FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1999
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Commission file number 0-11973
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CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
- --------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)

Maryland 52-1321492
- ----------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)

(301) 468-9200
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(Issuer's telephone number, including area code)

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, and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.

Not applicable Not applicable
- -------------------------- ---------------------------------------
(Class) (Outstanding at June 30, 1999)

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

INDEX TO FORM 10-QSB

FOR THE QUARTER ENDED JUNE 30, 1999

PAGE
----

PART I. Financial Information

Item 1. Financial Statements

Balance Sheets - June 30, 1999 and
December 31, 1998 . . . . . . . . . . . . . 1

Statements of Operations and Accumulated Losses
- for the three and six months ended
June 30, 1999 and 1998 . . . . . . . . . . 2

Statements of Cash Flows - for the six
months ended June 30, 1999 and 1998 . . . . 3

Notes to Financial Statements - June 30, 1999
and 1998 . . . . . . . . . . . . . . . . . 4

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . 20

PART II. Other Information

Item 3. Defaults Upon Senior Securities . . . . . . . 26

Item 5. Other Information . . . . . . . . . . . . . . 28

Item 6. Exhibits and Reports on Form 8-K . . . . . . 29

Signature . . . . . . . . . . . . . . . . . . . . . . 30

Exhibit Index . . . . . . . . . . . . . . . . . . . . . 31

PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

BALANCE SHEETS

ASSETS

June 30, December 31,
1999 1998
------------ ------------
(Unaudited)

Investments in and advances to partnerships $ 1,248,173 $ 3,218,015
Investment in partnership held for sale 39,653 --
Partnership interests held in escrow 1,137,238 1,044,007
Cash and cash equivalents 7,703,891 7,596,031
Acquisition fees, principally paid to related parties, net of
accumulated amortization of $396,305 and $416,201, respectively 361,411 405,472
Property purchase costs, net of accumulated amortization of
$271,226 and $271,968, respectively 261,170 279,650
Other assets 16,000 3,781
------------ ------------
Total assets $ 10,767,536 $ 12,546,956
============ ============

LIABILITIES AND PARTNERS' DEFICIT

Due on investments in partnerships $ 15,296,503 $ 16,377,994
Accrued interest payable 24,366,889 26,777,037
Accounts payable and accrued expenses 96,838 120,654
------------ ------------
Total liabilities 39,760,230 43,275,685
------------ ------------

Commitments and contingencies

Partners' capital (deficit):

Capital paid in:
General Partners 2,000 2,000
Limited Partners 50,015,000 50,015,000
------------ ------------
50,017,000 50,017,000

Less:
Accumulated distributions to partners (2,753,062) (2,753,062)
Offering costs (5,278,980) (5,278,980)
Accumulated losses (70,977,652) (72,713,687)
------------ ------------
Total partners' deficit (28,992,694) (30,728,729)
------------ ------------
Total liabilities and partners' deficit $ 10,767,536 $ 12,546,956
============ ============

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

-1-

PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS
AND ACCUMULATED LOSSES

(Unaudited)

For the three months ended For the six months ended
June 30, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------

Share of income from partnerships $ 624,779 $ 4,498,827 $ 2,170,430 $ 4,496,207
------------ ------------ ------------ ------------

Other revenue and expenses:

Revenue:
Interest and other income 112,055 133,636 189,237 234,215
------------ ------------ ------------ ------------
Expenses:
Interest 422,357 963,953 852,660 1,927,906
Management fee 62,499 62,499 124,998 124,998
General and administrative 54,234 86,230 116,855 139,247
Professional fees 11,877 30,009 31,225 59,037
Amortization of deferred costs 11,444 10,370 22,888 22,888
------------ ------------ ------------ ------------
562,411 1,153,061 1,148,626 2,274,076
------------ ------------ ------------ ------------
Total other revenue and expenses (450,356) (1,019,425) (959,389) (2,039,861)
------------ ------------ ------------ ------------

Income before extraordinary gain from extinguishment of debt 174,423 3,479,402 1,211,041 2,456,346

Extraordinary gain from extinguishment of debt -- -- 524,994 --
------------ ------------ ------------ ------------
Net income 174,423 3,479,402 1,736,035 2,456,346

Accumulated losses, beginning of period (71,152,075) (76,745,923) (72,713,687) (75,722,867)
------------ ------------ ------------ ------------
Accumulated losses, end of period $(70,977,652) $(73,266,521) $(70,977,652) $(73,266,521)
============ ============ ============ ============
Net income allocated to General Partners (1.51%) $ 2,634 $ 52,539 $ 26,214 $ 37,091
============ ============ ============ ============
Net income allocated to Initial and Special
Limited Partners (1.49%) $ 2,599 $ 51,843 $ 25,867 $ 36,600
============ ============ ============ ============
Net income allocated to Additional Limited Partners (97%) $ 169,190 $ 3,375,020 $ 1,683,954 $ 2,382,655
============ ============ ============ ============
Net income per unit of Additional Limited
Partner Interest based on 50,000 units outstanding $ 3.38 $ 67.50 $ 33.68 $ 47.65
============ ============ ============ ============

The accompanying notes are an integral part
of these financial statements.
-2-

PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

(Unaudited)

For the six months ended
June 30,
-----------------------------
1999 1998
------------ ------------

Cash flows from operating activities:
Net income $ 1,736,035 $ 2,456,346

Adjustments to reconcile net income to net cash used in
operating activities:
Share of income from partnerships (2,170,430) (4,496,207)
Amortization of deferred costs 22,888 22,888
Amortization of discount on purchase money notes -- 744,032
Extraordinary gain from extinguishment of debt (524,994) --

Changes in assets and liabilities:
(Increase) decrease in other assets (12,219) 63,473
Increase in accrued interest payable 852,660 1,183,874
Payment of purchase money note interest (25,322) (378,503)
(Decrease) increase in accounts payable and accrued expenses (23,816) 40,066
------------ ------------
Net cash used in operating activities (145,198) (364,031)
------------ ------------
Cash flows from investing activities:
Receipt of distributions from partnerships 4,047,041 5,270,755
Advances made to local partnerships (120,642) (789,000)
Collection of advances made to local partnerships 120,642 639,000
------------ ------------
Net cash provided by investing activities 4,047,041 5,120,755
------------ ------------
Cash flows from financing activities:
Pay-off of purchase money note and related interest (1,085,000) --
Payment of purchase money note principal and capitalized interest (2,708,983) --
------------ ------------
Net cash used in financing activities (3,793,983) --
------------ ------------
Net increase in cash and cash equivalents 107,860 4,756,724

Cash and cash equivalents, beginning of period 7,596,031 7,969,815
------------ ------------
Cash and cash equivalents, end of period $ 7,703,891 $ 12,726,539
============ ============

Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,737,814 $ 378,503
============ ============

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

-3-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

1. BASIS OF PRESENTATION

In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited financial statements reflect all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the financial
position of Capital Realty Investors-II Limited Partnership (the Partnership) as
of June 30, 1999, and the results of its operations for the three and six months
ended June 30, 1999 and 1998, and its cash flows for the six months ended June
30, 1999 and 1998. The results of operations for the interim period ended June
30, 1999, are not necessarily indicative of the results to be expected for the
full year.

The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles and with the
instructions to Form 10-QSB. Certain information and accounting policies and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such instructions. These condensed financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Partnership's annual report on Form 10-KSB at December 31, 1998.

Certain amounts in the financial statements for the year ended December 31,
1998 have been reclassified to conform to the 1999 presentation.

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

a. Due on investments in partnerships
----------------------------------

The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$15,296,503 plus accrued interest of $24,366,889 as of June 30, 1999, are
payable in full upon the earliest of: (1) sale or refinancing of the respective
Local Partnership's rental property; (2) payment in full of the respective Local
Partnership's permanent loan; or (3) maturity. Purchase money notes in the
aggregate principal amounts of $1,050,000 and $950,000 matured on December 31,
1996 and December 31, 1997, respectively, and were paid off on October 5, 1998,
as discussed below. Purchase money notes in the aggregate principal amounts of
$1,050,000 and $950,000 matured on December 31, 1996 and 1997, respectively, and
have been extended to January 5, 2001, as discussed below. Purchase money notes
in the aggregate principal amounts of $2,380,000 and $3,150,000 matured on
January 1, 1998 and June 1, 1998, respectively, and have not been paid or
extended, as discussed below. Purchase money notes in the aggregate principal
amounts of $4,600,000 and $1,927,500 matured on August 31, 1998, were partially
paid down, with the balances extended to August 31, 2003 as discussed below.
Purchase money notes in the aggregate principal amount $1,450,000 matured on
September 1, 1998, and the Managing General Partner is involved in negotiations
to extend these notes until September 1, 2003, as discussed below. Purchase
money notes in the aggregate principal amount of $840,178 matured on January 1,
1999 and were paid off, at a discount, on February 5, 1999. Purchase money
notes in the aggregate principal amount of $500,000 matured on January 1, 1999
and have not been paid or extended, as discussed below.

-4-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

The purchase money notes, which are nonrecourse to the Partnership, are
generally secured by the Partnership's interest in the respective Local
Partnerships. There is no assurance that the underlying properties will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes' principal and accrued interest when due. If a purchase money note
is not paid in accordance with its terms, the Partnership will either have to
renegotiate the terms of repayment or risk losing its partnership interest in
the Local Partnership. The Partnership's inability to pay certain of the
purchase money note principal and accrued interest balances when due, and the
resulting uncertainty regarding the Partnership's continued ownership interest
in the related Local Partnerships, does not adversely impact the Partnership's
financial condition because the purchase money notes are nonrecourse and secured
solely by the Partnership's interest in the related Local Partnerships.
Therefore, should the investment in any of the Local Partnerships with maturing
purchase money notes not produce sufficient value to satisfy the related
purchase money notes, the Partnership's exposure to loss is limited because the
amount of the nonrecourse indebtedness of each of the maturing purchase money
notes exceeds the carrying amount of the investment in and advances to the
related Local Partnerships. Thus, even a complete loss of one of these Local
Partnerships would not have a material adverse impact on the financial condition
of the Partnership. See further discussion of certain purchase money notes,
below.

The following chart presents information related to purchase money notes
which mature through June 30, 2000, or which have matured and remain unpaid or
unextended as of August 9, 1999. Information for the first quarter of 1999 does
not include a note which matured during that quarter and which was paid off, at
a discount, on February 5, 1999. See further discussion of this purchase money
note, below.

-5-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

Carrying Amount
of Partnership's
Investment in Aggregate Aggregate
and Advances to Principal Accrued
Number of Underlying Local Balance Interest
Purchase Underlying Partnerships as as of Balance as of
Money Note Local Percentage of June Percentage June Percentage June Percentage
(PMN) Maturity Partnerships of Total 30, 1999 of Total 30, 1999 of Total 30, 1999 of Total
- ---------------- ------------ ---------- ---------------- ---------- ----------- ---------- ------------- ----------

1st Quarter 1998 2 10% $ -- -- $ 2,380,000 16% $ 3,020,610 12%
2nd Quarter 1998 1 5% -- -- 3,150,000 21% 5,447,184 22%
3rd Quarter 1998 1 5% 701,722 56% 1,450,000 9% 2,066,012 9%
1st Quarter 1999 1 5% -- -- 500,000 3% 1,474,645 6%
---- ----- --------------- ----- ----------- ----- ------------- -----
Total through
6/30/2000 5 25% $ 701,722 56% $ 7,480,000 49% $ 12,008,451 49%
==== ===== =============== ===== =========== ===== ============= =====

Total, Local
Partnerships 20 100% $ 1,248,173 100% $15,296,503 100% $ 24,366,889 100%
==== ===== =============== ===== =========== ===== ============= =====

The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's debt obligations. These alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note requirements, paying off certain purchase money notes at a
discounted price, extending the due dates of certain purchase money notes,
refinancing the respective properties' underlying debt or selling the underlying
real estate and using the Partnership's share of the proceeds to pay or buy down
certain purchase money note obligations. Although the Managing General Partner
has had some success applying these strategies in the past, the Managing General
Partner cannot assure that these strategies will be acceptable to all of the
noteholders. Based on preliminary discussions with the holders of purchase
money notes maturing through June 30, 2000, the Managing General Partner
anticipates that, at least in some instances, the noteholders may not be willing
to negotiate any extension or discounted payoff. In such instances, upon
maturity of the purchase money notes, if the purchase money notes remain unpaid,
the noteholders may have the right to foreclose on the Partnership's interest in
the related Local Partnerships. In the event of a foreclosure, the excess of
the nonrecourse indebtedness over the carrying amount of the Partnership's
investment in the related Local Partnership would be deemed cancellation of
indebtedness income which would be taxable to Limited Partners at a federal tax
rate of up to 39.6%. Additionally, in the event of a foreclosure, the
Partnership would lose its investment in the Local Partnership and, likewise,
its share of future cash flow distributed by the Local Partnership from rental
operations, and sales or refinancings. Of the 20 Local Partnerships in which
the Partnership is invested as of both June 30, 1999 and December 31, 1998, the
five local Partnerships with associated purchase money notes which mature

-6-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

through June 30, 2000 and which remain unpaid or unextended as of August 9,
1999, represent the following percentages of the Partnership's total
distributions received from Local Partnerships and share of income from Local
Partnerships.

Percentage of Total Partnership's Share of
For the Six Month Distributions Received Income (loss) from
Periods Ending from Local Partnerships Local Partnerships
----------------- ----------------------- ----------------------

June 30, 1999 0% $ 68,178
June 30, 1998 0% 21,139

Interest expense on the Partnership's purchase money notes was $422,357 and
$852,660 for the three and six months ended June 30, 1999, respectively, and
$963,953 and $1,927,906 for the three and six months ended June 30, 1998,
respectively. Amortization of discount on purchase money notes increased
interest expense by $372,016 and $744,032 during the three and six months ended
June 30, 1998, respectively. There was no amortization of discount on purchase
money notes during the three and six months ended June 30, 1999 as all discounts
on purchase money notes were fully amortized as of December 31, 1998. The
accrued interest on the purchase money notes of $24,366,889 and $26,777,037 as
of June 30, 1999 and December 31, 1998, respectively, is due on the respective
maturity dates of the purchase money notes or earlier, in some instances, if
(and to the extent of a portion thereof) the related Local Partnership has
distributable net cash flow, as defined in the relevant Local Partnership
agreements.

Beech Hill I and II
-------------------

The Partnership defaulted on its purchase money notes aggregating
$2,380,000 related to Beech Hill Development Co. (Beech Hill I) and Beech Hill
Development Co. II (Beech Hill II) on August 1, 1995 when the notes matured and
were not paid. On March 29, 1996, the noteholders agreed to extend the purchase
money note due dates to January 1, 1998. Under the agreement, the Partnership
pays the noteholders of Beech Hill I and Beech Hill II all annual cash flow
distributions received from the related Local Partnerships in excess of $5,000
and $2,500, respectively, to be applied against the notes. The Partnership did
not receive any cash flow distributions from Beech Hill I or Beech Hill II
during the six months ended June 30, 1999 or 1998.

-7-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

Under the extension agreement, documents transferring the Partnership's
interests in Beech Hill I and Beech Hill II to the noteholders were placed in
escrow to be released to the noteholders upon a future default by the
Partnership on the respective purchase money notes. On January 1, 1998, the
Partnership defaulted on its purchase money notes related to Beech Hill I and
Beech Hill II when the notes, as extended, matured and were not paid. The
default amount included principal and accrued interest of $1,480,000 and
$1,687,578, respectively, for Beech Hill I and $900,000 and $1,072,113,
respectively, for Beech Hill II. As of August 9, 1999, the Partnership's
interests in Beech Hill I and Beech Hill II have not been transferred to the
noteholders, and the transfer documents remain in escrow. As of August 9, 1999,
principal and accrued interest totaling $1,480,000 and $1,870,734, respectively,
related to Beech Hill I and $900,000 and $1,172,470, respectively, related to
Beech Hill II were due.

Due to the impending likely transfer of the Partnership's interest in the
Local Partnerships to the noteholders, the Partnership's basis in each of these
Local Partnerships as of June 30, 1999, which was $703,039 and $434,199 for
Beech Hill I and Beech Hill II, respectively, was classified as partnership
interests held in escrow in the accompanying financial statements.

The purchase money notes related to Beech Hill I and Beech Hill II are
nonrecourse and secured solely by the Partnership's interests in the related
Local Partnerships. The release of the Partnership's purchase money note
obligations as a result of the impending likely loss of ownership interest in
the Local Partnerships would result in net financial statement gains of
approximately $2.6 million and $1.7 million for Beech Hill I and Beech Hill II,
respectively. The federal tax gains are estimated to be approximately $4.9
million and $3.0 million for Beech Hill I and Beech Hill II, respectively.

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

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

On February 10, 1998, the Partnership was served with a complaint by the
two holders of the second purchase money note (Second Chase Note) filing suit
against the Partnership, the Managing General Partner and C.R.H.C., Incorporated
(CRHC), an affiliate of the Managing General Partner, for damages and seeking

-8-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

foreclosure on the Partnership's interest in the Local Partnership. On July 29,
1998, the parties agreed to a settlement which involved a discounted payoff to
the holders of the Second Chase Note, subject to the Partnership's satisfaction
with the results of its due diligence. On October 5, 1998, pursuant to such
settlement agreement, the Partnership paid the holders of the Second Chase Note
a discounted amount in full settlement of the Second Chase Note and the lawsuit.
In connection with this settlement, the local general partners withdrew from the
Local Partnership, assigning their combined one percent interests (which were
converted to a limited partner interest) in the Local Partnership to the
Partnership, and the property management agent, which is an affiliate of the
local general partners, was terminated effective April 1, 1999. CRHC is the
sole remaining general partner of the Local Partnership. Further, the
Partnership received the interests of the local general partners, the holders of
the Second Chase Note, and their respective affiliates in the First Chase Note,
which is approximately 10.808%. On May 28, 1999, the Partnership filed suit
against the holder of the First Chase Note, seeking payment of the Partnership's
10.808% share of payments made on the First Chase Note since October 1, 1997.
As of August 9, 1999, the defendant has not yet answered the complaint.

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

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

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

The Partnership defaulted on its purchase money notes related to
Frenchman's Wharf Associates II Limited Partnership (Frenchman's Wharf II) on
June 1, 1998 when the notes matured and were not paid. The default amount
included principal and accrued interest of $3,150,000 and $5,071,731,
respectively. The purchase money notes, initially due to mature on June 1,
1988, were previously extended to mature on June 1, 1998. As of August 9, 1999,
principal and accrued interest totaling $3,150,000 and $5,483,733, respectively,
were due. The Partnership is currently negotiating with the purchase money
noteholders to extend the notes to be coterminous with the workout agreement for
the Local Partnership's mortgage loan, which is scheduled to expire on May 31,
2000. As of August 9, 1999, the noteholders had not consented to an extension
agreement and there is no assurance that any agreement will be reached with the
noteholders. There is no assurance that the Partnership will be able to retain
its interest in Frenchman's Wharf II. The uncertainty regarding the continued
ownership of the Partnership's interest in Frenchman's Wharf II does not
adversely impact the Partnership's financial condition, as discussed above.

-9-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

Princeton
---------

The Partnership defaulted on its purchase money note related to Princeton
Community Village Associates (Princeton) on January 1, 1999 when the note
matured and was not paid. The default amount included principal and accrued
interest of $500,000 and $1,422,064, respectively. As of August 9, 1999,
principal and accrued interest of $500,000 and $1,485,798, respectively, were
due.

The Managing General Partner is currently negotiating with the noteholders
to extend the maturity date of the purchase money note related to Princeton.
There is no assurance that an agreement for an extension of the purchase money
note will be obtained. During September 1998, the Managing General Partner
received an offer from a third party to purchase the Princeton property. The
offer was not accepted by the local general partner. The uncertainty regarding
the continued ownership of the Partnership's interest in Princeton does not
adversely impact the Partnership's financial condition, as discussed above.

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

The Partnership defaulted on its purchase money notes related to Roberts
Fall River Associates (Rolling Green at Fall River) and Roberts Amherst
Associates (Rolling Green at Amherst) on August 31, 1998 when the notes matured
and were not paid. The default amount included principal and accrued interest
of $4,600,000 and $8,750,764, respectively, for Rolling Green at Fall River and
$1,927,500 and $3,661,147, respectively, for Rolling Green at Amherst. The
Managing General Partner and the trustees representing the noteholders agreed to
extend the maturity dates of the purchase money notes to February 28, 2001,
subject to a further extension to August 31, 2003 if the Local Partnerships
complete a refinancing of their mortgage loans, which refinancings have
occurred. However, the noteholders have the right to accelerate the maturity of
the notes upon not less than one year's prior notice. Accordingly, the purchase
money notes for Rolling Green at Fall River and Rolling Green at Amherst
presently mature on August 31, 2003, subject to the respective noteholder's
right to accelerate the maturity. As part of the agreement, the Partnership
agreed that all refinancing mortgage loan proceeds payable to the Partnership by
the respective Local Partnerships, as well as all net cash flow payable to the
Partnership from the respective Local Partnerships in excess of $10,000 per
year, shall be applied to the balance of the respective purchase money notes,
and further agreed to waive certain rights granted in the respective Local
Partnerships' limited partnership agreements. The mortgage loan on Rolling
Green at Fall River was refinanced in March 1999; refinancing proceeds of
$2,708,983 were used to pay down purchase money note principal and capitalized
interest in March 1999. The mortgage loan on Rolling Green at Amherst was
refinanced in August 1998; refinancing proceeds of $1,503,496 were used to pay
down purchase money note principal and capitalized interest in 1998.

-10-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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

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

Westgate
--------

In June, 1998, the holder of the purchase money note related to Westgate
Tower Limited Dividend Housing Associates (Westgate) accepted the Managing
General Partner's offer to extend the maturity date of the purchase money note
for five years from its scheduled maturity date of September 1, 1998. However,
the noteholder has since refused to execute the documentation formally extending
the maturity date. As of August 9, 1999, principal and accrued interest of
$1,450,000 and $2,075,487, respectively, were due. In December, 1998, the
noteholder's attorney notified the Managing General Partner of its position,
which the Managing General Partner disputes, that the noteholder's prior
agreement to extend the maturity date is not binding on the noteholder. The
parties are exploring settlement possibilities, but the Managing General Partner
is prepared to vigorously defend its position that the agreement to extend the
maturity date for five years is binding on the noteholder. There is no
assurance that the parties will be able to settle this dispute or that the
Partnership would prevail in any resulting litigation if a settlement is not
reached. Accordingly, there can be no assurance that the Partnership will be
able to retain its interest in the Local Partnership. The uncertainty about the
continued ownership of the Partnership's interest in the related Local
Partnership does not adversely impact the Partnership's financial condition, as
discussed above.

Wexford Ridge
-------------

The Partnership defaulted on its three purchase money notes relating to
Wexford Ridge Associates (Wexford Ridge) on December 31, 1997 when the notes
matured and were not paid. The aggregate default amount included principal and
accrued interest of $1,900,000 and $3,478,549, respectively. The Managing
General Partner successfully negotiated an extension on one of the purchase
money notes (First Wexford Note) in the principal amount of $950,000 effective
April 9, 1998. In connection with the extension agreement, the Partnership made
an interest payment to the noteholder. Under the terms of the extension
agreement, the maturity date is January 5, 2001. Additionally, the Partnership
has the right and option, but not the obligation, to extend the maturity date to
January 2, 2002 by making an additional payment to the noteholder on or before
January 5, 2000. Such payment shall be applied to accrued interest. The
Partnership, if it exercises this option to further extend the maturity date,

-11-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

shall thereafter have the option to purchase the purchase money note if it gives
notice of such exercise by January 5, 2001.

On April 7, 1998, the Partnership was served with a complaint by the holder
of the second and third purchase money notes (collectively, Second and Third
Wexford Notes) filing suit against the Partnership, the Managing General Partner
and C.R.H.C., Incorporated (CRHC), an affiliate of the Managing General Partner,
for damages and seeking foreclosure on the Partnership's interest in the Local
Partnership. On July 29, 1998, the parties agreed to a settlement which
involved a discounted payoff to the holder of the Second and Third Wexford
Notes, subject to the Partnership's satisfaction with the results of its due
diligence. On October 5, 1998, pursuant to such settlement agreement, the
Partnership paid the holder of the Second and Third Wexford Notes a discounted
amount in full settlement of the Second and Third Wexford Notes and the lawsuit.
In connection with this settlement, the local general partner withdrew from the
Local Partnership, assigning his one percent interest (which was converted to a
limited partner interest) in the Local Partnership to the Partnership, and the
property management agent, which is an affiliate of the local general partner,
agreed to a termination of the property management agreement effective April 1,
1999. CRHC is the sole remaining general partner of the Local Partnership.
Further, the Partnership received the interests of the local general partner,
the holder of the Second and Third Wexford Notes, and their respective
affiliates in the First Wexford Note, which is approximately 4.85%. On May 28,
1999, the Partnership filed suit against the holder of the First Wexford Note,
seeking payment of the Partnership's 4.85% share of payments made on the First
Wexford Note since October 1, 1997. As of August 9, 1999, the defendant has not
yet answered the complaint.

b. Advances to Local Partnerships
------------------------------

As of both June 30, 1999 and December 31, 1998, the Partnership had
advanced funds to Local Partnerships totaling $474,410. Interest accrued on
these advances was $187,372 as of both June 30, 1999 and December 31, 1998. For
financial reporting purposes, these loans have been reduced to zero by the
Partnership as a result of losses from the related Local Partnerships.

Arrowhead and Moorings
----------------------

On March 19, 1998, the Partnership advanced loan application fees and
deposits for refinancing costs totaling $14,000 to each of Arrowhead Apartments
Associates Limited Partnership (Arrowhead) and Moorings Apartments Associates
Limited Partnership (Moorings). On May 7, 1998, the Partnership advanced
additional amounts for rate lock fees to Arrowhead and Moorings in the amounts
of $140,000 and $166,000, respectively. The loan refinancings closed on May 14,
1998, and a portion of the proceeds were used to repay the above advances to the
Partnership. See further discussion of the refinancings below.

-12-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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

On January 7, 1999, the Partnership advanced $120,642 to Chevy Chase to
cover required repairs and maintenance expenses pending reimbursement from a
capital improvement escrow. The advance was repaid to the Partnership on April
8, 1999.

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

To cover operating deficits incurred in prior years for Frenchman's Wharf
II, the Partnership advanced funds totaling $324,410 as of both June 30, 1999
and December 31, 1998. No advances have been made to Frenchman's Wharf II since
March 1987, and the Partnership does not expect to advance any additional funds
to the Local Partnership. These loans, together with accrued interest of
$187,372 as of both June 30, 1999 and December 31, 1998, are payable from cash
flow of Frenchman's Wharf II after payment of first mortgage debt service and
after satisfaction by the Partnership of certain other interest obligations on
the purchase money notes relating to the Local Partnership. No interest has
been accrued since 1992 due to the uncertainty of future collection. There is
no assurance that the Local Partnership, upon expiration of the workout of its
mortgage loan, will be able to repay the loans in accordance with the terms
thereof. For financial reporting purposes, these loans have been reduced to
zero by the Partnership as a result of losses at the Local Partnership level
during prior years.

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

The Managing General Partner and the local managing general partner of
Posada Associates Limited Partnership (Posada Vallarta Apartments) refinanced
the property's mortgage loan on May 26, 1998. In connection with such
refinancing, the Partnership advanced the Local Partnership $450,000 for
application and rate lock fees. As of June 30, 1999, $300,000 of the advances
had been repaid to the Partnership. For financial reporting purposes, the
remaining advance has been reduced to zero by the Partnership as a result of
losses at the Local Partnership level.

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

Arrowhead and Moorings
----------------------

On May 7, 1998, Arrowhead Apartments Associates Limited Partnership
(Arrowhead) and Moorings Apartments Associates Limited Partnership (Moorings)
closed on refinancings of their respective first mortgage loans. A portion of
the proceeds were subsequently used to pay, at a discount, purchase money note
obligations of the related Local Partnerships. These discounted payoffs
resulted in cancellation of indebtedness income for the Partnership's 1998 tax
year. Additionally, during the second and third quarters of 1998, the

-13-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

Partnership received $1,536,059 and $3,511,550 from Arrowhead and Moorings,
respectively, from the net proceeds of the refinancings. The aggregate
refinancing proceeds received by the Partnership exceeded the Partnership's
remaining investments in Arrowhead and Moorings by approximately $1.4 million
and $3.3 million, respectively, and have been included in share of income from
partnerships in the 1998 statement of operations.

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

The Managing General Partner and the local managing general partner are
both exploring various options to refinance the U. S. Department of Housing and
Urban Development (HUD) Section 236 interest rate subsidized mortgage loan
related to Chevy Chase. Additionally, the Managing General Partner commissioned
a rental market study and is evaluating the feasibility of converting the
property to market-rate. No conclusion has been reached as of August 9, 1999.
There is no assurance that the property will be converted, nor is there any
assurance that a refinancing of the mortgage loan will occur.

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

The report of the auditors on the financial statements of Frenchman's Wharf
II for the year ended December 31, 1998 indicated that substantial doubt exists
about the ability of the Local Partnership to continue as a going concern due to
the Local Partnership's default on its mortgage loan and the expiration of its
Section 8 Rental Housing Assistance Payments (HAP) contract with HUD on November
30, 1999. The uncertainty about the Local Partnership's continued ownership of
the property does not adversely impact the Partnership's financial condition, as
discussed above.

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

The 1983 construction loan related to Orangewood Plaza, a 40-unit apartment
building in Orange Cove, California, was never formally converted to a permanent
loan. It is anticipated that this loan will be restructured, and that the
restructuring may result in cancellation of indebtedness income to the
Partnership in the amount of approximately $163,000 during 1999. Additionally,
the Partnership had pledged its interest in the Local Partnership as security on
a promissory note, in the amount of $170,000, made by the Local Partnership.
The note, which matured on August 5, 1998, is currently in default. The parties
are currently negotiating a restructuring of this loan, which is anticipated to
be formalized concurrent with the restructuring of the construction loan. The
local managing general partner has been asked to have a rental market study
prepared, and then to evaluate the feasibility of converting the property to
market-rate. No conclusion has been reached as of August 9, 1999. There is no
assurance that either restructuring will be formalized, or that the property
will be converted to market rate. Accordingly, there is no assurance that the
Partnership will be able to retain its interest in Orangewood Plaza. This
uncertainty does not adversely impact the Partnership's financial condition, as
discussed above.

-14-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

Princeton
---------

The report of the auditors on the financial statements of Princeton for the
year ended December 31, 1998 indicated that substantial doubt exists about the
ability of the Local Partnership to continue as a going concern due to the Local
Partnership's default on its mortgage loan and the Partnership's default on the
purchase money notes related to this Local Partnership, as discussed above. The
uncertainty about the Local Partnership's continued ownership of the property
does not adversely impact the Partnership's financial condition, also as
discussed above.

Rolling Green at Amherst
------------------------

The mortgage loan on Rolling Green at Amherst was refinanced in August
1998; refinancing proceeds of $1,503,496 were used to pay down purchase money
note principal and capitalized interest in August 1998. See the discussion
above for additional information pertaining to this refinancing and pay down.

Rolling Green at Fall River
---------------------------

The mortgage loan on Rolling Green at Fall River was refinanced in March
1999; refinancing proceeds of $2,708,983 were used to pay down purchase money
note principal and capitalized interest in March 1999. See the discussion above
for additional information pertaining to this refinancing and pay down.

Wexford Ridge
-------------

Wexford Ridge Associates has received an offer to sell its property, and
the parties have executed a sales contract as of July 8, 1999. The contract is
subject to customary contingencies, including a purchaser's due diligence
contingency. Accordingly, there is no assurance that a sale will take place.
In the event of a sale of this property, the Partnership's investment in and
advances to partnerships would be reduced accordingly. Of the 20 Local
Partnerships in which the Partnership had invested as of June 30, 1999 and
December 31, 1998, Wexford Ridge represented approximately 0% and 0%,
respectively, of the total investment in and advances to partnerships. For both
the six months ended June 30, 1999 and 1998, distributions from Wexford Ridge
represented approximately 0% of total distributions from Local Partnerships.
The Partnership's share of income from Wexford Ridge was $0 and $0 for the three
and six months ended June 30, 1999, respectively, and $0 and $0 for the three
and six months ended June 30, 1998, respectively.

Due to the impending and likely sale of the property related to the
Partnership's investment in Wexford Ridge, the net unamortized amounts of
acquisition fees and property purchase costs related to Wexford Ridge, which
totaled $39,653, have been reclassified to investment in partnership held for
sale in the accompanying balance sheet at June 30, 1999.

-15-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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

Combined statements of operations for the 20 Local Partnerships in which
the Partnership is invested as of both June 30, 1999 and 1998, follow. The
combined statements have been compiled from information supplied by the
management agents of the projects and are unaudited.

-16-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

COMBINED STATEMENTS OF OPERATIONS
(Unaudited)

Revenue:
Rental revenue $ 6,751,778 $ 6,398,236 $ 13,302,612 $ 12,799,363
Other 330,397 308,779 667,924 604,994
------------ ------------ ------------ ------------
Total revenue 7,082,175 6,707,015 13,970,536 13,404,357
------------ ------------ ------------ ------------
Expenses:
Operating 4,189,631 4,167,496 8,533,596 8,480,613
Interest 1,624,341 1,752,419 3,248,677 3,504,835
Depreciation and amortization 1,213,660 1,241,976 2,427,326 2,483,957
------------ ------------ ------------ ------------
Total expenses 7,027,632 7,161,891 14,209,599 14,469,405
------------ ------------ ------------ ------------
Net income (loss) $ 54,543 $ (454,876) $ (239,063) $ (1,065,048)
============ ============ ============ ============

As of both June 30, 1999 and December 31, 1998, the Partnership's share of
cumulative losses to date for 12 of the 20 Local Partnerships exceeded the
amount of the Partnership's investments in and advances to those Local
Partnerships by $24,289,656 and $23,529,345, respectively. As 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.

3. AFFORDABLE HOUSING LEGISLATION

President Clinton signed the Fiscal Year 1998 HUD appropriations bill into
law, effective October 1, 1997. The legislation allowed all Section 8 HAP
contracts with rents at less than 120% of fair market rents which expired
between October 1997 and September 1998 to be renewed for one year. In the case
of Section 8 HAP contracts with rents that exceeded 120% of fair market rents,
these contracts could be renewed for one year, but these rents were reduced to
120% of fair market rents (Mark-to-Market). As of the beginning of Fiscal Year
1999 (October 1, 1998), all expiring contracts with rents exceeding comparable
market rents applicable to properties with mortgage loans insured by the Federal
Housing Administration (FHA) were subject to the Mark-to-Market legislation.

Mark-to-Market implementation will reduce rental income at properties which
are currently subsidized at higher-than-market rental rates, and will therefore

-17-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

3. AFFORDABLE HOUSING LEGISLATION - Continued

lower cash flow available to meet mortgage payments and operating expenses.
Each affected property will undergo debt restructuring according to terms
determined by an individual property and operations evaluation. This will
involve reducing the first mortgage loan balance to an amount supportable by the
property, taking into account the property's operating expenses and reduced
income. The balance of the amount written down from the first mortgage loan
will be converted to a non-performing but accruing (soft) second mortgage loan.

The Section 8 HAP contracts for the following properties have expired or
will expire during the government's fiscal year 1998 or 1999, and have been
renewed as indicated.

-18-

CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1999 AND 1998

(Unaudited)

3. AFFORDABLE HOUSING LEGISLATION - Continued

Units Authorized for Original Renewed
Number of Rental Assistance Under Expiration of Section 8 Expiration of Section 8
Property Rental Units Section 8 HAP Contract HAP Contract
- -------- ------------ ----------------------- ----------------------- -----------------------

Beech Hill I (1) 200 39 08/31/98 02/29/00
Beech Hill II (1) 120 24 08/31/98 02/29/00
Chevy Chase Park 232 228 03/23/98 09/22/99
Four Winds West 62 62 04/14/98 10/14/99
Frenchman's Wharf II 324 31 11/30/98 11/30/99
Princeton Community Village 239 26 07/01/98 10/01/24
Wexford Ridge 246 242 09/30/98 09/30/99
----- ---
Total 1,423 652
===== ===

(1) As discussed previously, the Partnership's interests in these Local
Partnerships are being held in escrow to be transferred to the
noteholders, at their election, due to non-payment on the related
purchase money notes.

With the uncertainty of continued project-based Section 8 subsidies for
properties with expiring HAP contracts, there is no assurance that these rental
properties will be able to maintain the rental income and occupancy levels
necessary to pay operating costs and debt service. As a result, it is not
possible to predict the impact on the Local Partnerships and the resulting
impact on the Partnership at this time.

4. RELATED-PARTY TRANSACTIONS

In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner for its direct expenses
in managing the Partnership. The Partnership paid $38,761 and $83,117 for the
three and six months ended June 30, 1999, respectively and $72,416 and $107,028
for the three and six months ended June 30, 1998, respectively, as direct
reimbursement of expenses incurred on behalf of the Partnership. Such expenses
are included in the accompanying statements of operations as general and
administrative expenses. Additionally, in accordance with the terms of the
Partnership agreement, the Partnership is obligated to pay the Managing General
Partner an annual incentive management fee (the Management Fee) after all other
expenses of the Partnership are paid. The Partnership paid the Managing General
Partner a Management Fee, as discussed above, of $62,499 and $124,998 for the
three and six months ended June 30, 1999, respectively, and like amounts for the
three and six months ended June 30, 1998, respectively.

-19-

PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------

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

General
-------

Some of the rental properties owned by the Local Partnerships are financed
by state housing agencies. The Managing General Partner has been working to
develop strategies to sell or refinance certain properties pursuant to programs
developed by these agencies or other potential buyers. 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 in perpetuity,
or to refinance a property, or to obtain supplemental financing. The Managing
General Partner continues to monitor certain state housing agency programs
and/or programs provided by certain lenders, to ascertain whether the properties
would qualify within the parameters of a given program and whether these
programs would provide an appropriate economic benefit to the limited partners
of the Partnership.

Some of the rental properties owned by the Local Partnerships are dependent
on the receipt of project-based Section 8 rental Housing Assistance Payments
(HAP) provided by the U.S. Department of Housing and Urban Development (HUD)
pursuant to Section 8 HAP contracts. President Clinton signed the Fiscal Year
1998 HUD appropriations bill into law, effective October 1, 1997. The
legislation allowed all Section 8 contracts with rents at less than 120% of fair
market rents which expire between October 1997 and September 1998 to be renewed
for one year. In the case of Section 8 HAP contracts with rents that exceeded
120% of fair market rents, these contracts could be renewed for one year, but
these rents will be reduced to 120% of fair market rents (Mark-to-Market). At
the beginning of Fiscal Year 1999 (October 1, 1998), all expiring contracts with
rents exceeding comparable market rents applicable to properties with mortgage
loans insured by the Federal Housing Administration (FHA) were subject to the
Mark-to-Market legislation.

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

Under current law, the write down of an FHA-insured mortgage under Mark-to-
Market would trigger cancellation of indebtedness income to the partners, a
taxable event, even though no actual cash is received. Additionally, the newly
created second mortgage will accrue interest at a below-market rate; however,

-20-

the Internal Revenue Service issued a ruling in July 1998 that concluded that
the below-market rate of interest will not generate additional ordinary income.
Each property subject to Mark-to-Market will be affected in a different manner,
and it is very difficult to predict the exact form of restructuring, or
potential tax liabilities to the limited partners, at this time.

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

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

The Partnership's liquidity, with unrestricted cash resources of $7,703,891
($149.46 per Additional Limited Partner unit) and $7,596,031 ($147.36 per
Additional Limited Partner unit) as of June 30, 1999 and December 31, 1998,
respectively, along with anticipated future cash distributions from the Local
Partnerships, are expected to be adequate to meet its current and anticipated
operating cash needs. As of August 9, 1999, there were no material commitments
for capital expenditures.

The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$15,296,503 plus accrued interest of $24,366,889 as of June 30, 1999, are
payable in full upon the earliest of: (1) sale or refinancing of the respective
Local Partnership's rental property; (2) payment in full of the respective Local
Partnership's permanent loan; or (3) maturity. Purchase money notes in the
aggregate principal amounts of $1,050,000 and $950,000 matured on December 31,
1996 and December 31, 1997, respectively, and were paid off on October 5, 1998,
as discussed below. Purchase money notes in the aggregate principal amounts of
$1,050,000 and $950,000 matured on December 31, 1996 and 1997, respectively, and
have been extended to January 5, 2001, as discussed below. Purchase money notes
in the aggregate principal amounts of $2,380,000 and $3,150,000 matured on
January 1, 1998 and June 1, 1998, respectively, and have not been paid or
extended, as discussed below. Purchase money notes in the aggregate principal
amounts of $4,600,000 and $1,927,500 matured on August 31, 1998, were partially
paid down, with the balances extended to August 31, 2003 as discussed in the
notes to the financial statements. Purchase money notes in the aggregate
principal amount $1,450,000 matured on September 1, 1998, and the Managing
General Partner is involved in negotiations to extend these notes until
September 1, 2003, as discussed below. Purchase money notes in the aggregate
principal amount of $840,178 matured on January 1, 1999 and were paid off, at a
discount, on February 5, 1999. Purchase money notes in the aggregate principal
amount of $500,000 matured on January 1, 1999 and have not been paid or
extended, as discussed below. See the notes to the financial statements for
additional information pertaining to these purchase money notes.

The purchase money notes, which are nonrecourse to the Partnership, are
generally secured by the Partnership's interest in the respective Local

-21-

Partnerships. There is no assurance that the underlying properties will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes' principal and accrued interest when due. If a purchase money note
is not paid in accordance with its terms, the Partnership will either have to
renegotiate the terms of repayment or risk losing its partnership interest in
the Local Partnership. The Partnership's inability to pay certain of the
purchase money note principal and accrued interest balances when due, and the
resulting uncertainty regarding the Partnership's continued ownership interest
in the related Local Partnerships, does not adversely impact the Partnership's
financial condition because the purchase money notes are nonrecourse and secured
solely by the Partnership's interest in the related Local Partnerships.
Therefore, should the investment in any of the Local Partnerships with maturing
purchase money notes not produce sufficient value to satisfy the related
purchase money notes, the Partnership's exposure to loss is limited because the
amount of the nonrecourse indebtedness of each of the maturing purchase money
notes exceeds the carrying amount of the investment in and advances to the
related Local Partnerships. Thus, even a complete loss of one of these Local
Partnerships would not have a material adverse impact on the financial condition
of the Partnership.

-22-

Total, Local
Partnerships 20 100% $ 1,248,173 100% $15,296,503 100% $ 24,366,889 100%
==== ===== =============== ===== =========== ===== ============= =====

-23-

June 30, 1999 0% $68,178
June 30, 1998 0% 21,139

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

The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
For the six months ended June 30, 1999 and 1998, the receipt of distributions
from Local Partnerships was adequate to support operating cash requirements.
Cash and cash equivalents increased during the six months ended June 30, 1999,
as receipt of distributions from partnerships exceeded net cash used in
operating activities and cash used to pay off or pay down three of the
Partnership's purchase money notes.

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

The Partnership's net income for the three months ended June 30, 1999
decreased as compared to the net income during the corresponding period in 1998
primarily due to a decrease in share of income from partnerships due to the
receipt of proceeds from the refinancing of the first mortgage loans on
Arrowhead and Moorings during the second quarter of 1998. Contributing to the
decrease in the Partnership's net income was a decrease in interest and other
income due to generally lower rates earned on cash and cash equivalents and
lower cash and cash equivalents balances during 1999. Offsetting the decrease
in the Partnership's net income was a decrease in interest expense due to the
discount on purchase money notes being fully amortized as of December 31,
1998, a decrease in general and administrative expenses due to lower payroll
costs, and a decrease in professional fees due to a decrease in legal fees
related to the Chevy Chase and Wexford litigation in 1998.

The Partnership's net income for the six months ended June 30, 1999
decreased as compared to the net income during the corresponding period in 1998
primarily due to a decrease in share of income from partnerships, and also due
to a decrease in interest and other income, both as discussed above. Partially
offsetting the decrease in the Partnership's net income was an extraordinary
gain from the extinguishment of debt related to the discounted payoffs of the
Four Winds West and Troy Manor purchase money notes during 1999, as discussed in
the notes to the financial statements. Further offsetting the decrease in the
Partnership's net income were a decrease in general and administrative expenses,
and a decrease in professional fees, both as discussed above.

-24-

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 recognized losses for the three and six months ended
June 30, 1999 did not include losses of $337,089 and $760,311, respectively,
compared to excluded losses of $593,692 and $1,187,389, respectively, for the
three and six months ended June 30, 1998.

No other significant changes in the Partnership's operations have taken
place during this period.

Year 2000 Computer Issue
------------------------

The Year 2000 ("Y2K") computer issue refers to the inability of many
computer systems in use today to recognize "00" in the date field as the year
2000 and to recognize the year 2000 as a leap year. The Y2K problem arose
because, for many years, computer software programs, including programs embedded
in hardware, utilized only the last two digits to specify the year with the
assumption that the first two digits were "19." As a result, such programs may
not be able to recognize and process dates beyond 1999; rather they may
recognize and process "00," "01," "02,", etc., incorrectly as 1900, 1901, 1902,
instead of as 2000, 2001, 2002. In the opinion of computer experts, this could
cause such programs to create erroneous results, malfunction, or fail completely
unless corrective measures are taken.

The Partnership utilizes software and related computer technologies
essential to its operations that will be affected by the Y2K issue. To address
the issue, the Managing General Partner has developed and is currently
implementing a plan (the "Y2K Project") designed to ensure that the Y2K date
change will not have an adverse impact on the Partnership's operations. The Y2K
Project is on schedule and the Managing General Partner expects completion by
the end of 1999. The Y2K Project consists of four phases -- Planning,
Assessment, Implementation and Testing. The Planning Phase began early in 1998
and is complete. Under the Planning Phase, the Managing General Partner
conducted an inventory of all internal hardware and software systems, data
interfaces, business operations and non-information technology functions which
may be susceptible to the Y2K issue. This phase was completed at the end of
November 1998. Under the next phase, the Assessment Phase, all applications and
functions identified in the Planning Phase were analyzed to determine Y2K
compliance and the materiality of each identified risk. In the event of
noncompliance, for material risks, timetables for corrective action, as well as
estimated costs to achieve compliance, were determined. This phase was
completed during the first quarter of 1999. The Implementation Phase is now
underway. Renovation and replacement of existing internal hardware and software
systems has begun and completion is expected by August 1999. Additionally, the
Managing General Partner is currently working with third party vendors, service
providers, Local Partnership managing general partners, and Local Partnership
property managers to verify their Y2K compliance, with completion expected by
August 1999. The Testing Phase, which will include testing of internal
applications as well as some third party systems, began during January 1999 and
will continue throughout 1999. Contingency planning commenced during the fourth
quarter 1998 and will be completed by year-end 1999. The Managing General
Partner does not expect the expense associated with the Y2K Project to be
material.

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PART II. OTHER INFORMATION
-----------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------

Beech Hill I and II
-------------------

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

The Partnership defaulted on its purchase money notes related to
Frenchman's Wharf Associates II Limited Partnership (Frenchman's Wharf II) on
June 1, 1999 when the notes matured and were not paid. The default amount
included principal and accrued interest of $3,150,000 and $5,071,731,
respectively. The purchase money notes, initially due to mature on June 1,
1988, were previously extended to mature on June 1, 1998. As of August 9, 1999,
principal and accrued interest totaling $3,150,000 and $5,483,733, respectively,
were due. The Partnership is currently negotiating with the purchase money
noteholders to extend the notes to be coterminous with the workout arrangement
for the Local Partnership's mortgage loan, which is scheduled to expire on May
31, 2000. As of August 9, 1999, the noteholders had not consented to an

-26-

PART II. OTHER INFORMATION
-----------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - Continued
-------------------------------

extension agreement and there is no assurance that any agreement will be reached
with the noteholders. There is no assurance that the Partnership will be able
to retain its interest in Frenchman's Wharf II. The uncertainty regarding the
continued ownership of the Partnership's interest in Frenchman's Wharf II does
not adversely impact the Partnership's financial condition, as discussed above.

Princeton
---------

Westgate
--------

-27-

PART II. OTHER INFORMATION
-----------------
ITEM 5. OTHER INFORMATION
-----------------

The Partnership's investment units are not publicly traded on any
registered stock exchange but can be traded on an informal secondary market.
During 1999, a number of investors sold their investment units in the
Partnership to other investors. If more than 5% of the total outstanding
investment units in the Partnership are transferred in any one calendar year
(not counting certain exempt transfers), the Partnership could be taxed as a
"publicly traded partnership," with potentially severe tax implications for the
Partnership and its investors. Specifically, the Partnership would be taxed as
a corporation and the income and losses from the Partnership would no longer be
considered a passive activity. From January 1, 1999 through June 1, 1999,
approximately 4.9% of outstanding investment units were sold. Accordingly, to
remain within the 5% safe harbor, effective June 1, 1999, the General Partner of
the Partnership halted recognition of any transfers that exceed the safe harbor
limit through December 31, 1999. As a result, transfers of investment units due
to sales transactions will not be recognized by the Partnership until after
December 31, 1999.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------

a. None

b. No Reports on Form 8-K were filed with the Commission during the
quarter ended June 30, 1999.

All other items are not applicable.

-28-

SIGNATURE

In accordance with the requirements 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

August 9, 1999 by: /s/ Michael J. Tuszka
- --------------- ---------------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)

-29-

EXHIBIT INDEX
-------------

Exhibit Method of Filing
- ------- -----------------------------

27 Financial Data Schedule Filed herewith electronically

-30-