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

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



                                   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, 2002


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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


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



        Internal Revenue Service - Employer Identification No. 52-1321492

                 11200 Rockville Pike, Rockville, Maryland 20852

                                 (301) 468-9200


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                Securities registered under Section 12(g) of the
                                 Exchange Act:

                        UNITS OF LIMITED PARTNER INTEREST


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



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 $1,848,607.

The units of limited  partner  interest of the  registrant are not traded in any
market.  Therefore,  the units of limited partner  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

                        2002 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-4
Item 7.  Financial Statements............................................  II-8
Item 8.  Changes In and Disagreements With Accountants
           on Accounting and Financial Disclosure........................  II-8


                                    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
Item 14. Controls and Procedures......................................... III-4

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

Certifications of Annual Report Pursuant to18 U.S.C. Section 1350........ III-6


Financial Statements..................................................... III-11

<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  partner  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, 2002,
the Partnership  retained  investments in 13 Local  Partnerships.  Each of these
Local  Partnerships  owns  a  federal  or  state  government-assisted  apartment
complex, which provides housing principally to the elderly or to individuals and
families of low or moderate income, or a conventionally  financed  complex.  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  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 who
generally  remain as the local general  partners in the Local  Partnerships.  In
most  cases,  the  local  general  partners  of the  Local  Partnerships  retain
responsibility for 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, 2002, 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      12/31/02 (2)          and/or Subsidized Under          Rental Units       Under Sec. 8    HAP Contract
--------------------      ------------       -----------------------------       ------------      --------------   -------------
<S>                       <S>                <S>                                 <S>               <S>              <S>
Arrowhead Apts.           $ 6,676,005        Conventional                             200                40          05/31/06 (4)
 Palatine, IL

Chevy Chase Park            3,007,935        Metropolitan Savings Bank                232               232          09/22/05 (6)
 Centerville, OH                              (MSB)/Federal Housing
                                              Administration (FHA)

Country Place I             6,958,800        Maryland Community Development           192                38          08/10/09
 Burtonsville, MD                             Administration (MCDA)

Country Place II            4,217,455        N/A                                      120                 0          06/30/02 (4)(7)
 Burtonsville, MD

Four Winds West               862,561        GMAC HUD Insured through Section          62                62          10/14/04 (4)
 Birmingham, AL                               221 (d)(4) of the National Housing
                                              Act (NHA)/Section 8

Golden Acres                1,155,601        California Housing Finance Agency         46                45          09/28/13
 Chowchilla, CA                               (CHFA)/Section 8

Mercy Terrace               8,304,855        Section 221(d)(4) of the NHA/            158               158          11/30/03
 San Francisco, CA                            Section 8

The Moorings                7,915,835        Conventional                             216                44          03/31/07 (4)
 Roselle, IL

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

Posada Vallarta            14,304,236        Conventional                             336                70          02/16/04
 Phoenix, AZ

Princeton Community         7,503,114        New Jersey Housing & Mortgage            239                24          10/01/24 (4)
 Village                                      Finance Agency
 Princeton, NJ

Troy Manor Apts.              822,996        Rural Housing & Community                 50                50          10/28/05 (4)
 Troy, AL                                     Development Services (RHCD)/Section 8

Westgate Tower Apts.        1,700,123        Michigan Sate Housing Develop-           148                 0                --
 Westland, MI                                 ment Authority/236
                          -----------                                            --------          --------
Totals 13                 $65,256,016                                               2,039               796
                          ===========                                            ========          ========
</TABLE>

                                   (continued)

                                       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          2002   2001    2000    1999   1998        2002        2001        2000        1999       1998
--------------------          ----   ----    ----    ----   ----      -------     -------     -------     -------    -------
<S>                           <C>    <C>     <C>     <C>    <C>       <C>         <C>         <C>         <C>        <C>
Arrowhead Apts.                98%    94%    100%     98%    97%      $10,244     $10,606     $10,205     $ 9,852    $ 9,755
 Palatine, IL

Chevy Chase Park               98%    97%     98%     96%    92%        6,411       7,608       4,141       4,077      4,291
 Centerville, OH

Country Place I                97%    99%     97%     98%    97%       11,406      10,728      10,194       9,819      9,557
 Burtonsville, MD

Country Place II               98%   100%     98%     97%    98%       11,738      10,894      10,312      10,002      9,821
 Burtonsville, MD

Four Winds West                98%   100%     99%     98%    99%        5,433       5,152       5,190       5,006      5,075
 Birmingham, AL

Golden Acres                   96%    99%     98%     87%    98%        6,364       6,498       6,355       6,324      6,443
 Chowchilla, CA

Mercy Terrace                  99%    93%    100%    100%   100%       14,717      14,717      14,794      14,820     14,836
 San Francisco, CA

The Moorings                   98%    97%     99%     96%   100%       10,365      10,570      10,425       9,679      9,693
 Roselle, IL

Orangewood Plaza              100%   100%    100%    100%   100%        2,559       2,503       2,435       2,382      2,414
 Orange Cove, CA

Posada Vallarta                90%    94%     98%     87%    86%        6,861       7,175       6,841       6,868      7,193
 Phoenix, AZ

Princeton Community
 Village                       92%    97%     97%     97%    96%        8,544       8,668       8,016       7,126      7,036
 Princeton, NJ

Troy Manor Apts.              100%   100%    100%    100%   100%        4,881       4,758       4,685       4,664      4,681
 Troy, AL

Westgate Tower Apts.           93%    96%     97%     95%    96%        4,136       4,018       3,739       3,618      3,633
 Westland, MI
                              ---    ---     ---     ---    ---       -------     -------     -------     -------    -------
Totals(3) 13                   97%    97%     99%     96%    97%      $ 7,974     $ 7,992     $ 7,487     $ 7,249    $ 7,264
                              ===    ===     ===     ===    ===       =======     =======     =======     =======    =======
</TABLE>


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

     (2)  The amounts  provided are the balances of first mortgage loans payable
          by the Local Partnerships as of December 31, 2002.

     (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)  Entered Mark-up-to-Market program in September,  2000, for a five year
          term, subject to the annual availability of funding by Congress.

     (7)  The Section 8 contract for 24  apartment  units was not renewed by the
          Local Partnership at its expiration on June 30, 2002.

                                       I-4

<PAGE>
                                     PART I
                                     ------

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

     On May 31, 2000, and again on June 1, 2001, the Partnership sold 26% of its
original  limited partner  interest in Princeton  Community  Village  Associates
(Princeton) to the purchase money noteholder. On April 30, 2002, the Partnership
sold  one-half of its  remaining  limited  partner  interest in Princeton to the
purchase  money  noteholder.  On  January  1,  2003,  the  Partnership  sold its
remaining   limited  partner   interest  in  Princeton  to  the  purchase  money
noteholder. See the notes to the financial statements for additional information
concerning these sales.

     On May 7, 2001, the Partnership made an additional investment in Orangewood
Plaza, which in turn, paid off an acquisition note in full. See the notes to the
financial statements for additional information concerning these transactions.

     On June 22, 2001,  the  Frenchman's  Wharf II property was  transferred  by
deed-in-lieu  of foreclosure  to an assignee of the mortgagee.  See the notes to
the financial statements for additional information concerning this transfer.

     On September 24, 2002,  the Rock Glen  property was sold.  See the notes to
the financial statements for additional information concerning this sale.


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  real  estate  owned  by the  Local  Partnerships.  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 2002.

                                       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 units of
          additional  limited  partner  interest  (Units)  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 Units.

                            Registered Tender Offers
                            ------------------------

          On June 22, 2001, Equity Resource  Lexington Fund Limited  Partnership
          (Lexington)  initiated  a  registered  tender  offer to purchase up to
          10,000 of the outstanding  Units in the Partnership at a price of $100
          per Unit;  the offer  expired  July 23,  2001.  On November  19, 2001,
          Lexington initiated a registered tender offer to purchase up to 10,000
          of the  outstanding  Units in the  Partnership  at a price of $100 per
          Unit; the offer expired December 19, 2001. On May 10, 2002,  Lexington
          initiated  a  registered  tender  offer to purchase up to 5,000 of the
          outstanding  Units in the Partnership at a price of $100 per Unit; the
          offer  expired  June 10,  2002.  Lexington  is  unaffiliated  with the
          Partnership or the Managing General  Partner.  The prices offered were
          determined   solely  at  the   discretion  of  Lexington  and  do  not
          necessarily represent the fair market value of each Unit.

          In response to the  Lexington  registered  tender  offers,  on July 5,
          2001,  December 3, 2001 and May 20, 2002, the Managing General Partner
          filed Schedules 14D-9. In those filings,  the Managing General Partner
          recommended  that Limited Partners reject the Lexington offers because
          it viewed the offer prices as inadequate.

                           Unregistered Tender Offers
                           --------------------------

          On  March  13,  2001,  Bond  Purchase,   L.L.C.  (Bond)  initiated  an
          unregistered  tender offer to purchase 2,475 of the outstanding  Units
          in the Partnership at a price of $53 per Unit; the offer expired April
          30, 2001.  Bond is  unaffiliated  with the Partnership or the Managing
          General  Partner.  The  price  offered  was  determined  solely at the
          discretion of Bond and does not necessarily  represent the fair market
          value of each Unit.

          The Managing  General Partner did not express any opinion and remained
          neutral toward the Bond unregistered  tender offer for the purchase of
          Units described above.

          On or about May 10, 2001, Limited Partners in the Partnership may have
          received  an  unregistered   tender  offer  from  Peachtree   Partners
          (Peachtree)  to purchase their units of Limited  Partner  interest for
          the cost of the $100  transfer  fee.  On August  27,  2002,  Peachtree
          initiated an  unregistered  tender offer to purchase no more than 4.9%
          (including 1,965 Units, or 3.93%,  already owned by affiliates) of the
          outstanding  Units in the  Partnership at a price of $40 per Unit; the
          offer  expired  October 15,  2002.  On November  25,  2002,  Peachtree
          initiated  an  unregistered  tender  offer  to  purchase  up  to  4.9%
          (including  1,525 Units or 3.05% already owned by  affiliates)  of the
          outstanding  Units in the  Partnership at a price of $35 per Unit; the
          offer  expired  December  31,  2002.  On  March  14,  2003,  Peachtree
          initiated  an  unregistered  tender  offer to purchase an  unspecified
          number of the outstanding  Units in the Partnership at a price of $100
          per  Unit;  the  offer  expires  on  April  18,  2003.   Peachtree  is
          unaffiliated with the Partnership or the Managing General Partner. The
          prices offered were  determined  solely at the discretion of Peachtree
          and do not necessarily represent the fair market value of each Unit.

                                      II-1

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

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

          The Managing General Partner  recommended that Limited Partners reject
          the 2001 Peachtree unregistered tender offer because it concluded that
          the tender offer was  inadequate  and not in the best interests of the
          Limited  Partners.  The Managing  General  Partner did not express any
          opinion  and  remained  neutral  toward  the two  2002  and  one  2003
          Peachtree  unregistered  tender  offers  for  the  purchase  of  Units
          described above.

          During 2001, a number of investors sold their Units in the Partnership
          to other investors,  as a result of the tender offers described above.
          If more  than  five  percent  of the  total  outstanding  Units in the
          Partnership  are transferred due to sale in any one calendar year (not
          counting certain exempt transfers),  the Partnership could be taxed as
          a  "publicly  traded   partnership,"   with  potentially   severe  tax
          implications for the Partnership and its investors.  Specifically, the
          Partnership could be taxed as a corporation and, if so, the income and
          losses from the  Partnership  would no longer be  considered a passive
          activity.   From  January  1,  2001,  through  August  13,  2001,  the
          Partnership  received sale transfer requests for approximately 4.9% of
          the total outstanding  Units.  Accordingly,  to remain within the five
          percent safe harbor,  effective  August 13, 2001, the Managing General
          Partner halted recognition of any transfers that would exceed the safe
          harbor limit  through  December 31,  2001.  As a result,  transfers of
          Units  due to sales  transactions  were not  being  recognized  by the
          Partnership  between  August 14, 2001 and December 31, 2001.  The halt
          was lifted effective January 1, 2002.

     (b)  As of March 20, 2003, there were 3,258 registered  holders of Units in
          the Partnership.

     (c)  On May 2, 2001 the partnership made a cash  distribution of $3,244,150
          ($65.00 per Unit) to Additional  Limited  Partners who were holders of
          record  as of April 1,  2001.  The  distribution  was a result of cash
          resources  accumulated  from operations and  distributions  from Local
          Partnerships.  On September  11,  2002,  the  Partnership  made a cash
          distribution  of  $199,455  to the  General  Partners  and Initial and
          Special  Limited   Partners  from  cash  resources   accumulated  from
          operations and distributions from Local Partnerships.  A review of the
          Partnership  Agreement  revealed that these  amounts  should have been
          distributed  in prior years when  distributions  had been made only to
          the Additional Limited Partners. On November 22, 2002, the Partnership
          made a cash  distribution  aggregating  $2,844,870  ($57 per  Unit) to
          Additional  Limited Partners who were holders of record as of November
          1, 2002. Of this amount,  $1,347,570 ($27 per Unit) was distributed as
          result of proceeds  received from the sale of the Rock Glen  property,
          and  $1,497,300  ($30 per  Unit) was  distributed  as a result of cash
          resources  accumulated  from operations and  distributions  from Local
          Partnerships.  On  November  25,  2002,  the  Partnership  made a cash
          distribution  of $46,392  to the  General  Partners  and  Initial  and
          Special Limited  Partners who were holders of record as of November 1,
          2002. The distribution was a result of cash resources accumulated from
          operations and distributions from Local Partnerships.

                                      II-2

<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  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,   certain  of  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  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,  C.R.I.,  Inc. (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 Managing  General Partner has sold, and will continue 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. 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 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.

                                      II-3

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

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

     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 up to one year.  Expiring  Section 8 HAP  contracts  with rents that
exceed  100% of fair market  rents  could be renewed for up to 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 (M2M) 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.  In some instances,  a property will be able to meet its existing debt
service  payments  after the  reduction  in rental  income.  In this  case,  the
property  may enter  the M2M  "Lite"  program  which  would  not  require a debt
restructuring.  In the remaining  instances,  the affected  property may undergo
debt restructuring  according to terms determined by an individual  property and
operations  evaluation.  This would  involve  reducing the first  mortgage  loan
balance to an amount  supportable  by the  property's  operations,  taking  into
account the property's operating expenses and reduced income. The balance of the
amount  written down from the first  mortgage  loan would be converted to a non-
performing but accruing  (soft) second  mortgage  loan.  When 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 would not generate  additional
ordinary  income.  Each property  subject to M2M 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. All properties,
upon entering the M2M program  (excluding M2M Lite),  are required to enter into
an agreement restricting the property's use to affordable housing for 30 years.

     Finally, under HUD's "Mark-up-to-Market"  program, properties with expiring
Section 8 HAP  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  adjustment  factor.  The purpose of
this program is to provide  incentives  to owners of  properties  with  expiring
Section 8 HAP 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 HAP 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.

     There have been no major changes in federal housing policy in 2002.

     Country  Place II had a Section 8 HAP  contract  which  covered  20% of the
property's  apartment  units.  The latest  renewal  period of the  Section 8 HAP
contract expired in June 2002. The Section 8 HAP Contract was not renewed by the
Local Partnership.

                                      II-4

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

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

     As  of  December  31,  2002,  the  carrying  amount  of  the  Partnership's
investments in and advances to Local  Partnerships  with Section 8 HAP contracts
expiring in 2003 was $0.

     The Managing  General  Partner  continues to seek  strategies  to deal with
affordable housing policy. While the Managing General Partner cannot predict the
outcome for any particular  property at this time, the Managing  General Partner
will continue to work with the Local  Partnerships  to develop  strategies  that
maximize benefits to investors.

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

     As of December 31, 2002, the Partnership had 3,258 investors who subscribed
to a total of 50,000 units of limited partner interest in the original amount of
$50,000,000.   The  Partnership   originally   made   investments  in  22  Local
Partnerships,  of which 13  remain  at  December  31,  2002.  The  Partnership's
liquidity,  with  unrestricted  cash  resources of $3,420,489 as of December 31,
2002,  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, 2003,  there were no material  commitments
for capital expenditures.

     During  2002 and 2001,  the  Partnership  received  cash  distributions  of
$1,148,056 and $883,504, respectively, from the Local Partnerships.

     The  Partnership's  obligations  with respect to its  investments  in Local
Partnerships,  in the  form of  non-recourse  purchase  money  notes  having  an
aggregate  principal  balance of $1,900,000 plus aggregate  accrued  interest of
$2,677,938  as of December 31,  2002,  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         06/30/03 (2)
     Westgate         $1,400,000 (1)       09/01/98         09/01/03

     (1)  Remaining principal after a partial payment.
     (2)  On January 1, 2003, the Partnership sold its remaining limited partner
          interest in Princeton to the purchase money noteholder.

     In addition,  in June 2001, the property owned by Frenchman's  Wharf II was
transferred  by  deed-in-lieu  of  foreclosure  to an assignee of the mortgagee,
thereby  rendering the  collateral for the related  non-recourse  purchase money
note of nominal value.

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

                                      II-5

<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.  In the event  that a  purchase  money note
remains unpaid upon maturity the  noteholders may have the right to foreclose on
the Partnership's interest in the related 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 the remaining purchase money note
at a  discounted  price,  extending  the due date of the  purchase  money  note,
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
the remaining  purchase  money note  obligation.  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 note remains 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  38.6%.  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.

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

     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, 2002 and 2001,  the receipt of  distributions
from Local  Partnerships  was adequate to support  operating cash  requirements.
Cash and cash equivalents increased during 2002, as the receipt of distributions
from Local Partnerships was in excess of net cash used in operating  activities,
although  total  distributions  to  partners  were in  excess of  proceeds  from
disposition of investment in partnership.

                                      II-6

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

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

     On May 2, 2001,  the  Partnership  made a cash  distribution  of $3,244,150
($65.00 per Unit) to Additional  Limited  Partners who were holders of record as
of April 1, 2001. The  distribution  was a result of cash resources  accumulated
from operations and distributions from partnerships.  On September 11, 2002, the
Partnership  made a cash  distribution  of $199,455 to the General  Partners and
Initial  and Special  Limited  Partners  from cash  resources  accumulated  from
operations, distributions from Local Partnerships and sales of three properties.
A review of the  Partnership  Agreement  revealed that these amounts should have
been  distributed  in prior years when  distributions  had been made only to the
Additional  Limited Partners.  On November 22, 2002, the Partnership made a cash
distribution  aggregating  $2,844,870  ($57  per  Unit)  to  Additional  Limited
Partners  who were  holders of record as of  November 1, 2002.  Of this  amount,
$1,347,570  ($27 per Unit) was  distributed as result of proceeds  received from
the  sale  of the  Rock  Glen  property,  and  $1,497,300  ($30  per  Unit)  was
distributed  as a result  of cash  resources  accumulated  from  operations  and
distributions  from Local  Partnerships.  On November 25, 2002, the  Partnership
made a cash  distribution  of $46,392 to the  General  Partners  and Initial and
Special Limited  Partners who were holders of record as of November 1, 2002. The
distribution  was a result of cash  resources  accumulated  from  operations and
distributions from Local  Partnerships.  The Managing General Partner intends to
retain all of the Partnership's  remaining undistributed cash pending resolution
of the Partnership's remaining purchase money note and related accrued interest,
and for future working capital needs.

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

2002 Versus 2001
----------------

     The Partnership's net income for the year ended December 31, 2002 decreased
from the year ended December 31, 2001,  primarily due to a decrease in gain from
extinguishment  of debt related to the sale of Princeton in 2002, which was less
than the gain related to the transfer of Frenchman's Wharf Associates II Limited
Partnership  (Frenchman's Wharf II) in 2001. Contributing to the decrease in the
Partnership's  net income were a decrease  in share of income from  partnerships
related to lower rental  revenue at three  properties  and  increased  operating
expenses  at one  property,  a decrease  in  interest  revenue  related to lower
interest rates in 2002, and an increase in general and  administrative  expenses
related to higher reimbursed payroll costs. Partially offsetting the decrease in
the  Partnership's  net income  were a gain on  disposition  of  investments  in
partnerships related to the sale of Rock Glen in 2002 compared to a loss related
to the transfer of Frenchman's  Wharf II in 2001, a decrease in interest expense
due to a lower purchase money note balance during 2002, and nominal decreases in
professional fees and amortization of deferred costs.

     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, 2002 and 2001 did not include losses of $1,402,846 and  $1,332,296,
respectively.  Distributions  of $458,006 and $546,847,  received from ten Local
Partnerships  during  2002 and  2001,  respectively,  were  offset  against  the
respective  years'  recorded  losses because these amounts were in excess of the
Partnership's investment.

                                      II-7

<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 13 properties
for the five years ended  December 31, 2002,  follow.  Combined  rental  revenue
amounts have been adjusted to reflect  property sales and interests  transferred
in 2002 and in prior years.

<TABLE>
<CAPTION>


                                                        For the years ended December 31,
                       ---------------------------------------------------------------------------------------------------
                          2002                  2001                  2000                  1999                  1998
                       -----------           -----------           -----------           -----------           -----------
<S>                    <C>                   <C>                   <C>                   <C>                   <C>
Combined Rental
  Revenue              $17,651,126           $17,895,037           $16,499,288           $15,896,199           $15,975,634

Annual Percentage
  (Decrease) increase                (1.4%)                8.5%                  3.8%                  (0.5%)

</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-8

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

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

     (a)  and (b)

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

     (a)  and (b)

          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, 66, 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 a Director of CRIIMI MAE Inc. and CRIIMI, Inc.

H. William Willoughby,  56, has been President,  Secretary and a Director of CRI
since  January 1990 and was 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.

Susan R. Campbell, 44, was 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.  Ms. Campbell  resigned her position  effective
March 29, 2002.

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

     (d)  Involvement in certain legal proceedings.

          None.


                                      III-1

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

ITEM 10. EXECUTIVE COMPENSATION
         ----------------------

     (a), (b), (c), (d), (e), (f), (g), and (h)

          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 by Item 10 is incorporated herein by reference to
          Notes 3 and 4 of the notes to financial  statements  contained in Part
          III.


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 partner interest (Units),  at
          March 20, 2003.

                                                                  % of Total
            Name and Address            Amount and Nature        Units Issued
           of Beneficial Owner       of Beneficial Ownership    and Outstanding
          ----------------------     -----------------------    ---------------
          Equity Resource Group,           8,065 Units                 16.2%
            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, 2003, 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                0.0%
          H. William Willoughby                   None                0.0%
          All Directors and Officers
            as a Group (2 persons)                None                0.0%

     (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)  and (b)

          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.

     (c)  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).

     (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 of other auditors relating to the audits of the financial
               statements  of  Local   Partnerships   in  which  Capital  Realty
               Investors-II Limited Partnership has invested.

          c.   Certification of Periodic Financial Report.

     (b)  Reports on Form 8-K

          No reports on Form 8-K were filed  during the quarter  ended  December
          31, 2002.


ITEM 14. CONTROLS AND PROCEDURES
         -----------------------

     In February 2003,  representatives  of the Managing  General Partner of the
Partnership  carried out an  evaluation of the  effectiveness  of the design and
operation of the Partnership's  disclosure controls and procedures,  pursuant to
Exchange Act Rules 13a-14 and 15d-14.  Based on that  evaluation,  the Principal
Executive   Officer  and  Principal   Financial   Officer   concluded  that  the
Partnership's  disclosure  controls and procedures are effective to timely alert
them to any  material  information  relating  to the  Partnership  that  must be
included in the Partnership's periodic SEC filings. In addition, there have been
no  significant  changes  in the  Partnership's  internal  controls  or in other
factors that could significantly affect internal controls subsequent to the date
of the most recent evaluation.

                                      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, 2003                         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, 2003                         by:  /s/ H. William Willoughby
--------------                              ------------------------------------
DATE                                        H. William Willoughby,
                                              Director, President,
                                              and Secretary




March 20, 2003                         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>
                         CERTIFICATION OF ANNUAL REPORT
                       Pursuant to 18 U.S.C. Section 1350,
      as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


         I, Michael J. Tuszka, certify that:

         1.       I have  reviewed  this annual report on Form 10-KSB of CAPITAL
                  REALTY INVESTORS-II LIMITED PARTNERSHIP;

         2.       Based on my knowledge, this annual report does not contain any
                  untrue  statement  of a  material  fact  or  omit  to  state a
                  material fact necessary to make the statements  made, in light
                  of the  circumstances  under which such  statements were made,
                  not  misleading  with  respect to the  period  covered by this
                  annual report;

         3.       Based on my  knowledge,  the financial  statements,  and other
                  financial  information included in this annual report,  fairly
                  present in all  material  respects  the  financial  condition,
                  results of operations  and cash flows of the registrant as of,
                  and for, the periods presented in this annual report;

         4.       The   registrant's   other   certifying   officer  and  I  are
                  responsible  for  establishing   and  maintaining   disclosure
                  controls  and  procedures  (as defined in  Exchange  Act Rules
                  13a-14 and 15d-14) for the registrant and have:

         a)       designed  such  disclosure  controls and  procedures to ensure
                  that  material   information   relating  to  the   registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this annual report is being prepared;

         b)       evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented  in this  annual  report our  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

         5.       The  registrant's   other   certifying   officer  and  I  have
                  disclosed,  based  on  our  most  recent  evaluation,  to  the
                  registrant's   auditors   and  the  audit   committee  of  the
                  registrant's  board of directors  (or persons  performing  the
                  equivalent functions):

         a)       all  significant  deficiencies  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and


                                      III-6

<PAGE>
         6.       The registrant's other certifying officer and I have indicated
                  in this annual report whether there were  significant  changes
                  in  internal   controls  or  in  other   factors   that  could
                  significantly  affect internal controls subsequent to the date
                  of  our  most  recent  evaluation,  including  any  corrective
                  actions with regard to significant  deficiencies  and material
                  weaknesses.


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

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



March 20, 2003                           by:  /s/ Michael J. Tuszka
--------------                                ----------------------------------
DATE                                          Michael J. Tuszka,
                                                Vice President
                                                and Chief Accounting Officer
                                                (Principal Financial Officer)


     This  certification  is made solely for purpose of 18 U.S.C.  Section 1350,
subject  to the  knowledge  standard  contained  therein,  and not for any other
purpose.

                                      III-7

<PAGE>
                         CERTIFICATION OF ANNUAL REPORT
                       Pursuant to 18 U.S.C. Section 1350,
      as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


         I, William B. Dockser, certify that:

         1.       I have  reviewed  this annual report on Form 10-KSB of CAPITAL
                  REALTY INVESTORS-II LIMITED PARTNERSHIP;

         2.       Based on my knowledge, this annual report does not contain any
                  untrue  statement  of a  material  fact  or  omit  to  state a
                  material fact necessary to make the statements  made, in light
                  of the  circumstances  under which such  statements were made,
                  not  misleading  with  respect to the  period  covered by this
                  annual report;

         3.       Based on my  knowledge,  the financial  statements,  and other
                  financial  information included in this annual report,  fairly
                  present in all  material  respects  the  financial  condition,
                  results of operations  and cash flows of the registrant as of,
                  and for, the periods presented in this annual report;

         4.       The   registrant's   other   certifying   officer  and  I  are
                  responsible  for  establishing   and  maintaining   disclosure
                  controls  and  procedures  (as defined in  Exchange  Act Rules
                  13a-14 and 15d-14) for the registrant and have:

         a)       designed  such  disclosure  controls and  procedures to ensure
                  that  material   information   relating  to  the   registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this annual report is being prepared;

         b)       evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented  in this  annual  report our  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

         5.       The  registrant's   other   certifying   officer  and  I  have
                  disclosed,  based  on  our  most  recent  evaluation,  to  the
                  registrant's   auditors   and  the  audit   committee  of  the
                  registrant's  board of directors  (or persons  performing  the
                  equivalent functions):


         a)       all  significant  deficiencies  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and


                                      III-8

<PAGE>

         6.       The registrant's other certifying officer and I have indicated
                  in this annual report whether there were  significant  changes
                  in  internal   controls  or  in  other   factors   that  could
                  significantly  affect internal controls subsequent to the date
                  of  our  most  recent  evaluation,  including  any  corrective
                  actions with regard to significant  deficiencies  and material
                  weaknesses.


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

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



March 20, 2003                           by:  /s/ William B. Dockser
--------------                                ----------------------------------
DATE                                          William B. Dockser,
                                                Director, Chairman of the Board,
                                                and Treasurer
                                                (Principal Executive Officer)


     This  certification  is made solely for purpose of 18 U.S.C.  Section 1350,
subject  to the  knowledge  standard  contained  therein,  and not for any other
purpose.

                                      III-9

<PAGE>

                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS



To the Partners
Capital Realty Investors-II Limited Partnership

     We  have  audited  the  accompanying   balance  sheets  of  Capital  Realty
Investors-II  Limited  Partnership  (a  Maryland  limited  partnership),  as  of
December 31, 2002 and 2001, and the related statements of operations, changes in
partners'  capital  (deficit)  and cash  flows for the years then  ended.  These
financial statements are the responsibility of the Partnership's management. Our
responsibility  is to express an opinion on these financial  statements based on
our  audits.  We did  not  audit  the  financial  statements  of  certain  Local
Partnerships.  The Partnership's  share of income from these Local  Partnerships
constitutes  $742,707  and  $717,807  of income in 2002 and 2001,  respectively,
included in the Partnership's 2002 and 2001 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 of America.  Those standards required 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, 2002 and 2001 and the results of its  operations,
changes in partners'  capital  (deficit),  and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.


                                                    Grant Thornton LLP


Vienna, Virginia
March 14, 2003

                                     III-10

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                                 BALANCE SHEETS


                                     ASSETS

<TABLE>
<CAPTION>

                                                                                                    December 31,
                                                                                           ----------------------------
                                                                                               2002            2001
                                                                                           ------------    ------------
<S>                                                                                        <C>             <C>
Investments in and advances to partnerships                                                $  1,360,493    $  1,308,952
Investment in partnership held for sale or transfer                                               7,577          15,154
Cash and cash equivalents                                                                     3,420,489       3,242,912
Acquisition fees, principally paid to related parties,
  net of accumulated amortization of $232,563 and $259,959, respectively                        132,628         170,029
Property purchase costs,
  net of accumulated amortization of $244,318 and $243,162, respectively                        146,200         167,124
Other assets                                                                                    335,845             108
                                                                                           ------------    ------------
   Total assets                                                                            $  5,403,232    $  4,904,279
                                                                                           ============    ============




                   LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)



Due on investments in partnerships                                                         $  1,900,000    $  1,900,000
Accrued interest payable                                                                      2,677,938       3,052,897
Accounts payable and accrued expenses                                                           113,301          78,568
                                                                                           ------------    ------------
   Total liabilities                                                                          4,691,239       5,031,465
                                                                                           ------------    ------------

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                                                   (13,904,726)    (10,814,009)
    Offering costs                                                                           (5,278,980)     (5,278,980)
    Accumulated losses                                                                      (30,121,301)    (34,051,197)
                                                                                           ------------    ------------

      Total partners' capital (deficit)                                                         711,993        (127,186)
                                                                                           ------------    ------------
      Total liabilities and partners' capital (deficit)                                    $  5,403,232    $  4,904,279
                                                                                           ============    ============

</TABLE>
                     The accompanying notes are an integral
                       part of these financial statements.

                                     III-11

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                              For the years ended
                                                                                  December 31,
                                                                          ----------------------------
                                                                             2002              2001
                                                                          ------------    ------------
<S>                                                                       <C>             <C>
Share of income from partnerships                                         $  1,199,596    $  1,265,026
                                                                          ------------    ------------

Other revenue and expenses:

  Revenue:
    Interest                                                                    49,888         163,717
    Gain from extinguishment of debt                                           599,123       9,665,289
                                                                          ------------    ------------

                                                                               649,011       9,829,006

  Expenses:
    Interest                                                                   231,741         420,191
    General and administrative                                                 264,770         217,746
    Management fee                                                             249,996         249,996
    Professional fees                                                           87,794          91,478
    Amortization of deferred costs                                              26,600          28,009
                                                                          ------------    ------------

                                                                               860,901       1,007,420

      Total other revenue and expenses                                        (211,890)      8,821,586
                                                                          ------------    ------------

Income before gain (loss) on disposition of investments in partnerships        987,706      10,086,612

Gain (loss) on disposition of investments in partnerships                    2,942,190         (56,217)
                                                                          ------------    ------------

Net income                                                                $  3,929,896    $ 10,030,395
                                                                          ============    ============


Net income allocated to General Partners (1.51%)                          $     59,341    $    151,459
                                                                          ============    ============

Net income allocated to Initial and Special Limited Partners (1.49%)      $     58,556    $    149,453
                                                                          ============    ============

Net income allocated to Additional Limited Partners (97%)                 $  3,811,999    $  9,729,483
                                                                          ============    ============
Net income per unit of Additional Limited Partner Interest,
  based on 50,000 units outstanding                                       $      76.24    $     194.59
                                                                          ============    ============
</TABLE>
                     The accompanying notes are an integral
                       part of these financial statements.

                                     III-12

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

              STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)

<TABLE>
<CAPTION>

                                                                              Initial and
                                                                                Special         Additional
                                                              General           Limited          Limited
                                                              Partners          Partners         Partners             Total
                                                             ----------       -----------      ------------        ------------
<S>                                                          <C>              <C>              <C>                 <C>
Partners' (deficit), January 1, 2001                         $(679,622)        $(657,071)      $(5,576,738)        $(6,913,431)

  Net income                                                   151,459           149,453         9,729,483          10,030,395

  Distribution of $65.00 per unit
    of Additional Limited Partner Interest                          --                --        (3,244,150)         (3,244,150)
                                                             ---------         ---------       -----------         -----------

Partners' (deficit) capital, December 31, 2001                (528,163)         (507,618)          908,595            (127,186)

  Net income                                                    59,341            58,556         3,811,999           3,929,896

  Distribution of $57.00 per unit
    of Additional Limited Partner Interest                          --                --        (2,844,870)         (2,844,870)

  Distributions to General Partners
    and Initial and Special Limited Partners                  (123,758)         (122,089)               --            (245,847)
                                                             ---------         ---------       -----------         -----------
Partners' (deficit) capital, December 31, 2002               $(592,580)        $(571,151)      $ 1,875,724         $   711,993
                                                             =========         =========       ===========         ===========
</TABLE>

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

                                     III-13

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                      For the years ended
                                                                                          December 31,
                                                                                  ----------------------------
                                                                                     2002              2001
                                                                                  ------------    ------------
<S>                                                                               <C>             <C>
Cash flows from operating activities:
  Net income                                                                      $  3,929,896    $ 10,030,395

  Adjustments to reconcile net income to net cash used in operating activities:
    Share of income from partnerships                                               (1,199,596)     (1,265,026)
    Amortization of deferred costs                                                      26,600          28,009
    (Gain) loss on disposition of investments in partnerships                       (2,942,190)         56,217
    Gain from extinguishment of debt                                                  (599,123)     (9,665,289)

    Changes in assets and liabilities:
      (Increase) decrease in other assets                                             (335,737)          2,430
      Increase in accrued interest payable                                             231,741         420,191
      Increase (decrease) in accounts payable and accrued expenses                      34,733         (97,782)
                                                                                  ------------    ------------
        Net cash used in operating activities                                         (853,676)       (490,855)
                                                                                  ------------    ------------


Cash flows from investing activities:
  Receipt of distributions from partnerships                                         1,148,056         883,504
  Proceeds from disposition of investment in partnership, net                        2,973,914              --
  Additional investment in partnership                                                      --        (198,241)
                                                                                  ------------    ------------
        Net cash provided by investing activities                                    4,121,970         685,263
                                                                                  ------------    ------------


Cash flows from financing activities:
  Distributions to General Partners and Initial Special Limited Partners              (245,847)             --
  Distributions to Additional Limited Partners                                      (2,844,870)     (3,244,150)
                                                                                  ------------    ------------
        Net cash used in financing activities                                       (3,090,717)     (3,244,150)
                                                                                  ------------    ------------

Net increase (decrease) in cash and cash equivalents                                   177,577      (3,049,742)

Cash and cash equivalents, beginning of year                                         3,242,912       6,292,654
                                                                                  ------------    ------------
Cash and cash equivalents, end of year                                            $  3,420,489    $  3,242,912
                                                                                  ============    ============
</TABLE>

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

                                     III-14

<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  current
     officers and former employees of CRI or its affiliates. The Special Limited
     Partner was Two Broadway Associates II, a limited partnership  comprised of
     an  affiliate  and  employees  of Merrill  Lynch,  Pierce,  Fenner & Smith,
     Incorporated.   Effective   January  1,  2002,   Two  Broadway   Associates
     transferred its interest to MLH Merger Corporation and three individuals.

          The  Partnership  sold 50,000  units at $1,000 per unit of  additional
     limited partner 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 of America.

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

          The investments in and advances to Local Partnerships (see Note 2) are
     accounted for by the equity  method  because the  Partnership  is a limited
     partner in the Local  Partnerships.  Under this method, the carrying amount
     of the investments in and advances to Local  Partnerships is (i) reduced by
     distributions  received and (ii) increased or reduced by the  Partnership's
     share of earnings or losses, respectively, of the Local Partnerships. As of
     December 31, 2002 and 2001, the Partnership's share of cumulative losses of
     nine of the Local  Partnerships  exceeded  the amount of the  Partnership's
     investments in and advances to those Local  Partnerships by $21,819,435 and
     $20,866,146,  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,  2002,  the  Partnership's  maximum  loss
     exposure  related to its  investments  in and advances to  partnerships  is
     limited to the remaining balance of $1,360,493. As of December 31, 2002 and
     2001,   cumulative  cash  distributions  of  $14,556,413  and  $14,098,407,
     respectively,  have been received from the Local Partnerships for which the
     Partnership's  carrying value is zero. These distributions were recorded as
     increases in the  Partnership's  share of income from  partnerships  in the
     year received.


                                     III-15

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

          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.

     d.   Investment in partnership held for sale or transfer
          ---------------------------------------------------

          On April 30, 2002,  the  Partnership  sold  one-half of its  remaining
     limited  partner  interest  in  Princeton   Community  Village   Associates
     (Princeton)  to the  purchase  money  noteholder.  On January 1, 2003,  the
     Partnership sold its remaining limited partner interest in Princeton to the
     purchase  money  noteholder.  The  partnership's  investment  in this Local
     Partnership was  reclassified to investment in partnership held for sale or
     transfer in the accompanying  balance sheets at December 31, 2002 and 2001.
     Assets  held for sale or  transfer  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,  and repurchase  agreements  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  of  America,  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  periods.  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, 2002,  as required by  Statement  of Financial  Accounting
     Standards No. 107 (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.

                                     III-16

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

          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 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.

     j.   New accounting pronouncements
          -----------------------------

          In  June  2001,  the  Financial   Accounting  Standards  Board  issued
     Statement  of  Financial  Accounting  Standards  No.  142 (SFAS  No.  142),
     Goodwill  and  Other  Intangible   Assets,   which  supercedes   Accounting
     Principles Board Opinion No. 17, Intangible Assets. SFAS No. 142 eliminates
     the  current   requirement  to  amortize   goodwill  and   indefinite-lived
     intangible  assets,  addresses the amortization of intangible assets with a
     defined life,  and addresses the  impairment  testing and  recognition  for
     goodwill  and  intangible  assets.  SFAS No. 142 will apply to goodwill and
     intangible assets arising from transactions  completed before and after the
     Statement's effective date. SFAS No. 142 is effective for fiscal year 2002.
     The  adoption  of SFAS  No.  142  did not  have a  material  effect  on the
     financial position or results of operations of the Partnership.

          In August  2001,  the  Financial  Accounting  Standards  Board  issued
     Statement  of  Financial  Accounting  Standards  No.  144 (SFAS  No.  144),
     Accounting for the Impairment or Disposal of Long-Lived Assets. Among other
     provisions,  SFAS No. 144 sets forth the six criteria, all of which must be
     met,  before a long-lived  asset to be sold shall be classified as held for
     sale.  SFAS is effective for fiscal year 2002. The adoption of SFAS No. 144
     did not have a  material  effect on the  financial  position  or results of
     operations of the Partnerships.

          In  April  2002,  the  Financial  Accounting  Standards  Board  issued
     Statement  of  Financial  Accounting  Standards  No.  145 (SFAS  No.  145),
     Recission of FASB  Statements No. 4, 44, and 64, .... SFAS No. 145 rescinds
     Statement of Financial Accounting Standards No. 4, which required all gains
     and losses from  extinguishment  of debt to be aggregated and, if material,
     classified as an extraordinary item. Accordingly,  gain from extinguishment
     of debt previously  reported as  extraordinary  for the year ended December
     31, 2001, has been reclassified in the accompanying statement of operations
     for that period to conform to the presentation required by SFAS No. 145.

          In January 2003, the Financial  Accounting Standards Board issued FASB
     Interpretation  No.  46  (FIN  46),   Consolidation  of  Variable  Interest
     Entities.  FIN 46 clarifies the application of Accounting Research Bulletin
     51,  Consolidated  Financial  Statements,  for certain entities that do not
     have  sufficient  equity at risk for the entity to finance  its  activities
     without additional  subordinated financial support from other parties or in
     which equity  investors do not have the  characteristics  of a  controlling
     financial  interest  ("variable  interest  entities").   Variable  interest
     entities  within the scope of FIN 46 will be required to be consolidated by
     their primary  beneficiary.  The primary beneficiary of a variable interest
     entity  is  determined  to be the party  that  absorbs  a  majority  of the
     entity's expected losses,  receives a majority of its expected returns,  or
     both. FIN 46 applies  immediately  to variable  interest  entities  created
     after January 31, 2003, and to

                                     III-17

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     variable interest entities in which an enterprise obtains an interest after
     that date. It applies in the first fiscal year or interim period  beginning
     after June 15, 2003, to variable  interest  entities in which an enterprise
     holds a variable  interest that it acquired  before  February 1, 2003.  The
     Managing General Partner is in the process of determining  what impact,  if
     any,  the  adoption  of  the   provisions  of  FIN  46  will  have  on  the
     Partnership's  financial condition and results of operations related to the
     Partnership's investments in Local Partnerships,  and has complied with the
     disclosure requirements of FIN 46 in these financial statements.


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

     a.   Due on investments in partnerships and accrued interest payable
          ---------------------------------------------------------------

          As of December 31, 2002 and 2001, the Partnership held limited partner
     interests  in 13  and  14  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,
                                             --------------------------------
                                                2002                  2001
                                             ----------            ----------

     Purchase money notes due in 2003        $1,900,000            $1,900,000

     Accrued interest payable                 2,677,938             3,052,897
                                             ----------            ----------
           Total                             $4,577,938            $4,952,897
                                             ==========            ==========

          The remaining  purchase  money notes have stated  interest rates of 9%
     and 12%. 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         06/30/03 (2)
     Westgate           $1,400,000 (1)           09/01/98         09/01/03

     (1)  Remaining principal after a partial payment.
     (2)  On January 1, 2003, the Partnership sold its remaining limited partner
          interest in Princeton to the purchase money noteholder.

          In addition,  in June 2001, the property owned by Frenchman's Wharf II
     was  transferred  by  deed-in-lieu  of  foreclosure  to the assignee of the
     mortgagee,  thereby  rendering the collateral for the related  non-recourse
     purchase money note of nominal value.

                                     III-18

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - 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. In the
     event  that  a  purchase  money  note  remains  unpaid  upon  maturity  the
     noteholders may have the right to foreclose on the  Partnership's  interest
     in the related 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 the
     remaining purchase money note at a discounted price, extending the due date
     of  the  purchase  money  note,   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  the  remaining
     purchase money note  obligation.  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 note
     remains  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
     38.6%. 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.

          The Managing General Partner  continues to address the maturity of its
     debt  obligations  and to  seek  solutions  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,  2002  and  2001  was  $231,741  and  $420,191,
     respectively.  The accrued  interest payable on the purchase money notes of
     $2,677,938 and  $3,052,897 as of December 31, 2002 and 2001,  respectively,
     is due on the respective maturity dates of the

                                     III-19

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     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.

                              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 June 22, 2001, principal and accrued interest totaling
     $3,150,000 and $6,131,166,  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.

          In January 2001, the Local Partnership entered into a contract to sell
     the property. However, the purchaser was unable to consummate the purchase.
     As a result, in accordance with the forbearance agreement with the mortgage
     lender,  on June 22, 2001, the property was  transferred by deed-in-lieu of
     foreclosure to an assignee of the  mortgagee.  The transfer of the property
     and resulting loss of the  Partnership's  interest in Frenchman's  Wharf II
     resulted  in gain from  extinguishment  of debt of  $9,281,166  and loss on
     disposition of investment in partnership of $56,217 for financial statement
     purposes in 2001, and a total gain of $16,450,868  for federal tax purposes
     in 2001.

                                    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 had forfeited its interest in Princeton to the noteholder.
     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
     partner  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  note.  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. However,  pursuant to the option agreement with the noteholder,
     the  noteholder  could  exercise its option to acquire the final portion of
     the Partnership's interest between January 1, 2003 and June 30, 2003.

          On January 1, 2003,  pursuant to the option agreement,  the noteholder
     purchased  the   Partnership's   remaining   limited  partner  interest  in
     Princeton,  the consideration for which was the cancellation of $677,676 of
     purchase  money note  principal  and accrued  interest.  The purchase  will
     result  in  gain  on  extinguishment  of debt  of  $670,099  for  financial
     statement  purposes and a total gain of $1,854,098 for federal tax purposes
     in  2003.  On  April  30,  2002,  pursuant  to the  option  agreement,  the
     noteholder  purchased  one-half  of  the  Partnership's  remaining  limited
     partner  interest  in  Princeton,  the  consideration  for  which  was  the
     cancellation  of $606,700  of purchase  money note  accrued  interest.  The
     purchase resulted in gain on extinguishment of debt of $599,123 for

                                     III-20

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     financial statement purposes and a total gain of $1,783,122 for federal tax
     purposes in 2002.  On both June 1, 2001 and May 31,  2000,  pursuant to the
     option  agreement,  the  noteholder  purchased  26%  of  the  Partnership's
     original limited partner interest in Princeton, the consideration for which
     was the cancellation of a like percentage of the outstanding purchase money
     note accrued interest of $392,333 and $493,027, respectively,  resulting in
     gain from  extinguishment  of debt of $384,123 and  $484,862 for  financial
     statement purposes in 2001 and 2000,  respectively,  and in a total gain of
     $1,583,512  and  $1,921,910  for  federal  tax  purposes  in 2001 and 2000,
     respectively.

          Due  to  the  impending  transfer  of the  Partnership's  interest  in
     Princeton, the Partnership's basis in the Local Partnership, along with the
     net unamortized acquisition fees and property purchase costs, which totaled
     $7,577 as of December 31, 2002, and $15,154 as of December 2001,  have been
     reclassified to investment in partnership  held for sale or transfer in the
     accompanying balance sheets.

                                    Westgate
                                    --------

          The purchase  money note related to Westgate  Tower  Limited  Dividend
     Housing Association  (Westgate) matures on September 1, 2003 (as previously
     extended).  As of  March  20,  2003,  principal  and  accrued  interest  of
     $1,400,000 and  $2,527,533,  respectively,  were due. The Managing  General
     Partner will begin  discussions with the purchase money noteholder prior to
     or upon the maturity of the  Westgate  purchase  money note to  investigate
     possible alternatives to reduce this debt obligation.

     b.   Interests  in  profits,  losses and cash  distributions  made by Local
          ----------------------------------------------------------------------
            Partnerships
            ------------

          The Partnership has a 23.50% 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
     2002 and 2001, the Partnership  received cash distributions from the rental
     operations  of  the  Local   Partnerships   of  $1,148,056   and  $883,504,
     respectively. As of December 31, 2002 and 2001, nine and ten, respectively,
     of the Local  Partnerships had aggregate  surplus cash, as defined by their
     respective   regulatory   Agencies,   in  the  amounts  of  $1,778,185  and
     $1,919,394,  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
     Local  Partnerships  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 in a residual
     receipts  account  held by the  governing  state or federal  agency for the
     benefit of the property.

                                     III-21

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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

                                Country Place II
                                ----------------

          The  Section 8 Housing  Assistance  Payments  (HAP)  contract  for the
     property  owned by Second  Blackburn  Ltd.  Partnership  (Country Place II)
     originally  expired August 29, 2000. The Section 8 HAP contract covered 20%
     of the property's apartment units. The Local Partnership caused the Section
     8 HAP  contract  to be renewed  periodically,  but when the latest  renewal
     period  expired in June 2002, the Section 8 HAP Contract was not renewed by
     the Local Partnership.

                              Frenchman's Wharf II
                              --------------------

          On June 22, 2001, the Frenchman's Wharf II property was transferred to
     an assignee of the mortgagee. See Note 2.a., above, for further information
     concerning this transfer.

                                Orangewood Plaza
                                ----------------

          The 1983  construction  loan (Note)  related to  Orangewood  Plaza,  a
     40-unit  apartment complex in Orange Cove,  California,  was never formally
     converted to a permanent  loan.  During 2002,  the local  managing  general
     partner  and the lender  signed a loan  modification  agreement  to reflect
     that,  effective January 1, 2002,  interest shall accrue on the amount owed
     under the Note at the rate of zero  percent  instead  of nine  percent  per
     annum,  and that the Note and related  construction  and permanent  deed of
     trust,  dated  June 29,  1983,  shall  remain  unaffected,  unchanged,  and
     unimpaired.

          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.  The note matured on July 28, 1998 and was not paid when
     due.  On May 7,  2001,  the  Partnership  made a  capital  contribution  of
     $198,241 to the Local Partnership, which amount was used to pay in full the
     principal and accrued interest on the acquisition note.

                                    Rock Glen
                                    ---------

          In  September  2002,  the Rock Glen  Limited  Partnership  (Rock Glen)
     property was sold.  The sale resulted in gain on  disposition of investment
     in  partnership  of  $2,942,190  for  financial   statement   purposes  and
     $5,153,463 for federal income tax purposes in 2002. In September  2002, the
     Managing General Partner was paid a disposition fee of $128,000 relating to
     the sale, which was netted against the related gain on disposition.

                                     III-22

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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

          Combined balance sheets and combined  statements of operations for the
     13 and 14 Local  Partnerships  in which the  Partnership  is invested as of
     December 31, 2002 and 2001, respectively, follow. The combined statement of
     operations for the year ended December 31, 2001,  includes  information for
     Frenchman's  Wharf  II  through  the date of  transfer  in June  2001.  The
     combined  statement  of  operations  for the year ended  December 31, 2002,
     includes information for Rock Glen through the date of sale of the property
     in September 2002.

<TABLE>
<CAPTION>


                             COMBINED BALANCE SHEETS

                                                                                     December 31,
                                                                            -----------------------------
                                                                                2002              2001
                                                                            ------------      ------------
     <S>                                                                    <C>               <C>
     Rental property, at cost, net of accumulated depreciation
       of $53,944,345 and $56,004,042, respectively                         $ 35,234,046      $ 39,157,766
     Land                                                                      4,617,065         4,960,118
     Other assets                                                             10,740,122        11,016,439
                                                                            ------------      ------------
         Total assets                                                       $ 50,591,233      $ 55,134,323
                                                                            ============      ============


     Mortgage notes payable                                                 $ 65,256,016      $ 69,765,831
     Other liabilities                                                        14,316,424        13,296,874
     Due to general partners                                                   4,457,899         4,465,399
                                                                            ------------      ------------

         Total liabilities                                                    84,030,339        87,528,104

     Partners' deficit                                                       (33,439,106)      (32,393,781)
                                                                            ------------      ------------
         Total liabilities and partners' deficit                            $ 50,591,233      $ 55,134,323
                                                                            ============      ============
</TABLE>


                        COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                                For the years ended
                                                                                     December 31,
                                                                            -----------------------------
                                                                               2002               2001
                                                                            -----------       -----------
     <S>                                                                    <C>               <C>
     Revenue:
       Rental                                                               $18,664,852       $20,122,154
       Interest                                                                 116,891           218,496
       Other                                                                    739,386           933,883
                                                                            -----------       -----------
         Total revenue                                                       19,521,129        21,274,533
                                                                            -----------       -----------

     Expenses:
       Operating                                                             11,972,207        12,196,165
       Interest                                                               4,922,409         5,417,768
       Depreciation                                                           3,207,454         3,398,736
       Amortization                                                              73,415            72,487
       Other                                                                          0            11,721
                                                                            -----------       -----------
         Total expenses                                                      20,175,485        21,096,877
                                                                            -----------       -----------
     Net (loss) income                                                      $  (654,356)      $   177,656
                                                                            ===========       ===========
</TABLE>

                                     III-23

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     e.   Reconciliation of the Local Partnerships' financial
          ---------------------------------------------------
            statement net (loss) 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
     (loss) income reflected above to taxable income follows.

<TABLE>
<CAPTION>


                                                                                For the years ended
                                                                                    December 31,
                                                                            ----------------------------
                                                                               2002              2001
                                                                            ----------        ----------
     <S>                                                                    <C>               <C>
     Financial statement net (loss) income                                  $ (654,356)       $  177,656

     Adjustments:
       Additional book depreciation,
         net of depreciation on construction period expenses
         capitalized for financial statement purposes                        2,394,151         2,787,585

       Amortization for financial statement purposes
         not deducted for income tax purposes                                    2,449             2,703

       Miscellaneous, net                                                      223,303           165,729
                                                                            ----------        ----------
     Taxable income                                                         $1,965,547        $3,133,673
                                                                            ==========        ==========
</TABLE>


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,
2002 and 2001, the Partnership paid $205,778 and $169,127,  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:

                                     III-24

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


3. RELATED PARTY TRANSACTIONS - Continued

     (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, 2002 and 2001,  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. In September 2002, the Managing General Partner was paid a disposition
fee of $128,000  relating to the sale of Rock Glen, which was netted against the
related gain on disposition.


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:

      (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,

                                     III-25

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


4.   PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued

          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. In September 2002, the Managing General Partner was paid a disposition
fee of $128,000  relating to the sale of Rock Glen, which was netted against the
related gain on disposition.

     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 May
2, 2001, the  Partnership  made a cash  distribution  of $3,244,150  ($65.00 per
Unit) to Additional  Limited  Partners who were holders of record as of April 1,
2001.  The  distribution  was  a  result  of  cash  resources  accumulated  from
operations and distributions from Local Partnerships. On September 11, 2002, the
Partnership  made a cash  distribution  of $199,455 to the General  Partners and
Initial  and Special  Limited  Partners  from cash  resources  accumulated  from
operations  and  distributions  from  Local   Partnerships.   A  review  of  the
Partnership  Agreement  revealed that these amounts should have been distributed
in prior years when  distributions had been made only to the Additional  Limited
Partners.  On  November  22,  2002,  the  Partnership  made a cash  distribution
aggregating  $2,844,870 ($57 per Unit) to Additional  Limited  Partners who were
holders of record as of November 1, 2002.  Of this amount,  $1,347,570  ($27 per
Unit) was  distributed as result of proceeds  received from the sale of the Rock
Glen property, and $1,497,300 ($30 per Unit) was distributed as a result of cash
resources accumulated from operations and distributions from Local Partnerships.
On November 25, 2002, the Partnership made a cash distribution of $46,392 to the
General  Partners and Initial and Special  Limited  Partners who were holders of
record as of November 1, 2002. The  distribution  was a result of cash resources
accumulated from operations and distributions from Local Partnerships.

                                     III-26

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


4.   PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued

     As defined in the Partnership Agreement, after the payment of distributions
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, 2002 and 2001.  The Managing  General  Partner
currently  intends to retain all of the  Partnership's  remaining  undistributed
cash pending  resolution of the Partnership's  remaining purchase money note and
related accrued interest, and for future working capital needs.


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.f.),
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,
                                                                                 -----------------------------
                                                                                    2002              2001
                                                                                 ----------        -----------
<S>                                                                              <C>               <C>
Financial statement net income                                                   $3,929,896        $10,030,395

Adjustments:
  Differences between financial statement net gain
    and taxable net gain related to the transfer
    of property                                                                   4,660,627          8,425,306

  Differences between financial statement net income
    and taxable income related to the Partnership's equity
    in the Local Partnerships' income or losses                                   1,438,487          2,537,838

  Costs amortized over a shorter period for income tax purposes                      26,600             28,009

  Effect of amortization of discount on purchase money notes
    for financial statement purposes                                               (249,604)          (253,653)
                                                                                 ----------        -----------
Taxable income                                                                   $9,806,006        $20,767,895
                                                                                 ==========        ===========
</TABLE>

                                      # # #

                                     III-27

<PAGE>
                                EXHIBIT No. 99 b.

Reports of other auditors relating to the audits of the financial  statements of
Local Partnerships in which Capital Realty Investors-II  Limited Partnership has
invested.



                                     III-28