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


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

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



                                   FORM 10-KSB


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

                   For the fiscal year ended December 31, 2001


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



                         Commission file number 0-11973

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


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



        Internal Revenue Service - Employer Identification No. 52-1321492

                 11200 Rockville Pike, Rockville, Maryland 20852

                                 (301) 468-9200


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               Securities registered pursuant to Section 12(g) of
                                    the 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 $1,428,743.

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

                        2001 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

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

Financial Statements.................................................... III-7

Exhibit No. 99 b.
    Reports of Other Auditors........................................... III-25



<PAGE>
                                     PART I

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

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

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

     The  Partnership  was  formed  to  invest  in  real  estate,  which  is the
Partnership's  principal business  activity,  by acquiring and holding a limited
partner interest in limited partnerships (Local  Partnerships).  The Partnership
originally made investments in 22 Local  Partnerships.  As of December 31, 2001,
the Partnership  retained  investments in 14 Local  Partnerships.  Each of these
Local  Partnerships  owns  a  federal  or  state  government-assisted  apartment
complex, which provides housing principally to the elderly or to individuals and
families of low or moderate income, or a conventionally  financed  complex.  The
original   objectives  of  these  investments,   not  necessarily  in  order  of
importance, were to:

          (i)  preserve and protect the Partnership's capital;

         (ii)  provide, during the early years of the Partnership's  operations,
               current tax  benefits  to the  partners in the form of tax losses
               which the partners 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 non-compliance with the Local Partnerships' partnership agreements,
the local general partner may be removed and replaced with another local general
partner or with an affiliate of the Partnership's Managing General Partner.

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

                                       I-1

<PAGE>
                                     PART I


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

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

                                       I-2

<PAGE>
                                     PART I


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

     A schedule of the apartment  complexes owned by Local Partnerships in which
the Partnership has an investment as of December 31, 2001, follows.

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


                                                                                                       Units        Expiration
                            Mortgage                                                               Authorized for       of
 Name and Location         Payable at           Financed and/or Insured           Number of         Rental Asst.     Section 8
of Apartment Complex      12/31/01 (2)          and/or Subsidized Under          Rental Units       Under Sec. 8    HAP Contract
--------------------      ------------       -----------------------------       ------------      --------------   -------------
<S>                       <C>                <C>                                 <C>               <C>              <C>
Arrowhead Apts.           $ 6,751,850        Conventional                             200                87          05/31/06 (4)
 Palatine, IL

Chevy Chase Park            3,154,998        Metropolitan Savings Bank                232               228          09/22/05 (6)
 Centerville, OH                              (MSB)/Federal Housing
                                              Administration (FHA)

Country Place I             7,061,909        Maryland Community Development           192                38          08/10/09
 Burtonsville, MD                             Administration (MCDA)

Country Place II            4,279,945        HUD                                      120                24          06/30/02 (4)(7)
 Burtonsville, MD

Four Winds West               891,505        GMAC HUD Insured through Section          62                62          10/14/04 (4)
 Birmingham, AL                               221 (d)(4) of the National Housing
                                              Act (NHA)/Section 8

Golden Acres                1,178,367        California Housing Finance Agency         46                45          09/28/13
 Chowchilla, CA                               (CHFA)/Section 8

Mercy Terrace               8,379,282        Section 221(d)(4) of the NHA/            158               158          11/30/03
 San Francisco, CA                            Section 8

The Moorings                8,005,765        Conventional                             216                80          03/31/07 (4)
 Roselle, IL

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

Posada Vallarta            14,479,564        Conventional                             336                70          02/16/04
 Phoenix, AZ

Princeton Community         7,666,187        New Jersey Housing & Mortgage            239                26          10/01/24 (4)
 Village                                      Finance Agency
 Princeton, NJ

Rock Glen                   3,476,890        Section 221(d)(4) of the NHA             241                 0             --
 Baltimore, MD

Troy Manor Apts.              830,318        Rural Housing & Community                 50                50          10/28/05 (4)
 Troy, AL                                     Development Services (RHCD)/Section 8

Westgate Tower Apts.                         Michigan Sate Housing Develop-           148                 0                --
 Westland, MI               1,782,751         ment Authority/236
                          -----------                                            --------          --------
Totals 14                 $69,765,831                                               2,280               901
                          ===========                                            ========          ========

</TABLE>
                                   (continued)

                                       I-3

<PAGE>
                                     PART I


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

<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          2001   2000    1999    1998   1997        2001        2000        1999        1998       1997
--------------------          ----   ----    ----    ----   ----      --------    --------    --------    --------   --------
<S>                           <C>    <C>     <C>     <C>    <C>       <C>         <C>         <C>         <C>        <C>
Arrowhead Apts.                94%   100%     98%     97%    99%      $ 10,606    $ 10,205    $  9,852    $  9,755   $  9,044
 Palatine, IL

Chevy Chase Park               97%    98%     96%     92%    97%         7,608       4,141       4,077       4,291      4,360
 Centerville, OH

Country Place I                99%    97%     98%     97%    96%        10,728      10,194       9,819       9,557      9,330
 Burtonsville, MD

Country Place II              100%    98%     97%     98%    97%        10,894      10,312      10,002       9,821      9,484
 Burtonsville, MD

Four Winds West               100%    99%     98%     99%    97%         5,152       5,190       5,006       5,075      5,079
 Birmingham, AL

Golden Acres                   99%    98%     87%     98%   100%         6,498       6,355       6,324       6,443      6,495
 Chowchilla, CA

Mercy Terrace                  93%   100%    100%    100%    99%        14,717      14,794      14,820      14,836     14,801
 San Francisco, CA

The Moorings                   97%    99%     96%    100%    94%        10,570      10,425       9,679       9,693      9,372
 Roselle, IL

Orangewood Plaza              100%   100%    100%    100%   100%         2,503       2,435       2,382       2,414      2,419
 Orange Cove, CA

Posada Vallarta                94%    98%     87%     86%    96%         7,175       6,841       6,868       7,193      6,623
 Phoenix, AZ

Princeton Community
 Village                       97%    97%     97%     96%    93%         8,668       8,016       7,126       7,036      7,132
 Princeton, NJ

Rock Glen                      97%    97%     97%     99%    99%         5,695       5,470       5,354       5,176      5,011
 Baltimore, MD

Troy Manor Apts.              100%   100%    100%    100%   100%         4,758       4,685       4,664       4,681      4,677
 Troy, AL

Westgate Tower Apts.           96%    97%     95%     96%    98%         4,018       3,739       3,618       3,633      3,702
 Westland, MI
                              ---    ---     ---     ---    ---       --------    --------    --------    --------   --------
Totals(3) 14                   97%    98%     96%     97%    98%      $  7,828    $  7,343    $  7,114    $  7,115   $  6,966
                              ===    ===     ===     ===    ===       ========    ========    ========    ========   ========
</TABLE>

                                   (continued)

                                       I-4

<PAGE>
                                     PART I


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

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

(2)  The amounts  provided are the balances of first  mortgage  loans payable by
     the Local Partnerships as of December 31, 2001.

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

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

(5)  Expiration of CHFA subsidy.

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

(7)  This contract will not be renewed in 2002 by the Local Partnership.

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

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

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


ITEM 2. PROPERTIES
        ----------

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


ITEM 3. LEGAL PROCEEDINGS
        -----------------

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


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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of 2001.

                                       I-5

<PAGE>
                                     PART II


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

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

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

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

          The Managing  General Partner did not express any opinion and remained
          neutral  toward  the two offers for the  purchase  of Units  described
          above.

          On or about May 10, 2001, Limited Partners in the Partnership may have
          received an unregistered tender offer from Peachtree to purchase their
          Units in the Partnership for the cost of the $100 transfer fee.

          The Managing General Partner  recommended that Limited Partners reject
          the  Peachtree  offer  because it concluded  that the tender offer was
          inadequate and not in the best interests of the Limited Partners.

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

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

                                      II-1

<PAGE>
                                     PART II


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

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

     (b)  As of March 28, 2002 there were approximately 3,300 registered holders
          of Units in the Partnership.

     (c)  On January 28,  2000,  the  Partnership  made a cash  distribution  of
          $1,622,237  ($32.50 per Unit) to Additional  Limited Partners who were
          holders of record as of December 15,  1999;  this  distribution  was a
          result  of the  sale of  Wexford  Ridge.  On  October  30,  2000,  the
          Partnership made a cash  distribution of $1,497,450  ($30.00 per Unit)
          to  Additional  Limited  Partners  who were  holders  of  record as of
          September 30, 2000; this  distribution  was a result of cash resources
          accumulated from operations and distributions from Local Partnerships.
          On May 2, 2001 the partnership made a cash  distribution of $3,244,150
          ($65.00 per Unit) to Additional  Limited  Partners who were holders of
          record as of April 1,  2001;  this  distribution  was a result of cash
          resources  accumulated  from operations and  distributions  from Local
          Partnerships.

          The Partnership  received  distributions of $883,504 and $864,027 from
          Local  Partnerships  during 2001 and 2000,  respectively.  Some of the
          Local  Partnerships  operate  under  restrictions  imposed  by certain
          federal  and/or state  government  agencies that limit the cash return
          available to the Partnership.

                                      II-2

<PAGE>
                                     PART II


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

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

                                     General
                                     -------

     The  Partnership  has invested,  through Local  Partnerships,  primarily in
federal  or  state  government-assisted  apartment  complexes  (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.

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

     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.  The Managing General Partner intends
to  use  all  or  part  of the  Partnership's  net  proceeds  (after  a  partial
distribution to limited  partners) from the sales of properties to fund reserves
for paying at maturity, prepaying or purchasing prior to maturity, at a discount
where possible, currently outstanding purchase money notes. The Managing General
Partner believes that this represents an opportunity to reduce the Partnership's
long-term obligations.

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

                                      II-3

<PAGE>
                                     PART II


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

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

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

     Mark-to-Market (M2M) implementation will reduce rental income at properties
that are currently  subsidized  at  higher-than-market  rental  rates,  and will
therefore  lower cash flow  available to meet  mortgage  payments and  operating
expenses.  In some instances,  a property will be able to meet its existing debt
service  payments  after the  reduction  in rental  income.  In this  case,  the
property  may enter  the M2M  "Lite"  program  which  would  not  require a debt
restructuring.  In the remaining  instances,  the affected  property may undergo
debt restructuring  according to terms determined by an individual  property and
operations  evaluation.  This would  involve  reducing the first  mortgage  loan
balance to an amount  supportable  by the  property's  operations,  taking  into
account the property's operating expenses and reduced income. The balance of the
amount  written down from the first  mortgage  loan would be converted to a non-
performing but accruing  (soft) second  mortgage  loan.  When the existing first
mortgage loan is bifurcated  into a first and second  mortgage  loan,  the newly
created  second  mortgage  loan will  accrue  interest at a  below-market  rate;
however,  the  Internal  Revenue  Service  issued a  ruling  in July  1998  that
concluded that the below-market  rate of interest would not generate  additional
ordinary  income.  Each property  subject to M2M will be affected in a different
manner, and it is very difficult to predict the exact form of restructuring,  or
potential tax liabilities to the limited partners, at this time. All properties,
upon entering the M2M program  (excluding M2M Lite),  are required to enter into
an agreement restricting the property's use to affordable housing for 30 years.

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

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

     There have been no major changes in federal housing policy in 2001.


                                      II-4

<PAGE>
                                     PART II



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

     Country  Place II has a  Section 8 HAP  contract  which  covers  20% of the
property's  apartment  units.  The current  renewal  period of the Section 8 HAP
contract  expires in June 2002, at which time the Local  Partnership  intends to
opt out of the HAP program.

     As  of  December  31,  2001,  the  carrying  amount  of  the  Partnership's
investments in and advances to Local  Partnerships  with Section 8 HAP contracts
expiring in 2002 was $53,422.

     The Managing  General  Partner  continues to seek  strategies  to deal with
affordable  housing policy.  Where  opportunities  exist,  the Managing  General
Partner will continue to work with the Local  Partnerships to develop strategies
that make economic sense.

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

     As of December 31, 2001, the Partnership had approximately  3,400 investors
who  subscribed  to a total of 50,000 units of limited  partner  interest in the
original amount of $50,000,000.  The Partnership  originally made investments in
22  Local   Partnerships,   of  which  14  remain  at  December  31,  2001.  The
Partnership's  liquidity,  with  unrestricted cash resources of $3,242,912 as of
December 31, 2001, 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 21, 2001,  there were no material
commitments for capital expenditures.

     During  2001 and 2000,  the  Partnership  received  cash  distributions  of
$883,504 and $864,027, respectively, from the Local Partnerships.

     The  Partnership's  obligations  with respect to its  investments  in Local
Partnerships,  in the  form of  non-recourse  purchase  money  notes  having  an
aggregate  principal  balance of $1,900,000 plus aggregate  accrued  interest of
$3,052,897  as of December 31,  2001,  are payable in full upon the earliest of:
(i) sale or refinancing of the respective Local  Partnership's  rental property;
(ii) payment in full of the respective  Local  Partnership's  permanent loan; or
(iii) maturity.

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

                                               Original         Extended
     Property             Principal            Maturity         Maturity
     --------            ----------            --------         --------
     Princeton           $  500,000            01/01/99         06/30/03
     Westgate            $1,400,000 (1)        09/01/98         09/01/03

     (1)      Remaining principal after a partial payment.

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

     Property                                 Principal              Date
     --------                                -----------           --------

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

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

                                      II-5

<PAGE>
                                     PART II



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

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

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

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

     The  Managing  General  Partner  is  continuing  to  investigate   possible
alternatives to reduce the Partnership's  debt obligations.  These  alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note  requirements,  paying off certain purchase money notes at a
discounted  price,  extending  the due dates of certain  purchase  money  notes,
refinancing the respective properties' underlying debt or selling the underlying
real estate and using the Partnership's share of the proceeds to pay or buy down
certain purchase money note  obligations.  Although the Managing General Partner
has had some success applying these strategies in the past, the Managing General
Partner cannot assure that these strategies will be successful in the future. If
the Managing  General  Partner is unable to negotiate an extension or discounted
payoff,  in the event that the purchase money notes remain unpaid upon maturity,
the noteholders may have the right to foreclose on the Partnership's interest in
the related Local Partnerships. In the event of a foreclosure, the excess of the
nonrecourse   indebtedness   over  the  carrying  amount  of  the  Partnership's
investment  in the related Local  Partnership  would be deemed  cancellation  of
indebtedness income, which would be taxable to Limited Partners at a federal tax
rate  of  up  to  38.6%.  Additionally,  in  the  event  of a  foreclosure,  the
Partnership  would lose its investment in the Local  Partnership and,  likewise,
its share of any future  cash flow  distributed  by the Local  Partnership  from
rental operations, mortgage debt refinancings, or the sale of the real estate.

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

     The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient  cash is available for operating  requirements.
For the years ended  December  31, 2001 and 2000,  the receipt of  distributions
from Local  Partnerships  was adequate to support  operating cash  requirements.
Cash and cash equivalents  decreased during 2001 due primarily to a distribution
to Additional Limited Partners made on May 2, 2001. However, the receipt of

                                      II-6

<PAGE>
                                     PART II



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

distributions from partnerships  exceeded net cash used in operating  activities
and cash used to make an additional investment in a Local Partnership.

     On January 28, 2000, the Partnership made a cash distribution of $1,622,237
($32.50 per Unit) to Additional  Limited  Partners who were holders of record as
of December  15,  1999;  this  distribution  was a result of the sale of Wexford
Ridge.  On  October  30,  2000,  the  Partnership  made a cash  distribution  of
$1,497,450  ($30.00 per Unit) to Additional Limited Partners who were holders of
record  as of  September  30,  2000;  this  distribution  was a  result  of cash
resources  accumulated from operations and distributions from  partnerships.  On
May 2, 2001, the Partnership made a cash distribution of $3,244,150  ($65.00 per
Unit) to Additional  Limited  Partners who were holders of record as of April 1,
2001;  this  distribution  was a  result  of  cash  resources  accumulated  from
operations and  distributions  from  partnerships.  The Managing General Partner
intends to reserve all of the Partnership's remaining undistributed cash for the
possible  repayment,  prepayment or retirement of the Partnership's  outstanding
purchase money notes related to the Local Partnerships.

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

2001 Versus 2000
----------------

     The Partnership's net income for the year ended December 31, 2001 decreased
from the year ended  December 31, 2000,  primarily due to gain on disposition of
investments in partnerships and extraordinary  gain from  extinguishment of debt
related to the sales of Roberts  Fall River  Associates  (Rolling  Green at Fall
River) and Roberts Amherst Associates  (Rolling Green at Amherst) in 2000, which
were  larger  than  the  corresponding   amounts  related  to  the  transfer  of
Frenchman's Wharf Associates II Limited  Partnership  (Frenchman's  Wharf II) in
2001.  Contributing  to the  decrease  in the  Partnership's  net income  were a
decrease in interest revenue due to lower cash and cash equivalent  balances and
lower  interest  rates in 2001,  and an increase  in general and  administrative
expenses due to higher reimbursed payroll costs.  Offsetting the decrease in the
Partnership's  net income were an increase in share of income from  partnerships
related to an increase in rental  income at Chevy Chase Park Ltd.  (Chevy Chase)
due to its entry into the  Mark-up-to-Market  program,  partially  offset by the
Partnership's  additional  investment  in  Orangewood  Plaza which had  negative
basis, a decrease in interest expense due to lower purchase money note balances,
and a decrease in professional fees due to a decrease in legal fees.

     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, 2001 and 2000 did not include losses of $1,332,296 and  $2,002,620,
respectively.  Distributions  of $546,847 and  $440,632,  received  from ten and
eight Local Partnerships during 2001 and 2000, respectively, were offset against
the respective  years'  recorded  losses because these amounts were in excess of
the Partnership's investment.

                                    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.

                                      II-7

<PAGE>
                                     PART II



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

     The combined rental revenues of the  Partnership's  remaining 14 properties
for the five years ended  December 31, 2001,  follow.  Combined  rental  revenue
amounts have been adjusted to reflect  property sales and interests  transferred
in 2001 and prior years.

<TABLE>
<CAPTION>
                                                        For the years ended December 31,
                       -------------------------------------------------------------------------------------------------
                          2001                  2000                  1999                  1998                  1997
                       -----------           -----------           -----------           -----------           -----------
<S>                    <C>                   <C>                   <C>                   <C>                   <C>
Combined Rental
  Revenue              $19,267,461           $17,817,541           $17,186,577           $17,223,135           $16,742,439

Annual Percentage
  Increase                            8.1%                  3.7%                  (0.3%)                2.9%

</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, 65, has been the Chairman of the Board and a Director of CRI
since 1974.  Prior to forming  CRI, he served as  President of Kaufman and Broad
Asset Management,  Inc., an affiliate of Kaufman and Broad,  Inc., which managed
publicly held limited  partnerships created to invest in low and moderate income
multifamily apartment properties.  Prior to joining Kaufman and Broad, he served
in various positions at HUD,  culminating in the post of Deputy FHA Commissioner
and Deputy Assistant Secretary for Housing Production and Mortgage Credit, where
he was responsible for all federally insured housing production programs. Before
coming to the Washington,  D.C., area, Mr. Dockser was a practicing  attorney in
Boston and served as a special  Assistant  Attorney General for the Commonwealth
of  Massachusetts.  He holds a Bachelor of Laws degree from Yale  University Law
School and a Bachelor of Arts degree, cum laude, from Harvard University.  He is
also Chairman of the Board and a Director of CRIIMI MAE Inc. and CRIIMI, Inc.

H. William Willoughby,  55, 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.  He is also a Director and
executive officer of CRIIMI MAE Inc. and CRIIMI, Inc.

Susan R. Campbell,  43, is Executive Vice President and Chief Operating Officer.
Prior to joining CRI in March 1985,  she was a budget analyst for the B. F. Saul
Advisory  Company.  She holds a Bachelor of Science  degree in General  Business
from the  University  of  Maryland.  Ms.  Campbell  has  resigned  her  position
effective March 29, 2002.

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

     (d)  Involvement in certain legal proceedings.

          None.




                                      III-1

<PAGE>
                                    PART III


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

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

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


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

     (a)  Security ownership of certain beneficial owners.

          The following  table sets forth  certain  information  concerning  any
          person  (including any "group") who is known to the  Partnership to be
          the  beneficial  owner of more than five  percent  of the  issued  and
          outstanding units of additional  limited partner interest (Units),  at
          March 28, 2002.

              Name and Address           Amount and Nature         % of total
             of Beneficial Owner      of Beneficial Ownership     Units issued
          ------------------------    -----------------------     -------------
           Equity Resources Group,            5,020 Units              10.0%
             Incorporated, et. al.
             14 Story Street
             Cambridge, MA 02138

     (b)  Security ownership of management.

          The following  table sets forth  certain  information  concerning  all
          Units  beneficially  owned, as of March 28, 2002, by each director and
          by all  directors  and  officers  as a group of the  Managing  General
          Partner of the Partnership.

               Name of                    Amount and Nature         % of total
           Beneficial Owner            of Beneficial Ownership     Units issued
           ----------------            -----------------------     ------------
           William B. Dockser                    None                   0.0%
           H. William Willoughby                 None                   0.0%
           All Directors and Officers
             as a Group (3 persons)              None                   0.0%

     (c)  Changes in control.

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

                                      III-2

<PAGE>
                                    PART III


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

     (a)  and (b) Transactions with management and others.

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

     (c)  Certain business relationships.

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

     (d)  Transactions with promoters.

          Not applicable.


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

     (a)  Index of  Exhibits  (Listed  according  to the number  assigned in the
          table in Item 601 of Regulation S-B.)

          Exhibit No. 3 - Articles of Incorporation and bylaws.

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

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

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


                                      III-3

<PAGE>
                                    PART III


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

          Exhibit No. 10 - Material Contracts.

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

          Exhibit No. 99 - Additional Exhibits.

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

          b.   Reports of other auditors relating to the audits of the financial
               statements  of  Local   Partnerships   in  which  Capital  Realty
               Investors-II Limited Partnership has invested.  (This information
               begins at page III-25.)

     (b)  Reports on Form 8-K

     No reports on Form 8-K were filed  during the quarter  ended  December  31,
2001.


                                      III-4

<PAGE>
                                   SIGNATURES


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



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

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



March 28, 2002                         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 28, 2002                         by:  /s/ H. William Willoughby
--------------                              ------------------------------------
DATE                                        H. William Willoughby,
                                              Director, President,
                                              and Secretary




March 28, 2002                         by:  /s/ Michael J. Tuszka
--------------                              ------------------------------------
DATE                                        Michael J. Tuszka,
                                              Vice President
                                              and Chief Accounting Officer
                                              (Principal Financial Officer
                                              and Principal Accounting Officer)


                                      III-5

<PAGE>


                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS



To the Partners
Capital Realty Investors-II Limited Partnership

     We have audited the balance sheets of Capital Realty  Investors-II  Limited
Partnership (a Maryland  limited  partnership) as of December 31, 2001 and 2000,
and the related statements of operations,  changes in partners' deficit and cash
flows  for  the  years  then  ended.   These   financial   statements   are  the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial  statements based on our audits.  We did not audit
the financial statements of certain Local Partnerships.  The Partnership's share
of income from these Local  Partnerships  constitutes  $717,807  and $120,009 of
income in 2001 and 2000, respectively, included in the Partnership's net income.
The  financial  statements  of these Local  Partnerships  were  audited by other
auditors  whose  reports  thereon  have been  furnished  to us, and our  opinion
expressed  herein,  insofar as it relates to the amount included for these Local
Partnerships, is based solely upon the reports of the other auditors.

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

     In our  opinion,  based upon our audits and the reports of other  auditors,
the  financial  statements  referred to above  present  fairly,  in all material
respects,   the  financial  position  of  Capital  Realty  Investors-II  Limited
Partnership as of December 31, 2001 and 2000 and the results of its  operations,
changes  in  partners'  deficit  and cash  flows for the years  then  ended,  in
conformity with accounting principles generally accepted in the United States of
America.


                                                           Grant Thornton LLP


Vienna, Virginia
March 15, 2002

                                      III-6

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                                 BALANCE SHEETS


                                     ASSETS

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                      ----------------------------
                                                                                          2001            2000
                                                                                      ------------    ------------
<S>                                                                                   <C>             <C>
Investments in and advances to partnerships .......................................   $  1,308,952    $    729,191
Investment in partnerships held for sale or transfer ..............................         15,154          79,579
Cash and cash equivalents .........................................................      3,242,912       6,292,654
Acquisition fees, principally paid to related parties,
  net of accumulated amortization of $259,959 and $245,626, respectively ..........        170,029         184,362
Property purchase costs,
  net of accumulated amortization of $243,162 and $229,486, respectively ..........        167,124         180,800
Other assets ......................................................................            108           2,538
                                                                                      ------------    ------------

   Total assets ...................................................................   $  4,904,279    $  7,469,124
                                                                                      ============    ============




                        LIABILITIES AND PARTNERS' DEFICIT



Due on investments in partnerships ................................................   $  1,900,000    $  5,050,000
Accrued interest payable ..........................................................      3,052,897       9,156,205
Accounts payable and accrued expenses .............................................         78,568         176,350
                                                                                      ------------    ------------

   Total liabilities ..............................................................      5,031,465      14,382,555
                                                                                      ------------    ------------

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 .........................................    (10,814,009)     (7,569,859)
    Offering costs ................................................................     (5,278,980)     (5,278,980)
    Accumulated losses ............................................................    (34,051,197)    (44,081,592)
                                                                                      ------------    ------------

      Total partners' deficit .....................................................       (127,186)     (6,913,431)
                                                                                      ------------    ------------

      Total liabilities and partners' deficit .....................................   $  4,904,279    $  7,469,124
                                                                                      ============    ============
</TABLE>

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

                                      III-7

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                    For the years ended
                                                                                        December 31,
                                                                                 ----------------------------
                                                                                     2001            2000
                                                                                 ------------    ------------
<S>                                                                              <C>             <C>
Share of income from partnerships ............................................   $  1,265,026    $    626,842
                                                                                 ------------    ------------

Other revenue and expenses:

  Revenue:
    Interest and other income ................................................        163,717         465,874
                                                                                 ------------    ------------

  Expenses:
    Interest .................................................................        420,191         784,167
    Management fee ...........................................................        249,996         249,996
    General and administrative ...............................................        217,746         199,786
    Professional fees ........................................................         91,478         169,217
    Amortization of deferred costs ...........................................         28,009          34,245
                                                                                 ------------    ------------

                                                                                    1,007,420       1,437,411

      Total other revenue and expenses .......................................       (843,703)       (971,537)
                                                                                 ------------    ------------

Income (loss) before (loss) gain on disposition of investments in partnerships
  and extraordinary gain from extinguishment of debt .........................        421,323        (344,695)

(Loss) gain on disposition of investments in partnerships ....................        (56,217)      5,879,778
                                                                                 ------------    ------------

Income before extraordinary gain from extinguishment of debt .................        365,106       5,535,083

Extraordinary gain from extinguishment of debt ...............................      9,665,289      10,018,513
                                                                                 ------------    ------------

Net income ...................................................................   $ 10,030,395    $ 15,553,596
                                                                                 ============    ============



Net income allocated to General Partners (1.51%) .............................   $    151,459    $    234,859
                                                                                 ============    ============


Net income allocated to Initial and Special Limited Partners (1.49%) .........   $    149,453    $    231,749
                                                                                 ============    ============


Net income allocated to Additional Limited Partners (97%) ....................   $  9,729,483    $ 15,086,988
                                                                                 ============    ============


Net income per unit of Additional Limited Partner Interest
  based on 50,000 units outstanding ..........................................   $     194.59    $     301.74
                                                                                 ============    ============
</TABLE>

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

                                      III-8

<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, January 1, 2000                        $(914,481)           $(888,820)      $(19,166,276)       $(20,969,577)

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

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

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

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

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

Partners' (deficit) capital, December 31, 2001            $(528,163)           $(507,618)      $    908,595        $   (127,186)
                                                          =========            =========       ============        ============
</TABLE>

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

                                      III-9

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                     For the years ended
                                                                                          December 31,
                                                                                 -----------------------------
                                                                                    2001              2000
                                                                                 -----------      ------------
<S>                                                                              <C>              <C>
Cash flows from operating activities:
  Net income ..................................................................   $ 10,030,395    $ 15,553,596

  Adjustments to reconcile net income to net cash used in operating activities:
    Share of income from partnerships .........................................     (1,265,026)       (626,842)
    Amortization of deferred costs ............................................         28,009          34,245
    Loss (gain) on disposition of investments in partnerships .................         56,217      (5,879,778)
    Extraordinary gain from extinguishment of debt ............................     (9,665,289)    (10,018,513)

    Changes in assets and liabilities:
      Decrease (increase) in other assets .....................................          2,430          (2,538)
      Increase in accrued interest payable ....................................        420,191         784,167
      Payment of purchase money note interest .................................           --          (231,201)
      (Decrease) increase in accounts payable and accrued expenses ............        (97,782)         48,658
                                                                                  ------------    ------------

        Net cash used in operating activities .................................       (490,855)       (338,206)
                                                                                  ------------    ------------


Cash flows from investing activities:
  Receipt of distributions from partnerships ..................................        883,504         864,027
  Proceeds from disposition of investments in partnerships ....................           --         5,993,661
  Additional investment in partnership ........................................       (198,241)           --
                                                                                  ------------    ------------

        Net cash provided by investing activities .............................        685,263       6,857,688
                                                                                  ------------    ------------


Cash flows from financing activities:
  Payoff of purchase money notes and related interest .........................           --        (5,993,661)
  Payment of purchase money note principal ....................................           --           (50,000)
  Distributions to Additional Limited Partners ................................     (3,244,150)     (3,119,687)
                                                                                  ------------    ------------

        Net cash used in financing activities .................................     (3,244,150)     (9,163,348)
                                                                                  ------------    ------------

Net decrease in cash and cash equivalents .....................................     (3,049,742)     (2,643,866)

Cash and cash equivalents, beginning of year ..................................      6,292,654       8,936,520
                                                                                  ------------    ------------

Cash and cash equivalents, end of year ........................................   $  3,242,912    $  6,292,654
                                                                                  ============    ============




Supplemental disclosure of cash flow information:
  Cash paid during the year for interest ......................................   $       --      $  3,976,115
                                                                                  ============    ============

</TABLE>

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

                                     III-10

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------

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

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

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

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

     b. Method of accounting
        --------------------

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

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

          The investments in and advances to Local Partnerships (see Note 2) are
     accounted for by the equity  method  because the  Partnership  is a limited
     partner in the Local  Partnerships.  Under this method, the carrying amount
     of the investments in and advances to Local  Partnerships is (i) reduced by
     distributions  received and (ii) increased or reduced by the  Partnership's
     share of earnings or losses, respectively, of the Local Partnerships. As of
     December 31, 2001 and 2000, the Partnership's share of cumulative losses of
     9 and 11 of the Local Partnerships exceeded the amount of the Partnership's
     investments in and advances to those Local  Partnerships by $20,866,146 and
     $25,853,163,  respectively. Since the Partnership has no further obligation
     to advance  funds or provide  financing  to these Local  Partnerships,  the
     excess  losses  have  not  been  reflected  in the  accompanying  financial
     statements. As of December 31, 2001 and 2000, cumulative cash distributions
     of $14,098,407 and $13,551,560,  respectively,  have been received from the
     Local  Partnerships  for which the  Partnership's  carrying  value is zero.
     These distributions are recorded as increases in the Partnership's share of
     income from partnerships.

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

                                     III-11

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
     ------------------------------------------

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

          On both June 1, 2001 and May 31, 2000, the purchase  money  noteholder
     purchased  26% of the  Partnership's  original  interest in  Princeton,  as
     further discussed in Note 2.a. The  partnership's  investment in this Local
     Partnership was reclassified to investment in partnerships held for sale or
     transfer in the accompanying  balance sheets at December 31, 2001 and 2000.
     In January  2001,  the Local  Partnership  entered  into a contract to sell
     Frenchman's  Wharf I,  also as  discussed  in Note  2.a.  Accordingly,  the
     Partnership's  investment in this Local  Partnership  was  reclassified  to
     investment in  partnerships  held for sale or transfer in the  accompanying
     balance  sheet at December 31,  2000.  Assets held for sale or transfer are
     not recorded in excess of their estimated net realizable value.

     e.   Cash and cash equivalents
          -------------------------

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

     f.   Offering costs
          --------------

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

     g.   Income taxes
          ------------

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

     h.   Use of estimates
          ----------------

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

     i.   Fair value of financial instruments
          -----------------------------------

          The financial  statements  include estimated fair value information as
     of December  31, 2001,  as required by  Statement  of Financial  Accounting
     Standards  (SFAS)  No.  107,  "Disclosure  About  Fair  Value of  Financial
     Instruments."  Such  information,   which  pertains  to  the  Partnership's
     financial  instruments  (primarily  cash and cash  equivalents and purchase
     money notes),  is based on the  requirements  set forth in SFAS No. 107 and
     does  not  purport  to  represent  the  aggregate  net  fair  value  of the
     Partnership.

                                     III-12

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
     ------------------------------------------

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

          The  Partnership has determined that it is not practicable to estimate
     the fair value of the purchase money notes,  either  individually or in the
     aggregate,  due to:  (i) the lack of an  active  market  for  this  type of
     financial  instrument,  (ii) the  variable  nature of  purchase  money note
     interest  payments  as a result  of  fluctuating  cash  flow  distributions
     received from the related Local Partnerships, and (iii) the excessive costs
     associated with an independent appraisal of the purchase money notes.

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

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


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

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

          As of December 31, 2001 and 2000, the Partnership held limited partner
     interests  in 14  and  15  Local  Partnerships,  respectively,  which  were
     organized to develop, construct, own, maintain and operate rental apartment
     properties  which  provide  housing   principally  to  the  elderly  or  to
     individuals and families of low or moderate income.  The remaining  amounts
     due on investments in the Local Partnerships follow.

                                                      December 31,
                                           ---------------------------------
                                              2001                  2000
                                           -----------           -----------

     Purchase money notes due in:
       1998                                $        --           $ 3,150,000
       2003                                  1,900,000             1,900,000
                                           -----------           -----------

           Subtotal                          1,900,000             5,050,000
                                           -----------           -----------

     Accrued interest payable                3,052,897             9,156,205
                                           -----------           -----------

           Total                           $ 4,952,897           $14,206,205
                                           ===========           ===========



                                     III-13

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
     -------------------------------------------

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

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

                               Original                              Extended
          Property             Principal            Maturity         Maturity
          ---------            ----------           --------         --------
          Princeton            $  500,000           01/01/99         06/30/03
          Westgate             $1,400,000 (1)       09/01/98         09/01/03

          (1)      Remaining principal after a partial payment.

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

          Property                           Principal         Date
          --------                          -----------      --------

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

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

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

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

                                     III-14

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
     -------------------------------------------

          The Managing  General  Partner is continuing to  investigate  possible
     alternatives  to  reduce  the   Partnership's   debt   obligations.   These
     alternatives  include,  among  others,  retaining  the cash  available  for
     distribution  to meet the  purchase  money  note  requirements,  paying off
     certain purchase money notes at a discounted price, extending the due dates
     of certain  purchase money notes,  refinancing  the respective  properties'
     underlying  debt or  selling  the  underlying  real  estate  and  using the
     Partnership's  share of the  proceeds to pay or buy down  certain  purchase
     money note obligations.  Although the Managing General Partner has had some
     success applying these strategies in the past, the Managing General Partner
     cannot assure that these  strategies  will be successful in the future.  If
     the  Managing  General  Partner  is unable to  negotiate  an  extension  or
     discounted payoff, in the event that the purchase money notes remain unpaid
     upon  maturity,  the  noteholders  may have the right to  foreclose  on the
     Partnership's interest in the related Local Partnerships. In the event of a
     foreclosure,  the excess of the nonrecourse  indebtedness over the carrying
     amount of the  Partnership's  investment in the related  Local  Partnership
     would be deemed cancellation of indebtedness income, which would be taxable
     to Limited Partners at a federal tax rate of up to 38.6%. Additionally,  in
     the event of a foreclosure,  the  Partnership  would lose its investment in
     the Local  Partnership  and,  likewise,  its share of any future  cash flow
     distributed by the Local Partnership from rental operations,  mortgage debt
     refinancings, or the sale of the real estate.

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

          Interest  expense on the  Partnership's  purchase  money notes for the
     years  ended  December  31,  2001  and  2000  was  $420,191  and  $784,167,
     respectively.  The accrued  interest payable on the purchase money notes of
     $3,052,897 and  $9,156,205 as of December 31, 2001 and 2000,  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.

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

          The  Partnership  defaulted  on its  purchase  money  note  related to
     Frenchman's Wharf Associates II Limited Partnership  (Frenchman's Wharf II)
     on June 1, 1998 when the note matured and was not paid.  The default amount
     included  principal  and accrued  interest of  $3,150,000  and  $5,071,731,
     respectively.  As of June 22, 2001, principal and accrued interest totaling
     $3,150,000 and $6,131,166,  respectively, were due. The purchase money note
     was initially due to mature on June 1, 1988,  but was extended to mature on
     June 1, 1998.

          In 1996, the U. S. Department of Housing and Urban  Development  (HUD)
     sold the mortgage loan on Frenchman's Wharf II to a third party lender. The
     mortgage loan matured in May 2000, but was not paid. In May 2000, the local
     managing general partner  obtained a forbearance  agreement from the lender
     which was  originally  scheduled to expire on March 31, 2001, but which was
     subsequently  extended  several times until June 25, 2001. The  forbearance
     agreement allowed for the discounted payoff of the mortgage loan.

                                     III-15

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
     -------------------------------------------

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

          In recognition of the transfer of the  Frenchman's  Wharf II property,
     the net  unamortized  amounts of  acquisition  fees and  property  purchase
     costs,  which totaled $56,217 as of December 31, 2000, were reclassified to
     investment in  partnerships  held for sale or transfer in the  accompanying
     balance sheet at December 31, 2000.

                                    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 noteholders.
     The litigation  was settled  effective  January 1, 2000,  when the Managing
     General Partner entered into an agreement with the noteholder which granted
     the noteholder  four options to purchase the  Partnership's  98.99% limited
     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  notes.  As  part  of the  agreement,  the
     noteholder extended the maturity date of the purchase money note to January
     1, 2004, and the Partnership  made a payment to the noteholder on April 21,
     2000,  which was applied against accrued  interest  payable on the purchase
     money note. However,  pursuant to the option agreement with the noteholder,
     the  noteholder  can exercise its  acquisition  of the final portion of the
     Partnership's   interest  between  January  1,  2003  and  June  30,  2003.
     Therefore,  the Partnership has selected the earliest  maturity date of the
     purchase money note to be June 30, 2003.

          On  both  June  1,  2001  and May 31,  2000,  pursuant  to the  option
     agreement,  the  noteholder  purchased  26% of the  Partnership's  original
     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  extraordinary  gain
     from  extinguishment  of  debt  of  $384,123  and  $484,862  for  financial
     statement purposes in 2001 and 2000,  respectively,  and in cancellation of
     indebtedness  income of $1,583,512  and $1,960,030 for federal tax purposes
     in 2001 and 2000, respectively.

          Due to the  impending and likely  transfer of the remaining  46.99% of
     the Partnership's  investment in Princeton over the next two years, the net
     unamortized amounts of acquisition fees and property purchase costs related
     to Princeton,  which totaled $15,154 as of December 31, 2001 and $23,362 as
     of December 31, 2000, have been  reclassified to investment in partnerships
     held for sale or transfer in the accompanying balance sheets.

                                     III-16

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
     -------------------------------------------

            Rolling Green at Fall River and Rolling Green at Amherst
            --------------------------------------------------------

          On May 31, 2000,  Rolling Green at Fall River sold its  property.  The
     entire net sale  proceeds  to the  Partnership  were used to pay off,  at a
     discount,  the Partnership's  purchase money note obligation related to its
     investment  in  this  Local  Partnership.  The  sale  resulted  in  gain on
     disposition  of  investment  in   partnerships   of   $3,542,933,   and  in
     extraordinary gain from  extinguishment of debt of $7,746,946 for financial
     statement  purposes in 2000.  The total federal tax gain related to Rolling
     Green at Fall River was  $16,771,387 in 2000. The Managing  General Partner
     of the Partnership  and/or its affiliates did not receive any fees relating
     to the sale.

          On May 31,  2000,  Rolling  Green at Amherst  sold its  property.  The
     entire net sale  proceeds  to the  Partnership  were used to pay off,  at a
     discount,  the Partnership's  purchase money note obligation related to its
     investment  in  this  Local  Partnership.  The  sale  resulted  in  gain on
     disposition   of  investment  in   partnership   of   $2,336,845,   and  in
     extraordinary gain from  extinguishment of debt of $1,786,750 for financial
     statement  purposes in 2000.  The total federal tax gain related to Rolling
     Green at Amherst was  $6,383,325 in 2000. The Managing  General  Partner of
     the Partnership  and/or its affiliates did not receive any fees relating to
     the sale.

                                    Westgate
                                    --------

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

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

          The Partnership has a 46.99% to 98.99% interest in profits, losses and
     cash  distributions  (as  restricted  by various  federal and state housing
     agencies)   (collectively,   the  Agencies)  of  each  Local   Partnership.
     Affiliates of the Managing  General  Partner of the  Partnership are also a
     general  partner  of each Local  Partnership.  As  stipulated  by the Local
     Partnerships'  partnership agreements,  the Local Partnerships are required
     to make annual cash  distributions  from surplus cash flow, if any.  During
     2001 and 2000, the Partnership  received cash distributions from the rental
     operations and mortgage  refinancings of the Local Partnerships of $883,504
     and  $864,027,  respectively.  As of both December 31, 2001 and 2000, 10 of
     the Local  Partnerships  had  aggregate  surplus  cash, as defined by their
     respective   regulatory   Agencies,   in  the  amounts  of  $1,919,394  and
     $1,147,974,  respectively,  which  may be  available  for  distribution  in
     accordance with their respective regulatory Agencies' regulations.

          The cash  distributions  to the Partnership from the operations of the
     Local  Partnerships  may be  limited  by the  Agencies'  regulations.  Such
     regulations limit annual cash  distributions to a percentage of the owner's
     equity investment in a rental property.  Funds in excess of those which may
     be distributed to owners are generally  required to be placed in a residual
     receipts  account  held by the  governing  state or federal  agency for the
     benefit of the property.

                                     III-17

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
     -------------------------------------------

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

     c.   Advances to Local Partnerships
          ------------------------------

          As of December 31, 2001 and December 31,  2000,  the  Partnership  had
     advanced   funds  to  Local   Partnerships   totaling   $0  and   $324,410,
     respectively.  Accrued  interest  receivable  on these  advances was $0 and
     $187,372 as of December 31, 2001 and December 31, 2000,  respectively.  For
     financial reporting purposes,  these loans have been reduced to zero by the
     Partnership  as a result of losses at the related Local  Partnership  level
     during prior years.

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

          To cover  operating  deficits  incurred in prior years for Frenchman's
     Wharf II, the Partnership  advanced funds totaling  $324,410 as of December
     31, 2000. Accrued interest receivable was $187,372 as of December 31, 2000.
     For financial reporting  purposes,  these loans were reduced to zero by the
     Partnership as a result of losses from the related Local Partnership during
     prior years.  See Note 2.a.  above  concerning the transfer of the property
     related to Frenchman's Wharf II on June 22, 2001.

                           Posada Vallarta Apartments
                           --------------------------

          The Managing General Partner and the local managing general partner of
     Posada  Associates  Limited   Partnership   (Posada  Vallarta   Apartments)
     refinanced the property's mortgage loan on May 26, 1998. In connection with
     such refinancing,  the Partnership  advanced the Local Partnership $300,000
     for rate lock fees and  contributed  $150,000 to the Local  Partnership for
     application  fees.  The $300,000  advance was repaid to the  Partnership in
     1998.  For  financial  reporting  purposes,  the  capital  contribution  of
     $150,000 has been reduced to zero by the  Partnership as a result of losses
     at the related Local Partnership level during prior years.

                                     III-18

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
     -------------------------------------------

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

                                   Chevy Chase
                                   -----------

          The Managing  General  Partner and the local managing  general partner
     (C.R.H.C.,  Incorporated,  an affiliate of the  Managing  General  Partner)
     analyzed  whether to refinance the HUD Section 236 interest rate subsidized
     mortgage loan related to Chevy Chase Park,  Ltd.  (Chevy Chase) or to enter
     the Mark-up-to-Market program. The local managing general partner agreed to
     HUD's analysis of the property and proposal for Mark-up-to- Market, and the
     property entered the Mark-up-to-Market program effective September 2000 for
     a five  year  term,  subject  to the  annual  availability  of  funding  by
     Congress.  As a result of the Property's  entry into the  Mark-up-to-Market
     program, gross rents increased by approximately $475,000 per year.

                                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  covers 20%
     of the property's  apartment  units.  The Local  Partnership has caused the
     Section 8 HAP contract to be renewed periodically, with the current renewal
     period expiring in June 2002, at which time the Local  Partnership  intends
     to opt out of the HAP program.

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

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

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

          The 1983  construction  loan related to  Orangewood  Plaza,  a 40-unit
     apartment complex in Orange Cove, California,  was never formally converted
     to a  permanent  loan.  It is  now  anticipated  that  this  loan  will  be
     restructured  in 2002 as a permanent loan, with no tax impact to either the
     Local  Partnership  or the  Partnership.  There  is no  assurance  that the
     restructuring will be consummated.

          In 1983, the Partnership pledged its interest in the Local Partnership
     as security on an acquisition note, in the amount of $170,000,  made by the
     Local Partnership.  The note matured on July 28, 1998 and was not paid when
     due.  On May 7,  2001,  the  Partnership  made a  capital  contribution  of
     $198,241 to the Local Partnership, which amount was used to pay in full the
     principal and accrued interest on the acquisition note.

                                    Princeton
                                    ---------

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

                                     III-19

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
     -------------------------------------------

            Rolling Green at Fall River and Rolling Green at Amherst
            --------------------------------------------------------

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

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

          Combined balance sheets and combined  statements of operations for the
     14 and 15 Local  Partnerships  in which the  Partnership  is invested as of
     December 31, 2001 and 2000,  respectively,  follow. The combined statements
     of operations for the year ended December 31, 2000, include information for
     Rolling Green at Fall River and Rolling Green at Amherst  through the dates
     of sale.  The combined  statement of operations for the year ended December
     31, 2001, includes information for Frenchman's Wharf II through the date of
     transfer of the property.


                             COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                  ------------------------------
                                                                      2001              2000
                                                                  ------------      ------------
     <S>                                                          <C>               <C>
     Rental property, at cost, net of accumulated depreciation
       of $56,004,042 and $59,841,914, respectively               $ 39,157,766      $ 40,855,901
     Land                                                            4,960,118         7,503,428
     Other assets                                                   11,016,439         9,984,668
                                                                  ------------      ------------

         Total assets                                             $ 55,134,323      $ 58,343,997
                                                                  ============      ============


     Mortgage notes payable                                       $ 69,765,831      $ 78,729,965
     Other liabilities                                              13,296,874        15,314,794
     Due to general partners                                         4,465,399         4,507,399
                                                                  ------------      ------------

         Total liabilities                                          87,528,104        98,552,158

     Partners' deficit                                             (32,393,781)      (40,208,161)
                                                                  ------------      ------------

         Total liabilities and partners' deficit                  $ 55,134,323      $ 58,343,997
                                                                  ============      ============
</TABLE>


                        COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                       For the years ended
                                                                           December 31,
                                                                  ------------------------------
                                                                       2001              2000
                                                                  ------------      ------------
     <S>                                                          <C>               <C>
     Revenue:
       Rental                                                     $ 20,122,154      $ 21,676,120
       Interest                                                        218,496           280,805
       Other                                                           933,883           660,891
                                                                  ------------      ------------

         Total revenue                                              21,274,533        22,617,816
                                                                  ------------      ------------

     Expenses:
       Operating                                                    12,196,165        13,539,048
       Interest                                                      5,417,768         6,157,034
       Depreciation                                                  3,398,736         3,887,720
       Amortization                                                     72,487           511,270
       Other                                                            11,721           154,991
                                                                  ------------      ------------

         Total expenses                                             21,096,877        24,250,063
                                                                  ------------      ------------

     Net income (loss)                                            $    177,656      $ (1,632,247)
                                                                  ============      ============
</TABLE>

                                     III-20

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     f.   Reconciliation of the Local Partnerships' financial statement
          -------------------------------------------------------------
            net income (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 audit and,  therefore,  possible  adjustment  by the
     IRS.

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

<TABLE>
<CAPTION>
                                                                                     For the years ended
                                                                                         December 31,
                                                                                 -----------------------------
                                                                                    2001              2000
                                                                                 -----------       -----------
          <S>                                                                    <C>               <C>
          Financial statement net income (loss)                                  $   177,656       $(1,632,247)

          Adjustments:
            Additional book depreciation,
              net of depreciation on construction period expenses
              capitalized for financial statement purposes                         2,787,585         3,166,050

            Amortization for financial statement purposes
              not deducted for income tax purposes                                     2,703             2,998

            Miscellaneous, net                                                       165,729           106,993
                                                                                 -----------       -----------

          Taxable income                                                         $ 3,133,673       $ 1,643,794
                                                                                 ===========       ===========
</TABLE>


3.   RELATED PARTY TRANSACTIONS
     --------------------------

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

     In accordance with the terms of the Partnership Agreement,  the Partnership
is obligated to reimburse the Managing  General  Partner for its direct expenses
in connection  with managing the  Partnership.  For the years ended December 31,
2001 and 2000, the Partnership paid $169,127 and $161,033,  respectively, to the
Managing General partner as direct  reimbursement of expenses incurred on behalf
of the Partnership. Such expenses are included in the accompanying statements of
operations as general and administrative expenses.

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

                                     III-21

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


3.   RELATED PARTY TRANSACTIONS - Continued
     --------------------------

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

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

     For each of the years ended  December  31, 2001 and 2000,  the  Partnership
paid the Managing General Partner a Management Fee of $249,996.

     The Managing General Partner and/or its affiliates may receive a fee of not
more than two percent of the sales price of an investment in a Local Partnership
or the property it owns,  payable under certain  conditions  upon the sale of an
investment in a Local  Partnership  or the property it owns.  The payment of the
fee is subject to certain  restrictions,  including the achievement of a certain
level of sales  proceeds and making  certain  minimum  distributions  to limited
partners.  No such  fees were  earned by the  Managing  General  Partner  or its
affiliates for the years ended December 31, 2001 and 2000.


4.   PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS
     ------------------------------------------------

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

          (i)  to the  payment  of  debts  and  liabilities  of the  Partnership
               (including all expenses of the  Partnership  incident to the sale
               or  refinancing)  other than loans or other debts and liabilities
               of the  Partnership to any partner or any  affiliate;  such debts
               and liabilities,  in the case of a non-liquidating  distribution,
               to be only those  which are then  required  to be paid or, in the
               judgment of the Managing General Partner, required to be provided
               for;

         (ii)  to the  establishment  of any reserves which the Managing General
               Partner deems reasonably  necessary for contingent,  unmatured or
               unforeseen liabilities or obligations of the Partnership;

        (iii)  to each  partner in an amount  equal to the  positive  balance in
               his  capital  account as of the date of the sale or  refinancing,
               adjusted  for  operations  and  distributions  to that date,  but
               before  allocation of any profits for tax purposes  realized from
               such  sale  or   refinancing   and  allocated   pursuant  to  the
               Partnership Agreement;

         (iv)  to the  Additional  Limited  Partners (A) an aggregate  amount of
               proceeds  from  sale  or  refinancing  and  all  prior  sales  or
               refinancings  equal  to  their  capital  contributions,   without
               reduction   for  prior  cash   distributions   other  than  prior
               distributions  of sale  and  refinancing  proceeds,  plus  (B) an
               additional  amount  equal  to  a  cumulative  non-compounded  six
               percent return on each limited  partner's  capital  contribution,
               reduced, but not below zero, by (1) an amount equal to 50% of the
               losses  for tax  purposes  plus  tax  credits  allocated  to such
               limited  partner and (2)  distributions  of net cash flow to each
               limited partner,

                                     III-22

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


4.   PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
     ------------------------------------------------

               such   return,   losses  for  tax  purposes  and  net  cash  flow
               distributions  commencing  on the first day of the month in which
               the capital contribution was made;

          (v)  to the repayment of any unrepaid  loans  theretofore  made by any
               partner  or any  affiliate  to the  Partnership  for  Partnership
               obligations and to the payment of any unpaid amounts owing to the
               General Partners pursuant to the Partnership Agreement;

         (vi)  to  the  General   Partners  in  the  amount  of  their   capital
               contributions;

         (vii) thereafter,  for  their  services  to the  Partnership,  in equal
               shares to certain general partners (or their designees),  whether
               or not any is then a general  partner,  an  aggregate  fee of one
               percent of the gross  proceeds  resulting  from (A) such sale (if
               the proceeds are from a sale rather than a  refinancing)  and (B)
               any prior  sales from which such one  percent fee was not paid to
               the General Partners or their designees and,

        (viii) the remainder,  12% to the General Partners (or their  assignees)
               three percent  to  the  Special  Limited  Partner  and  85% to
               the Initial and Additional Limited Partners (or their assignees).

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

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

     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
January 28, 2000, the Partnership made a cash distribution of $1,622,237 ($32.50
per  Unit) to  Additional  Limited  Partners  who were  holders  of record as of
December 15, 1999; this  distribution was a result of the sale of Wexford Ridge.
On October 30, 2000,  the  Partnership  made a cash  distribution  of $1,497,450
($30.00 per Unit) to Additional  Limited  Partners who were holders of record as
of  September  30,  2000;  this  distribution  was a  result  of cash  resources
accumulated from operations and distributions from Local Partnerships. On May 2,
2001, the Partnership made a cash  distribution of $3,244,150  ($65.00 per Unit)
to Additional  Limited  Partners who were holders of record as of April 1, 2001;
this distribution was a result of cash resources accumulated from operations and
distributions from Local Partnerships.

     As defined in the Partnership Agreement, after the payment of distributions
to Additional Limited Partners as described in the previous paragraph, after the
establishment  of any reserves deemed  necessary by the Managing General Partner
and after payment of the Management  Fee, the  Partnership had no remaining cash
available for  distribution  for the years ended December 31, 2001 and 2000. The
Managing General Partner intends to reserve all of the  Partnership's  remaining
undistributed cash for the possible  repayment,  prepayment or retirement of the
Partnership's   outstanding   purchase   money   notes   related  to  the  Local
Partnerships.

                                     III-23

<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 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,
                                                                  ---------------------------
                                                                     2001            2000
                                                                  ------------    -----------
<S>                                                               <C>             <C>
Financial statement net income ................................   $ 10,030,395    $ 15,553,596

Adjustments:
  Differences between financial statement net gain
    and taxable net gain related to the transfer
    of property ...............................................      8,425,306       9,178,331

  Differences between financial statement net income and
    taxable income related to the Partnership's
    equity in the Local Partnerships' income or losses ........      2,537,838       1,817,886

  Costs amortized over a shorter period for income tax purposes         28,009          33,997

  Effect of amortization of discount on purchase money notes
    for financial statement purposes ..........................       (253,653)       (258,641)
                                                                  ------------    ------------
Taxable income ................................................   $ 20,767,895    $ 26,325,169
                                                                  ============    ============
</TABLE>



                                     # # #

                                     III-24

<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-25