/98 (4)
New Orleans, LA Development

Golden Acres 1,266,516 California Housing Finance Agency 46 45 09/28/13
Chowchilla, CA (CHFA)

Mercy Terrace 8,643,120 Section 221(d)(4) of the NHA/ 158 158 01/30/03
San Francisco, CA Section 8

The Moorings 3,662,743 IHDA 216 44 05/31/01
Roselle, IL

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

Posada Vallarta 14,246,760 Conventional 336 70 02/16/04
Phoenix, AZ

Princeton Community 8,345,020 New Jersey Housing Finance Agency 239 26 01/01/98 (4)
Village
Princeton, NJ

Rock Glen 3,787,748 Section 221(d)(4) of the NHA 241 0 --
Baltimore, MD
</TABLE>

I-3
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
HAS AN INVESTMENT(1)

<TABLE>
<CAPTION>
Units Expiration
Mortgage Authorized for of
Name and Location Payable at Financed and/or Insured Number of Rental Asst. Section 8
of Apartment Complex 12/31/96 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Rolling Green at $ 2,336,586 Massachusetts Housing Finance 204 15 03/01/12
Amherst Agency (MHFA)/236
Amherst, MA

Rolling Green at 5,267,856 MHFA/236 404 77 01/10/12
Fall River
Fall River, MA

Tanglewood II 1,521,991 FNMA/Section 221(d)(3) of the NHA 192 0 --
Westwego, LA

Troy Manor Apts. 855,409 Farmers Home Administration Section 50 50 10/22/99
Troy, AL 5/ Section 8

Westgate Tower Apts. 2,110,510 Michigan Sate Housing Develop- 148 43 12/01/13
Westland, MI ment Authority/236

Wexford Ridge 4,087,097 MSB/236 246 242 09/30/98 (4)
Madison, WI
- -------------------- ------------ -------- --------
Totals(3) 22 $ 97,672,239 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 1996 1995 1994 1993 1992 1996 1995 1994 1993 1992
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arrowhead Apts. 91% 93% 90% 83% 88% $ 9,205 $ 9,025 $ 9,282 $ 8,534 $ 8,465
Palatine, IL

Beech Hill I 99% 100% 99% 99% 100% 5,351 5,343 5,352 5,220 4,798
Manchester, NH

Beech Hill II 99% 98% 100% 98% 99% 4,788 4,836 4,411 4,519 4,447
Manchester, NH

Chevy Chase Park 97% 99% 98% 100% 99% 4,232 4,224 3,938 3,953 3,771
Centerville, OH

Country Place I 96% 92% 95% 91% 91% 8,922 8,902 8,783 8,780 8,570
Burtonsville, MD

Country Place II 93% 93% 95% 94% 89% 9,192 8,833 8,965 8,903 8,878
Burtonsville, MD

Deer Grove Apts. 91% 93% 95% 96% 96% 8,426 8,383 7,831 7,714 7,274
Palatine, IL

Four Winds West 99% 98% 95% 97% 100% 4,899 4,537 4,512 5,822 4,267
Birmingham, AL

Frenchman's Wharf II 89% 90% 88% 88% 92% 4,295 4,171 4,156 4,235 4,192
New Orleans, LA

Golden Acres 100% 100% 100% 100% 100% 6,297 6,271 6,191 6,011 5,905
Chowchilla, CA

Mercy Terrace 100% 100% 100% 100% 100% 15,045 15,898 15,585 15,381 14,985
San Francisco, CA

The Moorings 97% 97% 97% 97% 94% 9,231 8,577 8,688 8,078 7,980
Roselle, IL

Orangewood 100% 100% 98% 100% 100% 2,353 2,700 2,852 2,900 2,987
Orange Cove, CA

Posada Vallarta 89% 96% 97% 99% 90% 6,808 6,616 6,257 5,807 5,714
Phoenix, AZ

Princeton Community
Village 98% 97% 97% 98% 100% 6,785 6,510 6,244 6,072 5,942
Princeton, NJ

Rock Glen 97% 94% 96% 95% 89% 4,724 4,864 4,862 4,778 4,923
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 1996 1995 1994 1993 1992 1996 1995 1994 1993 1992
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rolling Green at Amherst 100% 100% 100 100% 100% $ 7,333 $ 7,314 $ 7,091 $ 6,961 $ 6,683
Amherst, MA

Rolling Green at 96% 98% 99% 98% 98% 7,163 7,177 7,222 7,080 5,797
Fall River
Fall River, MA

Tanglewood II 98% 98% 99% 100% 100% 4,290 4,112 3,923 3,914 3,913
Westwego, LA

Troy Manor Apts. 100% 100% 100% 100% 100% 4,680 4,681 4,596 5,261 4,365
Troy, AL

Westgate Tower Apts. 100% 99% 98% 99% 100% 3,551 3,471 3,438 3,261 3,161
Westland, MI

Wexford Ridge 98% 98% 100% 100% 100% 4,509 4,517 4,413 4,182 4,055
Madison, WI
---- ---- ---- ---- ---- -------- -------- -------- -------- --------
Totals(3) 22 97% 97% 97% 97% 97% $ 6,458 $ 6,407 $ 6,300 $ 6,244 $ 5,958
==== ==== ==== ==== ==== ======== ======== ======== ======== ========

</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, 1996.

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

(4) The Section 8 contract expiration date reflects a one-year extension from
the original expiration date, in accordance with Congressional legislation.

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 February 19, 1997, Tanglewood Apartments Associates II Limited
Partnership sold Tanglewood II to a non-profit entity. See Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the notes to the financial statements for additional information
pertaining to the sale.

I-6
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------

On March 18, 1997, Palatine-Barrington Associates Limited Partnership sold
Deer Grove to an unaffiliated entity. See Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
notes to the financial statements for additional information pertaining to the
sale.

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
-----------------

There are no material legal proceedings to which the Partnership is a
party.

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 1996.

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

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

(a) On August 29, 1996, Equity Resource Bay Fund (Bay Fund), a
Massachusetts Limited Partnership which is affiliated with Equity
Resources Group, the general partner of various partnerships that are
Additional Limited Partners in the Partnership, initiated a tender
offer to purchase 1,500 additional units in the Partnership at a price
of $10 per Additional Limited Partner unit. Bay Fund, which is
unaffiliated with CRI, stated that it made the offer for the express
purpose of holding the limited partnership units for investment
purposes and not with a view to resale. The purchase offer was
determined solely at the discretion of Bay Fund and did not
necessarily represent the fair market value of each Additional Limited
Partner unit. The Bay Fund offer expired on September 29, 1996, and
as of March 10, 1997, Bay Fund held approximately 2.2% of the
Additional Limited Partner units of the Partnership. Other than the
Bay Fund tender offer, it is not anticipated that there will be any
formal market for resale of interests in the Partnership. As a
result, investors may be unable to sell or otherwise dispose of their
interests in the Partnership.

(b) As of March 10, 1997 there were approximately 4,000 registered holders
of limited partnership interests in the Partnership.

(c) No distributions were declared or paid by the Partnership during 1996
or 1995. The Partnership received distributions of $996,557 and
$870,339 from Local Partnerships during 1996 and 1995, respectively.
Some of the Local Partnerships operate under restrictions imposed by
the pertinent government agencies that limit the cash return available
to the Partnership.

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

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

<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Share of income (loss) from
partnerships $ 303,378 $ 238,823 $ (121,724) $ 343,278 $ (455,139)
Interest income 104,989 181,845 125,477 100,172 120,086
Expenses (6,127,668) (6,268,596) (5,605,037) (5,148,865) (4,499,106)
------------ ------------ ------------ ------------ ------------

Loss before extraordinary gain
from extinguishment of debt (5,719,301) (5,847,928) (5,601,284) (4,705,415) (4,834,159)
------------ ------------ ------------ ------------ ------------

Extraordinary gain from
extinguishment of debt 1,803,902 -- -- -- --
------------ ------------ ------------ ------------ ------------

Net loss $ (3,915,399) $ (5,847,928) $ (5,601,284) $ (4,705,415) $ (4,834,159)
============ ============ ============ ============ ============

Loss allocated to Additional
Limited Partners (97%) $ (3,797,937) $ (5,672,490) $ (5,433,246) $ (4,564,252) $ (4,689,134)
============ ============ ============ ============ ============

Loss per unit of Additional Limited
Partnership Interest based
on 50,000 units outstanding $ (75.96) $ (113.45) $ (108.66) $ (91.29) $ (93.78)
============ ============ ============ ============ ============

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

Total assets $ 9,740,065 $ 11,550,373 $ 11,854,627 $ 12,953,688 $ 13,698,771
============ ============ ============ ============ ============
Total remaining due on
investments, including accrued
interest on purchase money notes $ 50,725,540 $ 51,676,902 $ 49,371,965 $ 47,346,894 $ 45,293,505
============ ============ ============ ============ ============
</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 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 a 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.

Some 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. The Low Income Housing Preservation and
Resident Homeownership Act of 1990 (LIHPRHA), which provided property owners
with restricted opportunities to sell low income housing, ended effective
September 30, 1996. However, the U.S. Department of Housing and Urban
Development (HUD) received approximately $175 million to fund sales of
qualifying properties under the LIHPRHA program during the federal government's
fiscal year 1997, which began October 1, 1996. Continued funding of the LIHPRHA

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

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

program after fiscal year 1997 is uncertain. There is no assurance that a sale
of any properties that previously qualified under the LIHPRHA program will
occur, except for Tanglewood II, as discussed below.

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 strategies to sell or refinance certain properties pursuant to programs
developed by these agencies or other potential buyers. 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 to refinance the property, or to obtain supplemental financing. The Managing
General Partner continues to monitor certain state housing agency programs
and/or programs provided by certain lenders, to ascertain whether the properties
would qualify within the parameters of a given program and whether these
programs would provide an appropriate economic benefit to the limited partners
of the Partnership.

Some of the rental properties owned by the Local Partnerships are dependent
on the receipt of project-based Section 8 Rental Housing Assistance Payments
(HAP) provided by HUD pursuant to HAP contracts. In 1995 and 1996, HUD released
its Reinvention Blueprint and a revision to its Reinvention Blueprint which
contained proposals that have come to be known as "Mark-to-Market". Congress,
HUD and the Clinton Administration continue to struggle with the Mark-to-Market
initiative. This initiative was intended to deal with HUD's increasing burden
of funding HAP contracts. Under the initiative, HUD would eliminate the
project-based subsidy and provide the residents with "sticky vouchers" which
would allow residents to move to other developments should they so choose.
However, with the elimination of the HAP contract, there is no assurance that
rental properties would be able to maintain the rental income and occupancy
levels necessary to pay operating costs and debt service. The initiative will
impact those properties that have HAP contracts with shorter terms than that of
the underlying property mortgage. For instance, some properties may have a 20-
year HAP contract while the underlying mortgage has a 40-year term. In the
interim, Congress has authorized one-year extensions for properties with HAP
contracts expiring during the government's fiscal year 1997, which began October
1, 1996. In light of recent political scrutiny of appropriations for HUD
programs, continued funding of annual renewals for Section 8 HAP contracts
expiring after fiscal year 1997 is uncertain.

With the ending of the LIHPRHA program and with the uncertainty surrounding
renewals of expiring Section 8 HAP contracts, the Managing General Partner is
developing new strategies to deal with the ever changing environment of
affordable housing policy. Section 236 and Section 221(d)(3) properties that
are in the 18th year of their mortgage may be eligible for pre-payment of the
mortgage. Properties with expiring Section 8 HAP contracts may become
convertible to market-rate apartment properties. Currently, there are a few
lenders that will provide financing either to prepay the existing mortgage or
provide additional funds to allow the property to convert to market rate units.
Where opportunities exist, the Managing General Partner will continue to work
with the Local Partnerships to develop a strategy that makes economic sense for
all parties involved.

In 1990, CRI, as managing general partner of the Partnership and various
other entities, subcontracted certain property-level asset management functions

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

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

for certain properties to Capital Management Strategies, Inc. (CMS). Among
these properties were properties owned by some 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 retired from 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.

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 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 was not named as a
defendant in this action. Messrs. Dockser and Willoughby entered an answer
denying all of Mr. Schwartzberg's claims. On February 6, 1996, CRI terminated
the CMS contract for cause. (CRI subsequently retained an
independent asset management company to perform functions previously performed
by CMS.) Mr. Schwartzberg and CMS responded to the contract termination 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. 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.

Following subsequent litigation, none of which involved the Partnership, on
June 12, 1996, Mr. Schwartzberg, CRI and others entered an agreement (which
contemplates the execution of a subsequent definitive agreement) to resolve the
disputes between CRI and CMS. The Partnership was not a signatory to the
agreement. As part of the resolution, Mr. Schwartzberg withdrew any derogatory
statements he made about CRI and its principals. Upon execution of the
definitive agreement, Mr. Schwartzberg shall withdraw as a General Partner of
this Partnership and his interest will become that of a Special Limited Partner.
As of March 10, 1997, CRI and Mr. Schwartzberg were unable to agree on the
language of various provisions of the definitive agreement and have agreed to
submit the open issues to arbitration. The Partnership is not a party to the
arbitration proceeding.

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

As of December 31, 1996, the Partnership had approximately 4,000 investors
who subscribed to a total of 50,000 units of limited partnership interests in

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

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

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 $2,128,849 as of December 31, 1996, along with anticipated
future cash distributions from the Local Partnerships, is expected to meet its
current and anticipated operating cash needs. The Partnership has determined
that the carrying amount of its cash and cash equivalents approximates fair
value. As of March 10, 1997, there were no material commitments for capital
expenditures.

During 1996, 1995 and 1994, the Partnership received cash distributions of
$996,557, $870,339 and $793,007, respectively, from the Local Partnerships.

The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$20,140,678 (exclusive of unamortized discount on purchase money notes of
$5,159,494) plus accrued interest of $30,584,862 as of December 31, 1996, are
payable in full 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 $2,100,000 matured on December 31, 1996, as
discussed below. Purchase money notes in an aggregate principal amount of
$1,900,000 mature on December 31, 1997, 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.

Purchase money notes relating to Wexford Ridge Associates in the principal
amount of $1,900,000 mature on December 31, 1997. The Managing General Partner
anticipates negotiating with the purchase money note holders for a five year
extension on the purchase money notes. There is no assurance that the Managing
General Partner will reach an agreement of any kind with the noteholders.
Accordingly, there can be no assurance that the Partnership will be able to
retain its interest in the Local Partnership. The uncertainty about the
continued ownership of the Partnership's interest in the related Local
Partnership 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 Local Partnership. Therefore, should the
investment in Wexford Ridge not produce sufficient value to satisfy the purchase
money notes related to Wexford Ridge, the Partnership's exposure to loss is
limited since the amount of the nonrecourse indebtedness exceeds the carrying

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

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

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.

On May 23, 1994, the local general partner of Tanglewood Apartments
Associates II Limited Partnership (Tanglewood II) filed a notice of intent to
participate under LIHPRHA. On July 11, 1996, the local managing general
partner's plan of action regarding the sale of Tanglewood II under the LIHPRHA
program was approved by HUD. On February 19, 1997, Tanglewood II sold the
property, a 192-unit apartment complex located in Westwego, Louisiana, under the
LIHPRHA program. The sale of the property generated net cash proceeds to the
Partnership of $933,987. The proceeds were net of $1,385,154 used to retire, at
a discount, the Partnership's purchase money note obligation with respect to the
property. The sale provided proceeds to the Partnership in excess of its
investment in the Local Partnership, and will result in a net financial
statement gain in 1997 of approximately $3.2 million, of which approximately
$1.7 million will result from the retirement of the purchase money note
obligation with respect to the property. The federal tax gain is estimated to
be approximately $4.9 million. The Managing General Partner of the Partnership
and/or its affiliates will not receive fees relating to the sale.

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. The noteholder signed a standstill agreement which expired on 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
$1,803,902.

The Partnership defaulted on its purchase money notes relating to Beech
Hill Development Co. (Beech Hill I) and Beech Hill Development Co. II (Beech
Hill II) on August 1, 1995 when the notes matured and were not paid. On March
29, 1996, the noteholders agreed to extend the purchase money note due dates to
January 1, 1998. Under the agreement, the Partnership will 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. The Partnership received cash flow distributions of
$5,000 and $2,500 from Beech Hill I and II, respectively, during the year ended
December 31, 1996. Cash flow distributions of $60,365 and $27,500 were paid
directly by Beech Hill I and Beech Hill II, respectively, to the purchase money
note holders during the year ended December 31, 1996. There were no annual cash
flow distributions made to the Partnership from the related Local Partnerships
during the year ended December 31, 1995. Also under the agreement, documents
transferring the Partnership's interests in the related Local Partnerships to
the noteholders have been placed in escrow and would be released to the
noteholders upon a future default by the Partnership on the respective purchase
money notes.

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

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

The Managing General Partner is currently negotiating a five year extension of
the purchase money notes with the noteholders. The Managing General Partner is
also awaiting the potential future sale of the property under the LIHPRHA
program. There is no assurance that a sale will take place under the LIHPRHA
program, nor is there any 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 regarding the continued
ownership of the Partnership's interests in 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 Partnership. Therefore, should the investment in 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
Partnership. Thus, even a complete loss of this investment would not have a
material impact on the operations of the Partnership.

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 1996 and 1995, the receipt of distributions from Local Partnerships was
adequate to support operating cash requirements. Cash and cash equivalents
decreased during 1996 as a result of the pay-off of the Rock Glen purchase money
note, as discussed above.

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

The Partnership's net loss decreased in 1996 from 1995 primarily due to the
extraordinary gain on extinguishment of the Rock Glen purchase money note, as
discussed above. Contributing to the decrease in net loss was a decrease in
interest expense which was also due to the extinguishment of the Rock Glen
purchase money note, as discussed above. Also contributing to the decrease in
net loss was an increase in share of income from partnerships primarily due to
decreased depreciation and maintenance expense at two properties. Partially
offsetting the decrease in net loss was a decrease in interest income as a
result of decreased cash and cash equivalent balances in 1996 and an increase in
professional fees due to legal fees incurred in connection with the Arrowhead
and Moorings litigation, as discussed below.

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-8
<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 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 1996, all properties with purchase money
notes that has not previously matured 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,
1996, 1995 and 1994 did not include losses of $3,526,546, $3,522,606 and
$3,493,216, 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
$247,917, $248,235 and $113,392, received from eight, six and five Local
Partnerships, respectively, during 1996, 1995 and 1994, respectively, were
offset against the respective years' recorded losses because these amounts were
in excess of the Partnership's investment.

The local general partner of Lake Properties Limited Partnership
(Frenchman's Wharf II), in conjunction with the Managing General Partner,
engaged in extensive negotiations with HUD, holder of the mortgage on the
property, to extend the previous workout arrangement related to the mortgage
loan on the property, which expired December 1990. On April 30, 1996, the local
general partner received approval from HUD for a four-year workout. Under the
workout agreement, Frenchman's Wharf II will make minimum monthly payments to
HUD, consisting of a service charge and tax escrow. Additionally, Frenchman's
Wharf II will make monthly interest payments representing approximately 50%,
65%, 85% and 100% of the interest due on the outstanding principal balance of
the note for the periods July 1 through June 30 during the years 1996 through
2000, respectively. As of March 10, 1997, Frenchman's Wharf II had made all
monthly payments in accordance with the workout arrangement. There is, however,
no assurance that the Local Partnership will be able to comply with the terms of
the workout arrangement.

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

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

December 31, 1995, 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 relating to
the Local Partnership. There is no assurance that the Local Partnership, upon
expiration of the workout, will be able to repay the loans in accordance with
the terms.

The purchase money notes related to Frenchman's Wharf II in the principal
amount of $3,150,000 which were initially due to mature on June 1, 1988 have
been extended to mature on June 1, 1998. In conjunction with the four-year
workout agreement, the Partnership is currently negotiating with the purchase
money note holders to reach an extension agreement which would be coterminous
with the expiration of the HUD workout arrangement. There is no assurance that
the noteholders will consent to an extension agreement. As of March 10, 1997,
the noteholders had not given consent to an extension agreement.

The report of the auditors on the financial statements of Frenchman's Wharf
II for the year ended December 31, 1996 indicated that substantial doubt exists
about the ability of the Local Partnership to continue as a going concern due to
the Local Partnership's default on its mortgage and the expiration of its
Section 8 HAP contract with HUD on November 30, 1997. The report of the
auditors on the financial statements of Frenchman's Wharf II for the year ended
December 31, 1995 indicated that substantial doubt exists about the ability of
the Local Partnership 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.

On January 31, 1996, the local managing general partner of Palatine-
Barrington Associates Limited Partnership (Deer Grove) received an offer to sell
the property to an unaffiliated entity. This offer was rejected by the local
managing general partner. On September 13, 1996, the local managing general
partner of Deer Grove received another offer to sell the property. The local
managing general partner accepted the offer and, on March 18, 1997, Deer Grove
sold the property, a 448-unit apartment complex located in Palatine, Illinois.
The sale of the property generated cash proceeds to the Partnership of $3.4
million at closing. The Partnership anticipates receiving additional proceeds
upon final release of the property's reserves. The proceeds received at closing
were in excess of the Partnership's investment in the Local Partnership and will
result in a net financial statement gain in 1997 of approximately $3.4 million.
The tax gain is estimated to be approximately $17.8 million.

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

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

delinquent interest. All debt service payments were 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. In June 1996, HUD sold the
mortgage loan to a third party. The new mortgagee issued a notice of default
and acceleration of the loan to Posada Vallarta Apartments. The notice was
determined to be in error, and on July 8, 1996 the notice of default and
acceleration was withdrawn by the new mortgagee. The workout agreement related
to Posada Vallarta Apartments provided that upon cancellation of the workout
agreement, the loan would be recast at an annual interest rate of 7.5%, if
certain conditions are satisfied. As of October 1, 1996, the expiration of the
workout agreement, the local managing general partner and the new mortgagee were
disputing whether or not those conditions had been satisfied. On October 1,
1996, the Local Partnership made a monthly payment, and has continued to make
such monthly payments, on the debt in the amount which would be due if the loan
is recast at a 7.5% annual interest rate. The new mortgagee made an offer to
extend the workout agreement for two years. The local managing general partner
made a counter-offer to extend the workout agreement for ten years. On February
6, 1997, the local managing general partner and the new mortgagee reached an
agreement in principle to recast the loan at a 7.5% annual interest rate with a
ten-year call provision, as stated in the workout agreement. As of March 10,
1997, the parties are negotiating revised loan documents implementing their
agreement. There is no assurance that a final agreement will be reached on
these documents. Should the mortgagee begin foreclosure proceedings, the
Partnership intends to vigorously defend such action.

The report of the auditors on the financial statements of Posada Vallarta
Apartments for the year ended December 31, 1996 indicates that substantial doubt
exists about the ability of Posada Vallarta Apartments to continue as a going
concern due to the uncertainty about the Local Partnership's continued ownership
of the property due to the potential foreclosure of the property. 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 Posada
Vallarta Apartments not produce sufficient value to satisfy the related purchase
money note, the Partnership's exposure to loss is limited since the amount of
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.

Wexford Ridge Associates Local Partnership (located in Madison, Wisconsin),
its local general partner, and its management agent have been named in eight
sexual harassment and discrimination complaints filed with HUD. 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.

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

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

is an affiliate of the local managing general partner, filed arbitration against
CRHC seeking, among other things, a declaration that the allegations set forth
in CRHC's notice did not constitute grounds for removal of the local managing
general partner. CRHC subsequently filed for arbitration against the local
managing general partner seeking his removal. On September 3, 1996, CRHC filed
an emergency petition in the arbitration to have a trustee appointed to serve as
local managing general partner and managing agent of the Local Partnerships
until the arbitration hearings are held. The emergency petition was denied. As
of March 10, 1997, the litigation is in discovery, and the parties are
negotiating the terms of a settlement. There is no assurance that a settlement
of the arbitration will occur. The hearing is scheduled for July 1997.

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 loss from extinguishment of debt is included in share
of loss from partnerships in the statements of operations.

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

II-12
<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 (1)
Tanglewood II May 23, 1994 (2)
Chevy Chase Park July 18, 1994
Wexford Ridge July 27, 1994
Beech Hill I December 21, 1994 (1)
Beech Hill II December 21, 1994 (1)
Rolling Green at Fall River March 1, 1995 (1)

</TABLE>

(1) The plan of actions for these properties were not approved by HUD,
therefore, these properties are no longer eligible to participate in what
remains of the LIHPRHA program.

(2) Tanglewood II was sold under the LIHPRHA program on February 19, 1997.

The LIHPRHA program is discussed above in the General section. As
discussed above, there is no assurance that a sale or refinancing of the
remaining properties will occur due to the federal government's limited funding
or appropriations to the LIHPRHA program. Of the properties listed above, only
Chevy Chase and Wexford Ridge are ranked on the master funding list, which is
subject to future government appropriations.

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, 1996:

II-13
<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,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Combined Rental
Revenue $29,638,904 $29,343,786 $28,130,763 $27,551,120 $26,823,399

Annual Percentage
Increase 1.0% 4.31% 2.10% 2.71%

</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-14
<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, 60, 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, 50, 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.

Ronald W. Thompson, 50, 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.

Susan R. Campbell, 38, 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, 41, 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

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

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

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), (d), (e), (f), (g), (i), (j), (k) and (l)

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, 1996, 1995 and 1994.

(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,
1996, 1995 and 1994.

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, 1996, 1995 and 1994.

(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, 1996, 1995 and 1994.

(h) 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, 1996.

(b) Security ownership of management.

The following table sets forth certain information concerning all
units beneficially owned, as of December 31, 1996, by each director
and by all directors and officers as a group of the Managing General
Partner of the Partnership.

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

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

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 (5 persons) None 0%

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, 1996 and 1995 IV-6

Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 IV-7

Statements of Changes in Partners' Deficit for
the years ended December 31, 1996, 1995 and
1994 IV-8

Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 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, 1996, 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-29

Schedule III - Real Estate and Accumulated
Depreciation IV-30

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, 1996.

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.
Managing General Partner

March 24, 1997 /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 24, 1997 /s/ H. William Willoughby
- --------------------------- --------------------------------
DATE H. William Willoughby
Director, President and
Secretary

March 24, 1997 /s/ Deborah K. Browning
- --------------------------- --------------------------------
DATE Deborah K. Browning
Vice President,
Chief Accounting 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, 1996 and 1995, and the related statements of
operations, changes in partners' deficit and cash flows for the years ended
December 31, 1996, 1995 and 1994. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit. We did not
audit the financial statements of certain Local Partnerships. The Partnership's
share of income or loss from these Local Partnerships constitutes $55,461 of
income in 1996, $181,378 of losses in 1995 and $315,608 of losses in 1994
included in the Partnership's net loss. 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
amount 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, 1996 and 1995, and the results of its operations,
changes in partners' deficit and cash flows for the years ended December 31,
1996, 1995 and 1994, in conformity with generally accepted accounting
principles.

Grant Thornton LLP

Vienna, VA
March 10, 1997 (except for Note 2.c., as
to which the date is March 18, 1997)

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 20, 1997, in
accordance with the Securities and Exchange Commission's continuing
hardship exemption granted December 19, 1996.

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

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Investments in and advances to partnerships $ 5,962,920 $ 7,358,510
Assets held for sale 789,258 --
Cash and cash equivalents 2,128,849 3,192,539
Acquisition fees, principally paid to related parties, net of
accumulated amortization of $393,948 and $407,496, respectively 501,003 592,504
Property purchase costs, net of accumulated amortization of
$258,870 and $258,343 respectively 348,378 398,969
Other assets 9,657 7,851
------------ ------------
Total assets $ 9,740,065 $ 11,550,373
============ ============

LIABILITIES AND PARTNERS' DEFICIT

Due on investments in
partnerships $ 14,981,184 $ 14,213,825
Accrued interest payable 30,584,862 29,256,224
Accounts payable and accrued expenses 91,418 82,324
------------ ------------

Total liabilities 45,657,464 43,552,373
------------ ------------

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 (79,400,807) (75,485,408)
------------ ------------

Total partners' deficit (35,917,399) (32,002,000)
------------ ------------

Total liabilities and partners' deficit $ 9,740,065 $ 11,550,373
============ ============

</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,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Share of income (loss) from partnerships $ 303,378 $ 238,823 $ (121,724)
----------- ----------- -----------
Other revenue and expenses:
Revenue
Interest income 104,989 181,845 125,477
----------- ----------- -----------
Expenses
Interest 5,552,780 5,759,461 5,113,326
Management fee 249,996 249,996 249,996
General and administrative 143,529 128,588 104,500
Professional fees 126,118 75,306 81,970
Amortization 55,245 55,245 55,245
----------- ----------- -----------
6,127,668 6,268,596 5,605,037
----------- ----------- -----------
Total other revenue and expenses (6,022,679) (6,086,751) (5,479,560)
----------- ----------- -----------

Loss before extraordinary gain from extinguishment
of debt (5,719,301) (5,847,928) (5,601,284)
----------- ----------- -----------

Extraordinary gain from extinguishment of debt 1,803,902 -- --
----------- ----------- -----------
Net Loss $(3,915,399) $(5,847,928) $(5,601,284)
=========== =========== ===========
Loss allocated to General Partners (1.51%) $ (59,123) $ (88,304) $ (84,579)
=========== =========== ===========
Loss allocated to Initial and Special Limited
Partners (1.49%) $ (58,339) $ (87,134) $ (83,459)
=========== =========== ===========
Loss allocated to Additional Limited Partners (97%) $(3,797,937) $(5,672,490) $(5,433,246)
=========== =========== ===========
Loss per unit of Additional Limited Partnership Interest
based on 50,000 units outstanding $ (75.96) $ (113.45) $ (108.66)
=========== =========== ===========

</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, 1996, 1995 and 1994

Initial and
Special Additional
General Limited Limited
Partners Partners Partners Total
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' deficit January 1, 1994 $ (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)

Net loss (59,123) (58,339) (3,797,937) (3,915,399)
----------- ----------- ------------ ------------

Partners' deficit December 31, 1996 $(1,212,942) $(1,183,328) $(33,521,129) $(35,917,399)
=========== =========== ============ ============

</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,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,915,399) $(5,847,928) $(5,601,284)
Adjustments to reconcile net loss to net cash
used in operating activities:
Share of (income) loss from partnerships (303,378) (238,823) 121,724
Payment of purchase money note interest (152,881) (227,722) (226,464)
Amortization of discount on purchase money notes 3,047,359 3,226,802 2,366,790
Amortization of deferred costs 55,245 55,245 55,245
Gain on extinguishment of debt (1,803,902) -- --

Changes in assets and liabilities:
Increase in other assets (1,806) (2,545) (2,406)
Increase in accrued interest payable 2,505,421 2,532,659 2,746,535
Increase (decrease) in accounts payable 9,094 11,935 (23,383)
----------- ----------- -----------
Net cash used in operating activities (560,247) (490,377) (563,243)
----------- ----------- -----------

Cash flows from investing activities:
Receipt of distributions from partnerships 996,557 870,339 793,007
----------- ----------- -----------
Net cash provided by investing activities 996,557 870,339 793,007
----------- ----------- -----------

Cash flows from financing activities:
Pay-off of purchase money note (1,500,000) -- (485,250)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (1,063,690) 379,962 (255,486)

Cash and cash equivalents, beginning of year 3,192,539 2,812,577 3,068,063
----------- ----------- -----------

Cash and cash equivalents, end of year $ 2,128,849 $ 3,192,539 $ 2,812,577
=========== =========== ===========

</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, 1996 and 1995, the Partnership's share of cumulative losses of
eleven and nine, of the Local Partnerships, respectively, exceeds the
amount of the Partnership's investments in and advances to those Local
Partnerships by $28,225,703 and $24,699,157, 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, 1996 and 1995,
cumulative cash distributions of approximately

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

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

$2,148,566 and $1,900,649, 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, with the exception of those costs relating to Tanglewood
Associates II Limited Partnership (Tanglewood II) and Palatine-Barrington
Associates Limited Partnership (Deer Grove), which are no longer being
amortized as a result of its classification as an asset held for sale as of
December 31, 1996, as discussed below.

d. Cash and cash equivalents
-------------------------

Cash and cash equivalents consist of all money market funds,
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.

e. 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.

f. 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.

g. 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.

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

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

h. Asset held for sale
-------------------

On February 19, 1997, and March 18, 1997, the local general partners
of Tanglewood II and Deer Grove, respectively, sold the respective
properties, as discussed in Note 2. Accordingly, the Partnership's
investment in these Local Partnerships was classified as an investment in
partnerships held for sale on the balance sheets as of December 31, 1996.
Assets held for sale are not recorded in excess of their estimated net
realizable value.

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

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

As of December 31, 1996 and 1995, 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, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Purchase money notes due:
1995 $ -- $ 4,660,000
1996 2,100,000 2,100,000
1997 1,900,000 1,900,000
1998 14,800,500 12,420,500
1999 1,340,178 1,340,178
Less: unamortized discount (5,159,494) (8,206,853)
----------- -----------
$14,981,184 $14,213,825
=========== ===========
</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 $2,100,000 matured on December 31, 1996, as discussed
below. Purchase money notes in an aggregate principal amount of $1,900,000
mature on December 31, 1997, 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

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

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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, 1996, 1995 and 1994 was $5,552,780, $5,759,461 and
$5,113,326, respectively. The accrued interest on the purchase money notes
of $30,584,862 and $29,256,224 as of December 31, 1996 and 1995,
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.

Purchase money notes relating to Wexford Ridge Associates in the
principal amount of $1,900,000 mature on December 31, 1997. The Managing
General Partner anticipates negotiating with the purchase money note
holders for a five year extension on the purchase money notes. There is no
assurance that the Managing General Partner will reach an agreement of any
kind with the noteholders. Accordingly, there can be no assurance that the
Partnership will be able to retain its interest in the Local Partnership.
The uncertainty about the continued ownership of the Partnership's interest
in the related Local Partnership 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 Local
Partnership. Therefore, should the investment in Wexford Ridge not produce
sufficient value to satisfy the purchase money notes related to Wexford
Ridge, 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.

On February 19, 1997, the Partnership paid off the purchase money note
relating to Tanglewood II at a discount, as discussed below.

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. The noteholder signed a standstill agreement
which expired on 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 $1,803,902.

The Partnership defaulted on its purchase money notes relating to
Beech Hill Development Co. (Beech Hill I) and Beech Hill Development Co. II

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

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

(Beech Hill II) on August 1, 1995 when the notes matured and were not paid.
On March 29, 1996, the noteholders agreed to extend the purchase money note
due dates to January 1, 1998. Under the agreement, the Partnership will
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. The Partnership received
cash flow distributions of $5,000 and $2,500 from Beech Hill I and II,
respectively, during the year ended December 31, 1996. Cash flow
distributions of $60,365 and $27,500 were paid directly by Beech Hill I and
Beech Hill II, respectively, to the purchase money note holders during the
year ended December 31, 1996. There were no annual cash flow distributions
made to the Partnership from the related Local Partnerships during the year
ended December 31, 1995. Also under the agreement, documents transferring
the Partnership's interests in the related Local Partnerships to the
noteholders have been placed in escrow and would be released to the
noteholders upon a future default by the Partnership on the respective
purchase money notes.

The Partnership defaulted on its purchase money notes relating to
Chevy Chase Park, Limited (Chevy Chase) on December 31, 1996 when the notes
matured and were not paid. The default amount included principal and
accrued interest of $2,100,000 and $3,553,912, respectively. As of March
10, 1997 principal and accrued interest totalling $2,100,000 and
$3,608,885, respectively, were due. The Managing General Partner is
currently negotiating a five year extension of the purchase money notes
with the noteholders. The Managing General Partner is also awaiting the
potential future sale of the property under the LIHPRHA program. There is
no assurance that a sale will take place under the LIHPRHA program, nor is
there any 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 regarding the
continued ownership of the Partnership's interests in 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 Partnership. Therefore, should the
investment in 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 Partnership. Thus,
even a complete loss of this investment would not have a material impact on
the operations of the Partnership.

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

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

extinguishment of debt of $117,353. The loss from extinguishment of debt
is included in share of loss from partnerships in the statements of
operations.

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 $996,557, $870,339 and $793,007 during the years
ended December 31, 1996, 1995 and 1994, respectively. As of December 31,
1996 and 1995, seventeen of the Local Partnerships had surplus cash, as
defined by their respective agencies, in the amount of $2,005,402 and
$2,475,456, 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 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, 1996 and 1995.

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

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

<TABLE>
<CAPTION>
December 31,
1996 1995
----------- -----------
<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 Lake Properties Limited Partnership
(Frenchman's Wharf II), in conjunction with the Managing General Partner,
engaged in extensive negotiations with HUD, holder of the mortgage on the
property, to extend the previous workout arrangement related to the
mortgage loan on the property, which expired December 1990. On April 30,
1996, the local general partner received approval from HUD for a four-year
workout. Under the workout agreement, Frenchman's Wharf II will make
minimum monthly payments to HUD, consisting of a service charge and tax
escrow. Additionally, Frenchman's Wharf II will make monthly interest
payments representing approximately 50%, 65%, 85% and 100% of the interest
due on the outstanding principal balance of the note for the periods July 1
through June 30 during the years 1996 through 2000, respectively. As of
March 10, 1997, Frenchman's Wharf II had made all monthly payments in
accordance with the workout arrangement. There is, however, no assurance
that the Local Partnership will be able to comply with the terms of the
workout arrangement.

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, 1996 and December 31, 1995. 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, 1996 and December 31, 1995, 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 relating to the Local Partnership.
There is no assurance that the Local Partnership, upon expiration of the
workout, will be able to repay the loans in accordance with the terms.

The purchase money notes related to Frenchman's Wharf II in the
principal amount of $3,150,000 which were initially due to mature on June
1, 1988 have been extended to mature on June 1, 1998. In conjunction with
the four-year workout agreement, the Partnership is currently negotiating
with the purchase money note holders to reach an extension agreement which
would be coterminous with the expiration of the HUD workout arrangement.
There is no assurance that the noteholders will consent to an extension
agreement. As of March 10, 1997, the noteholders had not given consent to
an extension agreement.

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

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

The report of the auditors on the financial statements of Frenchman's
Wharf II for the year ended December 31, 1996 indicated that substantial
doubt exists about the ability of the Local Partnership to continue as a
going concern due to the Local Partnership's default on its mortgage and
the expiration of its Section 8 Rental Housing Assistance Payments (HAP)
contract with HUD on November 30, 1997. The report of the auditors on the
financial statements of Frenchman's Wharf II for the year ended December
31, 1995 indicated that substantial doubt exists about the ability of the
Local Partnership 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.

On May 23, 1994, the local general partner of Tanglewood II filed a
notice of intent to participate under the Low Income Housing Preservation
and Resident Homeownership Act of 1990 (LIHPRHA). On July 11, 1996, the
local managing general partner's plan of action regarding the sale of
Tanglewood II under the LIHPRHA program was approved by HUD. On February
19, 1997, Tanglewood II sold the property, a 192-unit apartment complex
located in Westwego, Louisiana, under the LIHPRHA program. The sale of the
property generated net cash proceeds to the Partnership of $933,987. The
proceeds were net of $1,385,154 used to retire, at a discount, the
Partnership's purchase money note obligation with respect to the property.
The sale provided proceeds to the Partnership in excess of its investment
in the Local Partnership, and will result in a net financial statement gain
in 1997 of approximately $3.2 million, of which approximately $1.7 million
will result from the retirement of the purchase money note obligation with
respect to the property. The federal tax gain is estimated to be
approximately $4.9 million. The Managing General Partner of the
Partnership and/or its affiliates will not receive fees relating to the
sale.

On January 31, 1996, the local managing general partner of Palatine-
Barrington Associates Limited Partnership (Deer Grove) received an offer to
sell the property to an unaffiliated entity. This offer was rejected by
the local managing general partner. On September 13, 1996, the local
managing general partner of Deer Grove received another offer to sell the
property. The local managing general partner accepted the offer and on
March 18, 1997, Deer Grove sold the property, a 448-unit apartment complex
located in Palatine, Illinois. The sale of the property generated cash
proceeds to the Partnership of $3.4 million at closing. The Partnership
anticipates receiving additional proceeds upon final release of the
property's reserves. The proceeds received at closing were in excess of
the Partnership's investment in the Local Partnership and will result in a
net financial statement gain in 1997 of approximately $3.4 million. The tax
gain is estimated to be approximately $17.8 million.

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

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

Posada Associates Limited Partnership (Posada Vallarta Apartments) was
operating under an extension of a three-year workout agreement with HUD,
the holder of the mortgage. The workout provided for, among other things,
a minimum monthly debt service payment, with excess cash, if any, being
applied to delinquent interest. All debt service payments were 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. In
June 1996, HUD sold the mortgage loan to a third party. The new mortgagee
issued a notice of default and acceleration of the loan to Posada Vallarta
Apartments. The notice was determined to be in error, and on July 8, 1996
the notice of default and acceleration was withdrawn by the new mortgagee.
The workout agreement related to Posada Vallarta Apartments provided that
upon cancellation of the workout agreement, the loan would be recast at an
annual interest rate of 7.5%, if certain conditions are satisfied. As of
October 1, 1996, the expiration of the workout agreement, the local
managing general partner and the new mortgagee were disputing whether or
not those conditions had been satisfied. On October 1, 1996, the Local
Partnership made a monthly payment, and has continued to make such monthly
payments, on the debt in the amount which would be due if the loan is
recast at a 7.5% annual interest rate. The new mortgagee made an offer to
extend the workout agreement for two years. The local managing general
partner made a counter-offer to extend the workout agreement for ten years.
On February 6, 1997, the local managing general partner and the new
mortgagee reached an agreement in principle to recast the loan at a 7.5%
annual interest rate with a ten-year call provision, as stated in the
workout agreement. As of March 10, 1997, the parties are negotiating
revised loan documents implementing their agreement. There is no assurance
that a final agreement will be reached on these documents. Should the
mortgagee begin foreclosure proceedings, the Partnership intends to
vigorously defend such action.

The report of the auditors on the financial statements of Posada
Vallarta Apartments for the year ended December 31, 1996 indicates that
substantial doubt exists about the ability of Posada Vallarta Apartments to
continue as a going concern due to the uncertainty about the Local
Partnership's continued ownership of the property due to the potential
foreclosure of the property. 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 Posada Vallarta Apartments not produce
sufficient value to satisfy the related purchase money note, the
Partnership's exposure to loss is limited since the amount of 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.

Wexford Ridge Associates Local Partnership (located in Madison,
Wisconsin), its local general partner, and its management agent have been
named in eight sexual harassment and discrimination complaints filed with
HUD. 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.

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

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

On May 1, 1996, C.R.H.C., Incorporated (CRHC), an affiliate of the
Managing General Partner, notified the local managing general partner of
Arrowhead Apartments Associates Limited Partnership (Arrowhead) and
Moorings Apartments Associates Limited Partnership (Moorings) that it was
in default under the Partnership Agreements and threatened to remove him as
managing general partner of the Local Partnerships. The managing agent of
Arrowhead and Moorings, which is an affiliate of the local managing general
partner, filed arbitration against CRHC seeking, among other things, a
declaration that the allegations set forth in CRHC's notice did not
constitute grounds for removal of the local managing general partner. CRHC
subsequently filed for arbitration against the local managing general
partner seeking his removal. On September 3, 1996, CRHC filed an emergency
petition in the arbitration to have a trustee appointed to serve as local
managing general partner and managing agent of the Local Partnerships until
the arbitration hearings are held. The emergency petition was denied. As
of March 10, 1997, the litigation is in discovery, and the parties are
negotiating the terms of a settlement. There is no assurance that a
settlement of the arbitration will occur. The hearing is scheduled for
July 1997.

Some 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. The LIHPRHA program,
which provided property owners with restricted opportunities to sell low
income housing, ended effective September 30, 1996. However, HUD received
approximately $175 million to fund sales of qualifying properties under the
LIHPRHA program during the federal government's fiscal year 1997, which
began October 1, 1996. Continued funding of the LIHPRHA program after
fiscal year 1997 is uncertain. There is no assurance that a sale of any
properties that previously qualified under the LIHPRHA program will occur,
except for Tanglewood II, as discussed above.

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

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

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

Property Date of Filing
-------- --------------
<S> <C>
Rolling Green at Amherst June 5, 1992 (1)
Tanglewood II May 23, 1994 (2)
Chevy Chase Park July 18, 1994
Wexford Ridge July 27, 1994
Beech Hill I December 21, 1994 (1)
Beech Hill II December 21, 1994 (1)
Rolling Green at Fall River March 1, 1995 (1)

</TABLE>

(1) The plan of actions for these properties were not approved by HUD,
therefore, these properties are no longer eligible to participate in
what remains of the LIHPRHA program.

(2) Tanglewood II was sold under the LIHPRHA program on February 19, 1997.

The LIHPRHA program is discussed above. As discussed above, there is
no assurance that a sale or refinancing of the remaining properties will
occur due to the federal government's limited funding or appropriations to
the LIHPRHA program. Of the properties listed above, only Chevy Chase and
Wexford Ridge are ranked on the master funding list, which is subject to
future government appropriations.

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 strategies to sell or refinance certain properties
pursuant to programs developed by these agencies or other potential buyers.
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 to refinance the property, or to
obtain supplemental financing. The Managing General Partner continues to
monitor certain state housing agency programs and/or programs provided by
certain lenders, to ascertain whether the properties would qualify within
the parameters of a given program and whether these programs would provide
an appropriate economic benefit to the limited partners of the Partnership.

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

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

impact those properties that have HAP contracts with shorter terms than
that of the underlying property mortgage. For instance, some properties
may have a 20-year HAP contract while the underlying mortgage has a 40-year
term. In the interim, Congress has authorized one-year extensions for
properties with HAP contracts expiring during the government's fiscal year
1997, which began October 1, 1996. In light of recent political scrutiny
of appropriations for HUD programs, continued funding of annual renewals
for Section 8 HAP contracts expiring after fiscal year 1997 is uncertain.

With the ending of the LIHPRHA program and with the uncertainty
surrounding renewals of expiring Section 8 HAP contracts, the Managing
General Partner is developing new strategies to deal with the ever changing
environment of affordable housing policy. Section 236 and Section
221(d)(3) properties that are in the 18th year of their mortgage may be
eligible for pre-payment of the mortgage. Properties with expiring Section
8 HAP contracts may become convertible to market-rate apartment properties.
Currently, there are a few lenders that will provide financing either to
prepay the existing mortgage or provide additional funds to allow the
property to convert to market rate units. Where opportunities exist, the
Managing General Partner will continue to work with the Local Partnerships
to develop a strategy that makes economic sense for all parties involved.

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

Summarized financial information for the Local Partnerships as of
December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995
and 1994 is included below. Certain amounts have been reclassified to
conform to the 1996 presentation.

IV-21
<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,
1996 1995
------------ ------------
<S> <C> <C>
Rental property, at cost, net of accumulated
depreciation of $71,778,854 and $66,489,684,
respectively $ 79,183,226 $ 83,048,981

Land 11,322,282 11,322,193
Other assets 16,059,121 15,209,498
------------ ------------
Total assets $106,564,629 $109,580,672
============ ============

Mortgage notes payable $ 97,672,239 $ 98,202,350
Other liabilities 29,414,000 27,564,786
Due to general partners 6,681,390 6,463,830
------------ ------------
Total liabilities 133,767,629 132,230,966

Partners' deficit (27,203,000) (22,650,294)
------------ ------------
Total liabilities and partners'
deficit $106,564,629 $109,580,672
============ ============
</TABLE>

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Rental $ 29,638,904 $ 29,343,786 $ 28,130,763
Interest 550,964 474,539 1,071,492
Other 795,885 778,072 567,967
------------ ------------ ------------
Total revenue 30,985,753 30,596,397 29,770,222
------------ ------------ ------------
Expenses:
Operating 20,622,338 20,231,119 19,663,285
Interest 8,284,244 8,458,907 8,389,307
Depreciation 5,468,433 5,435,953 5,346,581
Amortization 78,547 78,173 60,689
------------ ------------ ------------
Total expenses 34,453,562 34,204,152 33,459,862
------------ ------------ ------------
Net loss $ (3,467,809) $ (3,607,755) $ (3,689,640)
============ ============ ============
</TABLE>

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

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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 taxable loss for the years ended December 31,
1996, 1995 and 1994 is as follows:

IV-23
<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,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Financial statement net loss $ (3,467,809) $ (3,607,755) $ (3,689,640)

Adjustments:
Additional tax depreciation using accelerated methods,
net of depreciation on construction period expenses
capitalized for financial statement purposes (2,013,453) (2,301,340) (2,534,797)

Amortization for tax purposes
not deducted for financial
statement purposes 52,851 33,122 34,805

Miscellaneous, net 2,121,566 1,061,976 876,666
------------ ------------ ------------
Taxable loss $ (3,306,845) $ (4,813,997) $ (5,312,966)
============ ============ ============

</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.

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

NOTES TO FINANCIAL STATEMENTS

3. RELATED-PARTY TRANSACTIONS - Continued

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. For the years ended December 31, 1996, 1995 and
1994, the Partnership paid $109,463, $84,613 and $87,104, 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.

In addition, in accordance with the terms of the Partnership Agreement, the
Partnership is obligated to pay the Managing General Partner an annual incentive
management fee (the Management Fee), after all other expenses of the of the
Partnership are paid. 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.

For each of the years ended December 31, 1996, 1995 and 1994, the
Partnership paid the Managing General Partner a Management Fee of $249,996.

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

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

NOTES TO FINANCIAL STATEMENTS

4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued

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;
(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 1996, 1995 and 1994.

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
$432,000, $368,000 and $253,000 for the years ended December 31, 1996, 1995 and
1994, respectively. No distributions were declared or paid during 1996, 1995 or
1994 because any cash available for distribution is currently being retained by
the Partnership, as previously discussed.

IV-26
<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

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
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
taxable loss for the years ended December 31, 1996, 1995 and 1994 is as follows:

IV-27
<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,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Financial statement net loss $ (3,915,399) $ (5,847,928) $ (5,601,284)

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) (3,248,881) (4,798,458) (5,030,386)

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

Effect of imputed interest on purchase money notes
for financial reporting purposes (see Note 2a) 3,035,893 3,031,352 2,366,789
------------ ------------ ------------
Taxable loss $ (4,187,947) $ (7,674,595) $ (8,324,441)
============ ============ ============

</TABLE>

6. CONTINGENCIES

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 some 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 retired from 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.

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

NOTES TO FINANCIAL STATEMENTS

6. CONTINGENCIES - Continued

the CMS contract for cause. (CRI subsequently retained an
independent asset management company to perform functions previously performed
by CMS.) Mr. Schwartzberg and CMS responded to the contract termination 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. 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-29
<PAGE>

FINANCIAL STATEMENT SCHEDULES

IV-30
<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 10, 1997,
which is included in this Form 10-K, we have also audited Schedule III as of
December 31, 1996, 1995 and 1994. We did not audit the financial statements for
certain of the Local Partnerships in 1996, 1995 and 1994, 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 10, 1997

IV-31
<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, 1996
<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 $ 1,437,162 $ --
Palatine, IL
(448 units-family
apartment complex)

Frenchman's Wharf II (A) 2,543,310 6,099,825 483,131 --
New Orleans, LA
(324 units-family
apartment complex)

Mercy Terrace (A) -- 12,696,941 1,578,347 --
San Francisco, CA
(158 units-family
apartment complex)

Posada Vallarta (A) 936,579 -- 15,416,636 1,113,666
Phoenix, AZ
(336 units-family
apartment complex)

Princeton Community (A) 572,228 10,469,952 1,465,439 --
Village
Princeton, NJ
(239 units-family
apartment complex)

Rolling Green at
Fall River (A) 473,263 10,377,418 2,597,283 --
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 10,492,622 95,661
----------- ------------ ------------- -----------

Total $11,054,412 $116,550,003 $ 33,470,620 $ 1,209,327
=========== ============ ============= ===========
</TABLE>

IV-32
<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, 1996
<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 $ 16,534,264 $ 18,226,915 $(7,674,372) 1979 8/83 5-30
Palatine, IL
(448 units-family
apartment complex)

Frenchman's Wharf II 2,543,310 6,582,956 9,126,266 (5,316,854) 1981 6/83 25
New Orleans, LA
(324 units-family
apartment complex)

Mercy Terrace -- 14,275,288 14,275,288 (6,525,540) 1983 6/83 3-30
San Francisco, CA
(158 units-family
apartment complex)

Posada Vallarta 908,458 16,558,423 17,466,881 (4,704,437) 1984 4/83 5-40
Phoenix, AZ
(336 units-family
apartment complex)

Princeton Community 572,228 11,935,391 12,507,619 (5,811,964) 1971 9/83 3-40
Village
Princeton, NJ
(239 units-family
apartment complex)

Rolling Green at
Fall River 473,396 12,974,568 13,447,964 (6,329,426) 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 5,132,239 72,101,190 77,233,429 (35,416,261)
----------- ------------ ------------ ------------

Total $11,322,282 $150,962,080 $162,284,362 $(71,778,854)
=========== ============ ============ ============

</TABLE>

IV-33
<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, 1996

(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 $162,683,582. The total of the above-
mentioned items is $175,650,613.
(D) Reconciliation of real estate
-----------------------------

For the years ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $160,860,858 $158,911,927 $157,439,291

Improvements during period 1,602,926 2,304,108 2,193,200

Deletions during period (179,422) (355,177) (720,564)
------------ ------------ ------------
Balance at end of period $162,284,362 $160,860,858 $158,911,927
============ ============ ============

</TABLE>

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

<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $ 66,489,684 $ 61,408,908 $ 56,782,505

Depreciation expense for the period,
net of deletions 5,289,170 5,080,776 4,626,403
------------ ------------ ------------
Balance at end of period $ 71,778,854 $ 66,489,684 $ 61,408,908
============ ============ ============

</TABLE>

IV-34
<PAGE>

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

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

27 Financial Data Schedule Filed herewith electronically

IV-35

<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 10-K.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,128,849
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,740,065
<CURRENT-LIABILITIES> 0
<BONDS> 45,566,046
0
0
<COMMON> 0
<OTHER-SE> (35,917,399)
<TOTAL-LIABILITY-AND-EQUITY> 9,740,065
<SALES> 0
<TOTAL-REVENUES> 408,367
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 574,888
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,552,780
<INCOME-PRETAX> (5,719,301)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,719,301)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,803,902
<CHANGES> 0
<NET-INCOME> (3,915,399)
<EPS-PRIMARY> (75.96)
<EPS-DILUTED> (75.96)

</TABLE>