<PAGE>   1



                       SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C.  20549

                                   FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d) of
                      the Securities Exchange Act of 1934
                  For the Fiscal Year Ended DECEMBER 31, 1996

                             Commission File Number
                                     2-66171   

                       REAL ESTATE ASSOCIATES LIMITED II

                        A CALIFORNIA LIMITED PARTNERSHIP

               I.R.S. Employer Identification No.  95-3547609   

        9090 WILSHIRE BLVD., SUITE 201, BEVERLY HILLS, CALIFORNIA 90211

       Registrant's Telephone Number, Including Area Code (310) 278-2191

      Securities Registered Pursuant to Section 12(b) or 12(g) of the Act:

                                      NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed with the Commission by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve months (or such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                     Yes      X          No_______________

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.  [X]
<PAGE>   2
PART I.

ITEM 1.       BUSINESS:

Real Estate Associates Limited II ("REAL II" or the "Partnership") is a limited
partnership which was formed under the laws of the State of California on
December 4, 1979.  On March 17, 1980, REAL II offered 3,000 units consisting of
6,000 Limited Partnership Interests and Warrants to purchase a maximum of 6,000
Additional Limited Partnership Interests through a public offering managed by
Lehman Brothers Inc.

The general partners of REAL II are National Partnership Investments Corp.
("NAPICO"), a California Corporation (the "Corporate General Partner") and
Coast Housing Investment Associates ("CHIA").  CHIA is a California limited
partnership and consists of Messrs. Nicholas G.  Ciriello, an unrelated
individual, as general partner and Charles H. Boxenbaum as limited partner.
The business of REAL II is conducted primarily by its general partners as REAL
II has no employees of its own.

Casden Investment Corporation ("CIC") owns 100 percent of NAPICO's stock.  The
current members of NAPICO's Board of Directors are Charles H.  Boxenbaum, Bruce
E. Nelson, Alan I. Casden, Henry C. Casden and Brian Goldberg.

REAL II holds limited partnership interests in twenty-one local limited
partnerships as of December 31, 1996.  Each of the local partnerships own a low
income housing project which is subsidized and/or has a mortgage note payable
to or insured by agencies of the federal or local government.

In order to stimulate private investment in low income housing, the federal
government and certain state and local agencies have provided significant
ownership incentives, including among others, interest subsidies, rent
supplements, and mortgage insurance, with the intent of reducing certain market
risks and providing investors with certain tax benefits, plus limited cash
distributions and the possibility of long- term capital gains.  There remain,
however, significant risks.  The long-term nature of investments in government
assisted housing limits the ability of REAL II to vary its portfolio in
response to changing economic, financial and investment conditions.  Such
investments are also subject to changes in local economic circumstances and
housing patterns, as well as rising operating costs, vacancies, rent collection
difficulties, energy shortages and other factors which have an impact on real
estate values.  These projects also require greater management expertise and
may have higher operating expenses than conventional housing projects.

The partnerships in which REAL II has invested were, at least initially,
organized by private developers who acquired the sites, or options thereon, and
applied for applicable mortgage insurance and subsidies.  REAL II became the
principal limited partner in these local limited partnerships pursuant to
arm's-length negotiations with these developers, or others, who act as general
partners.  As a limited partner, REAL II's liability for obligations of the
local limited partnership is limited to its investment.  The local general
partner of the local limited partnership retains responsibility for developing,
constructing, maintaining, operating and managing the Project.  Under certain
circumstances, REAL II has the right to replace the general partner of the
local limited partnerships.

Although each of the partnerships in which REAL II has invested owns a project
which must compete in the market place for tenants, interest subsidies and rent
supplements from governmental agencies make it possible to offer these dwelling
units to eligible "low income" tenants at a cost significantly below the market
rate for comparable conventionally financed dwelling units in the area.





<PAGE>   3
During 1996, the projects in which REAL II had invested were substantially
rented.  The following is a schedule of the status as of December 31, 1996, of
the projects owned by local limited partnerships in which REAL II is a limited
partner.

            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL II HAS AN INVESTMENT
                               DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                         Units Authorized
                                                            For Rental
                                                         Assistance Under
                                                           Section 8 or
                                                            Other Rent
                                         No. of             Supplement        Units           Percentage of
Name & Location                          Units                Program        Occupied          Total Units 
---------------                          -----           ---------------     --------         -------------
<S>                                       <C>                 <C>                  <C>                <C>
Azalea Court                               48                   4/ 19               46                 96%
Theodore, AL

Berger Apts.                              144                 144/  0              144                100%
New Haven, CT

Biltmore                                  231                 231/  0              210                 91%
Dayton, OH

Branford Elderly                           38                  38/  0               38                100%
Branford, CT

Castlewood Apts.                           96                  96/  0               89                 93%
Davenport, IA

Cherrywood Apts.                           40                  40/  0               39                 98%
Twin Falls, ID

Clearfield Manor                           40                  40/  0               39                 98%
Clearfield, KY

Crystal Springs                            28                   0/ 28               28                100%
Crystal Springs, MS

East Farm Vlg.                            240                 240/  0              240                100%
East Haven, CT

Grant Park and                            188                 188/  0              188                100%
Ormewood Park
Atlanta, GA

Lakeside Apts.                             48                  48/  0               48                100%
Mishawaka, IN

Landmark Towers                            40                  40/  0               40                100%
Nampa, ID
</TABLE>





<PAGE>   4
            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL II HAS AN INVESTMENT
                               DECEMBER 31, 1996
                                  (CONTINUED)

<TABLE>
<CAPTION>
                                                          Units Authorized
                                                             For Rental
                                                          Assistance Under
                                                            Section 8 or
                                                             Other Rent
                                        No. of               Supplement           Units       Percentage of
Name & Location                          Units                Program            Occupied      Total Units 
---------------                          -----           ---------------         --------     -------------
<S>                                    <C>              <C>                     <C>                <C>
Magnolia State                            60                0/ 38                  58               98%
Gulfport, MS

New Haven Plaza                          344              344/  0                 341               99%
Far Rockaway, NY

Pennbrook Apts.                          108              108/  0                 100               93%
Owosso, MI

Redfern Grove Apts.                       72               72/  0                  71               99%
E. Providence, RI

Saturn Apts.                              38               38/  0                  38              100%
Idaho Falls, ID

Sugar River Mills                        162              162/  0                 161               99%
Claremont, NH

Valebrook                                151              151/  0                 151              100%
Lawrence, MA

Westward Ho Apts.                        290              289/  0                 275               95%
Phoenix, AZ

Willow Wick Apts.                         24                0/  5                  18               75%
Centre, AL
                                                                                                       
                                    --------       --------------           ---------           -------

TOTALS                                 2,430            2,273/ 90               2,362               97%
                                       =====            =========              ======                  
</TABLE>





<PAGE>   5
ITEM 2.       PROPERTIES:

Through its investments in local limited partnerships, REAL II holds interests
in real estate properties.  See Item 1 and Schedule XI for information
pertaining to these properties.

ITEM 3.       LEGAL PROCEEDINGS:

As of December 31, 1996, REAL II's Corporate General Partner was a plaintiff or
defendant in several lawsuits.  In addition, REAL II is involved in the
following lawsuits.  In the opinion of management and the Corporate General
Partner, the claims will not result in any material liability to the
Partnership.

Joseph Alizio v. Peter Perpignano, New Haven Plaza Associates, Real Estate
Associates Limited II, National Partnership Investments Corp. and National
Partnership Associates, Supreme Court of the State of New York, County of
Nassau, Case No. 1776-94.  On January 21, 1994, the Plaintiff filed a lawsuit
seeking to dissolve the New Haven Local Partnership, alleging that he was
denied his pro rata share of the capital contribution, management fees,
consultants fees and profits.  REAL II filed a motion to dismiss the complaint
which motion was granted on November 10, 1994.  The case was appealed and
argued on February 9, 1996.  REAL II is now waiting for a decision on the
matter from the appellate court.


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

Not applicable.


PART II.

ITEM 5.       MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED
              SECURITY HOLDER MATTERS:

The Limited Partnership Interests are not traded on a public exchange but were
sold through a public offering managed by Lehman Brothers Inc.  It is not
anticipated that any public market will develop for the purchase and sale of
any Partnership interest.  Limited Partnership Interests may be transferred
only if certain requirements are satisfied.  At December 31, 1996 there were
1,676 registered holders of units in REAL II.  No distributions have been made
from the inception of the Partnership to December 31, 1996.  The Partnership
has invested in certain government assisted projects under programs which in
many instances restrict the cash return available to project owners.  The
Partnership was not designed to provide cash distributions to investors in
circumstances other than refinancing or disposition of its investments in
limited partnerships.





<PAGE>   6


ITEM 6.  SELECTED FINANCIAL DATA:



<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                           -------------------------------------------------------------------------
                                1996            1995           1994          1993            1992
                                ----            ----           ----          ----            ---- 
<S>                        <C>             <C>            <C>            <C>            <C>
Loss from operations       $ (449,123)     $ (474,179)    $ (492,294)    $ (508,753)    $  (514,946)

Distributions from
   Limited Partnerships
   Recognized as Income       113,203         172,189        796,658        270,938         263,586

Equity in Income of
   Limited Partnerships
   and Amortization of
   Acquisition Costs        1,154,755       1,172,891        734,711        532,359         389,465
                           ----------      ----------     ----------     ----------     -----------
Net Income                 $  818,835      $  870,901     $1,039,075     $  294,544     $   138,105
                           ==========      ==========     ==========     ==========     ===========
Net Income per limited
   Partnership Interest    $       77      $       81     $       96     $       27     $        13
                           ==========      ==========     ==========     ==========     ===========
Total assets               $4,630,145      $3,821,884     $2,917,236     $1,873,009     $ 1,585,971
                           ==========      ==========     ==========     ==========     ===========
Investments in Limited
   Partnerships            $2,808,190      $1,959,173     $1,135,982     $1,407,989     $ 1,006,583
                           ==========      ==========     ==========     ==========     ===========
</TABLE>





<PAGE>   7
ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS:

LIQUIDITY

The Partnership's primary sources of funds include interest income on money
market investments and certificates of deposit and distributions from local
partnerships in which the Partnership has invested.  It is not expected that
any of the local limited partnerships in which the Partnership has invested
will generate cash flow sufficient to provide for distributions to the
Partnership's limited partners in any material amount.

CAPITAL RESOURCES

REAL II received $13,365,000 in subscriptions for units of Limited Partnership
Interests (at $5,000 per unit) during the period March 17, 1979 to September
15, 1980, pursuant to a registration statement on Form S-11.  As of December
31, 1981 REAL II had received an additional $13,365,000 in subscriptions
pursuant to the exercise of warrants and the sale of Additional Limited
Partnership Interests.

RESULTS OF OPERATIONS

The Partnership was formed to provide various benefits to its partners as
discussed in Item 1.  It is anticipated that the local limited partnerships in
which REAL II has invested could produce tax losses for as long as 20 years.
The Partnership will seek to defer income taxes from sale by not selling any
projects or project interests within 10 years, except to qualified tenant
cooperatives, or when proceeds of the sale would supply sufficient cash to
enable the partners to pay applicable taxes.

Tax benefits will decline over time as the advantages of accelerated
depreciation are greatest in the earlier years, as deductions for interest
expense decrease as mortgage principal is amortized, and as the Tax Reform Act
of 1986 limits the deductions available.

The Partnership accounts for its investments in the local limited partnerships
on the equity method, thereby adjusting its investment balance by its
proportionate share of the income or loss of the local limited partnerships.
Losses incurred after the limited partnership investment account is reduced to
zero are not recognized.

Distributions received from limited partnerships are recognized as return of
capital until the investment balance has been reduced to zero or to a negative
amount equal to future capital contributions required.  Subsequent
distributions received are recognized as income.

Except for certificates of deposit and money market funds, the Partnership's
investments are entirely interests in other limited partnerships owning
government assisted projects.  Available cash is invested in short-term
investments and cash equivalents, earning interest income as reflected in the
statements of operations.  These short-term investments and cash equivalents
can be converted to cash to meet obligations as they arise.  The Partnership
intends to continue investing available funds in this manner.

A recurring Partnership expense is the management fee.  The fee is payable
monthly to the Corporate General Partner of the Partnership and is calculated
as a percentage of the Partnership's invested assets.  The management fee is
paid to the Corporate General Partner for its continuing management of
Partnership affairs.

Operating expenses, other than management fees of the Partnership, consist
substantially of professional fees for services rendered to the Partnership.

The Partnership, as a Limited Partner in the local limited partnerships in
which it has invested, is subject to the risks incident to the construction,
management, and ownership of improved real estate.  The Partnership





<PAGE>   8
investments are also subject to adverse general economic conditions, and,
accordingly, the status of the national economy, including substantial
unemployment and concurrent inflation, which could increase vacancy levels,
rental payment defaults, and operating expenses, which in turn, could
substantially increase the risk of operating losses for the projects.

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:

The Financial Statements and Supplementary Data are listed under Item 14.

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

Not applicable.





<PAGE>   9




                       REAL ESTATE ASSOCIATES LIMITED II
                       (A California limited partnership)

                             FINANCIAL STATEMENTS,
                         FINANCIAL STATEMENT SCHEDULES
                   AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
                               DECEMBER 31, 1996





<PAGE>   10
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Real Estate Associates Limited II
(A California limited partnership)

We have audited the accompanying balance sheets of Real Estate Associates
Limited II (a California limited partnership) as of December 31, 1996 and 1995,
and the related statements of operations, partners' equity (deficiency) and
cash flows for each of the three years in the period ended December 31, 1996.
Our audits also included the financial statement schedules listed in the index
on item 14.  These financial statements and financial statement schedules are
the responsibility of the management of the Partnership.  Our responsibility is
to express an opinion on these financial statements and financial statement
schedules based on our audits.  We did not audit the financial statements of
certain limited partnerships, the investments in which are reflected in the
accompanying financial statements using the equity method of accounting.  The
investments in these limited partnerships represent 23 percent and 33 percent
of total assets as of December 31, 1996 and 1995, respectively, and the equity
in income of these limited partnerships represents 33 percent, 59 percent and
51 percent of the total net income of the Partnership for the years ended
December 31, 1996, 1995 and 1994, respectively, and represent a substantial
portion of the investee information in Note 2 and the financial statement
schedules.  The financial statements of these limited partnerships are audited
by other auditors.  Their reports have been furnished to us and our opinion,
insofar as it relates to the amounts included for these limited partnerships,
is based solely on the reports of the other auditors.

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

In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Real Estate Associates Limited II as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.  Also, in our
opinion, based on our audits and the reports of other auditors, such financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.



DELOITTE & TOUCHE LLP

Los Angeles, California
March 26, 1997





<PAGE>   11

               [LOGO]


[DONALD W. CAUSEY, CPA, P.C. LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

To the Partners
Azalea Court Investment Group, Ltd.
Theodore, Alabama

I have audited the accompanying balance sheets of Azalea Court Investment
Group, Ltd., a limited partnership, RHS Project No.: 01-049-630805993 as of
December 31, 1996 and 1995, and the related statements of operations, partners'
deficit and cash flows for the years then ended. These financial statements are
the responsibility of the partnership's management. My responsibility is to
express an opinion on these financial statements based on my audits.

I conducted the audits in accordance with generally accepted auditing standards
and Government Auditing Standards issued by the Comptroller General of the
United States, and the U.S. Department of Agriculture, Farmers Home
Administration Audit Program. Those standards require that I plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that the audits provide a
reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Azalea Court Investment Group,
Ltd., RHS Project No.: 01-049-630805993 as of December 31, 1996 and 1995, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

The audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on pages 10
through 11 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. The supplemental information
presented in the Year End Report and Analysis (Form RHS 1930-8) Parts I through
III for the year ended December 31, 1996 and 1995, is presented for purposes of
complying with the requirements of the Rural Housing Services and is also not a
required part of the basic financial statements. Such information has been
subjected to the audit procedures applied in the audit of the basic financial
statements and, in my opinion is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

In accordance with Government Auditing Standards, I have also issued a report
dated January 27, 1997 on my consideration of Azalea Court Investment Group,
Ltd.'s internal control structure and a report dated January 27, 1997 on its
compliance with laws and regulations.

/s/ DONALD W. CAUSEY, CPA, P.C.
January 27, 1997

<PAGE>   12
          [LOGO]
[COOPERS & LYBRAND LETTERHEAD]

To the Partners of
New Haven Associates
 Limited Partnership:

REPORT OF INDEPENDENT ACCOUNTANTS

We have audited the accompanying balance sheet of New Haven Associates Limited
Partnership, as of December 31, 1996, and the related statements of profit and
loss, partners' capital (deficiency), and cash flows for the year then ended.
These financial statements are the responsibility of the management of New
Haven Associates Limited Partnership. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New Haven Associates Limited
Partnership, as of December 31, 1996 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

In accordance with Government Auditing Standards, we have issued a report dated
January 31, 1997 on our consideration of New Haven Associates Limited
Partnership's internal control structure and a report dated January 31, 1997 on
its compliance with laws and regulations.


/s/ COOPERS & LYBRAND

Boston, Massachusetts
January 31, 1997


<PAGE>   13
                     [LOGO]
[DWORKEN, HILLMAN, LAMORTE & STERCZALA, P.C. LETTERHEAD]

Independent Auditors' Report

Partners
Branford Development Associates
(A Limited Partnership)
Branford, Connecticut

We have audited the accompanying balance sheet of Branford Development
Associates (a limited partnership), Project No. 78-055M as of December 31, 1996,
and the related statements of profit and loss (HUD Form 92410), partners'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Branford Development
Associates (a limited partnership) as of December 31, 1996, and the results of
its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.

In accordance with Government Auditing Standards and the Consolidated Audit
Guide for Audits of HUD Programs, issued by the U.S. Department of Housing and
Urban Development, we have also issued a report dated January 24, 1997, on our
consideration of Branford Development Associates' (a limited partnership)
internal control structure, and reports dated January 24, 1997, on its
compliance with specific requirements applicable to Affirmative Fair Housing,
and specific requirements applicable to nonmajor HUD program transactions.

The accompanying information contained on pages 12 through 16 is presented for
additional analysis in accordance with the regulations of the U.S. Department
of Housing and Urban Development and is not a required part of the basic
financial statements. This information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is presented fairly in all  material respects in relation to the basic
financial statements taken as a whole.

/s/ DWORKEN, HILLMAN, LAMORTE & STERCZALA, P.C.
January 24, 1997
Federal Tax ID# 06-1308345
C. Robert Hillman, CPA Principal
<PAGE>   14
              [LOGO]
[LANDSMAN, FRANK AND BLOCH LETTERHEAD]

Independent Auditors' Report

To the Partners
Castlewood Associates
(An Iowa Limited Partnership)

     We have audited the accompanying balance sheets of Castlewood Associates
(An Iowa Limited Partnership), FHA Project Number 07435170-LD-L8, as of
December 31, 1996 and 1995, and the related statements of operations, changes
in partners' deficiency and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Castlewood Associates (An
Iowa Limited Partnership) as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.


<PAGE>   15
     In accordance with Government Auditing Standards, we have also issued a
report dated February 11, 1997 on our consideration of the Partnership's
internal control structure and reports dated February 11, 1997 on its
compliance with specific requirements applicable to major HUD programs and
affirmative fair housing.

     Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The accompanying supplementary
information (shown on pages 13 through 21) is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the financial statements
taken as a whole.

/s/ LANDSMAN, FRANK AND BLOCH
An Accountancy Corporation


Beverly Hills, California
February 11, 1997


Employer Identification
  Number 95-2783759

Audit Principal:
  Alan H. Salz, C.P.A.
<PAGE>   16
             [LOGO]
[DELOITTE & TOUCHE LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Cherrywood Associates:

We have audited the accompanying balance sheets of Cherrywood Associates (a
limited partnership) as of December 31, 1996 and 1995, and the related
statements of operations, partners' deficit and cash flows for the years then
ended. These financial statements are the responsibility of the General
Partners. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cherrywood Associates as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental data
required by HUD included on pages 15 to 18 is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements of Cherrywood Associates. This supplemental data is the
responsibility of the General Partners. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.

In accordance with Government Auditing Standards, we have also issued a report
dated January 31, 1997, on our consideration of Cherrywood Associates' internal
control structure and a report dated January 31, 1997, on its compliance with
laws and regulations.


/s/ DELOITTE & TOUCHE LLP

January 31, 1997


<PAGE>   17
               [LOGO]
[DONALD W. CAUSEY, CPA, P.C LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

To the Partners
Crystal Springs Associates, Ltd.
Crystal Springs, Mississippi

I have audited the accompanying balance sheets of Crystal Springs Associates,
Ltd., a limited partnership, RHS Project No.: 28-015-630806036 as of December
31, 1996 and 1995, and the related statements of operations, partners' deficit
and cash flows for the years then ended.  These financial statements are the
responsibility of the partnership's management. My responsibility is to express
an opinion on these financial statements based on my audits.

I conducted the audits in accordance with generally accepted auditing
standards and Government Auditing Standards issued by the Comptroller General
of the United States, and the U.S. Department of Agriculture, Farmers Home
Administration Audit Program. Those standards require that I plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that the audits provide a
reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Crystal Springs Associates,
Ltd., RHS Project No.: 28-015-630806036 as of December 31, 1996 and 1995, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

The audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on pages 10
through 11 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. The supplemental information
presented in the Year End Report and Analysis (Form FmHA 1930-8) Parts I
through III for the year ended December 31, 1996 and 1995, is presented for
purposes of complying with the requirements of the Rural Housing Services and
is also not a required part of the basic financial statements. Such information
has been subjected to the audit procedures applied in the audit of the basic
financial statements and, in my opinion is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.

In accordance with Government Auditing Standards, I have also issued a report
dated January 25, 1997 on my consideration of Crystal Springs Associates, Ltd.,
internal control structure and a report dated January 25, 1997 on its
compliance with laws and regulations.

/s/ DONALD W. CAUSEY, CPA, P.C

January 25, 1997
<PAGE>   18
           [LOGO]
[COOPERS & LYBRAND LETTERHEAD]

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of
East Haven Real Estate Associates
Limited Partnership:

We have audited the accompanying balance sheet of East Haven Real Estate
Associates Limited Partnership as of December 31, 1996, and the related
statements of profit and loss, partners' capital (deficiency), and cash flows
for the year then ended. These financial statements are the responsibility of
the management of East Haven Real Estate Associates Limited Partnership. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of East Haven Real Estate
Associates Limited Partnership as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued a report
dated January 31, 1997 on our consideration of East Haven Real Estate
Associates Limited Partnership's internal control structure and a report dated
January 31, 1997 on its compliance with laws and regulations.


/s/ COOPERS & LYBRAND

Boston, Massachusetts
January 31, 1997
<PAGE>   19

           [LOGO]
[COOPERS & LYBRAND LETTERHEAD]

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of
Atlanta Associates Limited Partnership:

We have audited the accompanying balance sheet of December 31, 1996, and the
related statements of profit and loss, partners' capital (deficiency), and cash
flows for the year then ended. These financial statements are the
responsibility of the management of Atlanta Associates Limited Partnership.
Our responsibility is to express an opinion on these financial statements based
on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Atlanta Associates Limited
Partnership as of December 31, 1996, and the results of its operations, and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

In accordance with Government Auditing Standards, we have also issued a report
dated January 31, 1997 on our consideration of Atlanta Associates Limited
Partnership's internal control structure and a report dated January 31, 1997 on
its compliance with laws and regulations.

/s/ COOPERS & LYBRAND

Boston, Massachusetts
January 31, 1997


<PAGE>   20
          [LOGO]
[CROWE CHIZEK LETTERHEAD]

REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENTS

To the Partners
Lakeside Apartments (Partnership)
South Bend, Indiana

We have audited the accompanying balance sheet of Lakeside Apartments
(Partnership) as of December 31,1996, and the related statements of changes in
partners' deficit, profit and loss, and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lakeside Apartments
(Partnership) as of December 31,1996, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

In accordance with Government Auditing Standards, we have also issued a report
dated January 13, 1997 on our consideration of the Partnership's internal
control structure.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information shown on pages 12 through 25 is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the financial statements
taken as a whole.



/s/ CROWE CHIZEK AND COMPANY LLP

South Bend, Indiana
January 13, 1997


<PAGE>   21
                [LOGO]
[LEAVITT, CHRISTENSEN & CO. LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

February 5, 1997

Partners
Landmark Associates (a limited partnership)
Weiser, Idaho

We have audited the accompanying balance sheets of Landmark Associates (a
limited partnership), as of December 31, 1996 and 1995, and the related
statements of income, Partners' capital (deficit), and cash flows for the years
then ended.  These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Landmark Associates as of
December 3 1, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.

In accordance with Government Auditing Standards and the Consolidated Audit
Guide for Audits of HUD Programs (the "Guide"), we have also issued reports
dated February 5, 1997 on our consideration of Landmark Associates (a limited
partnership's) internal control structure, its compliance with laws and
regulations, and its compliance with specific requirements.



/s/ LEAVITT, CHRISTENSEN & CO.

<PAGE>   22
                [LOGO]
[DONALD W. CAUSEY, CPA, P.C. LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

To the Partners
Gulfport Associates, Ltd.
Gulfport, Mississippi

I have audited the accompanying balance sheets of GulLport Associates, Ltd., a
limited partnership, RHS Project No.: 28-024-630806037 as of December 31, 1996
and 1995, and the related statements of operations, partners' deficit and cash
flows for the years then ended. These financial statements are the
responsibility of the partnership's management. My responsibility is to express
an opinion on these financial statements based on my audits.

I conducted the audits in accordance with generally accepted auditing standards
and Government Auditing Standards issued by the Comptroller General of the
United States, and the U.S. Department of Agriculture, Farmers Home
Administration Audit Program. Those standards require that I plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that the audits provide a
reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in
all material respects the financial position of Gulfport Associates, Ltd., RHS
Project No.: 28-024-630806037 as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.

The audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on pages 9
through 11 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. The supplemental information
presented in the Year End Report and Analysis (Form FmHA 1930-8) Parts I
through III for the year ended December 31, 1996 and 1995, is presented for
purposes of complying with the requirements of the Rural Housing Services and
is also not a required part of the basic financial statements. Such information
has been subjected to the audit procedures applied in the audit of the basic
financial statements and, in my opinion is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.

In accordance with Government Auditing Standards, I have also issued a report
dated January 28, 1997 on my consideration of Gultport Associates, Ltd.,
internal control structure and a report dated January 28, 1997 on its
compliance with laws and regulations.

/s/ DONALD W. CAUSEY, CPA, P.C.

January 28, 1997
<PAGE>   23
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

To the Partners of
New Haven Plaza Associates

We have audited the accompanying balance sheets of NEW HAVEN PLAZA ASSOCIATES
(a New York limited partnership), FHA Project No. 012-35146-PM-L8 (the
"Partnership") as of December 31, 1996 and 1995, and the related statements of
income, changes in partners' deficiency and cash flows for the years then
ended.  These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New Haven Plaza Associates as
of December 31, 1996 and 1995, and the results of its operations, changes in
its partners' deficiency, and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued a report
dated February 17, 1997 on our consideration of the Partnership's internal
control structure and a report dated February 17, 1997 on its compliance with
laws and regulations.



<PAGE>   24
Our audits were conducted for the purpose of forming an opinion on the
financial statements taken as a whole. The accompanying additional 1996
financial data shown on pages 13 through 20 are presented for purposes of
additional analysis and are not a required part of the financial statements.
Such information has been subjected to the auditing procedures applied in the
audit of the 1996 financial statements and, in our opinion, is fairly stated in
all material respects in relation to the financial statements taken as a whole.

/s/ ALTSCHULER, MELVOIN AND GLASSER LLP

Los Angeles, California
February 17, 1997



<PAGE>   25
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

To the Partners of
Pennbrook Apartments Associates

We have audited the accompanying balance sheets of PENNBROOK APARTMENTS
ASSOCIATES (a limited partnership), FHA Project No. 048-35078-PM-L8 as of
December 31, 1996 and 1995, and the related statements of operations, changes
in partners' deficiency and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pennbrook Apartments
Associates as of December 31, 1996 and 1995, and the results of its operations,
changes in its partners' deficiency, and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued a report
dated February 17, 1997 on our consideration of the Partnership's internal
control structure and a report dated February 17, 1997 on its compliance with
laws and regulations.





<PAGE>   26
Our audits were conducted for the purpose of forming an opinion on the
financial statements taken as a whole. The accompanying additional 1996
financial data shown on pages 13 through 20 are presented for purposes of
additional analysis and are not a required part of the financial statements.
Such information has been subjected to the auditing procedures applied in the
audit of the 1996 financial statements and, in our opinion, is fairly stated in
all material respects in relation to the financial statements taken as a whole.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP


Los Angeles, California
February 17, 1997


<PAGE>   27
             [LOGO]
[KPMG PEAT MARWICK LLP LETTERHEAD]

Report on Audited Financial Statements
and Supplementary Information

Independent Auditors' Report

The Partners
Redfern Grove Associates
(A Limited Partnership):

We have audited the accompanying balance sheet of Redfem Grove Associates (A
Limited Partnership) (the "Partnership"), HUD Project No. RI-43-HO23-102, as of
July 31, 1996, and the related statements of profit and loss (on HUD Form
92410), changes in partners' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership as of July 31,
1996 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued reports
dated September 13, 1996 on: our consideration of the Partnership's internal
control structure, the Partnership's compliance with specific requirements
applicable to major HUD programs, and the Partnership's compliance with
specific requirements applicable to affirmative fair housing.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information included in Schedules 1 through 7 is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the financial statements
taken as a whole.

/s/ KPMG PEAT MARWICK LLP

September 13, 1996

<PAGE>   28
           [LOGO]
[COOPERS & LYBRAND LETTERHEAD]

To the Partners of
Sugar River Mills Associates
(a Limited Partnership):


REPORT OF INDEPENDENT ACCOUNTANTS

We have audited the accompanying balance sheet of Sugar River Mills Associates
(a Limited Partnership) as of December 31, 1996, and the related statements of
profit and loss, partners' capital (deficiency) and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sugar River Mills Associates
(a Limited Partnership) as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued a report
dated February 11, 1997 on our consideration of Sugar River Mills Associates'
(a Limited Partnership) internal control structure and a report dated February
11, 1997 on its compliance with laws and regulations.


/s/ COOPERS & LYBRAND

Boston, Massachusetts
February 11, 1997
<PAGE>   29


            [LOGO]
[BDO SEIDMAN, LLP LETTERHEAD]

Independent Auditors' Report

To the Partners of
Valebrook Associates


We have audited the accompanying balance sheet of Valebrook Associates (A
Limited Partnership) FHA Project No. MA 74-120, as of December 31, 1996 and the
related statements of income, partners' equity (deficit) and cash flows for the
year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Valebrook Associates (A
Limited Partnership) FHA Project No. MA74120 at December 31, 1996, and the
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.


/s/ BDO SEIDMAN, LLP

February 5, 1997

<PAGE>   30
                [LOGO]
[GRASS & COFFEY, C.P.A's, P.C. LETTERHEAD]

Independent Auditor's Report

To The Partners
Westward Ho Associates
Phoenix, Arizona

We have audited the accompanying balance sheets of FHA Project 12335106-PM-L8,
Westward Ho Associates (A Limited Partnership), as of December 31, 1996 and
1995, and the related statements of operations, partners' equity (deficiency)
and cash flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards, Government Auditing Standards issued by the Comptroller General of
the United States and the Consolidated Audit Guide, issued by the U.S.
Department of Housing and Urban Development, Office of Inspector General.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence-
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Westward Ho Associates as of
December 31, 1996 and 1995, and the results of its operations, changes in
partners' equity and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

In accordance with Governmental Auditing Standards, we have issued a report
dated January 9, 1997 on our consideration of Westward Ho's internal control
structure and reports dated January 9, 1997 on its compliance with specific
requirements applicable to Major HUD programs, specific requirements applicable
to Affirmative Fair Housing, and Compliance with Laws and Regulations.

<PAGE>   31
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary data
shown on pages 18 to 32 is presented for purposes of additional analysis and is
not a required part of the financial statements of Westward Ho Associates.
Such information has been subjected to the auditing procedures applied in the
audit of the financial statements and, in our opinion, is fairly stated in all
material respects in relation to the financial statements taken as a whole.


/s/ GRASS & COFFEY, C.P.A.'s, P.C.

Phoenix, Arizona
January 9, 1997



<PAGE>   32
             [LOGO]
[DONALD W. CAUSEY, CPA, P.C. LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

To the Partners
Alabama Properties, Ltd. II
Centre, Alabama

I have audited the accompanying balance sheets of Alabama Properties, Ltd.  II,
a limited partnership, RHS Project No.: 01-010-630805991 as of December 31,
1996 and 1995, and the related statements of operations, partners' deficit and
cash flows for the years then ended. These financial statements are the
responsibility of the partnership's management. My responsibility is to express
an opinion on these financial statements based on my audits.

I conducted the audits in accordance with generally accepted auditing standards
and Government Auditing Standards issued by the Comptroller General of the
United States, and the U.S. Department of Agriculture, Farmers Home
Administration Audit Program. Those standards require that I plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that the audits provide a
reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alabama Properties, Ltd.  II,
RHS Project No.: 01-010-630X05991 as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

The audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on pages 9
through 11 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. The supplemental information
presented in the Year End Report and Analysis (Form RHS 1930-8) Parts I through
III for the year ended December 31, 1996 and 1995, is presented for purposes of
complying with the requirements of the Rural Housing Services and is also not a
required part of the basic financial statements. Such information has been
subjected to the audit procedures applied in the audit of the basic financial
statements and, in my opinion is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

In accordance with Government Auditing Standards, I have also issued a report
dated January 14, 1997 on my consideration of Alabama Properties, Ltd. II's
internal control structure and a report dated January 14, 1997 on its
compliance with laws and regulations.

/s/ DONALD W. CAUSEY, CPA, P.C.

January 14, 1997

<PAGE>   33




                       REAL ESTATE ASSOCIATES LIMITED II
                       (a California limited partnership)

                                 BALANCE SHEETS

                           DECEMBER 31, 1996 AND 1995

                                     ASSETS


<TABLE>
<CAPTION>
                                                               1996               1995       
                                                           ----------          ---------- 
     <S>                                                   <C>                 <C>
     INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2)          $2,808,190          $1,959,173

     CASH AND CASH EQUIVALENTS (Note 1)                     1,821,955           1,862,711
                                                           ----------          ---------- 
               TOTAL ASSETS                                $4,630,145          $3,821,884
                                                           ==========          ==========

                                   LIABILITIES AND PARTNERS' EQUITY

     LIABILITIES:

          Accounts payable                                 $   31,812           $  42,386
                                                           ----------          ---------- 
     COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)

     PARTNERS' EQUITY (DEFICIENCY):
         General partners                                    (172,112)           (180,300)
         Limited partners                                   4,770,445           3,959,798
                                                           ----------          ---------- 
                                                            4,598,333           3,779,498
                                                           ----------          ---------- 
                TOTAL LIABILITIES AND PARTNERS' EQUITY     $4,630,145          $3,821,884
                                                           ==========          ==========

</TABLE>





   The accompanying notes are integral part of these financial statements.
<PAGE>   34

                       REAL ESTATE ASSOCIATES LIMITED II
                       (a California limited partnership)

                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994




<TABLE>
<CAPTION>
                                                       1996           1995            1994
                                                   ----------      ----------     ----------
<S>                                                <C>            <C>             <C>
INTEREST INCOME                                    $   74,125     $    79,206     $   29,192
                                                   ----------      ----------     ----------
OPERATING EXPENSES:
      Legal and accounting                             62,320          92,141         65,923
      Management fees - general partner (Note 3)      397,680         397,680        397,680
      Administrative  (Note 3)                         63,248          63,564         57,883
                                                   ----------      ----------     ----------
        Total operating expenses                      523,248         553,385        521,486
                                                   ----------      ----------     ----------

LOSS FROM OPERATIONS                                 (449,123)       (474,179)      (492,294)

DISTRIBUTIONS FROM LIMITED
      PARTNERSHIPS RECOGNIZED AS
      INCOME (Note 2)                                 113,203         172,189        796,658

EQUITY IN INCOME OF LIMITED
      PARTNERSHIPS AND AMORTIZATION
      OF ACQUISITION COSTS (Note 2)                 1,154,755       1,172,891        734,711
                                                   ----------      ----------     ----------
NET INCOME                                         $  818,835      $  870,901     $1,039,075
                                                   ==========      ==========     ==========

NET INCOME PER LIMITED PARTNERSHIP
      INTEREST (Note 1)                            $       77      $       81     $       96
                                                   ==========      ==========     ==========
</TABLE>





    The accompanying notes are integral part of these financial statements.
<PAGE>   35

                       REAL ESTATE ASSOCIATES LIMITED II
                       (a California limited partnership)

                  STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994




<TABLE>
<CAPTION>
                                     General       Limited
                                     Partners      Partners          Total
                                    ---------      ---------       ---------
     <S>                            <C>            <C>             <C>
     EQUITY (DEFICIENCY),
        January 1, 1994            $(199,400)      2,068,922       1,869,522

        Net income for 1994           10,391       1,028,684       1,039,075
                                   ---------      ----------      ----------
     EQUITY (DEFICIENCY),
        December 31, 1994           (189,009)      3,097,606       2,908,597

        Net income for 1995            8,709         862,192         870,901
                                   ---------      ----------      ----------
     EQUITY (DEFICIENCY),
        December 31, 1995           (180,300)      3,959,798       3,779,498

        Net income for 1996            8,188         810,647         818,835
                                   ---------      ----------      ----------
     EQUITY (DEFICIENCY),
        December 31, 1996          $(172,112)     $4,770,445      $4,598,333
                                   =========      ==========      ==========
</TABLE>

    The accompanying notes are integral part of these financial statements.
<PAGE>   36

                       REAL ESTATE ASSOCIATES LIMITED II
                       (a California limited partnership)

                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994



<TABLE>
<CAPTION>
                                                          1996            1995            1994
                                                      -----------     -----------      ----------
<S>                                                   <C>             <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                         $   818,835      $   870,901     $1,039,075
   Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
        Equity in income of limited partnerships
            and amortization of acquisition costs      (1,154,755)      (1,172,891)      (734,711)
        Increase (decrease) in accounts payable           (10,574)          33,747          5,152
                                                      -----------      -----------     ----------
            Net cash provided by (used in)
               operating activities                      (346,494)        (268,243)       309,516
                                                      -----------      -----------     ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Distributions from limited partnerships
       recognized as return of capital                    305,738          349,700      1,006,718
                                                      -----------      -----------     ----------
NET INCREASE (DECREASE) IN CASH
      AND CASH EQUIVALENTS                                (40,756)          81,457      1,316,234

CASH AND CASH EQUIVALENTS,
   BEGINNING OF YEAR                                    1,862,711        1,781,254        465,020
                                                      -----------      -----------     ----------
CASH AND CASH EQUIVALENTS,
   END OF YEAR                                        $ 1,821,955      $ 1,862,711     $1,781,254
                                                      ===========      ===========     ========== 
</TABLE>





    The accompanying notes are integral part of these financial statements.
<PAGE>   37
                       REAL ESTATE ASSOCIATES LIMITED II
                       (a California limited partnership)

                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1996

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Organization

       Real Estate Associates Limited II (the Partnership) was formed under the
       California Limited Partnership Act on December 4, 1979.  The Partnership
       was formed to invest in other limited partnerships which own and operate
       primarily federal, state or local government-assisted housing projects.
       The general partners are Coast Housing Investment Associates (CHIA), a
       limited partnership, and National Partnership Investments Corp.
       (NAPICO), the corporate general partner.  Casden Investment Corporation
       owns 100 percent of NAPICO's stock.  The limited partner of CHIA is an
       officer of NAPICO.

       The Partnership offered 3,000 units and issued 2,673 units of limited
       partner interests through a public offering.  Each unit was comprised of
       two limited partner interests and a warrant granting an investor the
       right to purchase two additional limited partner interests.  An
       additional 5,346 interests were issued from the exercise of the warrants
       and the sale of interests associated with warrants not exercised.  The
       general partners have a 1 percent interest in the profits and losses of
       the Partnership.  The limited partners have the remaining 99 percent
       interest in proportion to their respective investments.

       The Partnership shall be dissolved only upon the expiration of 52
       complete calendar years (December 31, 2031) from the date of the
       formation of the Partnership or the occurrence of various other events
       as specified in the terms of the Partnership agreement.

       Upon total or partial liquidation of the Partnership or the disposition
       or partial disposition of a project or project interest and distribution
       of the proceeds, the general partners will be entitled to a liquidation
       fee as stipulated in the Partnership agreement.  The limited partners
       will have a priority return equal to their invested capital attributable
       to the project(s) or project interest(s) sold and shall receive from the
       sale of the project(s) or project interest(s) an amount sufficient to
       pay state and federal income taxes, if any, calculated at the maximum
       rate then in effect.  The general partners' liquidation fee may accrue
       but shall not be paid until the limited partners have received
       distributions equal to 100 percent of their capital contributions.

       Use of Estimates

       The preparation of financial statements in conformity with generally
       accepted accounting principles requires management to make estimates and
       assumptions that affect the reported amounts of assets and liabilities
       and disclosure of contingent assets and liabilities at the date of the
       financial statements and reported amounts of revenues and expenses
       during the reporting period.  Actual results could differ from those
       estimates.

       Method of Accounting for Investments in Limited Partnerships

       The investments in limited partnerships are accounted for on the equity
       method.  Acquisition, selection and other costs related to the
       acquisition of the projects were capitalized as part of the investment



                                       5
<PAGE>   38
1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       account and are being amortized on a straight line basis over the
       estimated lives of the underlying assets, which is generally 30 years.

       Net Income Per Limited Partnership Interest

       Net income per limited partnership interest was computed by dividing the
       limited partners' share of net income by the number of limited
       partnership interests outstanding during the year.  The number of
       limited partnership interests was 10,693 for all years presented.

       Cash and Cash Equivalents

       Cash and cash equivalents consist of cash and bank certificates of
       deposit with an original maturity date of three months or less.  The
       Partnership has its cash and cash equivalents on deposit primarily with
       one high credit quality financial institution.  Such cash and cash
       equivalents are in excess of the FDIC insurance limit.

       Impairment of Long-Lived Assets

       The Partnership reviews long-lived assets to determine if there has been
       any permanent impairment whenever events or changes in circumstances
       indicate that the carrying amount of the asset may not be recoverable.
       If the sum of the expected future cash flows is less than the carrying
       amount of the assets, the Partnership recognizes an impairment loss.

2.     INVESTMENTS IN LIMITED PARTNERSHIPS

       The Partnership holds limited partnership interests in 21 limited
       partnerships.  The partnerships own residential low income rental
       projects consisting of 2,430 apartment units.  The mortgage loans of
       these projects are payable to or insured by various governmental
       agencies.

       The Partnership, as a limited partner, is entitled to between 85 percent
       and 99 percent of the profits and losses of the limited partnerships.

       Equity in losses of limited partnerships is recognized in the financial
       statements until the limited partnership investment account is reduced
       to a zero balance.  Losses incurred after the limited partnership
       investment account is reduced to zero are not recognized.  The
       cumulative amount of the unrecognized equity in losses of certain
       limited partnerships was approximately $11,748,000 and  $11,407,000 as
       of December 31, 1996 and 1995, respectively.

       Distributions from limited partnerships are accounted for as a return of
       capital until the investment balance is reduced to zero.  Subsequent
       distributions received are recognized as income.

       In 1994, a limited partnership refinanced its mortgages and distributed
       excess cash proceeds to the Partnership, $689,000 of which was included
       in income.



                                       6
<PAGE>   39
                       REAL ESTATE ASSOCIATES LIMITED II
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1996


2.     INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

       The following is a summary of the investments in limited partnerships
       and reconciliation to the limited partnership accounts:

<TABLE>
<CAPTION>
                                                                                   1996             1995    
                                                                                ----------        ----------
       <S>                                                                      <C>               <C>
       Investment balance, beginning of year                                    $1,959,173        $1,135,982
       Cash distributions recognized as a return of capital                       (305,738)         (349,700)
       Equity in income of limited partnerships                                  1,163,018         1,181,154
       Amortization of capitalized acquisition costs and fees                       (8,263)           (8,263)
                                                                                ----------        ---------- 

       Investment balance, end of year                                          $2,808,190        $1,959,173
                                                                                ==========        ==========
</TABLE>

       The difference between the investment per the accompanying balance
       sheets at December 31, 1996 and 1995, and the deficiency per the limited
       partnerships' combined financial statements is due primarily to
       cumulative unrecognized equity in losses of certain limited
       partnerships, costs capitalized to the investment account and cumulative
       distributions recognized as income.

       Selected financial information from combining the financial statements
       of the limited partnerships at December 31, 1996 and 1995 and for each
       of three years in the period ended December 31, 1996 is as follows:

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                 1996                1995  
                                                              ----------          ---------
                                                                    (in thousands)
                                                                                  
       <S>                                                    <C>                <C>
       Land and buildings, net                                 $ 50,604           $ 53,090
                                                               ========           ========

       Total assets                                            $ 66,883           $ 68,101
                                                               ========           ========
 
       Mortgages payable                                       $ 87,060           $ 83,189
                                                               ========           ========

       Total liabilities                                       $ 84,684           $ 85,970
                                                               ========           ========
       Deficiency of Real Estate Associates
         Limited II                                            $(13,350)          $(13,833)
                                                               ========           ======== 

       Deficiency of other partners                           $  (4,450)         $  (4,036)
                                                              =========          ========= 
</TABLE>
<PAGE>   40
                       REAL ESTATE ASSOCIATES LIMITED II
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1996


2.     INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

                            Statements of Operations

<TABLE>
<CAPTION>
                                                                 1996               1995              1994  
                                                              ---------           --------          --------
                                                                               (in thousands)    
                                                                                           
       <S>                                                      <C>                <C>               <C>
       Total revenue                                            $22,979            $22,855           $22,405
                                                                =======            =======           =======

       Interest expense                                         $ 7,339            $ 6,660           $ 6,682
                                                                =======            =======           =======

       Depreciation                                             $ 3,292            $ 3,215           $ 3,227
                                                                =======            ========          ========

       Total expenses                                           $21,946            $22,085           $21,887
                                                                =======            =======           =======

       Net income                                               $ 1,032            $   770           $   518
                                                                =======            =======           =======

       Net income allocable to the Partnership                  $   902            $   631           $   430
                                                                =======            =======           =======
</TABLE>

       An affiliate of NAPICO is the general partner in three of the limited
       partnerships included above, and another affiliate receives property
       management fees of approximately 5% of their revenue.  The affiliate
       received property management fees of $309,874, $311,822 and  $316,558 in
       1996, 1995 and 1994, respectively.  The following sets forth the
       significant data for these partnerships, reflected in the accompanying
       financial statements using the equity method of accounting:

<TABLE>
<CAPTION>
                                                                 1996             1995                1994  
                                                              ---------         --------            --------
                                                                             (in thousands)
       <S>                                                     <C>                <C>               <C>
       Total assets                                            $ 11,829           $ 12,488
                                                               ========           ========

       Total liabilities                                       $ 17,118           $ 17,278
                                                               ========           ========

       Deficiency of Real Estate Associates Limited II         $ (3,437)          $ (3,312)
                                                               ========           ======== 

       Deficiency of other partners                            $ (1,852)          $ (1,478)
                                                               ========           =========

       Total revenue                                           $  5,125           $  5,174          $  5,244
                                                               ========           ========          ========

       Net income                                              $    129           $    380          $    310
                                                               ========           ========          ========
</TABLE>

3.     FEES AND EXPENSES DUE TO GENERAL PARTNER

       Under the terms of the Restated Certificate and Agreement of Limited
       Partners, the Partnership is liable to NAPICO for an annual management
       fee equal to .4 percent of the original invested assets of the



                                       8
<PAGE>   41
                       REAL ESTATE ASSOCIATES LIMITED II
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1996

3.     FEES AND EXPENSES DUE TO GENERAL PARTNER (CONTINUED)

       limited partnerships.  Invested assets is defined as the costs of
       acquiring project interests, including the proportionate amount of the
       mortgage loans related to the Partnership's interest in the capital
       accounts of the respective partnerships.

       The Partnership reimburses NAPICO for certain expenses.  The
       reimbursement to NAPICO was $31,948, $29,892 and $28,804 in 1996, 1995
       and 1994, respectively, and is included in operating expenses.

4.     CONTINGENCIES

       The corporate general partner of the Partnership is a plaintiff in
       various lawsuits and has also been named a defendant in other lawsuits
       arising from transactions in the ordinary course of business.  In
       addition, the Partnership is involved in several lawsuits.

       In the opinion of management and the corporate general partner, the
       claims will not result in any material liability to the Partnership.

5.     INCOME TAXES

       No provision has been made for income taxes in the accompanying
       financial statements since such taxes, if any, are the liability of the
       individual partners.  The major differences in tax and financial
       reporting result from the use of different bases and depreciation
       methods for the properties held by the limited partnerships.
       Differences in tax and financial losses also arise as losses are not
       recognized for financial reporting purposes when the investment balance
       has been reduced to zero.

6.     FAIR VALUE OF FINANCIAL INSTRUMENTS

       Statement of Financial Accounting Standards No. 107, "Disclosure about
       Fair Value of Financial Instruments," requires disclosure of fair value
       information about financial instruments.  The carrying amount of assets
       and liabilities reported on the balance sheets that require such
       disclosure approximates fair value due to their short-term maturity.

7.     FOURTH-QUARTER ADJUSTMENT

       The Partnership's policy is to record its equity in the income of
       limited partnerships on a quarterly basis, using estimated financial
       information furnished by the various local operating general partners.
       The equity in income of limited partnerships reflected in the
       accompanying annual financial statements is based primarily upon audited
       financial statements of the investee limited partnerships.  The
       increase, approximately $351,000, between the estimated nine-month
       equity in income and the actual 1996 year end equity in income has been
       recorded in the fourth quarter.


                                      9
<PAGE>   42



                                                                      SCHEDULE
                       REAL ESTATE ASSOCIATES LIMITED II
                      INVESTMENTS IN LIMITED PARTNERSHIPS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                              Year Ended December 31, 1996
                                      -----------------------------------------------------------------------------
                                                                       Cash
                                      Balance        Capital          Distri-            Equity            Balance
                                      January        Contri-          butions              in              December
Limited Partnerships                  1, 1996        butions          Received           Income            31, 1996
---------------------                --------        -------          --------           ------            --------
<S>                                 <C>              <C>            <C>                <C>               <C>
Azalea Court Apartments             $                $              $                  $                 $
Berger Apartments                      339,210                         (20,466)           196,198           514,942
Biltmore
Branford Elderly Housing               292,932                                             37,080           330,012
Castlewood Apartments
Cherrywood Apartments                                                  (24,037)            24,037
Clearfield Manor
Crystal Springs
East Farm Village                                                      (57,226)            57,226
Grant Park.Ormewood Park
Lakeside Apartments
Landmark Towers
Magnolia State Apts.
New Haven Plaza                         89,625                        (177,092)           217,262           129,795
Pennbrook Apartments
Redfern Grove Apartments               328,124                                            104,826           432,950
Saturn Apartments
Sugar River Mills
Valebrook                              909,282                         (26,917)           518,126         1,400,491
Westward Ho Apartments
Willow Wick Apartments
                                    ----------       -------        ----------         ----------        ----------
                                    $1,959,173       $   -          $ (305,738)        $1,154,755        $2,808,190
                                    ==========       =======        ==========         ==========        ==========
</TABLE>
<PAGE>   43

                                                                        SCHEDULE
                                                                     (CONTINUED)
                       REAL ESTATE ASSOCIATES LIMITED II
                      INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                         Year Ended December 31, 1995              
                                 --------------------------------------------------------------------------------------
                                                                          Cash             
                                 Balance            Capital             Distri-             Equity            Balance
                                 January            Contri-             butions               in             December
Limited Partnerships             1, 1995            butions            Received             Income           31, 1995
--------------------             -------            -------            --------             ------           --------
<S>                             <C>               <C>                 <C>                  <C>             <C>   
Azalea Court Apartments        $                 $                    $                  $                 $
Berger Apartments                 248,914                                                    90,296            339,210
Biltmore
Branford Elderly Housing          271,292                                                    21,640            292,932
Castlewood Apartments
Cherrywood Apartments                -                                   (46,063)            46,063
Clearfield Manor
Crystal Springs
East Farm Village
Grant Park/Ormewood Park
Lakeside Apartments
Landmark Towers
Magnolia State Apts.
New Haven Plaza                                                         (276,720)           366,345            89,625
Pennbrook Apartments
Redfern Grove Apartments          198,944                                                   129,180           328,124
Saturn Apartments
Sugar River Mills
Valebrook                         416,832                                (26,917)           519,367           909,282
Westward Ho Apartments
Willow Wick Apartments                                                                                               
                               -----------       -----------          ----------         ----------        ----------
                               $1,135,982        $       -            $ (349,700)        $1,172,891        $1,959,173
                               ==========        ===========          ==========         ==========        ==========
</TABLE>





<PAGE>   44

                                                                        SCHEDULE
                                                                     (CONTINUED)
                       REAL ESTATE ASSOCIATES LIMITED II
                      INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                                   Year Ended December 31, 1994              
                                 -------------------------------------------------------------------------------------
                                                                         Cash            
                                 Balance             Capital            Distri-            Equity            Balance
                                 January             Contri-            butions              in              December
Limited Partnerships             1, 1994             butions            Received           Income            31, 1994
--------------------             -------             -------            --------           ------            --------
<S>                            <C>                <C>                 <C>                 <C>              <C>
Azalea Court Apartments        $                  $                  $                   $                 $
Berger Apartments                 174,941                                (21,197)            95,170           248,914
Biltmore
Branford Elderly Housing          246,993                                                    24,299           271,292
Castlewood Apartments
Cherrywood Apartments             835,160                               (929,221)            94,061              -
Clearfield Manor
Crystal Springs
East Farm Village
Grant Park/Ormewood Park
Lakeside Apartments
Landmark Towers
Magnolia State Apts.
New Haven Plaza
Pennbrook Apartments
Redfern Grove Apartments          150,895                                (29,383)            77,432           198,944
Saturn Apartments
Sugar River Mills
Valebrook                                                                (26,917)           443,749           416,832
Westward Ho Apartments
Willow Wick Apartments                                                                                               
                               ----------         -----------        ------------        ----------        ----------
                               $1,407,989         $       -          $(1,006,718)        $  734,711        $1,135,982
                               ==========         ===========        ===========         ==========        ==========
</TABLE>





<PAGE>   45


                                                                        SCHEDULE
                                                                     (Continued)


                       REAL ESTATE ASSOCIATES LIMITED II
              INVESTMENTS IN, EQUITY IN EARNINGS OF AND DIVIDENDS
                   RECEIVED FROM AFFILIATES AND OTHER PERSONS
                  YEARS ENDED DECEMBER 31, 1996, 1994 AND 1993


NOTES:        1.     Equity in losses represents the Partnership's allocable
                     share of the net loss from the limited partnerships for
                     the year.  Equity in losses of the limited partnerships
                     will be recognized until the investment balance is reduced
                     to zero or a negative balance equal to further commitments
                     by the Partnership.

              2.     Cash distributions from the limited partnerships are
                     treated as a return on the investment and reduce the
                     investment balance until such time as the investment is
                     reduced to zero or a negative balance equal to further
                     commitments by the Partnership.  Distributions
                     subsequently received will be recognized as income.





<PAGE>   46


                                                                    SCHEDULE III
                       REAL ESTATE ASSOCIATES LIMITED II
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                 OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS
                        IN WHICH REAL II HAS INVESTMENTS
                               DECEMBER 31, 1996



<TABLE>
<CAPTION>
                                                                     Buildings, Furnishings
                                                                     & Equipment - Initial
                                                                      Cost to Partnership
                                 Number   Outstanding                 and Amount Carried
                                   of      Mortgage                      at Close of                     Accumulated    Construction
Partnership/Location              Units      Loan             Land           Period         Total        Depreciation      Period
---------------------            ------   -----------       ---------     ----------      ----------     -------------  ------------
<S>                               <C>      <C>              <C>           <C>             <C>              <C>           <C>
Azalea Court Apts.                  48     $1,007,275        $62,500      $1,249,556      $1,312,056        $721,266     10/80-3/81
  Theodore, AL

Berger Apartments                  144      4,633,389        156,386       7,411,019       7,567,405       3,998,589      2/80-1/81
New Haven, Connecticut

Branford Elderly Hsng.              38      1,051,156        138,000       1,533,470       1,671,470         533,553      6/80-4/81
Branford, Connecticut

Castlewood Apartments               96      2,994,700        270,422       3,177,727       3,448,149       2,097,187     10/80-9/81
  Davenport, Iowa

Cherrywood/Saturn Apartments        78      3,214,192        146,186       2,430,961       2,577,147       1,715,142      9/79-4/80
  Twin Falls/Idaho Falls, Idaho

Clearfield Manor                    40      1,109,847         50,000       1,265,550       1,315,550         794,147     10/80-10/81
  Clearfield, KY

Crystal Springs Apts.               28        629,530         35,835         770,153         805,988         529,596      7/80-3/81
  Crystal Springs, MS

East Farm Village                  240      9,181,945        291,416      13,085,665      13,377,081       6,721,151      9/79-8/81
East Haven, Connecticut

Grant Park/Ormewood Park           188      4,665,277        299,193       6,194,919       6,494,112       3,254,775      3/80-2/81
  Atlanta, Georgia

Lakeside Apartments                 48      7,125,000        115,366       1,550,088       1,665,454       1,516,929     10/80-6/81
  Mishawaka, IN

Landmark Towers                     40        982,865         38,700       1,511,107       1,549,807       1,271,125     4/79-10/80
  Nampa, Idaho

Magnolia State Apts.                60      1,219,031         57,165       1,573,515       1,630,680         866,616      3/80-8/80
  Gulfport, MS

New Haven Plaza                    344     10,543,529      1,250,000      12,597,416      13,847,416       8,191,272     12/78-2/81
  Far Rockaway, New York

Pennbrook Apartments               108      2,961,083         64,256       3,376,911       3,441,167       1,779,392      7/80-6/81
  Owasso, Michigan

Redfern Grove Apts.                 72      1,807,050        238,522       2,710,136       2,948,658       1,616,445      7/80-7/81
  E. Providence, RI

Sugar River Mills                  162      7,302,000        225,828       9,231,991       9,457,819       4,299,341      2/81-4/82
  Claremon, NH

The Biltmore                       231      9,769,805        754,973      11,327,420      12,082,393       4,359,383      9/80-9/81
  Dayton, Ohio

Valebrook Assoc.                   151      3,948,965         88,886       6,315,664       6,404,553       5,303,839      2/79-7/80
  Lawrence, Massachusetts

Westward Ho Apartments             290     12,461,429      1,040,000      14,919,294      15,959,294       7,578,566     4/80-12/81
  Phoenix, Arizona

Willow Wick Apts.                   24        431,858         21,675         622,317         643,992         445,744      9/80-5/81
  Centre, AL
                                ------    -----------     ----------    ------------    ------------     -----------
TOTAL                            2,430    $87,059,726     $5,345,312    $102,854,879    $108,200,191     $57,596,038
                                ======    ===========     ==========    ============    ============     ===========
</TABLE>





<PAGE>   47

                                                                   SCHEDULE III
                                                                    (Continued)

                       REAL ESTATE ASSOCIATES LIMITED II
              REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY
                     HELD BY LOCAL LIMITED PARTNERSHIPS IN
                         WHICH REAL II HAS INVESTMENTS
                               DECEMBER 31, 1996


NOTES:        1.     Each local limited partnership has developed, owns and
                     operates the housing project.  Substantially all project
                     costs, including construction period interest expense,
                     were capitalized by the limited partnerships.

              2.     Depreciation is provided for by various methods over the
                     estimated useful lives of the projects.  The estimated
                     composite useful lives of the buildings are generally from
                     25 to 40 years.

              3.     Investments in property and equipment:

<TABLE>
<CAPTION>
                                                                           Buildings,
                                                                           Furnishings
                                                                               And
                                                      Land                 Equipment                Total    
                                                 -------------           -------------         --------------
<S>                                                <C>                    <C>                    <C>
Balance at January 1, 1994                         $5,303,009             $100,579,202           $105,882,211

Net additions during 1994                             (14,700)                 681,287                666,587
                                                 -------------         ---------------        ---------------

Balance at December 31, 1994                        5,288,309              101,260,489            106,548,798

Net additions during 1995                              34,500                  903,158                937,658
                                                -------------          ---------------        ---------------

Balance at December 31, 1995                        5,322,809              102,163,647            107,486,456

Net additions during 1996                              22,503                  691,232                713,735
                                                -------------          ---------------        ---------------

Balance at December 31, 1996                       $5,345,312             $102,854,879           $108,200,191
                                                   ==========             ============           ============
</TABLE>





<PAGE>   48

                                                                    SCHEDULE III
                                                                     (Continued)


                       REAL ESTATE ASSOCIATES LIMITED II
              REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY
                     HELD BY LOCAL LIMITED PARTNERSHIPS IN
                         WHICH REAL II HAS INVESTMENTS
                               DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                                       Buildings,
                                                                       Furnishings
                                                                           And
                                                                        Equipment 
                                                                       -----------
<S>                                                                     <C>
Accumulated Depreciation:
------------------------ 

Balance at January 1, 1994                                              $48,168,135

Net additions during 1994                                                 3,148,337
                                                                       ------------

Balance at December 31, 1994                                             51,316,472

Net additions during 1995                                                 3,080,419
                                                                      -------------

Balance at December 31, 1995                                             54,396,891

Net additions during 1996                                                 3,199,147
                                                                      -------------

Balance at December 31, 1996                                            $57,596,038
                                                                        ===========
</TABLE>





<PAGE>   49

PART III.

ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:

REAL ESTATE ASSOCIATES LIMITED II (the "Partnership") has no directors or
executive officers of its own.

National Partnership Investment Corp. ("NAPICO" or "the Managing General
Partner") is a wholly-owned subsidiary of Casden Investment Corporation, an
affiliate of The Casden Company.  The following biographical information is
presented for the directors and executive officers of NAPICO with principal
responsibility for the Partnership's affairs.

CHARLES H. BOXENBAUM, 67, Chairman of the Board of Directors and Chief
Executive Officer of NAPICO.

Mr. Boxenbaum has been associated with NAPICO since its inception.  He has been
active in the real estate industry since 1960, and prior to joining NAPICO was
a real estate broker with the Beverly Hills firm of Carl Rhodes Company.

Mr. Boxenbaum has been a guest lecturer at national and state realty
conventions, certified properties exchanger's seminars, Los Angeles Town Hall,
National Association of Home Builders, International Council of Shopping
Centers, Society of Conventional Appraisers, California Real Estate
Association, National Institute of Real Estate Brokers, Appraisal Institute,
various mortgage banking seminars, and the North American Property Forum held
in London, England.  In 1963, he was the winner of the Snyder Award, the
highest annual award offered by the National Association of Real Estate Boards
for Best Exchange.  He is one of the founders and a past director of the First
Los Angeles Bank, organized in November 1974.  Mr. Boxenbaum was a member of
the Board of Directors of the National Housing Council.  Mr. Boxenbaum received
his Bachelor of Arts degree from the University of Chicago.

BRUCE E. NELSON, 45, President and a director of NAPICO.

Mr. Nelson joined NAPICO in 1980 and became President in February 1989.  He is
responsible for the operations of all NAPICO sponsored limited partnerships.
Prior to that he was primarily responsible for the securities aspects of the
publicly offered real estate investment programs.  Mr. Nelson is also involved
in the identification, analysis, and negotiation of real estate investments.

From February 1979 to October 1980, Mr. Nelson held the position of Associate
General Counsel at Western Consulting Group, Inc., private residential and
commercial real estate syndicators.  Prior to that time, Mr. Nelson was engaged
in the private practice of law in Los Angeles.  Mr. Nelson received his
Bachelor of Arts degree from the University of Wisconsin and is a graduate of
the University of Colorado School of Law.  He is a member of the State Bar of
California and is a licensed real estate broker in California and Texas.

ALAN I. CASDEN, 51, Chairman of The Casden Company, an affiliate of Casden
Properties (formerly CoastFed Properties), a director and member of the audit
committee of NAPICO, and chairman of the Executive Committee of NAPICO.

Mr. Casden is Chairman of the Board, Chief Executive Officer and sole
shareholder of The Casden Company and Casden Investment Company.  Prior to
that, he was the president and chairman of Mayer Group, Inc., which he joined
in 1975.  He is also chairman of Mayer Management, Inc., a real estate
management firm.   Mr. Casden has been involved in approximately $3 billion of
real estate financings and sales and has been responsible for the development
and construction of more than 12,000 apartment units and 5,000 single-family
homes and condominiums.





<PAGE>   50

Mr. Casden is a member of the American Institute of Certified Public
Accountants and of the California Society of Certified Public Accountants.  Mr.
Casden is a member of the advisory board of the National Multi-Family Housing
Conference, the Multi-Family Housing Council, and the President's Council of
the California Building Industry Association.  He also serves on the advisory
board to the School of Accounting of the University of Southern California.  He
holds a Bachelor of Science degree and a Masters in Business Administration
degree from the University of Southern California.

HENRY C. CASDEN, 53, President, Chief Operating Officer and Secretary of The
Casden Company and a director and secretary of NAPICO.

Mr. Casden has been President and Chief Operating Officer of The Casden
Company, as well as a director of NAPICO since February 1988.  He became
secretary of both companies in late 1994.  From 1982 to 1988, Mr. Casden was of
counsel and a partner in the Los Angeles law firm of Troy, Casden & Gould.
From 1978 to 1981, he was of counsel and a partner in the Los Angeles law firm
of Loeb & Loeb.  From 1972 to 1978, Mr.  Casden was a member of the Beverly
Hills law firm of Fink & Casden, Professional Corporation.

Mr. Casden received his Bachelor of Arts degree from the University of
California at Los Angeles, and is a graduate of the University of San Diego Law
School.  Mr. Casden is a member of the State Bar of California and has numerous
professional affiliations.

BRIAN D. GOLDBERG, 33, Chief Financial Officer of The Casden Company and a
director of NAPICO.

Mr. Goldberg joined The Casden Company in 1990 as Vice President of Finance and
became Chief Financial Officer in March 1991.  Prior to joining The Casden
Company, Mr. Goldberg was with Arthur Andersen & Co., an international public
accounting firm, from August 1985 until July 1990 in their Los Angeles office.
He received his bachelor of science degree in Accounting from the University of
Denver.  Mr. Goldberg is a member of the American Institute of Certified Public
Accountants and the California Society of Certified Public Accountants.

SHAWN HORWITZ, 37, Executive Vice President and Chief Financial Officer.

Mr. Horwitz joined NAPICO in 1990 and is responsible for the financial affairs
of NAPICO and the limited partnerships sponsored by NAPICO.  Prior to joining
NAPICO, Mr. Horwitz was President for approximately one year of Star Sub Shops,
Inc., a corporation engaged in the business of selling fast food franchises,
was an audit manager in the real estate industry group for Altschuler, Melvin &
Glasser for six years, and was an auditor with Arthur Young & Co. for 3 years.

Mr. Horwitz received his Bachelor of Commerce degree in accounting from Rhodes
University in South Africa and is a member of the Illinois Society of Certified
Public Accountants, the American Institute of Certified Public Accountants and
the South African Institute of Chartered Accountants.

BOB SCHAFER, 55, Senior Vice President and Corporate Controller.

Mr. Schafer joined NAPICO in 1984 and is the Corporate Controller responsible
for the financial reporting function of the Company.  Prior to this, he was a
Group and Division Controller at Bergen Brunswig for over eight years,
Controller at a Flintkote subsidiary for over four years, and Assistant
Controller at an electronics subsidiary of General Electric for two years.  Mr.
Schafer is a member of the California Society of Certified Public Accountants.
He holds a Bachelor of Science degree in accounting from Woodbury University,
Los Angeles.





<PAGE>   51

PATRICIA W. TOY, 67, Senior Vice President - Communications and Assistant
Secretary

Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the
Graduate School of Management, UCLA.  From 1952 to 1956, Mrs. Toy served as a
U.S. Naval Officer in communications and personnel assignments.  She holds a
Bachelor of Arts Degree from the University of Nebraska.

MARK L. WALTHER, 36, Executive Vice President, General Counsel and Assistant
Secretary.

Mr. Walther joined NAPICO in 1987 and is responsible for the legal affairs of
the NAPICO sponsored limited partnerships.  Prior to joining NAPICO, Mr.
Walther worked in the San Francisco law firm of Browne and Kahn which
specialized in construction litigation.  Mr. Walther received his Bachelor of
Arts Degree in Political Science from the University of California, Santa
Barbara and is a graduate of the University of California, Davis, School of
Law.  He is a member of the State Bar of Hawaii.





<PAGE>   52

ITEM 11.    MANAGEMENT REMUNERATION AND TRANSACTIONS:

Real Estate Associates Limited II has no officers, employees, or directors.
However, under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to pay the Corporate General Partner
an annual management fee. The annual management fee is approximately equal to
 .4% of the invested assets, including the Partnership's allocable share of the
mortgages related to real estate properties held by local limited partnerships.
The fee is earned beginning in the month the Partnership makes its initial
contribution to the limited partnership.  In addition, the Partnership
reimburses the Corporate General Partner for certain expenses.

An affiliate of the Corporate General Partner is responsible for the on-site
property management for certain properties owned by the limited partnerships in
which the Partnership has invested.

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

(a)       Security Ownership of Certain Beneficial Owners

          The general partners own all of the outstanding general partnership
          interests of REAL II;  no person is known to own beneficially in
          excess of 5% of the outstanding Limited Partnership Interests.

(b)       At December 31, 1996, security ownership of management is as listed:

<TABLE>
<CAPTION>
                                                                                               Percentage of
                                                                                                Outstanding
                                                                      Amount and                  Limited
                                       Name of                         Nature of                Partnership
Title of Class                          Owner                      Beneficial Owner              Interests 
--------------                         -------                     ----------------            ------------
<S>                           <C>                                      <C>                           <C>
Limited                       Charles H. Boxenbaum                     $ 30,000                      *
Partnership                   780 Latimer Road
Interest                      Santa Monica, CA 90402

Initial
Limited                       Patricia W. Toy                             4,550                      *
Partnership                   1782 Westridge Road
Interest                      Los Angeles, CA 90049
</TABLE>

*  Cumulative Limited Partnership Interest owned by corporate officers is less
than 1% of outstanding Limited Partnership Interests.





<PAGE>   53

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

The Partnership has no officers, directors, or employees of its own.  All of
its affairs are managed by the Corporate General Partner, National Partnership
Investments Corp.  The transactions with the Corporate General Partner are
primarily in the form of fees paid by the Partnership to the general partner
for services rendered to the Partnership, as discussed in Item 11 and in the
notes to the accompanying financial statements.

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

FINANCIAL STATEMENTS

Reports of Independent Public Accountants.

Balance Sheets as of December 31, 1996 and 1995.

Statements of Operations for the years ended December 31, 1996, 1995 and 1994.

Statements of Partners' Equity (Deficiency) for the years ended December 31,
1996, 1995 and 1994.

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

Notes to Financial Statements.

FINANCIAL STATEMENT SCHEDULES
APPLICABLE TO REAL ESTATE ASSOCIATES LIMITED II AND TO THE LIMITED PARTNERSHIPS
IN WHICH REAL ESTATE ASSOCIATES LIMITED II HAS INVESTMENTS:

Schedule - Investments in Limited Partnerships, December 31, 1996, 1995 and
1994.

Schedule III - Real Estate and Accumulated Depreciation, December 31, 1996.

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

EXHIBITS

(3)      Articles of incorporation and bylaws:  The registrant is not
         incorporated.  The Partnership Agreement was filed with Form S-11
         #266171 incorporated herein by reference.

(10)     Material contracts:  The registrant is not party to any material
         contracts, other than the Restated Certificate and Agreement of
         Limited Partnership dated December 4, 1979, and the twenty-one
         contracts representing the Partnership investment in Local Limited
         Partnerships as previously filed at the Securities and Exchange
         Commission, File #266171, which is hereby incorporated by reference.

(13)     Annual report to security holders:  Pages ___ to ___.

REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the year ended December 31, 1996.





<PAGE>   54

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Los
Angeles, State of California.


REAL ESTATE ASSOCIATES LIMITED II

By:       NATIONAL PARTNERSHIP INVESTMENTS CORP.
          The General Partner


_________________________________________________________________
Charles H. Boxenbaum
Chairman of the Board of Directors
and Chief Executive Officer


_________________________________________________________________
Bruce E. Nelson
Director and President


________________________________________________________________
Alan I. Casden
Director


________________________________________________________________
Henry C. Casden
Director


________________________________________________________________
Brian D. Goldberg
Director


_______________________________________________________________
Shawn D. Horwitz
Executive Vice President and
Chief Financial Officer


______________________________________________________________
Bob E. Schafer
Senior Vice President and Corporate Controller