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

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

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



                                   FORM 10-KSB


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



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

                   For the fiscal year ended December 31, 2006


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



                         Commission file number 0-11973

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


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



        Internal Revenue Service - Employer Identification No. 52-1321492

                 11200 Rockville Pike, Rockville, Maryland 20852

                                 (301) 468-9200


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



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

                        UNITS OF LIMITED PARTNER INTEREST


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



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

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [ X]

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 $152,632.

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

                        2006 ANNUAL REPORT ON FORM 10-KSB

                                TABLE OF CONTENTS



                                                                          Page
                                                                          ----

                                     PART I

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


                                     PART II

Item 5.   Market for the Registrant's Partnership Interests
            and Related Partnership Matters ............................. II-1
Item 6.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations.................................... II-2
Item 7.   Financial Statements........................................... II-5
Item 8.   Changes In and Disagreements With Accountants
            on Accounting and Financial Disclosure....................... II-5
Item 8A.  Controls and Procedures........................................ II-6
Item 8B.  Other Information.............................................. II-6


                                    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....................................................... III-3
Item 14.  Principal Accountant Fees and Services......................... III-4

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

Report of Independent Registered Public Accounting Firm.................. III-6

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

<PAGE>
                                     PART I
                                     ------


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

     Capital Realty  Investors-II  Limited  Partnership  (the  Partnership) is a
limited  partnership which was formed under the Maryland Revised Uniform Limited
Partnership  Act on March 23, 1983. On May 6, 1983,  the  Partnership  commenced
offering 50,000 units of additional  limited partner  interest  through a public
offering  which  was  managed  by  Merrill  Lynch,  Pierce,  Fenner  and  Smith,
Incorporated.  The  Partnership  closed the offering on June 20,  1983,  when it
became fully  subscribed.  As of December 31, 2006, 90 units of limited  partner
interest had been abandoned.

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

     The  Partnership  was  formed  to  invest  in  real  estate,  which  is the
Partnership's  principal  business  activity,  by acquiring and holding  limited
partner interests in limited partnerships (Local Partnerships).  The Partnership
originally made investments in 22 Local  Partnerships.  As of December 31, 2006,
the Partnership retained investments in three Local Partnerships.  Each of these
Local Partnerships owns either a federal or state government-assisted  apartment
complex, which provides housing principally to the elderly and/or to individuals
and  families  of low or  moderate  income.  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,
under certain  circumstances,  the Local  Partnerships'  partnership  agreements
permit removal of the local general partner and  replacement  with another local
general  partner or with an  affiliate  of the  Partnership's  Managing  General
Partner.

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

                                       I-1

<PAGE>
                                     PART I
                                     ------


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

     As a result of its investment in the Local  Partnerships,  the  Partnership
became the principal  limited partner in 22 (three  remaining as of December 31,
2006)  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.

     Although each of the Local  Partnerships in which the Partnership  invested
owns an  apartment  complex that must  compete in the  marketplace  for tenants,
interest subsidies and/or rent supplements from governmental  agencies generally
make it possible to offer certain of the 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.

     A schedule of the apartment  complexes owned by Local Partnerships in which
the Partnership has an investment as of December 31, 2006, follows.

<TABLE>
<CAPTION>

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

                                                                                                  Units
                             Mortgage                                                          Authorized for     Expiration
 Name and Location          Payable at        Financed and/or Insured            Number of       Low Income           of
of Apartment Complex       12/31/06 (2)       and/or Subsidized Under           Rental Units     Subsidies       HAP Contract
--------------------       ------------    -----------------------------        ------------   --------------    -------------
<S>                        <C>             <C>                                  <C>            <C>               <C>
Golden Acres               $ 1,152,429     California Housing Finance Agency          46             45           09/30/13
 Chowchilla, CA                             (CHFA)/Section 8

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

Westgate Tower Apts.         1,298,371     Michigan State Housing Develop-           148              0                 --
 Westland, MI                               ment Authority/236
                           -----------                                               ---             --
Totals (3 Properties)      $ 4,277,300                                               234             78
                           ===========                                               ===             ==
</TABLE>


                                   (Continued)

                                       I-2

<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            2006    2005     2004   2003    2002        2006        2005        2004        2003       2002
--------------------            ----    ----     ----   ----    ----      -------     -------     -------     -------    -------
<S>                             <C>     <C>      <C>    <C>     <C>       <C>         <C>         <C>         <C>        <C>
Golden Acres                     98%     98%      99%   100%     96%      $ 6,577     $ 6,458     $ 6,391     $ 6,527    $ 6,364
 Chowchilla, CA

Orangewood Plaza                100%    100%     100%   100%    100%        3,129       5,944       2,612       2,523      2,559
 Orange Cove, CA

Westgate Tower Apts.             92%     95%      96%    91%     93%        4,597       4,498       4,412       4,033      4,136
 Westland, MI
                                ---     ---      ---    ---     ---       -------     -------     -------     -------    -------
Totals (3 Properties) (3)        97%     98%      98%    97%     96%      $ 4,768     $ 5,633     $ 4,472     $ 4,361    $ 4,353
                                ===     ===      ===    ===     ===       =======     =======     =======     =======    =======
</TABLE>


     (1)  All properties are  multifamily  housing  complexes.  No single tenant
          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, 2006.
     (3)  The  totals  for the  percentage  of units  occupied  and the  average
          effective annual rental per unit are based on a simple average.

     On October  31,  2006,  the  partnership's  interest in Four Winds West was
transferred to an affiliate of the local managing general partner. See the notes
to the financial statements for additional information concerning the transfer.

     On  December  31,  2006,  the  Partnership's  interest  in Troy  Manor  was
transferred to an affiliate of the local managing general partner. See the notes
to financial statements for additional information concerning the transfer.

     On June 6, 2005, the Partnership's  interest in Mercy Terrace was sold. See
the notes to financial  statements  for  additional  information  concerning the
sale.

     On November 22, 2005, the property related to Chevy Chase was sold. See the
notes to the financial  statements  for  additional  information  concerning the
sale.

     On December 12, 2005, the property related to Posada Vallarta was sold. See
the notes to the financial statements for additional  information concerning the
sale.


                                       I-3

<PAGE>
                                     PART I
                                     ------


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

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


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

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


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

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

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

     (2)  the amendment of the Partnership's  Limited  Partnership  Agreement to
          permit CRI to be eligible to receive a partnership  liquidation fee in
          the amount of $500,000,  payable only if the Managing  General Partner
          is  successful in  liquidating  all of the  Partnership's  investments
          within 36 months from the date the liquidation was approved [March 22,
          2004], in recognition  that one or more of the properties in which the
          Partnership  holds an  interest  might not be  saleable to parties not
          affiliated  with the respective  Local  Partnership  due to the amount
          and/or  terms  of  their  current   indebtedness   (the   "Partnership
          Liquidation Fee"); and

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

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

                                       I-4

<PAGE>
                                     PART I
                                     ------


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

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

<TABLE>
<CAPTION>
                                    FOR                  AGAINST                ABSTAIN                 TOTAL
                             ------------------     ------------------     -------------------     ------------------
                             Units of               Units of               Units of                Units of
                             limited                limited                limited                 limited
                             partner                partner                partner                 partner
Description                  interest   Percent     interest   Percent     interest    Percent     interest    Percent
-----------                  --------   -------     --------   -------     --------    -------     --------    -------
<S>                          <C>        <C>         <C>        <C>         <C>         <C>         <C>         <C>
Sale, dissolution and
  five percent
  Disposition Fee             28,699     57.6%       1,264       2.5%         268        0.5%       30,231      60.6%

$500,000 Partnership
  Liquidation Fee             25,841     51.8%       3,546       7.1%         844        1.7%       30,231      60.6%

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

</TABLE>

     The  Partnership  was not  liquidated  within 36 months  from the  approved
liquidation  date of March 22, 2004,  therefore no liquidation  fee was taken by
the Partnership.  The Managing General Partner is continuing towards liquidation
of all the Partnership's investments.

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

                                       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.

     (b)  As of March  30,  2007,  there  were  approximately  2,970  registered
          holders of Units in the Partnership.

     (c)  On January 31,  2005,  the  Partnership  made a cash  distribution  of
          $9,582,720  ($192 per Unit) to  Additional  Limited  Partners who were
          holders of record as of December 31, 2004. The distribution  consisted
          of proceeds received from the sales of the Partnership's  interests in
          Arrowhead, Moorings, Country Place I and Country Place II. On April 7,
          2005,   the   Partnership   made  a  tax   distribution   of  $603,970
          (approximately  $17.50  per  Unit) on  behalf  of  Additional  Limited
          Partners who were not  residents of  Maryland.  On July 12, 2005,  the
          Partnership made a cash  distribution of $285,128 ($17.50 per Unit) to
          Additional  Limited  Partners  who were holders of record and Maryland
          residents  as of December  31, 2004.  The  distributions  consisted of
          proceeds  from the 2004 sales of Country Place I and Country Place II.
          On December 22, 2005,  the  Partnership  made a cash  distribution  of
          $8,734,250  ($175 per unit) to  Additional  Limited  Partners who were
          holders of record as of December 1, 2005. The  distribution  consisted
          of proceeds from the 2005 sale of the Partnership's  interest in Mercy
          Terrace, and the 2005 sales of the properties owned by Chevy Chase and
          Posada  Vallarta.  On  April  4,  2006,  the  Partnership  made  a tax
          distribution of $252,862  (approximately  $7.20 per Unit) on behalf of
          Additional Limited Partners who were not residents of Ohio.

                                      II-1

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


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

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

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

     The  Partnership has disclosed its selection and application of significant
accounting  policies in Note 1 of the notes to financial  statements included in
this annual report on Form 10-KSB at December 31, 2006. The Partnership accounts
for its investments in partnerships (Local Partnerships) using the equity method
because the Partnership is a limited partner in the Local Partnerships. As such,
the  Partnership has no control over the selection and application of accounting
policies, or the use of estimates, by the Local Partnerships.  Environmental and
operational  trends,  events and uncertainties  that might affect the properties
owned by the Local  Partnerships would not necessarily have a significant impact
on the Partnership's  application of the equity method of accounting,  since the
equity  method  has  been  suspended  for  two  Local  Partnerships  which  have
cumulative  losses in excess of the amount of the  Partnership's  investments in
those Local Partnerships.

                          New Accounting Pronouncements
                          -----------------------------

     In September  2006, the Securities and Exchange  Commission  ("SEC") issued
Staff  Accounting  Bulletin  No.  108,  "Considering  the  Effects of Prior Year
Misstatements   when   Quantifying   Misstatements  in  Current  Year  Financial
Statements" ("SAB No. 108"). SAB No. 108 requires quantification of errors using
both  a  balance  sheet  approach  and  an  income  statement  approach  in  the
determination  of  materiality  in  relation to a  misstatement.  SAB No. 108 is
effective  the first  fiscal year ending after  November  15,  2006.  Management
believes SAB No. 108 will not have any impact on the Partnership.

     In September  2006, the Financial  Accounts  Standards  Board (FASB) issued
SFAS No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 establishes
a formal framework for measuring fair value under generally accepted  accounting
principles.  Although SFAS No. 157 applies  (amends) the  provisions of existing
FASB  and  AICPA  pronouncements,  it  does  not  require  any  new  fair  value
measurements,  nor  does it  establish  valuation  standards.  SFAS  No.  157 is
effective for fiscal years  beginning  after  November 15, 2007.  Management has
determined that SFAS No. 157 will have no material impact to the Partnership.

                                     General
                                     -------

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

                                      II-2

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


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


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

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

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

     The Managing  General Partner has sold, and will continue to sell,  certain
properties by utilizing  opportunities  presented by federal  affordable housing
legislation,  favorable financing terms and preservation incentives available to
tax credit and not-for-profit purchasers. Some of the rental properties owned by
the Local  Partnerships are financed by state and federal housing agencies.  The
Managing  General  Partner has sold or  refinanced,  and will  continue to sell,
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.  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.

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

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

     As of December 31, 2006, the Partnership had approximately  2,971 investors
who held a total of 49,910 units of additional  limited  partner  interest which
were  originally sold for the aggregate  amount of $49,910,000.  The Partnership
originally made investments in 22 Local  Partnerships,  of which three remain at
December 31, 2006. The Partnership's liquidity, with unrestricted cash resources
of  $4,845,857  as of December  31,  2006,  along with  anticipated  future cash
distributions  from Local  Partnerships,  is expected to be adequate to meet its
current and anticipated  operating cash needs. As of March 30, 2007,  there were
no material commitments for capital expenditures.

     During  2006 and 2005,  the  Partnership  received  cash  distributions  of
$37,636 and $350,393, respectively, from the Local Partnerships.


                                      II-3

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


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

     The  Partnership's  remaining  obligation with respect to its investment in
Westgate Tower Limited Dividend Housing Associates (Westgate),  in the form of a
nonrecourse purchase money note which matured September 1, 2003, has a principal
balance of  $1,400,000  plus accrued  interest of  $3,004,262 as of December 31,
2006,  and is payable in full upon the earliest of: (i) sale or  refinancing  of
the respective Local Partnership's rental property;  (ii) payment in full of the
respective Local Partnership's permanent loan; or (iii) maturity.

     The  purchase  money note,  which is  nonrecourse  to the  Partnership,  is
secured by the Partnership's  interest in the Westgate Local Partnership,  which
owns Westgate Tower Apartments. The underlying property does not have sufficient
appreciation  and equity to enable the  Partnership  to pay the  purchase  money
note's principal and accrued interest.  In conjunction with the approved Plan of
Liquidation and Dissolution of the Partnership,  the Managing General Partner is
currently  negotiating  the sale of the  property  owned by Westgate and seeking
consent of the noteholders to accept the proceeds from such sale as a discounted
payoff  of the  purchase  money  note's  principal  and  accrued  interest.  The
discounted  payoff would result in cancellation  of  indebtedness  income to the
Limited  Partners,  which  would  be  taxed  at a  federal  tax rate of up to 35
percent. There can be no assurance that a sale of Westgate and discounted payoff
of the purchase money note will occur.

     The Managing  General Partner has received  consent from a majority of Unit
Holders  for the  liquidation  of the  Partnership.  (See Part I, Item 4.) It is
anticipated that the Partnership's obligation, discussed above, would be retired
in  conjunction  with  such  Liquidation.  There  can be no  assurance  that the
Liquidation  will  be  completed   pursuant  to  the  Plan  of  Liquidation  and
Dissolution.

     The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient  cash is available for operating  requirements.
For the year ended  December  31, 2006,  existing  cash  resources  and net cash
provided  by  investing  activities  were  adequate  to support net cash used in
operating activities.  Cash and cash equivalents increased $198,137 during 2006,
primarily  due to  collection  of  sale  proceeds  receivable,  the  receipt  of
additional  proceeds from  disposition  of investment  in  partnerships  and the
receipt of distributions from Local  Partnerships,  partially offset by net cash
used in operating activities and a tax distributions. The Partnership expects to
receive a similar or lower amount of distributions from these Local Partnerships
in future years.

     On January 31, 2005, the Partnership made a cash distribution of $9,582,720
($192 per Unit) to Additional  Limited Partners who were holders of record as of
December 31, 2004.  The  distribution  consisted of proceeds  received  from the
sales of the Partnership's interests in Arrowhead, Moorings, Country Place I and
Country Place II. On April 7, 2005, the Partnership  made a tax  distribution of
$603,970  (approximately  $17.50  per  Unit) on  behalf  of  Additional  Limited
Partners who were not residents of Maryland.  On July 12, 2005, the  Partnership
made a cash  distribution  of $285,128  ($17.50 per Unit) to Additional  Limited
Partners who were  holders of record and  Maryland  residents as of December 31,
2004.  The  distributions  consisted of proceeds  from the 2004 sales of Country
Place I and Country Place II. On December 22, 2005, the Partnership  made a cash
distribution of $8,734,250  ($175 per unit) to Additional  Limited  Partners who
were  holders of record as of December 1, 2005.  The  distribution  consisted of
proceeds from the 2005 sale of the Partnership's  interest in Mercy Terrace, and
the 2005 sales of the properties  owned by Chevy Chase and Posada  Vallarta.  On
April  4,  2006,  the   Partnership   made  a  tax   distribution   of  $252,862
(approximately $7.20 per Unit) on behalf of Additional Limited Partners who were
not residents of Ohio.


                                      II-4

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


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


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

2006 Versus 2005
----------------

     The  Partnership  recognized net loss for the year ended December 31, 2006,
compared  to  net  income  in  2005,  primarily  due to  decreases  in  gain  on
disposition of investment in partnerships and share of income from partnerships,
partially  offset by an increase in interest and other  revenue and decreases in
general and administrative  expenses and professional fees. Share of income from
partnerships  decreased  primarily  due to the  cessation  of  income  from  one
property  which was sold in 2005 and a decrease in other income at one property.
Interest  revenue  increased in 2006 primarily due to higher rates.  General and
administrative  expenses  decreased in 2006  primarily  due to lower  reimbursed
payroll costs. Professional fees decreased primarily due to lower audit costs of
operating partnerships paid by the Partnership.

     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, 2006 and 2005,  did not include  losses of $147,675  and  $77,474,
respectively.  Distributions of $37,636 and $77,065, received from two and three
Local  Partnerships  during  2006 and  2005,  respectively,  and for  which  the
Partnership's carrying value is zero (equity method suspended), were recorded as
increases in the  Partnership's  share of income from  partnerships  in the year
received.

                                    Inflation
                                    ---------

     Inflation  allows for increases in rental  rates,  usually  offsetting  any
higher operating and replacement costs.  Furthermore,  inflation  generally does
not impact the fixed rate long-term financing under which the Partnership's real
property investments were purchased.

     The  combined  rental  revenues  of  the   Partnership's   remaining  three
properties for the five years ended December 31, 2006,  follow.  Combined rental
revenue  amounts have been adjusted to reflect  property and interests sales and
interests transferred in 2006 and in prior years.

<TABLE>
<CAPTION>
                                                             For the years ended December 31,
                           --------------------------------------------------------------------------------------------------
                              2006                  2005                  2004                  2003                  2002
                           -----------           ----------            ----------            ----------            ----------
<S>                        <C>          <C>      <C>          <C>      <C>            <C>    <C>           <C>     <C>
Combined Rental
  Revenue                  $1,108,082            $1,200,552            $1,051,416            $  998,059            $1,007,254

Annual Percentage
  Increase (decrease)                  (7.7)%                14.2%                    5.3%                (0.9)%

</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-5

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


ITEM 8A. CONTROLS AND PROCEDURES
         -----------------------

     In February 2007,  representatives  of the Managing  General Partner of the
Partnership  carried out an  evaluation of the  effectiveness  of the design and
operation of the Partnership's  disclosure controls and procedures,  pursuant to
Exchange Act Rules  13a-15 and 15d-15.  The  Managing  General  Partner does not
expect that the  Partnership's  disclosure  controls and procedures will prevent
all error and all fraud.  A control  system,  no matter how well  conceived  and
operated,  can provide only  reasonable  assurance  that the  objectives  of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource  constraints,  and the benefits of controls must be
considered relative to their costs.  Because of the inherent  limitations in all
control systems,  no evaluation of controls can provide absolute  assurance that
all control issues have been detected.  These inherent  limitations  include the
realities that judgments in  decision-making  can be faulty, and that breakdowns
can occur  because  of simple  error or  mistake.  The  design of any  system of
controls also is based in part upon certain  assumptions about the likelihood of
future  events,  and there can be no  assurance  that any design will succeed in
achieving its stated goals under all  potential  future  conditions.  Over time,
controls may become inadequate  because of changes in conditions,  or the degree
of compliance  with the policies or procedures may  deteriorate.  Because of the
inherent  limitations in a cost-effective  control system,  misstatements due to
error or fraud  may  occur  and not be  detected.  Based  on the  February  2007
evaluation,  and subject to the foregoing,  the Principal  Executive Officer and
Principal Financial Officer concluded that the Partnership's disclosure controls
and  procedures are effective as of the end of the period covered by this report
to alert them in a timely  manner to any  material  information  relating to the
Partnership that must be included in the Partnership's periodic SEC filings, and
particularly  during  the  period in which  this  report is being  prepared.  In
addition,  there have been no significant changes in the Partnership's  internal
control over financial  reporting that occurred  during the  Partnership's  most
recent fiscal quarter that has materially  affected,  or is reasonably likely to
materially affect, the Partnership's internal control over financial reporting.


ITEM 8B. OTHER INFORMATION
         -----------------

     There has not been any information  required to be disclosed in a report on
Form 8-K during the quarter ended December 31, 2006,  but not reported,  whether
or not otherwise required by this Form 10-KSB at December 31, 2006.

                                      II-6

<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, 70, 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.

H. William Willoughby,  60, 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.  Effective May 7, 2005, he assumed the duties
of Principal  Financial Officer and Principal  Accounting  Officer of CRI. He is
principally  responsible for the financial  management of CRI and its associated
partnerships.  Prior to joining CRI in 1974,  he was Vice  President  of Shelter
Corporation of America and a number of its subsidiaries dealing principally with
real  estate   development   and  equity   financing.   Before  joining  Shelter
Corporation,  he was a senior tax accountant with Arthur Andersen & Co. He holds
a Juris Doctor degree, a Master of Business Administration degree and a Bachelor
of  Science  degree in  Business  Administration  from the  University  of South
Dakota.

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

     (d)  Involvement in certain legal proceedings.

          None.


                                      III-1

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


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

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

          The Partnership has no officers or directors.  However,  in accordance
          with  the  Partnership  Agreement,  and as  disclosed  in  the  public
          offering,  various  kinds of  compensation  and fees  were paid or are
          payable  to the  General  Partners  and their  affiliates.  Additional
          information  required  by  this  Item  10 is  incorporated  herein  by
          reference  to  Notes  3 and 4 of the  notes  to  financial  statements
          contained in Part III.


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

     (a)  Security ownership of certain beneficial owners.

          The following  table sets forth  certain  information  concerning  any
          person  (including any "group") who is known by the  Partnership to be
          the  beneficial  owner of more than five  percent  of the  issued  and
          outstanding units of additional  limited partner interest (Units),  at
          March 30, 2007.

<TABLE>
<CAPTION>

                                                                       % of Total
            Name and Address              Amount and Nature           Units Issued
          of Beneficial Owner          of Beneficial Ownership       and Outstanding
          --------------------         -----------------------       ---------------
          <S>                          <C>                           <C>
          Equity Resource,                   10,421 Units                 20.9%
            Investment, LLC
          44 Brattle Street
          Cambridge, MA 02138

</TABLE>


     (b)  Security ownership of management.

          The following  table sets forth  certain  information  concerning  all
          Units  beneficially  owned, as of March 30, 2007, by each director and
          by all  directors  and  officers  as a group of the  Managing  General
          Partner of the Partnership.

<TABLE>
<CAPTION>

                                                                       % of Total
                   Name of                Amount and Nature           Units Issued
               Beneficial Owner        of Beneficial Ownership       and Outstanding
          --------------------------   -----------------------       ---------------
          <S>                          <C>                           <C>
          William B. Dockser                    None                       0.0%
          H. William Willoughby                 None                       0.0%
          All Directors and Officers
            as a Group (2 persons)              None                       0.0%

</TABLE>

         (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
         --------

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

          Exhibit  No.  2 - Plan of  acquisition,  reorganization,  arrangement,
          liquidation, or succession.

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

          Exhibit No. 3 - Articles of Incorporation and bylaws.

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

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

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


                                      III-3

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


ITEM 13. EXHIBITS - Continued
         --------

          Exhibit No. 10 - Material Contracts.

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

          Exhibit No.  31.1 - Certification of Principal Executive Officer,
                              pursuant to 18 U.S.C. Section 1350, as adopted
                              pursuant to Section 302 of the
                              Sarbanes-Oxley Act of 2002.

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

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

          Exhibit No. 99 - Additional Exhibits.

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


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
         --------------------------------------

     During the years ended December 31, 2006 and 2005, the Partnership retained
Grant Thornton LLP to provide services as follows.


                                       Year Ended December 31,
                                      ------------------------
                                        2006            2005
                                      --------        --------

     Audit fees                       $101,444        $ 89,950
     Audit-related fees                     --              --
     Tax fees (1)                       26,250          22,500
     All other fees                         --              --
                                      --------        --------
         Total                        $127,694        $112,450
                                      ========        ========


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


     The Partnership has no directors or officers. The Board of Directors of the
Managing General Partner of the Partnership, serving as the audit committee, has
approved in advance  100% of the fees paid to, and  services  provided by, Grant
Thornton LLP. Prior to approving  Grant  Thornton LLP's  providing any non-audit
services,  the  Board  of  Directors  of the  Managing  General  Partner  of the
Partnership   would  assess  whether  the  provision  of  those  services  would
compromise  Grant  Thornton  LLP's  independence.  Grant  Thornton  LLP provided
partnership tax return preparation  services during the years ended December 31,
2006 and  2005,  which  services  it was  determined  did not  compromise  Grant
Thornton LLP's independence.


                                      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 30, 2007                   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 30, 2007                   by:  /s/ H. William Willoughby
--------------                        ------------------------------------------
DATE                                  H. William Willoughby,
                                      Director, President, Secretary,
                                        Principal Financial Officer and
                                        Principal Account Officer

                                      III-5

<PAGE>


Report of Independent Registered Public Accounting Firm


The Partners
Capital Realty Investors-II Limited Partnership.


We have audited the accompanying  balance sheets of Capital Realty  Investors-II
Limited  Partnership (a Maryland limited  partnership)  (the  Partnership) as of
December 31, 2006 and 2005 and the related statements of operations,  changes in
partners'  (deficit)  capital,  and cash flows for the years  then  ended  These
financial statements are the responsibility of the Partnership's management. Our
responsibility  is to express an opinion on these financial  statements based on
our audits. We did not audit the financial  statements of the Local Partnerships
in connection with our 2005 audit. The Partnership's  share of income from these
Local Partnerships  constitutes $444,860 of income included in the Partnership's
2005 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 the Standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial statements are free from material misstatement. The Partnership is not
required  to have,  nor were we  engaged  to  perform  an audit of its  internal
control over financial reporting.  Our audit included  consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion  on  the  effectiveness  of  the  Partnership's  internal  control  over
financial  reporting.  Accordingly,  we express no such  opinion.  An audit also
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by  management,  as well as evaluating the
overall  financial  statement  presentation.  We believe that our audits and the
reports of other auditors provide a reasonable basis for our opinion.

In our opinion,  the 2006 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, 2006 and the results of its  operations,
changes  in  partners'  (deficit)  capital  and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, based upon our audit and the reports of
other auditors,  the 2005 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, 2005 and the results of its  operations,
changes  in  partners'  (deficit)  capital  and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.

<PAGE>

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


                                                 Grant Thornton LLP


McLean, Virginia
March 30, 2007

                                      III-7

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                                 BALANCE SHEETS


                                     ASSETS

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                      ----------------------------
                                                                                          2006            2005
                                                                                      ------------    ------------
<S>                                                                                   <C>             <C>
Investment in partnerships held for sale ..........................................   $    392,643    $    559,613
Cash and cash equivalents .........................................................      4,845,857       4,647,720
Sales proceeds receivable .........................................................           --           797,693
Other assets ......................................................................        117,806           1,891
                                                                                      ------------    ------------

   Total assets ...................................................................   $  5,356,306    $  6,006,917
                                                                                      ============    ============


                        LIABILITIES AND PARTNERS' CAPITAL



Due on investments in partnerships ................................................   $  1,400,000    $  1,400,000
Accrued interest payable ..........................................................      3,004,262       2,878,262
Accounts payable and accrued expenses .............................................        147,849         140,423
                                                                                      ------------    ------------

   Total liabilities ..............................................................      4,552,111       4,418,685
                                                                                      ------------    ------------

Commitments and contingencies

Partners' capital:

  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 .........................................    (34,752,903)    (34,500,041)
    Offering costs ................................................................     (5,278,980)     (5,278,980)
    Accumulated losses ............................................................     (9,180,922)     (8,649,747)
                                                                                      ------------    ------------

      Total partners' capital .....................................................        804,195       1,588,232
                                                                                      ------------    ------------

      Total liabilities and partners' capital .....................................   $  5,356,306    $  6,006,917
                                                                                      ============    ============

</TABLE>

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

                                      III-8

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                 For the years ended
                                                                                     December 31,
                                                                              --------------------------
                                                                                  2006          2005
                                                                              -----------    -----------
<S>                                                                           <C>            <C>
Share of (loss) income from partnerships ..................................   $  (118,017)   $   581,286
                                                                              -----------    -----------

Other revenue and expenses:

  Revenue:
    Interest and other ....................................................       270,649        163,452
                                                                              -----------    -----------

                                                                                  270,649        163,452
                                                                              -----------    -----------

  Expenses:
    Management fee ........................................................       249,996        249,996
    General and administrative ............................................       232,413        267,121
    Professional fees .....................................................       166,330        178,131
    Interest ..............................................................       126,000        126,000
                                                                              -----------    -----------

                                                                                  774,739        821,248
                                                                              -----------    -----------

      Total other revenue and expenses ....................................      (504,090)      (657,796)
                                                                              -----------    -----------

Loss before gain on disposition of investment in partnerships .............      (622,107)       (76,510)

Gain on disposition of investment in partnerships, net of disposition fees         90,932      8,735,620
                                                                              -----------    -----------

Net (loss) income .........................................................   $  (531,175)   $ 8,659,110
                                                                              ===========    ===========


Net (loss) income allocated to General Partners (1.51%) ...................   $    (8,021)   $   130,752
                                                                              ===========    ===========

Net (loss) income allocated to Initial and Special Limited Partners (1.49%)   $    (7,914)   $   129,021
                                                                              ===========    ===========

Net (loss) income allocated to Additional Limited Partners (97%) ..........   $  (515,240)   $ 8,399,337
                                                                              ===========    ===========

Net (loss) income per unit of Additional Limited Partner Interest,
  based on 49,910 units outstanding .......................................   $    (10.32)   $    168.29
                                                                              ===========    ===========

</TABLE>

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

                                      III-9

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

              STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL

<TABLE>
<CAPTION>
                                                                       Initial and
                                                                         Special         Additional
                                                       General           Limited          Limited
                                                       Partners          Partners         Partners              Total
                                                      ----------       -----------      ------------        -------------
<S>                                                   <C>              <C>              <C>                 <C>
Partners' (deficit) capital, January 1, 2005          $(440,789)       $ (380,246)      $ 12,956,225        $ 12,135,190

  Net income                                            130,752           129,021          8,399,337           8,659,110

  Distribution of $384.50 per unit
    of Additional Limited Partner Interest                   --               --         (18,602,098)        (18,602,098)

  Tax distribution on behalf of
    Additional Limited Partners                              --               --            (603,970)           (603,970)
                                                      ---------        ---------        ------------        ------------

Partners' (deficit) capital, December 31, 2005         (310,037)        (251,225)          2,149,494           1,588,232
                                                      ---------        ---------        ------------        ------------

  Net loss                                               (8,021)          (7,914)           (515,240)           (531,175)

  Tax distribution on behalf of
    Additional Limited Partners                              --               --            (252,862)           (252,862)
                                                      ---------        ---------        ------------        ------------

Partners' (deficit) capital, December 31, 2006        $(318,058)       $(259,139)       $  1,381,392        $    804,195
                                                      =========        =========        ============        ============

</TABLE>

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

                                      III-10

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                     For the years ended
                                                                                         December 31,
                                                                                 ----------------------------
                                                                                     2006            2005
                                                                                 -------------   ------------
<S>                                                                              <C>             <C>
Cash flows from operating activities:
  Net (loss) income ..........................................................   $   (531,175)   $  8,659,110

  Adjustments to reconcile net (loss) income to net cash used in operating
    activities:
    Share of loss (income) from partnerships .................................        118,017        (581,286)
    Loss (gain) on disposition of investment in partnerships
      net of disposition fees ................................................         12,567      (8,605,048)
    Additional gain on disposition of investment in partnerships .............       (103,499)       (130,572)
    Loss on sale proceeds receivable .........................................           --            14,087

    Changes in assets and liabilities:
      Increase in other assets ...............................................       (115,915)         (1,319)
      Increase in accrued interest payable ...................................        126,000         126,000
      Increase in accounts payable and accrued expenses ......................          7,426           1,886
      Increase in accrued interest receivable on advances ....................         (1,250)         (1,500)
                                                                                 ------------    ------------

        Net cash used in operating activities ................................       (487,829)       (518,642)
                                                                                 ------------    ------------


Cash flows from investing activities:
  Receipt of distributions from partnerships .................................         37,636         350,393
  Proceeds from disposition of investment in partnerships ....................           --        11,775,267
  Collection of sale proceeds receivable .....................................        797,693         456,879
  Additional proceeds from disposition of investment in partnerships .........        103,499            --
  Payment of disposition fees to related party ...............................           --        (3,521,675)
                                                                                 ------------    ------------

        Net cash provided by investing activities ............................        938,828       9,060,864
                                                                                 ------------    ------------


Cash flows from financing activities:
  Distribution to Additional Limited Partners ................................           --       (18,602,098)
  Tax distribution on behalf of Additional Limited Partners ..................       (252,862)       (603,970)
                                                                                 ------------    ------------

        Net cash used in financing activities ................................       (252,862)    (19,206,068)
                                                                                 ------------    ------------


Net increase (decrease) in cash and cash equivalents .........................        198,137     (10,663,846)

Cash and cash equivalents, beginning of year .................................      4,647,720      15,311,566
                                                                                 ------------    ------------

Cash and cash equivalents, end of year .......................................   $  4,845,857    $  4,647,720
                                                                                 ============    ============



Supplemental disclosure of cash flow information:
  Non-cash investing activity:

    Proceeds from disposition of investment
    in partnership, accrued in 2005, collected in 2006 .......................                   $    323,208
                                                                                                 ============

</TABLE>

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

                                     III-11

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

          Capital Realty Investors-II  Limited Partnership (the Partnership) was
     formed under the Maryland Revised Uniform Limited  Partnership Act on March
     23,  1983,  and shall  continue  until  December 31,  2037,  unless  sooner
     dissolved in accordance with the terms of the Partnership  Agreement.  (See
     Note 1.k., below, for a discussion on the Partnership's Plan of Liquidation
     and  Dissolution.)  The  Partnership was formed to invest in real estate by
     acquiring and holding  limited  partner  interests in limited  partnerships
     (Local   Partnerships)   which   own   and   operate   federal   or   state
     government-assisted  apartment properties which provide housing principally
     to the elderly or to  individuals  and families of low or moderate  income,
     located throughout the United States.

          The General Partners of the Partnership are C.R.I.,  Inc. (CRI), which
     is the Managing  General  Partner,  and current and former  shareholders of
     CRI. The Initial  Limited  Partner is  Rockville  Pike  Associates  Limited
     Partnership-II,  a  limited  partnership  which  includes  certain  current
     officers and former employees of CRI or its affiliates. The Special Limited
     Partner  had  been  Two  Broadway  Associates  II,  a  limited  partnership
     comprised of an affiliate and employees of Merrill Lynch, Pierce,  Fenner &
     Smith, Incorporated.  Effective January 1, 2002, Two Broadway Associates II
     transferred its interest to MLH Merger Corporation and three individuals.

          The  Partnership  sold 50,000  units at $1,000 per unit of  additional
     limited partner interest through a public offering. The offering period was
     terminated  on June  20,  1983.  As of  December  31,  2006,  90  units  of
     additional limited partner interest had been abandoned.

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

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

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

          The investments in and advances to Local Partnerships (see Note 2) are
     accounted for by the equity  method  because the  Partnership  is a limited
     partner in the Local  Partnerships.  Under this method, the carrying amount
     of the investments in and advances to Local  Partnerships is (i) reduced by
     distributions  received and (ii) increased or reduced by the  Partnership's
     share of earnings or losses, respectively, of the Local Partnerships. As of
     December 31, 2006 and 2005, the Partnership's share of cumulative losses of
     two  and  three  of the  Local  Partnerships  exceeded  the  amount  of the
     Partnership's  investments in and advances to those Local  Partnerships  by
     $1,008,958 and $974,305, respectively. Since the Partnership has no further
     obligation   to  advance   funds  or  provide   financing  to  these  Local
     Partnerships, the excess losses have not been reflected in the accompanying
     financial statements.  Distributions of $37,636 and $77,065,  received from
     two and three Local Partnerships  during 2006 and 2005,  respectively,  and
     for  which  the  Partnership's   carrying  value  is  zero  (equity  method
     suspended), were recorded as increases in the Partnership's share of income
     from partnerships in the year received.


                                     III-12

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

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

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

          Orangewood  Plaza Limited  Partnership  (Orangewood  Plaza),  which is
     under  contract to be sold,  as further  discussed  in note 2.e.,  has been
     reclassified to investment in partnerships held for sale or transfer in the
     accompanying  balance sheets at December 2006 and 2005. Due to the possible
     sale of the Westgate Tower Limited Dividend Housing  Associates  (Westgate)
     property, the Partnership's investment in Westgate has been reclassified to
     investment in partnerships held for sale in the accompanying balance sheets
     at December 31, 2006 and 2005.  In  accordance  with its  approved  Plan of
     Liquidation  and  Dissolution,  the  Partnership is actively  marketing its
     remaining investment in Chowchilla Elderly Associates, Ltd. (Golden Acres).
     Accordingly,  the Partnership has reclassified the investment to investment
     in  partnerships  held for sale or  transfer  in the  accompanying  balance
     sheets at December 31, 2006 and 2005. The Partnership's  investment in Four
     Winds West Company,  Ltd. (Four Winds West) and Troy  Apartments Ltd. (Troy
     Manor) were  reclassified  to investment in  partnerships  held for sale or
     transfer at December 30,  2005.  The  Partnership's  interest in Four Winds
     West was  transferred in October 2006. The  Partnership's  interest in Troy
     Manor was transferred  December 2006.  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. Interest income is recognized as earned.

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

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

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

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

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

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


                                     III-13

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

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

          The financial  statements  include estimated fair value information as
     of December  31, 2006,  as required by  Statement  of Financial  Accounting
     Standards No. 107 (SFAS No. 107),  Disclosure About Fair Value of Financial
     Instruments.   Such  information,   which  pertains  to  the  Partnership's
     financial instruments (primarily cash and cash equivalents and the purchase
     money  note),  is based on the  requirements  set forth in SFAS No. 107 and
     does  not  purport  to  represent  the  aggregate  net  fair  value  of the
     Partnership.

          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 note 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  Partnership,  and (iii) the
     excessive costs  associated  with an independent  appraisal of the purchase
     money note.

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

          In September  2006,  the Securities  and Exchange  Commission  ("SEC")
     issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior
     Year Misstatements when Quantifying Misstatements in Current Year Financial
     Statements" ("SAB No. 108"). SAB No. 108 requires  quantification of errors
     using both a balance sheet approach and an income statement approach in the
     determination of materiality in relation to a misstatement.  SAB No. 108 is
     effective the first fiscal year ending after November 15, 2006.  Management
     believes SAB No. 108 will not have any impact on the Partnership.

          In September  2006,  the  Financial  Accounts  Standards  Board (FASB)
     issued SFAS No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157
     establishes a formal  framework for  measuring  fair value under  generally
     accepted accounting principles.  Although SFAS No. 157 applies (amends) the
     provisions of existing FASB and AICPA  pronouncements,  it does not require
     any new fair value measurements, nor does it establish valuation standards.
     SFAS No. 157 is effective  for fiscal years  beginning  after  November 15,
     2007.  Management  has  determined  that SFAS No. 157 will have no material
     impact to the Partnership.

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

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

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

                                     III-14

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     (2)  the amendment of the Partnership's  Limited  Partnership  Agreement to
          permit CRI to be eligible to receive a partnership  liquidation fee in
          the amount of $500,000,  payable only if the Managing  General Partner
          is  successful in  liquidating  all of the  Partnership's  investments
          within 36 months from the date the liquidation was approved [March 22,
          2004], in recognition  that one or more of the properties in which the
          Partnership  holds an  interest  might not be  saleable to parties not
          affiliated  with the respective  Local  Partnership  due to the amount
          and/or  terms  of  their  current   indebtedness   (the   "Partnership
          Liquidation Fee"); and

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

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

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

<TABLE>
<CAPTION>
                                         FOR                  AGAINST                ABSTAIN                 TOTAL
                                  ------------------     ------------------     -------------------     -------------------
                                  Units of               Units of               Units of                Units of
                                  limited                limited                limited                 limited
                                  partner                partner                partner                 partner
     Description                  interest   Percent     interest   Percent     interest    Percent     interest    Percent
     -----------                  --------   -------     --------   -------     --------    -------     --------    -------
     <S>                          <C>        <C>         <C>        <C>         <C>         <C>         <C>         <C>
     Sale, dissolution and
       five percent
       Disposition Fee             28,699     57.6%       1,264       2.5%         268        0.5%       30,231      60.6%

     $500,000 Partnership
       Liquidation Fee             25,841     51.8%       3,546       7.1%         844        1.7%       30,231      60.6%

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

</TABLE>


          The Partnership was not liquidated  within 36 months from the approved
     liquidation date of March 22, 2004,  therefore no liquidation fee was taken
     by the  Partnership.  The Managing  General  Partner is continuing  towards
     liquidation of all the Partnership's investments.

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

     l.   Allocation of net income (loss)
          ------------------------------

          Net  income  (loss)  is  allocated  based  on  respective  partnership
     interest or units outstanding. The Partnership has no dilutive interests.


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

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

          As of December 31, 2006 and 2005, the Partnership held limited partner
     interests in three and five Local  Partnerships,  respectively,  which were

                                     III-15

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     organized to develop, construct, own, maintain and operate rental apartment
     properties.  The remaining amounts due on the  Partnership's  investment in
     one Local Partnership follow.


                                                          December 31,
                                                 ----------------------------
                                                    2006                2005
                                                 ----------        ----------

            Purchase money note due in 2003      $1,400,000        $1,400,000

            Accrued interest payable              3,004,262         2,878,262
                                                 ----------        ----------
                  Total                          $4,404,262        $4,278,262
                                                 ==========        ==========


          The remaining  purchase  money note,  which matured  September 1, 2003
     (see below),  has a stated  interest rate of 9%. The purchase money note is
     nonrecourse,  but its terms  provide for payment in full upon the  earliest
     of: (i) sale or refinancing  of the Local  Partnership's  rental  property;
     (ii) payment in full of the Local  Partnership's  permanent  loan; or (iii)
     maturity.

          The purchase money note, which is nonrecourse to the  Partnership,  is
     secured by the  Partnership's  interest in the Westgate Local  Partnership,
     which owns Westgate Tower Apartments  (Westgate).  The underlying  property
     does not have sufficient  appreciation and equity to enable the Partnership
     to pay the  purchase  money  note's  principal  and  accrued  interest.  In
     conjunction  with the approved Plan of Liquidation  and  Dissolution of the
     Partnership, the Managing General Partner is currently negotiating the sale
     of the property owned by Westgate and seeking consent of the noteholders to
     accept the proceeds  from such sale as a discounted  payoff of the purchase
     money note's principal and accrued  interest.  The discounted  payoff would
     result in  cancellation  of  indebtedness  income to the Limited  Partners,
     which would be taxed at a federal  tax rate of up to 35 percent.  There can
     be no  assurance  that a sale of  Westgate  and  discounted  payoff  of the
     purchase money note will occur.

          Interest expense on the Partnership's Westgate purchase money note for
     the years ended  December 31, 2006 and 2005,  was  $126,000  and  $126,000,
     respectively.  The accrued  interest  payable on the purchase money note of
     $3,004,262 and  $2,878,262 as of December 31, 2006 and 2005,  respectively,
     is in default.

                                    Westgate
                                    --------

          The  Partnership  defaulted on its one remaining  purchase money note,
     related to  Westgate,  on September  1, 2003,  when the note (as  extended)
     matured and was not paid. The default amount included principal and accrued
     interest of $1,400,000 and $2,584,492,  respectively. As of March 30, 2007,
     principal and accrued interest of $1,400,000 and $3,034,985,  respectively,
     were due.

          Due to the  possible  sale of the property  related to  Westgate,  the
     Partnership's   basis  in  the  Local  Partnership,   along  with  the  net
     unamortized  amount of acquisition fees and property purchase costs,  which
     totaled  $392,643  and  $423,113 as of December  31, 2006 and  December 31,
     2005,  respectively,  has been  reclassified  to investment in partnerships
     held for sale 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

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

          The Partnership has a 97.99% 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
     2006 and 2005,  the  Partnership  received cash  distributions  from rental
     operations of the Local Partnerships of $37,636 and $350,393, respectively.
     As of December  31,  2006 and 2005,  zero and three,  respectively,  of the
     Local  Partnerships  had  aggregate  surplus  cash,  as  defined  by  their
     respective   regulatory  Agencies,  in  the  amounts  of  $0  and  $45,337,
     respectively,  which may be available for  distribution  in accordance with
     their respective regulatory Agencies' regulations.

          The cash  distributions  to the Partnership from the operations of the
     Local  Partnerships  may be  limited  by the  Agencies'  regulations.  Such
     regulations limit annual cash  distributions to a percentage of the owner's
     equity investment in a rental property.  Funds in excess of those which may
     be distributed to owners are generally  required to be placed in a residual
     receipts  account  held by the  governing  state or federal  agency for the
     benefit of the  property.  In addition,  local  general  partners  have the
     authority to withhold funds if needed for property  repairs,  improvements,
     or other property needs.

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

     c.   Advance to Local Partnership
          ----------------------------

                                 Four Winds West
                                 ---------------

          On October 12, 2004, the  Partnership  advanced  $25,000 to Four Winds
     West to assist with current cash requirements.  As of October 31, 2006, the
     note was  canceled.  For  financial  reporting  purposes,  the  advance was
     reduced  to zero by the  Partnership  as a result of losses at the  related
     Local Partnership level in 2004.

     d.   Completed sales and transfer
          ----------------------------

                                    Arrowhead
                                    ---------

          On  November  17,  2004,  the  Partnership's   interest  in  Arrowhead
     Apartments Associates (Arrowhead) was sold. Gross cash proceeds received in
     2004 by the Partnership totaled  $1,156,495.  The sale resulted in net gain
     on  disposition  of  investment in  partnerships  of $698,210 for financial
     statement purposes and in total gain of $6,082,297 for federal tax purposes
     in 2004.  In accordance  with the terms of the  Partnership  Agreement,  in
     December 2004 the Managing  General  Partner was paid a disposition  fee of


                                     III-17

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     $432,824  related to the sale.  The fee was netted against the related gain
     on disposition  of investment in  partnerships.  In 2005,  the  Partnership
     accrued $85,470 for additional  cash proceeds  expected to be received upon
     the release of escrow  reserves,  of which  $42,649 was  received in August
     2005 and the remaining $42,821 was received in January 2006.

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

          On November 22, 2005,  the  property  owned by Chevy Chase Park,  Ltd.
     (Chevy  Chase)  was  sold.  Gross  cash  proceeds  received  in 2005 by the
     Partnership  totaled   $6,814,125.   The  sale  resulted  in  net  gain  on
     disposition  of investment  in  partnerships  of  $5,238,173  for financial
     statement purposes and in total gain of $7,115,800 for federal tax purposes
     in 2005.  The  Partnership  accrued  $23,208,  which is included in gain on
     disposition of investment in  partnerships  in 2005,  for  additional  sale
     proceeds  receivable  related to the sale of which  $18,909 was received in
     March 2006 and the  remaining  $4,299 was received in April 2006.  In 2006,
     net gain on  disposition  of  investment  in  partnerships  was  reduced by
     $11,602 relating to additional  expenses  incurred.  In accordance with the
     terms of the Partnership  Agreement,  in November 2005 the Managing General
     Partner was paid a disposition fee of $435,000 related to the sale. The fee
     was netted  against  the  related  gain on  disposition  of  investment  in
     partnerships.

                                 Country Place I
                                 ---------------

          On December 29, 2004, the Partnership's  interest in Blackburn Limited
     Partnership (Country Place I) was sold. Gross cash proceeds received by the
     Partnership in 2004 totaled $6,821,935.  In addition, at December 31, 2004,
     the Partnership  accrued  $504,604 for cash proceeds to be received in 2005
     upon the release of escrow reserves,  which were posted as security for the
     purchaser  to claim any  monetary  damages as a result of any breach of the
     representations  and  warranties  made by the seller  within one year after
     closing.  The sale  resulted in net gain on  disposition  of  investment in
     partnerships  of $6,565,858 for financial  statement  purposes and in total
     gain of  $11,060,421  for federal tax purposes in 2004. In accordance  with
     the  terms of the  Partnership  Agreement,  in  January  2005 the  Managing
     General Partner was paid a disposition fee of $743,366 related to the sale.
     The fee was accrued and netted  against the related gain on  disposition of
     investment  in   partnerships   at  December  31,  2004.  In  August  2005,
     approximately  fifty  percent of the escrowed  reserves was  received.  The
     remaining  amount of $253,358 was received in January  2006. In April 2005,
     an  additional  $9,000 that was  received  from the Local  Partnership  was
     recorded as gain on disposition of investments in  partnerships at December
     31, 2005.

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

          On December 29, 2004, the  Partnership's  interest in Second Blackburn
     Limited  Partnership  (Country  Place II) was  sold.  Gross  cash  proceeds
     received  in  2004  by the  Partnership  in  2004  totaled  $4,438,748.  In
     addition,  at December 31, 2004, the Partnership  accrued $328,275 for cash
     proceeds to be received in 2005 upon the release of escrow reserves,  which
     were posted as security for the purchaser to claim any monetary  damages as
     a result of any breach of representations and warranties made by the seller
     within one year after closing. The sale resulted in net gain on disposition
     of  investment  in  partnerships  of  $4,288,096  for  financial  statement
     purposes and in total gain of $6,846,454  for federal tax purposes in 2004.
     In accordance with the terms of the Partnership Agreement,  in January 2005
     the Managing General Partner was paid a disposition fee of $467,042 related
     to the sale.  The fee was  accrued and netted  against the related  gain on


                                     III-18

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     disposition of investment in  partnerships  at December 31, 2004. In August
     2005,  approximately  fifty percent of the escrowed  reserves was received.
     The  remaining  amount of $164,728 was received in January  2006.  In April
     2005, an additional $9,000 that was received from the Local Partnership was
     recorded as gain on disposition of investments in  partnerships at December
     31, 2005.

                                 Four Winds West
                                 ---------------

          As of October 31, 2006, the Partnership's  interest in Four Winds West
     was transferred to an affiliate of the local managing general partner.  The
     transfer  resulted in loss on disposition of investment in  partnerships of
     $12,567 for financial  statement purposes and in total gain of $587,569 for
     federal  income  tax  purposes  in 2006.  In March  2007,  the  Partnership
     received a cash  distribution  of $12,305  which is accrued and included in
     other income in the accompanying financial statements at December 31, 2006.

          The  Partnership's  net  unamortized  amount of  acquisition  fees and
     property  purchase costs relating to Four Winds West, which totaled $12,567
     at December 31, 2005, had been  reclassified  to investment in partnerships
     held for sale or transfer in the accompanying balance sheet at that date.

                                  Mercy Terrace
                                  -------------

          On  June  6,  2005,  the  Partnership's   interest  in  Mercy  Terrace
     Associates (Mercy Terrace) was sold. Gross proceeds received in 2005 by the
     Partnership  totaled   $1,012,685.   The  sale  resulted  in  net  gain  on
     disposition  of  investment  in  partnerships  of  $255,043  for  financial
     statement purposes and in total gain of $7,320,022 for federal tax purposes
     in 2005. In accordance with the terms of the Partnership Agreement, in June
     2005 the Managing  General  Partner was paid a disposition  fee of $757,642
     related  to the  sale.  The fee was  netted  against  the  related  gain on
     disposition of investment in partnerships.

                                    Moorings
                                    --------

          On  November  17,  2004,  the   Partnership's   interest  in  Moorings
     Apartments  Associates (Moorings) was sold. Gross cash proceeds received in
     2004 by the Partnership totaled $366,943.  The sale resulted in net loss on
     disposition  of  investment  in  partnerships  of  $120,694  for  financial
     statement purposes and in total gain of $6,216,291 for federal tax purposes
     in 2004.  In accordance  with the terms of the  Partnership  Agreement,  in
     December 2004 the Managing  General  Partner was paid a disposition  fee of
     $462,417  related to the sale. In 2005 the Partnership  accrued $27,101 for
     additional cash proceeds expected to be received upon the release of escrow
     reserves,  of which  $13,523  was  received  in August 2005 and $13,578 was
     received in January 2006.

                                 Posada Vallarta
                                 ---------------

          On December 12, 2005, the property owned by Posada Associates  Limited
     Partnership  (Posada  Vallarta) was sold.  Gross cash proceeds  received in
     2005 by the Partnership totaled  $3,930,457.  The sale resulted in net gain
     on  disposition of investment in  partnerships  of $3,111,832 for financial
     statement  purposes  and in  total  gain of  $13,057,662  for  federal  tax
     purposes  in  2005.  In  accordance  with  the  terms  of  the  Partnership
     Agreement,  in  December  2005  the  Managing  General  Partner  was paid a
     disposition  fee of  $1,118,625  related  to the sale.  The fee was  netted
     against the related gain on disposition of investment in partnerships.  The


                                     III-19

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     Partnership  accrued $300,000,  which is included in gain on disposition of
     investment in partnerships  in 2005, for additional sale proceeds  received
     in March 2006.  During the first quarter of 2006, the Partnership  recorded
     gain on disposition  of investment in  partnerships  of $113,617,  of which
     $54,035 was  received in March 2006 and $59,582 was received in April 2006.
     During the second  quarter of 2006,  gain on  disposition  of investment in
     partnerships  was  reduced  by  $3,861  relating  to  additional   expenses
     incurred.  During the third quarter of 2006, the Partnership  recorded gain
     in disposition of investment in partnerships of $5,819, of which $4,989 was
     received in July 2006 and $830 was received in September  2006.  During the
     fourth quarter of 2006,  gain on disposition of investment in  partnerships
     was reduced by $474.

                                   Troy Manor
                                   ----------

          On December 31,  2006,  the  Partnership's  interest in Troy Manor was
     transferred  to an affiliate of the local  managing  general  partner.  The
     transfer resulted in no gain or loss for financial  statement  purposes and
     in total gain of $633,155  for  federal  income tax  purposes in 2006.  The
     Partnership's basis in Troy Manor totaled $0 at December 31, 2005. In March
     2007,  the  Partnership  received a cash  distribution  of $7,425  which is
     accrued  and  included  in  other  income  in  the  accompanying  financial
     statements at December 31, 2006.

     e.   Assets held for sale or transfer
          --------------------------------

                                  Golden Acres
                                  ------------

          In accordance with its approved Plan of Liquidation  and  Dissolution,
     the  Partnership  is currently  negotiating  the sale of the  Partnership's
     interests  relating  to Golden  Acres.  The  Partnership's  basis in Golden
     Acres,  which totaled $0 and $113,090 at December 31, 2006 and December 31,
     2005,  respectively,  has been  reclassified  to investment in partnerships
     held for sale or transfer in the accompanying  balance sheets.  There is no
     assurance that a sale will occur.

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

          On December 28,  2006,  a contract  for the sale of the  Partnership's
     interest  in  Orangewood  Plaza  was  signed.  The  Partnership's  basis in
     Orangewood  Plaza  totaled $0 at both  December  31, 2006 and  December 31,
     2005. There is no assurance that the sale will occur.

                                    Westgate
                                    --------

          See Note 2.a., above.

     f.   Summarized financial information
          --------------------------------

          Combined balance sheets and combined  statements of operations for the
     three  Local  Partnerships  in which  the  Partnership  is  invested  as of
     December 31, 2006, follow. The information is presented  separately for one
     Local Partnership  which has investment basis (equity method),  and for two
     Local  Partnerships  for which  the  Partnership's  carrying  value is zero
     (equity method suspended).


                                     III-20

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued


                             COMBINED BALANCE SHEETS
                                December 31, 2006

<TABLE>
<CAPTION>
                                                              Equity
                                                              Method           Suspended             Total
                                                            ----------        -----------         -----------
          <S>                                               <C>               <C>                 <C>
          Number of Local Partnerships                           1                2                    3
                                                                 =                =                    =
          Rental property, at cost, net of
            accumulated depreciation of
            $3,130,319, $1,669,515, and
            $4,799,834, respectively                        $1,347,896        $ 1,442,412         $ 2,790,308
          Land                                                 153,473            127,960             281,433
          Other assets                                         338,082            276,238             614,320
                                                            ----------        ------------        -----------
              Total assets                                  $1,839,451        $ 1,846,610         $ 3,686,061
                                                            ==========        ============        ===========


          Mortgage notes payable                            $1,298,371        $ 2,978,929         $ 4,277,300
          Other liabilities                                    192,384            236,261             428,645
          Due to general partners                                   --              1,385               1,385
                                                            ----------        -----------         -----------
              Total liabilities                              1,490,755          3,216,575           4,707,330

          Partners' capital (deficit)                          348,696         (1,369,965)         (1,021,269)
                                                            ----------        -----------         -----------
              Total liabilities
                and partners' deficit                       $1,839,451        $ 1,846,610         $ 3,686,061
                                                            ==========        ===========         ===========
</TABLE>

                        COMBINED STATEMENTS OF OPERATIONS
                      For the year ended December 31, 2006

<TABLE>
<CAPTION>
                                                               Equity
                                                               Method          Suspended             Total
                                                            -----------       -----------         -----------
          <S>                                               <C>               <C>                 <C>
          Number of Local Partnerships                           1                2                    3
                                                                 =                =                    =
          Revenue:
            Rental                                          $   680,348       $   427,734         $ 1,108,082
            Other                                                28,885           155,433             184,318
                                                            -----------       -----------         -----------
              Total revenue                                     709,233           583,167           1,292,400
                                                            -----------       -----------         -----------

          Expenses:
            Operating                                           613,459           707,856           1,321,315
            Interest                                            (35,865)           40,987               5,122
            Depreciation and  amortization                      162,735           108,703             271,438
                                                            -----------       -----------         -----------
              Total expenses                                    740,329           857,546           1,597,875
                                                            -----------       -----------         -----------

          Net loss                                          $   (31,096)      $  (274,379)        $  (305,475)
                                                            ===========       ===========         ===========
          Cash distributions                                $        --       $    37,636 (1)     $    37,636
                                                            ===========       ===========         ===========

          Cash distributions recorded as income             $        --       $    37,636 (1)     $    37,636

          Partnership's share of
            Local Partnership net loss                          (30,471)         (123,933)           (154,404)

          Miscellaneous                                              --            (1,249)             (1,249)
                                                            -----------       -----------         -----------
          Share of loss from partnerships                   $   (30,471)      $   (87,546)        $  (118,017)
                                                            ===========       ===========         ===========
</TABLE>

          (1)  Includes Troy Manor transferred in December 2006.



                                     III-21

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued


          Combined balance sheets and combined  statements of operations for the
     five  Local  Partnerships  in which  the  Partnership  was  invested  as of
     December 31, 2005, follow. The information is presented  separately for two
     Local  Partnerships  which have investment basis (equity  method),  and for
     three Local Partnerships for which the Partnership's carrying value is zero
     (equity method suspended).


                             COMBINED BALANCE SHEETS
                                December 31, 2005

<TABLE>
<CAPTION>
                                                               Equity
                                                               Method            Suspended            Total
                                                            -----------         -----------        -----------
          <S>                                               <C>                 <C>                <C>
          Number of Local Partnerships                           2                  3                   5
                                                                 =                  =                   =
          Rental property, at cost, net of
            accumulated depreciation of
            $3,974,173, $3,459,741, and
            $7,433,914, respectively                        $ 2,054,975         $ 1,773,538        $ 3,828,513
          Land                                                  217,533             204,665            422,198
          Other assets                                          813,551             387,558          1,201,109
                                                            -----------         -----------        -----------
              Total assets                                  $ 3,086,059         $ 2,365,761        $ 5,451,820
                                                            ===========         ===========        ===========


          Mortgage notes payable                            $ 2,490,920         $ 3,388,145        $ 5,879,065
          Other liabilities                                     407,608             217,543            625,151
          Due to general partners                                 1,385                  --              1,385
                                                            -----------         -----------        -----------
              Total liabilities                               2,899,913           3,605,688          6,505,601

          Partners' capital (deficit)                           186,146          (1,239,927)        (1,053,781)
                                                            -----------         -----------        -----------
              Total liabilities
                and partners' capital (deficit)             $ 3,086,059         $ 2,365,761        $ 5,451,820
                                                            ===========         ===========        ===========
</TABLE>

                                     III-22

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued


                        COMBINED STATEMENTS OF OPERATIONS
                      For the year ended December 31, 2005

<TABLE>
<CAPTION>
                                                               Equity
                                                               Method            Suspended            Total
                                                            -----------         -----------        -----------
          <S>                                               <C>                 <C>                <C>
          Number of Local Partnerships                           2                  3                  5
                                                                 =                  =                  =

          Revenue:
            Rental                                          $   962,807         $   836,884        $ 1,799,691
            Other                                               425,890               7,278            433,168
                                                            -----------         -----------        -----------
              Total revenue                                   1,388,697             844,162          2,232,859
                                                            -----------         -----------        -----------

          Expenses:
            Operating                                           889,602             633,197          1,522,799
            Interest                                             20,313             126,726            147,039
            Depreciation and  amortization                      207,661             162,604            370,265
                                                            -----------         -----------        -----------
              Total expenses                                  1,117,576             922,527          2,040,103
                                                            -----------         -----------        -----------
          Net income (loss)                                 $   271,121         $   (78,365)       $   192,756
                                                            ===========         ===========        ===========
          Cash distributions                                $   273,328 (1)     $    77,065 (2)    $   350,393
                                                            ===========         ===========        ===========

          Cash distributions recorded as income             $        --         $    77,065 (2)    $    77,065

          Partnership's share of
            Local Partnership net income                        505,721 (1)              --            505,721

          Miscellaneous                                              --              (1,500)            (1,500)
                                                            -----------         -----------        -----------
          Share of income from partnerships                 $   505,721         $    75,565        $   581,286
                                                            ===========         ===========        ===========
</TABLE>

          (1)  Includes Chevy Chase sold in November 2005.
          (2)  Includes Mercy Terrace sold in June 2005.


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

     g.   Reconciliation of the Local Partnerships' financial
          ---------------------------------------------------
            statement net loss to taxable income
            ------------------------------------

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


                                     III-23

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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

                                                     For the years ended
                                                         December 31,
                                                 ----------------------------
                                                    2006              2005
                                                 ----------        ----------

     Financial statement net (loss) income       $ (305,475)       $  192,756

     Differences between financial statement
       and tax depreciation, amortization,
       and miscellaneous differences                161,464           300,448
                                                 ----------        ----------
     Taxable (loss) income                       $ (144,011)       $  493,204
                                                 ==========        ==========



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 was being amortized over a
30-year period using the straight-line method. At December 31, 2004, each of the
Partnership's  investments in Local  Partnerships was reclassified to investment
in partnerships held for sale and amortization of this fee ceased.

     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,
2006 and 2005, the Partnership paid $174,952 and $229,855,  respectively, to the
Managing General partner as direct  reimbursement of expenses incurred on behalf
of the  Partnership.  Such  expenses are included in general and  administrative
expenses in the accompanying statements of operations.

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

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

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

For each of the years ended December 31, 2006 and 2005, the Partnership paid the
Managing General Partner a Management Fee of $249,996.

     Pursuant to approval of the Partnership's Consent Solicitation Statement on
March 22, 2004, the Managing General Partner is eligible to receive a fee of not
more than five percent of the sale price of an investment in a Local Partnership


                                     III-24

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


3.   RELATED PARTY TRANSACTIONS - Continued

or the  property  it owns,  payable  upon the sale of an  investment  in a Local
Partnership or the property it owns, to the extent the Managing  General Partner
markets and sells a property  instead of a real estate broker or unrelated Local
General  Partner.  The  disposition  fee on sales of  partnership  interests (as
opposed to sales of real  property) is  calculated  as up to five percent of the
imputed sale price, which is the amount the Local  Partnership's  property would
have to be sold for to produce the same  distribution  to the  investors  as the
sale of the partnership  interests.  In accordance with the terms of the amended
Partnership  Agreement,  in January 2005, the Managing  General Partner was paid
disposition  fees in the amount of  $1,210,408,  related to the sales of Country
Place I and II in  December  2004,  which were  accrued  and netted  against the
related gain on disposition of investment in  partnerships at December 31, 2004.
In June  2005,  the  Managing  General  Partner  was paid a  disposition  fee of
$757,642,  related to the sale of Mercy  Terrace,  which was netted  against the
related gain on disposition of investment in  partnerships  in 2005. On November
28, 2005, the Managing  General  Partner was paid a disposition fee of $435,000,
related  to the sale of the  property  owned by Chevy  Chase,  which was  netted
against the related gain on disposition of investment in  partnerships  in 2005.
On December 14, 2005, the Managing General Partner was paid a disposition fee of
$1,118,625,  related to the sale of the property owned by Posada Vallarta, which
was netted against the related gain on disposition of investment in partnerships
in 2005.  The  Liquidation  Plan provides for a Partnership  Liquidation  Fee in
addition to the one discussed above, as explained in Note 4 below.


4.   PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS

     All profits and losses prior to the first date on which Additional  Limited
Partners were admitted were allocated  98.49% to the Initial Limited Partner and
1.51% to the General Partners. Upon admission of the Special Limited Partner and
the Additional Limited Partners, the interest of the Initial Limited Partner was
reduced to 0.49%. Pursuant to the Consent Solicitation  Statement approved March
22, 2004, the net proceeds  resulting from the liquidation of the Partnership or
the Partnership's  share of the net proceeds from any sale or refinancing of the
Local  Partnerships or their rental properties which are not reinvested shall be
distributed and applied as follows:

     (i)  to the payment of debts and liabilities of the Partnership  (including
          all expenses of the  Partnership  incident to the sale or refinancing)
          other than loans or other debts and  liabilities of the Partnership to
          any partner or any affiliate; such debts and liabilities,  in the case
          of a  non-liquidating  distribution,  to be only those  which are then
          required  to be paid  or,  in the  judgment  of the  Managing  General
          Partner, required to be provided for;
     (ii) to the  establishment  of any  reserves  which  the  Managing  General
          Partner  deems  reasonably  necessary  for  contingent,  unmatured  or
          unforeseen  liabilities or obligations of the  Partnership  (including
          the Partnership Liquidation Fee);
     (iii) to each  partner in an amount  equal to the  positive  balance in his
          capital  account as of the date of the sale or  refinancing,  adjusted
          for operations and  distributions to that date, but before  allocation
          of any profits for tax purposes realized from such sale or refinancing
          and  allocated   pursuant  to  Section   4.03(d)  of  the  Partnership
          Agreement;
     (iv) to the Limited  Partners (A) an aggregate amount of proceeds from sale
          or  refinancing  and all prior  sales or  refinancings  equal to their
          capital contributions,  without reduction for prior cash distributions
          other than prior distributions of sale and refinancing proceeds,  plus
          (B) an  additional  amount  equal to a cumulative  non-compounded  six
          percent return on each limited partner's capital contribution, reduced
          by (1) an amount equal to 50% of the losses for tax purposes allocated
          to such limited partner and (2) distributions of net cash flow to each


                                     III-25

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


4.   PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS - Continued

          limited  partner,  such  return,  losses for tax purposes and net cash
          flow  distributions  commencing on the first day of the month in which
          the capital contribution was made;
     (v)  to the repayment of any unrepaid loans theretofore made by any partner
          or any affiliate to the Partnership for Partnership obligations and to
          the  payment  of any  unpaid  amounts  owing to the  General  Partners
          pursuant to the Partnership Agreement;
     (vi) to the General Partners in the amount of their capital  contributions;
          (vii) thereafter, for services to the Partnership,  to General Partner
          Martin C. Schwartzberg (or his designee),  whether or not he is then a
          General Partner,  0.333% of the gross proceeds resulting from (A) such
          sale (if the proceeds are from a sale rather than a  refinancing)  and
          (B) any prior  sales from  which such fee was not paid to the  General
          Partner or his designee; and
   (viii) the  remainder,  12% to the General  Partners (or their  assignees),
          three  percent to the Special  Limited  Partner and 85% to the Initial
          and Additional Limited Partners (or their assignees).

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

     Notwithstanding  any other  provision of this Agreement to the contrary and
in  addition  to the  foregoing,  the  Managing  General  Partner  may receive a
Partnership  Liquidation  Fee of  $500,000  from the  Partnership  for  services
provided by the Managing  General  Partner  and/or its  Affiliates in connection
with the sales of the Apartment Complexes or the Partnership's  interests in the
Local  Partnerships.  Such fee,  which  shall be  payable  pursuant  to  Section
4.02(a)(i),  shall  only be  payable if all of the  Apartment  Complexes  or the
Partnership's  interest in the applicable  Local  Partnership  have been sold or
otherwise disposed of or the Partnership's  interest therein has been terminated
on or before March 22, 2007.

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

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

                                     III-26

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


4.   PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS - Continued

     In accordance with the terms of the Partnership Agreement as amended by the
approved Plan of  Liquidation  and  Dissolution,  in January 2005,  the Managing
General Partner was paid disposition  fees in the amount of $1,210,408,  related
to the sales of Country Place I and II in December 2004,  which were accrued and
netted against the related gain on disposition of investment in  partnerships at
December  31,  2004.  In June 2005,  the  Managing  General  Partner  was paid a
disposition  fee of $757,642,  related to the sale of Mercy  Terrace,  which was
netted against the related gain on disposition of investment in  partnerships in
2005. On November 28, 2005, the Managing  General Partner was paid a disposition
fee of $435,000, related to the sale of the property owned by Chevy Chase, which
was netted against the related gain on disposition of investment in partnerships
in  2005.  On  December  14,  2005,  the  Managing  General  Partner  was paid a
disposition  fee of  $1,118,625,  related to the sale of the  property  owned by
Posada  Vallarta,  which was netted  against the related gain on  disposition of
investment in partnerships in 2005.

     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 31, 2005, the Partnership  made a cash  distribution of $9,582,720 ($192
per  Unit) to  Additional  Limited  Partners  who were  holders  of record as of
December 31, 2004.  The  distribution  consisted of proceeds  received  from the
sales of the Partnership's interests in Arrowhead, Moorings, Country Place I and
Country Place II. On April 7, 2005, the Partnership  made a tax  distribution of
$603,970  (approximately  $17.50  per  Unit) on  behalf  of  Additional  Limited
Partners who were not residents of Maryland.  On July 12, 2005, the  Partnership
made a cash  distribution  of $285,128  ($17.50 per Unit) to Additional  Limited
Partners who were  holders of record and  Maryland  residents as of December 31,
2004.  The  distributions  consisted of proceeds  from the 2004 sales of Country
Place I and Country Place II. On December 22, 2005, the Partnership  made a cash
distribution of $8,734,250  ($175 per unit) to Additional  Limited  Partners who
were  holders of record as of December 1, 2005.  The  distribution  consisted of
proceeds from the 2005 sale of the Partnership's  interest in Mercy Terrace, and
the 2005 sales of the properties  owned by Chevy Chase and Posada  Vallarta.  On
April  4,  2006,  the   Partnership   made  a  tax   distribution   of  $252,862
(approximately $7.20 per Unit) on behalf of Additional Limited Partners who were
not residents of Ohio.

     As defined in the Partnership Agreement, after the payment of distributions
described in the previous  paragraph,  after the  establishment  of any reserves
deemed  necessary  by the  Managing  General  Partner  and after  payment of the
Management Fee, the Partnership had no remaining cash available for distribution
for the years ended  December 31, 2006 and 2005.  The Managing  General  Partner
currently  intends to retain all of the  Partnership's  remaining  undistributed
cash for operating cash reserves pending further distributions under its Plan of
Liquidation and Dissolution.

                                     III-27

<PAGE>
                 CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


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

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

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

<TABLE>
<CAPTION>
                                                                           For the years ended
                                                                              December 31,
                                                                       -----------------------------
                                                                          2006              2005
                                                                       -----------       -----------
<S>                                                                    <C>               <C>
Financial statement net (loss) income                                  $  (531,175)      $ 8,659,110

Adjustments:
  Differences between financial statement net income
    and taxable income related to the Partnership's equity
    in the Local Partnerships' income or losses                            118,894           691,299

  Differences between financial statement gain (loss)
    and tax gain (loss) from the sale or transfer of properties          1,141,826        18,868,188
                                                                       -----------       -----------
Taxable income                                                         $   729,545       $28,218,597
                                                                       ===========       ===========
</TABLE>


Cash concentration risk
-----------------------

     Financial  instruments that potentially  subject the Fund to concentrations
of credit risk consist  primarily of cash. The corporation  maintains three cash
accounts  with the same bank.  The balances  are insured by the Federal  Deposit
Insurance  Corporation  up to $100,000.  As of December 31, 2006,  the uninsured
portion of the cash balances was $5,117,434.

                                      # # #

                                     III-28

<PAGE>


                                EXHIBIT No. 99 b.

None.