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Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K

Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998

OR
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Commission File Number: 033-24935

MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)

Delaware 52-1605434
- - ------------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

10400 Fernwood Road
Bethesda, Maryland 20817
- - -------------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: 301-380-2070

ecurities registered pursuant to Section 12(b) of the Act:
Not Applicable

Securities registered pursuant to Section 12(g) of
the Act:
Units of Limited Partnership Interest
Title of Class

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No ___.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ] (Not Applicable)

Documents Incorporated by Reference
None
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Marriott Residence Inn II Limited Partnership
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TABLE OF CONTENTS

PAGE NO.

PART I

Item 1. Business.........................................................1

Item 2. Properties.......................................................5

Item 3. Legal Proceedings................................................7

Item 4. Submission of Matters to a Vote of Security Holders..............7

PART II

Item 5. Market For The Partnership's Limited Partnership Units
and Related Security Holder Matters..............................8

Item 6. Selected Financial Data..........................................9

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................9

Item 8. Financial Statements and Supplementary Data.....................18

Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure........................................31

PART III

Item 10. Directors and Executive Officers................................31

Item 11. Management Remuneration and Transactions........................31

Item 12. Security Ownership of Certain Beneficial Owners and Management..32

Item 13. Certain Relationships and Related Transactions..................32

PART IV

Item 14. Exhibits, Supplemental Financial Statement Schedules and Reports
on Form 8-K.....................................................35

PART I

ITEM 1. BUSINESS

Description of the Partnership

Marriott Residence Inn II Limited Partnership, a Delaware limited partnership
(the "Partnership"), was formed on November 23, 1988 to acquire and own 23
Marriott Residence Inn properties (the "Inns") and the land on which the Inns
are located. The Inns are located in 16 states and contain a total of 2,487
suites as of December 31, 1998. The Partnership commenced operations on December
28, 1988.

Prior to December 24, 1998, the sole general partner of the Partnership was
Marriott RIBM Two Corporation, a Delaware corporation ("RIBM TWO"), a
wholly-owned subsidiary of Host Marriott Corporation ("Host Marriott"). The
Partnership is engaged solely in the business of owning and operating the Inns
and therefore is engaged in one industry segment. The principal offices of the
Partnership are located at 10400 Fernwood Road, Bethesda, Maryland 20817.

The Inns are operated as part of the Residence Inn by Marriott system and are
managed by Residence Inn by Marriott, Inc. (the "Manager"), a wholly-owned
subsidiary of Marriott International, Inc. ("MII"). Effective March 22, 1996,
the original management agreement was restated into two separate management
agreements. The Partnership entered into a management agreement with the Manager
for 22 of the Inns and Bossier. RIBM Two LLC entered into a management agreement
for the Bossier City Residence Inn (collectively, the "Restated Management
Agreements"). Additionally, the Partnership, Bossier RIBM Two LLC, and the
Manager entered into a Coordination Agreement to ensure that certain
calculations for items such as fees, payments of operating profit and escrow
contributions are made on a consolidated basis for all 23 Inns. The primary
provisions are discussed in Item 13, "Certain Relationships and Related
Transactions." The Restated Management Agreements expire in 2012 with renewals
at the option of the Manager for one or more of the Inns for up to 45 years
thereafter. See Item 13 "Certain Relationships and Related Transactions."

The objective of the Residence Inn by Marriott system, including the Inns, is to
provide consistently superior lodging at a fair price with an appealing,
friendly and contemporary residential character. Residence Inn by Marriott Inns
generally have fewer guest rooms than traditional full-service hotels, in most
cases containing approximately 120 guest suites, as compared to full-service
Marriott hotels which typically contain 350 or more guest rooms.

The Inns are extended stay hotels which cater primarily to business and family
travelers who stay more than five consecutive nights. The Inns typically have 88
to 144 studio, one bedroom, two bedroom and two-story penthouse suites. The Inns
generally are located in suburban settings throughout the United States and
feature a series of residential style buildings with landscaped walkways,
courtyards and recreational areas. Residence Inns do not have restaurants, but
offer a complimentary continental breakfast. In addition, most Residence Inns
provide a complimentary hospitality hour. Each suite contains a fully-equipped
kitchen and many suites have woodburning fireplaces.

The Partnership's financing needs have been funded through loan agreements with
independent financial institutions. See the "Debt Financing" section below.

Organization of the Partnership

On December 28, 1988 (the "Closing Date"), 70,000 units of limited partnership
interests (the "Units") in the Partnership, representing a 99% interest in the
Partnership, were sold in a public offering. The offering price per Unit was
$1,000. The General Partner contributed $707,100 for its 1% general partner
interest. The Partnership acquired 17 of the Inns on the Closing Date. The
remaining six Inns were acquired during 1989.

To facilitate the refinancing of the Partnership's mortgage debt, on March 22,
1996, as permitted by the Partnership Agreement, the Partnership transferred
ownership of the Bossier City Residence Inn to a newly formed subsidiary,
Bossier RIBM Two LLC ("Bossier LLC"), a Delaware limited liability company. The
general partner of the Bossier LLC with a 1% interest is Bossier RIBM Two, Inc.,
a wholly owned subsidiary of the Partnership. The remaining 99% interest in
Bossier LLC is owned by the Partnership.

On April 17, 1998, Host Marriott, the parent of RIBM TWO, announced that its
Board of Directors authorized the company to reorganize its business operations
to qualify as a real estate investment trust ("REIT") to become effective as of
January 1, 1999 (the "REIT Conversion"). On December 29, 1998, Host Marriott
announced that it had completed substantially all the steps necessary to
complete the REIT Conversion and expected to qualify as a REIT under the
applicable federal income tax laws beginning January 1, 1999. Subsequent to the
REIT Conversion, Host Marriott is referred to as Host REIT. In connection with
the REIT Conversion, Host REIT contributed substantially all of its hotel assets
to a newly formed partnership, Host Marriott LP ("Host LP").

In connection with Host Marriott's conversion to a REIT, the following steps
occurred. Host Marriott formed RIBM Two LLC, a Delaware single member limited
liability company, having three classes of member interests (Class A - 1%
economic interest, managing; Class B - 98% economic interest, non-managing;
Class C - 1% economic interest, non-managing). RIBM Two merged into RIBM Two LLC
on December 24, 1998 and RIBM Two ceased to exist. On December 28, 1998, Host
Marriott contributed its entire interest in RIBM Two LLC to Host LP, which is
owned 78% by Host Marriott and 22% by outside partners. Finally on December 30,
1998, Host LP contributed its 98% Class B interest and its 1% Class C interest
in RIBM Two LLC to Rockledge Hotel Properties, Inc. ("Rockledge"), a Delaware
corporation, which is owned 95% by Host LP (economic non-voting interest) and 5%
by Host Marriott Statutory/Charitable Employee Trust, a Delaware statutory
business trust (100% of the voting interest). As a result, the sole general
partner of the Partnership is RIBM Two LLC (the "General Partner"), with a Class
A 1% managing economic interest owned by Host LP and a Class B 98% and Class C
1% non-managing economic interest owned by Rockledge.

Debt Financing

On March 22, 1996 (the "Refinancing Closing Date"), the General Partner was
successful in refinancing the Term Loan and the Revolving Loan with a new third
party lender. In conjunction with the refinancing, the principal amount of the
Partnership's mortgage debt was increased from $137.1 million to $140 million to
provide funds for the establishment of required reserves and to pay transaction
costs. The refinanced mortgage debt (the "Mortgage Debt") continues to be
nonrecourse to the Partnership, bears interest at a fixed rate of 8.85% for a
10-year term expiring March 10, 2006 and requires payments of interest only
during the first loan year (April 1996 through March 1997) and principal
amortization based upon a 25-year amortization schedule beginning with the
second loan year.

The Mortgage Debt is secured by first mortgages on 22 of the Partnership's 23
Inns, the land on which they are located, a security interest in all personal
property associated with those Inns including furniture and equipment,
inventory, contracts, and other intangibles and the Partnership's rights under
the management agreement. Although the Partnership continues to own 23 Residence
Inns, during the course of performing environmental studies at the properties,
the lender determined that the Bossier City Residence Inn did not pass certain
required thresholds to enable the property to collateralize the Mortgage Debt.
Additionally, as part of the refinancing, the Partnership was required to
deposit $500,000 into a reserve account and fund $250,000 annually through 2006
into the account to provide for any claim, investigation, or litigation that may
arise from any environmental condition at the Bossier City Residence Inn. The
initial $500,000 deposit was funded by the lender. The Partnership is required
to repay the initial reserve as promptly as possible if the Partnership draws on
the deposit or by the end of the 10-year term in March 2006. Any draws upon the
account will accrue interest at the 30-day LIBOR plus 4.5 percentage points. If
the Partnership does not need to draw on the reserve account, the lender will
hold the reserve until such time as the Mortgage Debt is either repaid, or a
governmental authority determines that the statute of limitations on filing any
claims has expired or that no further remedial activities are required at the
property. Based upon the results of the environmental studies performed, the
Partnership does not expect that it will be necessary to draw on the reserve.

Pursuant to the terms of the Mortgage Debt, the Partnership is required to
establish with the lender a separate escrow account for payments of insurance
premiums and real estate taxes (the "Real Estate Tax and Insurance Escrow
Reserves") for each mortgaged property if the credit rating of Marriott
International, Inc. ("MII") is downgraded by Standard and Poors Rating Services.
The Manager of the Partnership's Inns, Residence Inn by Marriott, Inc. (the
"Manager"), is a wholly-owned subsidiary of MII. In March 1997, MII acquired the
Renaissance Hotel Group N.V., adding greater geographic diversity and growth
potential to its lodging portfolio. The assumption of additional debt associated
with this transaction resulted in a single downgrade of MII's long-term senior
unsecured debt effective April 1, 1997. As a result, the Partnership was
required to transfer $834,000 into the Real Estate Tax and Insurance Escrow
Reserves from the Manager's existing tax and insurance reserve account. In
addition, the Mortgage Debt required the Partnership to fund an additional
month's debt service of $1.2 million into the debt service reserve account over
a six-month period as a result of this downgrade. This funding was completed in
November 1997. The tax and insurance escrow reserves and the debt service
reserve are shown as restricted reserves and the related tax and insurance
liability is included with accounts payable and accrued expenses in the
accompanying consolidated balance sheet.

Additionally, the terms of the Mortgage Debt require the Partnership to
establish certain reserves including:

o $3,482,000 Debt Service Reserve - This reserve was fully funded by
November 1997 and is equal to three months of debt service.

o $2,357,000 Capital Expenditure Reserve - This reserve was fully funded on
the Refinancing Closing Date. The funds will be expended for various
renewals and replacements, site improvements, Americans with Disabilities
Act of 1990 modifications and environmental remediation projects identified
during the course of the appraisals and environmental studies undertaken in
conjunction with the refinancing. As of December 31, 1998 the balance of
this reserve is $1,791,000.

Furthermore, due to the April 1, 1997 MII credit rating downgrade, as described
above, the Manager required additional working capital as follows:

o $900,000 Working Capital Reserve - This reserve was provided for from
1996 cash flow from operations. As of December 31, 1998 the balance of
this reserve was $880,000.

Material Contracts

Management Agreement

The primary provisions are discussed in Item 13, "Certain Relationships and
Related Transactions."

Competition

The United States lodging industry generally is comprised of two broad segments:
full service hotels and limited service hotels. Full service hotels generally
offer restaurant and lounge facilities and meeting spaces, as well as a wide
range of services, typically including bell service and room service. Limited
service hotels generally offer accommodations with limited or no services and
amenities. As extended stay hotels, the Inns compete effectively with both full
service and limited service hotels in their respective markets by providing
streamlined services and amenities exceeding those provided by typical limited
service hotels at prices that are significantly lower than those available at
full service hotels.

The lodging industry in general, and the extended-stay segment in particular, is
highly competitive, but the degree of competition varies from location to
location and time to time. The Inns compete with several other major lodging
brands. Competition in the industry is based primarily on the level of service,
quality of accommodations, convenience of locations and room rates. The
following are key participants in the extended stay segment of the lodging
industry: Residence Inn, Homewood Suites, Hawthorne Suites, Summerfield Suites,
extended Stay America and AmeriSuites.

Conflicts of Interest

Because Host LP, the managing member of the General Partner, MII and their
affiliates own and/or operate hotels other than the Partnership's Inns and MII
and its affiliates license others to operate hotels under the various brand
names owned by MII and its affiliates, potential conflicts of interest exist.
With respect to these potential conflicts of interest, Host LP, MII and their
affiliates retain a free right to compete with the Partnership's Inns, including
the right to develop, own, and operate competing hotels now and in the future in
markets in which the Inns are located, in addition to those existing hotels
which may currently compete directly or indirectly with the Inns.

Under Delaware law, the General Partner has a fiduciary duty to the Partnership
and is required to exercise good faith and loyalty in all its dealings with
respect to Partnership affairs.

Policies with Respect to Conflicts of Interest

It is the policy of the General Partner that the Partnership's relationship with
the General Partner, any affiliate of the General Partner, or persons employed
by the General Partner or its affiliates be conducted on terms that are fair to
the Partnership and that are commercially reasonable. Agreements and
relationships involving the General Partner or its affiliates and the
Partnership are on terms consistent with the terms on which the General Partner
or its affiliates have dealt with unrelated parties.

The Amended and Restated Agreement of Limited Partnership, as amended (the
"Partnership Agreement"), provides that any agreements, contracts or
arrangements between the Partnership and the General Partner or any of its
affiliates, except for rendering legal, tax, accounting, financial, engineering,
and procurement services to the Partnership by employees of the General Partner
or its affiliates, will be on commercially reasonable terms and will be subject
to the following additional conditions:

(i) the General Partner or any such affiliate must have the ability to render
such services or to sell or lease such goods;

(ii) such agreements, contracts or arrangements must be fair to the
Partnership and reflect commercially reasonable terms and must be
embodied in a written contract which precisely describes the subject
matter thereof and all compensation to be paid therefor;

(iii) no rebates or give-ups may be received by the General Partner or any such
affiliate, nor may the General Partner or any such affiliate participate
in any reciprocal business arrangements which would have the effect of
circumventing any of the provisions of the Partnership Agreement; and

(iv) no such agreement, contract or arrangement as to which the limited
partners had previously given approval may be amended in such a manner as
to increase the fees or other compensation payable by the Partnership to
the General Partner or any of its affiliates or to decrease the
responsibilities or duties of the General Partner or any such affiliate
in the absence of the consent of the holders of a majority in interest of
the limited partners.

Employees

Neither the General Partner nor the Partnership has any employees. Host LP
provides the services of certain employees (including the General Partner's
executive officers) of Host LP to the Partnership and the General Partner. The
Partnership and the General Partner anticipate that each of the executive
officers of the General Partner will generally devote a sufficient portion of
his or her time to the business of the Partnership. However, each of such
executive officers also will devote a significant portion of his or her time to
the business of Host LP and its other affiliates. No officer or director of the
General Partner or employee of Host LP devotes a significant percentage of time
to Partnership matters. To the extent that any officer, director or employee
does devote time to the Partnership, the General Partner or Host LP, as
applicable, is entitled to reimbursement for the cost of providing such
services. See Item 11, "Management Remuneration and Transactions" for
information regarding payments made to Host LP or its subsidiaries for the cost
of providing administrative services to the Partnership.

Potential Transaction

The General Partner has retained Merrill Lynch to explore alternatives to
provide liquidity for the Partnership and maximize the value of the limited
partners' investment. However, there can be no assurance that a transaction will
result from these activities.

ITEM 2. PROPERTIES

Introduction

The properties consist of 23 Residence Inn by Marriott Inns as of December 31,
1998. The Inns range in age between 9 and 15 years. The Inns are geographically
diversified among 16 states, and no state has more than four Inns.

The extended stay segment of the lodging industry continued to experience
increased competition throughout 1998 as new extended stay purpose-built
competitors entered the market. This trend is expected to continue in 1999. In
response to this increased competition, Residence Inn by Marriott's strategy is
to differentiate the brand on the basis of superior service offerings and
delivery. On a combined basis, competitive forces affecting the Inns are not, in
the opinion of the General Partner, more adverse than the overall competitive
forces affecting the lodging industry generally. See Item 1,
"Business--Competition."

Name and Location of Partnership Inns

Inn Number of Suites Date Opened
- - ----------------------- ------------------------- ------------------
Alabama
Birmingham 128 1986
California
Arcadia 120 1989
Irvine 112 1989
Placentia 112 1988
Florida
Boca Raton 120 1988
Jacksonville 112 1986
Pensacola 64 1985
St. Petersburg 88 1986
Illinois
Chicago-Deerfield 128 1989
Louisiana
Shreveport-Bossier City 72 1983
Massachusetts
Boston-Danvers 96 1989
Michigan
Kalamazoo 83 1989
Missouri
Jackson 120 1986
Nevada
Las Vegas 192 1989
New Mexico
Santa Fe 120 1986
North Carolina
Charlotte North 91 1988
Greensboro 128 1987
Ohio
Akron 112 1987
Pennsylvania
Valley Forge 88 1988
South Carolina
Columbia 128 1988
Spartanburg 88 1985
Tennessee
Memphis 105 1986
Texas
Lubbock 80 1986

=========================
TOTAL 2,487
=========================

ITEM 3. LEGAL PROCEEDINGS

On February 11, 1998, four individual limited partners in partnerships sponsored
by Host Marriott Corporation filed a class action lawsuit, styled Ruben, et al.
v. Host Marriott Corporation, et al., Civil Action No. 16186, in Delaware State
Chancery Court against Host Marriott and the general partners of Courtyard by
Marriott Limited Partnership, Courtyard by Marriott II Limited Partnership,
Marriott Residence Inn Limited Partnership, Marriott Residence Inn II Limited
Partnership, and Fairfield Inn by Marriott Limited Partnership (collectively,
the "Five Partnerships"). The plaintiffs alleged that the proposed merger of the
Five Partnerships (the "Merger") into an umbrella partnership real estate
investment trust proposed by CRF Lodging Company, L.P. in a preliminary
registration statement filed with the Securities and Exchange Commission, dated
December 22, 1997, constituted a breach of the fiduciary duties owed to the
limited partners of the Five Partnerships by Host Marriott and the general
partners of the Five Partnerships. In addition, the plaintiffs alleged that the
Merger breached various agreements relating to the Five Partnerships. The
plaintiffs sought, among other things, the following: certification of a class;
injunctive relief to block consummation of the Merger or, in the alternative,
rescission of the Merger; and damages. The defendants, in light of market
conditions, decided to abandon their efforts to complete the Merger. As a result
of this decision, the plaintiffs voluntarily dismissed the lawsuit.

On March 16, 1998, limited partners in several partnerships sponsored by Host
Marriott filed a lawsuit, styled Robert M. Haas, Sr. and Irwin Randolf Joint
Tenants, et al., v. Marriott International Inc., et. al., Case No. 98-CI-04092
(the "Haas Case"), in the 57th Judicial District Court of Bexar County, Texas
against Marriott International Inc., Host Marriott, various of their
subsidiaries, J.W. Marriott Jr., Stephen Rushmore and Hospitality Valuation
Services, Inc. (collectively, the "Defendants"). The lawsuit relates to the
following limited partnerships: Courtyard by Marriott Limited Partnership,
Courtyard by Marriott II Limited Partnership, Marriott Residence Inn Limited
Partnership, Marriott Residence Inn II Limited Partnership, Fairfield Inn by
Marriott Limited Partnership, Desert Springs Marriott Limited Partnership, and
Atlanta Marriott Marquis Limited Partnership (collectively, the "Seven
Partnerships"). The plaintiffs allege that the Defendants conspired to sell
hotels to the Seven Partnerships for inflated prices and that they charged the
Seven Partnerships excessive management fees to operate the Seven Partnerships'
hotels. The plaintiffs further allege, among other things, that the Defendants
committed fraud, breached fiduciary duties, and violated the provisions of
various contracts. The plaintiffs are seeking unspecified damages. The
Defendants, which do not include the Seven Partnerships, believe that there is
no truth to the plaintiffs' allegations and that the lawsuit is totally devoid
of merit. The Defendants intend to vigorously defend against the claims asserted
in the lawsuit. They have filed an answer to the plaintiffs' petition and
asserted a number of defenses. A related case concerning Courtyard by Marriott
II Limited Partnership was filed by the plaintiffs' lawyers in the same court,
involves similar allegations against the Defendants, and has been certified as a
class action. Trial in this related case is presently scheduled for May 1999.
Due to the prosecution of the related case, there has been no meaningful
activity in the Haas case. Although the Seven Partnerships have not been named
as defendants in the lawsuit, the partnership agreements relating to the Seven
Partnerships include an indemnity provision which requires the Seven
Partnerships, under certain circumstances, to indemnify the general partners
against losses, expenses and fees.

The Partnership and the Inns are involved in routine litigation and
administrative proceedings arising in the ordinary course of business, some of
which are expected to be covered by liability insurance and which collectively
are not expected to have a material adverse effect on the business, financial
conditions or results of operations of the Partnership.

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

None.

PART II

ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS

There is currently no established public trading market for the Units and it is
not anticipated that a public market for the Units will develop. Transfers of
Units are limited to the first date of each accounting quarter. All transfers
are subject to approval by the General Partner. As of December 31, 1998, there
were 3,644 holders of record of the 70,000 Units.

The Partnership generally distributes cash available for distribution as
follows: (i) first, 99% to the limited partners and 1% to the General Partner,
until the partners have received, with respect to such year, an amount equal to
10% of their Net Capital Investment, defined as the excess of original capital
contributions over cumulative distributions of net refinancing and sales
proceeds ("Capital Receipts"); (ii) second, remaining cash available for
distribution will be distributed as follows, depending on the amount of Capital
Receipts previously distributed:

(a) 99% to the limited partners and 1% to the General Partner, if the
partners have received aggregate cumulative distributions of Capital
Receipts of less than 50% of their original capital contributions; or

(b) 90% to the limited partners and 10% to the General Partner, if the
partners have received aggregate cumulative distributions of Capital
Receipts equal to or greater than 50% but less than 100% of their
original capital contributions; or

(c) 75% to the limited partners and 25% to the General Partner, if the
partners have received aggregate cumulative distributions of Capital
Receipts equal to 100% or more of their original capital contributions.

Cash available for distribution means, with respect to any fiscal period, the
cash revenues of the Partnership from all sources during the fiscal period,
other than Capital Receipts, less (i) all cash expenditures of the Partnership
during such fiscal period, including, without limitation, debt service,
repayment of advances made by the General Partner, any fees for management
services and administrative expenses, but excluding expenditures incurred by the
Partnership in connection with a transaction resulting in Capital Receipts, and
(ii) such reserves as may be determined by the General Partner, in its
reasonable discretion to be necessary to provide for the foreseeable cash needs
of the Partnership or for the maintenance, repair, or restoration of the Inns.

As of December 31, 1998, the Partnership has distributed a total of $46,101,000
to the partners ($652 per limited partner unit) since inception. In 1998 and
1997, $3,536,000 and $3,535,000 ($50 per limited partner unit) was distributed
from 1997 and 1996 cash flow from operations, respectively. No distributions of
Capital Receipts have been made since inception.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data presents historical operating information
for the Partnership for each of the five years in the period ended December 31,
1998 presented in accordance with generally accepted accounting principles:

1998 1997 1996 1995 1994
(in thousands, except per unit amounts)

Income Statement Data:

Revenues...........................................$ 71,658 $ 71,039 $ 69,644 $ 66,865 $ 63,034

Operating Profit................................... 14,679 17,147 15,419 15,141 13,192

Net income (loss).................................. 2,822 4,894 2,663 1,603 (528)

Net income (loss)
per limited partner unit (70,000 Units)......... 40 69 38 23 (7)

Balance Sheet Data:

Total assets.......................................$ 168,866 $ 167,883 $ 165,510 $ 165,362 $ 159,801

Total liabilities.................................. 159,016 157,319 156,305 158,820 149,913

Cash distributions
per limited partner unit (70,000 Units)......... 50 50 -- 70 72

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain matters discussed in this Form 10-K include forward-looking statements
and as such may involve known and unknown risks, uncertainties and other factors
which may cause the actual transactions, results, performance or achievements to
be materially different from any future transactions, results, performance or
achievements expressed or implied by such forward-looking statements. The
cautionary statements set forth in reports filed under the Securities Act of
1934 contained important factors with respect to such forward-looking
statements, including: (i) national and local economic and business conditions
that will, among other things, affect demand for hotels and other properties,
the level of rates and occupancy that can be achieved by such properties and the
availability and terms of financing; (ii) the ability to compete effectively;
(iii) changes in travel patterns, taxes and government regulations; (iv)
governmental approvals, actions and initiatives; and (v) the effects of tax
legislative action. Although the Partnership believes the expectations reflected
in such forward-looking statements are based upon reasonable assumptions, it can
give no assurance that its expectations will be attained or that any deviations
will not be material. The Partnership undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that may
be made to reflect any future events or circumstances.

GENERAL

During the period from 1996 through 1998, Partnership revenues grew from $69.6
million to $71.7 million. Growth in suite sales, and thus revenues, is primarily
a function of combined average occupancy and combined average daily suite rates.
During the period from 1996 through 1998, the Inns' combined average daily suite
rate increased approximately $6 from $85 to $91, while the combined average
occupancy decreased from 84.5% to 83.1%.

With the exception of variable payments due to the Manager, the partnership's
operating costs and expenses are, to a great extent, fixed. Therefore, the
Partnership derives substantial operating leverage from increases in revenue.
The variable expenses, include (i) base and Residence Inn system management fees
under the Restated Management Agreements, which are 2% of gross Inn sales, and
4% of suite sales, respectively and (ii) incentive management fees under the
Restated Management Agreements equal to 15% of operating profit, as defined,
payable out of 50% of available cash flow, as defined.

RESULTS OF OPERATIONS

Revenues represent the gross sales generated by the Partnership's Inns.

On November 20, 1997, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on EITF 97-2, "Application of
FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities and Certain Other Entities with Contractual Management Arrangements."
EITF 97-2 addresses the circumstances in which a management entity may include
the revenues and expenses of a managed entity in its financial statements.

The Partnership considered the impact of EITF 97-2 on its consolidated financial
statements and determined that EITF 97-2 requires the Partnership to include
property-level sales and operating expenses of its Inns in its consolidated
statement of operations. The Partnership has given retroactive effect to the
adoption of EITF 97-2 in the accompanying consolidated statement of operations.
Application of EITF 97-2 to the consolidated financial statements for the fiscal
years ended December 31, 1998, 1997 and 1996 increased both revenues and
operating expenses by approximately $38.6 million, $35.6 million and $35.6
million, respectively, and had no impact on operating profit or net income.

The following table shows selected combined operating and financial statistics
for the Inns. Revenue per available room ("REVPAR") is a commonly used indicator
of market performance for hotels which represents the combination of daily suite
rate charged and the average daily occupancy achieved.

Year Ended December 31,
1998 1997 1996
Combined average occupancy........... 83.1% 83.6% 84.5%
Combined average daily suite rate....$ 90.93 $ 89.08 $ 84.65
REVPAR...............................$ 75.56 $ 74.47 $ 71.53

1998 Compared to 1997:

Revenues. Total 1998 Inn revenues of $71.7 million represented a $700,000, or
1%, increase over 1997 results. This increase was achieved primarily through an
increase in Inn revenue per available room ("REVPAR"), which represents the
combination of the combined average daily suite rate charged and the combined
average occupancy achieved, and is a commonly used indicator of hotel
performance. REVPAR does not include other ancillary revenues generated by the
Inns. REVPAR increased $1 in 1998 as a result of a $2 increase in the average
daily suite rate from $89 in 1997 to $91 in 1998 offset by a one-half percentage
point decrease in the combined average occupancy to approximately 83.1%. As a
result, 1998 combined average suite sales increased by $800,000, or 1.2%, to
$68.2 million from $67.4 million in 1997.

Operating Costs and Expenses. Operating costs and expenses increased $3.1
million to $57.0 million in 1998 from $53.9 million in 1997 primarily due to a
$1.8 million increase in selling, administrative and other property-level costs
and expenses and a $1.0 million increase in suite property-level costs and
expenses. As a percentage of Inn revenues, operating costs and expenses
represented 80% of revenues for 1998 and 76% in 1997.

Operating Profit. The increase in revenues offset by the increase in operating
costs and expenses discussed above, resulted in a decrease in operating profit.
Operating profit decreased $2.5 million to $14.7 million, or 20% of revenues, in
1998 from $17.1 million, or 24% of revenues in 1997.

Interest Expense. Interest expense decreased $100,000 to $12.8 million
primarily due to principal payments of $1.5 million on the Mortgage Debt.

Net Income. Net income decreased $2.1 million to $2.8 million, or 4% of
revenues, in 1998 from $4.9 million, or 7% of total revenues, in 1997 due
primarily to increased hotel operating costs as a result of increased revenues.

1997 Compared to 1996:

Revenues. Revenues increased $1.4 million, or 2%, to $71.0 million in 1997 from
$69.6 million in 1996. Revenue and operating profit were impacted primarily by
growth in REVPAR. REVPAR increased 4% during the year primarily due to an
increase in average daily suite rates of approximately 5%, with a decrease in
average occupancy of one percentage point.

Operating Costs and Expenses. Operating costs and expenses decreased $300,000 to
$53.9 million in 1997 from $54.2 million in 1996 due to a $200,000 decrease in
equipment rent and other operating costs and expenses. As a percentage of Inn
revenues, Inn operating costs and expenses represented 76% of revenues for 1997
and 78% in 1996.

Operating Profit. The increase in revenues and decrease in operating costs and
expenses discussed above, resulted in an increase in operating profit. Operating
profit increased $1.7 million to $17.1 million, or 24% of revenues, in 1997 from
$15.4 million, or 22% of revenues in 1996.

Interest Expense. Interest expense decreased $300,000 to $12.9 million primarily
due to the decline in the weighted average interest rate on the Partnership's
mortgage debt from 10.17% to 8.85%. The refinanced debt carries a lower average
interest rate versus the old loan, which was in place for the beginning of 1996.

Net Income. Net income increased $2.2 million to $4.9 million, or 7% of
revenues, in 1997 from $2.7 million, or 4% of total revenues, in 1996 due
primarily to improved operating results and lower interest expense.

CAPITAL RESOURCES AND LIQUIDITY

General

The General Partner believes that cash from Inn operations and Partnership
reserves will be adequate in the short term and is working with the Manager to
address the long term operational and capital needs of the Partnership.

Principal Sources and Uses of Cash

The Partnership's principal source of cash is cash from operations. Its
principal uses of cash are to make debt service payments, fund the property
improvement fund, and to make distributions to the limited partners.

Cash provided by operations was $14.1 million in 1998, $12.5 million in 1997,
and $3.9 million in 1996. The $1.6 million increase in cash from operations in
1998 from 1997 was primarily due to the deferral of approximately $3.1 million
of incentive management fees.

Cash used in investing activities was $4.6 million, $4.4 million, and $7.2
million in 1998, 1997, and 1996, respectively. The Partnership's cash investing
activities consist primarily of contributions to the property improvement fund,
capital expenditures for improvements to existing Inns and contributions to
restricted cash reserves required under the terms of the mortgage debt.
Contributions to the property improvement fund were $4.3 million, $3.5 million
and $3.5 million for the years ended December 31, 1998, 1997, and 1996,
respectively, while capital expenditures were $5.9 million, $5.8 million and
$4.4 million, respectively, during these same time periods.

Cash used in financing activities was $5.0 million, $6.0 million and $2.6
million in 1998, 1997 and 1996, respectively. The Partnership's cash financing
activities consist primarily of capital distributions to partners, repayment of
debt, payment of financing costs and debt refinancing. In March 1996, the
Partnership refinanced mortgage debt of $137 million with proceeds from a $140
million nonrecourse mortgage loan. The excess proceeds from the loan were
primarily used to establish a reserve for certain capital expenditures and
transaction costs. The refinanced debt is nonrecourse to the Partnership, bears
interest at a fixed rate of 8.85%, and matures in 2006. Principal amortization
is required on the loan over the ten year term based on a 25-year amortization.
In connection with refinancing, the Partnership contributed the Bossier City
Residence Inn to a newly formed wholly-owned subsidiary.

Debt Financing

On March 22, 1996 the General Partner was successful in refinancing the Term
Loan and the Revolving Loan with a new third party lender.

To facilitate the refinancing of the Partnership's mortgage debt, on March 22,
1996, as permitted by the Partnership Agreement, the Partnership transferred
ownership of the Bossier City Residence Inn to Bossier LLC. The general partner
of Bossier LLC with a 1% interest is Bossier RIBM Two, Inc., a wholly owned
subsidiary of the Partnership. The remaining 99% interest in Bossier LLC is
owned by the Partnership. The Inns are managed by the Manager, a wholly-owned
subsidiary of MII, as part of the Residence Inn by Marriott hotel system.

In conjunction with the refinancing, the principal amount of the Partnership's
mortgage debt was increased from $137.1 million to $140 million. The refinanced
mortgage debt (the "Mortgage Debt") continues to be nonrecourse to the
Partnership, bears interest at a fixed rate of 8.85% based upon actual number of
days over a 360 day year for a 10-year term expiring March 10, 2006 and requires
payments of interest only during the first loan year (April 1996 through March
1997) and principal amortization based upon a 25-year amortization schedule
beginning with the second loan year.

The Mortgage Debt is secured by first mortgages on 22 of the Partnership's 23
Inns, the land on which they are located, a security interest in all personal
property associated with those Inns including furniture and equipment,
inventory, contracts, and other intangibles and the Partnership's rights under
the management agreement. Although the Partnership continues to own 23 Residence
Inns, during the course of performing environmental studies at the properties,
the lender determined that the Bossier City Residence Inn did not pass certain
required thresholds to enable the property to collateralize the Mortgage Debt.
Additionally, as part of the refinancing, the Partnership was required to
deposit $500,000 into a reserve account and fund $250,000 annually through 2006
into the account to provide for any claim, investigation, or litigation that may
arise from any environmental condition at the Bossier City Residence Inn. The
balance of this reserve was $542,000 as of December 31, 1998. The initial
$500,000 deposit was funded by the lender. The Partnership is required to repay
the initial reserve as promptly as possible if the Partnership draws on the
deposit or by the end of the 10-year term in March 2006. Any draws upon the
account will accrue interest at the 30-day LIBOR plus 4.5 percentage points. If
the Partnership does not need to draw on the reserve account, the lender will
hold the reserve until such time as the Mortgage Debt is either repaid, or a
governmental authority determines that the statute of limitations on filing any
claims has expired or that no further remedial activities are required at the
property. Based upon the results of the environmental studies performed, the
Partnership does not expect that it will be necessary to draw on the reserve.

Property Improvement Fund

The Restated Management Agreements and the prior Management Agreement provide
for the establishment of a property improvement fund for the Inns. During 1996
and 1997 contributions to the property improvement fund were 5% of gross Inn
revenues. In 1998, the contribution rate for the 22 Inns Securing the Mortgage
Debt increased to 6% of gross Inn revenues to aid in the furniture, fixtures and
equipment ("FF&E") reserve short fall discussed below. The contribution rate for
the Bossier City Residence Inn remained at 5% of gross Inn revenues. Total
contributions to the property improvement fund for the years ended December 31,
1998, 1997 and 1996 were $4,282,000, $3,547,000 and $3,482,000, respectively.

Based on current capital budgets, the Partnership's FF&E reserves are
forecasted to be insufficient beginning in 1998. The shortfall is primarily due
to the need to complete total suite refurbishment at the majority of the
Partnership's Inns in the next several years. As a result, the General Partner
established a reserve in 1996 for the future capital needs of the Partnership's
Inns. Both 1997 and 1998 distributions were net of this reserve. The 1998
shortfall will be funded by a $2.5 million owner-funded loan from the
Partnership. The loan was funded in the first quarter 1999. The loan bears a
floating interest rate of prime rate plus one percentage point. Payment of
principal and interest based upon a five-year amortization period will begin in
April 1999. Under the terms of the loan, the debt service payments are
subordinate to the Mortgage Debt and are included as a deduction in determining
the incentive management fee paid to the Manager. The current shortfall estimate
for 1999 of $3.8 million will be funded from an increase in the contribution to
the property improvement fund to 7% of gross Inn revenues and an owner-funded
$1.6 million loan from the Partnership. The loan must be fully funded before
March 24, 2000. The loan bears a floating interest rate of prime rate plus one
percentage point. Payment of principal and interest based upon a five-year
amortization period will begin the accounting period immediately following the
date of final funding of the loan or in January 2000. Under the terms of the
loan, the debt service payments are subordinate to the Mortgage Debt and are
included as a deduction in determining the incentive management fee paid to the
Manager.

Deferred Management Fees

To facilitate the refinancing, effective March 22, 1996, the original management
agreement was restated into two separate management agreements. The Partnership
entered into a management agreement with the Manager for 22 of the Inns which
the Partnership directly owns and Bossier LLC entered into a management
agreement for the Bossier City Residence Inn, which Bossier LLC owns,
(collectively, the "Restated Management Agreements"). Additionally, the
Partnership, Bossier LLC, and the Manager entered into a Coordination Agreement
to ensure certain calculations for items such as fees, payments of operating
profit and escrow contributions are made on a consolidated basis for all 23
Inns.

The Manager earns a base management fee equal to 2% of the Inns' gross revenues.
Through 1991, payment of the base management fee was subordinate to qualifying
debt service payments, a provision for Partnership administrative expenses and
retention by the Partnership of annual cash flow from operations of $7,071,000.
Deferred base management fees are payable in the future from operating cash
flow, as defined. Beginning in 1992 and thereafter, base management fees are
paid currently. Pursuant to the terms of the Restated Management Agreements, the
Partnership paid the remaining $743,000 of deferred base management fees in
1996.

In addition, the Manager is entitled to an incentive management fee equal to 15%
of operating profit, as defined (23.5% in any year in which operating profit is
equal to or greater than $25.3 million; however, cumulative incentive management
fees cannot exceed 20% of cumulative operating profit). The incentive management
fee is payable out of 50% of cash flow from operations remaining after payment
of debt service, provision for Partnership administrative expenses, payment of
the base management fee, payment of deferred base management fees and retention
by the Partnership of annual cash flow from operations of $7,071,000. After the
Partnership has retained an additional 5% return, the incentive management fee
is payable out of 75% of the remaining cash flow from operations. Through 1991,
the Manager was not entitled to accrue any unpaid incentive management fees.
Incentive management fees earned after 1991 are payable in the future from
operating cash flow, as defined. Incentive management fees of $3,257,000,
$3,641,000 and $3,542,000 were earned during 1998, 1997 and 1996, respectively.
Incentive management fees of $185,000 and $1,706,000 were paid during 1998 and
1997, respectively. Accrued deferred incentive management fees were $19,617,000
and $16,545,000, as of December 31, 1998 and 1997, respectively.

Competition

The extended-stay lodging segment continues to be highly competitive. An
increase in supply growth began in 1996 with the introduction of a number of new
national brands. In 1999, it is expected that Residence Inn will continue
outperforming both national and local competitors. The brand is continuing to
carefully monitor the introduction of new extended-stay brands and growth of
existing brands including Homewood Suites, Hawthorne Suites, Summerfield Suites,
Staybridge by Holiday Inn and Hilton Residential Suites.

Inflation

The rate of inflation has been relatively low in the past four years. The
Manager is generally able to pass through increased costs to customers through
higher suite rates and prices. In 1998, the growth in average suite rates of
Residence Inns exceeded inflationary costs.

Seasonality

Demand, and thus room occupancy, is affected by normally recurring seasonal
patterns. For most of the Inns, demand is higher in the spring and summer months
(March through October) than during the remainder of the year.

YEAR 2000 ISSUES

The "Year 2000 Issue" has arisen because many existing computer programs and
chip-based embedded technology systems use only the last two digits to refer to
a year, and therefore do not properly recognize a year that begins with "20"
instead of the familiar "19." If not corrected, many computer applications could
fail or create erroneous results. The following disclosure provides information
regarding the current status of the Partnership's Year 2000 compliance program.

The Partnership processes its records on computer hardware and software systems
maintained by Host Marriott Corporation ("Host Marriott"), the parent company of
the General Partner of the Partnership. Host Marriott has adopted a compliance
program because it recognizes the importance of minimizing the number and
seriousness of any disruptions that may occur as a result of the Year 2000
Issue. Host Marriott's compliance program includes an assessment of Host
Marriott's hardware and software computer systems and embedded systems, as well
as an assessment of the Year 2000 issues relating to third parties with which
the Partnership has a material relationship or whose systems are material to the
operations of the Partnership's Hotels. Host Marriott's efforts to ensure that
its computer systems are Year 2000 compliant have been segregated into two
separate phases: in-house systems and third-party systems.

In-House Systems. Host Marriott has invested in the implementation and
maintenance of accounting and reporting systems and equipment that are intended
to enable the Partnership to provide adequately for its information and
reporting needs and which are also Year 2000 compliant. Substantially all of
Host Marriott's in-house systems have already been certified as Year 2000
compliant through testing and other mechanisms and Host Marriott has not delayed
any systems projects due to the Year 2000 Issue. Host Marriott is in the process
of engaging a third party to review its Year 2000 in-house compliance. Host
Marriott believes that future costs associated with Year 2000 Issues for its
in-house systems will be insignificant and will therefore not impact the
Partnership's business, financial condition and results of operations. Host
Marriott has not developed, and does not plan to develop, a separate contingency
plan for its in-house systems due to their current Year 2000 compliance.
However, Host Marriott does have detailed contingency plans for its in-house
systems covering a variety of possible events, including natural disasters,
interruption of utility service and similar events.

Third-Party Systems. The Partnership relies upon operational and accounting
systems provided by third parties, primarily the Manager of its Inns, to provide
the appropriate property-specific operating systems (including reservation,
phone, elevator, security, HVAC and other systems) and to provide it with
financial information. Based on discussions with the third parties that are
critical to the Partnership's business, including the Manager of its Inns, Host
Marriott believes that these parties are in the process of studying their
systems and the systems of their respective vendors and service providers and,
in many cases, have begun to implement changes, to ensure that they are Year
2000 compliant. However, Host Marriott has not received any oral or written
assurances that these third parties will be Year 2000 compliant on time. To the
extent these changes impact property-level systems, the Partnership may be
required to fund capital expenditures for upgraded equipment and software. Host
Marriott does not expect these charges to be material, but is committed to
making these investments as required. To the extent that these changes relate to
the Manager's centralized systems (including reservations, accounting,
purchasing, inventory, personnel and other systems), the Partnership's
management agreement generally provides for these costs to be charged to the
Partnership's Inns. Host Marriott expects that the Manager will incur Year 2000
costs for its centralized systems in lieu of costs related to system projects
that otherwise would have been pursued and therefore, its overall level of
centralized charges allocated to the Inns will not materially increase as a
result of the Year 2000 compliance effort. Host Marriott believes that this
deferral of certain system projects will not have a material impact on its
future results of operations, although it may delay certain productivity
enhancements at the Partnership's Inns. Host Marriott will continue to monitor
the efforts of these third parties to become Year 2000 compliant and will take
appropriate steps to address any non-compliance issues. The Partnership believes
that in the event of material Year 2000 non-compliance caused by a breach of the
Manager's duties, the Partnership will have the right to seek recourse against
the Manager under its third party management agreement. The management agreement
generally does not specifically address the Year 2000 compliance issue.
Therefore the amount of any recovery in the event of Year 2000 non-compliance at
a property, if any, is not determinable at this time.

Host Marriott will work with the third parties to ensure that appropriate
contingency plans will be developed to address the most reasonably likely worst
case Year 2000 scenarios, which may not have been identified fully. In
particular, Host Marriott has had extensive discussions regarding the Year 2000
Issue with Marriott International, the Manager of the Inns. Due to the
significance of Marriott International to the Partnership's business, a detailed
description of Marriott International's state of readiness follows.

Marriott International has adopted an eight-step process toward Year 2000
readiness, consisting of the following: (i) Awareness: fostering understanding
of, and commitment to, the problem and its potential risks; (ii) Inventory:
identifying and locating systems and technology components that may be affected;
(iii) Assessment: reviewing these components for Year 2000 compliance, and
assessing the scope of Year 2000 issues; (iv) Planning: defining the technical
solutions and labor and work plans necessary for each particular system; (v)
Remediation/Replacement: completing the programming to renovate or replace the
problem software or hardware; (vi) Testing and Compliance Validation: conducting
testing, followed by independent validation by a separate internal verification
team; (vii) Implementation: placing the corrected systems and technology back
into the business environment; and (viii) Quality Assurance: utilizing a
dedicated audit team to review and test significant projects for adherence to
quality standards and program methodology.

Marriott International has grouped its systems and technology into three
categories for purposes of Year 2000 compliance: (i) information resource
applications and technology (IT Applications) -- enterprise-wide systems
supported by Marriott International's centralized information technology
organization ("IR"); (ii) Business-initiated Systems ("BIS") - systems that have
been initiated by an individual business unit, and that are not supported by
Marriott International's IR organization; and (iii) Building Systems - non-IT
equipment at properties that use embedded computer chips, such as elevators,
automated room key systems and HVAC equipment. Marriott International is
prioritizing its efforts based on how severe an effect noncompliance would have
on customer service, core business processes or revenues, and whether there are
viable, non-automated fallback procedures (System Criticality).

Marriott International measures the completion of each phase based on documented
and quantified results, weighted for System Criticality. As of December 31,
1998, the Awareness and Inventory phases were complete for IT Applications and
nearly complete for BIS and Building Systems. For IT Applications, the
Assessment, Planning and Remediation/Replacement and Testing phases were each
over 95 percent complete, and Compliance Validation had been completed for
nearly half of key systems, with most of the remaining work in its final stage.
BIS and Building Systems, Assessment and Planning are nearly complete.
Remediation/Replacement and Testing are 20% complete for BIS, and Marriott
International is on track for completion of initial Testing of Building Systems
by the end of first quarter 1999. Compliance Validation is in progress for both
BIS and Building Systems. Marriott International remains on target for
substantial completion of Remediation/Replacement and Testing for System
Critical BIS and Building Systems by June 1999 and September 1999, respectively.
Quality Assurance is in progress for IT Applications, BIS and Building Systems.

Marriott International has initiated Year 2000 compliance communications with
its significant third party suppliers, vendors and business partners, including
its franchisees. Marriott International is focusing its efforts on the business
interfaces most critical to its customer service and revenues, including those
third parties that support the most critical enterprise-wide IT Applications,
franchisees generating the most revenues, suppliers of the most widely used
Building Systems and BIS, the top 100 suppliers, by dollar volume, of non-IT
products, and financial institutions providing the most critical payment
processing functions. Responses have been received from a majority of the firms
in this group. A majority of the respondents have either given assurances of
timely Year 2000 compliance or have identified the necessary actions to be taken
to achieve timely Year 2000 compliance.

Marriott International is also establishing a common approach for testing and
addressing Year 2000 compliance issues for its managed and franchised
properties. This includes a guidance protocol for operated properties, and a
Year 2000 "Toolkit" for franchisees containing relevant Year 2000 compliance
information. Marriott International is also utilizing a Year 2000 best-practices
sharing system.

Risks. There can be no assurance that Year 2000 remediation by the Partnership
or third parties will be properly and timely completed, and failure to do so
could have a material adverse effect on the Partnership, its business and its
financial condition. The Partnership cannot predict the actual effects to it of
the Year 2000 Issue, which depends on numerous uncertainties such as: (i)
whether significant third parties properly and timely address the Year 2000
Issue; and (ii) whether broad-based or systemic economic failures may occur.
Host Marriott is also unable to predict the severity and duration of any such
failures, which could include disruptions in passenger transportation or
transportation systems generally, loss of utility and/or telecommunications
services, the loss or distortion of hotel reservations made on a centralized
reservation system and errors or failures in financial transactions or payment
processing systems such as credit cards. Due to the general uncertainty inherent
in the Year 2000 Issue and the Partnership's dependence on third parties, the
Partnership is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Partnership. Host Marriott's
Year 2000 compliance program is expected to significantly reduce the level of
uncertainty about the Year 2000 Issue and Host Marriott believes that the
possibility of significant interruptions of normal operations should be reduced.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index Page

Residence Inn by Marriott II Limited Partnership
Consolidated Financial Statements:

Report of Independent Public Accountants.................... 19

Consolidated Statement of Operations........................ 20

Consolidated Balance Sheet.................................. 21

Consolidated Statement of Changes in Partners' Capital...... 22

Consolidated Statement of Cash Flows........................ 23

Notes to Consolidated Financial Statements.................. 24

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE PARTNERS OF MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP:

We have audited the accompanying consolidated balance sheet of Marriott
Residence Inn II Limited Partnership (a Delaware limited partnership) and
subsidiary, as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in partners' capital and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements and the schedule referred to below are the responsibility of the
General Partner's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Marriott Residence
Inn II Limited Partnership and subsidiary as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.

As discussed in Note 2 to the financial statements, the Partnership has given
retroactive effect to the change to include property-level sales and operating
expenses of its Inns in the consolidated statement of operations.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at Item
14(a)(2) is presented for purposes of complying with The Securities and Exchange
Commission's rules and is not a required part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Washington, D.C.
February 26, 1999

CONSOLIDATED STATEMENT OF OPERATIONS
Marriott Residence Inn II Limited Partnership and Subsidiary
For the Years Ended December 31, 1998, 1997 and 1996
(in thousands, except per Unit amounts)

1998 1997 1996

---------- -------- --------
REVENUES
Inn revenues
Suites........................................$ 68,216 $ 67,397 $ 65,969
Other......................................... 3,442 3,642 3,675
---------- -------- --------
Total Inn revenues.......................... 71,658 71,039 69,644
---------- -------- --------

OPERATING COSTS AND EXPENSES
Inn property-level costs and expenses
Suites........................................ 16,135 15,102 14,313
Other department costs and expenses........... 1,725 1,517 1,373
Selling, administrative and other............. 20,709 18,938 19,923
---------- -------- --------
Total Inn property-level costs and expenses. 38,569 35,557 35,609
Depreciation and amortization................... 7,650 7,493 7,700
Incentive management fee........................ 3,257 3,641 3,542
Residence Inn system fee........................ 2,729 2,696 2,639
Property taxes.................................. 2,243 2,111 2,141
Base management fee............................. 1,433 1,419 1,393
Equipment rent and other........................ 1,098 975 1,201
---------- -------- --------
56,979 53,892 54,225
---------- -------- --------

OPERATING PROFIT................................... 14,679 17,147 15,419
Interest expense................................ (12,823) (12,945 (13,268)
Interest income................................. 966 692 512
---------- -------- --------

NET INCOME .......................................$ 2,822 $ 4,894 $ 2,663
========== ======== ========

ALLOCATION OF NET INCOME
General Partner.................................$ 28 $ 49 $ 27
Limited Partners................................ 2,794 4,845 2,636
---------- -------- --------
$ 2,822 $ 4,894 $ 2,663
========== ======== ========

NET INCOME PER LIMITED PARTNER UNIT
(70,000 Units)..................................$ 40 $ 69 $ 38
========== ======== ========

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

CONSOLIDATED BALANCE SHEET
Marriott Residence Inn II Limited Partnership and Subsidiary
December 31, 1998 and 1997
(in thousands)

1998 1997
------------- -------------
ASSETS

Property and equipment, net...............................................................$ 141,382 $ 143,125
Deferred financing costs, net of accumulated amortization................................. 2,973 3,385
Due from Residence Inn by Marriott, Inc................................................... 3,805 4,057
Property improvement fund................................................................. -- 1,543
Restricted cash reserves.................................................................. 6,153 5,647
Cash and cash equivalents................................................................. 14,553 10,126
------------- -------------

$ 168,866 $ 167,883
============= =============

LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES
Mortgage debt...........................................................................$ 137,582 $ 139,090
Incentive management fee due to Residence Inn by Marriott, Inc.......................... 19,617 16,545
Accounts payable and accrued expenses................................................... 1,817 1,684
------------- -------------

Total Liabilities................................................................... 159,016 157,319
------------- -------------

PARTNERS' CAPITAL
General Partner
Capital contribution.................................................................. 707 707
Capital distributions................................................................. (461) (425)
Cumulative net losses................................................................. (69) (97)
-------------- -------------

177 185
------------- -------------
Limited Partners
Capital contributions, net of offering costs of $7,845................................ 62,155 62,155
Capital distributions................................................................. (45,640) (42,140)
Cumulative net losses................................................................. (6,842) (9,636)
-------------- -------------

9,673 10,379
------------- -------------

Total Partners' Capital............................................................. 9,850 10,564
------------- -------------

$ 168,866 $ 167,883
============= =============

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

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
Marriott Residence Inn II Limited Partnership and Subsidiary
For the Years Ended December 31, 1998, 1997 and 1996
(in thousands)

General Limited
Partner Partners Total

Balance, December 31, 1995.................................................$ 144 $ 6,398 $ 6,542

Net income............................................................ 27 2,636 2,663
------------- ------------- -------------

Balance, December 31, 1996................................................. 171 9,034 9,205

Capital distribution.................................................. (35) (3,500) (3,535)

Net income............................................................ 49 4,845 4,894
------------- ------------- -------------

Balance, December 31, 1997................................................. 185 10,379 10,564

Capital distribution.................................................. (36) (3,500) (3,536)

Net income............................................................ 28 2,794 2,822
------------- ------------- -------------

Balance, December 31, 1998.................................................$ 177 $ 9,673 $ 9,850
============= ============= =============

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

CONSOLIDATED STATEMENT OF CASH FLOWS
Marriott Residence Inn II Limited Partnership and Subsidiary
For the Years Ended December 31, 1998, 1997 and 1996
(in thousands)

1998 1997 1996

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

OPERATING ACTIVITIES
Net income.....................................................................$ 2,822 $ 4,894 $ 2,663
Noncash items:
Depreciation and amortization................................................ 7,650 7,493 7,700
Deferred incentive management fee............................................ 3,072 1,935 2,352
Amortization of deferred financing costs as interest......................... 412 412 322
Gain on dispositions of property and equipment............................... -- -- (5)
Changes in operating accounts:
Accounts payable and accrued expenses........................................ (123) (635) (7,035)
Due from Residence Inn by Marriott, Inc...................................... 252 (1,585) (1,322)
Deferred base management fee due to Residence Inn by Marriott, Inc........... -- -- (743)
----------- ----------- -----------

Cash provided by operations.............................................. 14,085 12,514 3,932
----------- ----------- -----------

INVESTING ACTIVITIES
Additions to property and equipment, net....................................... (5,907) (5,826) (4,376)
Change in restricted cash reserves............................................. (250) 816 (2,357)
Change in property improvement fund............................................ 1,543 607 (507)
----------- ----------- -----------

Cash used in investing activities........................................ (4,614) (4,403) (7,240)
------------ ----------- -----------

FINANCING ACTIVITIES
Capital distributions to partners.............................................. (3,536) (3,535) --
Repayment of mortgage debt..................................................... (1,508) (910) (137,089)
Additions to debt service reserve.............................................. -- (1,548) (1,934)
Proceeds from mortgage debt.................................................... -- -- 140,000
Payment of financing costs..................................................... -- -- (3,553)
----------- ----------- -----------

Cash used in financing activities........................................ (5,044) (5,993) (2,576)
------------ ----------- -----------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 4,427 2,118 (5,884)

CASH AND CASH EQUIVALENTS at beginning of year.................................... 10,126 8,008 13,892
----------- ----------- -----------

CASH AND CASH EQUIVALENTS at end of year..........................................$ 14,553 $ 10,126 $ 8,008
=========== =========== ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest.........................................................$ 12,419 $ 12,538 $ 18,985
=========== =========== ===========

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marriott Residence Inn II Limited Partnership and Subsidiary
December 31, 1998 and 1997

NOTE 1. THE PARTNERSHIP

Description of the Partnership

Marriott Residence Inn II Limited Partnership (the "Partnership"), a Delaware
limited partnership, was formed on November 23, 1988, to acquire, own and
operate 23 Residence Inn by Marriott hotels (the "Inns") and the land on which
the Inns are located. The Inns are located in 16 states in the United States:
four in Florida, three in California, two in both North Carolina and South
Carolina, and one in each of Alabama, Illinois, Louisiana, Massachusetts,
Michigan, Mississippi, Nevada, New Mexico, Ohio, Pennsylvania, Tennessee and
Texas. As of December 31, 1998, the Inns have a total of 2,487 suites.

To facilitate the refinancing of the Partnership's mortgage debt, on March 22,
1996, as permitted by the Partnership Agreement, the Partnership transferred
ownership of the Bossier City Residence Inn to a newly formed subsidiary,
Bossier RIBM Two LLC ("Bossier LLC"), a Delaware limited liability company. The
general partner of Bossier LLC with a 1% interest is Bossier RIBM Two, Inc., a
wholly-owned subsidiary of the Partnership. The remaining 99% interest in
Bossier LLC is owned by the Partnership. The Inns are managed by Residence Inn
by Marriott, Inc. (the "Manager"), a wholly-owned subsidiary of Marriott
International, Inc. ("MII"), as part of the Residence Inn by Marriott hotel
system.

Between November 23, 1988 and December 29, 1988, 70,000 limited partnership
interests (the "Units") were sold in a public offering. The offering price per
unit was $1,000. The General Partner contributed $707,100 for its 1% general
partnership interest. The Partnership acquired 17 of the Inns on the closing
date. The remaining six Inns were acquired during 1989.

On April 17, 1998, Host Marriott Corporation ("Host Marriott"), the parent of
the General Partner of the Partnership, announced that its Board of Directors
authorized the company to reorganize its business operations to qualify as a
real estate investment trust ("REIT") to become effective as of January 1, 1999
(the "REIT Conversion"). On December 29, 1998, Host Marriott announced that it
had completed substantially all the steps necessary to complete the REIT
Conversion and expected to qualify as a REIT under the applicable federal income
tax laws beginning January 1, 1999. Subsequent to the REIT Conversion, Host
Marriott is referred to as Host REIT. In connection with the REIT Conversion,
Host Marriott contributed substantially all of its hotel assets to a
newly-formed partnership, Host Marriott L.P. ("Host LP").

In connection with Host Marriott Corporation's conversion to a REIT, the
following steps occurred. Host Marriott Corporation formed RIBM Two LLC, a
Delaware single member limited liability company, having three classes of member
interests (Class A - 1% economic interest, managing; Class B - 98% economic
interest, non-managing; Class C - 1% economic interest, non-managing). Marriott
RIBM Two Corporation ("RIBM Two") merged into RIBM Two LLC on December 24, 1998
and RIBM Two ceased to exist. On December 28, 1998, Host Marriott contributed
its entire interest in RIBM Two LLC to Host LP, which is owned 78% by Host
Marriott and 22% by outside partners. Finally on December 30, 1998, Host LP
contributed its 98% Class B interest and 1% Class C interests in RIBM Two LLC to
Rockledge Hotel Properties, Inc. ("Rockledge"), a Delaware corporation which is
owned 95% by Host LP (economic non-voting interest) and 5% by Host Marriott
Statutory/Charitable Employee Trust, a Delaware statutory business trust (100%
of voting interest). As a result, the sole general partner of the Partnership is
RIBM Two LLC (the "General Partner"), with a Class A 1% managing economic
interest owned by Host LP and a Class B 98% and Class C 1% non-managing economic
interest owned by Rockledge.

Partnership Allocations and Distributions

Net profits for Federal income tax purposes are generally allocated to the
partners in proportion to the distributions of cash available for distribution.
The Partnership generally distributes cash available for distribution as
follows: (i) first, 99% to the limited partners and 1% to the General Partner,
until the partners have received, with respect to such year, an amount equal to
10% of their Net Capital Investment, defined as the excess of original capital
contributions over cumulative distributions of net refinancing and sales
proceeds ("Capital Receipts"); (ii) second, remaining cash available for
distribution will be distributed as follows, depending on the amount of Capital
Receipts previously distributed:

For Federal income tax purposes, losses and net losses are allocated 99% to
the limited partners and 1% to the General Partner.

Capital Receipts not retained by the Partnership will generally be distributed
(i) first, 99% to the limited partners and 1% to the General Partner until the
partners have received cumulative distributions from all sources equal to a
cumulative simple return of 12% per annum on their Net Capital Investment and an
amount equal to their contributed capital, payable only from Capital Receipts;
(ii) next, if the Capital Receipts are from a sale, 100% to the General Partner
until it has received 2% of the gross proceeds from the sale; and (iii)
thereafter, 75% to the limited partners and 25% to the General Partner.

Gains will generally be allocated (i) first, to those partners whose capital
accounts have negative balances until such negative balances are brought to
zero; (ii) second, to all partners in amounts necessary to bring their
respective capital account balances equal to their invested capital, as defined,
plus a 12% return on such invested capital; (iii) next, to the General Partner
in an amount necessary to bring the General Partner's capital account balance to
an amount which is equal to 2% of the gross proceeds from the sale, and (iv)
thereafter, 75% to the limited partners and 25% to the General Partner.

Proceeds from a sale of substantially all of the assets of the Partnership will
be distributed to the partners in accordance with their capital account balances
as adjusted to take into account gain or loss resulting from such sale.

For financial reporting purposes, profits and losses are allocated among the
partners based upon their stated interests in cash available for distribution.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The Partnership's records are maintained on the accrual basis of accounting and
its fiscal year coincides with the calendar year.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Revenues and Expenses

Revenues primarily represent the gross sales generated by the Partnership's Inns

Property and Equipment

Property and equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, as follows:

Land improvements 40 years
Building and improvements 40 years
Furniture and equipment 3 to 10 years

All property and equipment at 22 of the Partnership's 23 Inns (Bossier City
excluded) is pledged as security for the mortgage debt described in Note 5.

The Partnership assesses impairment of its real estate properties based on
whether estimated undiscounted future cash flows from such properties on an
individual hotel basis will be less than their net book value. If a property is
impaired, its basis is adjusted to fair market value. No adjustment was
necessary for the years ended December 31, 1998 and 1997.

Income Taxes

Provision for Federal and state income taxes has not been made in the
consolidated financial statements since the Partnership does not pay income
taxes but rather allocates profits and losses to the individual partners.
Significant differences exist between the net income for financial reporting
purposes and the net income (loss) as reported in the Partnership's tax return.
These differences are due primarily to the use, for income tax purposes, of
accelerated depreciation methods and shorter depreciable lives of the assets and
the timing of the recognition of base and incentive management fee expense. As a
result of these differences, the excess between the Partnership's net assets
reported in the accompanying consolidated financial statements and the tax basis
of such net assets was $5,193,000 as of December 31, 1998 and $849,000 as of
December 31, 1997.

Deferred Financing Costs

Deferred financing costs represent the costs incurred in connection with
obtaining the debt financing and are amortized over the term thereof. The
Partnership incurred $4,119,000 of financing costs in connection with the
refinanced mortgage debt described in Note 5 which are being amortized using the
straight line method, which approximates the effective interest method, over the
ten year term of the mortgage debt. As of December 31, 1998 and 1997,
accumulated amortization of deferred financing costs totaled $1,146,000 and
$734,000, respectively.

Restricted Cash Reserves

On March 22, 1996, the Partnership was required to establish certain reserves in
conjunction with the refinancing of the Mortgage Debt as described in Note 5.
The balances in those reserves as of December 31 are as follows (in thousands):

1998 1997
------------- ---------
Capital Expenditure Reserve................$ 1,791 $ 1,541
Debt Service Reserve....................... 3,482 3,482
Real Estate Tax and Insurance Reserve...... 880 624
------------- -------------
$ 6,153 $ 5,647
============= =============

Cash and Cash Equivalents

The Partnership considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.

Reclassifications

Certain reclassifications were made to the prior year financial statements to
conform to the 1998 presentation.

NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31
(in thousands):

1998 1997
----------- -------

Land and improvements.........................$ 57,362 $ 57,362
Building and improvements..................... 106,647 105,118
Furniture and equipment....................... 55,901 51,523
----------- -----------
219,910 214,003
Accumulated depreciation...................... (78,528) (70,878)
------------ -----------

$ 141,382 $ 143,125
=========== ===========

NOTE 4. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments are shown below. The fair
values of financial instruments not included in this table are estimated to be
equal to their carrying amounts (in thousands):

As of December 31, 1998 As of December 31, 1997
------------------------------ ---------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value

Mortgage debt $ 137,582 $ 147,400 $ 139,090 $ 144,200
Incentive management fee due to
Residence Inn by Marriott, Inc. $ 19,617 $ 254 $ 16,545 $ 1,600

The estimated fair value of the mortgage debt obligation is based on expected
future debt service payments discounted at estimated risk adjusted rates.
Incentive management fees payable are valued based on the expected future
payments from operating cash flow discounted at risk adjusted rates.

NOTE 5. MORTGAGE DEBT

On March 22, 1996 (the "Closing Date") the Partnership mortgage debt was
refinanced with a new third party lender. In conjunction with the refinancing,
the principal amount of the Partnership's mortgage debt was increased from
$137.1 million to $140 million. The refinanced mortgage debt (the "Mortgage
Debt") is nonrecourse to the Partnership, bears interest at a fixed rate of
8.85% based upon actual number of days over a 360 day year for a 10-year term
expiring March 10, 2006 and required payments of interest only during the first
loan year (April 1996 through March 1997) and principal amortization based upon
a 25-year amortization schedule beginning with the second loan year.

Principal amortization of the Mortgage Debt at December 31, 1998 is as follows
(in thousands):

1999..................................$ 1,649
2000.................................. 1,767
2001.................................. 1,968
2002.................................. 2,152
2003.................................. 2,353
Thereafter............................ 127,693
---------------
$ 137,582

The Mortgage Debt is secured by first mortgages on 22 of the Partnership's 23
Inns, the land on which they are located, a security interest in all personal
property associated with those Inns including furniture and equipment,
inventory, contracts, and other intangibles and the Partnership's rights under
the management agreement. Although the Partnership continues to own 23 Residence
Inns, during the course of performing environmental studies at the properties,
the lender determined that the Bossier City Residence Inn did not pass certain
required thresholds to enable the property to collateralize the Mortgage Debt.
Additionally, as part of the refinancing, the Partnership was required to
deposit $500,000 into a reserve account and fund $250,000 annually into the
account to provide for any claim, investigation, or litigation that may arise
from any environmental condition at the Bossier City Residence Inn. The initial
$500,000 deposit was funded by the lender. The Partnership was required to repay
the initial reserve as promptly as possible if the Partnership draws on the
deposit or by the end of the 10-year term in March 2006. Any draws upon the
account will accrue interest at the 30-day London Interbank Offered Rate
("LIBOR") plus 4.5 percentage points. If the Partnership does not need to draw
on the reserve account, the lender will hold the reserve until such time as the
Mortgage Debt is either repaid, or a governmental authority determines that the
statute of limitations on filing any claims has expired or that no further
remedial activities are required at the property. Based upon the results of the
environmental studies performed, the Partnership believes that it is remote that
it will be necessary to draw on the reserve. This reserve is included in
restricted cash reserves on the accompanying consolidated balance sheet.

Pursuant to the terms of the Mortgage Debt, the Partnership is required to
establish with the lender a separate escrow account for payments of insurance
premiums and real estate taxes (the "Real Estate Tax and Insurance Escrow
Reserves") for each mortgaged property if the credit rating of
MII is downgraded by Standard and Poor Rating Services.
The Manager of the Partnership's Inns, Residence Inn by Marriott, Inc. (the
"Manager"), is a wholly-owned subsidiary of MII. In March 1997, MII acquired the
Renaissance Hotel Group N.V., adding greater geographic diversity and growth
potential to its lodging portfolio. The assumption of additional debt associated
with this transaction resulted in a single downgrade of MII's long-term senior
unsecured debt effective April 1, 1997. As a result, the Partnership
subsequently transferred $834,000 into the Real Estate Tax and Insurance Escrow
Reserves from the Manager's existing real estate tax and insurance reserve
account. In addition, the Mortgage Debt required the Partnership to fund an
additional month's debt service into the debt service reserve account over a six
month period as a result of this downgrade. The Real Estate Tax and Insurance
Escrow Reserves and the debt service reserve are shown as restricted cash
reserves and the related real estate tax and insurance liability is included
with accounts payable and accrued expenses in the accompanying consolidated
balance sheet.

Additionally, the terms of the Mortgage Debt require the Partnership to
establish certain reserves including:

o $3,482,000 Debt Service Reserve - This reserve was fully funded by mid
-1997 and is to equal three months of debt service.

o $2,357,000 Capital Expenditure Reserve - This reserve was fully funded on
the Closing Date. The funds will be expended for various renewals and
replacements, site improvements, Americans with Disabilities Act of 1990
modifications and environmental remediation projects identified during the
course of the appraisals and environmental studies undertaken in
conjunction with the refinancing. As of December 31, 1998, the balance of
this reserve is $1,791,000.

Furthermore, as a result of the MII credit rating downgrade, as described above,
the Manager required additional working capital as follows:

o $900,000 Working Capital Reserve - This reserve was funded from 1996 cash
from operations. As of December 31, 1998, the balance of this reserve is
$880,000.

NOTE 6. MANAGEMENT AGREEMENT

To facilitate the refinancing, (see Note 5), effective March 22, 1996, the
original management agreement was restated into two separate management
agreements. The Partnership entered into a management agreement with the Manager
for the 22 Inns the Mortgage Debt is secured by and Bossier LLC also entered
into a management agreement with the Manager for the Bossier City Residence Inn
(collectively, the "Restated Management Agreements"). The terms of the Restated
Management Agreements do not differ from the Original Management Agreement with
the exception of the term. Pursuant to the Restated Management Agreements, the
initial term expires December 31, 2012, with the Manager having the option to
extend the agreement on one or more of the Inns for up to four 10-year terms.

The Manager earns a base management fee equal to 2% of the Inns' gross revenues.
Through 1991, payment of the base management fee was subordinate to qualifying
debt service payments, a provision for Partnership administrative expenses and
retention by the Partnership of annual cash flow from operations of $7,071,000.
Deferred base management fees were payable in the future from operating cash
flow, as defined. Beginning in 1992 and thereafter, base management fees are
paid currently. Pursuant to the terms of the Restated Management Agreements, the
Partnership paid the remaining $743,000 of deferred base management fees in
1996.

In addition, the Manager is entitled to an incentive management fee equal to 15%
of Operating Profit, as defined (23.5% in any year in which operating profit is
equal to or greater than $25.3 million; however, cumulative incentive management
fees cannot exceed 20% of cumulative Operating Profit). The incentive management
fee is payable out of 50% of cash flow from operations remaining after payment
of debt service, provision for Partnership administrative expenses, payment of
the base management fee, payment of deferred base management fees and retention
by the Partnership of annual cash flow from operations of $7,071,000. After the
Partnership has retained an additional 5% return, the incentive management fee
is payable out of 75% of the remaining cash flow from operations. Unpaid
incentive management fees are deferred without interest and are payable from
future operating cash flow, as defined. Incentive management fees of $3,257,000,
$3,641,000 and $3,542,000 were earned during 1998, 1997 and 1996 respectively.
Incentive management fees of $185,000, $1,706,000 and $1,190,000 were paid
during 1998, 1997 and 1996, respectively. Accrued deferred incentive management
fees were $19,617,000,and $16,545,000 as of December 31, 1998, and 1997,
respectively.

The Restated Management Agreements provide for a Residence Inn system fee equal
to 4% of suite revenues. In addition, the Manager is reimbursed for each Inn's
pro rata share of the actual costs and expenses incurred in providing certain
services ("Chain Services") on a central or regional basis to all hotels
operated by the Manager. As franchiser of the Residence Inn by Marriott system,
the Manager maintains a marketing fund to pay the costs associated with certain
system-wide advertising, promotional, and public relations materials and
programs and the operation of a toll-free reservation system. Each Inn
contributes 2.5% of suite revenues to the marketing fund. Beginning in 1998, the
Inns began participating in the Marriott Rewards Program ("MRP"). The cost of
this program is charged to all hotels in the Marriott hotel system. For the
years ended December 31, 1998, 1997 and 1996, the Partnership paid a Residence
Inn system fee of $2,729,000, $2,696,000 and $2,639,000, reimbursed the Manager
for $2,005,000, $1,590,000 and $1,558,000 of Chain Services and contributed
$1,705,000, $1,685,000 and $1,649,000 to the marketing fund, respectively. For
the year ended December 31, 1998, MRP costs totaled $143,000. Chain Services,
contributions to the marketing fund and MRP costs are included in other
operating expenses in the consolidated statement of operations.

The Partnership is required to provide the Manager with working capital to meet
the operating needs of the Inns. The Manager converts cash advanced by the
Partnership into other forms of working capital consisting primarily of
operating cash, inventories, and trade receivables and payables which are
maintained and controlled by the Manager. Upon termination of the Restated
Management Agreements, the working capital will be returned to the Partnership.
The individual components of working capital controlled by the Manager are not
reflected in the Partnership's consolidated balance sheet. For both December 31,
1998 and 1997, $2,050,000, has been advanced to the Manager for working capital
which is included in Due from Residence Inn by Marriott, Inc. in the
accompanying consolidated balance sheet.

The Restated Management Agreements provide for the establishment of a property
improvement fund for the Inns to cover the cost of certain non-routine repairs
and maintenance to the Inns which are normally capitalized and the cost of
replacements and renewals to the Inns' property and improvements. For 1998,
contributions to the property improvement fund are 6% of gross Inn revenues for
the 22 Inns securing the Mortgage Debt and 5% of gross Inn revenues for the
Bossier City Residence Inn. The contribution rate was 5% of gross Inn revenues
for 1997 and 1996. Also October 9, 1998, the Restated Management Agreements were
modified to increase the contribution to the property improvement fund to 7% of
gross Inn revenues in 1999. After 1999, the contributions may be decreased to 5%
of gross Inn revenues at the discretion of the Manager. Total contributions to
the property improvement fund for the years ended December 31, 1998, 1997 and
1996 were $4,282,000, $3,547,000, and $3,482,000, respectively.

On October 9, 1998, the Partnership agreed to fund the 1998 estimated shortfall
in the property improvement fund with an owner-funded loan in the amount of $2.5
million. The loan was funded in first quarter 1999. The loan bears a floating
interest rate of prime rate plus one percentage point. Payment of principal and
interest based upon a five-year amortization period will begin in April 1999.
Under the terms of the loan the debt service payments are subordinate to the
Mortgage Debt and are included as a deduction in determining the incentive
management fee paid to the Manager.

The Partnership also agreed to fund the estimated 1999 shortfall in the property
improvement fund of $3.8 million with an increase in the contribution to the
property improvement fund to 7% of gross Inn revenues and a $1.6 million
owner-funded loan. The loan must be fully funded before March 24, 2000. The loan
bears a floating interest rate of prime rate plus one percentage point. Payment
of principal and interest based upon a five-year amortization period will begin
the accounting period immediately following the date of final funding of the
loan or in January 2000. Under the terms of the loan, the debt service payments
are subordinate to the Mortgage Debt and are included as a deduction in
determining the incentive management fee paid to the Manager.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The Partnership has no directors or officers. The business and policy making
functions of the Partnership are carried out through the directors and executive
officers of RIBM Two LLC, the General Partner, who are listed below:

Age at
Name Current Position December 31, 1998
- - ------------------------- -----------------------------------------------------
Robert E. Parsons, Jr. President and Manager 43
Christopher G. Townsend Executive Vice President, 51
Secretary and Manager
W. Edward Walter Treasurer 43
Earla L. Stowe Vice President 37

Business Experience

Robert E. Parsons, Jr. joined Host Marriott Corporation's Corporate
Financial Planning staff in 1981 and was made Assistant Treasurer in 1988. In
1993, Mr. Parsons was elected Senior Vice President and Treasurer of Host
Marriott Corporation, and in 1995, he was elected Executive Vice President and
Chief Financial Officer of Host Marriott Corporation. He also serves as a
director, manager and officer of numerous Host Marriott Corporation
subsidiaries.

Christopher G. Townsend joined Host Marriott's Law Department in 1982 as a
Senior Attorney. In 1984 he was made Assistant Secretary of Host Marriott. In
1986 he was made an Assistant General Counsel. He was made Senior Vice
President, Corporate Secretary and Deputy General Counsel of Host Marriott in
1993. In January 1997, he was made General Counsel of Host Marriott. He also
serves as a director, manager and an officer of numerous Host Marriott
subsidiaries.

W. Edward Walter joined Host Marriott Corporation in 1996 as Senior Vice
President -Acquisitions and in 1998 was made Treasurer of Host Marriott. He also
serves as a director, manager and officer of numerous Host Marriott Corporation
subsidiaries. Prior to joining Host Marriott Corporation, Mr. Walter was a
partner at Trammell Crow Residential Company and President of Bailey Capital
Corporation, a real estate firm focusing on tax exempt real estate investments.

Earla L. Stowe joined Host Marriott Corporation in 1982 and held various
positions in the tax department until 1988. She joined the Partnership Services
department as an accountant in 1988 and in 1989 she became an Assistant
Manager--Partnership Services. She was promoted to Manager--Partnership Services
in 1991 and to Director--Asset Management in 1996. Ms. Stowe was promoted to
Senior Director-Corporate Accounting in 1998.

ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS

As noted in Item 10 above, the Partnership has no directors or officers nor does
it have any employees. Under the Partnership Agreement, however, the General
Partner has the exclusive right to conduct the business and affairs of the
Partnership subject only to the management agreements described in Items 1 and
13. The General Partner is required to devote to the Partnership such time as
may be necessary for the proper performance of its duties, but the officers and
directors of the General Partner are not required to devote their full time to
the performance of such duties. No officer or director of the General Partner
devotes a significant percentage of time to Partnership matters. To the extent
that any officer or director does devote time to the Partnership, the General
Partner is entitled to reimbursement for the cost of providing such services.
For the fiscal years ending December 31, 1998, 1997 and 1996, the Partnership
reimbursed Host Marriott or its subsidiaries in the amount of $278,000, $143,000
and 131,000, respectively, for the cost of providing all administrative and
other services as General Partner. For information regarding all payments made
by the Partnership to Host Marriott and subsidiaries, see Item 13 "Certain
Relationships and Related Transactions."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of December 31, 1998, Prescott Associates, LLC, an unrelated third party,
owned 6.5% of the total number of limited partnership Units. No other person
owned of record, or to the Partnership's knowledge owned beneficially, more than
5% of the total number of limited partnership Units. The General Partner does
not own any limited partnership interest in the Partnership.

The executive officers and managers of the General Partner, Host Marriott, MII
and their respective affiliates do not own any Units as of December 31, 1998.

The Partnership is not aware of any arrangements which may, at a subsequent
date, result in a change in control of the Partnership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Management Agreement

To facilitate the refinancing, effective March 22, 1996, the original Management
Agreement was restated into two separate management agreements. The Partnership
entered into a management agreement with the Manager for 22 of the Inns which
the Partnership directly owns and the LLC entered into a management agreement
for the Bossier City Residence Inn which Bossier LLC owns, (collectively, the
"Restated Management Agreements").

Term

During 1995, the Manager operated the Inns pursuant to a long-term management
agreement (the "Original Management Agreement") with an initial term expiring on
December 28, 2007. The Manager had the option to extend the Original Management
Agreement on one or more of the Inns for up to five 10-year terms. To facilitate
the refinancing, effective March 22, 1996, the Original Management Agreement was
restated into two separate management agreements. The Partnership entered into a
management agreement with the Manager for the 22 Inns the Mortgage Debt is
secured by and Bossier LLC also entered into a management agreement with the
Manager for the Bossier City Residence Inn (collectively, the "Restated
Management Agreements"). The terms of the Restated Management Agreements do not
differ from the Original Management Agreement with the exception of the term.
Pursuant to the Restated Management Agreements, the initial term expires
December 31, 2012, with the Manager having the option to extend the agreement on
one or more of the Inns for up to four 10-year terms.

Management Fees

The Restated Management Agreements provide for annual payments of (i) the base
management fee equal to 2% of gross sales from the Inns, (ii) the Residence Inn
system fee equal to 4% of gross suite sales from the Inns, and (iii) the
incentive management fee equal to 15% of operating profit, as defined (23.5% of
operating profit, as defined, in any year in which operating profit exceeds
$25.3 million; however, cumulative incentive management fee can not exceed 20%
of cumulative operating profit). During 1998, 1997 and 1996, respectively, the
Partnership paid a system fee of $2,729,000, $2,696,000 and $2,639,000. See
"Deferral Provisions" for a discussion of the payment of base and incentive
management fees.

Deferral Provisions

Through 1991, payment of the base management fee was subordinate to qualifying
debt service payments, a provision for Partnership administrative expenses and
retention by the Partnership of annual cash flow from operations of $7,071,000.
Deferred base management fees are payable in the future from operating cash
flow, as defined. Beginning in 1992 and thereafter, base management fees are
paid currently. Pursuant to the terms of the Restated Management Agreements, the
Partnership paid the remaining $743,000 of deferred base management fees in
1996.

The incentive management fee is payable out of 50% of cash flow from operations
remaining after payment of debt service, provision for Partnership
administrative expenses, payment of the base management fee, payment of deferred
base management fees and retention by the Partnership of annual cash flow from
operations of $7,071,000. After the Partnership has retained an additional 5%
return, the incentive management fee is payable out of 75% of the remaining cash
flow from operations. Through 1991, the Manager was not entitled to accrue any
unpaid incentive management fees. Incentive management fees earned after 1991
will be payable in the future from operating cash flow, as defined. Incentive
management fees of $3,257,000, $3,641,000 and $3,542,000 were earned during
1998, 1997 and 1996, respectively. Incentive management fees of $185,000 and
$1,706,000 were paid during 1998 and 1997, respectively. There were no incentive
management fees paid to the Manager prior to 1996. Deferred incentive management
fees were $19,617,000, $16,545,000 and $14,610,000 as of December 31, 1998, 1997
and 1996, respectively.

Chain Services and Marketing Fund

The Manager is reimbursed for each Inn's pro rata share of the actual costs and
expenses incurred in providing certain services ("Chain Services") on a central
or regional basis to all hotels operated by the Manager. Such reimbursements
were limited through 1991 to 2% of gross revenues from Inn operations. As
franchiser of the Residence Inn by Marriott system, the Manager maintains a
marketing fund to pay the costs associated with certain system-wide advertising,
promotional, and public relations materials and programs and the operation of a
toll-free reservation system. Each Inn contributes 2.5% of suite revenues to the
marketing fund. For the years ended December 31, 1998, 1997 and 1996, the
Partnership paid a Residence Inn system fee of $2,729,000, $2,696,000 and
$2,639,000, reimbursed the Manager for $2,005,000, $1,590,000 and $1,558,000 of
Chain Services and contributed $1,705,000, $1,685,000 and $1,649,000 to the
marketing fund, respectively. Chain Services and contributions to the marketing
fund are included in selling, administrative and other expenses detailed in the
consolidated statement of operations (see Item 8).

Working Capital

The Partnership is required to provide the Manager with working capital to meet
the operating needs of the Inns. The Manager converts cash advanced by the
Partnership into other forms of working capital consisting primarily of
operating cash, inventories, and trade receivables and payables which are
maintained and controlled by the Manager. Upon termination of the Restated
Management Agreements, the working capital will be returned to the Partnership.
The individual components of working capital controlled by the Manager are not
reflected in the Partnership's balance sheet. As of December 31, 1998 and 1997,
$2,050,000 has been advanced to the Manager for working capital which is
included in Due from Residence Inn by Marriott, Inc. in the accompanying
consolidated balance sheet (see Item 8).

Property Improvement Funds

The Restated Management Agreements provide for the establishment of a property
improvement fund for the Inns. Contributions to the property improvement fund
are 5% of gross Inn revenues for 1996 and1997. In 1998, the contribution rate
increased to 6% of gross Inn revenues for the 22 Inns securing the Mortgage
Debt. The contribution rate for the Bossier City Residence Inn remained at 5% of
gross Inn revenues. On October 9, 1998, the Restated Management Agreement was
modified to increase the contribution to the property improvement fund to 7% of
gross Inn revenues in 1999. After 1999, at the option of the Manager, the
contribution percentage may be decreased to 5% of gross Inn revenues. Total
contributions to the property improvement fund for the years ended December 31,
1998, 1997 and 1996 were $4,282,000, $3,547,000 and $3,482,000, respectively.

Payments to MII and Subsidiaries

The following table sets forth the amount paid to MII and affiliates under the
Restated Management Agreements for the years ended December 31, 1998, 1997 and
1996 (in thousands):

1998 1997 1996
----------- ----------- -----------
Residence Inn system fee............$ 2,729 $ 2,696 $ 2,639
Incentive management fee............ 185 1,706 1,190
Marketing fund contribution......... 1,705 1,685 1,649
Chain services...................... 2,005 1,590 1,558
Base management fee................. 1,433 1,419 1,393
Deferred base management fees....... -- -- 743
MRP costs........................... 143 -- --
----------- ----------- -----------
$ 8,200 $ 9,096 $ 9,172
=========== =========== ===========

Payments to Host Marriott and Subsidiaries

The following sets forth amounts paid by the Partnership to Host Marriott and
its subsidiaries for the years ended December 31, 1998, 1997 and 1996 (in
thousands):

1998 1997 1996
----------- ----------- -----------
Administrative expenses reimbursed....$ 278 $ 143 $ 131
Cash distributions.................... 36 35 --
----------- ----------- -----------
$ 314 $ 178 $ 131
=========== =========== ===========

PART IV

ITEM 14. EXHIBITS, SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K

(a) List of Documents Filed as Part of This Report

(1) Financial Statements
All financial statements of the registrant as set forth
under Item 8 of this Report on Form 10-K.

(2) Financial Statement Schedules
The following financial information is filed herewith on
the pages indicated.

Schedule III - Real Estate and Accumulated Depreciation

All other schedules are omitted because they are not applicable or the required
information is included in the financial statements or notes thereto.

(3) Exhibits

Exhibit Number Description Page
- - -------------- ----------------------------------------------------- ---------
* 3.1 Amended and Restated Agreement of Limited Partnership N/A
of Marriott N/A Residence Inn II Limited Partnership
dated November 23, 1988.

*3.2 First Amendment to Amended and Restated Agreement N/A
of Limited N/A Partnership dated April 1, 1989.

3.3 First Amendment to Amended and Restated Agreement 41
of Limited 41 Partnership of Marriott Residence Inn II
Limited Partnership dated December 28, 1998.

*10.1 Amended and Restated Management Agreement by and between N/A
Residence Inn by Marriott, Inc. and Marriott Residence
Inn II Limited Partnership dated as of March 22, 1996.

*10.2 Loan Agreement by and between Marriott Residence Inn N/A
II Limited Partnership and the Sanwa Bank Limited dated
December 27, 1988.

*10.3 Loan Agreement between Marriott Residence Inn II Limited N/A
Partnership and Nomura Asset Capital Corporation dated as
of March 22, 1996.

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

* Incorporated by reference to the Partnership's previously filed documents.

b. Reports on Form 8-K:

A Form 8-K was filed with the SEC on October 9, 1998.
This filing, Item 5--Other Events, discloses that the
General Partner sent a letter dated October 1, 1998 to
inform the limited partners that the proposed
Consolidation to form a new REIT focused on limited
service hotels is no longer being pursued. In addition,
the letter informs the limited partners that, to date,
there have been no acceptable offers from third parties
to purchase the Partnership's hotels. A copy of the
letter was included as an Item 7--Exhibit to this Form
8-K filing.

A Form 8-K was filed with the SEC on November 30, 1998.
This filing, Item 5--Other Events, discloses that the
General Partner sent letters that accompanied the
quarterly reports on Form 10-Q dated June 12, 1998,
August 21, 1998 and November 25, 1998 to the limited
partners. The letters were included as Item 7 exhibits
to this form 8-K filing.

SCHEDULE III

MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(in thousands)

Initial Costs Gross Amount at December 31, 1998
------------------------ -----------------------------------------
Subsequent
Land and Building and Costs Land and Buildings and Accumulated
Depreciation
Description Debt Improvements Improvements Capitalized Improvements Improvements Total Depreciation
- - ----------------- ------- ------------ ------------ ----------- ------------ ------------ ------------------------

Las Vegas, NV $16,438 $ 4,967 $ 8,284 $ 531 $ 5,037 $ 8,745 $13,782 $ 2,715
Irvine, CA 7,134 3,503 5,843 161 3,507 6,000 9,507 1,728
Arcadia, CA 9,005 3,426 5,714 210 3,442 5,908 9,350 1,782
Greensboro, NC 8,368 2,937 4,926 517 2,963 5,417 8,380 1,677
Birmingham, AL 7,241 2,886 4,840 590 2,931 5,385 8,316 1,784
Placentia, CA 4,671 2,911 4,882 266 2,955 5,104 8,059 1,566
Memphis East, TN 3,655 2,629 4,409 1,367 2,661 5,744 8,405 1,785
Other properties,
each less than
5% of total 81,070 33,565 55,746 8,899 33,866 64,344 98,210 20,797
------------ -------- ---------- ---------- ---------- --------- ---------- -----------
40 years

$137,582 $ 56,824 $ 94,644 $ 12,541 $ 57,362 $ 106,647 $164,009 $ 33,834
======== =========== =========== ========= ========== =========== ======== ==========

Notes:

Date of
Completion of Date
Construction Acquired Life
-------------- --------- -----

Las Vegas, NV 1989 1989 40 years
Irvine, CA 1989 1989 40 years
Arcadia, CA 1989 1989 40 years
Greensboro, NC 1987 1988 40 years
Birmingham, AL 1986 1988 40 years
Placentia, CA 1988 1988 40 years
Memphis East, TN 1986 1988 40 years
Other properties,
each less than
5% of total 1983-1989 1988-1989

1996 1997 1998
----------- ----------- -----------

(a) Reconciliation of Real Estate:
Balance at beginning of year....................$ 158,439 $ 159,416 $ 162,480
Capital Expenditures............................ 977 3,064 1,529
Dispositions.................................... -- -- --
----------- ----------- -----------
Balance at end of year..........................$ 159,416 $ 162,480 $ 164,009
=========== =========== ===========

(b) Reconciliation of Accumulated Depreciation:
Balance at beginning of year....................$ 21,748 $ 25,540 $ 29,593
Depreciation.................................... 3,792 4,053 4,241
----------- ----------- -----------
Balance at end of year..........................$ 25,540 $ 29,593 $ 33,834
=========== =========== ===========

(c) The aggregate cost of land, buildings and improvements for Federal income
tax purposes is approximately $157.7 million at December 31, 1998.

(d) The Debt balance is $ 137,582 million as of December 31, 1998.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized on this 31st of March,
1999.

MARRIOTT RESIDENCE INN II
LIMITED PARTNERSHIP

By: RIBM TWO LLC
General Partner

/s/ Earla L. Stowe
------------------
Earla L. Stowe
Vice President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and the capacities and on the date indicated above.

Signature (RIBM TWO LLC)

/s/ Robert S. Parsons, Jr. President and Manager
Robert S. Parsons, Jr.

/s/ Christopher G. Townsend Executive Vice President, Secretary and Manager
Christopher G. Townsend

/s/W. Edward Walter Treasurer
W. Edward Walter

/s/ Earla L. Stowe Vice President
Earla L. Stowe

SIGNATURES

MARRIOTT RESIDENCE INN II
LIMITED PARTNERSHIP

By: RIBM TWO LLC
General Partner

Earla L. Stowe
Vice President

Signature Title
(RIBM TWO LLC)

Robert S. Parsons, Jr. President and Manager

Christopher G. Townsend Executive Vice President, Secretary and Manager

W. Ed Walter Treasurer

Earla L. Stowe Vice President