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                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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                                   FORM 10-KSB


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                 ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000


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                         Commission file number 0-11973

                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
             Organized pursuant to the Laws of the State of Maryland


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        Internal Revenue Service - Employer Identification No. 52-1321492

                 11200 Rockville Pike, Rockville, Maryland 20852

                                 (301) 468-9200


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

                      UNITS OF LIMITED PARTNERSHIP INTEREST


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

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will 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-KSB or any  amendment to
this Form 10-KSB [X]

State issuer's revenues for its most recent fiscal year $1,092,716.

The units of limited  partnership  interest of the  Registrant are not traded in
any market.  Therefore,  the units of limited partnership interest had neither a
market  selling price nor an average bid or asked price within the 60 days prior
to the date of this filing.

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

                        2000 ANNUAL REPORT ON FORM 10-KSB

                                TABLE OF CONTENTS



                                                                           PAGE

                                                      PART I


Item 1.    Business......................................................   I-1
Item 2.    Properties....................................................   I-5
Item 3.    Legal Proceedings.............................................   I-5
Item 4.    Submission of Matters to a Vote of Security Holders...........   I-5


                                                   PART II

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


                                                  PART III

Item 9.    Directors and Executive Officers of the Registrant..............III-1
Item 10.   Executive Compensation..........................................III-2
Item 11.   Security Ownership of Certain Beneficial Owners and Management..III-2
Item 12.   Certain Relationships and Related Transactions..................III-3
Item 13.   Exhibits and Reports on Form 8-K................................III-3

Signatures    .............................................................III-5

Financial Statements.......................................................III-8



<PAGE>
                                     PART I


ITEM 1.           BUSINESS

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

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

         The  Partnership  was  formed to invest  in real  estate,  which is the
Partnership's  principal business  activity,  by acquiring and holding a limited
partner interest in limited partnerships (Local  Partnerships).  The Partnership
originally made investments in 22 Local  Partnerships.  As of December 31, 2000,
the Partnership had  investments in 15 Local  Partnerships.  Each of these Local
Partnerships  owns a  federal  or state  government-assisted  or  conventionally
financed apartment complex, which provides housing principally to the elderly or
to individuals and families of low or moderate income.  The original  objectives
of these investments, not necessarily in order of importance, were to:

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

See Part II, Item 6, Management's Discussion and Analysis of Financial Condition
and Results of  Operations,  for a discussion of factors  affecting the original
investment objectives.

         The Local  Partnerships  in which the  Partnership  has  invested  were
organized by private  developers  who acquired  the sites,  or options  thereon,
applied  for  mortgage  financing  and  applicable   mortgage  insurance  and/or
subsidies,  and in general  remain as the local  general  partners  in the Local
Partnerships.   In  most  cases,   the  local  general  partners  of  the  Local
Partnerships retain  responsibility for developing,  constructing,  maintaining,
operating and managing the  projects.  However,  in the event of  non-compliance
with the Local Partnerships'  partnership agreements,  the local general partner
may be removed  and  replaced  with  another  local  general  partner or with an
affiliate of the Partnership's Managing General Partner.

         As  a  result  of  its  investment  in  the  Local  Partnerships,   the
Partnership became the principal limited partner in these Local Partnerships. As
a limited  partner,  the  Partnership's  legal  liability for obligations of the
Local Partnerships is limited to its investment.  In most cases, an affiliate of
the Managing General Partner of the Partnership is also a general partner of the
Local  Partnerships.  The local general  partners and affiliates of the Managing
General  Partner  may  operate  other  apartment   complexes  which  may  be  in
competition  for  eligible  tenants  with  the  Local  Partnerships'   apartment
complexes.

                                       I-1

<PAGE>
                                     PART I

ITEM 1.           BUSINESS - Continued

         Although each of the Local  Partnerships  in which the  Partnership has
invested  owns an  apartment  complex  that must compete in the market place for
tenants,  interest subsidies and/or rent supplements from governmental  agencies
generally  make it possible to offer certain of these dwelling units to eligible
tenants  at  a  cost   significantly   below  the  market  rate  for  comparable
conventionally  financed  dwelling units.  Based on available data, the Managing
General Partner  believes there to be no material risk of market  competition in
the operations of the apartment  complexes described below which would adversely
impact the  Partnership,  except in specific  circumstances as described in Part
II, Item 6,  Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations.

                                       I-2

<PAGE>
                                     PART I


ITEM 1.           BUSINESS - Continued

         A schedule of the apartment  complexes  owned by Local  Partnerships in
which the Partnership has an investment as of December 31, 2000, follows.


           SCHEDULE OF APARTMENT COMPLEXES OWNED BY LOCAL PARTNERSHIPS
            IN WHICH CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
                              HAS AN INVESTMENT(1)

<TABLE>
<CAPTION>

                                                                                                       Units        Expiration
                            Mortgage                                                               Authorized for       of
 Name and Location         Payable at           Financed and/or Insured           Number of         Rental Asst.     Section 8
OF APARTMENT COMPLEX      12/31/00 (2)          AND/OR SUBSIDIZED UNDER          RENTAL UNITS       UNDER SEC. 8    HAP CONTRACT
--------------------      ------------       -----------------------------       ------------      --------------   -------------
<S>                       <C>                <C>                                 <C>               <C>              <C>
Arrowhead Apts.           $ 6,828,375        Conventional                             200               200          05/31/01
 Palatine, IL

Chevy Chase Park            3,292,147        Metropolitan Savings Bank                232               228          03/22/00 (6)
 Centerville, OH                              (MSB)/Federal Housing
                                              Administration (FHA)

Country Place I             7,157,318        Maryland Community Development           192                38          08/10/09
 Burtonsville, MD                             Administration (MCDA)

Country Place II            4,337,768        HUD                                      120                24          03/30/01 (4)
 Burtonsville, MD

Four Winds West               918,364        GMAC HUD Insured through Section          62                62          10/14/04 (4)
 Birmingham, AL                               221 (d)(4) of the National Housing
                                              Act (NHA)/Section 8

Frenchman's Wharf II        7,923,103        FHA                                      324                31          03/31/01 (4)
 New Orleans, LA

Golden Acres                1,199,220        California Housing Finance Agency         46                45          12/30/12
 Chowchilla, CA                               (CHFA)/Section 8

Mercy Terrace               8,445,340        Section 221(d)(4) of the NHA/            158               157          11/30/03
 San Francisco, CA                            Section 8

The Moorings                8,096,502        Conventional                             216               216          03/31/02
 Roselle, IL

Orangewood Plaza            1,826,500        CHFA                                      40                33          07/01/14 (5)
 Orange Cove, CA

Posada Vallarta            14,642,898        Conventional                             336                70          02/16/04
 Phoenix, AZ

Princeton Community         7,819,398        New Jersey Housing & Mortgage            239                26          10/01/24 (4)
 Village                                      Finance Agency
 Princeton, NJ

Rock Glen                   3,548,692        Section 221(d)(4) of the NHA             241                 0             --
 Baltimore, MD

Troy Manor Apts.              835,418        Rural Housing & Community                 50                50          10/28/04 (4)
 Troy, AL                                     Development Services (RHCD)/Section 8

Westgate Tower Apts.        1,858,922        Michigan Sate Housing Develop-           148                43          12/01/14
 Westland, MI                                 ment Authority/236
                          -----------                                            --------          --------

Totals(3) 15              $78,729,965                                               2,604             1,223
                          ===========                                            ========          ========
</TABLE>


                                       I-3

<PAGE>
                                     PART I


ITEM 1.           BUSINESS - Continued

           SCHEDULE OF APARTMENT COMPLEXES OWNED BY LOCAL PARTNERSHIPS
            IN WHICH CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
                        HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>

                                                                                     Average Effective Annual
                                      Units Occupied As                                  Rental Per Unit
                                  Percentage of Total Units                            for the Years Ended
                                      AS OF DECEMBER 31,                                    DECEMBER 31,
                              ----------------------------------      -------------------------------------------------------
 Name and Location
OF APARTMENT COMPLEX          2000   1999    1998    1997   1996        2000        1999        1998        1997       1996
--------------------          ----   ----    ----    ----   ----      --------    --------    --------    --------   --------
<S>                           <C>    <C>     <C>     <C>    <C>       <C>         <C>         <C>         <C>        <C>
Arrowhead Apts.               100%    98%     97%     99%    91%      $ 10,205    $  9,852    $  9,755    $  9,044   $  9,205
 Palatine, IL

Chevy Chase Park               98%    96%     92%     97%    97%         4,141       4,077       4,291       4,360      4,232
 Centerville, OH

Country Place I                97%    98%     97%     96%    96%        10,194       9,819       9,557       9,330      8,922
 Burtonsville, MD

Country Place II               98%    97%     98%     97%    93%        10,312      10,002       9,821       9,484      9,192
 Burtonsville, MD

Four Winds West                99%    98%     99%     97%    99%         5,190       5,006       5,075       5,079      4,899
 Birmingham, AL

Frenchman's Wharf II           98%    95%     94%     92%    89%         5,029       4,965       4,753       4,681      4,295
 New Orleans, LA

Golden Acres                   98%    87%     98%    100%   100%         6,355       6,324       6,443       6,495      6,297
 Chowchilla, CA

Mercy Terrace                 100%   100%    100%     99%   100%        14,794      14,820      14,836      14,801     15,045
 San Francisco, CA

The Moorings                   99%    96%    100%     94%    97%        10,425       9,679       9,693       9,372      9,231
 Roselle, IL

Orangewood Plaza              100%   100%    100%    100%   100%         2,435       2,382       2,414       2,419      2,353
 Orange Cove, CA

Posada Vallarta                98%    87%     86%     96%    89%         6,841       6,868       7,193       6,623      6,808
 Phoenix, AZ

Princeton Community
 Village                       97%    97%     96%     93%    98%         8,016       7,126       7,036       7,132      6,785
 Princeton, NJ

Rock Glen                      97%    97%     99%     99%    97%         5,470       5,354       5,176       5,011      4,724
 Baltimore, MD

Troy Manor Apts.              100%   100%    100%    100%   100%         4,685       4,664       4,681       4,677      4,680
 Troy, AL

Westgate Tower Apts.           97%    95%     96%     98%   100%         3,739       3,618       3,633       3,702      3,551
 Westland, MI
                              ---    ---     ---     ---    ---       --------    --------    --------    --------   --------

Totals(3) 15                   98%    96%     97%     97%    96%      $  7,189    $  6,970    $  6,957    $  6,814   $  6,681
                              ===    ===     ===     ===    ===       ========    ========    ========    ========   ========

</TABLE>
                                       I-4

<PAGE>
                                     PART I

ITEM 1.           BUSINESS - Continued

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

(2)      The amounts  provided are the balances of first mortgage loans payable
         by the Local Partnerships as of December 31, 2000.

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

(4)      The Section 8 contract  expiration  date reflects an extension from the
         original expiration date, in accordance with Federal legislation.

(5)      Expiration of CHFA subsidy.

(6)      Has entered  into the  Mark-up-to-Market  program for a five year term,
         subject to the annual availability of funding by Congress.

         On October 5, 1999,  the  Partnership's  interests  in Beech Hill I and
Beech  Hill  II  were  transferred  to the  purchase  money  noteholders  due to
non-payment on the related  purchase money notes. See the notes to the financial
statements for additional information concerning these interests.

         On December  15,  1999,  Wexford  Ridge was sold.  See the notes to the
financial statements for additional information concerning this sale.

         On May 31,  2000,  Rolling  Green at Fall  River and  Rolling  Green at
Amherst were sold.  See the notes to the  financial  statements  for  additional
information concerning these sales.

         On January 12, 2001, a contract  for the sale of  Frenchman's  Wharf II
was signed. See the notes to the financial statements for additional information
concerning this contract for sale.

         In  March  2001,  the  Partnership  made an  additional  investment  in
Orangewood  Plaza,  which in turn, will pay off an acquisition note in full. See
Note 2.d. to the financial  statements for further  information  concerning this
payoff.


ITEM 2.           PROPERTIES

         Through  its   ownership   of  limited   partner   interests  in  Local
Partnerships,  Capital Realty Investors-II Limited Partnership  indirectly holds
an interest in the underlying  real estate.  See Part I, Item 1 for  information
concerning these properties.


ITEM 3.           LEGAL PROCEEDINGS

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


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

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of 2000.

                                       I-5

<PAGE>
                                     PART II


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

         (a)      There is no  established  market for the  purchase and sale of
                  interests  in  the  Partnership,   although  various  informal
                  secondary  market services exist.  Due to the limited markets,
                  however,  investors may be unable to sell or otherwise dispose
                  of their interests in the Partnership.

                  On April 2, 2000, Peachtree Partners (Peachtree)  initiated an
                  unregistered  tender offer to purchase  approximately 2,450 of
                  the  outstanding  units  of  additional  limited   partnership
                  interest  (Units)  in the  Partnership  at a price  of $50 per
                  Unit;   the  offer   expired  May  19,   2000.   Peachtree  is
                  unaffiliated  with the  Managing  General  Partner.  The price
                  offered was  determined  solely at the discretion of Peachtree
                  and does not  necessarily  represent  the fair market value of
                  each Unit.

                  The Managing  General Partner has not expressed,  and does not
                  express,  any opinion and remains neutral toward any offer for
                  the purchase of Units such as that described above.

         (b)      As  of  March  20,  2001  there  were  approximately   3,640
                  registered holders of Units in the Partnership.

          c)      On  October  29,   1999,   the   Partnership   made  a  cash
                  distribution  of $1,697,110  ($34.00 per Unit) to Additional
                  Limited  Partners,  to  holders  of record as of  October 1,
                  1999.  On January  28,  2000,  the  Partnership  made a cash
                  distribution  of $1,622,237  ($32.50 per Unit) to Additional
                  Limited  Partners,  to holders of record as of December  15,
                  1999; this  distribution was a result of the sale of Wexford
                  Ridge.  On October 30,  2000,  the  Partnership  made a cash
                  distribution  of $1,497,450  ($30.00 per Unit) to Additional
                  Limited  Partners,  to holders of record as of September 30,
                  2000;  this  distribution  was a  result  of cash  resources
                  accumulated   from   operations   and   distributions   from
                  partnerships.

                  The  Partnership   received   distributions  of  $864,027  and
                  $4,156,788  from  Local  Partnerships  during  2000 and  1999,
                  respectively.  Some of the Local  Partnerships  operate  under
                  restrictions  imposed by the pertinent  governmental  agencies
                  that limit the cash return available to the Partnership.

                                      II-1

<PAGE>
                                     PART II


ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

         Capital Realty  Investors-II  Limited  Partnership's  (the Partnership)
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations section contains  information that may be considered forward looking,
including  statements regarding the effect of governmental  regulations.  Actual
results  may differ  materially  from those  described  in the  forward  looking
statements and will be affected by a variety of factors  including  national and
local economic  conditions,  the general level of interest  rates,  governmental
regulations  affecting the Partnership and interpretations of those regulations,
the  competitive   environment  in  which  the  Partnership  operates,  and  the
availability of working capital.

                                     GENERAL

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

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

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

         The acquisition of interests in certain Local Partnerships was paid for
in part by purchase money notes of the Partnership. The purchase money notes are
nonrecourse  obligations of the Partnership which typically mature 15 years from
the date of acquisition of the interest in a particular Local  Partnership,  and
are generally secured by the Partnership's interest in the Local Partnership.

         C.R.I., Inc. (the Managing General Partner) has been working to develop
a strategy to sell certain  properties by utilizing  opportunities  presented by
federal  affordable   housing   legislation,   favorable   financing  terms  and
preservation  incentives available to tax credit and not-for-profit  purchasers.
The Managing General Partner intends to use all or part of the Partnership's net
proceeds (after a partial  distribution  to limited  partners) from the sales of
properties  to fund  reserves  for paying at maturity,  prepaying or  purchasing
prior to maturity, at a discount where possible,  currently outstanding purchase
money notes.  The Managing  General  Partner  believes  that this  represents an
opportunity to reduce the Partnership's long-term obligations.

         Some of the  rental  properties  owned by the  Local  Partnerships  are
financed by state housing  agencies.  The Managing  General  Partner has sold or
refinanced, and will continue to sell or refinance,  certain properties pursuant
to  programs   developed  by  these   agencies.   These   programs  may  include
opportunities  to sell a property to a qualifying  purchaser  who would agree to
maintain  the  property as low to moderate  income  housing,  or to  refinance a
property, or to

                                      II-2

<PAGE>
                                     PART II




ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS- Continued

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

         Some of the  rental  properties  owned by the  Local  Partnerships  are
dependent on the receipt of  project-based  Section 8 Rental Housing  Assistance
Payments (HAP) provided by the U.S.  Department of Housing and Urban Development
(HUD)  pursuant  to  Section 8 HAP  contracts.  Current  legislation  allows all
expired  Section 8 HAP  contracts  with  rents at less than 100% of fair  market
rents to be renewed for one year.  Expiring  Section 8 HAP contracts  with rents
that  exceed 100% of fair  market  rents  could be renewed for one year,  but at
rents  reduced  to 100% of fair  market  rents  (Mark-to-Market).  All  expiring
Section 8 HAP  contracts  with rents  exceeding  comparable  market  rents,  and
properties  with mortgage  loans insured by the Federal  Housing  Administration
(FHA), became subject to the Mark-to-Market legislation.

         Mark-to-Market  implementation  will reduce rental income at properties
that are currently  subsidized  at  higher-than-market  rental  rates,  and will
therefore  lower cash flow  available to meet  mortgage  payments and  operating
expenses.  Each affected  property may undergo debt  restructuring  according to
terms determined by an individual property and operations  evaluation.  This may
involve reducing the first mortgage loan balance to an amount supportable by the
property,  taking into  account the  property's  operating  expenses and reduced
income. The balance of the amount written down from the first mortgage loan will
be converted to a non-performing but accruing (soft) second mortgage loan.

         In many instances,  the  Mark-to-Market  rental rate  restructuring may
require the write down of an  FHA-insured  mortgage  loan,  which would  trigger
cancellation  of  indebtedness  income to the partners,  a taxable  event,  even
though no actual cash is received.  Additionally, if the existing first mortgage
loan is  bifurcated  into a first and second  mortgage  loan,  the newly created
second mortgage loan will accrue interest at a below-market rate;  however,  the
Internal  Revenue  Service  issued a ruling in July 1998 that concluded that the
below-market rate of interest will not generate additional ordinary income. Each
property subject to Mark-to-Market  will be affected in a different manner,  and
it is very  difficult to predict the exact form of  restructuring,  or potential
tax liabilities to the limited partners, at this time.

         Under HUD's more recent  "Mark-up-to-Market"  program,  properties with
expiring  Section 8 contracts that are located in high-rent  areas as defined by
HUD are eligible for rent increases  which would be necessary to bring Section 8
rents in line with market rate rents.  For properties that enter the program and
have interest  rate  subsidized  FHA loans,  the rents are adjusted to take into
account the  benefits the property is already  receiving  from the  below-market
interest rate by means of a HUD-determined  Interest Subsidy  Adjustment Factor.
The purpose of this  program is to provide  incentives  to owners of  properties
with expiring Section 8 contracts not to convert these properties to market rate
housing.

         In return for receiving market rate rents under Mark-up-to-Market,  the
property owner must enter into a five year  conditional  Section 8 contract with
HUD,  subject to the annual  availability  of funding by Congress.  In addition,
property  owners who enter into the  Mark-up-to-  Market  program  will  receive
increased cash flow as the limited dividend will be increased in an amount equal
to the increase in gross revenues.

                                      II-3

<PAGE>
                                     PART II


ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS- Continued

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

                          FINANCIAL CONDITION/LIQUIDITY

         As of December  31,  2000,  the  Partnership  had  approximately  3,640
investors  who  subscribed  to a total of 50,000  units of  limited  partnership
interest in the original amount of $50,000,000.  The Partnership originally made
investments in 22 Local  Partnerships,  of which 15 remain at December 31, 2000.
The Partnership's  liquidity,  with unrestricted cash resources of $6,292,654 as
of December 31, 2000, along with anticipated  future cash distributions from the
Local  Partnerships,  is  expected  to be  adequate  to  meet  its  current  and
anticipated  operating cash needs. As of March 20, 2001,  there were no material
commitments for capital expenditures.

         During 2000 and 1999, the Partnership  received cash  distributions  of
$864,027 and $4,156,788, respectively, from the Local Partnerships.

         The Partnership's  obligations with respect to its investments in Local
Partnerships,  in the form of purchase money notes having an aggregate principal
balance of  $5,050,000  plus  aggregate  accrued  interest of  $9,156,205  as of
December  31,  2000,  are  payable  in full upon the  earliest  of:  (i) sale or
refinancing of the respective Local Partnership's rental property;  (ii) payment
in full of the respective Local Partnership's permanent loan; or (iii) maturity.

         The maturity date of the purchase  money notes related to the following
properties were extended during 2000.

                                              Original         Extended
         PROPERTY       PRINCIPAL             MATURITY         MATURITY
         --------       ----------           ----------       ----------

         Princeton      $  500,000            01/01/99         01/01/04
         Westgate       $1,400,000 (1)        09/01/98         09/01/03

         (1)      Remaining principal after a partial payment.


         The purchase money notes related to the following  properties were paid
off at a discount during 2000.

         PROPERTY                             PRINCIPAL              DATE
         --------                            -----------           --------

         Rolling Green at Amherst            $1,927,500            May 2000
         Rolling Green at Fall River         $4,600,000            May 2000


         The  purchase  money  note  related  to  Frenchman's  Wharf  II in  the
principal  amount of $3,150,000,  matured on June 1, 1998, and has not been paid
or extended.

         See the notes to the financial  statements for  additional  information
concerning purchase money notes.

                                      II-4

<PAGE>
                                     PART II


ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS- Continued

         The purchase money notes, which are nonrecourse to the Partnership, are
generally  secured  by  the  Partnership's  interest  in  the  respective  Local
Partnerships.  There is no assurance  that the underlying  properties  will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes'  principal and accrued  interest when due. If a purchase money note
is not paid in accordance with its terms,  the  Partnership  will either have to
renegotiate  the terms of repayment or risk losing its  partnership  interest in
the respective Local Partnership.

         The  Partnership's  inability to pay certain of the purchase money note
principal and accrued interest balances when due, and the resulting  uncertainty
regarding the Partnership's  continued  ownership  interest in the related Local
Partnerships,  does not adversely impact the Partnership's  financial  condition
because the  purchase  money  notes are  nonrecourse  and secured  solely by the
Partnership's interest in the related Local Partnerships.  Therefore, should the
investment in any of the Local  Partnerships  with maturing purchase money notes
not produce  sufficient  value to satisfy the related  purchase money notes, the
Partnership's  exposure to loss is limited because the amount of the nonrecourse
indebtedness  of each of the maturing  purchase money notes exceeds the carrying
amount  of the  investment  in,  and  advances  to,  each of the  related  Local
Partnerships. Thus, even a complete loss of the Partnership's interest in one of
these  Local  Partnerships  would  not have a  material  adverse  impact  on the
financial condition of the Partnership.

         The Managing  General  Partner is  continuing to  investigate  possible
alternatives to reduce the Partnership's  debt obligations.  These  alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note  requirements,  paying off certain purchase money notes at a
discounted  price,  extending  the due dates of certain  purchase  money  notes,
refinancing the respective properties' underlying debt or selling the underlying
real estate and using the Partnership's share of the proceeds to pay or buy down
certain purchase money note  obligations.  Although the Managing General Partner
has had some success applying these strategies in the past, the Managing General
Partner cannot assure that these strategies will be successful in the future. If
the Managing  General  Partner is unable to negotiate an extension or discounted
payoff,  in the event that the purchase money notes remain unpaid upon maturity,
the noteholders may have the right to foreclose on the Partnership's interest in
the related Local Partnerships. In the event of a foreclosure, the excess of the
nonrecourse   indebtedness   over  the  carrying  amount  of  the  Partnership's
investment  in the related Local  Partnership  would be deemed  cancellation  of
indebtedness income, which would be taxable to Limited Partners at a federal tax
rate  of  up  to  39.6%.  Additionally,  in  the  event  of a  foreclosure,  the
Partnership  would lose its investment in the Local  Partnership and,  likewise,
its share of any future  cash flow  distributed  by the Local  Partnership  from
rental operations,  mortgage debt refinancings,  or the sale of the real estate.
Of the 15 Local Partnerships in which the Partnership is invested as of December
31, 2000, the one Local Partnership with an associated purchase money note which
has  matured  and which  remains  unpaid  or  unextended  as of March 20,  2001,
represented none of the Partnership's  total  distributions  received from Local
Partnerships  and none of the share of income  from Local  Partnerships  for the
immediately preceding two calendar years.

         The  Managing  General  Partner  continues  to address the maturity and
impending  maturity of its debt  obligations and to seek  strategies  which will
provide the most favorable outcome to the limited partners.  However,  there can
be no assurance that these strategies will be successful.

                                      II-5

<PAGE>
                                     PART II


ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS- Continued

         The Partnership  closely monitors its cash flow and liquidity  position
in an  effort  to  ensure  that  sufficient  cash  is  available  for  operating
requirements.  For the years ended  December  31, 2000 and 1999,  the receipt of
distributions  from Local  Partnerships  was adequate to support  operating cash
requirements.   Cash  and  cash   equivalents   decreased  during  2000  as  the
distribution  to Additional  Limited  Partners,  made in January 2000 out of the
proceeds of the 1999 sale of Wexford Ridge Associates (Wexford Ridge), plus cash
used for other financing activities,  exceeded cash flow distributions  received
from Local Partnerships during the period.

         On October  29,  1999,  the  Partnership  made a cash  distribution  of
$1,697,110  ($34.00  per Unit) to  Additional  Limited  Partners,  to holders of
record as of October 1, 1999. On January 28, 2000, the  Partnership  made a cash
distribution of $1,622,237 ($32.50 per Unit) to Additional Limited Partners,  to
holders of record as of December 15, 1999; this distribution was a result of the
sale of  Wexford  Ridge.  On  October  30,  2000,  the  Partnership  made a cash
distribution of $1,497,450 ($30.00 per Unit) to Additional Limited Partners,  to
holders of record as of September 30, 2000;  this  distribution  was a result of
cash resources  accumulated from operations and distributions from partnerships.
The  Managing  General  Partner  intends  to  reserve  all of the  Partnership's
remaining   undistributed  cash  for  the  possible  repayment,   prepayment  or
retirement of the Partnership's  outstanding purchase money notes related to the
Local Partnerships.

                              RESULTS OF OPERATIONS

2000 VERSUS 1999

         The  Partnership's  net  income for the year ended  December  31,  2000
increased  from the year  ended  December  31,  1999,  primarily  due to gain on
disposition  of  investments  in  partnerships  and   extraordinary   gain  from
extinguishment  of debt  related to the sales of Roberts  Fall River  Associates
(Rolling  Green at Fall River),  Roberts  Amherst  Associates  (Rolling Green at
Amherst)  and the partial  transfer of the  Partnership's  interest in Princeton
Community  Village  Associates  (Princeton),  as  discussed  in the notes to the
financial statements. Contributing to the increase in net income were a decrease
in interest  expense due to lower  purchase money note balances as the result of
payments and the  extinguishment of debt, a decrease in amortization of deferred
costs  associated  with the sales of  properties,  and an  increase  in interest
income due to higher cash and cash equivalent balances and higher interest rates
during  2000.  Offsetting  the  increase in the  Partnership's  net income was a
decrease in share of income from partnerships due to the sale of properties, and
higher  professional  fees related to the Chevy Chase Park Limited (Chevy Chase)
and Princeton litigation.

         For financial reporting purposes, the Partnership, as a limited partner
in the Local Partnerships, does not record losses from the Local Partnerships in
excess of its  investment  to the  extent  that the  Partnership  has no further
obligation to advance funds or provide financing to the Local Partnerships. As a
result, the Partnership's  share of income from partnerships for the years ended
December 31, 2000 and 1999 did not include losses of $2,002,620 and  $1,883,929,
respectively.  The Partnership's net loss recognized from the Local Partnerships
is  generally  expected  to decrease in  subsequent  years as the  Partnership's
investments  in  the  Local  Partnerships  are  reduced  to  zero.  Accordingly,
excludable losses are generally expected to increase.  Distributions of $440,632
and $1,609,522, received from eight and seven Local Partnerships during 2000 and
1999,  respectively,  were offset against the respective  years' recorded losses
because these amounts were in excess of the Partnership's investment.

                                      II-6

<PAGE>
                                     PART II




ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS- Continued

                                    INFLATION

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

         The  combined  rental  revenues  of  the  Partnership's   remaining  15
properties for the five years ended December 31, 2000,  follow.  Combined rental
revenue  amounts  have been  adjusted to reflect  property  sales and  interests
transferred in 2000 and prior years.

<TABLE>
<CAPTION>

                                                      FOR THE YEARS ENDED DECEMBER 31,
                       ---------------------------------------------------------------------------------------------------
                          2000                  1999                  1998                  1997                  1996
                       -----------           -----------           -----------           -----------           -----------
<S>                    <C>                   <C>                   <C>                   <C>                   <C>
Combined Rental
  Revenue              $19,446,953           $18,795,210           $18,763,221           $18,259,244           $17,896,694

Annual Percentage
  Increase                            3.5%                   .2%                  2.8%                  2.0%

</TABLE>

ITEM 7.           FINANCIAL STATEMENTS

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


ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                      ACCOUNTING AND FINANCIAL DISCLOSURE

         None.

                                      II-7

<PAGE>
                                    PART III


ITEM 9.           DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
                  --------------------------------------------------

         (a), (b) and (c)

               The   Partnership  has  no  directors,   executive   officers  or
               significant employees of its own.

         (a), (b), (c) and (e)

               The names,  ages and business  experience  of the  directors  and
               executive  officers of C.R.I.,  Inc. (CRI),  the Managing General
               Partner of the Partnership, follow.

William B. Dockser, 64, has been the Chairman of the Board and a Director of CRI
since 1974.  Prior to forming  CRI, he served as  President of Kaufman and Broad
Asset Management,  Inc., an affiliate of Kaufman and Broad,  Inc., which managed
publicly held limited  partnerships created to invest in low and moderate income
multifamily apartment properties.  Prior to joining Kaufman and Broad, he served
in various positions at HUD,  culminating in the post of Deputy FHA Commissioner
and Deputy Assistant Secretary for Housing Production and Mortgage Credit, where
he was responsible for all federally insured housing production programs. Before
coming to the Washington,  D.C., area, Mr. Dockser was a practicing  attorney in
Boston and served as a special  Assistant  Attorney General for the Commonwealth
of  Massachusetts.  He holds a Bachelor of Laws degree from Yale  University Law
School and a Bachelor of Arts degree, cum laude, from Harvard University.  He is
also Chairman of the Board and a Director of CRIIMI MAE Inc. and CRIIMI, Inc.

H. William Willoughby,  54, has been President,  Secretary and a Director of CRI
since January 1990 and Senior Executive Vice President, Secretary and a Director
of CRI from  1974 to  1989.  He is  principally  responsible  for the  financial
management of CRI and its associated partnerships. Prior to joining CRI in 1974,
he was Vice  President  of Shelter  Corporation  of America  and a number of its
subsidiaries  dealing  principally  with  real  estate  development  and  equity
financing.  Before joining Shelter  Corporation,  he was a senior tax accountant
with Arthur Andersen & Co. He holds a Juris Doctor degree,  a Master of Business
Administration   degree  and  a  Bachelor   of   Science   degree  in   Business
Administration  from the  University of South Dakota.  He is also a Director and
executive officer of CRIIMI MAE Inc. and CRIIMI, Inc.

Susan R. Campbell,  42, is Executive Vice President and Chief Operating Officer.
Prior to joining CRI in March 1985,  she was a budget analyst for the B. F. Saul
Advisory  Company.  She holds a Bachelor of Science  degree in General  Business
from the University of Maryland.

Melissa Cecil Lackey, 45, is Senior Vice President and General Counsel. Prior to
joining CRI in 1990,  she was associated  with the firms of Zuckerman,  Spaeder,
Goldstein,  Taylor & Kolker in  Washington,  D.C.  and  Hirsch &  Westheimer  in
Houston,  Texas. She holds a Juris Doctor degree from the University of Virginia
School of Law and a Bachelor of Arts degree from the College of William & Mary.

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

     (f)  Involvement in certain legal proceedings.

          None.

     (g)  Promoters and control persons.

          Not applicable.

                                      III-1

<PAGE>
                                    PART III


ITEM 10.          EXECUTIVE COMPENSATION

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

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

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

                  None.


ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  ---------------------------------------------------
                      MANAGEMENT
                      ----------

         (a)      Security ownership of certain beneficial owners.

                  The following table sets forth certain information  concerning
                  any  person  (including  any  "group")  who  is  known  to the
                  Partnership  to be the  beneficial  owner  of more  than  five
                  percent  of the  issued and  outstanding  units of  additional
                  limited partnership interest (Units), at March 20, 2001.

                    Name and Address of       Amount and Nature      % of total
                     BENEFICIAL OWNER      OF BENEFICIAL OWNERSHIP  UNITS ISSUED
                  ----------------------   -----------------------  ------------

                  Equity Resources Group,        3,324 units            6.6%
                    Incorporated, et. al.
                    14 Story Street
                    Cambridge, MA 02138

         (b)      Security ownership of management.

                  The following table sets forth certain information  concerning
                  all Units  beneficially  owned,  as of March 20, 2001, by each
                  director and by all  directors  and officers as a group of the
                  Managing General Partner of the Partnership.

                      Name of                Amount and Nature       % of total
                  BENEFICIAL OWNER        OF BENEFICIAL OWNERSHIP   UNITS ISSUED
                  ----------------        -----------------------   ------------

                  William B. Dockser               None                  0%
                  H. William Willoughby            None                  0%
                  All Directors and Officers
                    as a Group (4 persons)         None                  0%

         (c)      Changes in control.

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


                                      III-2

<PAGE>
                                    PART III


ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
                  ----------------------------------------------

         (a)      Transactions with management and others.

                  The Partnership has no directors or officers. In addition, the
                  Partnership has had no transactions  with individual  officers
                  or  directors  of  the   Managing   General   Partner  of  the
                  Partnership other than any indirect interest such officers and
                  directors may have in the amounts paid to the Managing General
                  Partner or its  affiliates by virtue of their stock  ownership
                  in CRI. Item 10 of this report, which contains a discussion of
                  the  fees  and  other  compensation  paid  or  accrued  by the
                  Partnership to the General  Partners or their  affiliates,  is
                  incorporated  herein  by  reference.  Note 3 of the  notes  to
                  financial  statements  contained in Part III,  which  contains
                  disclosure of related party transactions, is also incorporated
                  herein by reference.

         (b)      Certain business relationships.

                  The  Partnership's  response  to Item  12(a)  is  incorporated
                  herein by  reference.  In  addition,  the  Partnership  has no
                  business  relationship with entities of which the officers and
                  directors of the Managing  General  Partner of the Partnership
                  are  officers,  directors  or equity  owners other than as set
                  forth in the Partnership's response to Item 12(a).

         (c)      Indebtedness of management.

                  None.

         (d)      Transactions with promoters.

                  Not applicable.


ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K
                  --------------------------------

         (a)      INDEX OF EXHIBITS  (Listed according to the number assigned in
                  -----------------  the table in Item 601 of Regulation S-B.)

                  Exhibit No. 3 - Articles of Incorporation and bylaws.

                  a.   Certificate  of Limited  Partnership  of Capital Realty
                       Investors-II  Limited  Partnership.   (Incorporated  by
                       reference to Exhibit No. 4 to Registrant's Registration
                       Statement  on Form S-11,  as  amended,  dated April 28,
                       1983.)

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

                  a.   Limited   Partnership   Agreement  of  Capital   Realty
                       Investors-II  Limited  Partnership.   (Incorporated  by
                       reference to Exhibit No. 4 to Registrant's Registration
                       Statement  on Form S-11,  as  amended,  dated April 28,
                       1983.)


                                      III-3

<PAGE>
                                    PART III




ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K - Continued
                  --------------------------------

                  Exhibit No. 10 - Material Contracts.

                  a.   Management  Services  Agreement between CRI and Capital
                       Realty Investors-II Limited Partnership.  (Incorporated
                       by  reference  to  Exhibit  No.  10(b) to  Registrant's
                       Registration  Statement on Form S-11, as amended, dated
                       April 28, 1983.)

                  Exhibit No. 99 - Additional Exhibits.

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

         (b)      REPORTS ON FORM 8-K

                  No reports on Form 8-K were filed  during the quarter  ended
                  December 31, 2000.


                                      III-4

<PAGE>
                                   SIGNATURES


         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.



                                  CAPITAL REALTY INVESTORS-II
                                    LIMITED PARTNERSHIP
                                  ----------------------------------------------
                                  (Registrant)

                                  by:  C.R.I., INC.
                                       -----------------------------------------
                                       Managing General Partner



MARCH 20, 2001                         by:  /S/ WILLIAM B. DOCKSER
--------------                              ------------------------------------
DATE                                        William B. Dockser,
                                              Director, Chairman of the Board,
                                              and Treasurer
                                              (Principal Executive Officer)


         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.


MARCH 20, 2001                          by:  /S/ H. WILLIAM WILLOUGHBY
--------------                               -----------------------------------
DATE                                         H. William Willoughby,
                                               Director, President,
                                               and Secretary




MARCH 20, 2001                          by:  /S/ MICHAEL J. TUSZKA
--------------                               -----------------------------------
DATE                                         Michael J. Tuszka,
                                               Vice President
                                               and Chief Accounting Officer
                                               (Principal Financial Officer
                                               and Principal Accounting Officer)


                                      III-5

<PAGE>





                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS



To the Partners
Capital Realty Investors-II Limited Partnership

         We have  audited  the  balance  sheets of Capital  Realty  Investors-II
Limited Partnership (a Maryland limited partnership) as of December 31, 2000 and
1999, and the related statements of operations, changes in partners' deficit and
cash flows for the years  ended  December  31,  2000 and 1999.  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 did  not  audit  the  financial  statements  of  certain  Local
Partnerships.  The Partnership's  share of income from these Local  Partnerships
constitutes  $120,009  and  $767,601  of income in 2000 and 1999,  respectively,
included in the  Partnership's  net income.  The  financial  statements of these
Local  Partnerships  were audited by other auditors  whose reports  thereon have
been furnished to us, and our opinion expressed herein, insofar as it relates to
the amount  included  for these  Local  Partnerships,  is based  solely upon the
reports of the other auditors.

         We conducted our audits in accordance with auditing standards generally
accepted in 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,  based  upon  our  audits  and the  reports  of  other
auditors,  the financial  statements  referred to above present  fairly,  in all
material respects, the financial position of Capital Realty Investors-II Limited
Partnership as of December 31, 2000 and 1999 and the results of its  operations,
changes in  partners'  deficit and cash flows for the years ended  December  31,
2000 and 1999, in conformity with accounting  principles  generally  accepted in
the United States.

                                                           Grant Thornton LLP


Vienna, VA
March 13, 2001

                                      III-6

<PAGE>

               REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

                           LOCAL PARTNERSHIPS IN WHICH

                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                                  HAS INVESTED*





*        The  reports  of  independent  certified  public  accountants  -  Local
         Partnerships in which Capital Realty  Investors-II  Limited Partnership
         has  invested  were  filed in paper  format  under Form SE on March 20,
         2001,  in  accordance  with the  Securities  and Exchange  Commission's
         continuing hardship exemption granted January 5, 2001.

                                      III-7

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                                 BALANCE SHEETS


                                     ASSETS


<TABLE>
<CAPTION>

                                                                                               DECEMBER 31,
                                                                                      ----------------------------
                                                                                         2000              1999
                                                                                      ------------    ------------
<S>                                                                                   <C>             <C>
Investments in and advances to partnerships .......................................   $    729,191    $    966,378
Investment in partnership held for sale ...........................................         79,579            --
Cash and cash equivalents .........................................................      6,292,654       8,936,520
Acquisition fees, principally paid to related parties,
  net of accumulated amortization of $245,626 and $408,934, respectively ..........        184,362         348,795
Property purchase costs,
  net of accumulated amortization of $229,486 and $280,099, respectively ..........        180,800         252,283
Other assets ......................................................................          2,538            --
                                                                                      ------------    ------------

   Total assets ...................................................................   $  7,469,124    $ 10,503,976
                                                                                      ============    ============




                        LIABILITIES AND PARTNERS' DEFICIT



Due on investments in partnerships ................................................   $  5,050,000    $  7,348,747
Accrued interest payable ..........................................................      9,156,205      22,374,877
Distribution payable ..............................................................           --         1,622,237
Accounts payable and accrued expenses .............................................        176,350         127,692
                                                                                      ------------    ------------

   Total liabilities ..............................................................     14,382,555      31,473,553
                                                                                      ------------    ------------

Commitments and contingencies

Partners' capital (deficit):

  Capital paid in:
    General Partners ..............................................................          2,000           2,000
    Limited Partners ..............................................................     50,015,000      50,015,000
                                                                                      ------------    ------------

                                                                                        50,017,000      50,017,000

  Less:
    Accumulated distributions to partners .........................................     (7,569,859)     (6,072,409)
    Offering costs ................................................................     (5,278,980)     (5,278,980)
    Accumulated losses ............................................................    (44,081,592)    (59,635,188)
                                                                                      ------------    ------------

      Total partners' deficit .....................................................     (6,913,431)    (20,969,577)
                                                                                      ------------    ------------

      Total liabilities and partners' deficit .....................................   $  7,469,124    $ 10,503,976
                                                                                      ============    ============
</TABLE>
                          The accompanying notes are an
                             integral part of these
                              financial statements.

                                      III-8

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                            STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                              For the years ended
                                                                                   DECEMBER 31,
                                                                          -----------------------------
                                                                              2000           1999
                                                                          ------------    ------------
<S>                                                                       <C>             <C>
Share of income from partnerships .....................................   $    626,842    $  2,520,032
                                                                          ------------    ------------

Other revenue and expenses:

  Revenue:
    Interest and other income .........................................        465,874         359,744
                                                                          ------------    ------------

  Expenses:
    Interest ..........................................................        784,167       1,532,386
    Management fee ....................................................        249,996         249,996
    General and administrative ........................................        199,786         203,296
    Professional fees .................................................        169,217          73,466
    Amortization of deferred costs ....................................         34,245          44,390
                                                                          ------------    ------------

                                                                             1,437,411       2,103,534

      Total other revenue and expenses ................................       (971,537)     (1,743,790)
                                                                          ------------    ------------

(Loss) income before gain on disposition of investments in partnerships       (344,695)        776,242

Gain on disposition of investments in partnerships ....................      5,879,778       3,070,636
                                                                          ------------    ------------

Income before extraordinary gain from extinguishment of debt ..........      5,535,083       3,846,878

Extraordinary gain from extinguishment of debt ........................     10,018,513       9,231,621
                                                                          ------------    ------------

Net income ............................................................   $ 15,553,596    $ 13,078,499
                                                                          ============    ============



Net income allocated to General Partners (1.51%) ......................   $    234,859    $    197,485
                                                                          ============    ============


Net income allocated to Initial and Special Limited Partners (1.49%) ..   $    231,749    $    194,870
                                                                          ============    ============


Net income allocated to Additional Limited Partners (97%) .............   $ 15,086,988    $ 12,686,144
                                                                          ============    ============


Net income per unit of Additional Limited Partnership Interest
  based on 50,000 units outstanding ...................................   $     301.74    $     253.72
                                                                          ============    ============
</TABLE>

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

                                      III-9

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                   STATEMENTS OF CHANGES IN PARTNERS' DEFICIT


<TABLE>
<CAPTION>



                                                                              Initial and
                                                                                Special         Additional
                                                            General             Limited          Limited
                                                            PARTNERS            PARTNERS         PARTNERS             TOTAL
                                                          -----------         -----------      ------------        ------------
<S>                                                       <C>                 <C>              <C>                 <C>
Partners' deficit, January 1, 1999                        $(1,111,966)        $(1,083,690)     $(28,533,073)       $(30,728,729)

  Net income                                                  197,485             194,870        12,686,144          13,078,499

  Distributions of $34.00 and $32.50 per unit of
    Additional Limited Partnership Interest                                                      (3,319,347)         (3,319,347)
                                                          -----------         -----------      ------------        ------------

Partners' deficit, December 31, 1999                         (914,481)           (888,820)      (19,166,276)        (20,969,577)

  Net income                                                  234,859             231,749        15,086,988          15,553,596

  Distribution of $30.00 per unit of
    Additional Limited Partnership Interest                                                      (1,497,450)         (1,497,450)
                                                          -----------         -----------      ------------        ------------

Partners' deficit, December 31, 2000                      $  (679,622)        $  (657,071)     $ (5,576,738)       $ (6,913,431)
                                                          ===========         ===========      ============        ============

</TABLE>




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

                                     III-10

<PAGE>

                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>


                                                                                      For the years ended
                                                                                           DECEMBER 31,
                                                                                  ----------------------------
                                                                                     2000              1999
                                                                                  ------------    ------------
<S>                                                                               <C>             <C>
Cash flows from operating activities:
  Net income ..................................................................   $ 15,553,596    $ 13,078,499

  Adjustments to reconcile net income to net cash used in operating activities:
    Share of income from partnerships .........................................       (626,842)     (2,520,032)
    Amortization of deferred costs ............................................         34,245          44,390
    Gain on disposition of investments in partnerships ........................     (5,879,778)     (3,070,636)
    Extraordinary gain from extinguishment of debt ............................    (10,018,513)     (9,231,621)

    Changes in assets and liabilities:
      (Increase) decrease in other assets .....................................         (2,538)          3,781
      Increase in accrued interest payable ....................................        784,167       1,532,386
      Payment of purchase money note interest .................................       (231,201)        (25,322)
      Increase in accounts payable and accrued expenses .......................         48,658           7,038
                                                                                  ------------    ------------

        Net cash used in operating activities .................................       (338,206)       (181,517)
                                                                                  ------------    ------------


Cash flows from investing activities:
  Receipt of distributions from partnerships ..................................        864,027       4,156,788
  Proceeds from disposition of investments in partnerships ....................      5,993,661       3,247,585
                                                                                  ------------    ------------

        Net cash provided by investing activities .............................      6,857,688       7,404,373
                                                                                  ------------    ------------


Cash flows from financing activities:
  Payoff of purchase money notes and related interest .........................     (5,993,661)     (1,410,000)
  Payment of purchase money note principal ....................................        (50,000)     (2,775,257)
  Distributions to Additional Limited Partners ................................     (3,119,687)     (1,697,110)
                                                                                  ------------    ------------

        Net cash used in financing activities .................................     (9,163,348)     (5,882,367)
                                                                                  ------------    ------------

Net (decrease) increase in cash and cash equivalents ..........................     (2,643,866)      1,340,489

Cash and cash equivalents, beginning of year ..................................      8,936,520       7,596,031
                                                                                  ------------    ------------

Cash and cash equivalents, end of year ........................................   $  6,292,654    $  8,936,520
                                                                                  ============    ============




Supplemental disclosure of cash flow information:
  Cash paid during the year for interest ......................................   $  3,976,115    $    595,144
                                                                                  ============    ============
</TABLE>


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

                                     III-11

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         a.       ORGANIZATION
                  ------------

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

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

                  The  Partnership  sold  50,000  units  at  $1,000  per unit of
         additional limited partnership interest through a public offering.  The
         offering period was terminated on June 20, 1983.

         b.       METHOD OF ACCOUNTING
                  --------------------

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

         c.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
                  -------------------------------------------

                  The  investments  in and advances to Local  Partnerships  (see
         Note 2) are accounted for by the equity method because the  Partnership
         is a limited partner in the Local Partnerships.  Under this method, the
         carrying   amount  of  the   investments   in  and  advances  to  Local
         Partnerships  is  (i)  reduced  by  distributions   received  and  (ii)
         increased or reduced by the Partnership's  share of earnings or losses,
         respectively,  of the Local Partnerships.  As of both December 31, 2000
         and 1999,  the  Partnership's  share of cumulative  losses of 11 of the
         Local Partnerships exceeded the amount of the Partnership's investments
         in  and  advances  to  those  Local  Partnerships  by  $25,853,163  and
         $24,972,119,   respectively.  Since  the  Partnership  has  no  further
         obligation  to  advance  funds or  provide  financing  to  these  Local
         Partnerships,  the  excess  losses  have  not  been  reflected  in  the
         accompanying  financial  statements.  As of December 31, 2000 and 1999,
         cumulative  cash   distributions   of  $13,551,560   and   $13,110,928,
         respectively,  have been received from the Local Partnerships for which
         the  Partnership's  carrying  value is zero.  These  distributions  are
         recorded  as  increases  in the  Partnership's  share  of  income  from
         partnerships.

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

                                     III-12

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

         d.       INVESTMENT IN PARTNERSHIP HELD FOR SALE
                  ---------------------------------------

                  On May 31, 2000, the purchase money noteholder purchased a 26%
         interest in Princeton from the  Partnership,  as discussed in Note 2.a.
         In January 2001, the Local Partnership  entered into a contract to sell
         Frenchman's  Wharf I, also as discussed in Note 2.a. The  Partnership's
         investments in these Local  Partnership were reclassified to investment
         in  partnerships  held for sale in the  accompanying  balance  sheet at
         December 31,  2000.  Assets held for sale are not recorded in excess of
         their estimated net realizable value.

         e.       CASH AND CASH EQUIVALENTS
                  -------------------------

                  Cash and cash  equivalents  consist of all money market funds,
         time and demand  deposits,  repurchase  agreements and commercial paper
         with original maturities of three months or less.

         f.       OFFERING COSTS
                  --------------

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

         g.       INCOME TAXES
                  ------------

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

         h.       USE OF ESTIMATES
                  ----------------

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

         i.       FAIR VALUE OF FINANCIAL INSTRUMENTS
                  -----------------------------------

                  The  financial   statements   include   estimated  fair  value
         information  as of December  31,  2000,  as required  by  Statement  of
         Financial  Accounting  Standards (SFAS) No. 107, "Disclosure About Fair
         Value of Financial  Instruments."  Such information,  which pertains to
         the  Partnership's  financial  instruments  (primarily  cash  and  cash
         equivalents and purchase money notes), is based on the requirements set
         forth in SFAS No. 107 and does not purport to represent  the  aggregate
         net fair value of the Partnership.

                  The  balance  sheet   carrying   amounts  for  cash  and  cash
         equivalents approximate estimated fair values of such assets.

                  The  Partnership  has  determined  that it is not  practicable
         to estimate  the  fair  value  of  the  purchase   money  notes, either
         individually or in the aggregate, due to: (i) the lack

                                     III-13

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

         of an active  market for this type of  financial  instrument,  (ii) the
         variable nature of purchase money note interest payments as a result of
         fluctuating  cash flow  distributions  received  from the related Local
         Partnerships,   and  (iii)  the  excessive  costs  associated  with  an
         independent appraisal of the purchase money notes.


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

         a.    DUE ON INVESTMENTS IN PARTNERSHIPS AND ACCRUED INTEREST PAYABLE
               ---------------------------------------------------------------

               As of December 31, 2000 and 1999, the Partnership held limited
         partner interests in 15 and 17 Local Partnerships,  respectively, which
         were organized to develop,  construct, own, maintain and operate rental
         apartment  properties which provide housing  principally to the elderly
         or to individuals and families of low or moderate income. The remaining
         amounts due on investments in the Local Partnerships follow.


                                                               DECEMBER 31,
                                                      --------------------------
                                                         2000           1999
                                                      -----------    -----------

                  Purchase money notes due in:
                    1998                              $ 3,150,000    $ 4,600,000
                    1999                                       --        500,000
                    2003                                1,400,000      2,248,747
                    2004                                  500,000             --
                                                      -----------    -----------

                        Subtotal                        5,050,000      7,348,747
                                                      -----------    -----------

                  Accrued interest payable              9,156,205     22,374,877
                                                      -----------    -----------

                        Total                         $14,206,205    $29,723,624
                                                      ===========    ===========


                  The purchase  money notes have stated  interest  rates ranging
         from 9% to 12%, certain of which are compounded annually.  The purchase
         money  notes are  payable  in full upon the  earliest  of:  (i) sale or
         refinancing of the respective Local Partnership's rental property; (ii)
         payment in full of the respective Local  Partnership's  permanent loan;
         or (iii) maturity.

                  The maturity  date of the purchase  money notes related to the
         following properties were extended during 2000.

                                               Original   Extended
                  PROPERTY     PRINCIPAL       MATURITY   MATURITY
                  --------     ---------       --------   --------

                  Princeton    $  500,000      01/01/99   01/01/04
                  Westgate     $1,400,000 (1)  09/01/98   09/01/03

                  (1)      Remaining principal after a partial payment.


                                     III-14

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

                  The purchase  money notes related to the following  properties
         were paid off at a discount during 2000.

                  PROPERTY                      PRINCIPAL              DATE
                  --------                      -----------           --------

                  Rolling Green at Amherst      $1,927,500            May 2000
                  Rolling Green at Fall River   $4,600,000            May 2000

                  The purchase money note related to Frenchman's Wharf II in the
         principal  amount of  $3,150,000,  matured on June 1, 1998, and has not
         been paid or extended.

                  The  purchase  money  notes,  which  are  nonrecourse  to  the
         Partnership, are generally secured by the Partnership's interest in the
         respective  Local   Partnerships.   There  is  no  assurance  that  the
         underlying  properties will have sufficient  appreciation and equity to
         enable the  Partnership to pay the purchase money notes'  principal and
         accrued  interest  when due.  If a  purchase  money note is not paid in
         accordance  with  its  terms,  the  Partnership  will  either  have  to
         renegotiate  the terms of  repayment  or risk  losing  its  partnership
         interest in the respective Local Partnership.

                  The  Partnership's  inability  to pay certain of the  purchase
         money note  principal and accrued  interest  balances when due, and the
         resulting uncertainty  regarding the Partnership's  continued ownership
         interest in the related Local  Partnerships,  does not adversely impact
         the Partnership's  financial condition because the purchase money notes
         are nonrecourse and secured solely by the Partnership's interest in the
         related Local Partnerships.  Therefore, should the investment in any of
         the Local  Partnerships  with maturing purchase money notes not produce
         sufficient  value to satisfy  the related  purchase  money  notes,  the
         Partnership's  exposure  to loss is limited  because  the amount of the
         nonrecourse  indebtedness of each of the maturing  purchase money notes
         exceeds the carrying amount of the investment in, and advances to, each
         of the related Local  Partnerships.  Thus,  even a complete loss of the
         Partnership's  interest  in one of these Local  Partnerships  would not
         have a  material  adverse  impact  on the  financial  condition  of the
         Partnership.

                  The Managing  General  Partner is  continuing  to  investigate
         possible  alternatives to reduce the  Partnership's  debt  obligations.
         These alternatives include, among others,  retaining the cash available
         for distribution to meet the purchase money note  requirements,  paying
         off certain purchase money notes at a discounted  price,  extending the
         due dates of certain  purchase money notes,  refinancing the respective
         properties'  underlying  debt or selling the underlying real estate and
         using  the  Partnership's  share  of the  proceeds  to pay or buy  down
         certain purchase money note obligations.  Although the Managing General
         Partner has had some success applying these strategies in the past, the
         Managing  General  Partner cannot assure that these  strategies will be
         successful in the future.  If the Managing General Partner is unable to
         negotiate  an  extension or  discounted  payoff,  in the event that the
         purchase money notes remain unpaid upon maturity,  the  noteholders may
         have the  right  to  foreclose  on the  Partnership's  interest  in the
         related Local Partnerships.  In the event of a foreclosure,  the excess
         of  the  nonrecourse  indebtedness  over  the  carrying  amount  of the
         Partnership's  investment  in the related  Local  Partnership  would be
         deemed cancellation of indebtedness  income,  which would be taxable to
         Limited Partners at a federal tax rate of up to 39.6%. Additionally, in
         the event of a foreclosure,  the Partnership  would lose its investment
         in the Local  Partnership and,  likewise,  its share of any future cash
         flow  distributed  by the Local  Partnership  from  rental  operations,
         mortgage debt  refinancings,  or the sale of the real estate. Of the 15
         Local Partnerships in which the

                                     III-15

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

         Partnership  is  invested  as of  December  31,  2000,  the  one  Local
         Partnership  with an associated  purchase  money note which has matured
         and  which  remains  unpaid  or  unextended  as of  November  7,  2000,
         represented none of the Partnership's total distributions received from
         Local  Partnerships  and  none  of  the  share  of  income  from  Local
         Partnerships for the immediately preceding two calendar years.

                  The Managing General Partner continues to address the maturity
         and impending  maturity of its debt  obligations and to seek strategies
         which will provide the most favorable  outcome to the limited partners.
         However,  there  can be no  assurance  that  these  strategies  will be
         successful.

                  Interest expense on the Partnership's purchase money notes for
         the years ended December 31, 2000 and 1999 was $784,167 and $1,532,386,
         respectively.  The accrued interest payable on the purchase money notes
         of  $9,156,205  and  $22,374,877  as of  December  31,  2000 and  1999,
         respectively,  is due on the respective  maturity dates of the purchase
         money notes or earlier,  in some instances,  if (and to the extent of a
         portion thereof) the related Local  Partnership has  distributable  net
         cash flow, as defined in the relevant Local Partnership agreement.

                               BEECH HILL I AND II

                  The   Partnership   defaulted  on  its  purchase  money  notes
         aggregating  $2,380,000  related to Beech Hill  Development  Co. (Beech
         Hill I) and Beech Hill  Development Co. II (Beech Hill II) on August 1,
         1995 when the notes matured and were not paid.  On March 29, 1996,  the
         noteholders  agreed to extend the  purchase  money  notes' due dates to
         January 1, 1998. Under the extension agreement,  documents transferring
         the  Partnership's  interests  in Beech Hill I and Beech Hill II to the
         noteholders  were placed in escrow to be  released  to the  noteholders
         upon a future default by the  Partnership  on the  respective  purchase
         money  notes.  On January 1, 1998,  the  Partnership  defaulted  on its
         purchase money notes related to Beech Hill I and Beech Hill II when the
         notes,  as  extended,  matured and were not paid.  The  default  amount
         included  principal and accrued  interest of $1,480,000 and $1,687,578,
         respectively,   for  Beech  Hill  I  and   $900,000   and   $1,072,113,
         respectively, for Beech Hill II. On September 30, 1999, the noteholders
         instructed  the escrow agent to release to them the transfer  documents
         on  October  5,  1999,   and  the  escrow  agent  complied  with  those
         instructions.  Accordingly, the Partnership's interests in Beech Hill I
         and Beech Hill II were  transferred  to the  noteholders  on October 5,
         1999.  As  of  that  date,  principal  and  accrued  interest  totaling
         $1,480,000 and  $1,891,535,  respectively,  related to Beech Hill I and
         $900,000 and  $1,185,119,  respectively,  related to Beech Hill II were
         due.

                  The  purchase  money  notes  related to Beech Hill I and Beech
         Hill  II were  nonrecourse  and  secured  solely  by the  Partnership's
         interests  in  the  related  Local  Partnerships.  The  release  of the
         Partnership's  purchase money note  obligations as a result of the loss
         of   ownership   interest  in  the  Local   Partnerships   resulted  in
         extraordinary  gain from  extinguishment of debt of approximately  $2.4
         million  and  $1.5  million  for  Beech  Hill  I  and  Beech  Hill  II,
         respectively,  for financial statement purposes in 1999. The release of
         the   Partnership's   purchase  money  note  obligations   resulted  in
         cancellation of indebtedness  income of approximately  $3.4 million and
         $2.1  million  for Beech  Hill I and Beech Hill II,  respectively,  for
         federal tax purposes in 1999.


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

                          NOTES TO FINANCIAL STATEMENTS


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

                                   CHEVY CHASE

                  The  Partnership  defaulted  on its two  purchase  money notes
         related to Chevy Chase Park, Limited (Chevy Chase) on December 31, 1996
         when the notes matured and were not paid. The aggregate  default amount
         included  principal and accrued  interest of $2,100,000 and $3,553,912,
         respectively.  The Managing General Partner successfully  negotiated an
         extension of one of the purchase  money notes (First Chase Note) in the
         principal  amount  of  $1,050,000   effective   December  1,  1997.  In
         connection  with  the  extension  agreement,  the  Partnership  made an
         interest payment to the noteholder. The agreement extended the maturity
         date to  January  2,  2000.  On  December  17,  1998,  the  Partnership
         exercised its right,  pursuant to the extension  agreement,  to further
         extend the  maturity  date to  January 5, 2001 by making an  additional
         payment, applied to accrued interest, to the noteholder.

                  On  February  10,  1998,  the  Partnership  was served  with a
         complaint by the two holders of the second  purchase money note (Second
         Chase Note) against the  Partnership,  the Managing General Partner and
         C.R.H.C.,  Incorporated  (CRHC),  an affiliate of the Managing  General
         Partner,  for  damages  and seeking  foreclosure  on the  Partnership's
         interest in the Local Partnership. On July 29, 1998, the parties agreed
         to a settlement  which  involved a discounted  payoff to the holders of
         the Second Chase Note,  subject to the Partnership's  satisfaction with
         the results of its due diligence.  On October 5, 1998, pursuant to such
         settlement  agreement,  the Partnership  paid the holders of the Second
         Chase Note a discounted  amount in full  settlement of the Second Chase
         Note and the lawsuit.  In connection  with this  settlement,  the local
         general partners withdrew from the Local  Partnership,  assigning their
         combined one percent interest (which was converted to a limited partner
         interest) in the Local Partnership to the Partnership, and the property
         management agent,  which is an affiliate of the local general partners,
         was  terminated  effective  April 1, 1999.  CRHC is the sole  remaining
         general  partner of the Local  Partnership.  Further,  the  Partnership
         received the  interests of the local general  partners,  the holders of
         the Second Chase Note,  and their  respective  affiliates  in the First
         Chase Note, which interest total is approximately  10.808%.  On May 28,
         1999, the Partnership  filed suit against the holder of the First Chase
         Note,  seeking payment of the  Partnership's  10.808% share of payments
         made on the First Chase Note since  October 1, 1997.  On September  30,
         1999, as part of the settlement of the litigation, the Partnership paid
         off,  at a  discount,  the First  Chase  Note.  The  discounted  payoff
         resulted  in  extraordinary   gain  from   extinguishment  of  debt  of
         approximately  $2.4 million for financial  statement  purposes in 1999.
         The discounted  payoff also resulted in  cancellation  of  indebtedness
         income of approximately $2.4 million for federal tax purposes in 1999.

                  On  December  30,  1999,  the  Partnership  was served  with a
         complaint by certain alleged beneficiaries of the First Chase Note for,
         among  other  relief,  their  portion of  payments  made to First March
         Realty  Corporation  on the First  Chase  Note.  The  Managing  General
         Partner  cross-claimed  against  First March  Realty  Corporation.  The
         litigation has been settled, with no liability to the Partnership.



                                     III-17

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

                                 FOUR WINDS WEST

                  The  Partnership  defaulted on its purchase money note related
         to Four Winds West Company Limited (Four Winds West) on January 1, 1999
         when the note  matured and was not paid.  The default  amount  included
         principal and accrued interest of $462,178 and $532,673,  respectively.
         On  February 5, 1999,  the  Partnership  paid off,  at a discount,  the
         purchase money note related to Four Winds West.  The discounted  payoff
         resulted  in  extraordinary   gain  from   extinguishment  of  debt  of
         approximately  $305,000 for financial  statement  purposes in 1999. The
         discounted payoff also resulted in cancellation of indebtedness  income
         of approximately $305,000 for federal tax purposes in 1999.

                              FRENCHMAN'S WHARF II

                  The  Partnership  defaulted on its purchase money note related
         to Frenchman's  Wharf  Associates II Limited  Partnership  (Frenchman's
         Wharf II) on June 1, 1998 when the note  matured and was not paid.  The
         default amount  included  principal and accrued  interest of $3,150,000
         and  $5,071,731,  respectively.  As of March 20,  2001,  principal  and
         accrued interest totaling $3,150,000 and $6,041,930, respectively, were
         due. The  purchase  money note was  initially  due to mature on June 1,
         1988,  but was  extended to mature on June 1, 1998.  The holders of the
         purchase money note initiated foreclosure  proceedings in May 2000, but
         have  indicated  they will not pursue the lawsuit while efforts to sell
         the property are underway.

                  In 1996,  HUD sold the mortgage  loan to a third party lender.
         The previously agreed-to Provisional Workout Agreement with HUD expired
         in May 2000.  On May 31,  2000,  the  local  managing  general  partner
         obtained a  forbearance  agreement  from the lender which expires March
         31, 2001. The forbearance agreement allows for the discounted payoff of
         the mortgage  loan.  The Local  Partnership  entered into a contract to
         sell  this  property  with the  adjacent  property  (not a  Partnership
         investment)  for a combined  price of $15.2  million in January,  2001.
         Unless the sale can be consummated  within the forbearance  period,  it
         appears  likely  that  the  first  mortgage   lender  will  obtain  the
         Frenchman's Wharf real estate through  deed-in-lieu of foreclosure,  on
         or after March 31, 2001.

                  In the event of a foreclosure,  the Partnership would lose its
         share of any future cash flow distributed by the Local Partnership from
         rental operations,  mortgage debt refinancings, or the sale of the real
         estate.   Should  the  Partnership  lose  its  ownership   interest  in
         Frenchman's  Wharf II through  foreclosure  of the purchase money note,
         there  would  be no  adverse  impact  on  the  Partnership's  financial
         condition,  as discussed above.  However,  should the Local Partnership
         lose its real estate through  foreclosure by its mortgage lender, it is
         anticipated  that  there  will be a severe  adverse  tax  impact on the
         partners  in  the   Partnership.   The  total  federal  tax  gain  from
         cancellation   of  mortgage   indebtedness   and  purchase  money  note
         indebtedness  for the year  2001  related  to  Frenchman's  Wharf II is
         estimated to be approximately $16.3 million.

                  Due to the  impending  sale  of the  property  related  to the
         Partnership's  investment in Frenchman's  Wharf II, the net unamortized
         amounts of acquisition fees and property purchase costs,  which totaled
         $56,217 as of December 31, 2000,  have been  reclassified to investment
         in  partnership  held for  sale in the  accompanying  balance  sheet at
         December 31, 2000.

                                     III-18

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

                                    PRINCETON

                  The  Partnership  defaulted on its purchase money note related
         to Princeton  Community  Village  Associates  (Princeton) on January 1,
         1999  when  the note  matured  and was not  paid.  The  default  amount
         included  principal  and accrued  interest of $500,000 and  $1,422,064,
         respectively.  On August 9,  1999,  the  noteholder  filed a  complaint
         seeking  declaratory  judgment that the  Partnership  has forfeited its
         interest in Princeton to the  noteholders.  The  litigation was settled
         effective  January 1, 2000,  when the Managing  General Partner entered
         into an agreement with the noteholder which granted the noteholder four
         options  to  purchase  the  Partnership's  98.99%  limited  partnership
         interest  in  Princeton  over a three  and  one-half  year  period,  in
         exchange  for  the  cancellation  of pro-  rata  portions  of the  then
         outstanding  balance  of the  purchase  money  notes.  As  part  of the
         agreement,  the  noteholder  extended the maturity date of the purchase
         money note to January 1, 2004,  and the  Partnership  made a payment to
         the  noteholder on April 21, 2000,  which was applied  against  accrued
         interest payable on the purchase money note.

                  On May  31,  2000,  pursuant  to  the  option  agreement,  the
         noteholder  purchased a 26% interest in Princeton from the Partnership,
         the  consideration  for which was the cancellation of a like percentage
         of the  outstanding  purchase money note accrued  interest of $493,027,
         resulting  in net  extraordinary  gain from  extinguishment  of debt of
         $484,862 for financial  statement  purposes in 2000 and in cancellation
         of indebtedness income of $1,960,030 for federal tax purposes in 2000.

                  Due to the impending and likely  transfer of the remaining 74%
         of the Partnership's investment in Princeton over the next three years,
         the  investment in and advances to  partnerships  plus net  unamortized
         amounts of  acquisition  fees and property  purchase  costs  related to
         Princeton,  which totaled $23,362, have been reclassified to investment
         in  partnership  held for  sale in the  accompanying  balance  sheet at
         December 31, 2000.

            ROLLING GREEN AT FALL RIVER AND ROLLING GREEN AT AMHERST

                  The Partnership  defaulted on its purchase money notes related
         to Roberts  Fall River  Associates  (Rolling  Green at Fall  River) and
         Roberts  Amherst  Associates  (Rolling  Green at Amherst) on August 31,
         1998 when the notes  matured  and were not paid.  The  default  amounts
         included  principal and accrued  interest of $4,600,000 and $8,750,764,
         respectively,  for Rolling  Green at Fall  River,  and  $1,927,500  and
         $3,661,147,  respectively,  for Rolling Green at Amherst.  The Managing
         General Partner and the trustees representing the noteholders agreed to
         extend the maturity  dates of the purchase  money notes to February 28,
         2001,  subject to a further  extension  to August 31, 2003 if the Local
         Partnerships  refinance their mortgage loans,  which  refinancings  had
         previously  been completed.  However,  the noteholders had the right to
         accelerate  the  maturity  of the notes  upon not less than one  year's
         prior notice. As part of the agreement, the Partnership agreed that all
         refinancing  mortgage loan proceeds  payable to the  Partnership by the
         respective Local Partnerships,  as well as all net cash flow payable to
         the  Partnership  from the respective  Local  Partnerships in excess of
         $10,000  per year,  shall be applied to the  balance of the  respective
         purchase  money  notes,  and  further  agreed to waive  certain  rights
         granted  in the  respective  Local  Partnerships'  limited  partnership
         agreements.  The  mortgage  loan on  Rolling  Green at Fall  River  was
         refinanced in March 1999; refinancing


                                     III-19

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

         proceeds  of  $2,725,257  were  used to pay down  purchase  money  note
         principal and capitalized  interest in March 1999. The mortgage loan on
         Rolling  Green at Amherst was  refinanced  in August 1998;  refinancing
         proceeds  of  $1,503,496  were  used to pay down  purchase  money  note
         principal and capitalized interest in 1998.

                  On May  31,  2000,  Rolling  Green  at  Fall  River  sold  its
         property.  The entire sale proceeds to the Partnership were used to pay
         off, at a discount,  the  Partnership's  purchase money note obligation
         related to its investment in this Local Partnership.  The sale resulted
         in gain on disposition of investment in partnership of $3,542,933,  and
         in  extraordinary  gain from  extinguishment  of debt of $7,746,946 for
         financial  statement  purposes  in 2000.  The  total  federal  tax gain
         related to Rolling Green at Fall River is estimated to be approximately
         $16.8 million in 2000. The Managing  General Partner of the Partnership
         and/or its affiliates will not receive any fees relating to the sale.

                  On May 31, 2000,  Rolling  Green at Amherst sold its property.
         The entire sale proceeds to the Partnership  were used to pay off, at a
         discount,  the Partnership's  purchase money note obligation related to
         its investment in this local partnership.  The sale resulted in gain on
         disposition  of  investment  in  partnership  of  $2,336,845,   and  in
         extraordinary  gain  from  extinguishment  of  debt of  $1,786,750  for
         financial  statement  purposes  in 2000.  The  total  federal  tax gain
         related to Rolling  Green at Amherst is estimated  to be  approximately
         $6.3 million in 2000. The Managing  General  Partner of the Partnership
         and/or its affiliates will not receive any fees relating to the sale.

                                   TROY MANOR

                  The  Partnership  defaulted on its purchase money note related
         to Troy  Apartments  Limited  (Troy  Manor) on January 1, 1999 when the
         note matured and was not paid.  The default amount  included  principal
         and  accrued  interest  of  $378,000  and  $227,420,  respectively.  On
         February 5, 1999, the Partnership paid off, at a discount, the purchase
         money note related to Troy Manor.  The  discounted  payoff  resulted in
         extraordinary  gain  from   extinguishment  of  debt  of  approximately
         $220,000  for  financial  statement  purposes in 1999.  The  discounted
         payoff  also  resulted  in  cancellation  of  indebtedness   income  of
         approximately $220,000 for federal tax purposes in 1999.

                                    WESTGATE

                  In June,  1998,  the holder of the purchase money note related
         to  Westgate  Tower  Limited  Dividend  Housing  Associates  (Westgate)
         accepted the Managing  General  Partner's  offer to extend the maturity
         date of the  purchase  money  note for five  years  from its  scheduled
         maturity date of September 1, 1998. In May 2000,  the  Partnership  and
         the  noteholder  signed  documents  extending  the maturity date of the
         purchase  money note to  September  1, 2003,  in exchange for a payment
         applied against the outstanding principal balance of the purchase money
         note.

                                  WEXFORD RIDGE

                  The  Partnership  defaulted on its three  purchase money notes
         relating to Wexford Ridge  Associates  (Wexford  Ridge) on December 31,
         1997 when the notes matured and were not paid.  The  aggregate  default
         amount  included  principal  and  accrued  interest of  $1,900,000  and
         $3,478,549,  respectively.  The Managing  General Partner  successfully
         negotiated  an  extension  on one of the  purchase  money notes  (First
         Wexford Note) in the

                                     III-20

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

         principal amount of $950,000 effective April 9, 1998. The First Wexford
         Note was paid off, at a discount, on September 30, 1999. The discounted
         payoff resulted in extraordinary  gain from  extinguishment  of debt of
         approximately  $2.4 million for financial  statement  purposes in 1999.
         The discounted  payoff also resulted in  cancellation  of  indebtedness
         income of approximately $2.4 million for federal tax purposes in 1999.

                  On April 7, 1998, the  Partnership was served with a complaint
         by  the  holder  of  the  second  and  third   purchase   money   notes
         (collectively, Second and Third Wexford Notes) against the Partnership,
         the Managing  General  Partner and C.R.H.C.,  Incorporated  (CRHC),  an
         affiliate of the Managing General Partner,  for damages and foreclosure
         on the  Partnership's  interest in the Local  Partnership.  On July 29,
         1998,  the parties  agreed to a settlement  which involved a discounted
         payoff to the holder of the Second and Third Wexford Notes,  subject to
         the  Partnership's  satisfaction with the results of its due diligence.
         On  October  5,  1998,  pursuant  to  such  settlement  agreement,  the
         Partnership  paid the holder of the Second  and Third  Wexford  Notes a
         discounted  amount in full  settlement  of the Second and Third Wexford
         Notes and the lawsuit.  In connection with this  settlement,  the local
         general partner withdrew from the Local Partnership,  assigning his one
         percent interest (which was converted to a limited partner interest) in
         the Local Partnership to the Partnership,  and the property  management
         agent, which is an affiliate of the local general partner,  agreed to a
         termination of the property  management  agreement  effective  April 1,
         1999.  CRHC  is  the  sole  remaining  general  partner  of  the  Local
         Partnership.  Further,  the  Partnership  received the interests of the
         local  general  partner,  the holder of the  Second  and Third  Wexford
         Notes, and their respective affiliates in the First Wexford Note, which
         is  approximately  4.85%. On May 28, 1999, the  Partnership  filed suit
         against the holder of the First  Wexford Note,  seeking  payment of the
         Partnership's  4.85% share of payments  made on the First  Wexford Note
         since October 1, 1997. On September 30, 1999, as part of the settlement
         of the litigation,  the Partnership paid off, at a discount,  the First
         Wexford Note (see above).

               On December 15, 1999,  the Local  Partnership  sold its property.
         See Note 2.c., below, for further information concerning the sale.

         b.       INTERESTS IN PROFITS, LOSSES AND CASH DISTRIBUTIONS MADE BY
                  -----------------------------------------------------------
                     LOCAL PARTNERSHIPS
                     ------------------

                  The  Partnership  has a 72.99% to 98.99%  interest in profits,
         losses and cash  distributions  (as  restricted by various  federal and
         state  housing  agencies)  (collectively,  the  Agencies) of each Local
         Partnership.   Affiliates  of  the  Managing  General  Partner  of  the
         Partnership  are also a general partner of each Local  Partnership.  As
         stipulated by the Local Partnerships' partnership agreements, the Local
         Partnerships  are  required  to make  annual  cash  distributions  from
         surplus  cash  flow,  if any.  During  2000 and 1999,  the  Partnership
         received cash  distributions  from the rental  operations  and mortgage
         refinancings  of the Local  Partnerships  of $864,027  and  $4,156,788,
         respectively.   As  of  December   31,  2000  and  1999,   10  and  12,
         respectively,  of the Local Partnerships had aggregate surplus cash, as
         defined  by their  respective  regulatory  Agencies,  in the  amount of
         $1,147,974  and  $1,327,052,  respectively,  which may be available for
         distribution in accordance with their respective  regulatory  Agencies'
         regulations.

                  The cash  distributions to the Partnership from the operations
         of the rental  properties may be limited by the Agencies'  regulations.
         Such regulations limit annual cash distributions to a percentage of the
         owner's  equity  investment  in a rental  property.  Funds in excess of
         those which may be distributed  to owners are generally  required to be
         placed

                                     III-21

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

         in a residual  receipts  account held by the governing state or federal
         agency for the benefit of the property.

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

         c.       ADVANCES TO LOCAL PARTNERSHIPS
                  ------------------------------

                              FRENCHMAN'S WHARF II

                  To  cover  operating  deficits  incurred  in prior  years  for
         Frenchman's Wharf II, the Partnership  advanced funds totaling $324,410
         as of both  December 31, 2000 and 1999.  No advances  have been made to
         Frenchman's  Wharf II since March 1987,  and the  Partnership  does not
         expect to advance any additional funds to the Local Partnership.  These
         loans,  together with accrued  interest of $187,372 as of both December
         31, 2000 and 1999, are payable from cash flow of  Frenchman's  Wharf II
         after payment of first mortgage debt service and after  satisfaction by
         the  Partnership of certain other interest  obligations on the purchase
         money notes  relating to the Local  Partnership.  No interest  has been
         accrued since 1992 due to the uncertainty of future  collection.  There
         is no assurance  that the Local  Partnership,  upon  expiration  of the
         forbearance  agreement with its mortgage lender on March 31, 2001, will
         be able to repay the loans in accordance  with the terms  thereof.  For
         financial reporting purposes,  these loans have been reduced to zero by
         the  Partnership as a result of losses at the Local  Partnership  level
         during prior years.  See Note 2.a.,  above,  concerning  the  potential
         foreclosure on the real estate in early 2001.

                           POSADA VALLARTA APARTMENTS

                  The Managing  General  Partner and the local managing  general
         partner  of  Posada  Vallarta  Apartments   refinanced  the  property's
         mortgage loan on May 26, 1998. In connection with such refinancing, the
         Partnership advanced the Local Partnership $450,000 for application and
         rate lock fees. As of both December 31, 2000, and 1999, $300,000 of the
         advances had been repaid to the  Partnership.  For financial  reporting
         purposes,  the  remaining  advance  has  been  reduced  to  zero by the
         Partnership as a result of losses at the Local Partnership level.

         d.       PROPERTY MATTERS
                  ----------------

                                   CHEVY CHASE

                  The Managing  General  Partner and the local managing  general
         partner (CRHC, an affiliate of the Managing General  Partner,  see Note
         2.b.,  above)  considered  various  options  to  refinance  the  U.  S.
         Department of Housing and Urban  Development (HUD) Section 236 interest
         rate  subsidized  mortgage loan related to Chevy Chase, or to enter the
         Mark-up-to-Market program. The local managing general partner agreed to
         HUD's

                                     III-22

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

         analysis of the property and  proposal for  Mark-up-to-Market,  and the
         property has entered into the Mark-up-to-Market program for a five year
         term, subject to the annual availability of funding by Congress.  HUD's
         analysis  indicated that gross rents should  increase by  approximately
         $475,000 per year.

                              FRENCHMAN'S WHARF II

                  The reports of the  auditors on the  financial  statements  of
         Frenchman's  Wharf II for the year ended  December  31, 2000  indicated
         that   substantial   doubt  exists  about  the  ability  of  the  Local
         Partnership   to  continue  as  a  going   concern  due  to  the  Local
         Partnership's  default on its mortgage  loan and the  expiration of its
         Section 8 Rental Housing  Assistance  Payments (HAP) contract with HUD.
         The HAP contract  subsequently  was extended for another year. See Note
         2.a., above, concerning the potential foreclosure on the real estate in
         early 2001.

                                ORANGEWOOD PLAZA

                  The 1983  construction  loan related to  Orangewood  Plaza,  a
         40-unit  apartment  building  in  Orange  Cove,  California,  was never
         formally converted to a permanent loan. It is now anticipated that this
         loan will be  restructured  in 2001 as a  permanent  loan,  with no tax
         impact to either the Local Partnership or the Partnership.  There is no
         assurance  that the  restructuring  will be  consummated.  Accordingly,
         there is no assurance that the  Partnership  will be able to retain its
         interest in  Orangewood  Plaza.  This  uncertainty  does not  adversely
         impact the Partnership's financial condition, as discussed above.

                  In 1983,  the  Partnership  pledged its  interest in the local
         partnership  as  security  on an  acquisition  note,  in the  amount of
         $170,000, made by the local partnership. In March 2001, the Partnership
         will  make  made a  capital  contribution  of  $197,994  to  the  local
         partnership, which amount will be used to pay in full the principal and
         accrued interest on the acquisition note.

                                    PRINCETON

                  Princeton  defaulted on its project subsidy loan. The maturity
         date was extended  five years to January 1, 2004, as part of litigation
         settled  effective  January 1, 2000, when the Managing  General Partner
         and the  noteholder  entered into an agreement  extending  the maturity
         date of the purchase money note, as discussed above.

            ROLLING GREEN AT FALL RIVER AND ROLLING GREEN AT AMHERST

                  On May 31, 2000, Rolling Green at Fall River and Rolling Green
         at Amherst  were sold.  See Note 2.a.,  above, for  further information
         concerning these sales.

                                  WEXFORD RIDGE

                  On December 15, 1999,  Wexford  Ridge sold its  property.  The
         sale  resulted  in a  financial  statement  gain of  $3,070,636  and an
         estimated  federal  tax  gain  of  approximately  $6.3  million  to the
         Partnership in 1999.

                                     III-23

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

         e.       AFFORDABLE HOUSING LEGISLATION
                  ------------------------------

                  Some of the rental properties owned by the Local  Partnerships
         are dependent on the receipt of project-based  Section 8 Rental Housing
         Assistance  Payments (HAP)  provided by the U.S.  Department of Housing
         and Urban  Development  (HUD)  pursuant  to  Section  8 HAP  contracts.
         Current  legislation  allows all expired  Section 8 HAP contracts  with
         rents at less  than 100% of fair  market  rents to be  renewed  for one
         year.  Expiring  Section 8 HAP contracts with rents that exceed 100% of
         fair market rents could be renewed for one year,  but at rents  reduced
         to 100% of fair market rents (Mark-to- Market).  All expiring Section 8
         HAP  contracts  with  rents  exceeding  comparable  market  rents,  and
         properties   with  mortgage  loans  insured  by  the  Federal   Housing
         Administration (FHA), became subject to the Mark-to-Market legislation.

                  Mark-to-Market  implementation  will reduce  rental  income at
         properties that are currently subsidized at  higher-than-market  rental
         rates,  and will  therefore  lower cash flow available to meet mortgage
         payments and operating  expenses.  Each  affected  property may undergo
         debt  restructuring  according  to terms  determined  by an  individual
         property and operations evaluation. This may involve reducing the first
         mortgage loan balance to an amount supportable by the property,  taking
         into account the property's  operating expenses and reduced income. The
         balance of the amount written down from the first mortgage loan will be
         converted to a non-performing but accruing (soft) second mortgage loan.

                  The  Section  8 HAP  contracts  for the  following  properties
         initially  expired  during  previous  years,  and have been  renewed as
         indicated, with the renewals expiring in 2001.
<TABLE>
<CAPTION>

                                                    Units Authorized        Original           Renewed
                                         Number       for Rental          Expiration of      Expiration of
                                       of Rental    Assistance Under        Section 8          Section 8
         PROPERTY                        UNITS          SECTION 8         HAP CONTRACT       HAP CONTRACT
         --------                      ---------    ----------------      -------------      ------------
         <S>                           <C>          <C>                   <C>                <C>
         Country Place II                 120              24                08/29/00        03/30/01 (1)
         Frenchman's Wharf II             324              31                11/30/98        03/31/01 (1)
                                          ---              --
             Total                        444              55
                                          ===              ==
</TABLE>

     (1)  The  Managing  General  Partner  expects  that  these  Section  8  HAP
          Contracts will be renewed for one year upon expiration.

                  With the  uncertainty  of  continued  project-based  Section 8
         subsidies  for  properties  with  expiring HAP  contracts,  there is no
         assurance  that these  rental  properties  will be able to maintain the
         rental income and occupancy levels necessary to pay operating costs and
         debt service.  As a result, it is not possible to predict the impact on
         the Local  Partnerships'  operations,  and the resulting  impact on the
         Partnership's  investments in the Local Partnerships,  at this time. As
         of  December  31,  2000,  the  carrying  amount  of  the  Partnership's
         investments  in and advances to Local  Partnerships  with Section 8 HAP
         contracts expiring in 2001 was $0.

                                     III-24

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

                  Under HUD's most recent "Mark-up-to-Market" program properties
         with expiring  Section 8 contracts that are located in high-rent  areas
         as  defined  by HUD are  eligible  for rent  increases  which  would be
         necessary to bring Section 8 rents in line with market rate rents.  For
         properties that enter the program and have interest rate subsidized FHA
         loans,  the rents are  adjusted to take into  account the  benefits the
         property is already  receiving from the  below-market  interest rate by
         means of a  HUD-determined  Interest  Subsidy  Adjustment  Factor.  The
         purpose  of  this  program  is  to  provide  incentives  to  owners  of
         properties  with  expiring  Section 8  contracts  not to convert  these
         properties to market rate housing.

                  In   return   for   receiving    market   rate   rents   under
         Mark-up-to-Market,  the  property  owner  must  enter  into a five year
         conditional  Section  8  contract  with  HUD,  subject  to  the  annual
         availability of funding by Congress.  In addition,  property owners who
         enter into the  Mark-up-to-Market  program will receive  increased cash
         flow as the limited  dividend  will be  increased in an amount equal to
         the increase in gross revenues.

         f.       SUMMARIZED FINANCIAL INFORMATION
                  --------------------------------

                  Combined balance sheets and combined  statements of operations
         for the 15 and 17  Local  Partnerships  in  which  the  Partnership  is
         invested as of December 31, 2000 and 1999,  respectively,  follow.  The
         combined statements of operations for the year ended December 31, 2000,
         include  information  for Rolling Green at Fall River and Rolling Green
         at Amherst through the dates of sale.

                             COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                                 ------------------------------
                                                                                     2000              1999
                                                                                 ------------      ------------
          <S>                                                                    <C>               <C>
          Rental property, at cost, net of accumulated depreciation
            of $59,841,914 and $67,535,066, respectively                         $ 40,855,901      $ 52,767,596
          Land                                                                      7,503,428         8,295,473
          Other assets                                                              9,984,668        12,923,043
                                                                                 ------------      ------------

              Total assets                                                       $ 58,343,997      $ 73,986,112
                                                                                 ============      ============


          Mortgage notes payable                                                 $ 78,729,965      $ 92,835,236
          Other liabilities                                                        15,314,794        16,032,972
          Due to general partners                                                   4,507,399         4,507,399
                                                                                 ------------      ------------

              Total liabilities                                                    98,552,158       113,375,607

          Partners' deficit                                                       (40,208,161)      (39,389,495)
                                                                                 ------------      ------------

              Total liabilities and partners' deficit                            $ 58,343,997      $ 73,986,112
                                                                                 ============      ============

</TABLE>


                                     III-25

<PAGE>

                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

                        COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                     For the years ended
                                                                                          DECEMBER 31,
                                                                                 ------------------------------
                                                                                     2000              1999
                                                                                 ------------      ------------
          <S>                                                                    <C>               <C>
          Revenue:
            Rental                                                               $ 21,676,120       $26,446,608
            Interest                                                                  280,805           330,644
            Other                                                                     660,891           569,069
                                                                                 ------------      ------------

              Total revenue                                                        22,617,816        27,346,321
                                                                                 ------------      ------------

          Expenses:
            Operating                                                              13,539,048        16,559,620
            Interest                                                                6,157,034         6,722,186
            Depreciation                                                            3,887,720         4,523,878
            Amortization                                                              511,270            99,202
            Other                                                                     154,991                --
                                                                                 ------------      ------------

              Total expenses                                                       24,250,063        27,904,886
                                                                                 ------------      ------------

          Loss before extraordinary gain from extinguishment of debt               (1,632,247)         (558,565)

          Extraordinary gain from extinguishment of debt                                   --         3,493,219
                                                                                 ------------      ------------

          Net (loss) income                                                      $ (1,632,247)       $2,934,654
                                                                                 ============      ============
</TABLE>

         g.       RECONCILIATION OF THE LOCAL PARTNERSHIPS' FINANCIAL STATEMENT
                  -------------------------------------------------------------
                      NET (LOSS) INCOME TO TAXABLE INCOME
                      -----------------------------------

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

                  A  reconciliation   of  the  Local   Partnerships'   financial
         statement net income reflected above to taxable income follows.

<TABLE>
<CAPTION>
                                                                                     For the years ended
                                                                                         DECEMBER 31,
                                                                                 -----------------------------
                                                                                    2000              1999
                                                                                 -----------       -----------
          <S>                                                                    <C>               <C>
          Financial statement net (loss) income                                  $(1,632,247)      $ 2,934,654

          Adjustments:
            Additional book depreciation,
              net of depreciation on construction period expenses
              capitalized for financial statement purposes                         3,166,050         3,083,683

            Amortization for financial statement purposes
              not deducted for income tax purposes                                     2,998             3,154

            Difference in gain on disposition of rental properties                        --         2,812,906

            Miscellaneous, net                                                       106,993           112,452
                                                                                 -----------       -----------

          Taxable income                                                         $ 1,643,794       $ 8,946,849
                                                                                 ===========       ===========

</TABLE>


                                     III-26

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


3.        RELATED PARTY TRANSACTIONS

          In  accordance  with  the  terms  of the  Partnership  Agreement,  the
Partnership  paid the Managing  General Partner a fee for services in connection
with the review,  selection,  evaluation,  negotiation  and  acquisition  of the
interests in the Local  Partnerships.  The fee amounted to $1,000,000,  which is
equal to two percent of the Additional  Limited Partners' capital  contributions
to the  Partnership.  The acquisition fee was capitalized and is being amortized
over a 30-year period using the straight-line method.

          In  accordance  with  the  terms  of the  Partnership  Agreement,  the
Partnership  is  obligated to reimburse  the  Managing  General  Partner for its
direct expenses in connection with managing the Partnership. For the years ended
December  31,  2000 and  1999,  the  Partnership  paid  $161,033  and  $147,720,
respectively,  to the  Managing  General  partner  as  direct  reimbursement  of
expenses  incurred on behalf of the  Partnership.  Such expenses are included in
the  accompanying   statements  of  operations  as  general  and  administrative
expenses.

         In  accordance  with  the  terms  of  the  Partnership  Agreement,  the
Partnership is obligated to pay the Managing General Partner an annual incentive
management fee (Management  Fee) after all other expenses of the Partnership are
paid.  The  amount of the  Management  Fee shall not  exceed  0.25% of  invested
assets, as defined in the Partnership  Agreement,  and shall be payable from the
Partnership's  cash available for  distribution,  as defined in the  Partnership
Agreement, as of the end of each calendar year, as follows:

         (i)      First,  on a monthly basis as an operating  expense before any
                  distributions  to limited  partners in the amount  computed as
                  described in the  Partnership  Agreement,  provided  that such
                  annual amount shall not be greater than $250,000; and

         (ii)     Second,  after  distributions  to the limited  partners in the
                  amount of one percent of the gross  proceeds of the  offering,
                  the balance of such 0.25% of invested assets.

         For each of the years ended December 31, 2000 and 1999, the Partnership
paid the Managing General Partner a Management Fee of $249,996.

         The Managing General Partner and/or its affiliates may receive a fee of
not more  than two  percent  of the  sales  price  of an  investment  in a Local
Partnership or the property it owns,  payable under certain  conditions upon the
sale of an  investment  in a Local  Partnership  or the  property  it owns.  The
payment of the fee is subject to certain restrictions, including the achievement
of a certain level of sales proceeds and making certain minimum distributions to
limited  partners.  The Managing  General  Partner was paid a disposition fee of
$147,600 on December 27, 1999, for the sale of Wexford Ridge.


4.       PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS

         All  profits  and losses  prior to the first  date on which  Additional
Limited  Partners  were admitted were  allocated  98.49% to the Initial  Limited
Partner and 1.51% to the General Partners. Upon admission of the Special Limited
Partner and the Additional Limited Partners, the interest of the Initial Limited
Partner was reduced to 0.49%. The net proceeds resulting from the liquidation of
the Partnership or the Partnership's  share of the net proceeds from any sale or
refinancing of the Local  Partnerships or their rental  properties which are not
reinvested shall be distributed and applied as follows:


                                     III-27

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


4.       PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued

              (i)    to the payment of debts and  liabilities of the Partnership
                     (including all expenses of the Partnership  incident to the
                     sale or  refinancing)  other than loans or other  debts and
                     liabilities  of  the  Partnership  to  any  partner  or any
                     affiliate;  such  debts and  liabilities,  in the case of a
                     non-liquidating  distribution,  to be only those  which are
                     then  required  to be  paid  or,  in  the  judgment  of the
                     Managing General Partner, required to be provided for;
             (ii)    to the  establishment  of any  reserves  which the Managing
                     General Partner deems reasonably  necessary for contingent,
                     unmatured or unforeseen  liabilities  or obligations of the
                     Partnership;
            (iii)    to each partner in an amount equal to the positive  balance
                     in his  capital  account  as of the  date  of the  sale  or
                     refinancing,  adjusted for operations and  distributions to
                     that date,  but before  allocation  of any  profits for tax
                     purposes   realized  from  such  sale  or  refinancing  and
                     allocated pursuant to the Partnership Agreement;
             (iv)    to the Additional Limited Partners (A) an aggregate amount
                     of proceeds from sale or refinancing and all prior sales or
                     refinancings equal to their capital contributions, without
                     reduction for prior cash distributions other than prior
                     distributions of sale and refinancing proceeds, plus (B)
                     an additional amount equal to a cumulative non-compounded
                     six percent return on each limited partner's capital
                     contribution, reduced, but not below zero, by (1) an amount
                     equal to 50% of the losses for tax purposes plus tax
                     credits allocated to such limited partner and (2)
                     distributions of net cash flow to each limited partner,
                     such return, losses for tax purposes and net cash flow
                     distributions commencing on the first day of the month in
                     which the capital contribution was made;
              (v)    to the repayment of any unrepaid loans  theretofore made by
                     any  partner  or  any  affiliate  to  the  Partnership  for
                     Partnership  obligations  and to the  payment of any unpaid
                     amounts  owing  to the  General  Partners  pursuant  to the
                     Partnership Agreement;
             (vi)    to the General  Partners  in the  amount of  their  capital
                     contributions;
            (vii)    thereafter,   for  their  services  to  the
                     Partnership, in equal shares to certain general
                     partners (or their designees), whether or not any is then a
                     general  partner,  an  aggregate  fee of one percent of the
                     gross  proceeds  resulting  from  (A)  such  sale  (if  the
                     proceeds are from a sale rather than a refinancing) and (B)
                     any prior  sales from which  such one  percent  fee was not
                     paid to the General Partners or their designees and,
           (viii)    the  remainder,  12%  to the  General  Partners  (or  their
                     assignees),  three percent to the Special  Limited  Partner
                     and 85% to the Initial and Additional  Limited Partners (or
                     their assignees).

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

         The Managing General Partner and/or its affiliates may receive a fee of
not more  than two  percent  of the  sales  price  of an  investment  in a Local
Partnership or the property it owns,  payable under certain  conditions upon the
sale of an  investment  in a Local  Partnership  or the  property  it owns.  The
payment of the fee is subject to certain restrictions, including the achievement
of a certain level of sales proceeds and making certain minimum distributions to
limited  partners.  CRI was paid a  disposition  fee of $147,600 on December 27,
1999, for the sale of Wexford Ridge.

                                     III-28

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


4.       PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued

         Pursuant  to  the  Partnership   Agreement,   all  cash  available  for
distribution,  as  defined,  shall  be  distributed,  not less  frequently  than
annually,  97% to the Additional  Limited  Partners,  1% to the Special  Limited
Partner,  0.49% to the Initial Limited Partner and 1.51% to the General Partners
after  payment  of  the  Management  Fee  (see  Note  3),  as  specified  in the
Partnership  Agreement.  On  October  30,  2000,  the  Partnership  made  a cash
distribution of $1,497,450 ($30.00 per Unit) to Additional Limited Partners,  to
holders of record as of September 30, 2000;  this  distribution  was a result of
cash resources  accumulated from operations and distributions from partnerships.
On January 28, 2000,  the  Partnership  made a cash  distribution  of $1,622,237
($32.50 per Unit) to  Additional  Limited  Partners,  to holders of record as of
December 15, 1999; this  distribution was a result of the sale of Wexford Ridge.
On October 29, 1999,  the  Partnership  made a cash  distribution  of $1,697,110
($34.00 per Unit) to  Additional  Limited  Partners,  to holders of record as of
October 1, 1999.

         As  defined  in  the  Partnership  Agreement,   after  the  payment  of
distributions  to  Additional  Limited  Partners as  described  in the  previous
paragraph,  after the  establishment  of any  reserves  deemed  necessary by the
Managing   General  Partner  and  after  payment  of  the  Management  Fee,  the
Partnership had no remaining cash available for distribution for the years ended
December 31, 2000 and 1999. The Managing  General Partner intends to reserve all
of the Partnership's  remaining  undistributed cash for the possible  repayment,
prepayment or retirement of the Partnership's  outstanding  purchase money notes
related to the Local Partnerships.


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

         For federal  income tax purposes,  the  Partnership  reports on a basis
whereby:  (i) certain expenses are amortized rather than expensed when incurred;
(ii) certain costs are  amortized  over a shorter  period for tax  purposes,  as
permitted by IRS  Regulations,  and (iii)  certain  costs are  amortized  over a
longer period for tax purposes. The Partnership records its share of losses from
its  investments  in limited  partnerships  for federal  income tax  purposes as
reported on the Local Partnerships'  federal income tax returns (see Note 2.g.),
including  losses in excess of related  investment  amounts.  These  returns are
subject to examination and, therefore, possible adjustment by the IRS.

         A reconciliation of the Partnership's financial statement net income to
taxable income follows.

<TABLE>
<CAPTION>
                                                                         For the years ended
                                                                            DECEMBER 31,
                                                                    -----------------------------
                                                                       2000              1999
                                                                    -----------       -----------
<S>                                                                 <C>               <C>
Financial statement net income                                      $15,553,597       $13,078,499

Adjustments:
  Differences between taxable income and financial
    statement net income related to the Partnership's
    equity in the Local Partnerships' income or losses               10,996,217         7,610,814

  Costs amortized over a shorter period for income tax purposes          33,997            40,804

  Effect of amortization of discount on purchase money notes
    for financial statement purposes                                   (258,641)         (268,797)
                                                                    -----------       -----------

Taxable income                                                      $26,325,170       $20,461,320
                                                                    ===========       ===========
</TABLE>

                                      # # #

                                     III-29