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


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

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



                                   FORM 10-KSB


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



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

                   For the fiscal year ended December 31, 2003


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



                         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


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



                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 $1,786,832.

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

                        2003 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-3
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
Item 15. Principal Accountant Fees and Services..........................  III-5

Signatures...............................................................  III-6

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



<PAGE>
                                     PART I
                                     ------

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

     Capital Realty  Investors-II  Limited  Partnership  (the  Partnership) is a
limited  partnership which was formed under the Maryland Revised Uniform Limited
Partnership  Act on March 23, 1983. On May 6, 1983,  the  Partnership  commenced
offering 50,000 units of additional  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.  As of December 31, 2003, 90 units of limited  partner
interest had been abandoned.

     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  limited
partner interests in limited partnerships (Local Partnerships).  The Partnership
originally made investments in 22 Local  Partnerships.  As of December 31, 2003,
the Partnership  retained  investments in 12 Local  Partnerships.  Each of these
Local  Partnerships  owns  a  federal  or  state  government-assisted  apartment
complex, which provides housing principally to the elderly and/or to individuals
and families of low or moderate income, or a conventionally  financed  apartment
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 could 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 death or 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.

     See Part I, Item 4, hereof,  for a discussion of the Partnership's  Plan of
Liquidation  and  Dissolution,  which was approved by a majority of the units of
limited partner interest on March 22, 2004.

     As a result of its investment in the Local  Partnerships,  the  Partnership
became the  principal  limited  partner in 22 (12  remaining  as of December 31,
2003) of 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 - Continue
        --------

     Although each of the Local  Partnerships in which the Partnership  invested
owns an  apartment  complex that must  compete in the  marketplace  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 - Continue
        --------

     A schedule of the apartment  complexes owned by Local Partnerships in which
the Partnership has an investment as of December 31, 2003, follows.

<TABLE>
<CAPTION>

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


                                                                                                     Units
                            Mortgage                                                             Authorized for     Expiration
 Name and Location         Payable at         Financed and/or Insured              Number of       Low Income           of
of Apartment Complex      12/31/03 (2)        and/or Subsidized Under             Rental Units     Subsidies       HAP Contract
--------------------      ------------     -----------------------------          ------------   --------------    -------------
<S>                       <C>              <C>                                    <C>            <C>               <C>
Arrowhead Apts.           $ 6,596,132      Conventional                               200              40           05/31/06 (3)
 Palatine, IL

Chevy Chase Park            2,850,241      Metropolitan Savings Bank                  232             232           09/22/05 (4)
 Centerville, OH                            Federal Housing Administration

Country Place I             6,847,371      Maryland Community Development             192              38           08/10/09
 Burtonsville, MD                           Administration

Country Place II            4,149,921      Conventional                               120               0              (5)
 Burtonsville, MD

Four Winds West               831,370      GMAC HUD Insured through Section            62              62           10/14/04 (3)(6)
 Birmingham, AL                             221 (d)(4) of the National Housing
                                            Act (NHA)/Section 8

Golden Acres                1,138,280      California Housing Finance Agency           46              45           09/28/13
 Chowchilla, CA                             (CHFA)/Section 8

Mercy Terrace               8,220,982      Section 221(d)(4) of the NHA/              158             158           11/30/04 (7)
 San Francisco, CA                          Section 8

The Moorings                7,811,889      Conventional                               216              44           03/31/07 (3)
 Roselle, IL

Orangewood Plaza            1,826,500      CHFA                                        40              33           07/01/14 (8)
 Orange Cove, CA

Posada Vallarta            14,116,033      Conventional                               336              70           02/16/05 (3)
 Phoenix, AZ

Troy Manor Apts.              822,650      Rural Housing & Community                   50              50           10/28/05 (3)
 Troy, AL                                   Development Services/Section 8

Westgate Tower Apts.        1,611,071      Michigan Sate Housing Develop-             148               0                 --
 Westland, MI                               ment Authority/236
                          -----------                                             --------       --------

Totals 12                 $56,822,440                                                1,800            772
                          ===========                                             ========       ========

</TABLE>
                                   (continued)

                                       I-3

<PAGE>
                                     PART I
                                     ------

ITEM 1. BUSINESS - Continue
        --------

<TABLE>
<CAPTION>

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

                                                                                        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           2003    2002     2001   2000    1999        2003        2002        2001        2000       1999
--------------------           ----    ----     ----   ----    ----      -------     -------     -------     -------    -------
<S>                            <C>     <C>      <C>    <C>     <C>       <C>         <C>         <C>         <C>        <C>
Arrowhead Apts.                 90%     98%      94%   100%     98%      $ 9,793     $10,244     $10,606     $10,205    $ 9,852
 Palatine, IL

Chevy Chase Park                96%     98%      97%    98%     96%        6,505       6,411       7,608       4,141      4,077
 Centerville, OH

Country Place I                 96%     97%      99%    97%     98%       11,855      11,406      10,728      10,194      9,819
 Burtonsville, MD

Country Place II                97%     98%     100%    98%     97%       12,327      11,738      10,894      10,312     10,002
 Burtonsville, MD

Four Winds West                100%     98%     100%    99%     98%        5,505       5,433       5,152       5,190      5,006
 Birmingham, AL

Golden Acres                   100%     96%      99%    98%     87%        6,527       6,364       6,498       6,355      6,324
 Chowchilla, CA

Mercy Terrace                   98%     99%      93%   100%    100%       17,089      14,717      14,717      14,794     14,820
 San Francisco, CA

The Moorings                    93%     98%      97%    99%     96%       10,167      10,365      10,570      10,425      9,679
 Roselle, IL

Orangewood Plaza               100%    100%     100%   100%    100%        2,523       2,559       2,503       2,435      2,382
 Orange Cove, CA

Posada Vallarta                 94%     90%      94%    98%     87%        6,551       6,861       7,175       6,841      6,868
 Phoenix, AZ

Troy Manor Apts.               100%    100%     100%   100%    100%        4,997       4,881       4,758       4,685      4,664
 Troy, AL

Westgate Tower Apts.            91%     93%      96%    97%     95%        4,033       4,136       4,018       3,739      3,618
 Westland, MI
                               ---     ---      ---    ---     ---       -------     -------     -------     -------    -------

Totals(9) 12                    96%     97%      97%    99%     96%      $ 8,156     $ 7,926     $ 7,936     $ 7,443    $ 7,259
                               ===     ===      ===    ===     ===       =======     =======     =======     =======    =======
</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, 2003.
(3)  The Section 8 HAP contract  expiration  date reflects an extension from the
     original expiration date, in accordance with Federal legislation.
(4)  Entered  Mark-up-to-Market program in September 2000, for a five year term,
     subject to the annual availability of funding by Congress.
(5)  The Section 8 contract for 24 apartment  units was not renewed by the Local
     Partnership at its expiration on June 30, 2002.
(6)  It is anticipated that the Local  Partnership will extend its Section 8 HAP
     contract for a one-year period at its expiration.
(7)  Entered  Mark-up-to-Market  program in November 2003, for a five year term,
     subject to the annual  availability  of funding by Congress.  The Section 8
     HAP contract will be renewed annually. (8) Expiration of CHFA subsidy.
(9)  The totals for the percentage of units  occupied and the average  effective
     annual rental per unit are based on a simple average.


                                       I-4

<PAGE>
                                     PART I
                                     ------

ITEM 1. BUSINESS - Continue
        --------

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

     On January 1, 2003,  the  Partnership  sold its remaining  limited  partner
interest  in  Princeton  to the  purchase  money  noteholder.  See the  notes to
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
        ---------------------------------------------------

     On February 4, 2004, the  Partnership  filed a Definitive  Proxy  Statement
pursuant to Section 14(a) of the Securities  Exchange Act of 1934, and mailed it
to limited partners to solicit consents for approval of the following:

     (1)  the sale of all of the Partnership's assets and the dissolution of the
          Partnership pursuant to a Plan of Liquidation and Dissolution;

     (2)  the amendment of the Partnership's  Limited  Partnership  Agreement to
          permit the Managing  General  Partner,  CRI, to be eligible to receive
          property  disposition  fees from the  Partnership on the same basis as
          such fees may currently be paid to Local General Partners, real estate
          brokers  or  other  third  party   intermediaries   employed  to  sell
          Partnership  properties,  to the extent that CRI markets and sells the
          Partnership's  properties  instead  of such  persons  (a  "Disposition
          Fee");

     (3)  the amendment of the Partnership's  Limited  Partnership  Agreement to
          permit CRI to be eligible to receive a partnership  liquidation fee in
          the amount of $500,000,  payable only if the Managing  General Partner
          is  successful in  liquidating  all of the  Partnership's  investments
          within  36  months  from the  date the  liquidation  is  approved,  in
          recognition   that  one  or  more  of  the  properties  in  which  the
          Partnership  holds an  interest  might not be  saleable to parties not
          affiliated  with the respective  Local  Partnership  due to the amount
          and/or  terms  of  their  current   indebtedness   (the   "Partnership
          Liquidation Fee"); and

     (4)  to authorize the Managing General Partner, in its sole discretion,  to
          elect to extend the period during which  Consents of Limited  Partners
          may be  solicited  and voted,  but not beyond sixty (60) days from the
          date that the Consent  Solicitation  Statement was sent to the Limited
          Partners.

     The matters for which consent was solicited are collectively referred to as
the "Liquidation."

                                       I-5

<PAGE>
                                     PART I
                                     ------

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

     The record date for voting was  December  31,  2003,  and the final  voting
deadline  was March 22,  2004.  A  tabulation  of votes  received  by the voting
deadline follows.

<TABLE>
<CAPTION>
                                             FOR                  AGAINST                ABSTAIN                 TOTAL
                                      -----------------      -----------------      ------------------      -----------------
                                      Units of               Units of               Units of                Units of
                                      limited                limited                limited                 limited
                                      partner                partner                partner                 partner
         Description                  interest   Percent     interest   Percent     interest    Percent     Interest    Percent
         -----------                  --------   -------     --------   -------     --------    -------     --------    -------
         <S>                          <C>        <C>         <C>        <C>         <C>         <C>         <C>         <C>
         Sale, dissolution and
           five percent
           Disposition Fee             28,699     57.5%       1,264       2.5%         268        0.5%       30,231      60.6%

         $500,000 Partnership
           Liquidation Fee             25,842     51.8%       3,546       7.1%         844        1.7%       30,231      60.6%

         Extension of
           solicitation period         27,975     56.1%       1,767       3.5%         489        1.0%       30,231      60.6%

</TABLE>

     There can be no assurance that the Liquidation  will be completed  pursuant
to the Plan of Liquidation and Dissolution.

                                       I-6

<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 January 23, 2004,  Equity  Resource Fund XXII (Equity)  initiated a
          registered  tender  offer to purchase  up to 5,000 of the  outstanding
          Units in the  Partnership at a price of $175 per Unit;  the offer,  as
          extended,  expired  March 23, 2004.  Equity is  unaffiliated  with the
          Partnership  or the Managing  General  Partner.  The price offered was
          determined solely at the discretion of Equity and does not necessarily
          represent the fair market value of each Unit.

          On May 10, 2002,  Equity Resource  Lexington Fund Limited  Partnership
          (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  price
          offered was determined  solely at the discretion of Lexington and does
          not necessarily represent the fair market value of each Unit.

          In response to the registered  tender offers, on February 4, 2004, 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 offers  because  it viewed  the offer  prices as
          inadequate.

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

          On January 26,  2004,  Peachtree  Partners  (Peachtree)  initiated  an
          unregistered  tender  offer to  purchase up to 4.9%  (including  1,525
          Units or 3.1% already owned by affiliates) of the outstanding Units in
          the  Partnership  at a price of $175 per Unit less a  transfer  fee of
          $100 per  investor;  the offer will expire on March 23, 2004. 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 expired April 18, 2003. 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 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.  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.

          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,  and  in  its
          Definitive Proxy Statement,  dated February 4, 2004,  recommended that
          Limited Partners reject the latest  unregistered  tender offer because
          it viewed the offer price as inadequate.

     (b)  As of March  24,  2004,  there  were  approximately  3,100  registered
          holders of Units in the Partnership.

                                      II-1

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

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


     (c)  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 indicated 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.  On November 12,
          2003, the Partnership made a cash  distribution of $1,347,570 ($27 per
          Unit) to Limited Partners who were holders of record as of November 1,
          2003,  and a cash  distribution  of $41,677 to General  Partners.  The
          distributions were from 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  is  based  on  the  financial   statements,   and  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.

                          Critical Accounting Policies
                          ----------------------------

     The  Partnership has disclosed its selection and application of significant
accounting  policies in Note 1 of the notes to financial  statements included in
this annual report on Form 10-KSB at December 31, 2003. The Partnership accounts
for its investments in partnerships (Local Partnerships) using the equity method
because the Partnership is a limited partner in the Local Partnerships.  As such
the  Partnership has no control over the selection and application of accounting
policies, or the use of estimates, by the Local Partnerships.  Environmental and
operational  trends,  events and uncertainties  that might affect the properties
owned by the Local  Partnerships would not necessarily have a significant impact
on the Partnership's  application of the equity method of accounting,  since the
equity  method  has been  suspended  for nine  Local  Partnerships  in which the
Partnership's investment balances have been reduced to zero.

                          New Accounting Pronouncement
                          ----------------------------

     In December  2003,  the Financial  Accounting  Standards  Board issued FASB
Interpretation  No. 46  (revised  December  2003) (FIN 46-R),  Consolidation  of
Variable  Interest  Entities.  FIN 46-R 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-R  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. The Partnership
must apply the  provisions  of FIN 46-R to all  entities  subject to FIN 46-R no
later than the end of the first  reporting  period that ends after  December 15,
2004 (as of December  31,  2004,  for the  Partnership).  The  Managing  General
Partner is in the process of  determining  what impact,  if any, the adoption of
the provisions of FIN 46-R will have on the  Partnership's  financial  condition
and results of operations  related to the  Partnership's  investments in limited
partnerships (Local Partnerships).

                                     General
                                     -------

     The  Partnership  has invested,  through Local  Partnerships,  primarily in
federal  or  state  government-assisted  apartment  complexes  (the  properties)
intended to provide housing to low and moderate  income tenants.  In conjunction
with such governmental assistance, which includes federal and/or state financing
at  below-market  interest  rates and  rental  subsidies,  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.

                                      II-3

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

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

     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 received  consent from a majority of the
units of limited partner interest for the liquidation of the  Partnership.  (See
Part I,  Item  4.)  There  can be no  assurance  that  the  Liquidation  will be
completed  pursuant to the Plan of Liquidation  and  Dissolution.  The following
paragraphs discuss the operations of the Partnership and the properties in which
it is invested during this period of liquidation.

     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.

     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.

                                      II-4

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

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

     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 HAP
contract rents into 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 rental revenues.

     There were no major changes in federal housing policy in 2003.

     Second Blackburn Limited Partnership (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.  Four Winds West Company Ltd.
(Four Winds) has a Section 8 HAP contract  covering 100% of its apartment  units
which expires in October 2004. Four Winds  anticipates a one-year renewal of its
Section 8 HAP contract at expiration.  Mercy Terrace  Associates (Mercy Terrace)
had a Section 8 HAP contract  covering 100% of its apartment units which expired
in November 2003. The Local Managing  General Partner entered Mercy Terrace into
the  Mark-up-to-Market  program at that time.  With the renewal of the Section 8
HAP contract under the Mark-up-to-Market program the limitation on the amount of
allowable  distributions  will be lifted.  However,  due to a significant ground
lease and a purchase  money note on the property,  it is unlikely that the Local
Partnership  (and therefore the  Partnership)  will receive  increased cash flow
from surplus cash distributions. As of December 31, 2003, the carrying amount of
the Partnership's investments in and advances to Local Partnerships with Section
8 HAP contracts expiring in 2004 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 the benefits to investors.

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

     As of December 31, 2003, the Partnership had approximately  3,100 investors
who held a total of 49,910 units of additional  limited  partner  interest which
were  originally sold for the aggregate  amount of $49,910,000.  The Partnership
originally  made  investments  in 22 Local  Partnerships,  of which 12 remain at
December 31, 2003. The Partnership's liquidity, with unrestricted cash resources
of  $2,979,778  as of December  31,  2003,  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 24, 2004,  there
were no material commitments for capital expenditures.

                                      II-5

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

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


     During  2003 and 2002,  the  Partnership  received  cash  distributions  of
$1,200,394 and $1,148,056, respectively, from the Local Partnerships.

     The  Partnership's  obligation  with  respect to its  investments  in Local
Partnerships,  in the form of a  non-recourse  purchase money note which matured
September 1, 2003,  and having a principal  balance of  $1,400,000  plus accrued
interest of  $2,626,262  as of December  31,  2003,  is 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  purchase  money note,  which is  nonrecourse  to the  Partnership,  is
secured by the Partnership's  interest in the Westgate Local Partnership,  which
owns  Westgate  Tower  Apartments  (Westgate).  There is no  assurance  that the
underlying  property will have sufficient  appreciation and equity to enable the
Partnership to pay the purchase money note's principal and accrued interest when
due.  If a purchase  money note is not paid in  accordance  with its terms,  the
Partnership  will  either have to  renegotiate  the terms of  repayment  or risk
losing its partnership  interest in the Local  Partnership.  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 Local Partnership.

     The  Partnership's  inability  to pay  the  Westgate  purchase  money  note
principal and accrued interest  balance when due, and the resulting  uncertainty
regarding  the  Partnership's   continued   ownership   interest  in  the  Local
Partnership,  does not adversely impact the  Partnership's  financial  condition
because  the  purchase  money  note is  nonrecourse  and  secured  solely by the
Partnership's interest in the Westgate Local Partnership.  Therefore, should the
investment in the Westgate Local  Partnership  not produce  sufficient  value to
satisfy the related purchase money note, the  Partnership's  exposure to loss is
limited  because  the  amount of the  nonrecourse  indebtedness  of the  matured
purchase  money  note  exceeds  the  carrying  amount of the  investment  in the
Westgate  Local  Partnership.  Thus,  even a complete loss of the  Partnership's
interest in the Westgate  Local  Partnership  would not have a material  adverse
impact  on the  financial  condition  of the  Partnership.  In  the  event  of a
foreclosure or other transfer of the Partnership's  interest,  the excess of the
nonrecourse   indebtedness   over  the  carrying  amount  of  the  Partnership's
investment in the Westgate Local Partnership will result in a taxable gain. This
gain will be taxable to Limited  Partners  at a federal tax rate of up to 25.0%,
as it will reflect recapture of depreciation  deductions claimed in prior years.
Additionally,  in the event of a  foreclosure,  the  Partnership  would lose its
investment in the Westgate Local  Partnership  and,  likewise,  its share of any
future cash flow  distributed  by the  Westgate  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
obligation 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 Managing  General Partner has received  consent from a majority of Unit
Holders  for the  liquidation  of the  Partnership.  (See Part I, Item 4.) It is
anticipated that the Partnership's obligation, discussed above, would be retired
in  conjunction  with  such  Liquidation.  There  can be no  assurance  that the
Liquidation  will  be  completed   pursuant  to  the  Plan  of  Liquidation  and
Dissolution.

                                      II-6

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

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

     The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient  cash is available for operating  requirements.
For the year ended December 31, 2003, net cash provided by investing  activities
and existing cash  resources were adequate to support net cash used in operating
and financing  activities.  Cash and cash equivalents  decreased $440,771 during
2003, primarily as a result of distributions to General and Limited Partners and
cash  used in  operating  activities.  The  primary  uses  of cash in  operating
activities were to pay general and administrative  expenses,  and management and
professional  fees.  For the year  ended  December  31,  2003,  $599,652  of the
distributions  received were from Local Partnerships for which the Partnership's
carrying  value was zero at December 31, 2003  (equity  method  suspended).  The
Partnership  expects to receive a similar or lower amount of distributions  from
these  Local  Partnerships  in  future  years as more  Section  8 HAP  contracts
approach  expiration,  should the related  properties  enter the  Mark-to-Market
program, with the resulting reduction in rental revenue.

     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 indicated 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.  On November 12, 2003, the  Partnership
made a cash  distribution of $1,347,570  ($27 per Unit) to Limited  Partners who
were  holders of record as of  November  1,  2003,  and a cash  distribution  of
$41,677  to  General  Partners.  The  distributions  were  from  cash  resources
accumulated  from  operations and  distributions  from Local  Partnerships.  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 its Plan of Liquidation and
Dissolution, and for operating cash reserves.

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

2003 Versus 2002
----------------

     The  Partnership's  net  income  for the  year  ended  December  31,  2003,
decreased  from 2002,  primarily due to gain on  disposition  of  investments in
partnerships  during 2002, a decrease in share of income from  partnerships,  an
increase in professional  fees, a decrease in interest  revenue due to declining
interest rates, and an increase in general and  administrative  expenses related
to higher  reimbursed  payroll costs.  Partially  offsetting the decrease in net
income  were a decrease in interest  expense  due to lower  purchase  money note
balances,  an  increase  in gain  from  extinguishment  of debt,  and a  nominal
decrease in amortization of deferred costs. The decrease in share of income from
partnerships was the net result of: (i) decreases in cash distributions recorded
as income  from five Local  Partnerships  for which the  Partnership's  carrying
value is zero (equity method  suspended);  (ii) an impairment loss recognized in
2003, which reduced the Partnership's  net capitalized  acquisition fees and net
property purchase costs in five Local  Partnerships to zero; and (iii) increases
in rental revenue due to higher rental rates,  partially  offset by increases in
operating expenses at the properties related to three Local Partnerships.

                                      II-7

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

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

     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, 2003 and 2002, did not include losses of $1,328,524 and $1,402,846,
respectively.  Distributions  of $343,586 and $456,888,  received from seven and
eight Local Partnerships during 2003 and 2002,  respectively,  and for which the
Partnership's carrying value is zero (equity method suspended), were recorded as
increases in the  Partnership's  share of income from  partnerships  in the year
received.

                                    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 12 properties
for the five years ended  December 31, 2003,  follow.  Combined  rental  revenue
amounts have been adjusted to reflect  property sales and interests  transferred
in 2003 and in prior years.

<TABLE>
<CAPTION>

                                                       For the years ended December 31,
                           --------------------------------------------------------------------------------------------------
                              2003                2002                  2001                   2000                  1999
                           -----------         -----------           -----------            -----------           -----------
<S>                        <C>                 <C>                   <C>                    <C>                   <C>
Combined Rental
  Revenue                  $15,909,834         $15,608,994           $15,823,369            $14,583,442           $14,193,120

Annual Percentage
  Increase (decrease)                    1.9%                 (1.4%)                8.5%                  2.8%

</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, 67, 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,  57, 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.

     (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  this  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 by 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 24, 2004.

                                                                 % of Total
             Name and Address          Amount and Nature         Units Issued
            of Beneficial Owner     of Beneficial Ownership     and Outstanding
          -----------------------   -----------------------     ---------------

          Equity Resource Group,          9,328 Units                18.7%
            Incorporated, et. al.
            44 Brattle Street
            Cambridge, MA 02138

     (b)  Security ownership of management.

          The following  table sets forth  certain  information  concerning  all
          Units  beneficially  owned, as of March 24, 2004, by each director and
          by all  directors  and  officers  as a group of the  Managing  General
          Partner of the Partnership.

                                                                   % of Total
              Name of                    Amount and Nature        Units Issued
          Beneficial Owner            of Beneficial Ownership    and Outstanding
          ----------------            -----------------------    ---------------

          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.  2 - Plan of  acquisition,  reorganization,  arrangement,
          liquidation, or succession.

          a.   Definitive  Proxy   Statement.   (Incorporated  by  reference  to
               Registrant's Definitive Proxy Statement dated February 4, 2004.)

          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. CONTROLS AND PROCEDURES - 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.  31.1 -  Certification  of  Principal  Executive  Officer,
          pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302
          of the Sarbanes-Oxley Act of 2002.

          Exhibit No.  31.2 -  Certification  of  Principal  Financial  Officer,
          pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302
          of the Sarbanes-Oxley Act of 2002.

          Exhibit No. 32 -  Certification  of  Principal  Executive  Officer and
          Principal  Financial Officer,  pursuant to 18 U.S.C.  Section 1350, as
          adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

          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.

     (b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the quarter ended
December 31, 2003.


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

     In February 2004,  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-15 and 15d-15.  The  Managing  General  Partner does not
expect that the  Partnership's  disclosure  controls and procedures will prevent
all error and all fraud.  A control  system,  no matter how well  conceived  and
operated,  can provide only  reasonable  assurance  that the  objectives  of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource  constraints,  and the benefits of controls must be
considered relative to their costs.  Because of the inherent  limitations in all
control systems,  no evaluation of controls can provide absolute  assurance that
all control issues have been detected.  These inherent  limitations  include the
realities that judgments in  decision-making  can be faulty, and that breakdowns
can occur  because  of simple  error or  mistake.  The  design of any  system of
controls also is based in part upon certain  assumptions about the likelihood of
future  events,  and there can be no  assurance  that any design will succeed in
achieving its stated goals under all  potential  future  conditions.  Over time,
controls may become inadequate  because of changes in conditions,  or the degree
of compliance  with the policies or procedures may  deteriorate.  Because of the
inherent  limitations in a cost-effective  control system,  misstatements due to
error or fraud  may  occur  and not be  detected.  Based  on the  February  2004
evaluation,  and subject to the foregoing,  the Principal  Executive Officer and
Principal Financial Officer concluded that the Partnership's disclosure controls
and  procedures are effective as of the end of the period covered by this report
to alert them in a timely  manner to any  material  information  relating to the
Partnership that must be included in the Partnership's periodic SEC filings, and
particularly  during  the  period in which  this  report is being  prepared.  In
addition,  there have been no significant changes in the Partnership's  internal
control over financial  reporting that occurred  during the  Partnership's  most
recent fiscal quarter that has materially  affected,  or is reasonably likely to
materially affect, the Partnership's internal control over financial reporting.

                                      III-4

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

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES
         --------------------------------------

     During the years ended December 31, 2003 and 2002, the Partnership retained
Grant Thornton LLP to provide services as follows.

                                             Year Ended December 31,
                                          -----------------------------
                                           2003                  2002
                                          -------               -------

         Audit fees                       $70,200               $71,000
         Audit-related fees                    --                    --
         Tax fees (1)                      19,000                17,000
         All other fees                        --                    --
                                          -------               -------

             Total billed                 $89,200               $88,000
                                          =======               =======

     (1)  Preparation of Partnership federal and state tax returns.


     The Partnership has no directors or officers. The Board of Directors of the
Managing General Partner of the Partnership, serving as the audit committee, has
approved in advance  100% of the fees paid to, and  services  provided by, Grant
Thornton LLP. Prior to approving  Grant  Thornton LLP's  providing any non-audit
services,  the  Board  of  Directors  of the  Managing  General  Partner  of the
Partnership   would  assess  whether  the  provision  of  those  services  would
compromise Grant Thornton LLP's independence.  No such services were provided by
Grant Thornton LLP during the years ended December 31, 2003 and 2002.




                                      III-5

<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 24, 2004                         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 24, 2004                         by:  /s/ H. William Willoughby
--------------                              ------------------------------------
DATE                                         H. William Willoughby,
                                               Director, President,
                                               and Secretary



March 24, 2004                         by:  /s/ Michael J. Tuszka
--------------                              ------------------------------------
DATE                                        Michael J. Tuszka,
                                              Vice President
                                              and Chief Accounting Officer
                                              (Principal Financial Officer
                                              and Principal Accounting Officer)

                                      III-6

<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, 2003 and 2002, and the related statements of operations, changes in
partners'  (deficit)  capital  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  $839,415  and  $742,707  of income in 2003 and 2002,  respectively,
included in the Partnership's 2003 and 2002 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  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial statement presentation.  We believe that our audits and the reports of
other auditors 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, 2003 and 2002, and the results of its operations,
changes in partners'  (deficit)  capital,  and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.

     As described in Note 1 to the financial  statements,  the  Partnership  has
received limited partner approval of the  Partnership's  plan to sell all of the
Partnership's  assets  and  dissolve  the  Partnership  pursuant  to a  Plan  of
Liquidation and Dissolution. There can be no assurance that the Liquidation will
be completed pursuant to the Plan of Liquidation and Dissolution.


                                                             Grant Thornton LLP


Vienna, Virginia
March 18, 2004

                                      III-7

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                                 BALANCE SHEETS


                                     ASSETS

<TABLE>
<CAPTION>
                                                                                                   December 31,
                                                                                           ----------------------------
                                                                                               2003            2002
                                                                                           ------------    ------------
<S>                                                                                        <C>             <S>
Investments in and advances to partnerships ............................................   $    854,495    $  1,360,493
Investment in partnerships held for sale or transfer ...................................        508,229           7,577
Cash and cash equivalents ..............................................................      2,979,778       3,420,489
Acquisition fees, principally paid to related parties,
  net of accumulated amortization of $121,219 and $232,563, respectively ...............         57,667         132,628
Property purchase costs,
  net of accumulated amortization of $161,573 and $244,318, respectively ...............         82,098         146,200
Other assets ...........................................................................             40         335,845
                                                                                           ------------    ------------

   Total assets ........................................................................   $  4,482,307    $  5,403,232
                                                                                           ============    ============




                   LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)



Due on investments in partnerships .....................................................   $  1,400,000    $  1,900,000
Accrued interest payable ...............................................................      2,626,262       2,677,938
Accounts payable and accrued expenses ..................................................        145,687         113,301
                                                                                           ------------    ------------

   Total liabilities ...................................................................      4,171,949       4,691,239
                                                                                           ------------    ------------

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 ..............................................    (15,293,973)    (13,904,726)
    Offering costs .....................................................................     (5,278,980)     (5,278,980)
    Accumulated losses .................................................................    (29,133,689)    (30,121,301)
                                                                                           ------------    ------------

      Total partners' capital (deficit) ................................................        310,358         711,993
                                                                                           ------------    ------------

      Total liabilities and partners' capital (deficit) ................................   $  4,482,307    $  5,403,232
                                                                                           ============    ============
</TABLE>

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

                                      III-8

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                          For the years ended
                                                                               December 31,
                                                                       --------------------------
                                                                           2003          2002
                                                                       -----------    -----------
<S>                                                                    <C>            <C>
Share of income from partnerships ..................................   $ 1,089,155    $ 1,199,596
                                                                       -----------    -----------

Other revenue and expenses:

  Revenue:
    Interest .......................................................        27,578         49,888
    Gain from extinguishment of debt ...............................       670,099        599,123
                                                                       -----------    -----------

                                                                           697,677        649,011
                                                                       -----------    -----------

  Expenses:
    Interest .......................................................       126,000        231,741
    General and administrative .....................................       276,857        264,770
    Management fee .................................................       249,996        249,996
    Professional fees ..............................................       121,817         87,794
    Amortization of deferred costs .................................        24,550         26,600
                                                                       -----------    -----------

                                                                           799,220        860,901
                                                                       -----------    -----------

      Total other revenue and expenses .............................      (101,543)      (211,890)
                                                                       -----------    -----------

Income before gain on disposition of investment in partnership .....       987,612        987,706

Gain on disposition of investment in partnership ...................            --      2,942,190
                                                                       -----------    -----------

Net income .........................................................   $   987,612    $ 3,929,896
                                                                       ===========    ===========


Net income allocated to General Partners (1.51%) ...................   $    14,913    $    59,341
                                                                       ===========    ===========

Net income allocated to Initial and Special Limited Partners (1.49%)   $    14,715    $    58,556
                                                                       ===========    ===========

Net income allocated to Additional Limited Partners (97%) ..........   $   957,984    $ 3,811,999
                                                                       ===========    ===========

Net income per unit of Additional Limited Partner Interest,
  based on 49,910 units outstanding ................................   $     19.19    $     76.38
                                                                       ===========    ===========

</TABLE>

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

                                      III-9

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

              STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL


<TABLE>
<CAPTION>
                                                                              Initial and
                                                                                Special         Additional
                                                              General           Limited          Limited
                                                              Partners          Partners         Partners             Total
                                                             ----------       -----------      ------------        ------------
<S>                                                          <C>              <C>              <C>                 <C>
Partners' (deficit) capital, January 1, 2002                 $(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

  Net income                                                    14,913            14,715           957,984             987,612

  Distribution of $27.00 per unit
    of Additional Limited Partner Interest                          --                --        (1,347,570)         (1,347,570)

  Distribution to General Partners                             (41,677)               --                --             (41,677)
                                                             ---------         ---------       -----------         -----------

Partners' (deficit) capital, December 31, 2003               $(619,344)        $(556,436)      $ 1,486,138         $   310,358
                                                             =========         =========       ===========         ===========
</TABLE>

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

                                     III-10

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                     For the years ended
                                                                                         December 31,
                                                                                  --------------------------
                                                                                     2003           2002
                                                                                  -----------    -----------
<S>                                                                               <C>            <C>
Cash flows from operating activities:
  Net income ..................................................................   $   987,612    $ 3,929,896

  Adjustments to reconcile net income to net cash used in operating activities:
    Share of income from partnerships .........................................    (1,089,155)    (1,199,596)
    Amortization of deferred costs ............................................        24,550         26,600
    Gain on disposition of investment in partnership ..........................            --     (2,942,190)
    Gain from extinguishment of debt ..........................................      (670,099)      (599,123)

    Changes in assets and liabilities:
      Decrease (increase) in other assets .....................................       335,805       (335,737)
      Increase in accrued interest payable ....................................       126,000        231,741
      Increase in accounts payable and accrued expenses .......................        32,386         34,733
                                                                                  -----------    -----------

        Net cash used in operating activities .................................      (252,901)      (853,676)
                                                                                  -----------    -----------


Cash flows from investing activities:
  Receipt of distributions from partnerships ..................................     1,200,394      1,148,056
  Proceeds from disposition of investment in partnership, net .................            --      2,973,914
  Additional sales proceeds ...................................................         1,043             --
                                                                                  -----------    -----------

        Net cash provided by investing activities .............................     1,201,437      4,121,970
                                                                                  -----------    -----------


Cash flows from financing activities:
  Distributions to General Partners and Initial and Special Limited Partners ..       (41,677)      (245,847)
  Distributions to Additional Limited Partners ................................    (1,347,570)    (2,844,870)
                                                                                  -----------    -----------

        Net cash used in financing activities .................................    (1,389,247)    (3,090,717)
                                                                                  -----------    -----------


Net (decrease) increase in cash and cash equivalents ..........................      (440,711)       177,577

Cash and cash equivalents, beginning of year ..................................     3,420,489      3,242,912
                                                                                  -----------    -----------

Cash and cash equivalents, end of year ........................................   $ 2,979,778    $ 3,420,489
                                                                                  ===========    ===========

</TABLE>

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

                                     III-11

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a.   Organization
          ------------

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

          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  had  been  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 II
     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.  As of  December  31,  2003,  90  units  of
     additional limited partner interest had been abandoned.

     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, 2003 and 2002, 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 $20,239,849 and
     $21,819,435,  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. Distributions of $343,586 and $456,888, received from seven and
     eight Local Partnerships during 2003 and 2002, respectively,  and for which
     the Partnership's  carrying value is zero (equity method  suspended),  were
     recorded  as   increases  in  the   Partnership's   share  of  income  from
     partnerships in the year received.


                                     III-12

<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
          ---------------------------------------------------

          Due to the possible transfer of the Partnership's interest in Westgate
     Tower Limited Dividend Housing Associates (Westgate),  as further discussed
     in Note 2.a., the Partnership's  investment in Westgate was reclassified to
     investment in  partnerships  held for sale or transfer in the  accompanying
     balance  sheet at December 31, 2003.  On January 1, 2003,  the  Partnership
     sold its remaining limited partner interest in Princeton  Community Village
     Associates (Princeton), as further discussed in Note 2.a. The Partnership's
     investment in Princeton was reclassified to investment in partnerships held
     for sale or  transfer in the  accompanying  balance  sheet at December  31,
     2002.  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 units of additional  limited  partner  interest.  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, 2003,  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 the purchase
     money  note),  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-13

<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  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 purchase money notes.

     j.   New accounting pronouncement
          ----------------------------

          In December 2003, the Financial Accounting Standards Board issued FASB
     Interpretation No. 46 (revised December 2003) (FIN 46-R),  Consolidation of
     Variable  Interest   Entities.   FIN  46-R  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-R 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. The Partnership must apply the
     provisions  of FIN 46-R to all  entities  subject to FIN 46-R no later than
     the end of the first reporting period that ends after December 15, 2004 (as
     of December 31, 2004, for the Partnership) to variable interest entities or
     potential  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-R will have upon the  Partnership's
     financial  condition and results of operations related to the Partnership's
     investments in limited partnerships (Local Partnerships),  and has complied
     with the disclosure requirements of FIN 46-R in these financial statements.
     As of December 31, 2003, the Partnership's maximum loss exposure related to
     its  investments  in  partnerships  is limited to the remaining  balance of
     $1,362,724.

     k.   Definitive Proxy Statement
          --------------------------

          On  February  4,  2004,  the  Partnership  filed  a  Definitive  Proxy
     Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934,
     and mailed it to limited  partners to solicit  consents for approval of the
     following:

     (1)  The sale of all of the Partnership's assets and the dissolution of the
          Partnership pursuant to a Plan of Liquidation and Dissolution;

     (2)  The amendment of the Partnership's  Limited  Partnership  Agreement to
          permit the Managing  General  Partner,  CRI, to be eligible to receive
          property  disposition  fees from the  Partnership on the same basis as
          such fees may currently be paid to Local General Partners, real estate
          brokers  or  other  third  party   intermediaries   employed  to  sell
          Partnership  properties,  to the extent that CRI markets and sells the
          Partnership's  properties  instead  of such  persons  (a  "Disposition
          Fee");

                                     III-14

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     (3)  The amendment of the Partnership's  Limited  Partnership  Agreement to
          permit CRI to be eligible to receive a partnership  liquidation fee in
          the amount of $500,000,  payable only if the Managing  General Partner
          is  successful in  liquidating  all of the  Partnership's  investments
          within  36  months  from the  date the  liquidation  is  approved,  in
          recognition   that  one  or  more  of  the  properties  in  which  the
          Partnership  holds an  interest  might not be  saleable to parties not
          affiliated  with the respective  Local  Partnership  due to the amount
          and/or  terms  of  their  current   indebtedness   (the   "Partnership
          Liquidation Fee"); and

     (4)  To authorize the Managing General Partner, in its sole discretion,  to
          elect to extend the period during which  Consents of Limited  Partners
          may be  solicited  and voted,  but not beyond sixty (60) days from the
          date that the Consent  Solicitation  Statement was sent to the Limited
          Partners.

          The matters for which consent was solicited are collectively  referred
     to as the "Liquidation."

          The record date for voting was December 31, 2003, and the final voting
     deadline was March 22, 2004. A tabulation  of votes  received by the voting
     deadline follows.

<TABLE>
<CAPTION>
                                             FOR                  AGAINST                ABSTAIN                 TOTAL
                                      -----------------      -----------------      ------------------      -----------------
                                      Units of               Units of               Units of                Units of
                                      limited                limited                limited                 limited
                                      partner                partner                partner                 partner
         Description                  interest   Percent     interest   Percent     interest    Percent     Interest    Percent
         -----------                  --------   -------     --------   -------     --------    -------     --------    -------
         <S>                          <C>        <C>         <C>        <C>         <C>         <C>         <C>         <C>
         Sale, dissolution and
           five percent
           Disposition Fee             28,699     57.5%       1,264       2.5%         268        0.5%       30,231      60.6%

         $500,000 Partnership
           Liquidation Fee             25,842     51.8%       3,546       7.1%         844        1.7%       30,231      60.6%

         Extension of
           solicitation period         27,975     56.1%       1,767       3.5%         489        1.0%       30,231      60.6%

</TABLE>

          There  can be no  assurance  that the  Liquidation  will be  completed
     pursuant to the Plan of Liquidation and Dissolution.


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

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

          As of December 31, 2003 and 2002, the Partnership held limited partner
     interests  in 12  and  13  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.

                                     III-15

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued


                                                        December 31,
                                                ----------------------------
                                                   2003              2002
                                                ----------        ----------

          Purchase money notes due in 2003      $1,400,000        $1,900,000

          Accrued interest payable               2,626,262         2,677,938
                                                ----------        ----------

                Total                           $4,026,262        $4,577,938
                                                ==========        ==========


          The remaining  purchase  money note,  which matured  September 1, 2003
     (see below),  has a stated  interest rate of 9%. The purchase money note is
     nonrecourse,  but its terms  provide for payment 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 purchase money note, which is nonrecourse to the  Partnership,  is
     secured by the  Partnership's  interest in the Westgate Local  Partnership,
     which owns Westgate Tower Apartments (Westgate). There is no assurance that
     the underlying  property will have  sufficient  appreciation  and equity to
     enable the  Partnership  to pay the  purchase  money note's  principal  and
     accrued  interest  when  due.  If a  purchase  money  note  is not  paid in
     accordance with its terms,  the Partnership will either have to renegotiate
     the terms of repayment or risk losing its partnership interest in the Local
     Partnership.  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 Local Partnership.

          The  Partnership's  inability to pay the Westgate  purchase money note
     principal  and  accrued  interest  balance  when  due,  and  the  resulting
     uncertainty regarding the Partnership's continued ownership interest in the
     Local  Partnership,  does not adversely impact the Partnership's  financial
     condition because the purchase money note is nonrecourse and secured solely
     by the Partnership's interest in the Westgate Local Partnership. Therefore,
     should  the  investment  in the  Westgate  Local  Partnership  not  produce
     sufficient   value  to  satisfy  the  related   purchase  money  note,  the
     Partnership's  exposure  to loss  is  limited  because  the  amount  of the
     nonrecourse  indebtedness  of the matured  purchase  money note exceeds the
     carrying amount of the investment in the Westgate Local Partnership.  Thus,
     even a complete loss of the  Partnership's  interest in the Westgate  Local
     Partnership  would not have a  material  adverse  impact  on the  financial
     condition  of the  Partnership.  In the  event  of a  foreclosure  or other
     transfer  of the  Partnership's  interest,  the  excess of the  nonrecourse
     indebtedness  over the carrying amount of the  Partnership's  investment in
     the Westgate  Local  Partnership  will result in a taxable gain.  This gain
     will be taxable to Limited  Partners  at a federal tax rate of up to 25.0%,
     as it will reflect  recapture of depreciation  deductions  claimed in prior
     years. Additionally,  in the event of a foreclosure,  the Partnership would
     lose its investment in the Westgate Local  Partnership and,  likewise,  its
     share of any future cash flow distributed by the Westgate 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  obligation 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.

                                     III-16

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

          Interest  expense on the  Partnership's  purchase  money notes for the
     years  ended  December  31,  2003 and  2002,  was  $126,000  and  $231,741,
     respectively.  The accrued  interest payable on the purchase money notes of
     $2,626,262 and  $2,677,938 as of December 31, 2003 and 2002,  respectively,
     is due on the  respective  maturity  dates of the  purchase  money notes or
     earlier, in some instances, if (and to the extent of a portion thereof) the
     related Local  Partnership has  distributable  net cash flow, as defined in
     the relevant Local Partnership agreement.

                                    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 resulted
     in gain on  extinguishment  of debt of  $670,099  for  financial  statement
     purposes and a total gain of $362,168 for federal tax purposes in 2003.  On
     April 30, 2002, pursuant to the option agreement,  the noteholder purchased
     one-half of the  Partnership's  then-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 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 subsequent transfer of the Partnership's remaining interest
     in Princeton, the Partnership's basis in the Local Partnership,  along with
     net unamortized acquisition fees and property purchase costs, which totaled
     $7,577  as  of  December  31,  2002,  was  reclassified  to  investment  in
     partnerships held for sale or transfer in the accompanying balance sheet at
     that date.

                                     III-17

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

                                    Westgate
                                    --------

          The  Partnership  defaulted  on its  purchase  money  note  related to
     Westgate on September 1, 2003, when the note (as extended)  matured and was
     not paid. The default  amount  included  principal and accrued  interest of
     $1,400,000 and $2,584,492,  respectively.  As of March 24, 2004,  principal
     and accrued interest of $1,400,000 and $2,655,259,  respectively, were due.
     In September  2003,  the  Managing  General  Partner  offered to tender the
     Partnership's  interest in Westgate to the purchase money  noteholders,  in
     full satisfaction of the principal and accrued interest balances due on the
     purchase  money  note.  The trustee for the  noteholders  has  acknowledged
     receipt of the Managing  General  Partner's  offer,  but indicated  that it
     might  take  several   months  to  obtain  a  response  from  the  numerous
     noteholders.  There is no assurance  that the  noteholders  will accept the
     offer,  or what other  course of action  the  noteholders  might  choose to
     pursue.

          Due to the possible transfer of the Partnership's interest in Westgate
     to the noteholders, the Partnership's basis in the Local Partnership, along
     with the net  unamortized  acquisition  fees and property  purchase  costs,
     which totaled  $508,229 as of December 31, 2003, has been  reclassified  to
     investment in  partnerships  held for sale or transfer in the  accompanying
     balance sheet at that date.

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

          The Partnership has a 92.99% to 99.99% 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
     2003 and 2002,  the  Partnership  received cash  distributions  from rental
     operations  of  the  Local   Partnerships  of  $1,200,394  and  $1,148,056,
     respectively.  As of  December  31,  2003  and  2002,  nine  of  the  Local
     Partnerships  had aggregate  surplus  cash, as defined by their  respective
     regulatory   Agencies,   in  the  amounts  of  $1,304,064  and  $1,778,185,
     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.  In addition,  local  general  partners  have the
     authority to withhold funds if needed for property  repairs,  improvements,
     or other property needs.

          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.

                                     III-18

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     c.   Impairment analysis
          -------------------

          The Managing  General  Partner has  considered  impairment  of the net
     capitalized  acquisition fees and net property purchase costs. An aggregate
     impairment  loss of $94,889  was  recognized  on  December  31,  2003,  and
     included in share of income from partnerships on the accompanying statement
     of operations for the year ended December 31, 2003, as follows.

<TABLE>
<CAPTION>


         Local Partnership                                    Property                  Impairment Loss
         -----------------                           ----------------------        ----------------------
         <S>                                         <C>                           <C>

         Chowchilla Elderly Associates, Ltd.         Golden Acres                          $ 9,510
         Mercy Terrace Associates                    Mercy Terrace                          36,411
         Orangewood Plaza Limited Partnership        Orangewood Plaza                       11,360
         Posada Associates Limited Partnership       Posada Vallarta                        27,053
         Troy Apartments Ltd.                        Troy Manor                             10,555
                                                                                           -------

                                                                                           $94,889
                                                                                           =======
</TABLE>


     d.   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  renewal  period
     expired in June 2002,  the  Section 8 HAP  Contract  was not renewed by the
     Local Partnership.

                                    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 accordance  with the
     terms of the Partnership Agreement,  in September 2002 the Managing General
     Partner was paid a disposition fee of $128,000  related to the sale,  which
     was netted  against  the  related  gain on  disposition  of  investment  in
     partnership at December 31, 2002.

     e.   Summarized financial information
          --------------------------------

          Combined balance sheets and combined  statements of operations for the
     12 Local  Partnerships  in which the Partnership is invested as of December
     31, 2003, follow.  The information is presented  separately for three Local
     Partnerships  which have  investment  basis (equity  method),  and for nine
     Local  Partnerships  for which  the  Partnership's  carrying  value is zero
     (equity method suspended).

                                     III-19

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

<TABLE>
<CAPTION>

                                              COMBINED BALANCE SHEETS
                                                 December 31, 2003

                                                               Equity
                                                               Method          Suspended            Total
                                                            ------------      ------------       ------------
          <S>                                               <C>               <C>                <C>
          Number of Local Partnerships                           3                9                   12
                                                                 =                =                   ==

          Rental property, at cost, net of
            accumulated depreciation of
            $12,139,216, $41,805,129, and
            $53,944,345, respectively                       $  6,281,238      $ 22,899,727       $ 29,180,965
          Land                                                 1,236,015         2,808,822          4,044,837
          Other assets                                         2,387,694         6,445,883          8,833,577
                                                            ------------      ------------       ------------

              Total assets                                  $  9,904,947      $ 32,154,432       $ 42,059,379
                                                            ============      ============       ============


          Mortgage notes payable                            $ 11,308,683      $ 45,513,757       $ 56,822,440
          Other liabilities                                      629,325        12,453,329         13,082,654
          Due to general partners                                     --         4,441,014          4,441,014
                                                            ------------      ------------       ------------

              Total liabilities                               11,938,008        62,408,100         74,346,108

          Partners' deficit                                   (2,033,061)      (30,253,668)       (32,286,729)
                                                            ------------      ------------       ------------

              Total liabilities and partners'
                deficit                                     $  9,904,947      $ 32,154,432       $ 42,059,379
                                                            ============      ============       ============

</TABLE>


                                     III-20

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

<TABLE>
<CAPTION>
                                         COMBINED STATEMENTS OF OPERATIONS
                                       For the year ended December 31, 2003

                                                               Equity
                                                               Method          Suspended            Total
                                                            -----------       -----------        -----------
          <S>                                               <C>               <C>                <C>
          Number of Local Partnerships                           3                9                   12
                                                                 =                =                   ==

          Revenue:
            Rental                                          $ 4,382,362       $11,527,472        $15,909,834
            Other                                               149,104           339,291            488,395
                                                            -----------       -----------        -----------

              Total revenue                                   4,531,466        11,866,763         16,398,229
                                                            -----------       -----------        -----------

          Expenses:
            Operating                                         2,783,870         6,883,458          9,667,328
            Interest                                            529,363         4,101,218          4,630,581
            Depreciation and  amortization                      628,340         1,984,695          2,613,035
                                                            -----------       -----------        -----------

              Total expenses                                  3,941,573        12,969,371         16,910,944
                                                            -----------       -----------        -----------

          Net income (loss)                                 $   589,893       $(1,102,608)       $  (512,715)
                                                            ===========       ===========        ===========

          Cash distributions                                $   600,742       $   599,652        $ 1,200,394
                                                            ===========       ===========        ===========

          Cash distributions recorded as reduction
            of investments in partnerships                  $   600,742       $   256,066        $   856,808
                                                            ===========       ===========        ===========

          Cash distributions recorded as income             $        --       $   343,586        $   343,586

          Partnership's share of Local Partnership
            net income                                          587,629           251,786 (1)        839,415

          Impairment loss (See Note 2.c.)                            --           (94,889)           (94,889)

          Miscellaneous                                           1,043                --              1,043
                                                            -----------       -----------        -----------

          Share of income from partnerships                 $   588,672       $   500,483        $ 1,089,155
                                                            ===========       ===========        ===========
</TABLE>


          (1)  Represents Partnership's share of income from a Local Partnership
               for which the  Partnership's  carrying  value is zero,  but which
               does not have unallowable losses.


          Combined balance sheets and combined  statements of operations for the
     13 Local  Partnerships  in which the Partnership is invested as of December
     31, 2002,  follow.  The information is presented  separately for four Local
     Partnerships  which have  investment  basis (equity  method),  and for nine
     Local  Partnerships  for which  the  Partnership's  carrying  value is zero
     (equity method suspended).

                                     III-21

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

<TABLE>
<CAPTION>
                                              COMBINED BALANCE SHEETS
                                                 December 31, 2002

                                                               Equity
                                                               Method          Suspended            Total
                                                            ------------      ------------       ------------
         <S>                                                <C>               <C>                <C>
         Number of Local Partnerships                            4                9                   13
                                                                 =                =                   ==

         Rental property, at cost, net of
           accumulated depreciation of
           $15,407,371, $38,536,974, and
           $53,944,345, respectively                        $  8,134,296      $ 27,099,750       $ 35,234,046
         Land                                                  1,647,937         2,969,128          4,617,065
         Other assets                                          3,079,673         7,660,449         10,740,122
                                                            ------------      ------------       ------------

             Total assets                                   $ 12,861,906      $ 37,729,327       $ 50,591,233
                                                            ============      ============       ============


         Mortgage notes payable                             $ 15,884,313      $ 49,371,703       $ 65,256,016
         Other liabilities                                       635,295        13,681,129         14,316,424
         Due to general partners                                   7,500         4,450,399          4,457,899
                                                            ------------      ------------       ------------

             Total liabilities                                16,527,108        67,503,231         84,030,339

         Partners' deficit                                    (3,665,202)      (29,773,904)       (33,439,106)
                                                            ------------      ------------       ------------

             Total liabilities and partners' deficit        $ 12,861,906      $ 37,729,327       $ 50,591,233
                                                            ============      ============       ============
</TABLE>

<TABLE>
<CAPTION>

                                         COMBINED STATEMENTS OF OPERATIONS
                                       For the year ended December 31, 2002

                                                               Equity
                                                               Method          Suspended  (1)       Total
                                                            -----------       -----------        -----------
         <S>                                                <C>               <C>                <C>
         Number of Local Partnerships                            4                10                  14
                                                                 =                ==                  ==

         Revenue:
           Rental                                           $ 5,697,917       $12,966,935        $18,664,852
           Other                                                130,313           725,964            856,277
                                                            -----------       -----------        -----------

             Total revenue                                    5,828,230        13,692,899         19,521,129
                                                            -----------       -----------        -----------

         Expenses:
           Operating and other                                3,403,666         8,568,541         11,972,207
           Interest                                             864,781         4,057,628          4,922,409
           Depreciation and amortization                        800,553         2,480,316          3,280,869
                                                            -----------       -----------        -----------

             Total expenses                                   5,069,000        15,106,485         20,175,485
                                                            -----------       -----------        -----------

         Net income (loss)                                  $   759,230       $(1,413,586)       $  (654,356)
                                                            ===========       ===========        ===========

         Cash distributions                                 $   691,168       $   456,888        $ 1,148,056
                                                            ===========       ===========        ===========

         Cash distributions recorded as reduction
           of investments in partnerships                   $   691,168       $        --        $   691,168
                                                            ===========       ===========        ===========

         Cash distributions recorded as income              $        --       $   456,888        $   456,888

         Partnership's share of Local Partnership
           net income (loss)                                    755,657           (12,949)           742,708
                                                            -----------       -----------        -----------

         Share of income from partnerships                  $   755,657       $   443,939        $ 1,199,596
                                                            ===========       ===========        ===========
</TABLE>

                                     III-22

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

          (1)  Includes  information  for Rock Glen through the date of the sale
               of the property in September 2002.

          All of the cash distributions recorded as income are included in share
     of  income  from  partnerships  on the  statements  of  operations  for the
     respective  years,  and are  recorded as cash  receipts  on the  respective
     balance sheets.  Cash distributions  recorded as a reduction of the related
     investment are recorded as cash receipts on the respective  balance sheets,
     and  are  recorded  as a  reduction  of  investments  in  and  advances  to
     partnerships, also on the respective balance sheets.

     f.   Reconciliation of the Local Partnerships' financial statement net loss
          ----------------------------------------------------------------------
            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 examination and,  therefore,  possible adjustment by
     the IRS.

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

<TABLE>
<CAPTION>
                                                                                     For the years ended
                                                                                         December 31,
                                                                                 ----------------------------
                                                                                    2003              2002
                                                                                 ----------        ----------
          <S>                                                                    <C>               <C>
          Financial statement net loss                                           $ (512,715)       $ (654,356)

          Adjustments:
            Additional book depreciation,
              net of depreciation on construction period expenses
              capitalized for financial statement purposes                          980,906         2,394,151

            Amortization for financial statement purposes
              not deducted for income tax purposes                                    2,178             2,449

            Miscellaneous, net                                                      336,262           223,303
                                                                                 ----------        ----------

          Taxable income                                                         $  806,631        $1,965,547
                                                                                 ==========        ==========

</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.

                                     III-23

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


3.   RELATED PARTY TRANSACTIONS - Continued

     In accordance with the terms of the Partnership Agreement,  the Partnership
is obligated to reimburse the Managing  General  Partner for its direct expenses
in connection  with managing the  Partnership.  For the years ended December 31,
2003 and 2002, the Partnership paid $232,964 and $205,778,  respectively, to the
Managing General partner as direct  reimbursement of expenses incurred on behalf
of the Partnership. Such expenses are included in the accompanying statements of
operations as general and administrative expenses.

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

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

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

For each of the years ended December 31, 2003 and 2002, the Partnership paid the
Managing General Partner a Management Fee of $249,996.

     Prior to approval of the Partnership's  Consent  Solicitation  Statement on
March 22, 2004, the Managing General Partner and/or its affiliates were eligible
to  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 was subject to certain  restrictions,  including
the  achievement of a certain level of sales proceeds and making certain minimum
distributions  to  limited  partners.  In  accordance  with  the  terms  of  the
Partnership Agreement, in September 2002 the Managing General Partner was paid a
disposition fee of $128,000  related to the sale of Rock Glen,  which was netted
against the related gain on disposition of investment in partnership at December
31, 2002.  The  Liquidation  Plan provides for certain other fees in lieu of the
one discussed above, as explained in Note 4 below.


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%. Pursuant to the Consent Solicitation  Statement approved March
22, 2004, the net proceeds  resulting from the liquidation of the Partnership or
the Partnership's  share of the net proceeds from any sale or refinancing of the
Local  Partnerships or their rental properties which are not reinvested shall be
distributed and applied as follows:

                                     III-24

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


4.   PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS - Continued

     (i)  to the payment of debts and liabilities of the Partnership  (including
          all expenses of the  Partnership  incident to the sale or refinancing)
          other than loans or other debts and  liabilities of the Partnership to
          any partner or any affiliate; such debts and liabilities,  in the case
          of a  non-liquidating  distribution,  to be only those  which are then
          required  to be paid  or,  in the  judgment  of the  Managing  General
          Partner, required to be provided for;
     (ii) to the  establishment  of any  reserves  which  the  Managing  General
          Partner  deems  reasonably  necessary  for  contingent,  unmatured  or
          unforeseen  liabilities or obligations of the  Partnership  (including
          the Partnership Liquidation Fee);
     (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  Section   4.03(d)  of  the  Partnership
          Agreement;
     (iv) to the 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
          by (1) an amount equal to 50% of the losses for tax purposes allocated
          to such limited partner and (2) distributions of net cash flow to each
          limited  partner,  such  return,  losses for tax purposes and net cash
          flow  distributions  commencing on the first day of the month in which
          the capital contribution was made;
     (v)  to the repayment of any unrepaid loans theretofore made by any partner
          or any affiliate to the Partnership for Partnership obligations and to
          the  payment  of any  unpaid  amounts  owing to the  General  Partners
          pursuant to the Partnership Agreement;
     (vi) to the General Partners in the amount of their capital  contributions;
          (vii) thereafter, for services to the Partnership,  to General Partner
          Martin C. Schwartzberg (or his designee),  whether or not he is then a
          General Partner,  0.333% 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 fee was not paid to the  General
          Partner or his designee; 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).

     Notwithstanding  and in addition to the  foregoing,  the  Managing  General
Partner  may  receive a fee (not to exceed  5% of the sales  price of  Apartment
Complexes) from the Partnership or the Local  Partnership for services  provided
by the Managing  General  Partner and/or its  Affiliates in connection  with the
marketing and sale of Apartment Complexes. Such fee (a "Disposition Fee"), which
shall be payable pursuant to Section 4.02(a)(i),  shall only be payable upon the
sale of an  Apartment  Complex or a sale of the  Partnership's  interest  in the
Local  Partnership  (a sale in either of such  formats  is  referred  to in this
Section  4.02(a) as a "sale of an Apartment  Complex"),  and shall be subject to
the  following  restrictions:  (i) all property  disposition  fees and any other
commissions  payable upon the sale of any  Apartment  Complex,  inclusive of any
fees to the  General  Partners  and/or  their  Affiliates,  shall not exceed the
lesser of the competitive  rate paid to third parties for similar services or 6%
of the  sales  price of the  applicable  Apartment  Complex,  (ii) the  Managing
General  Partner  and/or its  Affiliates  must provide  substantial  services in
connection  with the  marketing  and sales effort (as  determined by the General
Partners),  and (iii) Dockser and Willoughby shall waive their respective shares
of the 1% fee payable under Section 4.02(a)(vii) above.

                                     III-25

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


4.   PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS - Continued

     Notwithstanding  any other  provision of this Agreement to the contrary and
in addition to the foregoing,  the Managing General Partner may receive a fee of
$500,000  from the  Partnership  for services  provided by the Managing  General
Partner and/or its Affiliates in connection  with the sale of one or more of the
Apartment Complexes or of the Partnership's interest in one or more of the Local
Partnerships.  Such fee (the  "Partnership  Liquidation  Fee"),  which  shall be
payable  pursuant  to  Section  4.02(a)(i),  shall only be payable if all of the
Apartment  Complexes  (or, with respect to any  Apartment  Complex which has not
been sold, the Partnership's  interest in the applicable Local Partnership) have
been sold or otherwise  disposed of or the  Partnership's  interest  therein has
been terminated on or before March 22, 2007.

     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.

     There can be no assurance that the Liquidation  will be completed  pursuant
to the Plan of Liquidation and Dissolution.

     In accordance  with the terms of the  Partnership  Agreement,  in September
2002 the Managing General Partner was paid a disposition fee of $128,000 related
to the  sale  of Rock  Glen,  which  was  netted  against  the  related  gain on
disposition of investment in partnership at December 31, 2002.

     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
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  indicated  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.  On November 12, 2003, the  Partnership
made a cash distribution of $1,347,570 ($27 per Unit) to Limited Partner holders
of record as of November 1, 2003, and a cash  distribution of $41,677 to General
Partners. The distributions were from cash resources accumulated from operations
and distributions from Local Partnerships.

     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, 2003 and 2002.  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 its Plan of Liquidation and  Dissolution,  and for
operating cash reserves.


                                     III-26

<PAGE>
                CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                         NOTES TO FINANCIAL STATEMENTS


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 income or
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,
                                                                                 -----------------------------
                                                                                   2003               2002
                                                                                 ---------         -----------
<S>                                                                              <C>               <C>
Financial statement net income                                                   $ 987,612         $3,929,896

Adjustments:
  Differences between financial statement net income
    and taxable net income related to the transfer
    of property                                                                   (307,931)         4,660,627

  Differences between financial statement net income
    and taxable income related to the Partnership's equity
    in the Local Partnerships' income or losses                                    406,922          1,438,487

  Costs amortized over a shorter period for income tax purposes                     24,550             26,600

  Effect of amortization of discount on purchase money notes
    for financial statement purposes                                              (243,833)          (249,604)
                                                                                 ---------         ----------

Taxable income                                                                   $ 867,320         $9,806,006
                                                                                 =========         ==========
</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