CAPITAL REALTY INVESTORS TAX EXEMPT FUND LTD PARTNERSHIP, PRRN14A, 1996-10-16

CAPITAL REALTY INVESTORS TAX EXEMPT FUND LTD PARTNERSHIP
PRRN14A, 1996-10-16
REAL ESTATE

Previous: OAK TREE MEDICAL SYSTEMS INC, NT 10-Q, 1996-10-16

Next: CAPITAL REALTY INVESTORS TAX EXEMPT FUND LTD PARTNERSHIP, DEFC14A, 1996-10-16

<PAGE>

SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )

Filed by the Registrant / /
Filed by a Party other than the Registrant /x/
Check the appropriate box:
/x/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12

Capital Realty Investors Tax Exempt Fund Limited Partnership and
Capital Realty Investors Tax Exempt Fund III Limited Partnership
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

Dominium Tax Exempt Fund L.L.P.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:

----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:

----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:

----------------------------------------------------------------------
5) Total fee paid:

----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.

/x/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:
$32,461
----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
Schedule 14A
----------------------------------------------------------------------
3) Filing Party:
Capital Realty Investors Tax Exempt Fund Limited Partnership and
Capital Realty Investors Tax Exempt Fund III Limited Partnership
----------------------------------------------------------------------
4) Date Filed:
March 18, 1996 and September 3, 1996
----------------------------------------------------------------------

<PAGE>

Andrew J. Ritten
[email protected]
612/336-3489

October 11, 1996

Mr. J. Evan Calio BY TELECOPY
Securities and Exchange Commission 202-942-9531
450 Fifth Street, N.W.
Washington, D.C., 20549

Re: Schedule 14A filed by Dominium Tax Exempt Fund L.L.P. (the
"Partnership" or "Dominium") regarding Capital Realty Investors
Tax Exempt Fund Limited Partnership I-II ("CRITEF") and Capital
Realty Investors Tax Exempt Fund Limited Partnership III ("CRITEF
III") (collectively referred to as the "Funds") filed
September 30, 1996 - SEC FILE NOS. 1-12034 & 1-9793 RESPECTIVELY
(F&B NO. 200518)
-----------------------------------------------------------------

Dear Mr. Calio:

Enclosed is a draft, dated October 11, 1996, of a revised Preliminary Proxy
Statement for Dominium Tax Exempt Fund L.L.P. We have also enclosed for your
convenience a marked copy showing changes versus the Preliminary Proxy Statement
submitted on September 30, 1996.

The following are our responses to the comments contained in Amy Starr's
letter to me dated October 9, 1996:

FORM OF PROXY

1. It appears that the disclosure should make clear that the delivery of
a proxy without an indication operates to authorize the named persons to vote
against the proposed mergers. Such disclosure should be included in the
forepart.

COMMENT 1 RESPONSE:

AN APPROPRIATE REVISION WILL BE MADE TO THE PROXY CARD.

<PAGE>

LETTER TO BAC HOLDERS

2. Please clearly describe the Partnership's direct and indirect
interests in the matter to be acted on at the BAC holder's meeting. Such
interest should also be identified in the first paragraph of the Introduction
and in the Information about Dominium section.

COMMENT 2 RESPONSE:

IN VIEW OF THE SEC'S COMMENTS ON THE LETTER TO BAC HOLDERS AND IN ORDER TO
EXPEDITE YOUR REVIEW, WE ARE ELIMINATING THE LETTER TO BAC HOLDERS. SEE THE
REVISED LANGUAGE WHICH HAS BEEN PROPOSED FOR THE INTRODUCTION TO THE PROXY
STATEMENT, AS WELL AS THE NEW LANGUAGE IN THE SECOND PARAGRAPH OF THE
INFORMATION ABOUT DOMINIUM SECTION.

3. In that regard, it appears that the fact that Dominium had made offers
to acquire the Funds should be disclosed in the forepart and the Partnership's
or affiliates intentions, if any, regarding the Funds should be disclosed.
Please revise.

COMMENT 3 RESPONSE:

PLEASE SEE THE REVISED LANGUAGE WHICH HAS BEEN PROPOSED FOR THE INTRODUCTION TO
THE PROXY STATEMENT.

4. The staff notes the statements throughout the letters and the proxy
statement referring to "superior proposals." The basis for this belief, as well
as the Partnership's belief as to other factual or qualitative matters must be
clear from the text or provided supplementally to the staff. Without any basis
or support for the assertion that there are superior proposals, it would appear
that such statements should be deleted or significantly revised. Please revise
throughout the proxy statement and letters. In addition, any communications
with stockholders should similarly have a supportable basis.

COMMENT 4 RESPONSE:

WE BELIEVE OUR REFERENCES TO "SUPERIOR PROPOSALS" ARE LIMITED TO OUR REFERENCES
TO THE "SUPERIOR PROPOSAL" WE ATTEMPTED TO MAKE. WE BELIEVE THE LANGUAGE IN THE
REVISED PROXY STATEMENT SHOULD MAKE IT CLEAR THAT WE FAILED IN OUR PRIOR ATTEMPT
TO MAKE A SUPERIOR PROPOSAL AND THAT WE ARE NOT PRESENTLY MAKING A SUPERIOR
PROPOSAL.

WE DO SUGGEST IN THE PROXY STATEMENT THAT THERE MAY BE SUPERIOR ALTERNATIVES
THAT COULD BE PURSUED BY THE GENERAL PARTNERS AND WE DISCUSS IN SOME DETAIL
UNDER THE SECTION TITLED "WE BELIEVE THERE ARE ALTERNATIVES WHICH MAY BE
SUPERIOR TO THE PROPOSED MERGERS" THE FACTUAL OR QUANTITATIVE BASIS FOR OUR
BELIEF THAT THERE MAY BE SUPERIOR ALTERNATIVES.

<PAGE>

5. In addition, the bases for the valuation of the Funds (as compared to
the valuation of the underlying properties) has not been discussed. Please
revise to provide more detail or delete.

COMMENT 5 RESPONSE:

SEE THE REVISED LANGUAGE WHICH HAS BEEN PROPOSED FOR THE INTRODUCTION TO THE
PROXY STATEMENT, AS WELL AS REFERENCES AT PAGE 17. AGAIN, WE BELIEVE THE VALUE
OF THE UNDERLYING PROPERTIES IS MATERIAL TO THE VALUE OF THE FUNDS AND WE HAVE
ATTEMPTED TO EXPLAIN OUR BASIS FOR THAT BELIEF.

THE ONLY ASSETS OF THE FUNDS ARE THE MORTGAGE REVENUE BONDS. THE ONLY SECURITY
FOR THE MORTGAGE REVENUE BONDS IS THE PROPERTIES. THE WAY THE MORTGAGE REVENUE
BONDS GET PAID IS THROUGH THE PROPERTIES GENERATING INCOME. THE VALUE OF THE
PROPERTIES THEREFORE DIRECTLY AFFECTS THE VALUE OF THE MORTGAGE REVENUE BONDS
WHICH DIRECTLY AFFECTS THE VALUE OF THE BACS. THE VALUE OF THE UNDERLYING
PROPERTIES ALSO DIRECTLY AFFECTS THE VALUE OF THE OTHER ALTERNATIVES CONSIDERED
BY THE GENERAL PARTNERS AS THEY DESCRIBE IN THE ALTERNATIVES TO THE MERGERS
SECTION OF THE CRITEF PROXY STATEMENT.

6. The disclosure throughout the letters and the proxy statement should
be revised to make clear that the only assets of the Funds are the mortgage
revenue bonds on the underlying properties, not the properties themselves, and
that the Funds have no ownership or sale rights with respect to the underlying
properties.

COMMENT 6 RESPONSE:

WE HAVE ATTEMPTED TO CLARIFY THROUGHOUT THE PROXY STATEMENT THAT THE ONLY ASSETS
OF THE FUNDS ARE THE MORTGAGE REVENUE BONDS. HOWEVER, OWNERSHIP OF THE MORTGAGE
REVENUE BONDS CARRIES WITH IT A RIGHT TO FORECLOSE ON THE DEFAULTED PROPERTIES
AS ACKNOWLEDGED IN THE CRITEF PROXY STATEMENT. THE OWNER PARTNERSHIPS WERE
ESTABLISHED BY THE GENERAL PARTNERS SPECIFICALLY TO HOLD TITLE TO THE
PROPERTIES.

7. In addition, the relevance of the valuation of the underlying
properties to any realization on the bonds, other than the continuation of tax
exempt income is unclear. Given the required re-marketing of the bonds in
1998-2000, it appears that, the ability to realize on the bonds arises from
either payment in full upon maturity or foreclosure, unless the bonds are
earlier sold. Given such scenarios, the disclosure should make clear how the
terms of the bonds themselves give rise to the possibility of "upside
potential."

COMMENT 7 RESPONSE:

WE HAVE ATTEMPTED TO CLARIFY IN THE INTRODUCTION THE RELEVANCE OF THE VALUATION
OF THE UNDERLYING PROPERTIES TO ANY REALIZATION ON THE MORTGAGE REVENUE BONDS.
THE CRITEF PROXY STATEMENT SPECIFICALLY STATES AT THE BOTTOM OF PAGE 28 THAT AS
A RESULT OF THE PROPOSED MERGERS, THE BAC HOLDERS WILL NO LONGER HAVE AN
INTEREST IN THE FUNDS AND

<PAGE>

WILL NOT PARTICIPATE IN THE APPRECIATION, IF ANY, IN THE VALUE OF THE MORTGAGE
REVENUE BONDS AND THE UNDERLYING PROPERTIES. SIMILAR DISCLOSURE IS CONTAINED ON
PAGE 36 OF THE CRITEF PROXY STATEMENT IN THE DISCUSSION OF POSSIBLE ADVERSE
CONSEQUENCES OF THE PROPOSED MERGERS. OUR ANALYSIS IS NOT INCONSISTENT WITH THE
VERY APPROACH THE GENERAL PARTNERS SAY THEY TOOK IN CONSIDERING ALTERNATIVES.
WE JUST DISAGREE WITH THE CONCLUSIONS THAT THEY DRAW BASED ON OUR VIEWS AS TO
APPROPRIATE CAPITALIZATION RATES. OUR CLIENT'S VIEWS ARE SUPPORTED BY THE
MARDELL AMUNDSON STUDIES, COPIES OF WHICH ARE ENCLOSED.

WE DISAGREE WITH YOUR CONCLUSIONS THAT THE ABILITY TO REALIZE ON THE MORTGAGE
REVENUE BONDS IS LIMITED TO EITHER PAYMENT IN FULL UPON MATURITY OR FORECLOSURE,
UNLESS THE MORTGAGE REVENUE BONDS ARE EARLIER SOLD. AS A BENCHMARK, IT SHOULD
BE NOTED THAT THE PROPOSED MERGERS DO NOT REPRESENT PAYMENT IN FULL ON THE
MORTGAGE REVENUE BONDS, BUT ARE A SALE OF THE MORTGAGE REVENUE BONDS AT A
PREMIUM OVER THE MARKET PRICE (BUT AT A SUBSTANTIAL DISCOUNT FROM THE FACE VALUE
OF THE MORTGAGE REVENUE BONDS). HOLDERS OF BACS CAN ALSO BENEFIT FROM
IMPROVEMENTS IN THE CASH FLOW GENERATED BY THE PROPERTIES WHICH WILL PERMIT
PAYMENTS OF ADDITIONAL ACCRUED INTEREST. GIVEN THE AMOUNT OF ACCRUED BASE
INTEREST, IMPROVEMENTS IN CASH FLOW COULD RESULT IN SIGNIFICANT ADDITIONAL
TAX-FREE INTEREST WHICH THE BAC HOLDERS ARE GIVING UP IN THIS TRANSACTION. IN
THEIR DISCLOSURES, THE GENERAL PARTNERS HAVE INDICATED THAT THE BAC HOLDERS ARE
GIVING UP ANY UPSIDE POTENTIAL. SEE PAGES 28 AND 36 OF THE CRITEF PROXY
STATEMENT.

8. Further, the staff notes the disclosure in the body of the proxy
statement regarding the original objectives of the Funds, which included
preservation and protection of capital, not upside potential. Given such
original objectives, it appears that the disclosure should be revised to clarify
how denial of consent to the transaction would satisfy the original objectives,
particularly if the properties are not performing. Please revise or advise.

COMMENT 8 RESPONSE:

THE CRITEF PROXY STATEMENT AT PAGE 31 EXPRESSLY ACKNOWLEDGES THAT THE PROPOSED
MERGERS MODIFY THE FUNDS' OBJECTIVES. IN CONTRAST, DENIAL OF CONSENT FOR THE
PROPOSED MERGERS MAINTAINS THE FUNDS' ORIGINAL FIRST OBJECTIVE: PROVIDING TAX
EXEMPT INCOME OVER A 10-13 YEAR PERIOD BECAUSE TAX-EXEMPT INTEREST IS BEING PAID
ON EACH SERIES OF THE FUNDS AND APPROVAL OF THE PROPOSED MERGERS WOULD TERMINATE
THE PAYMENT OF TAX-EXEMPT INCOME. WE HAVE CLARIFIED THE DISCUSSION OF THIS AT
PAGES 15 AND 16.

9. The disclosure regarding the consequences of the failure to consent
should make clear that one result is that the bonds may not be sold or another
transaction may not be entered into for another 9 months and there is no
indication that any alternative transaction would result in any greater
consideration to BAC Holders. Please revise.

<PAGE>

COMMENT 9 RESPONSE:

THE MORTGAGE REVENUE BONDS COULD BE SOLD IN ANOTHER TRANSACTION WITHIN 9 MONTHS,
BUT ONLY SUBJECT TO THE TERMINATION FEES AND EXPENSE REIMBURSEMENT PROVISIONS.
WE HAVE ADDED A RISK FACTORS SECTION IN THE INTRODUCTION AND WE HAVE STATED IN
SEVERAL PLACES THAT THERE ARE NO ASSURANCES THAT ANY ALTERNATIVE TRANSACTION
WOULD BE PROPOSED OR, IF PROPOSED WOULD RESULT IN ANY GREATER CONSIDERATION TO
THE BAC HOLDERS.

10. The basis for the statements regarding the General Partners not
providing information necessary to determine whether the proposed mergers are
good for investors does not appear clear either from the letter or from the body
of the proxy statement. Please revise to clarify. In this regard, please
summarize those items not furnished to BAC Holders discussed in the text of the
proxy.

COMMENT 10 RESPONSE:

WE HAVE SUMMARIZED THE INFORMATION THAT HAS NOT BEEN PROVIDED IN THE CRITEF
PROXY STATEMENT THAT WE BELIEVE IS MOST RELEVANT FOR THE BAC HOLDERS IN THE
PROXY STATEMENT AT PAGES 17 AND 18. THE BASIS FOR OUR BELIEF IS OVER 25 YEARS
OF EXPERIENCE IN OWNING AND MANAGING MULTI-FAMILY HOUSING PROJECTS. WE HAVE,
HOWEVER, DELETED THE INITIAL BULLET POINT REGARDING THIS ISSUE.

11. In view of the attempt by Plaintiff's counsel and the cooperation by
the Funds to seek other bidders, it appears unclear what the basis is for the
statements that no other bidders were sought. It appears that the disclosure in
the letter and throughout the proxy statement should be revised to discuss the
affirmative actions taken by plaintiff's counsel and the Funds to seek bidders
for the Funds. Upon review of your response, the staff may have additional
comment.

COMMENT 11 RESPONSE:

OUR BASIC POINT IS THAT THE FUNDS DID NOT AFFIRMATIVELY SEEK OTHER BIDDERS
BEFORE THEY AGREED TO EXPENSE REIMBURSEMENT AND TERMINATION FEES WHICH WE
BELIEVE HAVE HAD A CHILLING EFFECT ON OTHER BIDS. WE HAVE ADDED IN ALTERNATIVE
4 A DESCRIPTION OF PLAINTIFFS' COUNSEL'S ACTIVITY WITH RESPECT TO MARKET
INQUIRIES. WE HAVE REVISED THE BACKGROUND OF THE MERGER SECTION AT PAGE 30 TO
DISCUSS THE AFFIRMATIVE ACTIONS TAKEN BY THE FUNDS TO SEEK OTHER BIDDERS AS
DISCLOSED IN THE CRITEF PROXY STATEMENT. THIS APPEARS TO BE ALL THE DISCLOSURE
IN THE CRITEF PROXY STATEMENT AND WE HAVE ASSUMED THAT IF THERE WERE OTHER
MATERIAL ACTIVITIES THEY WOULD BE DESCRIBED IN THE CRITEF PROXY STATEMENT.

INTRODUCTION

12. Include bullet risk factors relating to the recommendation not to vote
in favor of the proposed merger. In addition, the discussion throughout the
proxy statement should

<PAGE>

provide a balanced presentation of the matters being addressed. Please
significantly revise or advise.

COMMENT 12 RESPONSE:

SEE THE BULLET RISK FACTORS RELATING TO THE RECOMMENDATION NOT TO VOTE IN FAVOR
OF THE PROPOSED MERGERS. WE HAVE ALSO ATTEMPTED TO BALANCE THE PRESENTATION
THROUGHOUT THE PROXY STATEMENT BY TEMPERING SOME OF THE LANGUAGE AND DELETING
OTHER PROVISIONS.

13. Please disclose the benefits received by affiliates for each of the
funds on a desegregated basis as well as an aggregated basis. In addition, it
does not appear that "Termination Refunds" should be included as a payment or
benefit, since such possible payments are unrelated to the amounts to be
received by the general partners in their capacities as general partners of the
funds.

COMMENT 13 RESPONSE:

WE HAVE DISCLOSED AT PAGE 4 THE BENEFITS RECEIVED BY AFFILIATES OF EACH OF THE
FUNDS ON A DESEGREGATED BASIS AS WELL AN AGGREGATED BASIS. WE HAVE MODIFIED THE
PROVISIONS REGARDING TERMINATION REFUNDS SUBSTANTIALLY. PLEASE NOTE AT PAGE 29
OF THE CRITEF PROXY STATEMENT THE GENERAL PARTNERS SPECIFICALLY INCLUDE THE
TERMINATION REFUNDS AMONG THE VARIOUS BENEFITS THEY OR THEIR AFFILIATES WILL
RECEIVE AS A RESULT OF THE PROPOSED MERGERS.

14. Clarify why the General Partner is "not entitled" to the benefits
discussed under the first bullet point. Given the fact that a portion of this
amount represents accrued fees owed to the General Partners from the Funds,
please support this statement or revise the language to indicate that this
amount represents a benefit that the affiliates might not receive absent the
merger transaction.

COMMENT 14 RESPONSE:

WE HAVE MODIFIED THE BULLET POINT TO DELETE THE "NOT ENTITLED" TO LANGUAGE. THE
DISCUSSION IN THE TEXT CLARIFIES THAT THIS AMOUNT REPRESENTS A BENEFIT THAT THE
AFFILIATES MIGHT NOT RECEIVE ABSENT THE PROPOSED MERGERS.

15. It is unclear to the staff how the $5 million of "unwarranted payments
and benefits" will handicap another bidder since such expenses will not be
incurred if the merger is not consummated. Further, please separately quantify
the break-up fee and the fees and expenses payable by the Funds if the merger is
terminated. Also, disclose that the fee amount is the maximum amount
permissible under the Merger Agreement and the actual amount has not been
determined.

<PAGE>

COMMENT 15 RESPONSE:

THE MANNER IN WHICH THE $5 MILLION ACTS AS A HANDICAP IS PERHAPS TOO SUBTLE A
POINT FOR A BULLET POINT AND WE HAVE DELETED IT. WE HAVE SEPARATELY QUANTIFIED
THE BREAK-UP FEES AND THE FEES AND EXPENSES PAYABLE BY THE FUNDS IF THE MERGER
AGREEMENTS ARE TERMINATED. THE BREAK UP FEE IS THE ACTUAL AMOUNT THAT WOULD BE
DUE. THE EXPENSE REIMBURSEMENT PROVISIONS ARE MAXIMUMS AND WE HAVE CLARIFIED
THIS AT PAGE 4.

16. The staff notes the statement that "they are selling the properties to
an affiliate of the property manager." In this regard, please revise the proxy
THROUGHOUT to indicate that the Funds do not own the properties, they own the
right to payment pursuant to the mortgage revenue bonds. Further, statements
such as "they are selling the properties" to an affiliate of the Property
manager do not appear supportable by the facts of the transaction and should be
deleted or revised.

COMMENT 16 RESPONSE:

WE HAVE TRIED TO CLARIFY THE LANGUAGE THROUGHOUT THE PROXY STATEMENT. WE HAVE
DELETED THE BULLET POINT REGARDING SELLING THE PROPERTIES TO AN AFFILIATE OF THE
PROPERTY MANAGER.

17. As indicated above, the reasons for including the arguments regarding
the underlying properties appears unclear given the fact that the Funds hold
mortgage bonds, not the underlying properties. If retained, the discussion must
make clear what the terms of the bonds are and how the valuation of the
properties affects the value of the bonds. Any inference that the BAC Holders
have rights to the underlying properties, other than through the mortgage bonds,
is not supported. Please significantly revise. The staff may have additional
comment.

COMMENT 17 RESPONSE:

WE HAVE SIGNIFICANTLY REVISED THE INTRODUCTION AND ATTEMPTED TO CLARIFY HOW THE
VALUE OF THE PROPERTIES AFFECTS THE VALUE OF THE MORTGAGE REVENUE BONDS.

18. Please support the statement and provide an expanded section in the
text of the proxy supporting the statement that "we believe that you will not be
able to replace your tax-exempt return." Such analysis, if the statement is
retained, should disclose the historical net return on investment and why such
return could not be achieved with an reinvestment of the merger consideration on
a per BAC basis in another investment.

COMMENT 18 RESPONSE:

THE CRITEF PROXY STATEMENT, WITHOUT ANY ANALYSIS OF WHY SUCH A RETURN MIGHT NOT
BE ACHIEVED, WARNS THE BAC HOLDERS THAT THEY MAY NOT BE ABLE TO REPLACE THEIR
TAX EXEMPT RETURN. IN VIEW OF THAT, WE ARE DELETING THESE PROVISIONS.

<PAGE>

19. Please clarify that the "non-performing real estate" is the real
estate underlying the non-performing mortgage loan underlying the mortgage
revenue bond. Further, define the term "performing" as used herein.

COMMENT 19 RESPONSE:

IN THE REVISED INTRODUCTION, WE NO LONGER REFER TO NON-PERFORMING OR PERFORMING
REAL ESTATE. WE HAVE DELETED THESE PROVISIONS.

20. Please significantly expand and support the Partnership's belief as to
why the non-Minnesota properties are not worth $26-36 million and supplementally
provide a copy of the Mardell Amundson appraisal to the staff. Absent a
reasonable supportable basis, this statement should be deleted. Also, the
Partnership must disclose all the material assumptions of each valuation
methodology for the Mardell Amundson appraisal in the TEXT of the proxy (page
20). See Item 9 of Schedule 13E-3 for the type of disclosure that must be
included regarding the appraisal. In addition, the appraisal, and any other
appraisals referred to in the proxy statement must be made available to
investors and should also be described in the manner required by Item 9(b) of
Schedule 13E-3. See Item 14()(10) of Schedule 14A. Please significantly revise
the proxy statement accordingly.

COMMENT 20 RESPONSE:

WE HAVE DELETED THESE PROVISIONS.

21. Disclose in the forepart that Dominium made offers to acquire the
Funds and was unable to obtain financing in sufficient time. Further, disclose
any conflicts of interest faced by Dominium or its affiliates in connection with
their solicitation of proxies, including any plans that Dominium or its
affiliates have with respect to the Funds or the properties. Upon review of
your response, the staff may have additional [TEXT SEEMS TO BE MISSING]

COMMENT 21 RESPONSE:

THIS IS NOW DISCLOSED IN THE INTRODUCTION.

22. The nature of affiliation between the Partnership and Dominium should
be made clear. Please revise as appropriate.

COMMENT 22 RESPONSE:

THIS IS EXPLAINED IN THE INTRODUCTION AND IN THE INFORMATION ABOUT DOMINIUM
SECTION.

23. The staff notes the apparent conflicting arguments as to why the BAC
Holders should not approve the transaction. On one hand, it is being argued
that there should be a "bidding process," yet on the other hand it is being
argued that there is no compelling reason

<PAGE>

to engage in a transaction of this type at the present time and that investors
should be able to benefit from upside potential. It appears that the reasons
for the Partnership seeking rejection of the transaction should be made clear,
including their future intent with respect to the Funds and the properties. The
staff notes the statements that Dominium wants to pursue "superior"
alternatives, without providing any disclosure of what Dominium's alternatives
are or what Dominium's history has been with the Funds. Please revise. The
staff may have additional comment.

COMMENT 23 RESPONSE:

WE CLARIFY THROUGHOUT THE PROXY STATEMENT THAT WE ARE NOT MAKING A SUPERIOR
PROPOSAL. WE ARE SAYING THAT THERE ARE A RANGE OF ALTERNATIVES THAT COULD BE
PURSUED BY THE GENERAL PARTNERS.

24. The basis for the statement on page 4 that there is an opportunity to
greatly enhance BAC holder returns should be set forth. Please revise.

COMMENT 24 RESPONSE:

THIS STATEMENT HAS BEEN DELETED.

REASONS TO VOTE AGAINST THE PROPOSED MERGERS, page 4.

25. Clarify in paragraph (3) that the upside potential on the properties
runs to such persons because they own or will own the Owner Partnerships, not
necessarily because they are acquiring the mortgage bonds. Please revise.

COMMENT 25 RESPONSE:

AS NOTED, THIS IS CONSISTENT WITH THE DISCLOSURES IN THE CRITEF PROXY STATEMENT
AT PAGES 28 AND 36.

THE GENERAL PARTNERS HAVE SIGNIFICANT CONFLICTS OF INTEREST AND INDUCEMENTS TO
PROCEED WITH THE PROPOSED MERGERS, page 5.

26. The basis for the statement in the first paragraph, that "these
conflicts rise to such a level that under the federal securities laws the
Proposed Mergers are deemed to be transactions between the Funds and related
parties . . ." is unclear. The use of technical requirements of the federal
securities laws to assert an argument that conflicts contrary to interests of
BAC Holders existed is inappropriate and should be deleted. The filing of the
13E-3 reflects a fact rather than a legal conclusion (i.e., that the schedule
was filed for transactions between affiliates rather than a legal determination
that such form was required). Revise the disclosure.

<PAGE>

COMMENT 26 RESPONSE:

WE HAVE DELETED THIS REFERENCE.

27. Please support the assertion that the Owner Partnerships will benefit
from retaining approximately $60 million of tax losses or delete. Further,
disclose the events pursuant to which these losses can be recognized by such
partnership and, if known, the likelihood of such events. For example, such
taxable losses may arise other than from operating losses. In addition, the
basis for the statement regarding such historical tax losses should be made
clear, including without limitation, a detailed discussion of the allocation
provisions of the Ownership Partnership agreements. Upon review of your
response, the staff may have additional comment.

COMMENT 27 RESPONSE:

WE HAVE DELETED THIS REFERENCE.

28. With respect to the second bullet, clarify the source of the
receivables that CAPREIT has agreed to pay to affiliates of the General
Partners.

COMMENT 28 RESPONSE:

WE HAVE REVISED THIS AS REQUESTED, SEE PAGE 8.

29. Please clarify that the General Partners may be insulated from breach
of fiduciary duty claims under Delaware law from BAC Holders who vote for the
merger (BAC Holders who vote "Against" the merger preserve their claims).
Similar clarification is appropriate in the first full paragraph on page 9.

COMMENT 29 RESPONSE:

WE HAVE PATTERNED OUR DISCLOSURE ALONG THE LINES OF THE CRITEF PROXY STATEMENT
AT PAGE 30 AND 36 TO THE EFFECT THAT APPROVAL OF THE PROPOSED MERGERS BY BAC
HOLDERS MAY EXTINGUISH CERTAIN FIDUCIARY DUTY CLAIMS.

30. As stated above, please present the benefits to affiliates on a per
Fund basis for each series or Fund.

COMMENT 30 RESPONSE:

WE HAVE DONE THIS AT PAGE 9.

31. The use of rhetorical questions is inappropriate. Please clearly
state the Partnership's concerns and/or opinions. Please revise throughout as
appropriate.

<PAGE>

COMMENT 31 RESPONSE:

WE HAVE OMITTED THE RHETORICAL QUESTIONS.

32. The basis for the statements in the paragraph preceding the table
entitled "Summary of Payments and Savings" regarding benefits as to past tax
losses, future tax losses, etc. should be made clear or the statements deleted.
Please revise.

COMMENT 32 RESPONSE:

WE HAVE DELETED THESE STATEMENTS.

33. The "Summary of Payments and Savings" on page 6 should be separately
presented. The inclusion of Termination Refunds in the table is inappropriate
and should be deleted. Such arrangements relate to agreements regarding the
acquisition of the property management business of the general partners and
their affiliates, not the acquisition of the Funds. Please revise to separate
the disclosure so that investors will not be confused.

COMMENT 33 RESPONSE:

WE HAVE DELETED THIS SUMMARY.

34. The statement that there is "no legal obligation for CAPREIT to make
the $1,000,000 in payments to the General Partners provided in the Merger
Agreement" appears inconsistent with section 2.3 of the Fourth Amended and
Restated Plan of Merger. Please revise or advise.

COMMENT 34 RESPONSE:

WE HAVE REVISED THIS STATEMENT TO DELETE ANY REFERENCE TO LEGAL OBLIGATIONS.

$3,479,925 PAYMENT

35. The disclosure should indicate that the fees were accrued under the
terms of the partnership agreements of the Funds. Please revise.

COMMENT 35 RESPONSE:

THIS HAS BEEN REVISED AS REQUESTED.

TERMINATION REFUNDS, page 8.

36. Please support the statement that the General Partners "almost
certainly would not receive" these benefits if a transaction were effected with
any other party. The staff notes that Dominium planned to include similar
provisions in its offer (page 12).

<PAGE>

COMMENT 36 RESPONSE:

WE HAVE ALTERED THE LANGUAGE AND ATTEMPTED TO EXPAND THIS EXPLANATION AT PAGES
10 AND 11.

37. Please revise the statement that the General Partner "sold the right
to manage" the properties to reflect that the Owner Partnership entered into
management agreements with a CAPREIT affiliate and received and certain
individual General Partners received a PORTION of the proceeds IN EXCHANGE for
their interests in such management entity.

COMMENT 37 RESPONSE:

WE HAVE DELETED THIS REFERENCE.

38. It appears that the characterization of the "Termination Refunds" as
"savings" is unclear, particularly since the transaction relates to arrangements
entered into between CAPREIT and affiliates of the general partners regarding
the property management business. Please revise to more accurately reflect the
nature of the Termination refunds.

COMMENT 38 RESPONSE:

WE HAVE DELETED REFERENCES TO "SAVINGS".

39. The reasons why the general partners would be required to disclose
whether their transactions with CAPREIT were at a fair price or represented a
premium to CRI appears unclear, particularly since the transactions related to
the sale of the management business and not the general partner interest in the
Funds. Please revise to either provide an explanation of the relevancy of such
disclosure to the investors or delete.

COMMENT 39 RESPONSE:

WE HAVE DELETED THIS REFERENCE.

40. Clarify the disclosure regarding the transfer of properties to the
Owner Partnerships to indicate that the properties were not initially owned
either by the General Partners or affiliates until the Owner Partnerships were
acquired upon default of some of the mortgage bonds. The inference in the
carryover paragraph on page 9 that disclosure has not been provided or that the
General Partners may have breached their fiduciary duties should either be
supported or the statements deleted. The staff may have additional comment.

COMMENT 40 RESPONSE:

WE HAVE REVISED THIS EXPLANATION AS REQUESTED.

<PAGE>

THE OWNER PARTNERSHIPS, page 9.

41. Please clarify what "these payments" refer to in the second-to-last
paragraph in this subsection (tax losses or potential increase in market value).
Further, support the assertion that the Owner Partnerships would not be entitled
to such payments if the transactions are not consummated.

COMMENT 41 RESPONSE:

WE HAVE REVISED THIS REFERENCE.

42. In addition, as indicated above, the basis for the inclusion of the
assertions regarding the tax losses must be supported. Please revise to conform
with the comments above.

COMMENT 42 RESPONSE:

WE HAVE DELETED THIS REFERENCE.

43. The staff notes the assertion and inference in the carryover paragraph
on page 10 that the General Partners will be receiving funds that might
otherwise be paid to the BAC Holders. Without a supportable basis for such a
statement or inference, and in view of the fact that much of the payments are
either unrelated to the acquisition of the Funds or related to accrued fees owed
to the general partners, such statements should either be significantly revised
or deleted. The staff may have additional comment.

COMMENT 43 RESPONSE:

WE HAVE DELETED THIS REFERENCE.

THE GENERAL PARTNERS HAVE NOT ACTED IN A MANNER CONSISTENT WITH MAXIMIZING BAC
HOLDER VALUE, page l0.

44. Please disclose that the originally accepted $150 million Redemption
Price was contingent upon obtaining a fairness opinion.

COMMENT 44 RESPONSE:

WE HAVE REVISED THIS REFERENCE.

45. With respect to the discussion under this heading and in the various
bullet paragraphs, see the above comments and revise the disclosure accordingly.

COMMENT 45 RESPONSE:

WE HAVE REVISED AS APPROPRIATE.

<PAGE>

46. Please clarify how the fourth bullet point supports the heading of
this section. Revise or advise.

COMMENT 46 RESPONSE:

WE ARE ATTEMPTING TO ESTABLISH A PATTERN OF ACTIONS TAKEN BY OTHERS WHO HAVE
ALSO PERCEIVED THAT THE GENERAL PARTNERS DID NOT ACT TO MAXIMIZE BAC HOLDER
VALUE.

47. With respect to Mr. Schwartzberg, disclose that he was not active as a
general partner. Please revise.

COMMENT 47 RESPONSE:

THIS HAS BEEN REVISED AS REQUESTED.

48. The basis for the questioning of the "legality" of the termination
fees and reimbursement expenses in the sixth bullet point appears unclear.
Please revise.

COMMENT 48 RESPONSE:

REFERENCES TO "LEGALITY" HAVE BEEN OMITTED.

49. Disclose in the sixth bullet point that the General Partners were
"originally'' unable to obtain a fairness opinion. Also, quantify the increase
in the Redemption Price. The disclosure should also indicate that the General
Partner's fairness determination speaks as of the date of the Schedule 13E-3 and
proxy statement, not the date that the merger agreement was originally executed.

COMMENT 49 RESPONSE:

APPROPRIATE REVISIONS HAVE BEEN MADE.

50. The staff notes the reference in the seventh bullet as to Dominium's
attempt to make a "superior" proposal. Disclose what Dominium's bids were and
whether it had any committed financing. Please revise.

COMMENT 50 RESPONSE:

WE HAVE MADE THIS DISCLOSURE IN THE INTRODUCTION.

51. While the staff notes the continued discussion regarding the
"original" proposal, since BAC Holders are voting on the revised proposal, the
disclosure should be revised to set forth the amount of the revised proposals.

<PAGE>

COMMENT 51 RESPONSE:

WE BELIEVE THAT THE REVISIONS SET FORTH IN RESPONSE TO COMMENT 49 HAVE SATISFIED
THIS COMMENT.

52. The basis for the statement in the carryover paragraph on page 13 that
the existence of the various fees "effectively eliminates any chance that you
would ever receive FULL VALUE for your interests," should be set forth or the
statement deleted. The disclosure should indicate what "full value" means and
how it is determined. The staff may have additional comment.

COMMENT 52 RESPONSE:

WE HAVE DELETED THIS REFERENCE.

53. The assertion that $5 million (representing payments for accrued fees
and possible termination refunds) is being "diverted" appears without support or
explanation and should be deleted. In addition, the use of an example that is
not based on the actual consideration is confusing and without support. If
retained, the example should be based on actual consideration.

COMMENT 53 RESPONSE:

WE HAVE DELETED THIS REFERENCE.

54. As indicated above, the way in which BAC Holders may realize upside
potential either from the Bonds or an alternative transaction must be made
clear. Similar revisions should be made on page 14 where the statements
regarding "potential for appreciation" are included. Please revise.

COMMENT 54 RESPONSE:

WE HAVE REVISED THIS STATEMENT AS INDICATED ON PAGE 15.

55. Further, the basis for the assertion that the General Partners have
not exercised their "fiduciary duties" should be made clear or the statement
deleted. Please revise.

COMMENT 55 RESPONSE:

WE HAVE DELETED THIS REFERENCE.

56. Please revise the example in the first paragraph on page 13 to compare
bid to bid prices (i.e., $200 to $190.3 million).

<PAGE>

COMMENT 56 RESPONSE:

THE EXAMPLES HAVE BEEN DELETED.

57. The basis for the assertion that some or all of the cash that the
Funds' accumulated could have been distributed should be included. Such
discussion should address what the tax treatment of any such distribution would
be.

COMMENT 57 RESPONSE:

THE REFERENCE TO DISTRIBUTION HAS BEEN DELETED.

58. The statement on page 14 regarding the lack of dissenter's rights
should be revised to make clear that BAC holders would never have dissenter's
rights under Delaware law.

COMMENT 58 RESPONSE:

UNDER DELAWARE LAW, THE BAC HOLDERS COULD HAVE BEEN PROVIDED WITH DISSENTER'S
RIGHTS, BUT THE FUNDS' LIMITED PARTNERSHIP AGREEMENTS DON'T PROVIDE FOR THEM.
WE STATE THAT UNDER THE FUNDS' LIMITED PARTNERSHIP AGREEMENTS, THERE IS NO RIGHT
TO DISSENT.

59. Please revise the last paragraph on page 14 to disclose the additional
contributions which will be made by CAPREIT and its affiliates, as disclosed in
the Funds' Schedules 14A, to enable it to refund and, therefore, refinance the
Mortgage Revenue Bonds.

COMMENT 59 RESPONSE:

THESE REVISIONS HAVE BEEN MADE AT PAGE 16.

THE GENERAL PARTNERS HAVE NOT PROVIDED YOU WITH THE INFORMATION NECESSARY FOR
YOU TO DETERMINE WHETHER THIS IS A GOOD DEAL, page 15.

60. Please supplementally support that statement that at least $12.4
million of the transaction costs are being paid out of the Funds' reserves.
Further, even if such costs are being paid out of the reserves, the costs are
still being paid by CAPREIT. Please revise to clarify what the Partnership is
implying here (i.e., if the Partnership is implying that the Funds do have
resources necessary to undertake a refunding without CAPREIT (either by using a
smaller portion of the revenue bonds or the reserves), so state).

COMMENT 60 RESPONSE:

THIS REFERENCE HAS BEEN OMITTED.

<PAGE>

ALTERNATIVE 1, page 18.

61. Please expand the discussion to state the reasons the Partnership
believes an 8.0% to 9.0% capitalization rate is more appropriate than that
selected by Oppenheimer. The staff may have additional comment.

COMMENT 61 RESPONSE:

REASONS FOR OUR CHOSEN CAPITALIZATION RATE ARE EXPLAINED IN THE PROXY STATEMENT
AT PAGES 20 AND 21, WE HAVE SUBMITTED SUPPORTING MATERIALS FROM MARDELL
AMUNDSON.

62. Please disclose whether the Partnership believes the Minneapolis/St.
Paul market is representative of all the markets in which the properties
underlying the Mortgage Revenue Bonds are located. Further, disclose the
percentage of the Funds' properties in this region. The staff may have
additional comment.

COMMENT 62 RESPONSE:

THE CAPITALIZATION RATE ANALYSIS REPLACING THE APPRAISALS COVERS ALL PROPERTIES
NATIONWIDE.

ALTERNATIVE 3, page 20.

63. Please disclose the number of Properties underlying the Mortgage
Revenue Bonds.

COMMENT 63 RESPONSE:

THIS INFORMATION IS DISCLOSED IN THE INTRODUCTION.

64. The inclusion of table comparing an appraised value of the underlying
properties with the valuations of Oppenheimer as to the value of the bonds
appears inappropriate since the two valuations do not appear comparable. Please
delete the table as currently presented.

COMMENT 64 RESPONSE:

THIS IS NOW ALTERNATIVE 1 AND WE HAVE REVISED THE TABLE TO COMPARE THE DIFFERENT
CONCLUSIONS AS TO VALUE BASED ON OUR DIFFERENT CAPITALIZATION RATE ANALYSIS.

65. As indicated above, all appraisals referred to in the proxy statement
must be described in detail, in the manner required by Item 9 of Schedule 13E-3.
Please significantly revise.

17
<PAGE>

COMMENT 65 RESPONSE:

THE APPRAISAL ANALYSIS HAS BEEN DELETED AND REPLACED WITH A CAPITALIZATION RATE
ANALYSIS, THE BACKGROUND FOR WHICH IS EXPLAINED AT PAGES 19 - 22.

66. Please disclose what is meant by the heading "Fee Simple Tax Exempt
Bonds." Also, please expand to disclose why the assumption of tax-exempt
financing was made in the liquidation analysis and whether this is a valuation
of the Mortgage Revenue Bonds or the Properties. Further, as requested above,
provide all material assumptions underlying each of the valuation methodologies
employed by Mardell Amundson, discuss each of the valuations and disclose the
range of such valuations. The staff may have additional comment.

COMMENT 66 RESPONSE:

THIS CHART HAS BEEN DELETED. BACKGROUND MATERIALS FROM MARDELL AMUNDSON HAVE
BEEN SUBMITTED TO SUPPORT OUR CAPITALIZATION RATE ANALYSIS. REFERENCES TO THE
APPRAISALS HAVE BEEN DELETED.

ALTERNATIVE 4

67. As indicated above, the disclosure should be revised to reflect the
actions taken by the plaintiff's counsel and by the general partner's on behalf
of the funds to market the Funds and the bonds. Upon review of your response,
the staff may have additional comment.

COMMENT 67 RESPONSE:

WE HAVE DISCLOSED ON PAGE 25 OF THE DOMINIUM PROXY STATEMENT THE REFERENCES TO
MARKETING EFFORTS DISCLOSED ON PAGES 22 AND 32 OF THE CRITEF PROXY STATEMENT.

68. The intent of Dominium should be clearly discussed under this heading.

COMMENT 68 RESPONSE:

DOMINIUM HAS MADE IT CLEAR AT VARIOUS POINTS IN THE PROXY STATEMENT THAT IT IS A
FAILED BIDDER AND THAT ITS CURRENT INTEREST IS TO DEFEAT THE PROPOSED MERGERS
BECAUSE THEY ARE NOT A GOOD DEAL FOR THE BAC HOLDERS, AND BECAUSE DOMINIUM MAY
BE ABLE TO PARTICIPATE IN ACTIVITIES TO MAXIMIZE BAC HOLDER VALUE IF THE
PROPOSED MERGERS ARE REJECTED. DOMINIUM DOES NOT HAVE ANY PRESENT INTENT TO
PROPOSE AN ALTERNATIVE TO THE PROPOSED MERGERS, BUT IT BELIEVES THAT
ALTERNATIVES EXIST THAT THE GENERAL PARTNERS WERE NOT DILIGENT ENOUGH ABOUT
EXPLORING. THIS IS STATED THROUGHOUT.

69. The basis for challenging the reasonableness of the assumptions
employed by Oppenheimer in their analysis should be included. Please revise.

<PAGE>

COMMENT 69 RESPONSE:

ADDITIONAL SUPPORT FOR OUR THEORY THAT THE APPROPRIATE CAPITALIZATION RATES FOR
THE PROPERTIES SHOULD BE LOWER IS ON PAGE 21. WITH RESPECT TO EXCESS AVAILABLE
CASH, WE ARE SIMPLY POINTING OUT, ON PAGE 27, THAT THIS IS NOT PROVIDED FOR IN
THE OPPENHEIMER FAIRNESS OPINIONS.

70. The basis for the assertion on page 24 that the Funds are essentially
selling the properties to CAPREIT is unclear. See the staff comment above. The
staff may have additional comment.

COMMENT 70 RESPONSE:

WE DELETED THIS REFERENCE.

71. The reference to value in the third bullet on page 24 should indicate
whether the value is of the property or the bonds. Further, since the Funds own
the bonds, not the properties, the relationship of the value of the properties
to the value of the bonds should be made clear, including disclosure of the
terms of the bonds themselves.

COMMENT 71 RESPONSE:

WE DELETED THIS REFERENCE.

BACKGROUND TO THE PROPOSED MERGER

72. The introductory paragraph should make clear that certain information
has been included by Dominium itself and the body of the discussion should
identify those matters that are taken from the CRITEF proxy. Please revise.

COMMENT 72 RESPONSE:

APPROPRIATE ADJUSTMENTS HAVE BEEN MADE TO THIS SECTION CONSISTENT WITH THIS
COMMENT, INCLUDING SPECIFIC PAGE CITATIONS TO THE CRITEF PROXY STATEMENT.

INFORMATION ABOUT DOMINIUM

73. State the dates on which the Partnership purchased their BACs.

COMMENT 73 RESPONSE:

THIS HAS BEEN ADDED AT PAGES 1 AND 28.

<PAGE>

74. Provide the disclosure required by Item 5(a) and (b) of Schedule 14A.

COMMENT 74 RESPONSE:

TO SATISFY ITEM 5(a), STATEMENTS HAVE BEEN ADDED TO PAGES 1 AND 29 TO THE EFFECT
THAT NONE OF THE PARTICIPANTS INDIVIDUALLY OWN ANY BACS. WE DO NOT BELIEVE THAT
THE INFORMATION REQUIRED BY ITEM 5(b) IS RELEVANT BECAUSE THIS IS NOT A
SOLICITATION SUBJECT TO RULE 14A-11.

* * * *

Because this is a contested proxy solicitation and time is of the utmost
urgency, I would respectfully request that the Staff review the enclosed at the
soonest available opportunity.

David Vander Haar of this office (612-336-3489) or I am available to
address any questions or concerns which may arise regarding this submission.

Sincerely,

Andrew J. Ritten

AJR:ajr
Enclosures
M1:0187108.02
cc: Amy Meltzer Starr
Paul R. Sween
Paul H. Ravich
Arthur B. Crozier
David M. Vander Haar
Thomas L. Kimer
Robert L. Schnell, Jr.
Karen E. Wilson

<PAGE>

_______________________________________________________________________________

MEETINGS OF HOLDERS OF BENEFICIAL ASSIGNEE CERTIFICATES
OF
CAPITAL REALTY INVESTORS TAX EXEMPT FUND
LIMITED PARTNERSHIP
AND
CAPITAL REALTY INVESTORS TAX EXEMPT FUND III
LIMITED PARTNERSHIP
OCTOBER 29, 1996
_____________________________________________

PROXY STATEMENT
OF
DOMINIUM TAX EXEMPT FUND L.L.P.
_____________________________________________

IN OPPOSITION TO THE PROPOSED MERGERS OF
CAPITAL REALTY INVESTORS TAX EXEMPT FUND LIMITED PARTNERSHIP
AND CAPITAL REALTY INVESTORS TAX EXEMPT FUND III LIMITED PARTNERSHIP
WITH AND INTO AFFILIATES OF CAPITAL APARTMENT PROPERTIES, INC.

_______________________________________________________________________________

<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
INTRODUCTION............................................................ 1

REASONS TO VOTE AGAINST THE PROPOSED MERGERS............................ 7

1. THE GENERAL PARTNERS HAVE SIGNIFICANT CONFLICTS OF
INTEREST AND INDUCEMENTS TO PROCEED WITH THE PROPOSED
MERGERS........................................................... 8

2. WE BELIEVE THE GENERAL PARTNERS HAVE NOT ACTED IN A
MANNER CONSISTENT WITH MAXIMIZING BAC HOLDER VALUE................ 12

3. THE STRUCTURE OF THE PROPOSED MERGERS DOES NOT
ALLOW THE BAC HOLDERS TO TAKE ADVANTAGE OF ANY IMPROVEMENT
IN THE PROPERTIES' ABILITY TO GENERATE TAX-EXEMPT INCOME.......... 15

4. THE GENERAL PARTNERS HAVE NOT PROVIDED YOU WITH THE
INFORMATION NECESSARY FOR YOU TO DETERMINE WHETHER THIS IS A
GOOD DEAL FOR YOU................................................. 16

5. WE BELIEVE THERE ARE ALTERNATIVES WHICH MAY BE
SUPERIOR TO THE PROPOSED MERGERS.................................. 19

YOU SHOULD NOT RELY ON THE FAIRNESS OPINIONS AS A SUBSTITUTE FOR YOUR
OWN ANALYSIS OF WHETHER THE TRANSACTIONS ARE IN YOUR INTEREST........... 26

YOU SHOULD NOT RELY ON PLAINTIFFS' CLASS ACTION LAWSUITS AS A SUBSTITUTE
FOR YOUR OWN ANALYSIS OF WHETHER THE TRANSACTIONS ARE IN YOUR INTEREST.. 27

INFORMATION ABOUT DOMINIUM.............................................. 28

BACKGROUND TO THE PROPOSED MERGER....................................... 30

ADDITIONAL INFORMATION CONCERNING THE TRANSACTION PROPOSALS............. 34

VOTE REQUIRED AND VOTING PROCEDURES..................................... 35

SOLICITATION EXPENSES................................................... 37
</TABLE>

-i-

<PAGE>

INTRODUCTION

This Proxy Statement, dated as of October [__], 1996, which is first
being mailed to holders ("BAC Holders") of Beneficial Assignee Certificates
("BACs") on or about October [__], 1996, is furnished by Dominium Tax
Exempt Fund L.L.P., a Minnesota limited liability partnership ("Dominium"),
in opposition to the proposed mergers (each a "Proposed Merger" and
collectively the "Proposed Mergers") of each of Capital Realty Investors Tax
Exempt Fund Limited Partnership ("Fund I-II") and Capital Realty Investors
Tax Exempt Fund III Limited Partnership ("Fund III" and together with Fund
I-II, the "Funds") with and into two separate entities affiliated with
Capital Apartment Properties, Inc. ("CAPREIT").

Dominium owns 100 BACs in each of the two series of BACs issued by Fund
I-II and 100 BACs in Fund III. All of Dominium's BACs were acquired on or
about August 26, 1996. Dominium is affiliated with Dominium Management
Services, Inc., a Minnesota corporation owned by Jack W. Safar and David L.
Brierton. Mr. Safar and Mr. Brierton are partners in Dominium, along with
Paul R. Sween and Armand E. Brachman. Mr. Sween and Mr. Brachman are
employees of Dominium Management Services. Messrs. Safar, Brierton, Sween
and Brachman are the participants in this proxy solicitation. The
participants do not own any BACs individually.

As discussed further hereafter, Dominium previously attempted to acquire
the Funds through a transaction comparable to the Merger Proposals, but at a
superior price. It did not obtain financing. Nevertheless, Dominium is
opposing the Proposed Mergers because it believes the Proposed Mergers are
not in the interest of the BAC Holders. Dominium is not presently pursuing
financing, nor does it have any present plans to make a superior proposal.
Although it is not presently pursuing financing or a superior proposal,
Dominium believes that there may be some opportunity to effect a transaction
with the Funds if there is a "level playing field" or to assist the Funds in
maximizing BAC Holder value if the Proposed Mergers are not approved.

Dominium views the Proposed Mergers as essentially real estate
transactions. We believe this for the following reasons. Affiliates of
CAPREIT are seeking to acquire your BACs and gain the entire ownership
interest in the Funds. The only assets owned by Funds are eighteen mortgage
revenue bonds (the "Mortgage Revenue Bonds"). The only security for the
Mortgage Revenue Bonds are eighteen properties containing multi-family
housing (the "Properties"). The Properties generate income with which to pay
the interest and principal owing on the Mortgage Revenue Bonds. Fifteen of
the eighteen Properties are owned by partnerships (the "Owner Partnerships")
which were organized by and owned entirely by affiliates of the general
partners of the Funds (the "General Partners") and in connection with the
Proposed Mergers, CAPREIT or its designee will have the right to obtain title
to the Properties owned by the Owner Partnerships. Effectively, as a result
of the Proposed Mergers, affiliates of CAPREIT will acquire ownership of the
Funds and CAPREIT or its

<PAGE>

designee will acquire or have the right to obtain title to the Properties
owned by the Owner Partnerships.

Since the sole assets of the Funds are the Mortgage Revenue Bonds, we
believe that the value of the BACs is driven by the value of the Mortgage
Revenue Bonds. We believe that the value of the Mortgage Revenue Bonds in
turn is driven by the ability of the Properties to generate income to pay off
the Mortgage Revenue Bonds. Since the value of the Properties is driven by
the ability of the Properties to generate income, the more valuable the
Properties, the more valuable the Mortgage Revenue Bonds and the more
valuable the BACs.

Dominium attempted to acquire the Funds beginning in the end of February
1996, concentrating its efforts in earnest in May 1996. We first made a
proposal to the General Partners on June 28, 1996. However, we failed to
obtain financing for that proposal within the timeframe that we believed
possible. As previously noted, we are not presently pursuing financing for
an alternative proposal and, if the Proposed Mergers are not approved by the
BAC Holders, there can be no assurances that we would ever be able to obtain
financing or even have the opportunity to make another proposal. In
connection with our efforts, we concluded, however, that (1) we believed that
you should receive a higher price than that being paid by CAPREIT for the
BACs in the Proposed Mergers because of the value of the underlying
Properties securing the Mortgage Revenue Bonds and (2) the termination fees,
expense reimbursement provisions and inducements to your General Partners to
proceed with the Proposed Mergers made it unlikely that we would be able to
complete a transaction even if we were able to obtain financing and represent
substantial barriers to competing proposals.

Even though the sole assets of the Funds are the Mortgage Revenue Bonds,
we believe that the value of the Properties owned by the Owner Partnerships
is relevant to the BAC Holders in their consideration of the Proposed Mergers
for two reasons. First, we believe that it would be relevant to any
prospective acquiror who might be interested in acquiring the Funds on terms
similar to that proposed by your General Partners. Under the terms of the
Merger Agreements, CAPREIT is effectively acquired both the Funds in which
you own BACs and the fifteen Properties owned by the Owner Partnerships.
There can be no assurances if the Proposed Mergers are rejected that anyone
else would be willing to acquire the Funds, that we would be able to make a
proposal, or that any such proposal would be for a higher price than that in
the Proposed Mergers. However, in assessing the likelihood of whether
someone else would make a proposal at a higher price we believe that the
value of the Properties owned by the Owner Partnerships is material. Since,
under a comparable transaction to that proposed by CAPREIT, a potential
acquiror would acquire both the Funds and the underlying Properties owned by
the Owner Partnership, it was our conclusion that in assessing the price that
could be paid for the BACs one must look primarily to the value of the
Properties. Second, we believe that the value of the Properties owned by the
Owner Partnerships is directly relevant to whether the other alternatives
that your General Partners considered and rejected, might be superior
alternatives for the BAC Holders.

-2-

<PAGE>

For example, if the Funds were to be liquidated in an orderly manner,
the value of the Properties owned by the Owner Partnerships directly affects
the liquidation proceeds that would be available to the Funds. Pursuant to
the terms of the Mortgage Revenue Bonds, the Funds retain the right at any
time to foreclose on the mortgage loans because of continuing defaults and
thus to acquire the Properties owned by the Owner Partnerships.
Consequently, in an orderly liquidation, the Funds would be able to liquidate
the Properties owned by the Owner Partnerships. Similarly, in a scenario
where the Mortgage Revenue Bonds are held to maturity and then liquidated,
the value of the Properties owned by the Owner Partnerships would affect the
amounts received by the BAC Holders.

Finally, if the Funds are not liquidated, one alternative is to
refinance the Mortgage Revenue Bonds. The ability to refinance the Mortgage
Revenue Bonds again turns, at least in part, on the value of the Properties
owned by the Owner Partnerships since these Properties are the sole security
for the Mortgage Revenue Bonds and the sole source of revenue. Moreover, to
the extent the Properties are or become more valuable, this value is
inextricably tied to the cashflow generated by the Properties (which in turn
inures to the benefit of the BAC Holders because of the potential ability to
make increased payments of accrued interest). As a result, even if your
General Partners believe the best alternative to the Proposed Mergers is to
do nothing, we believe the cash flow that the Properties can generate
directly impacts the value of the BACs. In turn, the value of the Properties
is largely determined by the cash flow that can be generated by the
Properties.

If you vote against the Proposed Mergers, there can be no assurances
that your General Partners will pursue any of the alternatives that are
discussed herein in more detail or, if they pursue such alternatives, that
you will be able to achieve a higher price for your BACs. Nor can there be
any assurances that the value of the Properties or the cash flow generated by
the Properties and payable to the BAC Holders will not be impacted by adverse
economic changes or other changes in the real estate market or in the laws
and regulations governing tax-exempt financing. As discussed herein, there
are risks associated with not approving the Proposed Mergers as well as
possible benefits. Your General Partners do, however, have a fiduciary
obligation to maximize BAC Holder value. And in assessing whether to vote
for the Proposed Mergers, we believe you should consider both the history of
these transactions and alternatives which could be pursued in determining
whether to support the Proposed Mergers. We believe you also need
information about the value of the Properties to assess whether to support
the Proposed Mergers. We urge you to read carefully the CRITEF Proxy
Statement, as well as this proxy statement.

-3-

<PAGE>

_______________________________________________________________________________

WE BELIEVE YOU SHOULD VOTE AGAINST THE PROPOSED MERGERS FOR THE
FOLLOWING REASONS:

- CONFLICTS OF INTEREST

-- YOUR GENERAL PARTNERS WILL RECEIVE APPROXIMATELY $4,500,000 IN
DIRECT PAYMENTS

-- YOUR GENERAL PARTNERS AND CAPREIT DO NOT HAVE AN ARM'S LENGTH
RELATIONSHIP

- WE BELIEVE YOUR GENERAL PARTNERS HAVE NOT MAXIMIZED PAYMENTS TO THE
BAC HOLDERS

-- NEVER EXPOSED PROPERTIES TO THE MARKET BEFORE AGREEING TO
SIGNIFICANT TERMINATION FEES AND EXPENSE REIMBURSEMENT
PROVISIONS

-- NEVER USED THE SERVICES OF A REAL ESTATE BROKER

-- NEVER HAD THE PROPERTIES APPRAISED

-- SIGNED THE ORIGINAL MERGER AGREEMENTS WITHOUT THE BENEFIT OF
ANY FAIRNESS OPINIONS (ALTHOUGH SUBJECT TO DELIVERY OF A
FAIRNESS OPINION)

-- AGREED TO TERMINATION FEES OF $4.5 MILLION ($2.25 MILLION PER
FUND) AND EXPENSE REIMBURSEMENT PROVISIONS OF A MAXIMUM OF
$5.2 MILLION ($2.6 MILLION PER FUND)

-- THESE TERMINATIONS FEES AND EXPENSE REIMBURSEMENT PROVISIONS
REPRESENT A POTENTIAL $9.7 MILLION HANDICAP TO ANOTHER BIDDER

-4-

<PAGE>

-- YOU WILL HAVE NO ABILITY TO PARTICIPATE IN UPSIDE POTENTIAL
AND YOU WILL NO LONGER RECEIVE TAX-EXEMPT INCOME FROM THE FUNDS

-- WE BELIEVE THE BACS ARE WORTH SUBSTANTIALLY MORE THAN THE BAC
HOLDERS ARE RECEIVING AND YOUR GENERAL PARTNERS SHOULD CONSIDER
OTHER ALTERNATIVES TO THE PROPOSED MERGERS

As discussed hereafter, for these and other reasons, we believe you
should clearly vote no on the proposed mergers and direct your General
Partners to pursue other alternatives which will maximize BAC holder value.

THERE ARE, HOWEVER, CERTAIN RISKS IN NOT APPROVING THE PROPOSED MERGERS.
WE BELIEVE THE PRINCIPAL RISKS ARE THE FOLLOWING:

1. If the Proposed Mergers are not adopted the per unit price at which
the BACs are traded on the American Stock Exchange may drop. As with any
investment, there can be no assurances that the price would recover in the
short or long term.

2. Your General Partners may choose not to pursue any alternatives to
the Proposed Mergers if the Proposed Mergers are defeated and there can be no
assurances that if they elect to pursue alternatives to the Proposed Mergers
that you will receive higher consideration for your BACs than that being
offered in the Proposed Mergers.

3. We believe in any event that no one is likely to close on an
alternative proposal for at least 270 days after termination of the Merger
Agreements because of the termination fees and expenses that would be due
CAPREIT. We do not presently have the financing to pursue an alternative
proposal if that opportunity were available. Given our views as to the
values of the properties securing the mortgage revenue bonds, we believe we
would be interested in pursuing such an alternative proposal. However, we are
not committed to pursuing such a proposal nor can there be any guarantee that
we would be able to finance such a proposal.

4. Just as we believe there is a chance for appreciation in the value
of the BACs by positive changes in the economy, the value of the real estate
market generally or the value of the apartments securing the Mortgage Revenue
Bonds specifically, adverse changes in the economy, in the value of the real
estate market generally or the value of the apartments securing the Mortgage
Revenue Bonds specifically could adversely affect the value of the BACs.

-5-

<PAGE>

6. The costs and expenses of the Oppenheimer Fairness Opinions and
relating legal and accounting fees, the legal and accounting fees incurred in
negotiating the Merger Agreements and reimbursement for certain overhead
costs of the General Partners and their affiliates will be borne by the Funds
even though the Proposed Mergers are not approved.

_______________________________________________________________________________

This Proxy Statement and the enclosed blue proxy card are being
furnished to the BAC Holders in connection with the solicitation of proxies
by Dominium to vote against the Proposed Mergers and related matters at the
meetings of BAC Holders of Fund I-II and Fund III to be held at 9:00 a.m. and
10:00 a.m., respectively, local time, on October 29, 1996 at the Doubletree
Hotel, 1750 Rockville Pike, Rockville, Maryland 20852 and at any adjournments
or postponements thereof (each a "Meeting" and collectively the "Meetings").

At the Meetings, BAC Holders of Fund I-II will vote on the Fourth
Amended and Restated Agreement and Plan of Merger, dated as of August 21,
1996, among Fund I-II, CRITEF Associates Limited Partnership, a Delaware
limited partnership and the general partner of Fund I-II (the "Fund I-II GP")
and Watermark Partners, L.P., a Delaware limited partnership and affiliate of
CAPREIT; and BAC Holders of Fund III will vote on the Fourth Amended and
Restated Agreement and Plan of Merger, dated as of August 21, 1996, among
Fund III, CRITEF III Associates Limited Partnership, a Delaware limited
partnership and the general partner of Fund III (the "Fund III GP" and
together with the Fund I-II GP, the "General Partners") and Watermark III
Partners, L.P., a Delaware limited partnership and affiliate of CAPREIT (each
a "Merger Agreement" and collectively the "Merger Agreements"). The
aggregate consideration offered to the BAC Holders under the Proposed Mergers
(net of legal fees for certain litigation) is approximately $160.3 million,
subject to possible upward adjustment. Also, BAC Holders of each Fund will
vote on proposals (the "New Partner Proposals") to approve, with respect to
each Fund, (a) the sale of the general partner interest held by each Fund's
General Partner to a wholly-owned subsidiary of CAPREIT in exchange for
$500,000, and the substitution of such wholly-owned subsidiary as general
partner of each Fund and (b) the issuance of a limited partner interest in
each Fund to CAPREIT or its designee in exchange for the contribution to such
Fund of real property or other assets, in each case, to occur concurrently
with the Proposed Mergers, and certain amendments to the respective
Agreements of Limited Partnership of the Funds expressly to authorize the
foregoing. The Proposed Merger and New Partner Proposal for each Fund are
collectively referred to herein as the "Transaction Proposals" with respect
to each Fund.

We believe that the Transaction Proposals are not fair to or in the best
interest of the BAC Holders and that BAC Holders should vote against the
Transaction Proposals. We

-6-

<PAGE>

believe that there is no compelling reason to engage in a transaction of this
type at the present time. Even if some transaction should be effected, we
believe that the aggregate consideration to be paid to BAC Holders in
connection with the Proposed Mergers (the "Redemption Price") is inadequate.
We believe that the consideration to be paid in connection with the New
Partner Proposals is unwarranted, and that these payments, as well as certain
other inducements for the General Partners to proceed with and advocate for
the Transaction Proposals, create a conflict of interest for the General
Partners. We believe these conflicts prevent the General Partners from
objectively evaluating the Transactions Proposals. We believe that you
should carefully review each General Partner's conclusion that the
Transaction Proposals are fair to and in the best interest of the BAC Holders
and that the consideration payable to the BAC Holders in connection with the
Proposed Mergers is fair. We believe that you should conclude after careful
review of the facts, as we have, that THIS DEAL IS NOT FOR YOU.

We urge you to vote against the Transaction Proposals by completing and
executing the enclosed blue proxy card in accordance with the instructions
contained therein. For a Proxy to be effective a BAC Holder must deliver his
or her Proxy at any time prior to the Meeting of the Fund, or any adjournment
thereof, addressed to:

Dominium Tax Exempt Fund L.L.P.
c/o Georgeson & Company Inc.
Wall Street Plaza, 30th Floor
New York, New York 10005

A self-addressed, stamped envelope for the return of the Proxy has been
included.

REASONS TO VOTE AGAINST THE PROPOSED MERGERS

Dominium opposes the Proposed Mergers and is hereby asking for your vote
to oppose them as well. Dominium believes that the Proposed Mergers and the
related proposals are unfair to and not in the best interests of the BAC
Holders and that the Redemption Price is inadequate. Dominium believes you
should vote against the Proposed Mergers and the related transactions for
five primary reasons:

(1) The General Partners have significant conflicts of interest and
inducements to proceed with the Proposed Mergers;

(2) We believe the General Partners have not acted in a manner
consistent with maximizing BAC Holder value;

(3) The structure of the Proposed Mergers does not allow the BAC Holders
to continue to receive tax-exempt income or to take advantage of
any upside potential for the Funds;

-7-

<PAGE>

(4) As discussed hereafter, we believe that the General Partners
have not provided you with all of the information necessary for
you to determine whether the Proposed Mergers are a good deal; and

(5) We believe that there are alternatives which may be superior to
the Proposed Mergers.

1. THE GENERAL PARTNERS HAVE SIGNIFICANT CONFLICTS OF INTEREST AND
INDUCEMENTS TO PROCEED WITH THE PROPOSED MERGERS.

Each of the General Partners of the Funds (and CAPREIT) maintain that
the proposed transactions are fair to and in the best interest of the BAC
Holders and that the Redemption Price payable to the BAC Holders of its
respective Fund is fair. However, you should be aware and take into
consideration that each General Partner has significant conflicts of interest
and inducements to proceed with the Proposed Mergers. The conflicts and
inducements include:

- CAPREIT has agreed to pay to each General Partner $500,000
($1,000,000 in the aggregate) in exchange for their general
partnership interests. Absent the Merger Agreements, if the
Funds were liquidated as of June 30, 1996, Fund I-II GP would
have received only a nominal amount and Fund III GP would have
received nothing for its general partnership interests.

- CAPREIT has agreed to pay to CRI, Inc. ("CRI") and CRIIMI MAE
Services Limited Partnership ("CRIIMI"), affiliates of the
General Partners, at least $3,479,925, for certain accounts
receivable consisting of the accrued mortgage servicing and
administration fees ("Accrued Fees") owed by certain affiliates
of the General Partners which CRI and CRIIMI probably would not
get if the Transaction Proposals are not approved.

- At the time the General Partners commenced discussions with CAPREIT
about a possible transaction, affiliates of the General Partners
held up to a 22% residual profits interest in AP CAPREIT
Partners, L.P. ("AP CAPREIT"), an affiliate of CAPREIT. The
President of CAPREIT, Mr. Richard L. Kadish, who, according to the
proxy statement sent to you by the Funds (the "CRITEF Proxy
Statement"), first suggested a transaction with CAPREIT in
January 1995, was an employee of CRI working directly with the
Funds until January 1994.

-8-

<PAGE>

AP CAPREIT was redeemed in order to "avoid even the appearance
of a conflict of interest". However, we believe the deal that they
ultimately struck with CAPREIT involves a direct conflict of interest
by your General Partners because completing the Transaction
Proposals could potentially save CRI affiliates over $1 million in
certain termination refunds described below.

$1,000,000 PAYMENT

Absent the Merger Proposals, the general partnership interests of the
General Partners have at best nominal value. These payments were
negotiated by the General Partners for their benefit in the context of
striking the Merger Agreement terms. Because CAPREIT is obviously willing to
spend these additional sums to consummate the Proposed Mergers, these funds
could have been paid to the BAC Holders and not to the General Partners. Of
the $1,000,000 that will be paid to the General Partners ($500,000 to each of
them), according to the CRITEF Proxy Statement, Messrs. Dockser, Willoughby
and Martin C. Schwartzberg, formerly a general partner and currently a
limited partner in the Fund I-II GP ("Schwartzberg"), will each receive
approximately 25%, CRI will receive a very small percentage and the remainder
goes to general partnerships comprised of current and former employees of
CRI, including the President of CAPREIT, Mr. Kadish.

$3,479,925 PAYMENT

CAPREIT has agreed to purchase from CRI and CRIIMI, affiliates of the
General Partners, for $3,479,925 in cash certain Accrued Fees on the
effective date of the Proposed Mergers (the "Effective Date"). The payments
payable to CRIIMI will increase each month after September 30, 1996 through
the Effective Date. These Accrued Fees have accrued pursuant to the limited
partnership agreement of each Fund and are subordinated on a current basis,
loan by loan, to payment of full base interest, plus any unpaid base interest
and interest thereon, on the Mortgage Revenue Bonds owned by the Funds. This
means that, as acknowledged in the CRITEF Proxy Statement, it is possible
(and Dominium believes likely) that in the absence of the Proposed Mergers,
these affiliates of the General Partners would not get substantial payments,
if any, on these Accrued Fees in the near future. Moreover, in order to
receive these fees more than $31 million of cumulative unpaid base interest
(as of June 30, 1996), plus interest thereon, would first have to be paid to
the Funds.

The consideration payable to CRI for its Accrued Fees is, with respect
to Fund I-II, $511,680 in the case of Series I, and $770,835 in the case of
Series II, and, with respect to Fund III, $667,485. The consideration
payable to CRIIMI for its Accrued Fees is, with respect to Fund I-II,
$332,460, in the case of Series I, and $489,120 in the case of Series II, and
with respect to Fund III, $708,345, representing 100% of the Accrued Fees
payable to CRIIMI through September 30, 1996.

-9-

<PAGE>

Your General Partners negotiated these payments at the same time they
were negotiating the Redemption Price. While we believe there is no basis
for the payment of over $3 million to these affiliates of your General
Partners in connection with the Proposed Mergers, you should be aware that
your General Partners originally agreed to terms which would have resulted in
payments in excess of $4.5 million to their affiliates for these Accrued
Fees. These payments were only reduced as a part of settlement of two
plaintiffs' class action lawsuits brought against your General Partners (the
fees and expenses of which you are being required to pay out of the
Redemption Price).

CRI AND CAPREIT'S CLOSE RELATIONSHIP

CAPREIT was originally formed by CRI in late 1993 for the purpose of
acquiring, owning and managing a portfolio of multi-family real estate
properties. CAPREIT was acquired by AP CAPREIT on January 31, 1994 only
months after its founding. Within one year of AP CAPREIT's acquisition,
CAPREIT was "negotiating" to purchase the Funds. In January 1995, when your
General Partners were apparently first approached regarding the possible
acquisition of the Funds by CAPREIT, not only were CRI and certain of CRI's
affiliates owners of a 22% residual profits limited partnership interest
(contingent on the occurrence of certain events and meeting certain hurdle
rates) in AP CAPREIT, but Messrs. Dockser and Willoughby (the sole
shareholders of CRI), were two of seven directors of CAPREIT. Although CRI
and CAPREIT share the same Maryland office address and Mr. Kadish, the
President of CAPREIT, was an employee of CRI until 1994, the CRITEF Proxy
Statement states that they first discussed a possible transaction in Phoenix,
Arizona at a convention of the National Multi Housing Council. We think this
close relationship does not support your General Partners' claims of arm's
length negotiations.

TERMINATION REFUNDS

As a consequence of the Proposed Mergers, CRI and certain of its
affiliates are receiving a benefit in excess of $1,000,0000 that they most
likely would not receive if a transaction were effected with any other party.
Notwithstanding your General Partners' stated concern to avoid "even the
appearance of a conflict of interest", on June 30, 1995, CRI agreed to sell
its interest in AP CAPREIT for an aggregate consideration of $4,750,000,
subject to repayment of up to $3,900,000 ("Termination Refunds") if certain
property management contracts are terminated under certain circumstances.
Some of these property management contracts allow an affiliate of CAPREIT
called CAPREIT Residential Corp. ("CAPREIT Residential") to manage, on behalf
of the Owner Partnerships, fourteen of the Properties that secure the
Mortgage Revenue Bonds. It is likely that a comparable transaction between
the Funds and anyone other than CAPREIT would trigger Termination Refunds.
This is because in a comparable transaction an acquirer of the Funds would
also acquire the right to acquire the properties owned by the Owner
Partnerships. Pursuant to the terms of the management agreements, the new
owner could terminate these contracts (which is generally

-10-

<PAGE>

permitted upon thirty days notice) and designate its own property management
company instead of CAPREIT Residential. However, CRI and CAPREIT agreed that
the portion of the Termination Refunds relating to the Properties that secure
certain Mortgage Revenue Bonds held by the Funds in the original aggregate
amount of $1,313,864 (which amount decreased after June 30, 1996 to
$1,149,631, and will continue to decrease after June 30 of each succeeding
year) would not be due if the Proposed Mergers were consummated with CAPREIT.
As a consequence, if the Proposed Mergers are effected, we believe CRI and
certain affiliates of CRI are receiving a benefit in excess of $1,000,000
that they most likely would not receive in a transaction with any party other
than CAPREIT.

THE OWNER PARTNERSHIPS

The Properties securing the Mortgage Revenue Bonds were originally owned
by unrelated third parties. Fifteen of these original unaffiliated owners
defaulted on their obligations under the Mortgage Revenue Bonds triggering
foreclosure rights by the Funds. According to the CRITEF Proxy Statement,
because of these defaults, Messrs. Dockser and Willoughby established the
Owner Partnerships to acquire legal title to the Properties in part to
prevent the loss of tax-exempt interest on the Mortgage Revenue Bonds that
would have resulted had the Funds acquired title. The Owner Partnerships
acquired title from the prior owners via deeds in lieu of foreclosure or
otherwise.

The General Partners maintain that the Owner Partnerships, and their
respective owners (Messrs. Dockser and Willoughby), have never received any
material benefits, directly or indirectly, in connection with owning the
Properties that secure the Mortgage Revenue Bonds. The General Partners
concede that as the deal has been structured, if the fair market value of the
Properties were to substantially increase prior to the time CAPREIT exercises
its options to acquire such Properties, any such increase in value in excess
of the indebtedness and accrued interest owing on the respective Properties
may benefit the owners of the Owner Partnerships (i.e., affiliates of your
General Partners). Moreover, in connection with the Proposed Mergers, at the
option of CAPREIT, each of the Owner Partnerships has agreed to one of the
following courses of action: (a) to sell, assign or transfer the
partnership interests in or the real property and other assets of such Owner
Partnerships to CAPREIT or its designee for no additional consideration, (b)
to admit CAPREIT or its designee as the managing general partner, whereupon
the general partner interest of the current general partners will be
converted into limited partnership interests or (c) to sell all of the
limited partnership interests to CAPREIT at any time within five years from
the Effective Date at the then fair market value (based on the fair market
value of the partnership property as encumbered by the mortgage loans
thereon). Your General Partners have made no disclosure as to why they have
structured these transactions involving their affiliates in this complex
manner, whether any of the alternatives would result in material benefits to
these affiliates or which alternative CAPREIT presently intends to follow.

-11-

<PAGE>

We believe your General Partners have not adequately justified the $4.5
million in payments to the General Partners and/or their affiliates. We also
believe that these transactions constitute material inducements for the
General Partners to recommend the Proposed Mergers, irrespective of whether
these transactions are fair to the BAC Holders.

2. WE BELIEVE THE GENERAL PARTNERS HAVE NOT ACTED IN A MANNER CONSISTENT
WITH MAXIMIZING BAC HOLDER VALUE.

In addition to the conflicts of interest and inducements for the General
Partners to recommend the Proposed Mergers, we believe that the General
Partners have not acted in a manner consistent with maximizing BAC Holder
value. Consider the following:

- Your General Partners apparently conducted negotiations on an exclusive
basis with CAPREIT from January 1995 until September 11, 1995. During
that period they never actively solicited other purchasers for either
the BACs or the Properties, publicized that the Properties or the BACS
were for sale, contacted qualified real estate brokers or attempted to
actively market the Properties or BACS in any way. They did this in
spite of their conflicts of interest and the inducements being offered
by CAPREIT to proceed with the Proposed Mergers and notwithstanding that
CAPREIT apparently did not propose an initial Redemption Price until
August 1995 and then offered only $145 million.

- Your General Partners entered into Merger Agreements with CAPREIT on
September 11, 1995 apparently without ever having valued the Properties
or, if they did value the Properties, they haven't advised you or their
investment banker of their views as to the values of the Properties.

- Your General Partners initially agreed to a Redemption Price of $150
million contingent upon obtaining a fairness opinion, but without ever
having received a fairness opinion or explaining to you their rationale
for why they believed this was a fair price for the BAC Holders.

- Your General Partners were promptly sued in two separate class action
lawsuits brought on behalf of the BAC Holders. An inactive general
partner of the Fund I-II GP, Martin C. Schwartzberg, also brought
litigation alleging, among other things, that the Proposed Mergers were
not in the best interest of the BAC Holders and filed a preliminary
proxy statement with the Securities and Exchange Commission urging that
BAC Holders vote against the Proposed Mergers. (As part of the
settlement of the litigation, Mr. Schwartzberg has agreed not to oppose
the Proposed Mergers and certain payments to Mr. Schwartzberg are
conditioned upon your approval of the Proposed Mergers.)

-12-

<PAGE>

- Despite the fact that the $150 million Redemption Price in the
September 11, 1995 Merger Agreements was so inadequate that it was
unable to support a fairness opinion, at the time your General Partners
entered into the Merger Agreements, they also agreed to termination
fees of $4.5 million, to reimburse CAPREIT for up to $4 million of
expenses under certain circumstances (which have now been increased
to $5.2 million), and not to solicit other proposals. They agreed to
these termination fees, expense reimbursement and nonsolicitation
provisions even though CAPREIT did not have committed financing and
had not completed its due diligence investigation. As revealed in the
CRITEF Proxy Statement, at the time the original Merger Agreements
were signed, CAPREIT's financing was based on a term sheet from a
financial institution that after several months ultimately declined
to provide CAPREIT with financing.

- Notwithstanding that your General Partners were originally unable to
obtain a fairness opinion (although they have fairness opinions with
respect to the present Redemption Price), that they were sued in two
plaintiffs' class action suits, that CAPREIT's initial financing fell
through and that they had significant conflicts of interest, your
General Partners have repeatedly extended the termination date of the
Merger Agreements. Though these extensions have been accompanied by
increases in the Redemption Price in the aggregate amount of $10.3
million (net of legal fees), your General Partners have also raised the
hurdles for other potential purchasers of the Funds by increasing the
maximum amount of expenses reimbursable to CAPREIT to $5.2 million.
Considering the termination fees and expense reimbursement provisions
agreed to by your General Partners, just to offer a net amount to the
BAC Holders equivalent to the amount being offered by CAPREIT, any
other party proposing an alternative transaction would have to offer
up to $9.7 million more than CAPREIT while these provisions are in
effect.

- In each instance in which the Redemption Price has been raised (except
possibly for the most recent $1.5 million increase and minor technical
adjustments) your General Partners have only been able to "negotiate"
a higher price when external pressure has forced the issue. They
initially raised the price by $8.5 million in negotiating a settlement
to the plaintiffs' class action lawsuits (although they agreed that up
to 20% of the improvements negotiated in connection with such lawsuits
could go directly to the plaintiffs' lawyers and not to the BAC
Holders). They then negotiated for another $2 million increase in the
Redemption Price in order to further induce the plaintiffs' lawyers to
settle their class action lawsuits after substantial delays caused by
our failed efforts to make a superior proposal.

-13-

<PAGE>

We believe that your General Partners' agreement to a transaction that
caps the amounts paid to BAC Holders for excess cash owned by the Funds
even though such cash was earned during your ownership of the Funds, does not
maximize BAC Holder value. We believe that when you carefully review the
CRITEF Proxy Statement you will conclude, as we have, that the General
Partners have not acted in a manner consistent with maximizing BAC Holder
value.

Moreover, we believe that the cumulative effects of the termination fees
and expenses which your General Partners have agreed to, the inherent
conflicts of interest of the General Partners, the fact that they have never
revealed either their views or the views of CAPREIT or its bankers as to the
value of the Properties securing the Mortgage Revenue Bonds, the complexity
of the transactions, the informational advantages that CAPREIT has because
its affiliate is the manager of fourteen of the Properties and the limited
representations and warranties in the Merger Agreements (particularly as to
tax-exempt status) that CAPREIT is willing to accept, have had a substantial
chilling effect on other proposals. Under the termination fees and expense
reimbursement provisions in the Merger Agreements, any prospective acquiror
of the Funds must automatically offer as much as $9.7 million more than
CAPREIT just to compete on even terms with CAPREIT while these provisions
remain in effect. In addition, as a practical matter, any prospective
acquiror has to address how to overcome the incentives and inducements that
have been provided to the General Partners and their affiliates to proceed
with the CAPREIT transaction. In assessing our ability to make a superior
proposal, we felt that we would need to not only be able to pay the
termination fees and expense reimbursement amounts, but, as distasteful as it
may be, retain some of the approximately $4.5 million in inducements for
the General Partners to proceed with a transaction.

Furthermore, given the potential for a bidding contest that a competing
offer would raise, this $9.7 million unlevel playing field also has the
effect of giving CAPREIT a double advantage. CAPREIT, unlike any other
prospective bidder, knows that if it loses the bidding contest, it will at
least receive the termination fees and its expenses. It can also reasonably
anticipate that it will be able to pay more than a competing bidder, because
it will not be responsible for paying the termination fees and expense
reimbursement amounts with respect to that competing bidder. Based on our
experience, we believe that regardless of the value of your BAC Holder
interests, the reality is that the transaction as structured by your General
Partners has a virtual freezeout effect on any other alternative proposals.

The only way to avoid this effect of the transaction as structured by
your General Partners and to preserve your right to get a better deal and to
continue to realize upside

-14-

<PAGE>

potential on your investment through potential increases in the value of the
BACs, is to reject the Proposed Mergers. Pursuant to the Merger Agreements,
if the BAC Holders do not approve the Proposed Mergers, the Funds may
terminate the Merger Agreements without liability for the termination fees
and expenses of CAPREIT, provided that there is no "Triggering Event", as
defined in the Merger Agreements, which results in the BAC Holders receiving
consideration in excess of the proposed Redemption Prices within 270 days
from the date of termination. We believe that you should send a message to
your General Partners that you are not happy with the way that they have
structured the Proposed Mergers and insist that they maximize BAC Holder
value.

3. THE STRUCTURE OF THE PROPOSED MERGERS DOES NOT ALLOW THE BAC HOLDERS
TO TAKE ADVANTAGE OF ANY IMPROVEMENT IN THE PROPERTIES' ABILITY TO
GENERATE TAX-EXEMPT INCOME.

Since their formation, over $260 million in aggregate capital
contributions have been made to the Funds by you, the BAC Holders. Now your
General Partners are presenting you with an opportunity to sell your
investment at a price which will net the BAC Holders only approximately $160
million; a loss of roughly $100 million in capital, 38.5% of the cumulative
invested amount, in less than ten years. The Funds currently generate
tax-free income to you, the BAC Holders. In the CRITEF Proxy Statement, your
General Partners acknowledge that "[t]he principal original objectives of the
Funds were to preserve and protect capital and to provide periodic
distributions of tax-exempt interest income" over a 10 to 13 year period and
that the Proposed Mergers will modify the original objective by accelerating
the liquidity of the BAC Holders' interests and terminating any future
distributions. If the Proposed Mergers are effected you will lose not only
any opportunity to recover part of this lost capital through possible
improved performance of the Funds, but defeat the second objective of
continuing to receive tax-exempt interest income. We do not believe that
the "premium" over market price that you are being offered justifies giving
up the potential for future appreciation in the BACs and the tax-exempt
income generated by the Funds, particularly after you consider that the
Funds' income over the past few years has been increasing.

-15-

<PAGE>

view as to fairness. Moreover, under the Proposed Mergers you can lose these
rights to continue to receive tax-exempt income and potential appreciation in
the value of the BACs by a simple majority vote of the BAC Holders and if you
object to the Proposed Mergers, under the Funds' limited partnership
agreements, you do not have the right to dissent and seek a judicial
declaration of the fair value of your interest (a right which you would
generally have if the Proposed Mergers were mergers between corporations).

Of course, there can be no certainty that the tax-free income stream
will continue or improve for BAC Holders, but it is certain that approval of
the Proposed Mergers will terminate the tax-exempt income stream immediately.
Similarly, there can be no certainty that general real estate economic
conditions will improve, but it is certain that approval of the Proposed
Mergers will foreclose any opportunity for BAC Holders to benefit from such
improvement via their investment in BACs. The only way for the BAC Holders
to retain some chance of upside appreciation on their investment is to vote
against the Proposed Mergers.

As discussed in the CRITEF Proxy Statement at pages 55-59, CAPREIT is
willing to take over the Funds in part because it will be able to aggregate
the Properties with properties and other capital held by separate CAPREIT
affiliates and refinance the Mortgage Revenue Bonds with lower interest rates
and still maintain tax-exempt status using the Properties and the
additionally contributed properties as collateral. The General Partners
state in the CRITEF Proxy Statement that they are uncertain whether they
could refinance and maintain the tax-exempt status. Yet, this is precisely
what CAPREIT intends to do. CAPREIT obviously perceives value in the
Properties on which it is attempting to capitalize. According to the CRITEF
Proxy Statement they are willing to incur $22 million in transaction expenses
to do so. Although they have suggested that the additional collateral and
credit enhancements will make it easier to refinance the Mortgage Revenue
Bonds, we believe that the General Partners have not adequately explained why
the Funds are currently unable to effect a refinancing or what the costs of
such a refinancing would be to the Funds.

Although the General Partners and CAPREIT have carefully avoided
commenting on the value of the Properties or the profits which CAPREIT
anticipates generating from the proposed transactions, CAPREIT has
consistently shown a willingness to increase the Redemption Price when
challenged. Basically, as a result of the Proposed Mergers, you will be
losing your ability to receive tax-exempt income and any potential
appreciation in the value of the BACs. CAPREIT, on the other hand, will be
acquiring the right to benefit from the tax-exempt status of income generated
by the Mortgage Revenue Bonds held by the Funds and any appreciation in the
value of the BACs. We believe CAPREIT wouldn't be incurring $22 million in
transaction costs to do that unless they thought there were significant
benefits to be gained from the Proposed Mergers.

-16-

<PAGE>

4. THE GENERAL PARTNERS HAVE NOT PROVIDED YOU WITH ALL THE INFORMATION
NECESSARY FOR YOU TO DETERMINE WHETHER THIS IS A GOOD DEAL FOR YOU.

We believe that the General Partners have not provided you with the
information necessary for you to determine whether this is a good deal for
you. We urge you to review carefully the CRITEF Proxy Statement. Despite
more than 100 pages of disclosure, we do not believe that you will be able to
determine what the General Partners' views, or CAPREIT's views, are as to the
value of the Properties securing the Mortgage Revenue Bonds. We find it
incredible that the General Partners or CAPREIT have not obtained appraisals
of these Properties or, if they or their sources of financing have obtained
appraisals, that they have not disclosed these appraisals to you or to the
investment banking firm retained by the General Partners.

When you cut through the complexity of these transactions, we believe
the value of your BACs turns on the value of the Properties. This is so
because the only assets of the Funds are the Mortgage Revenue Bonds. The
only security for the Mortgage Revenue Bonds is the Properties. The
Properties generate the income to pay the principal and interest on the
Mortgage Revenue Bonds. If the ability of the Properties to generate income
increases, the value of the Properties increases. If the ability of the
Properties to generate income increases, the value of the Mortgage Revenue
Bonds increases. If the value of the Mortgage Revenue Bonds increases the
value of the BACs increases. Thus, the value of the Properties directly
impacts the value of the BACs. Your General Partners have not told you their
views as to the value of these Properties.

There will be some cash held by the Funds at the Effective Date, the
Available Cash which CAPREIT will be acquiring for its Redemption Price.
But, your General Partners have limited the amount of upward adjustments to
the Redemption Price that will be made based on the Available Cash (the
"Maximum Adjustment Amount"). As a result, if there is more Available Cash
than the Maximum Adjustment Amount, CAPREIT gets the cash, not you. Your
General Partners have not disclosed why the General Partners believe it was
in your best interest to cap the Maximum Adjustment Amount or for the Funds
to accumulate substantial cash reserves rather than make additional
tax-exempt distributions to BAC Holders.

-17-

<PAGE>

disclosed that CAPREIT Residential through its management of the Properties
has the ability, among other things, to influence the cash flows from these
Properties. By setting the rent rates, by determining the levels and timing
of repairs, maintenance and capital expenditures, CAPREIT Residential's
management of a significant portion of the Properties can directly impact
the value of the BACs because the income flowing to pay the Mortgage Revenue
Bonds is directly affected. Your General Partners have not disclosed either
their projections or CAPREIT's projections as to the cash flows or values of
the Properties after the transactions have been effected, and they have not
disclosed why CAPREIT is purportedly willing to incur approximately $22
million in transaction costs to effect the Proposed Mergers.

Based on over 25 years of experience in owning and managing multi-family
housing projects, we believe you should, at a minimum, have the following
information before you are willing to vote in favor of the Proposed Mergers:

(1) A satisfactory explanation of why the General Partners haven't
actively marketed the Funds or the Properties by employing a broker.

(2) The appraised value of the Properties securing the Mortgage Revenue
Bonds.

(3) Projections as to the impact of CAPREIT's financing on cash flow
from the Properties and market value of the Properties.

(4) Given that the manager of most of the Properties is an affiliate of
the buyer, an independent review of the management of the Properties by
CAPREIT Residential to determine if the rent rates are at market value and
whether expenses and repairs have been structured and scheduled in a manner
that would adversely affect either the Available Cash or the value of the
BACs.

(5) A satisfactory explanation of why the mechanisms through which
CAPREIT or its designee can acquire title to the Properties from the Owner
Partnership have been structured in the manner that they have and whether
there is any material advantage to the General Partners or their affiliates
from one approach versus another and whether there is any understanding,
explicit or tacit, with respect to the approach that CAPREIT will take.

(6) An explanation of how the General Partners could have given
considerable weight to and relied to a significant extent in reaching their
fairness determination on the estimates of the range of values developed by
Oppenheimer & Co., Inc. ("Oppenheimer") when the General Partners entered
into Merger Agreements and agreed on prices before having the fairness
opinions in hand.

(7) Since your General Partners are primarily relying on the
Oppenheimer analyses which give little value to the availability of
tax-exempt financing, an explanation of why your

-18-

<PAGE>

General Partners apparently believe that the availability of tax-exempt
financing is not a valuable asset of the Funds.

(8) An explanation of why the General Partners and Oppenheimer
decided that in Oppenheimer's determination of fairness it was appropriate to
exclude from the scope of investigation the consideration to be paid or
other benefits to be received by the General Partners and their affiliates.

This is the type of information we believe that you need as a BAC Holder
to determine whether the Proposed Mergers are in your interests. We trust
that if you undertake the effort to review the very lengthy CRITEF Proxy
Statement, you will concur with our view that for some reason they have not
disclosed the information you need to make an informed decision.

5. WE BELIEVE THERE ARE ALTERNATIVES WHICH MAY BE SUPERIOR TO THE
PROPOSED MERGERS.

In the CRITEF Proxy Statement, your General Partners disclose that they
considered several alternatives to the Proposed Mergers in anticipation of
the upcoming mandatory remarketing date for the Mortgage Revenue Bonds when
the underlying mortgage loans mature in 1998 through 2000 if the loans could
not be extended at or before the time of the remarketing. These alternatives
included the following: (i) liquidating the Properties securing the
mortgage loans pursuant to foreclosures under the Mortgage Revenue Bond
documents prior to the mortgage loan maturities; (ii) seeking to extend the
loan maturities and continuing to hold the Mortgage Revenue Bonds for
extended periods; and (iii) holding the Mortgage Revenue Bonds until the
mortgage loans mature, and then liquidating the Properties securing the
mortgage loans pursuant to foreclosures under the Mortgage Revenue Bond
documents.

As discussed below, we believe, based on over 25 years of experience
with multi-family housing projects and tax-exempt financing, that any of
these alternatives, if pursued by a general partner acting to maximize BAC
Holder value, is likely to be a superior alternative to the Proposed Mergers.
While there can, of course, be no certainty that such alternatives would be
superior or indeed that a superior alternative will occur if the Proposed
Mergers are not approved, we believe that if your General Partners had
pursued any of these alternatives, such alternatives would not have been
superior alternatives for your General Partners. As you review the CRITEF
Proxy Statement in which your General Partners discuss their reasons for not
pursuing any of these alternatives, we think it is important that you focus
on the following:

-19-

<PAGE>

- Your General Partners largely justify their rejection of these
alternatives on the basis of the Oppenheimer fairness
opinions. Yet, they determined to do the Proposed Mergers with
CAPREIT before they had any fairness opinions.

- The alternative of extending the loan maturity dates and continuing to
hold the Mortgage Revenue Bonds for extended periods is exactly what
CAPREIT is doing. The difference is that they are getting all of
the future benefits of tax-exempt status and potential appreciation in
the BACs and the value of the underlying Properties (as well as risks
of depreciation).

ALTERNATIVE 1. LIQUIDATE NOW

Your General Partners have indicated in the CRITEF Proxy Statement that
they do not believe that you would receive greater net present value upon an
orderly liquidation of the Funds based on the results of Oppenheimer's
capitalization rate valuation analysis and discounted cash flow analysis.
Once again, your General Partners are relying on Oppenheimer's analyses to
justify why they did not pursue other alternatives even though they had
concluded not to pursue these alternatives before they ever received
Oppenheimer's analyses. They are careful to point out that Oppenheimer is
not opining as to the net present value that you would receive upon an
orderly liquidation. Moreover, we believe that an 8.0% to 9.0%
capitalization rate, rather than the 9.0% to 10.25% capitalization rate used
by Oppenheimer would be more appropriate. Short of an appraisal, we believe
that a cpaitalization rate analysis is the best indicator of liquidation
value. As the following table illustrates, using a lower capitalization rate
would suggest that an immediate orderly liquidation of the Funds could result
in substantially greater net present value to you, the BAC Holders.

<TABLE>
<CAPTION>
COMPARISON OF DOMINIUM CAPITALIZATION VALUATIONS
TO OPPENHEIMER CAPITALIZATION VALUATIONS

OPPENHEIMER DOMINIUM
DIRECT CAPITALIZATION DIRECT CAPITALIZATION

LOW HIGH LOW HIGH
<S> <C> <C> <C> <C>
SERIES I, FUND I-II
Properties $ 29,938,156 $ 33,024,739 $ 33,877,910 $ 37,936,122
Other Assets 2,718,145 2,718,145 2,718,145 2,718,145
Total 32,656,301 35,742,884 35,596,055 40,654,267

SERIES II, FUND I-II
Properties 41,721,216 46,246,963 47,371,915 53,293,404
Other Assets 3,787,207 3,787,207 3,787,207 3,787,207
</TABLE>

-20-

<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
Total 45,508,423 50,034,170 51,159,122 57,080,611

FUND III
Properties 72,855,372 79,274,455 79,698,223 87,973,426
Other Assets 5,438,490 5,438,490 5,438,490 5,438,490
Total 78,293,862 84,712,945 85,136,713 93,411,916

Property Totals 144,514,744 158,546,157 160,948,048 179,202,952
Other Asset Totals 11,943,842 11,943,842 11,943,842 11,943,842
Total $156,458,586 $170,489,999 $172,891,890 $191,146,794
</TABLE>

In preparing the above table, we have used the same assumptions and
analysis as the Oppenheimer Fairness Opinions except that we have used
capitalization rates ranging from 8.0% to 9.0% as compared to the Oppenheimer
capitalization rates ranging from 9.0% to 10.25%. We believe that an 8.0% to
9.0% capitalization is a more appropriate capitalization rate based on three
separate analyses prepared for us by Mardell Amundson Johnson & Leirness,
Inc., an independent real estate valuation & consultation firm. Copies of
these analyses have been filed with the Securities and Exchange Commission
and are available for public review.

The first analyses is set forth in a letter dated April 10, 1996 from
the Mardell Amundson firm to Dominium regarding capitalization rates and
financing analysis for the Properties in Minneapolis/St. Paul, West Des
Moines, Kansas City, Key West, San Francisco and Seattle/Tacoma. In
connection with its analyses, Mardell Amundson analyzed income and expense
summaries, real estate tax summaries, and property information concerning the
apartment properties located in each city. It was familiar with the
Properties in the Minneapolis/St. Paul area and contacted appraisers and
brokers familiar with the other markets. Mardell Amundson concluded that
capitalization rates for the Properties ranged from 8.00% to 9.00% on a "free
and clear" basis and 7.50% to 8.50% on a tax-exempt basis.

A September 20, 1996 letter analyzed the state of the Minneapolis/St.
Paul apartment market and apartment values. The Mardell Amundson firm
researched the recent history of the Minneapolis/St. Paul market, analyzing
trends over the past three to four years in various apartment sectors in
Minneapolis/St. Paul, including Class A apartments. The September 20, 1996
letter concluded that in the Minneapolis/St. Paul market recent Class A
transactions indicated a capitalization rate of between 8 and 9% on a "free
and clear" basis and that the availability of tax-exempt bond financing would
tend to decrease capitalization rates further, by at least 50 basis points.
We believe that the Minneapolis/St. Paul Properties owned by the Owner
Partnerships are Class A properties. The letter also indicated that vacancy
rates in the Minneapolis/St. Paul market were between 2% and 3% and that the
combination of increasing rents and declining capitalization rates has
resulted in value increases of 15-20% for properties similar to the
Properties over the past 3-4 years.

-21-

<PAGE>

In a September 26, 1996 letter the Mardell Amundson firm conducted a
preliminary desk review of the Oppenheimer Fairness Opinion for the purpose
of commenting on the strengths and weaknesses of the Oppenheimer analysis.
They researched capitalization rates and looked at comparable sales analyses
in the Minneapolis/St. Paul market and concluded that more appropriate
capitalization rates on "free and clear" basis, without tax exempt financing,
for properties in the Minneapolis/St. Paul market ranged from 8.4% to 9.1%.
Mardell Amundson also concluded that on a comparable sales basis, recent
sales indicated a range of value on a per apartment unit basis of between
$48,000 and $61,000 per dwelling unit with most activity for average Class A
apartment properties at approximately $50,000 per dwelling unit.

Dominium initially engaged Mardell Amundson in connection with its
failed attempt to make a superior proposal to the Transaction Proposals and
again in September in connection with this proxy statement. Mardell Amundson
is an independent real estate valuation & consultation firm headquartered in
Minneapolis. Dominium has used Mardell Amundson from time to time in the
past and it is one of a number of independent valuation firms used by
Dominium on a periodic basis. Dominium paid Mardell Amundson approximately
$30,000 for services provided in connection with the Proposed Mergers.
Mardell Amundson is currently performing appraisals for Dominium on ten
properties unrelated to the Proposed Mergers.

The individual who prepared the reports, Michael F. Amundson, has a
Master of Science Degree in Real Estate Appraisal and Investment Analysis, is
a Certified General Property Appraiser in the State of Minnesota and is a
Member of the Appraisal Institute (MAI) with over ten years of real estate
valuation experience. In connection with the April 10, 1996 letter, Dominium
requested that the Mardell Amundson firm provide it with its professional
opinion concerning appropriate capitalization rates for the types of
properties securing the Mortgage Revenue Bonds, both on a free and clear
basis assuming an all cash sale or financing with taxable market rate debt,
and also capitalization rates assuming availability of tax exempt financing,
but did not otherwise impose limitations on the scope of the investigation.
In connection with the September 20, 1996 letter, Dominium requested research
concerning the recent history of the Minneapolis/St. Paul apartment market,
for the purpose of analyzing the trends over the past three to four years in
various apartment sectors in the Minneapolis/St. Paul, including Class A
apartments, but did not otherwise impose limitations on the scope of the
investigation. In connection with the September 26, 1996 letter, Dominium
requested that Mardell Amundson review the Oppenheimer Fairness Opinion for
the purpose of commenting on the strengths and weaknesses of Oppenheimer's
analysis, but did not otherwise impose limitations on the scope of the
investigation.

The August 10, 1996, September 20, 1996 and September 26, 1996 letters
are available for inspection and copying at the principal executive offices
of Dominium during its

-22-
<PAGE>

regular business hours by any interested BAC Holder or his representative who
has been so designated in writing.

ALTERNATIVE 2: HOLDING THE MORTGAGE REVENUE BONDS UNTIL THE MORTGAGE
LOANS MATURE AND THEN LIQUIDATING THE PROPERTIES SECURING THE
MORTGAGE LOANS PURSUANT TO FORECLOSURES UNDER THE MORTGAGE
REVENUE BOND DOCUMENTS

Your General Partners indicate in the CRITEF Proxy Statement that based
on Oppenheimer's valuation of the Funds on a continuing basis, they believe
the Redemption Price payable to the BAC Holders is within the range of the
net present value that the BAC Holders would receive if the Funds were to
conduct an orderly liquidation of the non-performing Properties upon maturity
of the underlying mortgage loans plus the value of the three performing
Mortgage Revenue Bonds and the other assets of the Funds. In addition, your
General Partners believe that a sale of the Properties would most likely
involve high transaction costs and on-going overhead costs to the Funds,
costs which are likely to be disproportionately high for a diminishing
portfolio of properties. (Since estimates of transaction costs are
included in Oppenheimer's analyses, we do not understand what the relevance
of this was to your General Partners' analysis). Your General Partners also
expressed concerns about risks inherent in a real estate disposition program
and the possibility that general or local economic conditions could worsen.
They concluded that "[g]iven that this alternative would not NECESSARILY
provide the BAC Holders with greater returns than the Redemption Prices
payable in the [Proposed] Mergers and that such current payment of the
Redemption Prices eliminates the uncertainties associated with holding the
Mortgage Revenue Bonds for several more years, the General Partners rejected
this alternative" (emphasis added). Your General Partners are also careful
to again point out that, although they are relying on the Oppenheimer
analyses, Oppenheimer has not opined that the Redemption Price payable to you
would be within the range of net present value of the amounts that you would
receive if the Properties were held to maturity and then liquidated.

In its analysis, Oppenheimer applied capitalization rates ranging from
9.0% to 10.25%. For the reasons discussed in Alternative 1, if we were
valuing the Properties we would use a capitalization rate ranging from 8.0%
to 9.0%. Using Oppenheimer's methodology, but a lower capitalization rate,
the implied equity values of Fund I-II, Series I, including Oppenheimer's
estimated value of its remaining Mortgage Revenue Bond and Oppenheimer's
estimated value of the Owner Partnership's other assets ("Other Assets")
would be $16.031 to $17.831 per BAC as compared to the estimated
Redemption Price for Fund I-II, Series I of $14.82. The implied equity value
of Fund I-II, Series II, including Oppenheimer's estimated value of its Other
Assets would be $15.796 to $17.624 per BAC as compared to the estimated
Redemption Price for Fund I-II, Series II of $14.50, and the implied equity
value of Fund III, including Oppenheimer's estimated value of its remaining
performing Mortgage Revenue Bonds and Oppenheimer's estimated value of its
Other Assets, would be

-23-

<PAGE>

$16.191 to $17.764 per BAC as compared to the estimated Redemption Price of
$15.13. In its analyses, Oppenheimer also assumed that Available Cash would
not exceed the Maximum Adjustment Amount and made certain assumptions about
expenses. To the extent there is more Available Cash or these expenses are
less than assumed by Oppenheimer, obviously the implied equity value would be
higher. To be conservative, we have used the same transaction costs as
Oppenheimer, but based on our experience in buying and selling apartment
projects we believe these estimates of transaction costs are high. For example,
Oppenheimer has used a 3% commission rate. We commonly are able to negotiate
commission rates in the range of 1 1/2%.

Moreover, while we agree that there are risks inherent in continuing to
hold the Mortgage Revenue Bonds, is there anything about those risks today
that warrants proceeding with the Proposed Mergers now? According to the
Mardell Amundson study referred to above, in the Minneapolis/St. Paul market,
the current vacancy rate is between 2% and 3% and apartment properties
similar to the Minneapolis/St. Paul Properties securing the Mortgage Revenue
Bonds have appreciated on average by 15-20% over the past 3-4 years. Of
course, if the Proposed Mergers are effected, you eliminate the risks
associated with continuing to own the BACs, which are tied in part to the
value of the Properties securing the Mortgage Revenue Bonds but you are also
eliminating any upside potential.

ALTERNATIVE 3. RESTRUCTURING THE UNDERLYING MORTGAGE LOANS

Your General Partners have acknowledged in the CRITEF Proxy Statement
that extending the maturity dates of the Mortgage Revenue Bonds would allow
you to continue to receive tax-exempt interest beyond current loan maturity
dates and to participate in increases in the values of the underlying
Properties and thus the value of the BACs. Interestingly, unlike the
liquidation based alternatives, they have not attempted to quantify what this
might mean to you economically. They have simply said that they would need
issuer consents and BAC Holder approval and that the costs of obtaining these
consents would exceed the costs the Funds are bearing in the Proposed
Mergers. They have also suggested that these modifications would require
that the Funds write off all accrued and unpaid interest. Yet, what the
General Partners do not highlight is that you are not getting any accrued or
unpaid interest if the Proposed Mergers are effected. We believe their
suggestion that they aren't proceeding because of the costs associated with
these approvals are greater than the costs being borne by the Funds for the
Proposed Mergers is disingenuous. Most of the direct transaction costs of
the Proposed Mergers are being borne by CAPREIT. (Although you are obviously
paying what CAPREIT estimates to be $12.4 million of these costs through
Available Cash in the Funds that could otherwise be payable to you in
tax-exempt distributions.) And CAPREIT through a refunding of the Bonds is
doing exactly what your General Partners say they have rejected because of
the costs, uncertainties and limitations of this alternative: they are
restructuring the Mortgage Revenue Bonds, obtaining issuer consents

-24-

<PAGE>

and through your approval of the Transaction Proposals, obtaining BAC Holder
approval. We feel that your General Partners have not adequately explained
why this alternative makes sense for CAPREIT but does not make sense for
the Funds.

CAPREIT has indicated that its reasons for effecting these transactions
are because it is "seeking to guarantee its continued management of the
properties, strengthen its competitive position by integrating these
properties with its current leasing portfolio ... and replace existing
indebtedness on certain properties owned by it with lower cost financing."
Interestingly, CAPREIT has omitted from its reasons that it is also winding
up with benefits of tax-exempt financing and any future increases in the
value of the Mortgage Revenue Bonds (although neither CAPREIT nor the
General Partners have told you their views as to the future values of the
Properties underlying the Mortgage Revenue Bonds). Based on our experience
in the real estate business, we do not believe that this is incidental to
CAPREIT's purposes and it suggests that there is considerable value in the
BACs which you will not receive if the Proposed Mergers are consummated.

ALTERNATIVE 4. ACTIVELY MARKET THE FUNDS OR THE PROPERTIES

Regardless of whose analyses as to value are correct, the record
establishes that your General Partners have never attempted actively to
solicit other merger partners or market the Funds or the Properties where all
bidders have a level playing field. Apparently, they have never even
discussed with a broker either marketing the Properties (although they do
reject liquidation alternatives) or conducting a competitive bidding process
for the Funds. In late 1994 and in January 1995, the General Partners
received indications of interest concerning possible acquisitions of the
Funds from Oxford Tax Exempt Fund and Tiger Real Estate Partners, engaged in
preliminary discussions, but did not receive formal offers or have further
discussions with either party. Based on the disclosure in the CRITEF Proxy
Statement, it would also appear that an "informal review of the market was
undertaken by plaintiffs' counsel in an effort to identify higher and better
offers for the interests of the BAC Holders." The termination fees and
expense reimbursement of the Merger Agreements would have applied to any
other bidder in this "informal review" of the market and, based on our
experience, we believe that the structure of the transaction by your General
Partners has had a virtual freezeout effect on competing proposals.

However, it is not too late to level that playing field. Pursuant to
the Merger Agreements, if the BAC Holders do not approve the Proposed
Mergers, the Funds may terminate the Merger Agreements without liability for
termination fees and expenses of CAPREIT, provided that there is no
"Triggering Event", as defined in the Merger Agreements, which results in the
BAC Holders receiving consideration in excess of the proposed Redemption
Prices within 270 days from the date of termination. One alternative would be
to vote against the Proposed Mergers and market the Properties or the Funds
in a

-25-

<PAGE>

commercially reasonable manner after CAPREIT's rights to termination fees and
expense reimbursement expires. While there can be no assurance that this will
necessarily result in a higher price for the BAC Holders, based on our
experience we believe that if a transaction of the nature contemplated by the
Proposed Mergers makes sense the best way to maximize BAC Holder value would be
to level the playing field and solicit other merger partners on a commercially
reasonable basis.

If the playing field is leveled, we believe we would be interested in
pursuing an alternative proposal, given our views as to the values of the
Properties securing the Mortgage Revenue Bonds. We do not presently have the
financing to pursue an alternative proposal if that opportunity were
available. We are not committed to pursuing such a proposal nor can there be
any guarantee that we would be able to finance such a proposal.

We believe you should vote NO on the Transaction Proposals and instruct
your General Partners to pursue alternative transactions which will maximize
BAC Holder value and which do not have the conflicts of interest inherent in
the Transaction Proposals. Your General Partners have stated in the CRITEF
Proxy Statement that they will continue the Funds' operations in the present
form if the Proposed Mergers are not approved. We believe that there are
numerous alternatives your General Partners could pursue to maximize BAC
Holder value and if they continue to refuse to maximize BAC Holder value, we
would suggest you get yourselves new General Partners.

YOU SHOULD NOT RELY ON THE FAIRNESS OPINIONS AS A SUBSTITUTE
FOR YOUR OWN ANALYSIS OF WHETHER THE TRANSACTIONS
ARE IN YOUR INTEREST

Your General Partners and CAPREIT have primarily used the premium
offered over market price and the quantitative and qualitative analyses
prepared by Oppenheimer in connection with their fairness opinions as
justifying their conclusion that the Proposed Mergers are fair. You should
be aware, however, that Oppenheimer in rendering its fairness opinions
relied, without assuming responsibility for independent verification, on the
accuracy and completeness of all financial and operating data, financial
analyses, reports and other information that were publicly available,
compiled or approved by or otherwise furnished or communicated to Oppenheimer
by or on behalf of the General Partners. Moreover, Oppenheimer did not make
an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Funds, nor was Oppenheimer furnished with
any such evaluation or appraisal. Nor did Oppenheimer undertake the types of
analyses that, based on our experience, would commonly be undertaken by a
qualified real estate appraiser, including a comparable sales analysis,
replacement cost analysis or determining an appropriate capitalization rate
for the market places in which the Properties are located.

You should also focus on the limitations on Oppenheimer's engagement.
Specifically:

-26-

<PAGE>

- Oppenheimer was not requested to serve as financial advisor to the
General Partners or the Funds or to assist the General Partners
in the merger negotiations or in the negotiations of the related
transactions involving the General Partners and their affiliates and
CAPREIT.

- Oppenheimer was not requested to and did not make any evaluation
regarding any other expressions of interest to the General Partners by
third parties with regard to any alternative transactions.

- Oppenheimer was not requested to and did not analyze or give any effect
to the impact of any federal, state or local income taxes to the BAC
Holders arising out of the proposed transactions.

- In determining the fairness of the Redemption Price, the General Partners
did not request that Oppenheimer take into account the consideration to
be paid to or other benefits to be received by the General Partners and
their affiliates, including CRI or CRIIMI, in connection with the
transactions contemplated, and it expressed no opinion thereon.

- Oppenheimer was not requested to and does not make any recommendation to
the BAC Holders of any of the Funds regarding the Proposed Mergers.

Given what we perceive are conflicts of interests and inducements for
your General Partners to proceed with these transactions, the fact that
Oppenheimer did not have appraisals, the fact that Oppenheimer was relying,
without independent verification, on information provided by your General
Partners and their agents (including CAPREIT Residential, the buyer's
affiliate), and the fact that there were significant limitations on
Oppenheimer's engagement (although apparently not on the scope of their
investigation or review), we believe that you should take limited comfort
from Oppenheimer's fairness opinions. Moreover, we believe you should be
affirmatively uncomfortable that your General Partners and CAPREIT appear to
be largely relying on these opinions as justifications for their actions --
even though they have consistently negotiated price and terms without the
benefit of the fairness opinions.

One of the problems with relying on fairness opinions is that if you
change the assumptions, you may change the opinion. For example:

- Oppenheimer in rendering its fairness opinions assumes that the
Adjustment Amounts at the closing of the Proposed Mergers would
not exceed the Maximum Adjustment Amounts with respect to each series of
BACs. If there is Available Cash in excess of the Maximum Adjustment
Amounts at the Effective Date, the impact of this excess Available Cash
is not reflected in the Oppenheimer opinions.

-27-
<PAGE>

- If you use a 8.0 to 9.0% capitalization rate, which is the range we
believe appropriate for Properties such as these for the reasons
previously discussed, rather than the capitalization rate used by
Oppenheimer of 9.0 to 10.25%, the Redemption Price is no longer within
the range of net present values that you might receive under either
a "liquidate now" approach or a "liquidate at maturity" approach. We
believe that the capitalization rates used by Oppenheimer are too high
and consequently that their conclusions as to the range of values are
too low.

YOU SHOULD NOT RELY ON PLAINTIFFS' CLASS ACTION LAWSUITS AS
A SUBSTITUTE FOR YOUR OWN ANALYSIS OF WHETHER THE TRANSACTIONS
ARE IN YOUR INTEREST

While the plaintiffs' class action lawsuits resulted in an initial
increase in the Redemption Price being offered to the BAC Holders of $8.5
million and an additional $2 million increase after our attempts to make a
superior proposal, we believe that you should not rely on the plaintiffs'
class action lawsuits or the Delaware Chancery Court's approval of the
settlement of these lawsuits as a substitute for your own analysis of whether
the transactions are in your interest. Moreover, in approving the
settlements, the Delaware Chancery Court expressly relied on the fact that
these transactions require your approval. If you do not believe the
transactions are fair or that your General Partners have acted in a manner
that assures you that you are receiving the best price for your BACs, you
should vote against the Proposed Mergers.

Again, consider what has happened here. Your General Partners initially
entered into a transaction which we believe is rife with conflicts of
interest at a price that would not support a fairness opinion and which by
its terms included substantial impediments to any competing proposals. They
were then promptly sued by two separate parties and negotiated a settlement
which increased the Redemption Price (although almost a fourth of the initial
increase in the Redemption Price went to the plaintiffs' class action lawyers
and not to the BAC Holders). One effect of this settlement is to
practically insulate your General Partners and CAPREIT from future claims by
BAC Holders. Admittedly, the Redemption Price that is now being offered to
you is $10.3 million higher than the Redemption Price initially agreed to by
your General Partners (after netting out attorneys' fees). But that does not
necessarily mean it is a fair price. We do not believe you are receiving
the price that you would have received if your General Partners had sought
competitive bids. We do not believe the General Partners are receiving what
they would have received if they had sought competitive bids. We believe
you should vote NO on the Transaction Proposals.

-28-

<PAGE>
INFORMATION ABOUT DOMINIUM

Dominium is an affiliate of Dominium Management Services, Inc., which is
owned by David L. Brierton and Jack W. Safar ("Dominium Management
Services"). Dominium Management Services is an accredited management
organization, which includes as affiliates a real estate development company
and several general partnerships, limited partnerships, limited liability
companies and limited liability partnerships formed for the purpose of
owning, developing or managing real properties. Dominium was formed in 1996
for the specific purpose of engaging in activities relating to the Funds.
Dominium Management Services and its affiliates provide a wide variety of
real estate related services, including but not limited to, turnkey
development consulting, financial feasibility analysis, construction
consulting, value engineering and project marketing and management.

Dominium is the beneficial owner of 100 Series I BACs of Fund I-II, 100
Series II BACs of Fund I-II and 100 BACs of Fund III, which were purchased on
or about August 26, 1996. Dominium is opposing the Proposed Mergers because
it does not believe the Proposed Mergers are in the best interest of the BAC
Holders. As previously discussed, Dominium previously attempted to acquire
the Funds through a transaction comparable to the Merger Proposals, but at a
superior price. It did not obtain financing, it is not presently pursuing
financing, nor does it have any present plans to make a superior proposal.
Although it is not presently pursuing financing or a superior proposal,
Dominium believes that there may be some opportunity to effect a transaction
with the Funds if there is a "level playing field" or to assist the Funds in
maximizing BAC Holder value if the Proposed Mergers are not approved.

Messrs. Brierton and Safar, the principals of Dominium Management
Services, have been personally involved in the real estate business since
1970. Since its inception, Dominium Management Services and its affiliates
have developed in excess of 6,000 rental housing units around the country.
Since 1993, Dominium Management Services has had approximately $95 million in
project acquisitions. Since 1986, it has developed over $70 million in new
developments. The financing for these properties has come from multiple
sources such as the Department of Housing and Urban Development ("HUD"),
state agencies, tax-exempt bonds, municipalities, the Farmers Home
Administration, and other conventional and unconventional loans. Dominium
Management Services currently manages approximately 14,000 units that have a
gross annual revenue of approximately $100,000,000. It has offices in
Minnesota, Wisconsin, Florida, Georgia and Illinois. During the past several
years Dominium Management Services' efforts have focused on acquiring
under-performing properties.

David L. Brierton, Jack W. Safar, Paul R. Sween and Armand E. Brachman
are the sole partners of Dominium and participants in this proxy
solicitation. None of the participants individually own any BACs.

Mr. Brierton received a Master's of Science Degree from the University
of Wisconsin, Graduate School of Business in 1970, specializing in Real
Estate and Urban Land Economics.

-29-

<PAGE>

He was awarded a graduate study fellowship in Washington D.C. by HUD. Mr.
Brierton received his Bachelor of Business Administration Degree from
Wisconsin State University with majors in Accounting and Finance, and a minor
in Economics. He is the recipient of the Wall Street Journal's annual DOW
JONES award for "Outstanding Student Achievement in the School of Business"
at Wisconsin State University. He is currently a member of the Board of
Directors of the National Leased Housing Association of Washington D.C. and
is a past director of the Minnesota Multi Housing Association.

Mr. Safar received a Master's of Business Administration (MBA) Degree
from the University of Hawaii in 1969, along with a Bachelor's Degree in 1968
with majors in Marketing and Finance. Additionally, Mr. Safar received a MBA
Degree from the University of Wisconsin, Graduate School of Business in 1970,
specializing in Real Estate Appraisal and Investment Analysis. Mr. Safar was
employed from 1970-72 by Arthur Rubloff and Company of Chicago, Illinois, a
fully diversified real estate organization. While employed by Arthur
Rubloff, Mr. Safar functioned as a broker and counselor to various clients.
He specialized in residential consultation primarily in reference to
properties which could utilize the then numerous governmental housing
programs.

As Chief Financial Officer of Dominium Management Services, Mr. Sween is
responsible for acquisition, financing and development. Mr. Sween is also
responsible for tax and financial planning, and commercial banking
relationships. Mr. Sween is a graduate of Pennsylvania State University and
is a Certified Public Accountant. Prior to joining Dominium Management
Services in 1989, he was a principal in a development and property management
firm that syndicated existing apartment projects and completed low income tax
credit and historic rehabilitation projects. He was previously employed by
the international accounting firm of Ernst & Young in their tax department.
Mr. Sween has been active in the multi housing industry since 1981.

Mr. Brachman is Vice President of Operations of Dominium Management
Services. Mr. Brachman joined Dominium Management Services in 1979 after
receiving his Bachelor of Business Administration degree from the University
of Wisconsin with majors in Finance and Real Estate and Urban Land Economics.
He has had extensive experience in working with various federal, state and
local housing programs and in every aspect of the development process.

BACKGROUND TO THE PROPOSED MERGER

The following chronology is based largely on the description provided in
the CRITEF Proxy Statement, specific citations to which are in parentheses.
Dominium has no independent knowledge of many of the assertions made therein
and assumes no responsibility for the accuracy or completeness of any such
information contained therein. The description of our attempts to acquire
the Funds are, of course, based on our own knowledge of the sequence of
events.

-30-

<PAGE>

In late 1994 and in January 1995, the General Partners received
indications of interest concerning possible acquisition of the Funds from
Oxford Tax Exempt Fund and from Tiger Real Estate Partners (p. 32)

According to the CRITEF Proxy Statement (p. 17), CAPREIT first proposed
the idea of acquiring the Funds on January 12, 1995 and the initial dialogue
involved Mr. Kadish on behalf of CAPREIT, and Messrs. Dockser and Willoughby
on behalf of the General Partners representing the Funds. CAPREIT and the
Funds entered into Confidentiality and Non-Circumvention Agreements on March
1, 1995, and immediately thereafter representatives of CAPREIT began studying
documents and data regarding the Funds and considering potential acquisition
structures (p. 17). On March 22, 1995, representatives of CAPREIT, including
Mr. Kadish, and representatives of the General Partners, including Messrs.
Dockser and Willoughby, met to discuss a transaction structure (p.18).

In early April 1995, the parties continued with discussions described
more completely in the CRITEF Proxy Statement (p. 18) but, according to the
CRITEF Proxy Statement, the parties broke off negotiations for three months
while the parties negotiated the redemption of CRI's 22% residual limited
partnership interest in AP CAPREIT (p.19). On June 30, 1995, the parties
reached agreement on the redemption of CRI's interest in AP CAPREIT and
CAPREIT delivered initial drafts of the Merger Agreements (p. 19). The
parties continued discussions in July and August, with CAPREIT delivering a
financing term sheet in late July prepared by a financial institution which
several months later declined to proceed with the financing (p. 19).

According to the CRITEF Proxy Statement, CAPREIT offered the General
Partners an aggregate of $145 million for all the BACs on August 22, 1995 (p
20). After additional negotiations, CAPREIT raised the price to $150 million
and the General Partners accepted (subject to the receipt of favorable
fairness opinions and approval by the BAC Holders) (p. 20). The parties
entered into the Merger Agreements on September 11, 1995 and made a public
announcement of the Proposed Mergers (p. 20). On that same date, the General
Partners engaged Oppenheimer & Co., Inc. to render fairness opinions in
connection with the Proposed Mergers (p. 20).

The CRITEF Proxy Statement admits that in late October, Oppenheimer
informed the General Partners that, based on a preliminary analysis, they
believed that $150 million would not be likely to support a fairness opinion
(p. 20).

Throughout the second half of 1995, CAPREIT negotiated with the
financial institution which had provided the term sheet delivered to the
General Partners, but reached an impasse in December 1995, (p. 21). On
September 22, 1995 and October 5, 1995, two putative class action lawsuits
(collectively, the "BAC Holder Litigation") were brought in Delaware state
court on behalf of the BAC Holders against Messrs. Dockser and Willoughby,
CRI, the General Partners, the assignor limited partner of each Fund and
CAPREIT, alleging, among other things, that the price offered to BAC Holders
was too low and that the

-31-

<PAGE>

defendants breached their fiduciary duty to the BAC Holders, or aided and
abetted such a breach, and engaged in self-dealing and misled BAC Holders in
connection with the Proposed Mergers (p. 20).

During January of 1996, representatives of the General Partners and
CAPREIT and their counsel tentatively agreed with counsel for the plaintiffs
to settle the BAC Holder Litigation (p. 20). The proposed settlement terms
included (a) an increase in the aggregate consideration for the Proposed
Mergers from $150 million to $158.5 million (less plaintiffs' counsel fees),
subject to an upward adjustment in the event that Available Cash at closing
exceeded $12.4 million and a downward adjustment in the event that Available
Cash was less than $12.4 million, with an aggregate adjustment amount in
either case set at $1.5 million; (b) Accrued Fees payable to CRI would be
reduced from $4.023 million to no more than $1.95 million (with no reduction
in Accrued Fees payable to CRIIMI); and (c) plaintiff's counsel could apply
to the court for payment of their fees in an amount not to exceed 20% of the
improvements negotiated by them over the initial Proposed Merger terms (p.
21). The aggregate consideration for the Proposed Mergers was increased for
the first time.

On January 31, 1996, the parties executed amendments to the Merger
Agreements to reflect these new terms (p. 21). Also at that time, the
plaintiffs and defendants in the BAC Holder Litigation executed a Memorandum
of Understanding regarding the proposed settlement (p. 21). The CRITEF Proxy
Statement says that shortly thereafter, the General Partners instructed
Oppenheimer to review the fairness of the Proposed Mergers based on the new
terms (p. 21).

According to the CRITEF Proxy Statement, in early March of 1996, CAPREIT
and the General Partners determined that because of a re-evaluation of
certain deferred maintenance costs and contingent liabilities with respect to
certain of the Properties, the aggregate consideration for the Proposed
Mergers needed to be increased by approximately $260,000 (p. 21). On March
14, 1996, the General Partners and CAPREIT executed the First Amended and
Restated Merger Agreements to incorporate and restate the January 31, 1996
amendments, to provide for the $260,000 increase and to provide for another
increase of approximately $35,000 as a result of a new methodology in
rounding the Redemption Prices (p. 21). The aggregate consideration for the
Proposed Mergers was increased for the second time.

During the next few months several events occurred according to the
CRITEF Proxy Statement (p. 21-23). On March 14, 1996, Oppenheimer delivered
its initial fairness opinions to the Funds opining that the transactions
contemplated by the Merger Agreements as revised were now fair to the BAC
Holders in Oppenheimer's view. CAPREIT, having pursued alternative financing
sources, received a commitment letter from CentRe Mortgage Capital, L.L.C. on
March 29, 1996, six months after entering into the Merger Agreement. On
April 26, 1996, CAPREIT forwarded a copy of this letter to the Funds. The
parties to the BAC Holder Litigation executed a Stipulation of Settlement
dated May 16, 1996 and a court hearing regarding this stipulation was set for
June 19, 1996. Also, the Merger Agreements

-32-

<PAGE>

were amended two more times to reflect modifications to the adjustments for
Available Cash and other miscellaneous changes.

During February 1996, a group of investors led by David Brierton and
Jack Safar, of Dominium Management Services and Terry McNellis and Gary
Petrucci, of Piper Jaffray Inc., approached the General Partners concerning
the possible acquisition of the Funds. These investors eventually formed
Dominium Tax Exempt Fund L.L.P., the sponsor of this Proxy Statement. Prior
to providing information regarding the Funds, the General Partners advised
the Dominium representatives that they would be required to sign
Confidentiality and Non-Circumvention Agreements substantially in the form
signed by CAPREIT. On March 20, 1996, following receipt of signed
confidentiality agreements from certain of the Dominium representatives, the
Funds provided Dominium with due diligence materials. The Funds received
executed confidentiality agreements from all four of the Dominium
representatives by April 15, 1996.

In April, May and June of 1996, Dominium reviewed the information which
had been provided by your General Partners and was in discussions with GMAC
Commercial Mortgage Corporation ("GMAC") and Piper Jaffray Inc. ("Piper")
concerning the possibility of providing financing for its acquisition of the
Funds. In mid June 1996, Mr. McNellis advised his partners that he had
received a proposal from GMAC to provide financing, through Commercial
Capital Initiatives, Inc. ("CCII"), for a possible acquisition of the Funds.
After further negotiations with CCII and Piper, on June 28, 1996, Dominium
received letters from CCII and Piper confirming their interest in providing
such financing, subject to certain conditions. As a result of these letters,
Dominium believed that it was likely that it would be able to obtain at least
$184 million in financing (including the $12.4 million of Available Cash in
the Funds) and Dominium sent a letter to counsel for the Funds and counsel to
the plaintiffs in the BAC Holder Litigation on June 28, 1996 indicating an
interest in entering into merger agreements with the Funds having similar
terms as the Merger Agreements and offering the BAC Holders an aggregate
merger consideration of approximately $168,230,000. This consideration was
subject to increases if Available Cash exceeded $12.4 million (without any
cap on the maximum adjustments) or if it was ultimately determined that
CAPREIT was not entitled to all or part of the termination fees or expense
reimbursement provided in the Merger Agreements. The $168 million figure was
based on information then available to Dominium, including its estimate of
likely expenses associated with the transaction (which included payment of
$8.5 million in expenses and termination fees to CAPREIT). At the time of
its June 28 letter, Dominium was not aware that your General Partners had
agreed to reimburse CAPREIT for an additional $1 million of expenses.

-33-

<PAGE>

potential lenders' satisfactory completion of their due diligence during
the 21 business days from July 15, 1996 and the payment by Dominium of an
expense deposit of $75,000, a processing fee of $100,000 on July 23, 1996,
and certain commitment fees of which $500,000 were due at the end of the 21
business day due diligence period unless CCII declined to provide the
financing at any time during the due diligence period. Under Dominium's
proposal, the net amount payable to BAC Holders would be at least
$165,305,000, after taking into account additional fees and expenses which
were not included in its initial proposal (including $1 million of additional
expense reimbursement to CAPREIT).

By letter dated July 18, 1996, the General Partners requested that
Dominium supply them with evidence that it had the financial capability to
cover the costs of the transaction it proposed and to provide the equity that
its potential lenders would require. The July 18 letters also requested that
Dominium's counsel submit their suggested revisions to the existing Merger
Agreements with CAPREIT to reflect the terms desired by Dominium. Comments
were sent to the General Partners for Saturday delivery on July 26, 1996. On
July 22, 1996, Dominium advised plaintiffs' counsel that it had paid the
$75,000 fee required by the CCII commitment letter and responded to certain
questions of plaintiffs' counsel in the BAC Holder Litigation including
clarification that any net savings resulting from a reduction of the break-up
fees and reimbursable expenses would be paid to the BAC Holders.

On Monday, July 29, 1996, representatives of Dominium advised
plaintiff's counsel in the BAC Holder Litigation that, based on discussions
with CCII and Piper, they believed that Dominium would have firm committed
financing by August 5, 1996. On Thursday, August 1, 1996, CCII indicated
that while it was satisfied with the real property due diligence it would
need additional time to complete its legal due diligence notwithstanding the
21 business day review period contemplated by its July 12 letter.

On August 2, 1996, representatives of CAPREIT and representatives of
Dominium met in New York City to discuss Dominium's proposal. Subsequent
telephone discussions also occurred. At the meeting on August 2, 1996,
Dominium concluded that CAPREIT had no intention of permitting Dominium to
effect a superior transaction with the Funds and that it would block this at
any cost. In view of this, as well as recent developments with respect to
its financing which made it impossible for Dominium to deliver firm
commitments on August 5, 1996, over the next week Dominium considered its
alternatives. As a result of this review, Dominium determined that it would
not attempt to delay further settlement of the BAC Holder Litigation. On
Monday, August 12, 1996, Dominium sent a letter to CRI advising that, in its
view, the existing CAPREIT proposals substantially undervalued the
Properties. Dominium also stated in this letter that it had not received
firm financing and that it believed there were significant structural
impediments to proceeding further with an alternative to the Proposed Mergers
because of the General Partners' conflicts of interest.

According to the CRITEF Proxy Statements, on August 13, 1996,
plaintiffs' counsel and CAPREIT agreed to an aggregate increase of $2 million
in the consideration payable to

-34-

<PAGE>

BAC Holders (a portion of which is payable directly to plaintiffs' counsel in
the BAC Holder Litigation) in exchange for the agreement of plaintiffs'
counsel to go forward with the settlement hearing (p. 25). This was the
third increase in the Redemption Price. In addition, according to the CRITEF
Proxy Statement, based on the Properties' performance since May 18, 1996 the
General Partners negotiated for and CAPREIT agreed to a fourth increase in
the aggregate consideration of an additional $1.5 million, approximately, in
consideration of the extension of the termination date for the Proposed
Mergers until December 31, 1996 and an increase in the maximum amount of
possible reimbursement to the Merger Partnerships for expenses in the event
of termination (p. 26). Your General Partners have not disclosed what the
effect of this extension will be on the Available Cash.

Notwithstanding these most recent increases in the Redemption Price, as
discussed previously, we continue to believe that the Redemption Price is
inadequate and that there are other alternatives to the Proposed Mergers
which should be considered by your General Partners.

ADDITIONAL INFORMATION CONCERNING THE TRANSACTION PROPOSALS

Reference is hereby made to the CRITEF Proxy Statement which you should
have received recently. The CRITEF Proxy Statement contains additional
information concerning the BACs, the beneficial ownership of BACs by the
principal holders thereof, the Funds' management, the absence of rights of
appraisal or similar rights of dissenting BAC Holders, recent trading prices
for the BACs, conditions to consummation of the Proposed Mergers, termination
provisions for the Proposed Mergers, and certain other matters regarding the
BACs, the Transaction Proposals and the Meetings. Much of the factual
information contained in this Proxy Statement has been obtained from the
disclosures set forth in the CRITEF Proxy Statement.

BAC Holders are urged to read carefully the CRITEF Proxy Statement.

Dominium assumes no responsibility for the accuracy or completeness of
any information included in the CRITEF Proxy Statement or which has been
included herein based on the CRITEF Proxy Statement.

LITIGATION

-35-

<PAGE>

with the Proposed Mergers, (b) falsely understating or omitting the true
value of the BACs and their underlying properties, thus understating the fair
value the BAC Holders should receive for their interests, (c) misrepresenting
that they relied on the fairness opinions, since the fairness opinions were
obtained after-the-fact and disregarded important aspects of the Proposed
Mergers, (d) failing to disclose the obstacles which prevent competing bids
to the Proposed Mergers, and (e) falsely stating that the Proposed Mergers
are fair to and in the best interests of the BAC Holders. In connection with
its complaint, Dominium has brought a motion for expedited discovery and is
seeking corrective disclosure and rescheduling of the meeting, if necessary.
CRI has in response brought a motion to disqualify Dominium's special
counsel, Faegre & Benson LLP, for alleged conflicts of interest and use of
confidential information and brought an action in Delaware Chancery Court to
enjoin Dominium from violating the final order in the BAC Holder Litigation.

On October 3, 1996, the Funds, the General Partners and CRI filed a
complaint in the United States District Court, Southern District of New York,
against Dominium, and Messrs. Safar, Brierton, Sween and Brachman alleging
that Dominium's letter dated September 27, 1996 and its press release dated
October 1, 1996 violated federal securities laws and that the defendants
tortiously interfered with economic advantage. Motions in these cases are
pending.

VOTE REQUIRED AND VOTING PROCEDURES

Pursuant to the Delaware Revised Uniform Limited Partnership Act (the
"Partnership Act") and the Agreement of Limited Partnership for Fund I-II,
approval of the Transaction Proposals relating to Fund I-II requires the
affirmative vote of a majority in interest of holders of the outstanding Fund
I-II, Series I and II BACs voting as a single class. Pursuant to the
Partnership Act and the Agreement of Limited Partnership for Fund III,
approval of the Transaction Proposals relating to Fund III requires the
affirmative vote of a majority in interest of holders of the outstanding Fund
III, Series III BACs.

The approval and adoption, by the BAC Holders of each Fund, of each
Transaction Proposal to be voted upon by them is conditioned upon the
approval and adoption by such BAC Holders of the other Transaction Proposal
to be voted upon by them. If BAC Holders of one Fund approve each of the
Transaction Proposals to be voted upon by them, but the BAC Holders of the
other Fund do not approve each of the Transaction Proposals to be voted upon
by them, then CAPREIT and its affiliates may elect, in their sole discretion,
whether to consummate the Proposed Merger and related transaction with the
Fund whose BAC Holders have approved the Transaction Proposals and not with
the other Fund.

Each BAC Holder is entitled to one vote for each BAC held of record by
such BAC Holder at the close of business on September 19, 1996 (the "Record
Date"), with respect to each of the proposals described in this Proxy
Statement to be voted upon by such BAC Holder.

-36-

<PAGE>

Enclosed with this Proxy Statement is a blue Proxy Card. Each BAC
Holder, whether voting in person or by proxy, may either vote "for,"
"against" or "abstain" as to each of the proposals set forth therein. The
failure to return a signed Proxy Card or returning one with an "abstain" vote
has the effect of, and is equivalent to, a vote against each proposal. In
addition, broker non-votes (i.e., BACs not voted on a specific proposal by
record holders due to the absence of specific voting instructions from the
beneficial owner of the BACs) have the effect of, and are equivalent to,
votes against the proposals.

The Funds have three Series of BACs outstanding. Fund I-II issued BACs
in Series I and Series II. Fund III issued one series of BACs, Series III.
If a BAC Holder has BACs in more than one Fund, separate Proxy Cards should
be completed for each Fund.

You may revoke any proxy you submit (whether a proxy solicited by the
General Partners or the blue Proxy Card which we are soliciting) at any time
prior to its exercise by (i) attending the appropriate Meeting and voting
your BACs in person, (ii) submitting a duly executed later dated proxy, or
(iii) submitting a written notice of revocation. Unless revoked in the
manner set forth above, duly executed proxies in the form enclosed will be
voted in accordance with your instructions as indicated on the blue Proxy
Card. In the absence of such instructions, such proxies will be voted
AGAINST the Transaction Proposals.

Except as provided above, we are not aware of any other matters to be
considered at the Meetings. However, if any other matters are properly
brought before either of the Meetings, such Proxies will be voted on such
matters as Dominium, in its sole discretion, may determine, including,
without limitation, with respect to any adjournments or postponements of the
appropriate Meeting from time to time.

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETINGS AND NO MATTER HOW FEW
BACS YOU MAY OWN, WE URGE YOU TO SUPPORT US IN OUR ATTEMPT TO DEFEAT THE
PROPOSED MERGERS. PLEASE SIGN, DATE AND MAIL THE FULLY COMPLETED BLUE PROXY
CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PLEASE VOTE AGAINST EACH
PROPOSAL.

You may do this even if you have already sent in a different proxy
solicited by the General Partners. It is the latest dated proxy that counts.
Execution and delivery of a proxy by a record holder of BACs of either of
the Funds will be presumed to be a proxy with respect to all BACs of that
Fund held by such record holder unless the proxy specifies otherwise.

SOLICITATION EXPENSES

The expense of preparing, printing and mailing these proxy materials and
the costs of the solicitation will be paid by Dominium. Proxies are being
solicited principally by mail, but proxies may also be solicited personally,
by telephone, telegraph and similar means by Dominium and its affiliates. In
addition, Dominium has retained Georgeson & Company Inc. to assist in the
solicitation of the proxies for an estimated fee of $25,000 plus
out-of-pocket

-37-

<PAGE>

expenses. Dominium will also reimburse brokerage firms and others for their
expenses in forwarding proxy solicitation material to the beneficial owners
of the BACs.

-38-

<PAGE>

Appendix A

[LETTERHEAD]

April 10, 1996

Mr. Paul Sween
Dominium, Inc.
3140 Harbor Lane
Suite 102
Minneapolis, MN 55447-5120

RE: CAPITALIZATION RATE AND FINANCING ANALYSIS FOR CRITEF APARTMENT PROPERTY
IN MINNEAPOLIS/ST. PAUL, WEST DES MOINES, KANSAS CITY, KEY WEST, SAN
FRANCISO, AND SEATTLE/TACOMA
OUR FILE NO.: 960109

Dear Mr. Sween:

At your request, we have analyzed income and expense summaries, real estate
tax summaries, and property information concerning apartment properties
located in the above-referenced cities. As part of your analysis, you have
asked us to provide you with research and professional opinion concerning
appropriate capitalization rates for these types of properties, both on a
free and clear basis assuming an all cash sale or financing with
taxable market rate debt, and also capitalization rates assuming availability
of tax exempt financing.

We are familiar with the projects in the Twin Cities area and have selected
appropriate capitalization rates for those properties. In addition, we have
contacted appraisers and brokers familiar with each of the other markets to
ascertain the free and clear capitalization rates for each of those projects
in their respective locales. Attached to this letter is a table indicating
the name of each project, the "market rate" capitalization rate, and the "tax
exempt rate" capitalization rate. Depending on the specific interest rates
available at a given time, we believe that the differential in capitalization
rates between taxable and or all cash transactions and transactions based on
the availability of tax exempt rates ranges from 35 basis points to as high as
140 basis points. We believe that a market supported, conservative
differential to utilize for adjusting market rate capitalization rates to tax
exempt capitalization rates is 50 basis points. Therefore, the attached table
indicates that overall rates for each project would be estimated at 50 basis
points lower than the rate indicated by our office and the experts in each
respective market.

It had been a pleasure working with you on this assignment. If you have any
questions concerning this analysis, please feel free to call at your
convenience.

Sincerely,

MARDELL AMUNDSON JOHNSON & LEIRNESS, INC.

/s/ Michael F. Amundson

Michael F. Amundson, MAI
Principal

/pjp

<PAGE>

FREE & CLEAR TAX-EXEMPT
PROJECT O.A.R. O.A.R.
- ------- ------------ ----------

Royal Oaks 8.60% 8.10%

Trailway Pond I 8.75% 8.25%

Trailway Pond II 8.75% 8.25%

Valley Creek I 8.75% 8.25%

Valley Creek II 8.75% 8.25%

White Bear Woods 8.75% 8.25%

Fountain Place 8.50% 8.00%

Woodlane Place 8.75% 8.25%

Geary Courtyard 8.00% 7.50%

Ocean Walk 9.00% 8.50%

Regency Woods 8.00% 7.50%

Ethans I 8.50% 8.00%

Ethans II 8.50% 8.00%

James Street Crossing 9.00% 8.50%

<PAGE>

Appendix B

[LETTERHEAD]

Valuation & Consultation

September 20, 1996

Mr. Paul Marzynski
Dominium Group
2915 Niagara Lane
Minneapolis, MN 55447

RE: STATE OF THE TWIN CITIES APARTMENT MARKET AND APARTMENT VALUES

Dear Mr. Marzynski:

At your request, we have researched the recent history of the Twin Cities
apartment market, for the purpose of analyzing the trends over the past three
to four years in various apartment sectors in the Twin Cities, including
Class A apartments. Generally, the apartment market has improved steadily
since 1989, and has shown dramatic increase in rents since 1992.
Capitalization rates have also shown a downward trend during that time due to
a general improvement in the real estate market overall during that time
frame and an improvement in the fundamentals of the apartment market in the
Twin Cities area.

As indicated in the graph below, apartment vacancy in the Twin Cities peaked
in 1989 following a surge in building between 1985 and 1988. At that time,
apartment vacancy in the Twin Cities was just over 7%, and rent levels had
been flat to slowly increasing. The growth of the Twin Cities area, coupled
with a slowdown in new construction, lead to declining vacancy rates
beginning in 1990. In 1992, overall vacancy was approximately 4.5%. Suburban
vacancy was much lower, since most of the chronic vacancy is in the central
cities of Minneapolis and St. Paul.

APT. VACANCY TRENDS IN TWIN CITIES
13-YEAR HISTORY OF VACANCY FOR 1 AND 2 BR UNITS

[GRAPH]

Graph illustrating vacancy rates for one bedroom and two bedroom
apartments in the Twin Cities from 1984 through 1996.

The graph shows that vacancies for one and two bedroom apartments were
below 2.0% in 1984 and 1985, rose sharply in 1986 to just below 6.0%, with
more gradual increases in 1987, 1988 and 1989 to just over 7.0%, declining in
1990 to approximately 6.0% and more gradual decreases thereafter to vacancy
rates in the 2-3% range in 1996.

Source: The Apartment Guide.

<PAGE>

Mr. Paul Marzynski
September 20, 1996
Page Two

The low levels of vacancy gave owners the confidence to substantially raise
rental rates beginning in 1992. As shown on the graph below, rental rates
have steadily increased since 1992, with a surge in 1995. At the same time,
vacancy has continued to decline, which supports further rental increases in
the future. The combination of low vacancy and steadily increasing rents has
lead to improvement in apartment building values, especially in the Class A
sector. Class A apartments are generally characterized as post-1985
construction apartments with underground or attached parking and a full
amenities package at the project.

Given the recent trends in the apartment market, we expect additional rental
increases to be implemented until vacancy again reaches 4% to 5%. Given the
very modest amount of proposed construction, however, we expect vacancy rates
to remain modest even as rents increase.

APARTMENT RENT TRENDS IN TWIN CITIES
13-Year History of Average Rents by Unit Type

[GRAPH]

Graph illustrating 13-year history of average rents from 1984 through
1996 for studios, one bedroom, two bedroom and three bedroom apartments in
the Twin Cities. The graph for studios shows an average rent of approximately
$300 in 1984 increasing gradually to just under $400 in 1996. The graph for
one bedroom apartments shows an average rent of below $400 in 1984 increasing
gradually to approximately $500 in 1996. The graph for two bedroom apartments
shows an average rent in the low $400's in 1984, increasing at a steady but
somewhat sharper rate to approximately $600 in 1996. The graph for three
bedroom apartments shows an average rent of approximately $550 in 1984,
increasing gradually throught 1989 to just above $600, a spike in rents in
1990 to approximately $700 and steady increases from 1990 to 1996, with
average rents in the low $800's in 1996.

Source: Apartment Guide.

Finally, we have also analyzed the local apartment investment market for the
purpose of observing changes in capitalization rates paid for apartment
properties, and the corresponding values. Capitalization rates have generally
been declining in the Twin Cities for all apartment types, including Class A
apartments. Capitalization rates for apartments in the early 1990's were over
9%, even for Class A properties, due to the lack of available capital for
real estate investment and a general reluctance on the part of investors to
invest in any type of real estate during the national recession. The
emergence of new sources of capital such as REITs and the availability of
debt capital for apartment investment has restored liquidity to the
marketplace, which has resulted in declining capitalization rates in the
mid-1990's. Recent Class A transactions indicate capitalization rates of
between 8% and 9% in the Twin Cities area, on a "free and clear" basis. The
availability of tax-exempt bond financing would tend to decrease
capitalization rates further, by at least 50 basis points.

<PAGE>

Mr. Paul Marzynski
September 20, 1996
Page Three

The combination of declining vacancy, increasing rents and declining
capitalization rates has resulted in value increases of 15% - 20% for Class A
apartment properties over the past 3-4 years. Apartment complexes that would
have sold in the low- to mid-$40,000 per unit range in 1992-93, would now
command $50,000 per unit, or more.

In general, the Twin Cities apartment market is very healthy, with steadily
increasing rents and very low vacancies, especially in the suburban sector.
The difficulty of developing competitive new projects, coupled with the lack
of available land, indicates that apartment conditions will continue to
improve and apartment values will steadily increase.

If you have any questions concerning this analysis, please feel free to
contact me.

Sincerely,

MARDELL AMUNDSON JOHNSON & LEIRNESS, INC.

/s/ Michael F. Amundson

Michael F. Amundson, MAI
Principal

/pjp

<PAGE>

Appendix C

[LETTERHEAD]

September 26, 1996

Mr. Paul Marzinski
Dominium Group
2915 Niagara Lane
Minneapolis, MN 55447

RE: PRELIMINARY DESK REVIEW OF OPPENHEIMER FAIRNESS OPINION
ON THE CRITEF FUNDS

Dear Mr. Marzinski:

At your request we have reviewed the Oppenheimer Fairness Opinion for the
purpose of commenting on the strengths and weaknesses of the analysis. The
Fairness Opinion purports to derive values for apartments in the three CRITEF
Funds, including seven properties in the Twin Cities Metropolitan Area.

The standard format of the Fairness Opinion is to document trailing four-year
income and expense history and a year-to-date summary of operations through
June 30, 1996. Income and expenses are then projected for a five year period
for the purpose of performing discounted cash flow analysis. The authors of
the Fairness Opinion derived value by capitalizing both 1995 cash flow and
adjusted 1996 cash flow at overall capitalization rates ranging from 9.25% to
10.25%. In addition, values are derived via a discounted cash flow
methodology using a matrix combining terminal capitalization rates of 10.25%
to 11.25% and discount rates of 11% to 12%.

The primary flaw with this analysis is that the values reported can not be
reported as market values and in fact do not bear any resemblance to current
market values for the properties. Our research has revealed capitalization
rates for properties in the Twin Cities area of 8.4% to 9.1%, with most of
the Twin Cities properties warranting an 8.75% direct capitalization rate on
a "free and clear" basis, without tax-exempt bond financing. Terminal
capitalization rates would be expected to be just 25 basis points higher than
going-in rates. However, we concur with the discount rates utilized in the
matrix, and believe that 11.5% is an appropriate rate for most Twin Cities
properties.

<PAGE>

Mr. Paul Marzinski
September 26, 1996
Page 2

In addition, the value of the properties can be readily derived from
comparable sales analysis in the Twin Cities market. Recent comparable sales
indicate a range of value on a per unit basis of between $48,000 and $61,000
per dwelling unit, with most activity for average Class A apartment
properties at approximately $50,000 per dwelling unit. A brief review of the
per unit value conclusions in the Fairness Opinion reveals significant
shortfalls in comparison to current market activity in the Twin Cities area.
Therefore, the values reported in the Fairness Opinion bear no resemblance to
actual current market values for the properties in the Twin Cities area.

In conclusion, we believe that the Fairness Opinion, while a very
comprehensive and detailed analysis, does not represent Market Value
Analysis, and derives value conclusions on most properties that are
significantly below the actual current market values for the properties.

Please feel free to call if you have any questions concerning this analysis.

MARDELL AMUNDSON JOHNSON & LEIRNESS, INC.

Sincerely,

/s/ Michael F. Amundson

Michael F. Amundson, MAI

/esw-b

<PAGE>

CAPITAL REALTY INVESTORS TAX EXEMPT FUND
LIMITED PARTNERSHIP, SERIES I
PROXY

THIS PROXY IS SOLICITED ON BEHALF OF DOMINIUM TAX EXEMPT FUND L.L.P.

The undersigned hereby appoints Jack W. Safar and David L. Brierton,
each with the power to act alone and with full power of substitution and
revocation, to represent and vote, as specified on the other side of this
Proxy, all Beneficial Assignee Certificates ("BACs") of Capital Realty
Investors Tax Exempt Fund Limited Partnership, Series I, which the
undersigned is entitled to vote at the Meeting of BAC Holders to be held at
9:00 A.M., local time, on October 29, 1996, at the Doubletree Hotel, 1750
Rockville Pike, Rockville, Maryland 20852 and all adjournments and
postponements thereof. The undersigned revokes any previous proxies with
respect to the matters covered by this Proxy.

THE BACS REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON THE
OTHER SIDE. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED AGAINST
PROPOSALS 1, 2 AND 3. THE PROXIES ARE AUTHORIZED, IN THEIR DISCRETION, TO
VOTE SUCH BACS UPON ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING.

THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE PROXY STATEMENT OF
DOMINIUM TAX EXEMPT FUND L.L.P.

(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE.)

SERIES I

<PAGE>

DOMINIUM RECOMMENDS A VOTE AGAINST PROPOSALS 1, 2 & 3
The approval of Proposal 1 is conditioned upon the approval of Proposal 2
and the approval of Proposal 2 is conditioned upon the approval of Proposal 1.

PLEASE MARK
/X/ YOUR VOTE AS
THIS

AGAINST ABSTAIN FOR
Proposal 1. Approval of the Merger Proposal. Approve
and adopt the Fourth Amended and Restated Agreement
and Plan of Merger, dated as of August 21, 1996 (the
"Merger Agreement"), among Capital Realty Investors / / / / / /
Tax Exempt Fund Limited Partnership, CRITEF
Associates Limited Partnership, Watermark Partners,
L.P. and others, and any amendments to the Agreement
of Limited Partnership of the Fund necessary to
expressly authorize the foregoing.

Proposal 2. Approval of the New Partner Proposal.
Approve (a) the sale by the current general partner
of Fund I-II of the general partner interest in Fund
I-II to a newly-formed, wholly-owned subsidiary of
Capital Apartment Properties, Inc. ("CAPREIT"), and / / / / / /
(b) the issuance as a limited partner interest in
Fund I-II to CAPREIT or its designee in exchange for
a contribution to the Fund of real property or other
assets, and in each case, any amendments to the
Agreement of Limited Partnership of the Fund
necessary to expressly authorize the foregoing.

Proposal 3. Approval of the Adjournment of the
Meeting to solicit additional votes. Approve the / / / / / /
adjournment of the Meeting to solicit additional
votes.
DOMINIUM RECOMMENDS THAT YOU SIGN, DATE AND MAIL THIS PROXY TODAY.

PLEASE SIGN HERE (EXACTLY AS NAME(S)
APPEAR(S) AT LEFT)

Date:
---------------------------------------

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

---------------------------------------
/ / Change of address? Check this box
and insert new address below.

Note: Please sign as name appears herein. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardians, please
give full title as such. If a corporation, please sign in full corporate name
by authorized officer. If a partnership, please sign in partnership name by
authorized person. If the BAC Holders in a Fund approve both the Proposed
Merger and the New Partner Proposal to be voted upon by them, but the BAC
Holders in the other Fund do not approve the similar proposals to be voted
upon by them, CAPREIT, in its sole discretion, may elect to consummate the
Merger with the Fund whose BAC Holders have approved the proposals.

SERIES I

<PAGE>

CAPITAL REALTY INVESTORS TAX EXEMPT FUND
LIMITED PARTNERSHIP, SERIES II
PROXY

THIS PROXY IS SOLICITED ON BEHALF OF DOMINIUM TAX EXEMPT FUND L.L.P.

The undersigned hereby appoints Jack W. Safar and David L. Brierton,
each with the power to act alone and with full power of substitution and
revocation, to represent and vote, as specified on the other side of this
Proxy, all Beneficial Assignee Certificates ("BACs") of Capital Realty
Investors Tax Exempt Fund Limited Partnership, Series II, which the
undersigned is entitled to vote at the Meeting of BAC Holders to be held at
9:00 A.M., local time, on October 29, 1996, at the Doubletree Hotel, 1750
Rockville Pike, Rockville, Maryland 20852 and all adjournments and
postponements thereof. The undersigned revokes any previous proxies with
respect to the matters covered by this Proxy.

THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE PROXY STATEMENT OF
DOMINIUM TAX EXEMPT FUND L.L.P.

(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE.)

SERIES II

<PAGE>

PLEASE MARK
/X/ YOUR VOTE AS
THIS

PLEASE SIGN HERE (EXACTLY AS NAME(S)
APPEAR(S) AT LEFT)

Date:
---------------------------------------

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

---------------------------------------
/ / Change of address? Check this box
and insert new address below.

SERIES II

<PAGE>

CAPITAL REALTY INVESTORS TAX EXEMPT FUND III
LIMITED PARTNERSHIP
PROXY

THIS PROXY IS SOLICITED ON BEHALF OF DOMINIUM TAX EXEMPT FUND L.L.P.

The undersigned hereby appoints Jack W. Safar and David L. Brierton,
each with the power to act alone and with full power of substitution and
revocation, to represent and vote, as specified on the other side of this
Proxy, all Beneficial Assignee Certificates ("BACs") of Capital Realty
Investors Tax Exempt Fund III Limited Partnership, which the undersigned is
entitled to vote at the Meeting of BAC Holders to be held at 10:00 A.M., local
time, on October 29, 1996, at the Doubletree Hotel, 1750 Rockville Pike,
Rockville, Maryland 20852 and all adjournments and postponements thereof. The
undersigned revokes any previous proxies with respect to the matters covered
by this Proxy.

THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE PROXY STATEMENT OF
DOMINIUM TAX EXEMPT FUND L.L.P.

(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE.)

SERIES III

<PAGE>

PLEASE MARK
/X/ YOUR VOTE AS
THIS

AGAINST ABSTAIN FOR
Proposal 1. Approval of the Merger Proposal. Approve
and adopt the Fourth Amended and Restated Agreement
and Plan of Merger, dated as of August 21, 1996 (the
"Merger Agreement"), among Capital Realty Investors / / / / / /
Tax Exempt Fund III Limited Partnership, CRITEF
Associates III Limited Partnership, Watermark III
Partners, L.P. and others, and any amendments to the
Agreement of Limited Partnership of the Fund
necessary to expressly authorize the foregoing.

Proposal 2. Approval of the New Partner Proposal.
Approve (a) the sale by the current general partner
of Fund III of the general partner interest in Fund
III to a newly-formed, wholly-owned subsidiary of
Capital Apartment Properties, Inc. ("CAPREIT"), and / / / / / /
(b) the issuance as a limited partner interest in
Fund III to CAPREIT or its designee in exchange for
a contribution to the Fund of real property or other
assets, and in each case, any amendments to the
Agreement of Limited Partnership of the Fund
necessary to expressly authorize the foregoing.

PLEASE SIGN HERE (EXACTLY AS NAME(S)
APPEAR(S) AT LEFT)

Date:
--------------------------------------

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

--------------------------------------
/ / Change of address? Check this box
and insert new address below.

SERIES III

<PAGE>

[LETTERHEAD]

October 13, 1996

J. Evan Calio, Esq. BY TELECOPY
Securities and Exchange Commission 202-942-9531
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Response to Comment Letter Received on October 11, 1996 with
respect to the Draft Schedule 14A by Dominium Tax Exempt Fund,
L.L.P. (the "Partnership" or "Dominium") regarding Capital Realty
Investors Tax Exempt Fund Limited Partnership I-II ("CRITEF") and
Capital Realty Investors Tax Exempt Fund Limited Partnership III
("CRITEF III") (collectively referred to as the "Funds") received
October 11, 1996; SEC File Nos. 1-12034 & 1-9793, respectively
(F&B No. 200518)
-----------------------------------------------------------------

Dear Mr. Calio:

We appreciate the staff's prompt response to our draft Schedule 14A
submitted October 11, 1996. Enclosed is a draft, dated October 13, 1996, of a
revised Preliminary Proxy Statement for Dominium Tax Exempt Fund L.L.P., for
your convenience marked to show changes from the draft Preliminary Proxy
Statement submitted on October 11, 1996. We are attempting to respond to your
comments as expeditiously as possible, and this draft remains subject to some
final editing, but we believe it will remain in substantially this form as to
material issues.

The following are our responses to the comments contained in Amy Meltzer
Starr's letter to me dated October 11, 1996:

GENERAL

1. Please file a copy of the draft Schedule 14A on EDGAR.

COMMENT 1 RESPONSE:

WE WILL FILE A COPY OF THE DRAFT SCHEDULE 14A, AS MODIFIED THROUGH THE DATE OF
FILING ON TUESDAY, OCTOBER 15, 1996. WE WILL INCLUDE WITH THE DRAFT
SCHEDULE 14A A COPY OF THE

<PAGE>

J. Evan Calio, Esq.
October 13, 1996
Page 2

REVISED PRELIMINARY PROXY STATEMENT, A COPY OF THE PROPOSED PROXY CARD AND
LETTERS DATED APRIL 10, 1996, SEPTEMBER 20, 1996 AND SEPTEMBER 26, 1996 FROM
THE FIRM OF MARDELL AMUNDSON JOHNSON & LEIRNESS, INC.

FORM OF PROXY

2. Please supply the staff with a copy of the proxy card so it can complete
its review.

COMMENT 2 RESPONSE:

A COPY OF THE PROXY CARD WILL BE INCLUDED IN THE EDGAR FILING OF OCTOBER 15. WE
INTEND TO FORWARD ONE TO YOU VIA FACSIMILE AT THE EARLIEST AVAILABLE
OPPORTUNITY.

INTRODUCTION

3. The "superior price" offered by Dominium referenced in the third paragraph
should indicate what the price was superior to. We may have additional comment.

COMMENT 3 RESPONSE:

WE HAVE MODIFIED THE INTRODUCTION TO REFER TO THE PRICE WHICH WE HAD HOPED TO BE
ABLE TO OFFER IN OUR MODIFIED PROPOSAL AS COMPARED TO THE $160.3 (NET OF
ATTORNEYS' FEES) BEING OFFERED IN THE CAPREIT TRANSACTION.

4. The staff notes the statement that "Dominium views the Proposed Mergers as
essentially real estate transactions." In this regard, since CAPREIT is
remarketing a pool of the Mortgage Revenue Bonds and not foreclosing and
liquidating the underlying properties, this statement is potentially misleading
and therefore should be revised. If the Partnership believes that the value of
the Funds is essentially the value of the underlying properties, as stated
elsewhere, so state. If not, explain the apparent inconsistency.

COMMENT 4 RESPONSE:

WE HAVE DELETED THE STATEMENT THAT "DOMINIUM VIEWS THE PROPOSED MERGERS AS
ESSENTIALLY REAL ESTATE TRANSACTIONS." IN ITS STEAD WE HAVE INCLUDED A
STATEMENT TO THE EFFECT THAT DOMINIUM BELIEVES THE VALUE OF THE FUNDS IS CLOSELY
TIED TO THE VALUE OF THE UNDERLYING PROPERTIES.

5. The staff notes the disclosure in the fourth paragraph on page 1 regarding
the Owner Partnerships. Clarify that the Owner Partnerships acquired the
properties from the original owners only after defaults on the mortgage revenue
bonds and that the Owner Partnerships

<PAGE>

J. Evan Calio, Esq.
October 13, 1996
Page 3

formed by affiliates of the general partners did not originally own the
properties at the time of the mortgage bond financing.

COMMENT 5 RESPONSE:

WE HAVE ADDED PROVISIONS RESPONSIVE TO THIS COMMENT.

6. Clarify in the first full paragraph on page 2 what the material terms of
the bonds are as it relates to cash flow from the properties.

COMMENT 6 RESPONSE:

WE HAVE ADDED PROVISIONS BASED ON DISCLOSURE IN THE CRITEF PROXY STATEMENT THAT
SET FORTH THE MATERIAL TERMS OF THE MORTGAGE REVENUE BONDS AS THEY RELATE TO
CASH FLOW FROM THE PROPERTIES.

7. The staff notes statement (2) in the second full paragraph on page 2 that
is unlikely that a transaction would not have been completed with Dominium even
if it had obtained financing. Please support such statement and reconcile it
with the disclosure elsewhere that the Partnership's proposal was at a "superior
price". If retained, generally discuss the General Partner's fiduciary duties
owed to limited partners in competing offer situations.

COMMENT 7 RESPONSE:

WE HAVE TAKEN OUT THE REFERENCE TO "INDUCEMENTS TO THE GENERAL PARTNERS" AND
CLARIFIED WHY WE ULTIMATELY CONCLUDED THAT IT WAS UNLIKELY THAT WE WOULD BE ABLE
TO COMPLETE A TRANSACTION EVEN IF WE WERE ABLE TO OBTAIN FINANCING. ALTHOUGH WE
ENCOUNTERED SOME DIFFICULTIES IN OBTAINING INFORMATION WE NEEDED FROM THE
GENERAL PARTNERS, ULTIMATELY OUR CONCLUSION NOT TO PROCEED WAS TIED TO OUR
CONCLUSION THAT, NOTWITHSTANDING OUR VIEWS AS TO THE VALUES OF THE PROPERTIES
ULTIMATELY WE WOULD BE OUTBID AFTER INCURRING HUGE EXPENSES AND COMMITMENTS JUST
TO GET INTO A BIDDING PROCESS. IN VIEW OF THE REVISIONS, WE DO NOT BELIEVE IT
IS NECESSARY TO DISCUSS GENERALLY THE GENERAL PARTNERS' FIDUCIARY DUTIES OWED TO
LIMITED PARTNERS IN COMPETING OFFER SITUATIONS.

8. The staff notes the Partnership's response to comment 5 and the conclusion
that doing "nothing" is better than the Merger Proposal (page 3). Please expand
the basis for this conclusion beyond the property valuation analysis and discuss
a valuation of the Funds as remarketed. While the staff recognizes that the
Property valuation will be materially related to a remarketing valuation,
however, it is not a substitute nor necessarily an accurate value of what could
be received. Risk factor disclosure, including risks relating to continued tax

<PAGE>

J. Evan Calio, Esq.
October 13, 1996
Page 4

exempt treatment of interest, the remarketing event and potential inability
to effect such remarketing and the consequent effect on investors should also
be included.

COMMENT 8 RESPONSE:

REFERENCES TO DOING NOTHING HAVE BEEN DELETED AS WELL AS THE PROVISIONS IN THE
INTRODUCTION ADDRESSING REFINANCING THE MORTGAGE REVENUE BONDS. WE HAVE
EXPANDED THE RISK FACTOR DISCLOSURE TO DISCUSS REMARKETING.

9. The staff notes the Partnership's response to comment 6. Prior to
addressing the value of the Properties, address the Funds' ability to foreclose
on the Properties held by the Ownership Partnerships without the cooperation of
the Ownership Partners. Further, disclose that the Ownership Partners do not
owe any duties to the BAC holders and disclose, if known, whether the terms of
the mortgages assumed by the Owner Partners were altered and, therefore, the
rights of the Funds with regard to foreclosure of such properties altered.
Revise as appropriate throughout the proxy statement.

COMMENT 9 RESPONSE:

REVISIONS HAVE BEEN MADE TO THE DISCUSSION OF FORECLOSURE RIGHTS AT PAGE 2.
REVISIONS HAVE BEEN MADE REGARDING AMENDMENT TO THE MORTGAGE REVENUE BONDS AT
PAGE 2. A CLARIFICATION HAS BEEN MADE ON PAGE 13 REGARDING THE OWNER
PARTNERSHIPS' LACK OF DIRECT FIDUCIARY DUTIES TO THE BAC HOLDERS.

10. Please clarify in the example on page 3 and elsewhere, that the Funds may
only be able to foreclose on the Properties underlying the Non-performing
Mortgage Revenue Bonds. Further, discuss how only partial foreclosure affects
the Partnership's opinion and valuations.

COMMENT 10 RESPONSE:

REVISIONS HAVE BEEN MADE TO PAGE 4 CLARIFYING THAT THE FUNDS MAY ONLY FORECLOSE
ON THE NON-PERFORMING MORTGAGE LOANS. PARTIAL FORECLOSURE DOES NOT AFFECT THE
CAPITALIZATION RATE VALUATION ANALYSIS BECAUSE THE CAPITALIZATION RATE ANALYSIS
VALUES ALL OF THE PROPERTIES PERFORMING AND NON-PERFORMING. THE LEVEL OF THE
CAPITALIZATION RATE IS NOT DEPENDENT ON WHETHER THE PROPERTY IS PERFORMING.
REVISIONS HAVE BEEN MADE TO CLARIFY THIS.

11. As previously indicated, the basis for the belief as to the value of the
BACs being substantially more than the BAC holders are receiving must be
supported within the document or provided supplementally to the staff.
Similarly, the basis for the belief that there may be

<PAGE>

J. Evan Calio, Esq.
October 13, 1996
Page 5

superior alternatives should also be set forth. Without a supportable basis,
the disclosure should be deleted.

COMMENT 11 RESPONSE:

THE BASIS FOR DOMINIUM'S BELIEF THAT THE VALUE OF THE BACS IS SUBSTANTIALLY MORE
THAN THE BAC HOLDERS ARE RECEIVING IS BASED ON DOMINIUM'S BELIEFS AS TO THE
VALUE OF THE UNDERLYING PROPERTIES SECURING THE MORTGAGE REVENUE BONDS WHICH ARE
THE SOLE ASSETS OF THE FUNDS. WE HAVE REVISED STATEMENTS TO REFLECT THIS BASIS
THROUGHOUT THE PROXY STATEMENT.

THE GENERAL PARTNERS HAVE SIGNIFICANT CONFLICTS OF INTEREST AND INDUCEMENTS TO
PROCEED WITH THE PROPOSED MERGERS, page 8

12. The characterization that the General Partners and CAPREIT do not have an
arm's length relationship should be supported and also stated as a belief rather
than fact. In addition, it appears that whether or not the general partners
have a conflict of interest is a legal conclusion that the Partnerships are not
qualified to make. Please revise the disclosure to indicate whether the
analysis is based on an opinion of counsel, naming such counsel, or revise the
disclosure to clearly indicate that it is the Partnership's view regarding
potential conflicts of interest faced by the general partners.

COMMENT 12 RESPONSE:

THE BULLET POINT REGARDING THE LACK OF AN ARM'S LENGTH RELATIONSHIP HAS BEEN
DELETED. ANY REFERENCES TO THIS ISSUE HAVE BEEN AMENDED TO REFLECT THE FACT
THAT THIS IS DOMINIUM'S BELIEF.

$1,000,000 PAYOUT

13. The basis for the statement that the $1,000,000 could have been paid to the
BAC holders if the general partners did not receive the money is not clear.
Either revise to include a supportable basis for the statement or delete.

COMMENT 13 RESPONSE:

WE HAVE DELETED THE STATEMENT.

14. The basis for the statement that the General Partners negotiated the
payments at the same time they negotiated the Redemption Price should be set
forth or the statement deleted.

<PAGE>

J. Evan Calio, Esq.
October 13, 1996
Page 6

COMMENT 14 RESPONSE:

WE HAVE REVISED THIS STATEMENT IN THE PROXY STATEMENT.

TERMINATION REFUNDS, page 10

15. Please state that the Termination Refund will not be due if the Funds
continue operations.

COMMENT 15 RESPONSE:

WE HAVE ADDED A STATEMENT TO THIS EFFECT.

THE STRUCTURE OF THE PROPOSED MERGERS DOES NOT ALLOW . . . , page 15

16. The staff notes the Partnership's response to comment 58 and the
parenthetical disclosure on page 16. Please revise to reference the market-out
exception to the Del. Code. Ann. tit 8, Section 262(b)(1), 262(b)(2)(c) since
it appears if this were a merger between corporations, dissenters rights may not
be available in any case. In addition, since limited partners would never have
dissenter's rights, unless the limited partnership law of the State of Delaware
specifically includes dissenters rights, the inclusion of such an argument is
inappropriate and should be deleted.

COMMENT 16 RESPONSE:

WE HAVE DELETED THE ARGUMENT AND SIMPLY NOTE THAT BAC HOLDERS DO NOT HAVE
DISSENTER'S RIGHTS.

17. Please state when discussing the contributions by CAPREIT that CAPREIT and
certain affiliates thereof will provide certain credit enhancements to the
combined pool of assets guaranteeing payment of the remarketed certificates.

COMMENT 17 RESPONSE:

WE HAVE MADE REVISIONS AS REQUESTED.

THE GENERAL PARTNERS HAVE NOT PROVIDED YOU WITH ALL THE INFORMATION NECESSARY
FOR YOU TO DETERMINE WHETHER THIS IS A GOOD DEAL FOR YOU, page 17

18. Expand the disclosure to indicate the actions taken by Plaintiff's counsel
and the Funds with respect to marketing the Funds.

<PAGE>

J. Evan Calio, Esq.
October 13, 1996
Page 7

COMMENT 18 RESPONSE:

WE HAVE MADE REVISIONS AS REQUESTED.

WE BELIEVE THERE ARE ALTERNATIVES WHICH MAY BE SUPERIOR TO THE PROPOSED MERGERS,
page 19

ALTERNATIVE 1, page 20

19. Please revise the second sentence to state that the Funds are relying, in
part, on Oppenheimer's analysis as to the fairness of the consideration not on
the reasons for not pursuing other alternatives.

COMMENT 19 RESPONSE:

WE HAVE MADE REVISIONS AS REQUESTED.

20. The basis for the belief that "any of the alternatives . . . is likely to
be a superior alternative . . ." should be set forth or, without supportable
basis, the statement should be deleted.

COMMENT 20 RESPONSE:

WE HAVE MODIFIED THESE PROVISIONS TO CLARIFY THAT WE BELIEVE THERE ARE THREE
ALTERNATIVES WHICH MAY BE SUPERIOR TO THE PROPOSED MERGERS: LIQUIDATE NOW,
LIQUIDATE UPON MATURITY OR UNDERTAKE AN OPEN COMPETITIVE BIDDING PROCESS AFTER
CAPREIT'S RIGHTS TO TERMINATION FEES AND EXPENSE REIMBURSEMENT EXPIRES.
DOMINIUM'S BASIS FOR THIS BELIEF IS ITS EXPERIENCE IN THE MULTI-FAMILY HOUSING
INDUSTRY AND ITS VIEWS AS TO THE VALUES OF THE PROPERTIES SECURING THE
NON-PERFORMING MORTGAGE REVENUE BONDS WHICH WE SUPPORT IN DETAIL. WE HAVE
DELETED AS A SUPERIOR ALTERNATIVE REFINANCING THE MORTGAGE REVENUE BONDS,
ALTHOUGH WE CONTINUE TO POINT OUT THAT WE DO NOT UNDERSTAND THE GENERAL
PARTNERS' EXPLANATION OF WHY THEY REJECTED THIS ALTERNATIVE.

21. Please disclose the Commission's address and that information is also
available on the Commission's web site (http://ww.sec.gov). See Item 502(a)(2)
of Regulation S-K.

COMMENT 21 RESPONSE:

WE HAVE ADDED THIS INFORMATION.

<PAGE>

J. Evan Calio, Esq.
October 13, 1996
Page 8

22. Please disclose why a tax exempt basis for the valuation is appropriate
since this is a liquidation analysis that will not be realized through the
Mortgage Revenue Bond.

COMMENT 22 RESPONSE:

WE HAVE NOT SUGGESTED THAT A TAX EXEMPT BASIS IS APPROPRIATE FOR A LIQUIDATION
ANALYSIS. THE 8.0 TO 9.0% CAPITALIZATION RATE IS THE RATE MARDELL AMUNDSON
RECOMMENDED FOR SALES ON A FREE AND CLEAR BASIS. WE HAVE DISCLOSED THE LOWER
CAPITALIZATION RATES PROVIDED FOR MARDELL AMUNDSON ON A TAX-EXEMPT BASIS IN
RESPONSE TO YOUR REQUEST THAT WE PROVIDE THE TYPE OF DISCLOSURE THAT MUST BE
INCLUDED IN ITEM 9 OF SCHEDULE 13E-3 WITH RESPECT TO THESE REPORTS. WE CONCUR
THAT THE TAX FREE CAPITALIZATION RATES ARE NOT RELEVANT TO A LIQUIDATION
ANALYSIS, AND HAVE ADDED CLARIFYING LANGUAGE.

23. Please advise how the appraisal evaluates the performing revenue bonds and
foreclosure through the Ownership Properties as discussed above.

COMMENT 23 RESPONSE:

OUR DISCLOSURE NO LONGER REFERS TO APPRAISALS. WE ASSUME THAT THIS COMMENT IS
REQUESTING CLARIFICATION OF HOW THE ANALYSIS ADDRESSES THE PERFORMING MORTGAGE
BONDS AND WE HAVE ADDED LANGUAGE TO CLARIFY THIS.

24. The basis for the belief that a different capitalization rate would be more
appropriate should be set forth. In that regard, the staff notes that the
analyses regarding the capitalization rates were concentrated in the
Minneapolis/St. Paul and certain other locations. Disclose the number of
properties located in the identified locations and the representative nature of
the chosen markets to the property locations. In that regard, the staff
restates comment no. 62.

COMMENT 24 RESPONSE:

WE SET FORTH THE BASIS FOR OUR BELIEF THAT A DIFFERENT CAPITALIZATION RATE WOULD
BE MORE APPROPRIATE: THE MARDELL AMUNDSON STUDIES (AND IN PARTICULAR THE APRIL
10 STUDY) AS WELL AS OUR EXTENDED EXPERIENCE IN BUYING AND SELLING APARTMENT
PROJECTS. THE APRIL 10 LETTER IN FACT SETS FORTH MARDELL AMUNDSON'S VIEWS AS TO
THE APPROPRIATE CAPITALIZATION RATE FOR ALL OF THE PROPERTIES AND WE HAVE ADDED
LANGUAGE WHICH CLARIFIES THIS. WE HAVE PROVIDED THE SEPTEMBER 20 AND SEPTEMBER
26 LETTERS AS MERELY FURTHER BACK UP FOR OUR POSITION. IF YOU THINK IT WOULD BE
PREFERABLE, WE CAN DELETE REFERENCES TO THESE LETTERS AND NOT INCLUDE THEM WITH
OUR FILING. SINCE OUR CAPITALIZATION RATES HAVE BEEN DERIVED FROM A PROPERTY BY
PROPERTY ANALYSIS AS EVIDENCED BY THE APRIL 10 STUDY, WE DO NOT BELIEVE IT IS
NECESSARY TO DRAW CONCLUSIONS ABOUT WHETHER THE MINNEAPOLIS/ST PAUL MARKET IS
REPRESENTATIVE OF ALL THE MARKETS IN WHICH THE PROPERTIES UNDERLYING THE
MORTGAGE REVENUE BONDS ARE LOCATED.

<PAGE>

J. Evan Calio, Esq.
October 13, 1996
Page 9

25. The staff notes that the disclosure regarding the appraisals that were
contained in the first filing have been deleted, rather than expanded to comply
with Item 14 of Schedule 14A. Provide the staff a detailed analysis of why the
disclosure has been deleted and the basis for such deletion, given the public
filing of the preliminary proxy statement. The staff may have additional
comment.

COMMENT 25 RESPONSE:

WE ARE SENSITIVE TO THE STAFF'S CONCERNS THAT OUR APPRAISALS COVER ONLY THE
MINNEAPOLIS/ST. PAUL PROPERTIES AND THAT AN EXTRAPOLATION TO THE VALUE OF
PROPERTIES OUTSIDE OF MINNEAPOLIS/ST. PAUL MIGHT BE MISLEADING. THE STAFF ALSO
SUGGESTED THAT A COMPARISON OF DOMINIUM'S APPRAISALS TO OPPENHEIMER'S
CAPITALIZATION RATE ANALYSIS WAS NOT APPROPRIATE. IN VIEW OF THAT, WE CONCLUDED
THAT IT WOULD BE PREFERABLE DISCLOSURE TO USE DOMINIUM'S CAPITALIZATION RATE
ANALYSIS RATHER THAN ITS APPRAISALS. IN PARTICULAR, THE APRIL 10 MARDELL
AMUNDSON STUDY INCLUDED RECOMMENDED CAPITALIZATION RATES ON A PROPERTY BY
PROPERTY BASIS AND WAS NOT LIMITED TO THE MINNEAPOLIS/ST. PAUL MARKET PERMITTING
US TO PREPARE A CAPITALIZATION RATE ANALYSIS ON AN "APPLES TO APPLES" BASIS WITH
THE OPPENHEIMER ANALYSIS. MOREOVER, WHILE WE ACKNOWLEDGE THAT IF DOMINIUM USES
THE APPRAISALS IN ITS DEFINITIVE PROXY MATERIALS APPROPRIATE SUMMARIES NEED TO
BE PROVIDED PURSUANT TO ITEM 9 OF SCHEDULE 13E-3, WE QUESTION THE BASIS UNDER
THE RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION FOR THE STAFF
REQUIRING THAT THE FULL APPRAISALS BE MADE AVAILABLE TO THE PUBLIC. AS WE HAVE
DISCUSSED, DOMINIUM IS SUBJECT TO CONFIDENTIALITY AGREEMENTS AND WE ARE
CONCERNED THAT IF THE APPRAISALS IN THEIR ENTIRETY ARE MADE PUBLIC DOMINIUM MAY
BE SUBJECT TO CLAIMS BY THE FUNDS THAT IT HAS BREACHED THESE CONFIDENTIALITY
AGREEMENTS. IN PARTICULAR, WE ARE CONCERNED THAT THE FUNDS MIGHT CLAIM THAT THE
APPRAISAL MAKE USE OF DOMINIUM'S ACCESS TO HISTORIC INFORMATION, 1996 BUDGET
INFORMATION AS WELL AS INFORMATION GLEANED FROM PHYSICAL INSPECTIONS OF THE
MINNESOTA PROPERTIES THAT ARE NOT PUBLIC AND WOULD BE DIFFICULT TO REDACT FROM
THE APPRAISALS. WE ARE ALSO CONCERNED THAT THERE MAY BE LEGITIMATE CLAIMS THAT
THIS KIND OF DETAIL COULD BE DAMAGING TO THE FUNDS BY RESULTING IN INCREASED
PROPERTY TAX VALUATIONS. UNDER THESE CIRCUMSTANCES, WE BELIEVE THE BETTER
APPROACH IS TO DELETE REFERENCES TO THE APPRAISALS AND USE A COMPARISON OF
CAPITALIZATION RATES AS SUPPORT FOR DOMINIUM'S CLAIMS THAT THE PROPERTIES HAVE A
HIGHER VALUE WHICH WARRANTS GREATER CONSIDERATION FOR THE BACS.

26. The disclosure regarding the three letters must be presented in the manner
required by Item 9 of Schedule 13E-3 and the letters filed. Please revise the
disclosure accordingly.

<PAGE>

J. Evan Calio, Esq.
October 13, 1996
Page 10

COMMENT 26 RESPONSE:

WE HAVE ADDED PROVISIONS WHICH DESCRIBE IN GREATER DETAIL THAT THE APRIL 10
LETTER SETS FORTH MARDELL AMUNDSON'S OPINION AS TO THE APPROPRIATE
CAPITALIZATION RATES FOR EACH PROPERTY. WE BELIEVE THE DISCLOSURE IS RESPONSIVE
TO ITEM 9 OF SCHEDULE 13E-3 IN THAT WE HAVE:

(1) IDENTIFIED THE OUTSIDE PARTY AND/OR UNAFFILIATED REPRESENTATIVE;

(2) BRIEFLY DESCRIBED THE QUALIFICATIONS OF SUCH OUTSIDE PART AND/OR
UNAFFILIATED REPRESENTATIVE;

(3) DESCRIBE THE METHOD OF SELECTION OF SUCH OUTSIDE PARTY AND/OR
UNAFFILIATED PARTY (WE HAVE EXPANDED THIS DESCRIPTION);

(4) DESCRIBE ANY MATERIAL RELATIONSHIP BETWEEN (I) THE OUTSIDE PARTY, ITS
AFFILIATES AND/OR UNAFFILIATED REPRESENTATIVE, AND (II) THE ISSUER OR ITS
AFFILIATES WHICH EXISTED DURING THE PAST TWO YEARS OR IS MUTUALLY UNDERSTOOD TO
BE CONTEMPLATED, AND ANY COMPENSATION RECEIVED OR TO BE RECEIVED AS A RESULT OF
SUCH RELATIONSHIP (WE HAVE EXPANDED THIS DESCRIPTION);

(5) IF SUCH REPORT, OPINION OR APPRAISAL RELATES TO THE FAIRNESS OF THE
CONSIDERATION, STATE WHETHER THE ISSUER OR AFFILIATE DETERMINED THE AMOUNT OF
CONSIDERATION TO BE PAID OR WHETHER THE OUTSIDE PARTY RECOMMENDED THE AMOUNT OF
CONSIDERATION TO BE PAID (THIS WOULD NOT SEEM TO BE RELEVANT UNDER THE
CIRCUMSTANCES);

(6) FURNISH A SUMMARY CONCERNING SUCH NEGOTIATION, REPORT, OPINION OR
APPRAISAL WHICH SHALL INCLUDE, BUT NOT BE LIMITED TO, THE PROCEDURES FOLLOWED;
THE FINDINGS AND RECOMMENDATIONS, INSTRUCTIONS RECEIVED FROM THE ISSUER OR
AFFILIATE; AND ANY LIMITATION IMPOSED BY THE ISSUER OR AFFILIATE ON THE SCOPE OF
THE INVESTIGATION.

27. It appears that the disclosure on page 26 may not be consistent with the
disclosure in the introduction regard Dominium's intent with respect to the
Funds. Please revise and clarify.

COMMENT 27 RESPONSE:

REVISIONS HAVE BEEN MADE TO THE PARAGRAPH REGARDING POSSIBLE ALTERNATIVE BIDDERS
ON PAGE 28. WE BELIEVE THAT THIS PARAGRAPH AS REVISED IS CONSISTENT WITH
DOMINIUM'S INTENT AS EXPRESSED IN THE INTRODUCTION.

<PAGE>

J. Evan Calio, Esq.
October 13, 1996
Page 11

Because this is a contested proxy solicitation and time is of the utmost
urgency, I would respectfully request that the Staff review the enclosed at the
soonest available opportunity.

David Vander Haar of this office (612-336-3226) or I am available to
address any questions or concerns which may arise regarding this submission.

Sincerely,

Andrew J. Ritten

AJR:ajr
Enclosures
M1:0187557.01
cc: Amy Meltzer Starr
Paul R. Sween
Paul H. Ravich
Arthur B. Crozier
David M. Vander Haar
Thomas L. Kimer
Robert L. Schnell, Jr.
Karen E. Wilson

<PAGE>

_______________________________________________________________________________

_____________________________________________

PROXY STATEMENT
OF
DOMINIUM TAX EXEMPT FUND L.L.P.
_____________________________________________

_______________________________________________________________________________

<PAGE>

<TABLE>
<S> <C>
INTRODUCTION................................................................ 1

REASONS TO VOTE AGAINST THE PROPOSED MERGERS................................ 8

1. WE BELIEVE THE GENERAL PARTNERS HAVE SIGNIFICANT CONFLICTS OF
INTEREST AND INDUCEMENTS TO PROCEED WITH THE PROPOSED MERGERS......... 9

2. WE BELIEVE THE GENERAL PARTNERS HAVE NOT ACTED IN A MANNER
CONSISTENT WITH MAXIMIZING BAC HOLDER VALUE........................... 13

3. THE STRUCTURE OF THE PROPOSED MERGERS DOES NOT ALLOW THE BAC
HOLDERS TO TAKE ADVANTAGE OF ANY IMPROVEMENT IN THE PROPERTIES'
ABILITY TO GENERATE TAX-EXEMPT INCOME................................. 16

4. WE BELIEVE THE GENERAL PARTNERS HAVE NOT PROVIDED YOU WITH ALL THE
INFORMATION NECESSARY FOR YOU TO DETERMINE WHETHER THIS IS A GOOD
DEAL FOR YOU.......................................................... 18

5. WE BELIEVE THERE ARE ALTERNATIVES WHICH MAY BE SUPERIOR TO THE
PROPOSED MERGERS...................................................... 20

YOU SHOULD NOT RELY ON THE FAIRNESS OPINIONS AS A SUBSTITUTE FOR YOUR
OWN ANALYSIS OF WHETHER THE TRANSACTIONS ARE IN YOUR INTEREST............... 28

YOU SHOULD NOT RELY ON PLAINTIFFS' CLASS ACTION LAWSUITS AS A SUBSTITUTE
FOR YOUR OWN ANALYSIS OF WHETHER THE TRANSACTIONS ARE IN YOUR INTEREST...... 30

INFORMATION ABOUT DOMINIUM.................................................. 31

BACKGROUND TO THE PROPOSED MERGERS.......................................... 32

ADDITIONAL INFORMATION CONCERNING THE TRANSACTION PROPOSALS................. 37

LITIGATION.................................................................. 37

VOTE REQUIRED AND VOTING PROCEDURES......................................... 38

SOLICITATION EXPENSES....................................................... 39
</TABLE>

-i-

<PAGE>

INTRODUCTION

This Proxy Statement, dated as of October [__], 1996, which is first being
mailed to holders ("BAC Holders") of Beneficial Assignee Certificates ("BACs")
on or about October [__], 1996, is furnished by Dominium Tax Exempt Fund L.L.P.,
a Minnesota limited liability partnership ("Dominium"), in opposition to the
proposed mergers (each a "Proposed Merger" and collectively the "Proposed
Mergers") of each of Capital Realty Investors Tax Exempt Fund Limited
Partnership ("Fund I-II") and Capital Realty Investors Tax Exempt Fund III
Limited Partnership ("Fund III" and together with Fund I-II, the "Funds") with
and into two separate entities affiliated with Capital Apartment Properties,
Inc. ("CAPREIT").

Dominium owns 100 BACs in each of the two series of BACs issued by Fund
I-II and 100 BACs in Fund III. All of Dominium's BACs were acquired on or about
August 26, 1996. Dominium is affiliated with Dominium Management Services,
Inc., a Minnesota corporation owned by Jack W. Safar and David L. Brierton. Mr.
Safar and Mr. Brierton are partners in Dominium, along with Paul R. Sween and
Armand E. Brachman. Mr. Sween and Mr. Brachman are employees of Dominium
Management Services. Messrs. Safar, Brierton, Sween and Brachman are the
participants in this proxy solicitation. The participants do not own any BACs
individually.

As discussed further hereafter, Dominium previously attempted to acquire
the Funds through a transaction comparable to the Proposed Mergers, but at a
price net to the BAC Holders of approximately $165,305,000 as compared to the
approximate net to the BAC Holders of $156,500,000 being offered by CAPREIT at
the time of our proposal (which has subsequently been increased to approximately
$160.3 million (net of certain attorneys fees)). In our proposal, we had
included the cost of paying up to $9.5 million in termination fees and expense
reimbursements to CAPREIT and $2 million to lawyers in the plaintiffs' class
lawsuits brought against the general partners of the Funds (the "General
Partners"), and others in connection with the Proposed Mergers. To the extent
termination fees and expense reimbursements to CAPREIT were ultimately
determined to be less than $9.5 million, Dominium's proposal contemplated that
any savings would be payable to the BAC Holders. Dominium's proposal also
contemplated that any cash in the Funds at the time of closing in excess of
$12.4 million would be payable to the BAC Holders, with a corresponding decrease
in the amount payable to the BAC Holders if the cash in the Funds at the time of
closing were less than $12.4 million. In our proposal, we did not allocate the
approximately $165,305,000 among the Funds, but anticipated that we would
allocate such amounts along the lines that your General Partners are
recommending with respect to the Proposed Mergers. Dominium did not obtain
financing for its proposal within the timeframe it originally thought possible.
Dominium is not presently pursuing financing, nor does it have any present plans
to make a superior proposal.

Dominium is opposing the Proposed Mergers because it believes the Proposed
Mergers are not in the interest of the BAC Holders. Although it is not
presently pursuing

<PAGE>

financing or a superior proposal, Dominium believes that there may be some
opportunity to effect a transaction with the Funds if there is a "level playing
field" without these termination fees and expense reimbursement obligations or
that there may be some other opportunity to assist the Funds in maximizing BAC
Holder value if the Proposed Mergers are not approved.

Dominium believes that the value of the Funds and your interests in the
BACs is closely tied to the value of the real estate securing the eighteen
tax-exempt mortgage revenue bonds issued by various state or local governments
or their agencies or instrumentalities (the "Mortgage Revenue Bonds") owned by
the Funds. We believe this for the following reasons. Affiliates of CAPREIT
are seeking to acquire your BACs and gain the entire ownership interest in the
Funds. The only assets owned by the Funds are the eighteen Mortgage Revenue
Bonds. The only collateral for the Mortgage Revenue Bonds are non-recourse
participating mortgage loans on eighteen properties containing multifamily
residential developments (the "Properties").

The Properties generate income with which to pay base interest, contingent
interest and principal owing on the Mortgage Revenue Bonds. Nine of the 10
mortgage loans relating to the Mortgage Revenue Bonds owned by Fund I-II and 6
of the 8 mortgage loans relating to the Mortgage Revenue Bonds owned by Fund III
have not been paying the full amount of base interest for some period of time.
Because of this, these mortgage loans are in default and are termed
non-performing. By virtue of this default, under the terms of the Mortgage
Revenue Bonds and the mortgage loans, the Funds, as holders of the Mortgage
Revenue Bonds, have a right to foreclose on the Properties.

When these fifteen Properties originally went into default between 1990 and
1995, ownership of these Properties was transferred via deeds in lieu of
foreclosure or other means from the original unaffiliated third party owners of
the Properties to partnerships (the "Owner Partnerships") which were organized
by and are owned entirely by affiliates of the General Partners. One of the
main purposes for establishing the Owner Partnerships was to prevent the loss of
tax-exempt interest on the Mortgage Revenue Bonds that would have resulted had
the Funds acquired legal title to the Properties securing the Mortgage Revenue
Bonds following foreclosure on such Properties. In connection with the transfer
of title, the Owner Partnerships assumed the existing indebtedness on these
fifteen Properties and the terms of the Mortgage Revenue Bonds were not altered
so as to change the rights of the Funds to foreclose in the event of default at
any time on account of the failure to pay full base interest (mortgages with
respect to two Mortgage Revenue Bonds held by Fund I-II were revised for reasons
that, to the knowledge of Dominium, do not affect the right of the Funds to
foreclose for failure to pay full base interest). The Funds agreed with the
Owner Partnerships that instead of receiving the full amount of interest and
principal owing on the non-performing Properties through the Mortgage Revenue
Bonds, the Funds would receive interest based on

-2-

<PAGE>

the cash flow of these fifteen Properties. In addition, interest has been
accruing on the unpaid base interest at the base interest rate.

In connection with the Proposed Mergers, CAPREIT or its designee will have
the right to obtain title to the Properties owned by the Owner Partnerships.
Effectively, as a result of the Proposed Mergers, affiliates of CAPREIT will
acquire ownership of the Funds and CAPREIT or its designee will acquire or have
the right to obtain title to the non-performing Properties owned by the Owner
Partnerships.

Since the sole assets of the Funds are the Mortgage Revenue Bonds, we
believe that the value of the BACs is driven by the value of the Mortgage
Revenue Bonds. We believe that the value of the Mortgage Revenue Bonds in turn
is driven by the ability of the Properties to generate income to pay off the
interest and principal owing under the Mortgage Revenue Bonds. Since the value
of the Properties is driven by the ability of the Properties to generate income,
the more valuable the Properties, the more valuable the Mortgage Revenue Bonds
and the more valuable the BACs.

Dominium attempted to acquire the Funds beginning at the end of February
1996, concentrating its efforts in earnest beginning in May 1996. We first made
a proposal to the General Partners on June 28, 1996. However, we failed to
obtain financing for that proposal within the timeframe that we believed
possible. As previously noted, we are not presently pursuing financing for an
alternative proposal and, if the Proposed Mergers are not approved by the BAC
Holders, there can be no assurances that we would ever be able to obtain
financing or even have the opportunity to make another proposal. In connection
with our efforts, we concluded, however, that (1) we believed that you should
receive a higher price than that being paid by CAPREIT for the BACs in the
Proposed Mergers because of our belief regarding the value of the underlying
Properties securing the Mortgage Revenue Bonds and (2) the termination fee and
expense reimbursement provisions made it unlikely that we would be able to
complete a transaction even if we were able to obtain financing and they
represent substantial barriers to competing proposals.

In determining not to proceed with a proposal, Dominium concluded that the
termination and expense reimbursement provisions would effectively preclude it
from winning a bidding contest with CAPREIT. Because of the up to $9.7 million
in termination fees and possible expense reimbursement obligations, even to make
a $165 million offer net to the BAC Holders, we effectively had to be able to
finance up to an additional $9.7 million of fees and expenses. As a result, we
concluded that if a bidding contest were to occur, CAPREIT would always have a
significant advantage over any proposal we could make. The reason we concluded
that these provisions would likely prevent us from being able to complete a
competing proposal, even if we were able to obtain financing, turned on our
perception that there was sufficient value in the Properties that CAPREIT would
simply increase the price it was willing to pay for the Funds to meet or exceed
any proposal that we might make and that ultimately CAPREIT would be able to bid
more for the Funds than we

-3-

<PAGE>

could because it would not owe us any termination fees or expense reimbursement
obligations if it was successful in its bid and, conversely, we would owe
CAPREIT up to $9.7 million if we were successful. As a consequence, we
concluded, given these termination fees and expense reimbursement obligations,
that it was unlikely that we would be able to win a bidding contest with
CAPREIT, notwithstanding our view that the value of the Properties warranted
paying a higher price for the BACs.

Even though the sole assets of the Funds are the Mortgage Revenue Bonds, we
believe that the value of the Properties owned by the Owner Partnerships is
relevant to the BAC Holders in their consideration of the Proposed Mergers for
two reasons. First, we believe that it would be relevant to any prospective
acquiror who might be interested in acquiring the Funds on terms similar to that
proposed by your General Partners. Under the terms of the Proposed Mergers,
CAPREIT is effectively acquiring both the Funds in which you own BACs and title
to the fifteen Properties owned by the Owner Partnerships. There can be no
assurances if the Proposed Mergers are rejected that anyone else would be
willing to acquire the Funds, that Dominium would be able to make a proposal, or
that any such proposal would be for a higher price than that in the Proposed
Mergers. However, in assessing the likelihood of whether someone else would
make a proposal at a higher price we believe that the value of the fifteen
Properties owned by the Owner Partnerships as well as the value of the
performing Mortgage Revenue Bonds is material. Since, under a comparable
transaction to that proposed by CAPREIT, a potential acquiror would acquire both
the Funds and the underlying Properties owned by the Owner Partnership, it was
our conclusion that in assessing the price that could be paid for the BACs one
must look primarily to the value of the Properties. Second, we believe that the
value of the Properties owned by the Owner Partnerships is directly relevant to
whether the other alternatives that your General Partners considered and
rejected might be superior alternatives for the BAC Holders.

For example, if the Funds were to be liquidated in an orderly manner, the
value of the Properties owned by the Owner Partnerships directly affects the
liquidation proceeds that would be available to the Funds. Pursuant to the
terms of the Mortgage Revenue Bonds, the Funds retain the right at any time to
foreclose on the non-performing mortgage loans because of continuing defaults
and thus to acquire the non-performing Properties which are owned by the Owner
Partnerships. Consequently, in an orderly liquidation, the Funds would be able
to liquidate the Properties owned by the Owner Partnerships. Similarly, in a
scenario where the Mortgage Revenue Bonds are held to maturity and then
liquidated, the value of the Properties owned by the Owner Partnerships would
affect the amounts received by the BAC Holders.

-4-

<PAGE>

can there be any assurances that the value of the Properties or the cash flow
generated by the Properties and payable to the BAC Holders will not be impacted
by adverse economic changes or other changes in the real estate market or in the
laws and regulations governing tax-exempt financing. As discussed herein, there
are risks associated with not approving the Proposed Mergers as well as possible
benefits. Your General Partners do, however, have a fiduciary obligation to
maximize BAC Holder value. And in assessing whether to vote for the Proposed
Mergers, we believe you should consider both the history of these transactions
and alternatives which could be pursued in determining whether to support the
Proposed Mergers. We believe you also need information about the value of the
Properties to assess whether to support the Proposed Mergers. We urge you to
read carefully the CRITEF Proxy Statement, as well as this proxy statement.

_______________________________________________________________________________

WE BELIEVE YOU SHOULD VOTE AGAINST THE PROPOSED MERGERS FOR THE FOLLOWING
REASONS:

- - WE BELIEVE YOUR GENERAL PARTNERS HAVE CONFLICTS OF INTEREST

-- YOUR GENERAL PARTNERS WILL RECEIVE APPROXIMATELY $4,500,000 IN
DIRECT PAYMENTS

- - WE BELIEVE YOUR GENERAL PARTNERS HAVE NOT MAXIMIZED PAYMENTS TO THE BAC
HOLDERS

-- NEVER EXPOSED PROPERTIES TO THE MARKET BEFORE AGREEING TO
SIGNIFICANT TERMINATION FEES AND EXPENSE REIMBURSEMENT PROVISIONS

-- NEVER USED THE SERVICES OF A REAL ESTATE BROKER

-- NEVER HAD THE PROPERTIES APPRAISED

-- SIGNED THE ORIGINAL MERGER AGREEMENTS WITHOUT THE BENEFIT OF ANY
FAIRNESS OPINIONS (ALTHOUGH SUBJECT TO DELIVERY OF A FAIRNESS
OPINION)

-- AGREED TO TERMINATION FEES OF $4.5 MILLION ($2.25 MILLION PER
FUND) AND EXPENSE REIMBURSEMENT PROVISIONS OF A MAXIMUM OF $5.2
MILLION ($2.6 MILLION PER FUND)

-5-

<PAGE>

-- THESE TERMINATION FEES AND EXPENSE REIMBURSEMENT PROVISIONS
REPRESENT A POTENTIAL $9.7 MILLION HANDICAP TO ANOTHER BIDDER

- YOU WILL HAVE NO ABILITY TO PARTICIPATE IN UPSIDE POTENTIAL AND YOU
WILL NO LONGER RECEIVE TAX-EXEMPT INCOME FROM THE FUNDS

- BECAUSE OF OUR VIEWS AS TO THE VALUE OF THE PROPERTIES, WE BELIEVE THE
BACS ARE WORTH SUBSTANTIALLY MORE THAN THE BAC HOLDERS ARE RECEIVING
AND YOUR GENERAL PARTNERS SHOULD CONSIDER OTHER ALTERNATIVES TO THE
PROPOSED MERGERS

As discussed hereafter, for these and other reasons, we believe you should
clearly vote no on the Proposed Mergers and direct your General Partners to
pursue other alternatives which will maximize BAC Holder value.

THERE ARE, HOWEVER, CERTAIN RISKS IN NOT APPROVING THE PROPOSED MERGERS. WE
BELIEVE THE PRINCIPAL RISKS ARE THE FOLLOWING:

1. If the Proposed Mergers are not adopted, the per unit price at which
the BACs are traded on the American Stock Exchange may drop. As with any
investment, there can be no assurances that the price would recover in the short
or long term.

2. Your General Partners may choose not to pursue any alternatives to the
Proposed Mergers if the Proposed Mergers are defeated and there can be no
assurances that if they elect to pursue alternatives to the Proposed Mergers
that you will receive higher consideration for your BACs than that being offered
in the Proposed Mergers.

3. We believe in any event that no one is likely to close on an
alternative proposal for at least 270 days after termination of the Merger
Agreements because of the termination fees and expenses that would be due
CAPREIT. We do not presently have the financing to pursue an alternative
proposal if that opportunity were available. Given our views as to the values
of the Properties securing the Mortgage Revenue Bonds, we believe we would be
interested in pursuing such an alternative proposal. However, we are not
committed to pursuing such a proposal nor can there be any guarantee that we
would be able to finance such a proposal.

-6-

<PAGE>

4. Just as we believe there is a chance for appreciation in the value of
the BACs by positive changes in the economy, the value of the real estate market
generally or the value of the Properties securing the Mortgage Revenue Bonds
specifically, adverse changes in the economy, in the value of the real estate
market generally or the value of the Properties securing the Mortgage Revenue
Bonds specifically, could adversely affect the value of the BACs.

5. Although we are not aware of pending or proposed changes in tax laws
or regulations which would impact the tax-exempt status of interest on the
Mortgage Revenue Bonds, changes in tax laws or regulations could adversely
affect the value of the BACs. If the Proposed Mergers are not approved,
remarketing the Mortgage Revenue Bonds could be adversely affected by changes in
tax laws or regulations and there can be no assurances that the Funds will be
able to remarket the Mortgage Revenue Bonds prior to the time they come due if
an alternative transaction is not effected.

6. The costs and expenses of the Oppenheimer fairness opinions and
related legal and accounting fees, the legal and accounting fees incurred in
negotiating the Merger Agreements and reimbursement for certain overhead costs
of the General Partners and their affiliates will be borne by the Funds even if
the Proposed Mergers are not approved.

________________________________________________________________________________

This Proxy Statement and the enclosed blue proxy card are being furnished
to BAC Holders in connection with the solicitation of proxies by Dominium to
vote against the Proposed Mergers and related matters at the meetings of BAC
Holders of Fund I-II and Fund III to be held at 9:00 a.m. and 10:00 a.m.,
respectively, local time, on October 29, 1996 at the Doubletree Hotel, 1750
Rockville Pike, Rockville, Maryland 20852 and at any adjournments or
postponements thereof (each a "Meeting" and collectively the "Meetings").

-7-

<PAGE>

the sale of the general partner interest held by each Fund's General Partner to
a wholly-owned subsidiary of CAPREIT in exchange for $500,000, and the
substitution of such wholly-owned subsidiary as general partner of each Fund and
(b) the issuance of a limited partner interest in each Fund to CAPREIT or its
designee in exchange for the contribution to such Fund of real property or other
assets, in each case, to occur concurrently with the Proposed Mergers, and
certain amendments to the respective Agreements of Limited Partnership of the
Funds expressly to authorize the foregoing. The Proposed Merger and New Partner
Proposal for each Fund are collectively referred to herein as the "Transaction
Proposals" with respect to each Fund.

We believe that the Transaction Proposals are not fair to or in the best
interest of the BAC Holders and that BAC Holders should vote against the
Transaction Proposals. We believe that there is no compelling reason to engage
in a transaction of this type at the present time. Even if some transaction
should be effected, we believe that the aggregate consideration to be paid to
BAC Holders in connection with the Proposed Mergers (the "Redemption Price") is
inadequate. We believe that the consideration to be paid in connection with the
New Partner Proposals is unwarranted, and that these payments, as well as
certain other inducements for the General Partners to proceed with and advocate
for the Transaction Proposals, create a conflict of interest for the General
Partners. We believe these conflicts prevent the General Partners from
objectively evaluating the Transactions Proposals. We believe that you should
carefully review each General Partner's conclusion that the Transaction
Proposals are fair to and in the best interest of the BAC Holders and that the
consideration payable to the BAC Holders in connection with the Proposed Mergers
is fair. We believe that you should conclude after careful review of the facts,
as we have, that THIS DEAL IS NOT FOR YOU.

We urge you to vote against the Transaction Proposals by completing and
executing the enclosed blue proxy card in accordance with the instructions
contained therein. For a proxy to be effective a BAC Holder must deliver his or
her proxy at any time prior to the Meeting of the Fund, or any adjournment
thereof, addressed to:

Dominium Tax Exempt Fund L.L.P.
c/o Georgeson & Company Inc.
Wall Street Plaza, 30th Floor
New York, New York 10005

A self-addressed, stamped envelope for the return of the proxy has been
included.

REASONS TO VOTE AGAINST THE PROPOSED MERGERS

-8-

<PAGE>

inadequate based on our view as to the value of the Properties. Dominium
believes you should vote against the Proposed Mergers and the related
transactions for five primary reasons:

(1) We believe the General Partners have significant conflicts of interest
and inducements to proceed with the Proposed Mergers;

(2) We believe the General Partners have not acted in a manner consistent
with maximizing BAC Holder value;

(3) The structure of the Proposed Mergers does not allow the BAC Holders
to continue to receive tax-exempt income or to take advantage of any
upside potential for the Funds;

(4) As discussed hereafter, we believe that the General Partners have not
provided you with all of the information necessary for you to
determine whether the Proposed Mergers are a good deal; and

(5) We believe that there are alternatives which may be superior to the
Proposed Mergers.

1. WE BELIEVE THE GENERAL PARTNERS HAVE SIGNIFICANT CONFLICTS OF INTEREST AND
INDUCEMENTS TO PROCEED WITH THE PROPOSED MERGERS.

Each of the General Partners of the Funds (and CAPREIT) maintain that the
proposed transactions are fair to and in the best interest of the BAC Holders
and that the Redemption Price payable to the BAC Holders of its respective Fund
is fair. However, you should be aware and take into consideration that each
General Partner has, we believe, significant conflicts of interest and
inducements to proceed with the Proposed Mergers. We believe the conflicts and
inducements include:

- CAPREIT has agreed to pay to each General Partner $500,000 ($1,000,000
in the aggregate) in exchange for their general partnership interests.
Absent the Merger Agreements, if the Funds were liquidated as of
June 30, 1996, Fund I-II GP would have received only a nominal amount
and Fund III GP would have received nothing for its general
partnership interests.

- CAPREIT has agreed to pay to CRI, Inc. ("CRI") and CRIIMI MAE Services
Limited Partnership ("CRIIMI"), affiliates of the General Partners, at
least $3,479,925, for certain accounts receivable consisting of the
accrued mortgage servicing and administration fees ("Accrued Fees")
owed by certain affiliates of the General Partners which CRI and
CRIIMI probably would not get if the Transaction Proposals are not
approved.

-9-

<PAGE>

- At the time the General Partners commenced discussions with CAPREIT
about a possible transaction, affiliates of the General Partners held
up to a 22% residual profits interest in AP CAPREIT Partners, L.P.
("AP CAPREIT"), an affiliate of CAPREIT. The President of CAPREIT,
Mr. Richard L. Kadish, who, according to the proxy statement sent to
you by the Funds (the "CRITEF Proxy Statement"), first suggested a
transaction with CAPREIT in January 1995, was an employee of CRI
working directly with the Funds until January 1994.

- As admitted in the CRITEF Proxy Statement, William B. Dockser
("Dockser") and H. William Willoughby ("Willoughby"), the sole
shareholders of CRI, finally broke off negotiations with CAPREIT on
April 15, 1995 (after three months of discussions) until the interest
of CRI and certain of its affiliates in AP CAPREIT was redeemed in
order to "avoid even the appearance of a conflict of interest".
However, we believe the deal that they ultimately struck with CAPREIT
involves a direct conflict of interest by your General Partners
because completing the Transaction Proposals could potentially save
CRI affiliates over $1 million in certain termination refunds
described below.

$1,000,000 PAYMENT

Absent the Proposed Mergers, the general partnership interests of the
General Partners have at best nominal value. Yet, in connection with the
Proposed Mergers, the General Partners are scheduled to receive payments
totaling $1,000,000 for their General Partnership interests. These payments
were negotiated by the General Partners for their benefit in the context of
striking the Merger Agreement terms. Of the $1,000,000 that will be paid to the
General Partners ($500,000 to each of them), according to the CRITEF Proxy
Statement, Messrs. Dockser, Willoughby and Martin C. Schwartzberg, formerly a
general partner and currently a limited partner in the Fund I-II GP
("Schwartzberg"), will each receive approximately 25%, CRI will receive a very
small percentage and the remainder goes to general partnerships comprised of
current and former employees of CRI, including the President of CAPREIT, Mr.
Kadish.

$3,479,925 PAYMENT

-10-

<PAGE>

acknowledged in the CRITEF Proxy Statement, it is possible (and Dominium
believes likely) that in the absence of the Proposed Mergers, these affiliates
of the General Partners would not get substantial payments, if any, on these
Accrued Fees in the near future. Moreover, in order to receive these fees more
than $31 million of cumulative unpaid base interest (as of June 30, 1996), plus
interest thereon, would first have to be paid to the Funds.

The consideration payable to CRI for its Accrued Fees is, with respect to
Fund I-II, $511,680 in the case of Series I, and $770,835 in the case of Series
II, and, with respect to Fund III, $667,485. The consideration payable to
CRIIMI for its Accrued Fees is, with respect to Fund I-II, $332,460, in the case
of Series I, and $489,120 in the case of Series II, and with respect to Fund
III, $708,345, representing 100% of the Accrued Fees payable to CRIIMI through
September 30, 1996.

Your General Partners negotiated these payments in the context of striking
the Merger Agreement terms. While we believe there is no basis for the payment
of over $3 million to these affiliates of your General Partners in connection
with the Proposed Mergers, you should be aware that your General Partners
originally agreed to terms which would have resulted in payments in excess of
$4.5 million to their affiliates for these Accrued Fees. These payments were
only reduced as a part of settlement of two plaintiffs' class action lawsuits
brought against your General Partners (the fees and expenses of which you are
being required to pay out of the Redemption Price).

CRI AND CAPREIT'S CLOSE RELATIONSHIP

CAPREIT was originally formed by CRI in late 1993 for the purpose of
acquiring, owning and managing a portfolio of multi-family real estate
properties. CAPREIT was acquired by AP CAPREIT on January 31, 1994 only months
after its founding. Within one year of AP CAPREIT's acquisition, CAPREIT was
"negotiating" to purchase the Funds. In January 1995, when your General
Partners were apparently first approached regarding the possible acquisition of
the Funds by CAPREIT, not only were CRI and certain of CRI's affiliates owners
of a 22% residual profits limited partnership interest (contingent on the
occurrence of certain events and meeting certain hurdle rates) in AP CAPREIT,
but Messrs. Dockser and Willoughby (the sole shareholders of CRI), were two of
seven directors of CAPREIT. Although CRI and CAPREIT share the same Maryland
office address and Mr. Kadish, the President of CAPREIT, was an employee of CRI
until 1994, the CRITEF Proxy Statement states that they first discussed a
possible transaction in Phoenix, Arizona at a convention of the National Multi
Housing Council. We think this close relationship does not support your General
Partners' claims of arm's length negotiations.

TERMINATION REFUNDS

As a consequence of the Proposed Mergers, CRI and certain of its affiliates
are receiving a benefit in excess of $1,000,0000 that they most likely would not
receive if a

-11-

<PAGE>

transaction were effected with any other party. Notwithstanding your General
Partners' stated concern to avoid "even the appearance of a conflict of
interest", on June 30, 1995, CRI agreed to sell its interest in AP CAPREIT for
an aggregate consideration of $4,750,000, subject to repayment of up to
$3,900,000 ("Termination Refunds") if certain property management contracts are
terminated under certain circumstances. Some of these property management
contracts allow an affiliate of CAPREIT called CAPREIT Residential Corp.
("CAPREIT Residential") to manage, on behalf of the Owner Partnerships, fourteen
of the Properties that secure the Mortgage Revenue Bonds. It is likely that a
comparable transaction between the Funds and anyone other than CAPREIT would
trigger Termination Refunds. This is because in a comparable transaction an
acquiror of the Funds would also acquire the right to acquire the Properties
owned by the Owner Partnerships. Pursuant to the terms of the management
agreements, the new owner could terminate these contracts (which is generally
permitted upon thirty days notice) and designate its own property management
company instead of CAPREIT Residential. However, CRI and CAPREIT agreed that
the portion of the Termination Refunds relating to the Properties that secure
certain Mortgage Revenue Bonds held by the Funds in the original aggregate
amount of $1,313,864 (which amount decreased after June 30, 1996 to $1,149,631,
and will continue to decrease after June 30 of each succeeding year) would not
be due if the Proposed Mergers were consummated with CAPREIT. As a consequence,
if the Proposed Mergers are effected, we believe CRI and certain affiliates of
CRI are receiving a benefit in excess of $1,000,000 that they most likely would
not receive in a transaction with any party other than CAPREIT. The Termination
Refunds will not be due if the Funds continue their present operations and
CAPREIT Residential continues to manage the fourteen Properties.

THE OWNER PARTNERSHIPS

The Properties securing the Mortgage Revenue Bonds were originally owned by
unrelated third parties. Fifteen of these original unaffiliated owners
defaulted on their obligations under the Mortgage Revenue Bonds triggering
foreclosure rights by the Funds under the terms of the Mortgage Revenue Bonds.
According to the CRITEF Proxy Statement, because of these defaults, Messrs.
Dockser and Willoughby established the Owner Partnerships to acquire legal title
to the Properties in part to prevent the loss of tax-exempt interest on the
Mortgage Revenue Bonds that would have resulted had the Funds acquired title.
The Owner Partnerships acquired title from the prior owners via deeds in lieu of
foreclosure or otherwise.

-12-

<PAGE>

Partnerships (i.e., affiliates of your General Partners). Moreover, in
connection with the Proposed Mergers, at the option of CAPREIT, each of the
Owner Partnerships has agreed to one of the following courses of action: (a)
to sell, assign or transfer the partnership interests in or the real property
and other assets of such Owner Partnerships to CAPREIT or its designee for no
additional consideration, (b) to admit CAPREIT or its designee as the managing
general partner, whereupon the general partner interest of the current general
partners will be converted into limited partnership interests or (c) to sell all
of the limited partnership interests to CAPREIT at any time within five years
from the Effective Date at the then fair market value (based on the fair market
value of the partnership property as encumbered by the mortgage loans thereon).

Your General Partners have made no disclosure as to why they have
structured these transactions involving their affiliates in this complex manner,
whether any of the alternatives would result in material benefits to these
affiliates or which alternative CAPREIT presently intends to follow. While the
Owner Partnerships do not have a direct fiduciary duty to the BAC Holders, the
General Partners, who control the Owner Partnerships, do have a fiduciary duty
to the BAC Holders. Therefore, we believe the General Partners should explain
to the BAC Holders why they have negotiated the terms of the Merger Agreements
affecting the Owner Partnerships as they did.

We believe your General Partners have not adequately justified the
approximately $4.5 million in payments to the General Partners and/or their
affiliates. We also believe that these transactions constitute material
inducements for the General Partners to recommend the Proposed Mergers,
irrespective of whether these transactions are fair to the BAC Holders.

2. WE BELIEVE THE GENERAL PARTNERS HAVE NOT ACTED IN A MANNER CONSISTENT WITH
MAXIMIZING BAC HOLDER VALUE.

In addition to the conflicts of interest and inducements for the General
Partners to recommend the Proposed Mergers that we believe exist, we believe
that the General Partners have not acted in a manner consistent with maximizing
BAC Holder value. Consider the following:

- Your General Partners apparently conducted negotiations on an
exclusive basis with CAPREIT from January 1995 until September 11,
1995. During that period they never actively solicited other
purchasers for either the BACs or the Properties, publicized that the
Properties or the BACs were for sale, contacted qualified real estate
brokers or attempted to actively market the Properties or BACs in any
way. They did this in spite of what we believe to be their conflicts
of interest and the inducements being offered by CAPREIT to proceed
with the Proposed Mergers and notwithstanding that CAPREIT

-13-

<PAGE>

apparently did not propose an initial Redemption Price until August
1995 and then offered only $145 million.

- Your General Partners entered into Merger Agreements with CAPREIT on
September 11, 1995 apparently without ever having valued the
Properties or, if they did value the Properties, they haven't advised
you or their investment banker of their views as to the values of the
Properties.

- Your General Partners initially agreed to a Redemption Price of $150
million contingent upon obtaining a fairness opinion, but without ever
having received a fairness opinion or explaining to you their
rationale for why they believed this was a fair price for the BAC
Holders.

- Your General Partners were promptly sued in two separate class action
lawsuits brought on behalf of the BAC Holders. An inactive general
partner of the Fund I-II GP, Martin C. Schwartzberg, also brought
litigation alleging, among other things, that the Proposed Mergers
were not in the best interest of the BAC Holders and filed a
preliminary proxy statement with the Securities and Exchange
Commission urging that BAC Holders vote against the Proposed Mergers.
(As part of the settlement of the litigation, Mr. Schwartzberg has
agreed not to oppose the Proposed Mergers and certain payments to Mr.
Schwartzberg are conditioned upon your approval of the Proposed
Mergers.)

- Despite the fact that the $150 million Redemption Price in the
September 11, 1995 Merger Agreements was so inadequate that it was
unable to support a fairness opinion, at the time your General
Partners entered into the Merger Agreements, they also agreed to
termination fees of $4.5 million, to reimburse CAPREIT for up to $4
million of expenses under certain circumstances (which have now been
increased to $5.2 million), and not to solicit other proposals. They
agreed to these termination fees, expense reimbursement and
nonsolicitation provisions even though CAPREIT did not have committed
financing and had not completed its due diligence investigation. As
revealed in the CRITEF Proxy Statement, at the time the original
Merger Agreements were signed, CAPREIT's financing was based on a term
sheet from a financial institution that after several months
ultimately declined to provide CAPREIT with financing.

-14-

<PAGE>

extensions have been accompanied by increases in the Redemption Price
in the aggregate amount of $10.3 million (net of legal fees), your
General Partners have also raised the hurdles for other potential
purchasers of the Funds by increasing the maximum amount of expenses
reimbursable to CAPREIT to $5.2 million. Considering the termination
fees and expense reimbursement provisions agreed to by your General
Partners, just to offer a net amount to the BAC Holders equivalent to
the amount being offered by CAPREIT, any other party proposing an
alternative transaction would have to offer up to $9.7 million more
than CAPREIT while these provisions are in effect.

We believe that your General Partners' agreement to a transaction that caps
the amounts paid to BAC Holders for excess cash owned by the Funds, even though
such cash was earned during your ownership of the Funds, does not maximize BAC
Holder value. We believe that when you carefully review the CRITEF Proxy
Statement you will conclude, as we have, that the General Partners have not
acted in a manner consistent with maximizing BAC Holder value.

Moreover, we believe that the cumulative effects of the termination fees
and expense reimbursement provisions which your General Partners have agreed to,
the inherent conflicts of interest that we believe the General Partners have,
the fact that they have never revealed either their views or the views of
CAPREIT or its bankers as to the value of the Properties securing the Mortgage
Revenue Bonds, the complexity of the transactions, the informational advantages
that CAPREIT has because its affiliate is the manager of fourteen of the
Properties and the limited representations and warranties in the Merger
Agreements (particularly as to tax-exempt status) that CAPREIT is willing to
accept, have had a substantial chilling effect on other proposals. Under the
termination fees and expense reimbursement provisions in the Merger Agreements,
any prospective acquiror of the Funds must automatically offer as much as $9.7
million more than CAPREIT just to compete on even terms with CAPREIT while these
provisions remain in effect. In addition, as a practical matter, any
prospective acquiror has to address how to overcome the incentives and
inducements that have been provided to the General Partners and their affiliates
to proceed

-15-

<PAGE>

with the CAPREIT transaction. In assessing our ability to make a superior
proposal, we felt that we would need to not only be able to pay the termination
fees and expense reimbursement amounts, but, as distasteful as it may be, retain
some of the approximately $4.5 million in inducements for the General Partners
to proceed with a transaction.

Furthermore, given the potential for a bidding contest that a competing
offer would raise, this $9.7 million unlevel playing field also has the effect
of giving CAPREIT a double advantage. CAPREIT, unlike any other prospective
bidder, knows that if it loses the bidding contest, it will at least receive the
termination fees and its expenses. It can also reasonably anticipate that it
will be able to pay more than a competing bidder, because it will not be
responsible for paying the termination fees and expense reimbursement amounts
with respect to that competing bidder. Based on our experience, we believe that
regardless of the value of your BAC Holder interests, the reality is that the
transaction as structured by your General Partners has a virtual freezeout
effect on any other alternative proposals.

The only way to avoid this effect of the transaction as structured by your
General Partners and to preserve your right to get a better deal and to continue
to realize upside potential on your investment through potential increases in
the value of the BACs, is to reject the Proposed Mergers. Pursuant to the
Merger Agreements, if the BAC Holders do not approve the Proposed Mergers, the
Funds may terminate the Merger Agreements without liability for the termination
fees and expenses of CAPREIT, provided that there is no "Triggering Event", as
defined in the Merger Agreements, which results in the BAC Holders receiving
consideration in excess of the proposed Redemption Price within 270 days from
the date of termination. We believe that you should send a message to your
General Partners that you are not happy with the way that they have structured
the Proposed Mergers and insist that they maximize BAC Holder value.

3. THE STRUCTURE OF THE PROPOSED MERGERS DOES NOT ALLOW THE BAC HOLDERS TO
TAKE ADVANTAGE OF ANY IMPROVEMENT IN THE PROPERTIES' ABILITY TO GENERATE
TAX-EXEMPT INCOME.

-16-

<PAGE>

recover part of this lost capital through possible improved performance of the
Funds, but defeat the second objective of continuing to receive tax-exempt
interest income. We do not believe that the "premium" over market price that
you are being offered justifies giving up the potential for future appreciation
in the BACs and the tax-exempt income generated by the Funds, particularly after
you consider that the Funds' income over the past few years has been increasing.

Holders of Series I and Series II BACs received cash distributions equal to
$1.00 per BAC in 1993 and 1994 and $1.08 per BAC in 1995. Holders of Series III
BACs received cash distributions equal to $1.63 per BAC in 1993 and 1994 and
$1.20 per BAC in 1995. The CRITEF Proxy Statement acknowledges that you may not
be able to replace this tax-exempt yield if the Proposed Mergers are effected.
It concludes, however, that "in light of the determination by the General
Partners that the [Proposed] Mergers are a fair alternative to holding the BACs
and the requirement that BAC Holders vote on the Transaction [Proposals], the
General Partners believed that any modification to the original objectives of
the Funds are not significant." We believe that these changes are significant
despite your General Partners' view as to fairness. Moreover, under the
Proposed Mergers you can lose these rights to continue to receive tax-exempt
income and potential appreciation in the value of the BACs by a simple majority
vote of the BAC Holders and if you object to the Proposed Mergers, under the
Funds' limited partnership agreements, you do not have the right to dissent and
seek a judicial declaration of the fair value of your interest.

Of course, there can be no certainty that the tax-free income stream will
continue or improve for BAC Holders, but it is certain that approval of the
Proposed Mergers will terminate the tax-exempt income stream immediately.
Similarly, there can be no certainty that general real estate economic
conditions will improve, but it is certain that approval of the Proposed Mergers
will foreclose any opportunity for BAC Holders to benefit from such improvement
via their investment in BACs. The only way for the BAC Holders to retain some
chance of upside appreciation on their investment is to vote against the
Proposed Mergers.

As discussed in the CRITEF Proxy Statement at pages 55-59, CAPREIT is
willing to take over the Funds in part because it intends to pool the Funds'
assets into a trust with certain other assets held by CAPREIT and its
affiliates. Under CAPREIT's plan, the Funds would contribute the Mortgage
Revenue Bonds and the Available Cash to the trust, an affiliate of CAPREIT would
contribute another mortgage revenue bond issue and CAPREIT would contribute
$16.5 million in additional equity. In addition, CAPREIT has arranged for
certain credit enhancement for the trust consisting of letters of credit or
similar instruments issued by financial institutions. CAPREIT intends to issue
securities secured by the trust and its assets using the Properties and the
additionally contributed properties to the trust (among other things) as
collateral. By making certain filings with the Internal Revenue Service and
making certain amendments to the Mortgage Revenue Bonds which require the
consent of the

-17-

<PAGE>

issuers, CAPREIT believes that it will be able to maintain the tax-exempt status
of the Mortgage Revenue Bonds contributed by the Funds through these efforts.

The General Partners state in the CRITEF Proxy Statement that they are
uncertain whether they could refinance and maintain the tax-exempt status. Yet,
this is precisely what CAPREIT intends to do. CAPREIT obviously perceives value
in the Properties on which it is attempting to capitalize. According to the
CRITEF Proxy Statement they are willing to incur $22 million in transaction
expenses to do so. Although they have suggested that the additional collateral
and credit enhancements will make it easier to refinance the Mortgage Revenue
Bonds, we believe that the General Partners have not adequately explained why
the Funds are currently unable to effect a refinancing without additional
collateral or credit enhancements or what the costs of such a refinancing would
be to the Funds.

Although the General Partners and CAPREIT have carefully avoided commenting
on the value of the Properties or the profits which CAPREIT anticipates
generating from the proposed transactions, CAPREIT has consistently shown a
willingness to increase the Redemption Price when challenged. Basically, as a
result of the Proposed Mergers, you will be losing your ability to receive
tax-exempt income and any potential appreciation in the value of the BACs.
CAPREIT, on the other hand, will be acquiring the right to benefit from the
tax-exempt status of income generated by the Mortgage Revenue Bonds held by the
Funds and any appreciation in the value of the BACs. We believe CAPREIT
wouldn't be incurring $22 million in transaction costs to do that unless they
thought there were significant benefits to be gained from the Proposed Mergers.

4. WE BELIEVE THE GENERAL PARTNERS HAVE NOT PROVIDED YOU WITH ALL THE
INFORMATION NECESSARY FOR YOU TO DETERMINE WHETHER THIS IS A GOOD DEAL FOR
YOU.

We believe that the General Partners have not provided you with all the
information necessary for you to determine whether this is a good deal for you.
We urge you to review carefully the CRITEF Proxy Statement. Despite more than
100 pages of disclosure, we do not believe that you will be able to determine
what the General Partners' views, or CAPREIT's views, are as to the value of the
Properties securing the Mortgage Revenue Bonds. We find it incredible that the
General Partners or CAPREIT have not obtained appraisals of these Properties or,
if they or their sources of financing have obtained appraisals, that they have
not disclosed these appraisals to you or to the investment banking firm retained
by the General Partners.

-18-

<PAGE>

value of the Properties increases. If the ability of the Properties to generate
income increases, the value of the Mortgage Revenue Bonds increases. If the
value of the Mortgage Revenue Bonds increases the value of the BACs increases.
Thus, the value of the Properties directly impacts the value of the BACs.
Although your General Partners have disclosed that in late 1994 and early 1995
they received indications of interest from two other parties regarding
acquisition of the Funds and they have disclosed that counsel to certain BAC
Holders who opposed the Proposed Mergers undertook an informal market review in
an effort to identify higher and better offers for the interest of the BAC
Holders, your General Partners have not disclosed their views as to the value of
these Properties.

There will be some cash held by the Funds at the Effective Date, the
Available Cash, which CAPREIT will be acquiring for its Redemption Price. But,
your General Partners have limited the amount of upward adjustments to the
Redemption Price that will be made based on the Available Cash (the "Maximum
Adjustment Amount"). As a result, if there is more Available Cash than the
Maximum Adjustment Amount, CAPREIT gets the cash, not you. Your General
Partners have not disclosed why the General Partners believe it was in your best
interest to cap the Maximum Adjustment Amount or for the Funds to accumulate
substantial cash reserves rather than make additional tax-exempt distributions
to BAC Holders.

The General Partners have suggested that one of the principal reasons they
believe the transactions are fair is that the Redemption Price represents a
substantial premium over the market price of the BACs immediately prior to the
first announcement of the Proposed Mergers. Yet, they have not disclosed what
the impact of accumulating such large cash reserves may have been on that market
price. While they have disclosed that CAPREIT Residential, an affiliate of
CAPREIT, manages fourteen of the Properties, they have not disclosed that
CAPREIT Residential through its management of the Properties has the ability,
among other things, to influence the cash flows from these Properties. By
setting the rent rates, by determining the levels and timing of repairs,
maintenance and capital expenditures, CAPREIT Residential's management of a
significant portion of the Properties can directly impact the value of the BACs
because the income flowing to pay the Mortgage Revenue Bonds is directly
affected. Your General Partners have not disclosed either their projections or
CAPREIT's projections as to the cash flows or values of the Properties after the
transactions have been effected, and they have not disclosed why CAPREIT is
purportedly willing to incur approximately $22 million in transaction costs to
effect the Proposed Mergers.

(1) A satisfactory explanation of why the General Partners haven't
actively marketed the Funds or the Properties by employing a broker.

(2) The appraised value of the Properties securing the Mortgage Revenue
Bonds.

-19-

<PAGE>

(3) Projections as to the impact of CAPREIT's financing on cash flow from
the Properties and market value of the Properties.

(4) Given that the manager of most of the Properties is an affiliate of
the buyer, an independent review of the management of the Properties by CAPREIT
Residential to determine if the rent rates are at market value and whether
expenses and repairs have been structured and scheduled in a manner that would
adversely affect either the Available Cash or the value of the BACs.

(5) A satisfactory explanation of why the mechanisms through which
CAPREIT or its designee can acquire title to the Properties from the Owner
Partnership have been structured in the manner that they have and whether there
is any material advantage to the General Partners or their affiliates from one
approach versus another and whether there is any understanding, explicit or
tacit, with respect to the approach that CAPREIT will take.

(6) An explanation of how the General Partners could have given
considerable weight to and relied to a significant extent in reaching their
fairness determination on the estimates of the range of values developed by
Oppenheimer & Co., Inc. ("Oppenheimer") when the General Partners entered into
Merger Agreements and agreed on prices before having the fairness opinions in
hand.

(7) Since your General Partners are primarily relying on the Oppenheimer
analyses which give little value to the availability of tax-exempt financing, an
explanation of why your General Partners apparently believe that the
availability of tax-exempt financing is not a valuable asset of the Funds.

(8) An explanation of why the General Partners and Oppenheimer decided
that in Oppenheimer's determination of fairness it was appropriate to exclude
from the scope of investigation the consideration to be paid or other benefits
to be received by the General Partners and their affiliates.

This is the type of information we believe that you need as a BAC Holder to
determine whether the Proposed Mergers are in your interests. We trust that if
you undertake the effort to review the very lengthy CRITEF Proxy Statement, you
will concur with our view that for some reason they have not disclosed the
information you need to make an informed decision.

5. WE BELIEVE THERE ARE ALTERNATIVES WHICH MAY BE SUPERIOR TO THE PROPOSED
MERGERS.

In the CRITEF Proxy Statement, your General Partners disclose that they
considered several alternatives to the Proposed Mergers in anticipation of the
upcoming mandatory

-20-

<PAGE>

remarketing date for the Mortgage Revenue Bonds when the underlying mortgage
loans mature in 1998 through 2000 if the loans could not be extended at or
before the time of the remarketing. These alternatives included the following:
(i) liquidating the Properties securing the mortgage loans pursuant to
foreclosures under the Mortgage Revenue Bond documents prior to the mortgage
loan maturities; (ii) holding the Mortgage Revenue Bonds until the mortgage
loans mature, and then liquidating the Properties securing the mortgage loans
pursuant to foreclosures under the Mortgage Revenue Bond documents; and
(iii) seeking to extend the loan maturities and continuing to hold the Mortgage
Revenue Bonds for extended periods.

As discussed below, we believe, based on over 25 years of experience with
multi-family housing projects and our views as to the value of the Properties
which secure the Mortgage Revenue Bonds, that the alternatives of either
liquidating the non-performing Properties now or liquidating the non-performing
Properties upon maturity of the Mortgage Revenue Bonds may well be superior
alternatives to the Proposed Mergers. Based on our views as to the value of the
Properties which secure the Mortgage Revenue Bonds and our experience with
multi-family housing projects, we also believe that if your General Partners
were to undertake an open, competitive bidding process after the Funds'
obligations with respect to termination fees and expense reimbursement expire,
such a competitive bidding process may well result in a superior alternative to
the Proposed Mergers. While there can, of course, be no certainty that such
alternatives would be superior or indeed that a superior alternative will occur
if the Proposed Mergers are not approved, we believe that if your General
Partners had pursued any of these alternatives, such alternatives WOULD NOT HAVE
BEEN superior alternatives for your General Partners. As you review the CRITEF
Proxy Statement in which your General Partners discuss their reasons for not
pursuing any of these alternatives, we think it is important that you focus on
the following:

- Your General Partners largely justify their rejection of these
alternatives on the basis of the Oppenheimer fairness opinions. Yet,
they determined to do the Proposed Mergers with CAPREIT before they
had any fairness opinions.

- The alternative of extending the loan maturity dates and continuing to
hold the Mortgage Revenue Bonds for extended periods is exactly what
CAPREIT is doing. The difference is that they are getting all of the
future benefits of tax-exempt status and potential appreciation in the
BACs and the value of the underlying Properties (as well as risks of
depreciation).

ALTERNATIVE 1. LIQUIDATE NOW

-21-

<PAGE>

Oppenheimer's analyses as to the fairness of the Redemption Price to justify
why they did not pursue other alternatives even though they had concluded not
to pursue these alternatives before they ever received Oppenheimer's
analyses. They are careful to point out that Oppenheimer is not opining as
to the net present value that you would receive upon an orderly liquidation.
Moreover, we believe that an 8.0% to 9.0% capitalization rate, rather than
the 9.0% to 10.25% capitalization rate used by Oppenheimer would be more
appropriate. Short of an appraisal, we believe that a capitalization rate
analysis is the best indicator of liquidation value. As the following table
illustrates, using a lower capitalization rate would suggest that an
immediate orderly liquidation of the Funds could result in substantially
greater net present value to you, the BAC Holders.

COMPARISON OF DOMINIUM CAPITALIZATION VALUATIONS
TO OPPENHEIMER CAPITALIZATION VALUATIONS
- ------------------------------------------------------------------------------------------
OPPENHEIMER DOMINIUM
----------- --------
DIRECT CAPITALIZATION DIRECT CAPITALIZATION
--------------------- ---------------------
LOW HIGH LOW HIGH
--- ---- --- ----
<S> <C> <C> <C> <C>
SERIES I, FUND I-II
Properties-Real Estate $ 28,366,230 $ 31,432,849 $ 32,305,984 $ 36,344,232
Performing Mortgages 1,571,926 1,591,890 1,571,926 1,591,890
Other Assets 2,718,145 2,718,145 2,718,145 2,718,145
------------ ------------ ------------ ------------
Total 32,656,301 35,742,884 36,596,055 40,654,267

SERIES II, FUND I-II
Properties-Real Estate 41,721,216 46,246,963 47,371,915 53,293,404
Performing Mortgages - - - -
Other Assets 3,787,207 3,787,207 3,787,207 3,787,207
------------ ------------ ------------ ------------
Total 45,508,423 50,034,170 51,159,122 57,080,611

FUND III
Properties-Real Estate 54,295,302 60,226,437 61,138,153 68,925,408
Performing Mortgages 18,560,070 19,048,018 18,560,070 19,048,018
Other Assets 5,438,490 5,438,490 5,438,490 5,438,490
------------ ------------ ------------ ------------
Total 78,293,862 84,712,945 85,136,713 93,411,916

Property Totals-Real Estate 124,382,748 137,906,249 140,816,052 158,563,044
</TABLE>

-22-

<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
Performing Mortgages 20,131,996 20,639,908 20,131,996 20,639,908
Other Asset Totals 11,943,842 11,943,842 11,943,842 11,943,842
------------ ------------ ------------ ------------
Total $156,458,586 $170,489,999 $172,891,890 $191,146,794

- ------------------------------------------------------------------------------------------
</TABLE>

In preparing the above table, we have used the same assumptions and
analysis as the Oppenheimer fairness opinions except that we have used
capitalization rates ranging from 8.0% to 9.0% as compared to the Oppenheimer
capitalization rates ranging from 9.0% to 10.25% for the non-performing mortgage
loans. We believe that an 8.0% to 9.0% capitalization is a more appropriate
capitalization rate based on three separate analyses prepared for us by Mardell
Amundson Johnson & Leirness, Inc., an independent real estate valuation and
consultation firm ("Mardell Amundson"). Copies of these analyses have been
filed with the Securities and Exchange Commission (the "Commission") and they
may be obtained from the Commission's Public Reference Room, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. Such materials
also may be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov.

The first analyses is set forth in a letter dated April 10, 1996 from
Mardell Amundson to Dominium regarding capitalization rates for each of the
non-performing Properties securing non-performing Mortgage Revenue Bonds held by
the Funds. In connection with its analyses, Mardell Amundson analyzed income
and expense summaries, real estate tax summaries, and property information
concerning the Properties. It was familiar with the Properties in the
Minneapolis/St. Paul area and contacted appraisers and brokers familiar with the
other markets. Mardell Amundson concluded that capitalization rates for the
Properties ranged from 8.00% to 9.00% on a "free and clear" basis and 7.50% to
8.50% on a tax-exempt basis. In a liquidation analysis, we believe the most
appropriate capitalization rates are on a "free and clear" basis.

A September 20, 1996 letter analyzed the state of the Minneapolis/St. Paul
apartment market and apartment values. Mardell Amundson researched the recent
history of the Minneapolis/St. Paul market, analyzing trends over the past three
to four years in various apartment sectors in Minneapolis/St. Paul, including
Class A apartments. The September 20, 1996 letter concluded that in the
Minneapolis/St. Paul market recent Class A transactions indicated a
capitalization rate of between 8 and 9% on a "free and clear" basis and that the
availability of tax-exempt bond financing would tend to decrease capitalization
rates further, by at least 50 basis points (again, we believe that the "free and
clear" capitalization rates are most appropriate for a liquidation analysis).
We believe that the Minneapolis/St. Paul Properties owned by the Owner
Partnerships are Class A properties. The letter also indicated that vacancy
rates in the Minneapolis/St. Paul market were between 2% and 3% and that the

-23-

<PAGE>

combination of increasing rents and declining capitalization rates has resulted
in value increases of 15-20% for properties similar to the Minneapolis/St.Paul
Properties over the past 3-4 years.

In a September 26, 1996 letter Mardell Amundson conducted a preliminary
desk review of the Oppenheimer fairness opinion for the purpose of commenting on
the strengths and weaknesses of the Oppenheimer analysis. They researched
capitalization rates and looked at comparable sales analyses in the
Minneapolis/St. Paul market and concluded that more appropriate capitalization
rates on a "free and clear" basis, without tax exempt financing, for properties
in the Minneapolis/St. Paul market ranged from 8.4% to 9.1%. Mardell Amundson
also concluded that on a comparable sales basis, recent sales indicated a range
of value on a per apartment unit basis of between $48,000 and $61,000 per
dwelling unit with most activity for average Class A apartment properties at
approximately $50,000 per dwelling unit.

For the valuation of the three performing mortgage loans, Observatory,
Paces River 2 and Washington Ridge, Dominium used the values determined in the
Oppenheimer fairness opinions. Oppenheimer valued the performing mortgages by
first discounting the mortgage cash flows and the return of the principal
balances across a range of discount ranges. The ranges of the net present
values obtained, according to the fairness opinions, represent the valuation
range for the three performing mortgage loans.

Second, in the cases of Paces River 2 and Washington Ridge, contingent
interest balances remain associated with these two mortgages. In order to
estimate the value of the contingent interest, if any, Oppenheimer assumed a
scenario whereby the underlying properties were sold/foreclosed in 1998. Any
sale proceeds remaining after the return of principal and payment of accrued
servicing fees would be available to pay all, or a portion, of the outstanding
contingent interest. To determine the value for each of these two mortgages,
the net present value of contingent interest to be paid in 1998 was added to the
value of the mortgage loans estimated in step one above.

In determining the 1998 selling price of these two properties, the
Oppenheimer analysis applied a 9.5% capitalization rate to the 1998 adjusted
cash flow. The 9.5% capitalization rate represents the mid-point of the
capitalization range used in the rest of their property valuations. Since we
did not obtain capitalization rates for these two properties, we have used the
same capitalization rates for the performing mortgage loans as the Oppenheimer
fairness opinions.

Dominium's prospective lenders considered several real estate valuation and
consultation firms in connection with possibly providing financing to Dominium
and, after interviews and bids, engaged Mardell Amundson on behalf of the
lenders and Dominium in connection with Dominium's failed attempt to make a
superior proposal to the Transaction

-24-

<PAGE>

Proposals . In view of its familiarities with the Properties, Dominium directly
engaged Mardell Amundson in September in connection with this proxy statement.
Mardell Amundson is an independent real estate valuation and consultation firm
headquartered in Minneapolis. Dominium has used Mardell Amundson from time to
time in the past and it is one of a number of independent valuation firms used
by Dominium on a periodic basis. Over the past two years, Dominium has paid
Mardell Amundson approximately $22,000, exclusive of amounts paid to Mardell
Amundson in connection with the Proposed Mergers. Dominium paid Mardell
Amundson approximately $30,000 for services provided in connection with the
Proposed Mergers. Mardell Amundson was also engaged by Dominium on October 10,
1996 to perform appraisals for Dominium on eleven properties unrelated to the
Proposed Mergers. Dominium estimates that the fees for these appraisals will be
approximately $28,000.

The individual who prepared the reports, Michael F. Amundson, has a
Master's of Science Degree in Real Estate Appraisal and Investment Analysis, is
a Certified General Property Appraiser in the State of Minnesota and is a Member
of the Appraisal Institute (MAI) with over ten years of real estate valuation
experience. In connection with the April 10, 1996 letter, Dominium requested
that Mardell Amundson provide it with its professional opinion concerning
appropriate capitalization rates for the types of properties securing the
non-performing Mortgage Revenue Bonds, both on a free and clear basis assuming
an all cash sale or financing with taxable market rate debt, and also
capitalization rates assuming availability of tax-exempt financing, but did not
otherwise impose limitations on the scope of the investigation. In connection
with the September 20, 1996 letter, Dominium requested research concerning the
recent history of the Minneapolis/St. Paul apartment market, for the purpose of
analyzing the trends over the past three to four years in various apartment
sectors in the Minneapolis/St. Paul, including Class A apartments, but did not
otherwise impose limitations on the scope of the investigation. In connection
with the September 26, 1996 letter, Dominium requested that Mardell Amundson
review the Oppenheimer fairness opinions for the purpose of commenting on the
strengths and weaknesses of Oppenheimer's analysis, but did not otherwise impose
limitations on the scope of the investigation.

The August 10, 1996, September 20, 1996 and September 26, 1996 letters are
available for inspection and copying at the principal executive offices of
Dominium during its regular business hours by any interested BAC Holder or his
representative who has been so designated in writing.

-25-

<PAGE>

ALTERNATIVE 2: HOLDING THE MORTGAGE REVENUE BONDS UNTIL THE MORTGAGE LOANS
MATURE AND THEN LIQUIDATING THE PROPERTIES SECURING THE
MORTGAGE LOANS PURSUANT TO FORECLOSURES UNDER THE MORTGAGE
REVENUE BOND DOCUMENTS

Your General Partners indicate in the CRITEF Proxy Statement that based on
Oppenheimer's valuation of the Funds on a continuing basis, they believe the
Redemption Price payable to the BAC Holders is within the range of the net
present value that the BAC Holders would receive if the Funds were to conduct an
orderly liquidation of the non-performing Properties upon maturity of the
underlying mortgage loans plus the value of the three performing Mortgage
Revenue Bonds and the other assets of the Funds. In addition, your General
Partners believe that a sale of the Properties would most likely involve high
transaction costs and on-going overhead costs to the Funds, costs which are
likely to be disproportionately high for a diminishing portfolio of properties.
(Since estimates of transaction costs are included in Oppenheimer's analyses, we
do not understand what the relevance of this was to your General Partners'
analysis). Your General Partners also expressed concerns about risks inherent
in a real estate disposition program and the possibility that general or local
economic conditions could worsen. They concluded that "[g]iven that this
alternative would not NECESSARILY provide the BAC Holders with greater returns
than the Redemption Prices payable in the [Proposed] Mergers and that such
current payment of the Redemption Prices eliminates the uncertainties associated
with holding the Mortgage Revenue Bonds for several more years, the General
Partners rejected this alternative" (emphasis added). Your General Partners are
also careful to again point out that, although they are relying on the
Oppenheimer analyses, Oppenheimer has not opined that the Redemption Price
payable to you would be within the range of net present value of the amounts
that you would receive if the Properties were held to maturity and then
liquidated.

In its analysis, Oppenheimer applied capitalization rates ranging from 9.0%
to 10.25%. For the reasons discussed in Alternative 1, if we were valuing the
Properties we would use a capitalization rate ranging from 8.0% to 9.0%. Using
Oppenheimer's methodology, but a lower capitalization rate, the implied equity
values of Fund I-II, Series I, including Oppenheimer's estimated value of the
Fund's remaining Mortgage Revenue Bond and Oppenheimer's estimated value of the
Fund's other assets ("Other Assets") would be $16.031 to $17.831 per BAC as
compared to the estimated Redemption Price for Fund I-II, Series I of $14.82.
The implied equity value of Fund I-II, Series II, including Oppenheimer's
estimated value of the Fund's Other Assets would be $15.796 to $17.624 per BAC
as compared to the estimated Redemption Price for Fund I-II, Series II of
$14.50, and the implied equity value of Fund III, including Oppenheimer's
estimated value of the Fund's remaining performing Mortgage Revenue Bonds and
Oppenheimer's estimated value of the Fund's Other Assets, would be $16.191 to
$17.764 per BAC as compared to the estimated Redemption Price of $15.13. In its
analyses, Oppenheimer also assumed that Available Cash would not exceed the
Maximum Adjustment Amount and made certain assumptions about

-26-

<PAGE>

expenses. To the extent there is more Available Cash or these expenses are less
than assumed by Oppenheimer, the implied equity value would be higher. To be
conservative, we have used the same transaction costs as Oppenheimer, but based
on our experience in buying and selling apartment projects we believe these
estimates of transaction costs are high. For example, Oppenheimer has used a 3%
commission rate. We commonly are able to negotiate commission rates in the
range of 1 1/2%.

Moreover, while we agree that there are risks inherent in continuing to
hold the Mortgage Revenue Bonds, we believe there is nothing about those risks
today that warrants proceeding with the Proposed Mergers now. According to the
Mardell Amundson study referred to above, in the Minneapolis/St. Paul market,
the current vacancy rate is between 2% and 3% and apartment properties similar
to the Minneapolis/St. Paul Properties securing the Mortgage Revenue Bonds have
appreciated on average by 15-20% over the past 3-4 years. Of course, if the
Proposed Mergers are effected, you eliminate the risks associated with
continuing to own the BACs, which are tied in part to the value of the
Properties securing the Mortgage Revenue Bonds, but you are also eliminating any
upside potential.

[* 1 moved from here; text not shown]

ALTERNATIVE 3. ACTIVELY MARKET THE FUNDS OR THE PROPERTIES

Regardless of whose analyses as to value are correct, the record
establishes that your General Partners have never attempted actively to solicit
other merger partners or market the Funds or the Properties where all bidders
have a level playing field. Apparently, they have never even discussed with a
broker either marketing the Properties or conducting a competitive bidding
process for the Funds. In late 1994 and in January 1995, the General Partners
received indications of interest concerning possible acquisitions of the Funds
from Oxford Tax Exempt Fund and Tiger Real Estate Partners, engaged in
preliminary discussions, but did not receive formal offers or have further
discussions with either party. Based on the disclosure in the CRITEF Proxy
Statement, it would also appear that an "informal review of the market was
undertaken by plaintiffs' counsel in an effort to identify higher and better
offers for the interests of the BAC Holders." The termination fees and expense
reimbursement provisions of the Merger Agreements would have applied to any
other bidder in this "informal review" of the market and, based on our
experience, we believe that the structure of the transaction by your General
Partners has had a virtual freezeout effect on competing proposals.

-27-

<PAGE>

Agreements, which results in the BAC Holders receiving consideration in excess
of the proposed Redemption Prices within 270 days from the date of termination.
One alternative would be to vote against the Proposed Mergers and market the
Properties or the Funds in a commercially reasonable manner after CAPREIT's
rights to termination fees and expense reimbursement expires. While there can
be no assurance that this will necessarily result in a higher price for the BAC
Holders, based on our experience we believe that if a transaction of the nature
contemplated by the Proposed Mergers makes sense the best way to maximize BAC
Holder value would be to level the playing field and solicit other merger
partners on a commercially reasonable basis.

If the playing field is leveled, we believe that there may be some
opportunity to effect a transaction with the Funds or to assist the Funds in
maximizing BAC Holder value if the Proposed Mergers are not approved. Dominium
is not presently pursuing financing for an alternative proposal and does not
presently have the financing to pursue an alternative proposal. Moreover, we
are not committed to pursuing such a proposal nor can there be any guarantee
that we or anyone else would be able to finance such a proposal.

In addition to the alternatives discussed above, which we believe may be
superior to the Proposed Mergers based upon our experience in the multi-family
housing industry and our views as to the values of the Properties underlying the
non-performing Mortgage Revenue Bonds, we do not understand your General
Partners' explanation for why they rejected as an alternative to the Proposed
Mergers an attempted refinancing of the Mortgage Revenue Bonds.

** 1 Your General Partners have acknowledged in the CRITEF Proxy Statement
that extending the maturity dates of the Mortgage Revenue Bonds would allow you
to continue to receive tax-exempt interest beyond current loan maturity dates
and to participate in increases in the values of the underlying Properties and
thus the value of the BACs. Interestingly, unlike the liquidation based
alternatives, they have not attempted to quantify what this might mean to you
economically. They have simply said that they would need issuer consents and
BAC Holder approval and that the costs of obtaining these consents would exceed
the costs the Funds are bearing in the Proposed Mergers. They have also
suggested that these modifications would require that the Funds write off all
accrued and unpaid interest. Yet, you are not getting any accrued or unpaid
interest if the Proposed Mergers are effected. We believe their suggestion that
they aren't proceeding because of the costs associated with these

-28-

<PAGE>

approvals are greater than the costs being borne by the Funds for the Proposed
Mergers is disingenuous. Most of the DIRECT transaction costs of the Proposed
Mergers are being borne by CAPREIT. And CAPREIT through a refunding of the
Bonds is doing exactly what your General Partners say they have rejected because
of the costs, uncertainties and limitations of this alternative: they are
restructuring the Mortgage Revenue Bonds, obtaining issuer consents and through
your approval of the Transaction Proposals, obtaining BAC Holder approval. We
feel that your General Partners have not adequately explained why this
alternative makes sense for CAPREIT but does not make sense for the Funds.

YOU SHOULD NOT RELY ON THE FAIRNESS OPINIONS AS A SUBSTITUTE
FOR YOUR OWN ANALYSIS OF WHETHER THE TRANSACTIONS
ARE IN YOUR INTEREST

Your General Partners and CAPREIT have primarily used the premium offered
over market price and the quantitative and qualitative analyses prepared by
Oppenheimer in connection with their fairness opinions as justifying their
conclusion that the Proposed Mergers are fair. You should be aware, however,
that Oppenheimer in rendering its fairness opinions relied, without assuming
responsibility for independent verification, on the accuracy and completeness of
all financial and operating data, financial analyses, reports and other
information that were publicly available, compiled or approved by or otherwise
furnished or communicated to Oppenheimer by or on behalf of the General
Partners. Moreover, Oppenheimer did not make an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the Funds,
nor was Oppenheimer furnished with any such evaluation or appraisal. Nor did
Oppenheimer undertake the types of analyses that, based on our experience, would
commonly be undertaken by a qualified real estate appraiser, including a
comparable sales analysis, replacement cost analysis or determining an
appropriate capitalization rate for the market places in which the Properties
are located.

You should also focus on the limitations on Oppenheimer's engagement.
Specifically:

- Oppenheimer was not requested to serve as financial advisor to the
General Partners or the Funds or to assist the General Partners in the
merger negotiations or in the negotiations of the related transactions
involving the General Partners and their affiliates and CAPREIT.

- Oppenheimer was not requested to and did not make any evaluation
regarding any other expressions of interest to the General Partners by
third parties with regard to any alternative transactions.

- Oppenheimer was not requested to and did not analyze or give any
effect to the impact of any federal, state or local income taxes to
the BAC Holders arising out of the proposed transactions.

-29-

<PAGE>

- In determining the fairness of the Redemption Price, the General
Partners did not request that Oppenheimer take into account the
consideration to be paid to or other benefits to be received by the
General Partners and their affiliates, including CRI or CRIIMI, in
connection with the transactions contemplated, and it expressed no
opinion thereon.

- Oppenheimer was not requested to and does not make any recommendation
to the BAC Holders of any of the Funds regarding the Proposed Mergers.

Given what we perceive are conflicts of interests and inducements for your
General Partners to proceed with these transactions, the fact that Oppenheimer
did not have appraisals, the fact that Oppenheimer was relying, without
independent verification, on information provided by your General Partners and
their agents (including CAPREIT Residential, the buyer's affiliate), and the
fact that there were significant limitations on Oppenheimer's engagement
(although apparently not on the scope of their investigation or review), we
believe that you should take limited comfort from Oppenheimer's fairness
opinions. Moreover, we believe you should be affirmatively uncomfortable that
your General Partners and CAPREIT appear to be largely relying on these opinions
as justifications for their recommendations -- even though they have
consistently negotiated price and terms without the benefit of the fairness
opinions.

One of the problems with relying on fairness opinions is that if you change
the assumptions, you may change the opinion. For example:

- Oppenheimer in rendering its fairness opinions assumes that the
Adjustment Amounts at the closing of the Proposed Mergers would not
exceed the Maximum Adjustment Amounts with respect to each series of
BACs. If there is Available Cash in excess of the Maximum Adjustment
Amounts at the Effective Date, the impact of this excess Available
Cash is not reflected in the Oppenheimer opinions.

- If you use a 8.0 to 9.0% capitalization rate, which is the range we
believe appropriate for Properties securing the non-performing Morgage
Revenue Bonds for the reasons previously discussed, rather than the
capitalization rate used by Oppenheimer of 9.0 to 10.25%, the
Redemption Price is no longer within the range of net present values
that you might receive under either a "liquidate now" approach or a
"liquidate at maturity" approach. We believe that the capitalization
rates used by Oppenheimer are too high and consequently that their
conclusions as to the range of values are too low.

-30-
<PAGE>

YOU SHOULD NOT RELY ON PLAINTIFFS' CLASS ACTION LAWSUITS AS
A SUBSTITUTE FOR YOUR OWN ANALYSIS OF WHETHER THE TRANSACTIONS
ARE IN YOUR INTEREST

While the plaintiffs' class action lawsuits resulted in an initial increase
in the Redemption Price being offered to the BAC Holders of $8.5 million and an
additional $2 million increase after our attempts to make a superior proposal,
we believe that you should not rely on the plaintiffs' class action lawsuits or
the Delaware Chancery Court's approval of the settlement of these lawsuits as a
substitute for your own analysis of whether the transactions are in your
interest. Moreover, in approving the settlements, the Delaware Chancery Court
expressly relied on the fact that these transactions require your approval. If
you do not believe the transactions are fair or that your General Partners have
acted in a manner that assures you that you are receiving the best price for
your BACs, you should vote against the Proposed Mergers.

Again, consider what has happened here. Your General Partners initially
entered into a transaction which we believe is rife with conflicts of interest
at a price that would not support a fairness opinion and which by its terms
included substantial impediments to any competing proposals. They were then
promptly sued by two separate parties and negotiated a settlement which
increased the Redemption Price (although almost a fourth of the initial increase
in the Redemption Price went to the plaintiffs' class action lawyers and not to
the BAC Holders). One effect of this settlement is to insulate your General
Partners and CAPREIT as a practical matter from future claims by BAC Holders.
Admittedly, the Redemption Price that is now being offered to you is $10.3
million higher than the Redemption Price initially agreed to by your General
Partners (after netting out attorneys' fees). But that does not necessarily
mean it is a fair price. We do not believe you are receiving the price that you
would have received if your General Partners had sought competitive bids. We do
not believe the General Partners are receiving what they would have received if
they had sought competitive bids. We believe you should vote NO on the
Transaction Proposals.

INFORMATION ABOUT DOMINIUM

Dominium is an affiliate of Dominium Management Services, Inc., which is
owned by David L. Brierton and Jack W. Safar ("Dominium Management Services").
Dominium Management Services is an accredited management organization, which
includes as affiliates a real estate development company and several general
partnerships, limited partnerships, limited liability companies and limited
liability partnerships formed for the purpose of owning, developing or managing
real properties. Dominium was formed in 1996 for the specific purpose of
engaging in activities relating to the Funds. Dominium Management Services and
its affiliates provide a wide variety of real estate related services, including
but

-31-

<PAGE>

not limited to, turnkey development consulting, financial feasibility analysis,
construction consulting, value engineering and project marketing and management.

Dominium is the beneficial owner of 100 Series I BACs of Fund I-II, 100
Series II BACs of Fund I-II and 100 BACs of Fund III, which were purchased on or
about August 26, 1996. Dominium is opposing the Proposed Mergers because it
does not believe the Proposed Mergers are in the best interest of the BAC
Holders. As previously discussed, Dominium previously attempted to acquire the
Funds through a transaction comparable to the Proposed Mergers. It did not
obtain financing, it is not presently pursuing financing, nor does it have any
present plans to make a superior proposal. Although it is not presently
pursuing financing or a superior proposal, Dominium believes that there may be
some opportunity to effect a transaction with the Funds if there is a "level
playing field" or to assist the Funds in maximizing BAC Holder value if the
Proposed Mergers are not approved.

Messrs. Brierton and Safar, the principals of Dominium Management Services,
have been personally involved in the real estate business since 1970. Since its
inception, Dominium Management Services and its affiliates have developed in
excess of 6,000 rental housing units around the country. Since 1993, Dominium
Management Services has had approximately $95 million in project acquisitions.
Since 1986, it has developed over $70 million in new developments. The
financing for these properties has come from multiple sources such as the
Department of Housing and Urban Development ("HUD"), state agencies, tax-exempt
bonds, municipalities, the Farmers Home Administration, and other conventional
and unconventional loans. Dominium Management Services currently manages
approximately 14,000 units that have a gross annual revenue of approximately
$100,000,000. It has offices in Minnesota, Wisconsin, Florida, Georgia and
Illinois. During the past several years Dominium Management Services' efforts
have focused on acquiring under-performing properties.

David L. Brierton, Jack W. Safar, Paul R. Sween and Armand E. Brachman are
the sole partners of Dominium and participants in this proxy solicitation. None
of the participants individually own any BACs.

Mr. Brierton received a Master's of Science Degree from the University of
Wisconsin, Graduate School of Business in 1970, specializing in Real Estate and
Urban Land Economics. He was awarded a graduate study fellowship in Washington
D.C. by HUD. Mr. Brierton received his Bachelor of Business Administration
Degree from Wisconsin State University with majors in Accounting and Finance,
and a minor in Economics. He is the recipient of the Wall Street Journal's
annual DOW JONES award for "Outstanding Student Achievement in the School of
Business" at Wisconsin State University. He is currently a member of the Board
of Directors of the National Leased Housing Association of Washington D.C. and
is a past director of the Minnesota Multi Housing Association.

Mr. Safar received a Master's of Business Administration (MBA) Degree from
the University of Hawaii in 1969, along with a Bachelor's Degree in 1968 with
majors in

-32-

<PAGE>

Marketing and Finance. Additionally, Mr. Safar received a MBA Degree from the
University of Wisconsin, Graduate School of Business in 1970, specializing in
Real Estate Appraisal and Investment Analysis. Mr. Safar was employed from
1970-72 by Arthur Rubloff and Company of Chicago, Illinois, a fully diversified
real estate organization. While employed by Arthur Rubloff, Mr. Safar
functioned as a broker and counselor to various clients. He specialized in
residential consultation primarily in reference to properties which could
utilize the then numerous governmental housing programs.

As Chief Financial Officer of Dominium Management Services, Mr. Sween is
responsible for acquisition, financing and development. Mr. Sween is also
responsible for tax and financial planning, and commercial banking
relationships. Mr. Sween is a graduate of Pennsylvania State University and is
a Certified Public Accountant. Prior to joining Dominium Management Services in
1989, he was a principal in a development and property management firm that
syndicated existing apartment projects and completed low income tax credit and
historic rehabilitation projects. He was previously employed by the
international accounting firm of Ernst & Young in their tax department.
Mr. Sween has been active in the multi housing industry since 1981.

Mr. Brachman is Vice President of Operations of Dominium Management
Services. Mr. Brachman joined Dominium Management Services in 1979 after
receiving his Bachelor of Business Administration degree from the University of
Wisconsin with majors in Finance and Real Estate and Urban Land Economics. He
has had extensive experience in working with various federal, state and local
housing programs and in every aspect of the development process.

BACKGROUND TO THE PROPOSED MERGERS

The following chronology is based largely on the description provided in
the CRITEF Proxy Statement, specific citations to which are in parentheses.
Dominium has no independent knowledge of many of the assertions made therein and
assumes no responsibility for the accuracy or completeness of any such
information contained therein. The description of our attempts to acquire the
Funds is, of course, based on our own knowledge of the sequence of events.

In late 1994 and in January 1995, the General Partners received indications
of interest concerning possible acquisition of the Funds from Oxford Tax Exempt
Fund and from Tiger Real Estate Partners (p. 32)

-33-

<PAGE>

acquisition structures (p. 17). On March 22, 1995, representatives of CAPREIT,
including Mr. Kadish, and representatives of the General Partners, including
Messrs. Dockser and Willoughby, met to discuss a transaction structure (p.18).

In early April 1995, the parties continued with discussions described more
completely in the CRITEF Proxy Statement (p. 18) but, according to the CRITEF
Proxy Statement, the parties broke off negotiations for three months while the
parties negotiated the redemption of CRI's 22% residual limited partnership
interest in AP CAPREIT (p.19). On June 30, 1995, the parties reached agreement
on the redemption of CRI's interest in AP CAPREIT and CAPREIT delivered initial
drafts of the Merger Agreements (p. 19). The parties continued discussions in
July and August, with CAPREIT delivering a financing term sheet in late July
prepared by a financial institution which several months later declined to
proceed with the financing (p. 19).

According to the CRITEF Proxy Statement, CAPREIT offered the General
Partners an aggregate of $145 million for all the BACs on August 22, 1995 (p.
20). After additional negotiations, CAPREIT raised the price to $150 million
and the General Partners accepted (subject to the receipt of favorable fairness
opinions and approval by the BAC Holders) (p. 20). The parties entered into the
Merger Agreements on September 11, 1995 and made a public announcement of the
Proposed Mergers (p. 20). On that same date, the General Partners engaged
Oppenheimer & Co., Inc. to render fairness opinions in connection with the
Proposed Mergers (p. 20).

Throughout the second half of 1995, CAPREIT negotiated with the financial
institution which had provided the term sheet delivered to the General Partners,
but reached an impasse in December 1995 (p. 21). On September 22, 1995 and
October 5, 1995, two putative class action lawsuits (collectively, the "BAC
Holder Litigation") were brought in Delaware state court on behalf of the BAC
Holders against Messrs. Dockser and Willoughby, CRI, the General Partners, the
assignor limited partner of each Fund and CAPREIT, alleging, among other things,
that the price offered to BAC Holders was too low and that the defendants
breached their fiduciary duty to the BAC Holders, or aided and abetted such a
breach, and engaged in self-dealing and misled BAC Holders in connection with
the Proposed Mergers (p. 20).

-34-

<PAGE>

than $12.4 million, with an aggregate adjustment amount in either case set at
$1.5 million; (b) Accrued Fees payable to CRI would be reduced from $4.023
million to no more than $1.95 million (with no reduction in Accrued Fees payable
to CRIIMI); and (c) plaintiff's counsel could apply to the court for payment of
their fees in an amount not to exceed 20% of the improvements negotiated by them
over the initial Proposed Merger terms (p. 21). The aggregate consideration for
the Proposed Mergers was increased for the first time.

On January 31, 1996, the parties executed amendments to the Merger
Agreements to reflect these new terms (p. 21). Also at that time, the
plaintiffs and defendants in the BAC Holder Litigation executed a Memorandum of
Understanding regarding the proposed settlement (p. 21). The CRITEF Proxy
Statement says that shortly thereafter, the General Partners instructed
Oppenheimer to review the fairness of the Proposed Mergers based on the new
terms (p. 21).

According to the CRITEF Proxy Statement, in early March of 1996, CAPREIT
and the General Partners determined that because of a re-evaluation of certain
deferred maintenance costs and contingent liabilities with respect to certain of
the Properties, the aggregate consideration for the Proposed Mergers needed to
be increased by approximately $260,000 (p. 21). On March 14, 1996, the General
Partners and CAPREIT executed the First Amended and Restated Merger Agreements
to incorporate and restate the January 31, 1996 amendments, to provide for the
$260,000 increase and to provide for another increase of approximately $35,000
as a result of a new methodology in rounding the Redemption Price (p. 21). The
aggregate consideration for the Proposed Mergers was increased for the second
time.

During the next few months several events occurred according to the CRITEF
Proxy Statement (p. 21-23). On March 14, 1996, Oppenheimer delivered its
initial fairness opinions to the Funds opining that the transactions
contemplated by the Merger Agreements as revised were now fair to the BAC
Holders in Oppenheimer's view. CAPREIT, having pursued alternative financing
sources, received a commitment letter from CentRe Mortgage Capital, L.L.C. on
March 29, 1996, six months after entering into the Merger Agreement. On April
26, 1996, CAPREIT forwarded a copy of this letter to the Funds. The parties to
the BAC Holder Litigation executed a Stipulation of Settlement dated May 16,
1996 and a court hearing regarding this stipulation was set for June 19, 1996.
Also, the Merger Agreements were amended two more times to reflect modifications
to the adjustments for Available Cash and other miscellaneous changes.

-35-

<PAGE>

1996, following receipt of signed confidentiality agreements from certain of the
Dominium representatives, the Funds provided Dominium with due diligence
materials. The Funds received executed confidentiality agreements from all four
of the Dominium representatives by April 15, 1996.

In April, May and June of 1996, Dominium reviewed the information which had
been provided by your General Partners and was in discussions with GMAC
Commercial Mortgage Corporation ("GMAC") and Piper Jaffray Inc. ("Piper")
concerning the possibility of providing financing for its acquisition of the
Funds. In mid June 1996, Mr. McNellis advised his partners that he had received
a proposal from GMAC to provide financing, through an affiliate, Commercial
Capital Initiatives, Inc. ("CCII"), for a possible acquisition of the Funds.
After further negotiations with CCII and Piper, on June 28, 1996, Dominium
received letters from CCII and Piper confirming their interest in providing such
financing, subject to certain conditions. As a result of these letters,
Dominium believed that it was likely that it would be able to obtain at least
$184 million in financing (including the $12.4 million of Available Cash in the
Funds) and Dominium sent a letter to counsel for the Funds and counsel to the
plaintiffs in the BAC Holder Litigation on June 28, 1996 indicating an interest
in entering into merger agreements with the Funds having similar terms as the
Merger Agreements and offering the BAC Holders an aggregate merger consideration
of approximately $168,230,000. This consideration was subject to increases if
Available Cash exceeded $12.4 million (without any cap on the maximum
adjustments) or if it was ultimately determined that CAPREIT was not entitled to
all or part of the termination fees or expense reimbursement provided in the
Merger Agreements. The $168 million figure was based on information then
available to Dominium, including its estimate of likely expenses associated with
the transaction (which included payment of $8.5 million in expenses and
termination fees to CAPREIT). At the time of its June 28 letter, Dominium was
not aware that your General Partners had agreed to reimburse CAPREIT for an
additional $1 million of expenses.

During July 1996, representatives of Dominium visited the principal offices
of the Funds to conduct due diligence. Representatives of Dominium, its
potential lenders, and its engineering and environmental consultants also
visited the Properties. By letter dated July 12, 1996, Dominium informed the
Funds and counsel for the plaintiffs in the BAC Holder Litigation, that Dominium
had received revised financing commitments, subject to its potential lenders'
satisfactory completion of their due diligence during the 21 business days from
July 15, 1996 and the payment by Dominium of an expense deposit of $75,000, a
processing fee of $100,000 on July 23, 1996, and certain commitment fees of
which $500,000 were due at the end of the 21 business day due diligence period
unless CCII declined to provide the financing at any time during the due
diligence period. Under Dominium's proposal, the net amount payable to BAC
Holders would be at least $165,305,000, after taking into account additional
fees and expenses which were not included in its initial proposal (including $1
million of additional expense reimbursement to CAPREIT).

By letter dated July 18, 1996, the General Partners requested that Dominium
supply them with evidence that it had the financial capability to cover the
costs of the transaction it

-36-

<PAGE>

proposed and to provide the equity that its potential lenders would require.
The July 18 letters also requested that Dominium's counsel submit their
suggested revisions to the existing Merger Agreements with CAPREIT to reflect
the terms desired by Dominium. Comments were sent to the General Partners for
Saturday delivery on July 26, 1996. On July 22, 1996, Dominium advised
plaintiffs' counsel that it had paid the $75,000 fee required by the CCII
commitment letter and responded to certain questions of plaintiffs' counsel in
the BAC Holder Litigation including clarification that any net savings resulting
from a reduction of the break-up fees and reimbursable expenses would be paid to
the BAC Holders.

On Monday, July 29, 1996, representatives of Dominium advised plaintiff's
counsel in the BAC Holder Litigation that, based on discussions with CCII and
Piper, they believed that Dominium would have firm committed financing by August
5, 1996. On Thursday, August 1, 1996, CCII indicated that while it was
satisfied with the real property due diligence it would need additional time to
complete its legal due diligence notwithstanding the 21 business day review
period contemplated by its July 12 letter.

On August 2, 1996, representatives of CAPREIT and representatives of
Dominium met in New York City to discuss Dominium's proposal. Subsequent
telephone discussions also occurred. At the meeting on August 2, 1996, Dominium
concluded that CAPREIT had no intention of permitting Dominium to effect a
superior transaction with the Funds and that it would block this at any cost.
In view of this, as well as recent developments with respect to its financing
which made it impossible for Dominium to deliver firm commitments on August 5,
1996, over the next week Dominium considered its alternatives. As a result of
this review, Dominium determined that it would not attempt to delay further
settlement of the BAC Holder Litigation. On Monday, August 12, 1996, Dominium
sent a letter to CRI advising that, in its view, the existing CAPREIT proposals
substantially undervalued the Properties. Dominium also stated in this letter
that it had not received firm financing and that it believed there were
significant structural impediments to proceeding further with an alternative to
the Proposed Mergers because of the General Partners' conflicts of interest.

According to the CRITEF Proxy Statements, on August 13, 1996, plaintiffs'
counsel and CAPREIT agreed to an aggregate increase of $2 million in the
consideration payable to BAC Holders (a portion of which is payable directly to
plaintiffs' counsel in the BAC Holder Litigation) in exchange for the agreement
of plaintiffs' counsel to go forward with the settlement hearing (p. 25). This
was the third increase in the Redemption Price. In addition, according to the
CRITEF Proxy Statement, based on the Properties' performance since May 18, 1996
the General Partners negotiated for and CAPREIT agreed to a fourth increase in
the aggregate consideration of an additional $1.5 million, approximately, in
consideration of the extension of the termination date for the Proposed Mergers
until December 31, 1996 and an increase in the maximum amount of possible
reimbursement to the Merger Partnerships for expenses in the event of
termination (p. 26). Your General Partners have not disclosed what the effect
of this extension will be on the Available Cash.

-37-

<PAGE>

Notwithstanding these most recent increases in the Redemption Price, as
discussed previously, we continue to believe that the Redemption Price is
inadequate and that there are other alternatives to the Proposed Mergers which
should be considered by your General Partners.

ADDITIONAL INFORMATION CONCERNING THE TRANSACTION PROPOSALS

Reference is hereby made to the CRITEF Proxy Statement which you should
have received recently. The CRITEF Proxy Statement contains additional
information concerning the BACs, the beneficial ownership of BACs by the
principal holders thereof, the Funds' management, the absence of rights of
appraisal or similar rights of dissenting BAC Holders, recent trading prices for
the BACs, conditions to consummation of the Proposed Mergers, termination
provisions for the Proposed Mergers, and certain other matters regarding the
BACs, the Transaction Proposals and the Meetings. Much of the factual
information contained in this Proxy Statement has been obtained from the
disclosures set forth in the CRITEF Proxy Statement.

BAC Holders are urged to read carefully the CRITEF Proxy Statement.

Dominium assumes no responsibility for the accuracy or completeness of any
information included in the CRITEF Proxy Statement or which has been included
herein based on the CRITEF Proxy Statement.

LITIGATION

On September 27, 1996, Dominium filed a complaint in the United States
District Court for the District of Minnesota against Messrs. Dockser,
Willoughby, CRI, the General Partners and the Funds alleging that the defendants
had violated federal securities laws by (a) falsely characterizing the Proposed
Mergers as arm's length transactions and failing to make material disclosures
regarding significant conflicts of interest and inducements to proceed with the
Proposed Mergers, (b) falsely understating or omitting the true value of the
BACs and their underlying properties, thus understating the fair value the BAC
Holders should receive for their interests, (c) misrepresenting that they relied
on the fairness opinions, since the fairness opinions were obtained
after-the-fact and disregarded important aspects of the Proposed Mergers, (d)
failing to disclose the obstacles which prevent competing bids to the Proposed
Mergers, and (e) falsely stating that the Proposed Mergers are fair to and in
the best interests of the BAC Holders. In connection with its complaint,
Dominium has brought a motion for expedited discovery and is seeking corrective
disclosure and rescheduling of the meeting, if necessary. CRI has in response
brought a motion to disqualify Dominium's special counsel, Faegre & Benson LLP,
for alleged conflicts of interest and alleged use of confidential information
and brought an action in Delaware Chancery Court to enjoin Dominium from
allegedly violating the final order in the BAC Holder Litigation.

-38-

<PAGE>

On October 3, 1996, the Funds, the General Partners and CRI filed a
complaint in the United States District Court, Southern District of New York,
against Dominium, and Messrs. Safar, Brierton, Sween and Brachman alleging that
Dominium's letter dated September 27, 1996 and its press release dated October
1, 1996 violated federal securities laws and that the defendants tortiously
interfered with economic advantage. Motions in these cases are pending.

VOTE REQUIRED AND VOTING PROCEDURES

Pursuant to the Delaware Revised Uniform Limited Partnership Act (the
"Partnership Act") and the Agreement of Limited Partnership for Fund I-II,
approval of the Transaction Proposals relating to Fund I-II requires the
affirmative vote of a majority in interest of holders of the outstanding Fund
I-II, Series I and II BACs voting as a single class. Pursuant to the
Partnership Act and the Agreement of Limited Partnership for Fund III, approval
of the Transaction Proposals relating to Fund III requires the affirmative vote
of a majority in interest of holders of the outstanding Fund III, Series III
BACs.

The approval and adoption, by the BAC Holders of each Fund, of each
Transaction Proposal to be voted upon by them is conditioned upon the approval
and adoption by such BAC Holders of the other Transaction Proposal to be voted
upon by them. If BAC Holders of one Fund approve each of the Transaction
Proposals to be voted upon by them, but the BAC Holders of the other Fund do not
approve each of the Transaction Proposals to be voted upon by them, then CAPREIT
and its affiliates may elect, in their sole discretion, whether to consummate
the Proposed Merger and related transaction with the Fund whose BAC Holders have
approved the Transaction Proposals and not with the other Fund.

Each BAC Holder is entitled to one vote for each BAC held of record by such
BAC Holder at the close of business on September 19, 1996 (the "Record Date"),
with respect to each of the proposals described in this Proxy Statement to be
voted upon by such BAC Holder.

Enclosed with this proxy statement is a blue proxy card. Each BAC Holder,
whether voting in person or by proxy, may either vote "for," "against" or
"abstain" as to each of the proposals set forth therein. The failure to return
a signed proxy card or returning one with an "abstain" vote has the effect of,
and is equivalent to, a vote against each proposal. In addition, broker
non-votes (i.e., BACs not voted on a specific proposal by record holders due to
the absence of specific voting instructions from the beneficial owner of the
BACs) have the effect of, and are equivalent to, votes against the proposals.

The Funds have three series of BACs outstanding. Fund I-II issued BACs in
Series I and Series II. Fund III issued one series of BACs, Series III. If a
BAC Holder has BACs in more than one Fund, separate proxy cards should be
completed for each Fund.

-39-

<PAGE>

You may revoke any proxy you submit (whether a proxy solicited by the
General Partners or the blue proxy card which we are soliciting) at any time
prior to its exercise by (i) attending the appropriate Meeting and voting your
BACs in person, (ii) submitting a duly executed later dated proxy, or (iii)
submitting a written notice of revocation. Unless revoked in the manner set
forth above, duly executed proxies in the form enclosed will be voted in
accordance with your instructions as indicated on the blue proxy card. In the
absence of such instructions, such proxies will be voted AGAINST the Transaction
Proposals.

Except as provided above, we are not aware of any other matters to be
considered at the Meetings. However, if any other matters are properly brought
before either of the Meetings, such proxies will be voted on such matters as
Dominium, in its sole discretion, may determine, including, without limitation,
with respect to any adjournments or postponements of the appropriate Meeting
from time to time.

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETINGS AND NO MATTER HOW FEW BACS
YOU MAY OWN, WE URGE YOU TO SUPPORT US IN OUR ATTEMPT TO DEFEAT THE PROPOSED
MERGERS. PLEASE SIGN, DATE AND MAIL THE FULLY COMPLETED BLUE PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. PLEASE VOTE AGAINST EACH PROPOSAL.

You may do this even if you have already sent in a different proxy
solicited by the General Partners. It is the latest dated proxy that counts.
Execution and delivery of a proxy by a record holder of BACs of either of the
Funds will be presumed to be a proxy with respect to all BACs of that Fund held
by such record holder unless the proxy specifies otherwise.

SOLICITATION EXPENSES

The expense of preparing, printing and mailing these proxy materials and
the costs of the solicitation will be paid by Dominium. Proxies are being
solicited principally by mail, but proxies may also be solicited personally, by
telephone, telegraph and similar means by Dominium and its affiliates. In
addition, Dominium has retained Georgeson & Company Inc. to assist in the
solicitation of the proxies for an estimated fee of $25,000 plus out-of-pocket
expenses. Dominium will also reimburse brokerage firms and others for their
expenses in forwarding proxy solicitation material to the beneficial owners of
the BACs.

-40-
<PAGE>

CAPITAL REALTY INVESTORS TAX EXEMPT FUND
LIMITED PARTNERSHIP, SERIES I
PROXY

THIS PROXY IS SOLICITED ON BEHALF OF DOMINIUM TAX EXEMPT FUND L.L.P.

THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE PROXY STATEMENT OF
DOMINIUM TAX EXEMPT FUND L.L.P.

(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE.)

SERIES I

<PAGE>

PLEASE MARK
/X/ YOUR VOTE AS
THIS

PLEASE SIGN HERE (EXACTLY AS NAME(S)
APPEAR(S) AT LEFT)

Date:
---------------------------------------

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

---------------------------------------
/ / Change of address? Check this box
and insert new address below.

SERIES I

<PAGE>

CAPITAL REALTY INVESTORS TAX EXEMPT FUND
LIMITED PARTNERSHIP, SERIES II
PROXY

THIS PROXY IS SOLICITED ON BEHALF OF DOMINIUM TAX EXEMPT FUND L.L.P.

The undersigned hereby appoints Jack W. Safar and David L. Brierton,
each with the power to act alone and with full power of substitution and
revocation, to represent and vote, as specified on the other side of this
Proxy, all Beneficial Assignee Certificates ("BACs") of Capital Realty
Investors Tax Exempt Fund Limited Partnership, Series II, which the
undersigned is entitled to vote at the Meeting of BAC Holders to be held at
9:00 A.M., local time, on October 29, 1996, at the Doubletree Hotel, 1750
Rockville Pike, Rockville, Maryland 20852 and all adjournments and
postponements thereof. The undersigned revokes any previous proxies with
respect to the matters covered by this Proxy.

THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE PROXY STATEMENT OF
DOMINIUM TAX EXEMPT FUND L.L.P.

(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE.)

SERIES II

<PAGE>

PLEASE MARK
/X/ YOUR VOTE AS
THIS

PLEASE SIGN HERE (EXACTLY AS NAME(S)
APPEAR(S) AT LEFT)

Date:
---------------------------------------

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

---------------------------------------
/ / Change of address? Check this box
and insert new address below.

SERIES II

<PAGE>

CAPITAL REALTY INVESTORS TAX EXEMPT FUND III
LIMITED PARTNERSHIP
PROXY

THIS PROXY IS SOLICITED ON BEHALF OF DOMINIUM TAX EXEMPT FUND L.L.P.

The undersigned hereby appoints Jack W. Safar and David L. Brierton,
each with the power to act alone and with full power of substitution and
revocation, to represent and vote, as specified on the other side of this
Proxy, all Beneficial Assignee Certificates ("BACs") of Capital Realty
Investors Tax Exempt Fund III Limited Partnership, which the undersigned is
entitled to vote at the Meeting of BAC Holders to be held at 10:00 A.M., local
time, on October 29, 1996, at the Doubletree Hotel, 1750 Rockville Pike,
Rockville, Maryland 20852 and all adjournments and postponements thereof. The
undersigned revokes any previous proxies with respect to the matters covered
by this Proxy.

THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE PROXY STATEMENT OF
DOMINIUM TAX EXEMPT FUND L.L.P.

(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE.)

SERIES III

<PAGE>

PLEASE MARK
/X/ YOUR VOTE AS
THIS

AGAINST ABSTAIN FOR
Proposal 1. Approval of the Merger Proposal. Approve
and adopt the Fourth Amended and Restated Agreement
and Plan of Merger, dated as of August 21, 1996 (the
"Merger Agreement"), among Capital Realty Investors / / / / / /
Tax Exempt Fund III Limited Partnership, CRITEF
Associates III Limited Partnership, Watermark III
Partners, L.P. and others, and any amendments to the
Agreement of Limited Partnership of the Fund
necessary to expressly authorize the foregoing.

PLEASE SIGN HERE (EXACTLY AS NAME(S)
APPEAR(S) AT LEFT)

Date:
--------------------------------------

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

--------------------------------------
/ / Change of address? Check this box
and insert new address below.

SERIES III