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

[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001

[_] 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
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(Exact name of registrant as specified in its charter)

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

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

Registrant's telephone number, including area code: 301-380-9000

Securities 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
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(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 ___.
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Marriott Residence Inn II Limited Partnership
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TABLE OF CONTENTS
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PAGE NO.
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PART I

Items 1 & 2. Business and Properties .............................................................. 1

Item 3. Legal Proceedings .................................................................... 6

Item 4. Submission of Matters to a Vote of Security Holders .................................. 6

PART II

Item 5. Market For The Partnership's Limited Partnership Units
and Related Security Holder Matters .................................................. 7

Item 6. Selected Financial Data .............................................................. 8

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................................ 8

Item 7A. Quantitative and Qualitative Disclosures About Market Risk ........................... 13

Item 8. Financial Statements and Supplementary Data .......................................... 14

Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ............................................................. 27

PART III

Item 10. Directors and Executive Officers ..................................................... 27

Item 11. Management Remuneration and Transactions ............................................. 27

Item 12. Security Ownership of Certain Beneficial Owners and Management ....................... 28

Item 13. Certain Relationships and Related Transactions ....................................... 28

PART IV

Item 14. Exhibits, Supplemental Financial Statement Schedules, and Reports on Form 8-K ........ 29

PART I

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K and the information incorporated by reference
herein include forward-looking statements. We have based these forward-looking
statements on our current expectations and projections about future events. We
identify forward-looking statements in this annual report and the information
incorporated by reference herein by using words or phrases such as "anticipate",
"believe", "estimate", "expect", "intend", "may be", "objective", "plan",
"predict", "project" and "will be" and similar words or phrases, or the negative
thereof.

These forward-looking statements are subject to numerous assumptions, risks and
uncertainties. Factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by us in those statements include, among
others, the following:

. national and local economic and business conditions, including the effect
of the terrorist attacks of September 11, 2001 on travel, that will affect,
among other things, demand for products and services at our properties and
other properties, the level of room rates and occupancy that can be
achieved by such properties and the availability and terms of financing and
our liquidity;

. our ability to maintain the properties in a first-class manner, including
meeting capital expenditure requirements;

. our ability to compete effectively in areas such as access, location,
quality of accommodations and room rate structures;

. our degree of leverage which may affect our ability to obtain financing in
the future or compliance with current debt covenants;

. changes in travel patterns, taxes and government regulations which
influence or determine wages, prices, construction procedures and costs;

. government approvals, actions and initiatives including the need for
compliance with environmental and safety requirements, and change in laws
and regulations or the interpretation thereof; and

. other factors discussed in other filings with the Securities and Exchange
Commission.

Although we believe the expectations reflected in our forward-looking statements
are based upon reasonable assumptions, we can give no assurance that we will
attain these expectations or that any deviations will not be material. Except as
otherwise required by the federal securities laws, we disclaim any obligations
or undertaking to publicly release any updates or revisions to any
forward-looking statement contained in this annual report on Form 10-K and the
information incorporated by reference herein to reflect any change in our
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.

ITEMS 1 & 2. BUSINESS AND PROPERTIES

Description of the Partnership

Marriott Residence Inn II Limited Partnership is a Delaware limited partnership
formed on September 20, 1988 to acquire, own and operate 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,
2001. The

partnership was formed through a public offering of 70,000 limited
partnership units (the "Units") in 1988. Marriott RIBM Two LLC is the 1% general
partner and is a wholly-owned subsidiary of Host Marriott, L.P.

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. ("Marriott International" or "MII"),
under two long-term management agreements (the "Management Agreements").
Additionally, the Partnership, Bossier 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 for all 23
Inns. The 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.

Potential Sale of the Partnership

Consistent with the terms of the partnership agreement and the original
investment objectives contemplated at the formation of the partnership, the
general partner is currently attempting to sell the Inns or, in the alternative,
find a buyer for the partnership interests. As stated in the partnership's
letter to limited partners dated October 9, 2001, the general partner engaged
Merrill Lynch & Co. ("Merrill Lynch") as its financial advisor to solicit bids
from interested parties. As part of that process, Merrill Lynch prepared a list
of over 20 parties who they believed might have an interest in acquiring either
the partnership's Inns or the limited partner units and contacted those parties.
Several of the parties contacted requested additional information, conducted
preliminary due diligence of the partnership and submitted acquisition proposals
to the partnership.

As previously disclosed to the limited partners, as a result of this process the
partnership had begun exclusive discussions with one potential acquirer. These
discussions were suspended as a result of the terrorist attacks of September 11,
2001 to allow the parties to determine the effect on the business and operations
of the Partnership of the terrorist attacks of September 11, 2001, as well as
the current economic conditions in general. The general partner understands that
the potential acquirer is continuing to evaluate the possibility of a
transaction with the Partnership, taking into account the current operating
results of the Inns and the general economic environment. Accordingly, there can
be no assurance that a transaction will occur or, if it were to occur, the
timing or ultimate value of any such transaction. In addition, if a transaction
were to occur, it would require approval of the limited partners as well as the
consent of the partnership's lenders.

As disclosed in a tender offer statement filed on Schedule TO with the
Securities and Exchange Commission on February 19, 2002, an unsolicited tender
offer was made by Madison Liquidity Investors 117, LLC, MRI Partners LLC,
Madison Capital Management, LLC, Haberhill LLC, Bryan E. Gordon, Ronald M.
Dickerman and Douglas H. S. Greene, as co-bidders ("Madison"). The tender offer
provides for the purchase of up to 8,341 of the limited partnership Units of the
Partnership (approximately 12% of the outstanding Units) for $300 per Unit in
cash, reduced by any cash distributions made or declared on or after February
15, 2002. In a letter mailed to limited partners on March 6, 2002 concurrent
with a Schedule 14D-9 filed with the Securities & Exchange commission, the
general partner responded with a neutral recommendation to the limited partners
regarding the tender offer by Madison. Subsequent to our filing, Madison filed
an amendment to their Schedule TO reducing the offer to purchase limited partner
interests to $200 per unit. Any limited partner who had previously tendered at
$300 will receive $200
unless they withdraw their tender prior to the expiration date which is April
16, 2002. The limited partners will have to make a determination as to whether
to wait for a possible transaction resulting from the Merrill Lynch solicitation
efforts discussed above or to sell their Units now at the amended tender offer
price.

If a limited partner is interested in liquidating its Units immediately, the
tender offer gives the limited partner this opportunity. In this regard, limited
partners should be aware that, based upon the Partnership's current results of

operations, its debt-service obligations, its capital-expenditure requirements
for the next several years there can be no assurance that a better offer for the
purchase of the Units will be available now or in the future.

Although the General Partner continues to pursue a sale of the Partnership,
there can be no assurance that a transaction will occur or, if it were to occur,
of the timing or ultimate value of any such transaction. If the General Partner
is unable to find an acquirer for the Partnership, or finds the consideration
offered by the acquirer to be below an acceptable level, the General Partner
will terminate the sale process and continue to conduct the business and affairs
of the Partnership. If the Partnership continues to operate, the General Partner
will continue to pursue all options at its disposal to maximize the value of the
Partnership to the limited partners.

Hotel Lodging Industry

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, with several 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 by Hilton, Hawthorne Suites, Summerfield Suites, Extended Stay America,
and AmeriSuites.

Residence Inn by Marriott continues to be highly competitive in its segment. The
Manager has attempted to maintain the brand's competitive position through
focused marketing efforts and programs that demonstrate a continued guest
commitment. Year 2001 has been a challenge as extended-stay hotel competitors
continue to increase their presence in the market. Despite the age of the Inn's
the Manager has continued its efforts to maintain its position as a leader in
this hospitality category, focusing on customers that prefer a quality
residential experience. The Manager is continuing to monitor the introduction
and growth of new extended-stay brands including Homewood Suites by Hilton,
Hawthorne Suites, Summerfield Suites, Extended Stay America, and AmeriSuites. In
addition, a renewed focus will be placed on strengthening each Inn's sales
efforts in order to solidify the existing relationships with current clients and
to establish new ones.

While room supply in the extended stay market has continued to grow, demand
declined during 2001 as a result of the sluggish economy that was intensified by
the September 11th terrorist attacks. We believe that demand will remain below
historical levels at least during the first half of 2002, but will begin to grow
toward the end of 2002 and continue to grow in 2003 if the economy is able to
attain a sustained recovery.

The economic trends affecting the lodging industry, the overall economy and the
extent of renovations and capital expenditures will be major factors in
generating growth in Inn revenues, and the ability of the Manager will also have
a material impact on future Inn level sales and operating profit growth. The
Inns may be impacted by increasing costs, but unlike other real estate, hotels
have the ability to change room rates on a daily basis, so the impact of higher
costs often can be passed on to customers, particularly in the transient
segment. However, the events of September 11 and the economic downturn have
affected the Manager's ability to increase room rates. As a result of the
current economic recession, the fourth quarter 2001 results of operations were
significantly below the prior year results. In order to maintain operating
margins at levels comparable to prior year, the partnership, in conjunction with
the Manager, has implemented a

number of cost saving initiatives, while still focusing on offering a quality
residential experience. Despite the Manager's efforts to increase demand at the
Inns, there has been increased pressure on room rates.

Lodging Properties

Our portfolio consists of 23 Residence Inn by Marriott Inns as of December 31,
2001. The Inns range in age between 12 and 18 years. The Inns are geographically
diversified among 16 states.

Our properties endeavor to provide consistently superior lodging at a fair price
with an appealing, friendly, and contemporary residential character. The Inns
are extended-stay hotels which cater primarily to business and family travelers
who stay more than five consecutive nights. Our Inns average 108 suites, which
are a mixture of one bedroom, two bedroom, or two-story penthouse suites. The
Inns are located in suburban settings and feature a series of residential style
buildings with landscaped walkways, courtyards and recreational areas. Each
suite contains a fully-equipped kitchen and many suites have woodburning
fireplaces.

To maintain the overall quality of our properties, each property undergoes
refurbishments and capital improvements on a regularly scheduled basis. Over the
past several years, the General Partner has retained cash in the Partnership in
anticipation of financing required capital improvements to the Inns. In light of
the increased competition in the extended-stay hotel market, the Manager has
proposed additional improvements to the Inns totaling approximately $59 million
over the next five years that are intended to enhance their overall value and
competitiveness. These improvements include total suite refurbishments at a
majority of the Inns as part of the Partnership's ongoing routine capital
replacement. The General Partner has reviewed the Manager's proposed Inn
renovations and improvements with respect to fiscal 2002 and has agreed to
undertake certain of these capital improvements. The improvements that the
General Partner has agreed to undertake involves nine Inns that were built
between 1985 and 1989 and that have not been renovated in four to nine years. As
a result, the General Partner expects to fund these improvements with
approximately $9.7 million (approximately $138 per Unit) of the Partnership's
existing cash reserves

The following table sets forth as of March 1, 2002, the location and number of
rooms for each of our properties.

Inn Number of Suites
---------------------- ------------------
Alabama
Birmingham 128
California
Arcadia 120
Irvine 112
Placentia 112
Florida
Boca Raton 120
Jacksonville 112
Pensacola 64
St. Petersburg 88
Illinois
Chicago-Deerfield 128
Louisiana
Shreveport-Bossier City 72
Massachusetts
Boston-Danvers 96
Michigan
Kalamazoo 83
Missouri

Inn Number of Suites
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Jackson 120
Nevada
Las Vegas 192
New Mexico
Santa Fe 120
North Carolina
Charlotte North 91
Greensboro 128
Ohio
Akron 112
Pennsylvania
Valley Forge 88
South Carolina
Columbia 128
Spartanburg 88
Tennessee
Memphis 105
Texas
Lubbock 80
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TOTAL SUITES: 2,487
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Seasonality

Demand 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. As a result of the economic slowdown and
events of September 11, fourth quarter 2001 operations were much lower than the
same period in 2000.

Management Agreement

The Inns are operated by the Manager pursuant to two long-term management
agreements both of which expire in 2012. The terms of the Management Agreements
provide for the establishment of a property improvement fund to provide for
capital requirements and replacements of furniture, fixtures, and equipment at
the Inns. The primary provisions of the Management Agreement are discussed at
Item 8, Note 7 to the financial statements.

Employees

The partnership has no employees. Host LP provides the services of certain
employees, including the general partner's executive officers, 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. To the extent that any officer, director or employee devotes time to
the partnership, the general partner or Host LP, as applicable, is entitled to
reimbursement for the cost of providing such services.

Conflicts of Interest

Because Host LP, the managing member of the general partner, Marriott
International and their affiliates own and/or operate hotels other than the
partnership's Inns and Marriott International and its affiliates license others
to operate

hotels under the various brand names owned by Marriott International and its
affiliates, potential conflicts of interest exist. With respect to these
potential conflicts of interest, Host LP, Marriott International 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.

ITEM 3. LEGAL PROCEEDINGS

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
condition or results of operations of the partnership.

Litigation Settlement

In September 2000, the general partner, Marriott International, Inc., and
related defendants closed on the settlement of a lawsuit filed by limited
partners from seven limited partnerships, including our limited partners
("Litigation Settlement"). In accordance with the terms of the settlement, the
defendants made cash payments of approximately $152 per Unit to our limited
partners, in exchange for dismissal of the litigation and a complete release of
all claims. In addition to these cash payments, the Manager agreed to forgive
$22.7 million of deferred incentive management fees payable by the partnership,
which is reflected as an extraordinary gain in our statement of operations for
the year ended December 31, 2000.

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, 2001, there
were 3,405 holders of record of the partnership's 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"); and (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, 2001, the partnership has distributed a total of $46,101,000
to the general and limited partners ($652 per limited partner unit) since
inception. There were no distributions in 2001, 2000 or 1999. No distributions
of Capital Receipts have been made since inception.

For future cash distributions, see "Capital Resources and Liquidity" under Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected historical financial data which has been
derived from our audited financial statements for the five most recent fiscal
years ended December 31, 2001.

2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(in thousands, except per unit amounts)

Income Statement Data:

Revenues ............................................. $ 66,531 $ 73,088 $ 71,957 $ 71,658 $ 71,039
Operating profit ..................................... 11,925 9,288 13,476 14,679 17,147
Income (loss) before extraordinary items ............. 1,026 (1,476) 1,946 2,822 4,894
Net income ........................................... 1,026 21,217/(1)/ 1,946 2,822 4,894
Net income per limited partner unit (70,000 Units) ... 15 300/(1)/ 28 40 69

Balance Sheet Data:

Total assets ......................................... $173,714 $172,072 $ 172,669 $ 168,866 $ 167,883
Total liabilities .................................... 139,675 39,059/(1)/ 160,873 159,016 157,319
Cash distributions
per limited partner unit (70,000 Units) ............ -- -- -- 50 50

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(1) Fiscal year 2000 operations include an extraordinary gain of $22.7 million
representing the forgiveness of deferred incentive management fees by the
Manager in connection with the Litigation Settlement.

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

OVERVIEW

Marriott Residence Inn II Limited Partnership is the owner of 23 extended-stay
limited service hotels, which are operated as part of the Residence Inn by
Marriott system and managed by Residence Inn by Marriott, Inc.

RECENT EVENTS

As a result of the decline in the economy, combined with the effects of the
September 11, 2001 terrorist attacks, the hospitality and travel industry has
experienced a significant decrease in operations during the second half of 2001.
Revenues decreased $6.6 million, or 9%, to $66.5 million in 2001 from $73.1
million in 2000, primarily as a result of decreases in occupancy and room rates,
which were flat or decreasing throughout the year. During the fourth quarter of
2001, revenues decreased $3.6 million, or 17%, compared to the same period in
2000. The partnership also anticipates that some costs, such as insurance, will
likely increase faster than the rate of inflation in 2002, which will further
affect operating profit. The partnership, in conjunction with the Manager, has
implemented a number of cost saving initiatives to reflect the reduced occupancy
at the Inns, including reducing labor costs. If demand in the hospitality and
travel industry returns to more historic levels of operations, the partnership
should experience increased occupancy and room rates, which should improve
operating margins in the future.

RESULTS OF OPERATIONS

The following table shows selected combined operating statistics for the Inns.
RevPAR represents the combination of average daily suite rate charged and the
average daily occupancy achieved, and is a commonly used indicator of hotel
performance.

Year Ended December 31,
------------------------------------------
2001 2000 1999
----------- ----------- -----------

Combined average daily occupancy ........ 76.1% 81.8% 82.5%
Combined average daily suite rate ....... $ 92.56 $ 94.19 $ 91.37
RevPAR .................................. $ 70.42 $ 77.02 $ 75.38

2001 Compared to 2000:

Revenues. Revenues decreased $6.6 million, or 9%, to $66.5 million in 2001 from
$73.1 million in 2000 as a result of the September 11, 2001 terrorist attacks
and the continued overall weakness of the economy. RevPAR decreased 9% to
$70.42, primarily as the result of a 2% decrease in the combined average daily
suite rate to $92.56 and a 6 percentage point decrease in the combined average
daily occupancy to 76.1%. RevPAR does not include other ancillary revenues
generated by the Inns.

Operating Costs and Expenses. Operating costs and expenses decreased to $54.6
million in 2001 from $63.8 million in 2000. The decrease was primarily due to
decreases in Inn property-level costs and expenses discussed below as well as
decreases in fees due to the Manager, which are affected by changes in Inn
revenues. In addition, the total operating costs and expenses for 2000 were
increased as a result of a nonrecurring impairment charge of $5.2 million during
the fourth quarter 2000 for one property, whose value was determined to be
impaired. See Note 2 to the financial statements. As a percentage of Inn
revenues, operating costs and expenses represented 82% of revenues for 2001 and
87% of revenues for 2000.

Inn property-level costs and expenses decreased to $37.5 million in 2001 from
$40.8 million in 2000. The decrease is primarily due to decreases in general and
administrative and controllable rooms expenses as a result of the Manager's
cost-cutting efforts at the Inns.

Operating Profit. As a result of the changes in operating costs and expenses
discussed above, operating profit increased $2.6 million, or 28%, to $11.9
million, or 18% of revenues, in 2001 from $9.3 million, or 13% of revenues in
2000.

Interest Expense. Interest expense decreased 2% to $12.4 million in 2001 from
$12.6 million in 2000 due to principal amortization on the mortgage debt.

Net Income. Net income decreased $20.2 million to $1 million, or 2% of revenues,
in 2001 from $21.2 million, or 29% of revenues, in 2000. However, net income in
2000 included an extraordinary gain of $22.7 million on the forgiveness of
deferred incentive management fees, as discussed below.

2000 Compared to 1999:

Revenues. Revenues increased $1.1 million, or 2%, to $73.1 million in 2000 from
$72.0 million in 1999 as a result of the growth in REVPAR of 2%. REVPAR does not
include other ancillary revenues generated by the Inns. The increase in REVPAR
was primarily the result of a 3% increase in the combined average daily suite
rate to $94.19, offset by a 1 percentage point decrease in the combined average
daily occupancy to 81.8%.

Operating Costs and Expenses. Operating costs and expenses increased to $63.8
million in 2000 from $58.5 million in 1999 primarily due to an increase in Inn
property-level costs and expenses and an impairment charge of $5.2 million
recorded during the fourth quarter of 2000, offset by a decrease in depreciation
expense. As a percentage of Inn revenues, operating costs and expenses
represented 87% of revenues for 2000 and 81% of revenues for 1999.

Inn property-level costs and expenses increased to $40.8 million in 2000 from
$39.5 million in 1999. The increase is primarily due to an increase in salary
and benefits as the Inns endeavor to maintain competitive wage scales.

Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit decreased $4.2 million, or 31%, to
$9.3 million, or 13% of revenues, in 2000 from $13.5 million, or 19% of revenues
in 1999.

Interest Expense. Interest expense decreased 1% to $12.6 million in 2000 from
$12.7 million in 1999 due to principal amortization on the mortgage debt.

Extraordinary Gain. In connection with the Litigation Settlement, we recognized
an extraordinary gain of $22.7 million on the forgiveness of deferred incentive
management fees by the Manager.

Net Income. Net income increased $19.3 million to $21.2 million, or 29% of
revenues, in 2000 from $1.9 million, or 3% of revenues, in 1999 primarily due to
the extraordinary gain and increased Inn revenues.

CAPITAL RESOURCES AND LIQUIDITY

Our financing needs have been historically funded through loan agreements with
independent financial institutions. Beginning in 1998, the property improvement
fund was insufficient to meet current needs. The shortfall is primarily due to
the need for suite refurbishments at a majority of the Inns as part of ongoing
routine capital maintenance and to remain competitive in the market place. Over
the past several years, the General Partner has retained cash in the Partnership
in anticipation of financing required capital improvements to the Inns.
Additionally, to reduce the shortfall, we made additional cash contributions of
$1.6 million and $2.5 million to the property improvement fund in the first
quarters of 2000 and 1999, respectively, and increased the contribution rate
beginning in 1999 to 7% of gross Inn revenues. The contribution rate will remain
at 7% for 2002.

As discussed in Business & Properties, the Manager has also proposed additional
improvements that are intended to enhance the overall value and competitiveness
of the Inns. Based upon information provided by the Manager, approximately $59
million may be required over the next five years for the routine renovations and
all of the proposed additional improvements. The general partner does not
believe that cash flows from the operations of the Inns will be sufficient to
fund these improvements. As a result, the general partner expects to fund these
improvements with approximately $9.7 million (approximately $138 per Unit) of
the Partnership's existing cash reserves. Actual funding of these improvements
is not expected to occur until the end of fiscal year 2002. The general partner
will continue to monitor the capital expenditure program with a view towards
maximizing limited partner value.

The Manager of the Inns has also proposed additional improvements to the Inns
that are intended to be implemented in fiscal years subsequent to 2002. The
general partner will review and assess these additional proposed improvements
annually at the end of each fiscal year.

The general partner does not believe that cash from Inn operations and the
Partnership's remaining cash reserves will be sufficient to fund the
Partnership's required debt service payments and all of the proposed additional
capital expenditures requested by the Manager of the Inns. As a result, it
appears unlikely that cash distributions will be possible for the next several
years.

Principal Sources and Uses of Cash

Our principal source of cash is cash from operations. Our principal uses of cash
are to make debt service payments, and fund the property improvement fund.

Cash provided by operating activities was $11 million, $14.8 million and $14.4
million in 2001, 2000 and 1999, respectively. The $3.8 million decrease in cash
from operations in 2001 from 2000 was primarily due to declining operations at
the Inns. The $374,000 increase in cash from operations in 2000 from 1999 was
primarily due to the improvement in Inn operations as a result of an increase in
the average daily suite rate.

Cash used in investing activities was $5.5 million, $8.8 million and $8.2
million in 2001, 2000 and 1999, respectively. Investing activities consist
primarily of contributions to the property improvement fund and capital
expenditures for improvements to the Inns. Capital expenditures in 2001, 2000
and 1999 include $1.2 million, $1.8 million and $.5 million, respectively, paid
from the partnership's operating cash account for owner funded projects.

Based on capital budgets provided by the Manager, the property improvement fund
reserves were deemed insufficient beginning in 1998, primarily due to the need
to complete total suite refurbishments at the majority of the Inns in the next
several years. To minimize the shortfall, the contribution rate was increased,
beginning in 1999, to 7% of gross Inn revenues and additional cash contributions
were made to the fund of $1.6 million and $2.5 million during 2000 and 1999,
respectively. Contributions to the property improvement fund were $4.7 million,
$6.7 million and $7.5 million for the years ended December 31, 2001, 2000 and
1999, respectively, while expenditures were $4.8 million, $3.2 million and $7.5
million, respectively, during the same time periods.

Cash used in financing activities was $2.7 million, $1.6 million and $1.2
million in 2001, 2000 and 1999, respectively. Financing activities consist
primarily of the repayment of mortgage debt. There were no cash distributions to
the partners in 1999, 2000 or 2001. As previously discussed, it appears unlikely
that cash distributions will be possible for the next several years.

The mortgage debt is comprised of a $140 million note which bears interest at a
fixed rate of 8.85% and matures on March 10, 2006. The mortgage is secured by
first mortgages on 22 of the 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 our
rights under the Management Agreements. Additionally, as part of the
refinancing, we were 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, Louisiana Residence Inn, which did not pass certain thresholds
to enable the property to collateralize the debt. The balance of this reserve
was $1,292,000 as of December 31, 2001. The initial $500,000 deposit was funded
by the lender. We are required to repay the initial reserve as promptly as
possible if we draw 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 we do 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.

Amounts Paid to the Manager and General Partner

The following table sets forth the amount paid to MII and affiliates under the
Management Agreements for the years ended December 31, 2001, 2000 and 1999 (in
thousands):

2001 2000 1999
----------- ----------- -----------

Residence Inn system fee .............. $ 2,549 $ 2,789 $ 2,734
Chain services ........................ 1,803 1,941 1,975
Marketing fund contribution ........... 1,593 1,743 1,705
Base management fee ................... 1,331 1,462 1,439
MRP costs ............................. 191 277 249
Incentive management fee .............. - -- 14
----------- ----------- -----------

$ 7,467 $ 8,212 $ 8,116
=========== =========== ===========

The following sets forth amounts paid by the partnership to Host Marriott and
its subsidiaries, including the general partner, for the years ended December
31, 2001, 2000 and 1999 (in thousands):

2001 2000 1999

----------- ----------- -----------
Administrative expenses reimbursed .. $ 176 $ 374 $ 105
----------- ----------- -----------
$ 176 $ 374 $ 105
=========== =========== ===========

Inflation

Our hotel lodging properties have been impacted by inflation through its effect
on increasing costs and on the managers' ability to increase room rates. Unlike
other real estate, hotels have the ability to change room rates on a daily
basis, so the impact of higher inflation often can be passed on to customers.
However, the current weak economic environment has resulted in a decline in
demand and has restricted our Manager's ability to raise room rates to offset
rising costs.

Critical Accounting Policies

Our consolidated financial statements include accounts of the Partnership and
its subsidiary. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities at the date of our financial statements, and the reported
amounts of revenues and expenses during the reporting period. While we do not
believe the reported amounts would be materially different, application of these
policies involves the exercise of judgment and the use of assumptions as to
future uncertainties and, as a result, actual results could differ from these
estimates. All of our significant accounting policies are disclosed in note 2 to
the audited financial statements. The following critical accounting policy
requires the use of business judgment or significant estimates to be made.

Long-lived assets. We are required to make subjective assessments as to whether
there are impairments in the value of our real estate properties. These
assessments have a direct impact on our net income, because an impairment
results in an immediate negative adjustment to net income. On a periodic basis,
management assesses whether there are any indicators that the value of the real
estate properties may be impaired. A property's value is impaired only if
management's estimate of the aggregate future cash flows (undiscounted and
without interest charges) to be generated by the property are less than the
carrying value of the property. Such cash flows consider factors such as
expected future operating income, trends and prospects, as well as the effects
of demand,

competition and other factors. To the extent impairment has occurred,
the loss will be measured as the excess of the carrying amount of the property
over the fair value of the property.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The partnership does not have market risk with respect to interest rates,
foreign currency exchanges or other market rate or price risks, and the
partnership does not hold any financial instruments for trading purposes. As of
December 31, 2001, all of the partnership's debt has a fixed interest rate.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index Page
- ----- ----

Residence Inn by Marriott II Limited Partnership Consolidated Financial Statements:

Report of Independent Public Accountants .................................................. 15

Consolidated Balance Sheets as of December 31, 2001 and 2000 .............................. 16

Consolidated Statements of Operations for the Fiscal Years Ended
December 31, 2001, 2000 and 1999 ........................................................ 17

Consolidated Statements of Changes in Partners' Capital for the Fiscal Years Ended
December 31, 2001, 2000 and 1999 ........................................................ 18

Consolidated Statements of Cash Flows for the Fiscal Years Ended
December 31, 2001, 2000 and 1999 ........................................................ 19

Notes to Consolidated Financial Statements ................................................ 20

Report of Independent Public Accountants

TO THE PARTNERS OF MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP:

We have audited the accompanying consolidated balance sheets of Marriott
Residence Inn II Limited Partnership (a Delaware limited partnership) and
subsidiary, as of December 31, 2001 and 2000, and the related consolidated
statements of operations, changes in partners' capital and cash flows for each
of the three fiscal years in the period ended December 31, 2001. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the 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, 2001 and 2000, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.

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 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

Vienna, Virginia
March 18, 2002

Consolidated Balance Sheets
Marriott Residence Inn II Limited Partnership and Subsidiary
December 31, 2001 and 2000
(in thousands)

2001 2000
------------- -------------

ASSETS
Property and equipment, net ........................................... $ 132,137 $ 133,126
Due from Residence Inn by Marriott, Inc. .............................. 3,005 2,814
Deferred financing costs, net of accumulated amortization ............. 1,738 2,150
Property improvement fund ............................................. 3,923 3,998
Restricted cash reserves .............................................. 7,762 7,693
Cash and cash equivalents ............................................. 25,149 22,291
------------- -------------

$ 173,714 $ 172,072
============= =============

LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES
Mortgage debt ....................................................... $ 132,198 $ 134,166
Incentive management fee due to Residence Inn by Marriott, Inc. ..... 5,440 2,895
Accounts payable and accrued expenses ............................... 2,037 1,998
------------- -------------

Total Liabilities ............................................. 139,675 139,059
------------- -------------

PARTNERS' CAPITAL
General Partner
Capital contribution .............................................. 707 707
Capital distributions ............................................. (461) (461)
Cumulative net income ............................................. 172 162
------------- -------------

418 408
------------- -------------
Limited Partners
Capital contributions ............................................. 62,155 62,155
Capital distributions ............................................. (45,640) (45,640)
Cumulative net income ............................................. 17,106 16,090
------------- -------------

33,621 32,605
------------- -------------

Total Partners' Capital ....................................... 34,039 33,013
------------- -------------

$ 173,714 $ 172,072
============= =============

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

Consolidated Statements of Operations
Marriott Residence Inn II Limited Partnership and Subsidiary
For the Years Ended December 31, 2001, 2000 and 1999
(in thousands, except per Unit amounts)

2001 2000 1999
----------- ----------- -----------

REVENUES
Suites ......................................................... $ 63,727 $ 69,721 $ 68,360
Other .......................................................... 2,804 3,367 3,597
----------- ----------- -----------
Total revenues ............................................... 66,531 73,088 71,957
----------- ----------- -----------

OPERATING COSTS AND EXPENSES
Suites ......................................................... 16,107 17,752 17,213
Other department costs and expenses ............................ 1,475 1,806 1,910
Selling, administrative and other .............................. 19,877 21,254 20,380
Depreciation ................................................... 7,295 7,163 8,120
Incentive management fee ....................................... 2,545 2,895 3,090
Residence Inn system fee ....................................... 2,549 2,789 2,734
Property taxes ................................................. 2,262 2,307 2,270
Base management fee ............................................ 1,331 1,462 1,439
Equipment rent and other ....................................... 1,165 1,202 1,325
Loss on impairment of long-lived assets ........................ -- 5,170 --
----------- ----------- -----------
54,606 63,800 58,481
----------- ----------- -----------

OPERATING PROFIT .................................................. 11,925 9,288 13,476
Interest expense ............................................... (12,362) (12,562) (12,681)
Interest income ................................................ 1,463 1,798 1,151
----------- ----------- -----------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS .......................... 1,026 (1,476) 1,946
Extraordinary gain on the forgiveness of deferred incentive
management fees .............................................. -- 22,693 --
----------- ----------- -----------

NET INCOME ........................................................ $ 1,026 $ 21,217 $ 1,946
=========== =========== ===========

ALLOCATION OF NET INCOME
General Partner ................................................ $ 10 $ 212 $ 19
Limited Partners ............................................... 1,016 21,005 1,927
----------- ----------- -----------
$ 1,026 $ 21,217 $ 1,946
=========== =========== ===========

NET INCOME PER LIMITED PARTNER UNIT (70,000 Units) ................ $ 15 $ 300 $ 28
=========== =========== ===========

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

Consolidated Statements of Changes in Partners' Capital
Marriott Residence Inn II Limited Partnership and Subsidiary
For the Years Ended December 31, 2001, 2000 and 1999
(in thousands)

General Limited
Partner Partners Total
------------- ------------- -------------

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

Net income ..................................................... 19 1,927 1,946
------------- ------------- -------------

Balance, December 31, 1999 .......................................... 196 11,600 11,796

Net income ..................................................... 212 21,005 21,217
------------- ------------- -------------

Balance, December 31, 2000 .......................................... 408 32,605 33,013

Net income ..................................................... 10 1,016 1,026
------------- ------------- -------------

Balance, December 31, 2001 .......................................... $ 418 $ 33,621 $ 34,039
============= ============= =============

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

Consolidated Statements of Cash Flows
Marriott Residence Inn II Limited Partnership and Subsidiary
For the Years Ended December 31, 2001, 2000 and 1999
(in thousands)

2001 2000 1999
------------ ------------ -----------

OPERATING ACTIVITIES
Net income ............................................................... $ 1,026 $ 21,217 $ 1,946
Extraordinary gain on the forgiveness of deferred incentive
management fees ....................................................... -- (22,693) --
Depreciation ............................................................. 7,295 7,163 8,120
Deferred incentive management fee ........................................ 2,545 2,895 3,076
Amortization of deferred financing costs as interest ..................... 412 412 411
Loss on dispositions of property and equipment ........................... 2 73 125
Loss on impairment of long-lived assets .................................. -- 5,170 --
Change in operating accounts:
(Increase)/Decrease in due from Residence Inn by Marriott, Inc. ....... (191) 610 522
Increase/(Decrease) in accounts payable and accrued expenses .......... 39 (249) 430
Decrease/(Increase) in restricted cash reserves ....................... (91) 155 (251)
------------ ------------ -----------

Cash provided by operating activities .............................. 11,037 14,753 14,379
------------ ------------ -----------

INVESTING ACTIVITIES
Additions to property and equipment, net ................................. (6,308) (5,008) (7,387)
Change in property improvement fund ...................................... 75 (3,532) (607)
Change in restricted cash reserves ....................................... 768 (250) (250)
------------ ------------ -----------

Cash used in investing activities .................................. (5,465) (8,790) (8,244)
------------ ------------ -----------

FINANCING ACTIVITIES
Repayment of mortgage debt ............................................... (1,968) (1,767) (1,649)
Change in restricted cash reserves ....................................... (746) 216 452
------------ ------------ -----------

Cash used in financing activities .................................. (2,714) (1,551) (1,197)
------------ ------------ -----------

INCREASE IN CASH AND CASH EQUIVALENTS ....................................... 2,858 4,412 4,938

CASH AND CASH EQUIVALENTS at beginning of year .............................. 22,291 17,879 12,941
------------ ------------ -----------

CASH AND CASH EQUIVALENTS at end of year .................................... $ 25,149 $ 22,291 $ 17,879
============ ============ ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for mortgage interest .......................................... $ 11,960 $ 12,159 $ 12,278
============ ============ ===========

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

NOTE 1. THE PARTNERSHIP

Description of the Partnership

Marriott Residence Inn II Limited Partnership, a Delaware limited partnership,
was formed on September 20, 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, 2001, the
Inns have a total of 2,487 suites. 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.

The partnership was formed through a public offering of 70,000 limited
partnership interests (the "Units") in 1998. The sole general partner, with a 1%
interest, is RIBM Two LLC, a Delaware single member limited liability company,
which is owned directly and indirectly by Host Marriott, L.P. (`Host LP"), as of
December 31, 2001.

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.

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"); and (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.

Notes to Consolidated Financial Statements
Marriott Residence Inn II Limited Partnership and Subsidiary

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 in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.

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 6.

Notes to Consolidated Financial Statements
Marriott Residence Inn II Limited Partnership and Subsidiary

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. During 2000, the Inn
located in Memphis, Tennessee experienced declining cash flows, primarily due to
additional competition in its local market. As a result, the partnership
concluded that the Inn was impaired, adjusted its basis to the estimated fair
market value, and recorded an impairment charge of $5,170,000 during the fourth
quarter of 2000. There was no such adjustment required at December 31, 2001.

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 partnership's net assets reported in the
accompanying consolidated financial statements exceed the tax basis of such net
assets by $6,819,000 and $8,721,000 as of December 31, 2001 and 2000,
respectively.

Deferred Financing Costs

Deferred financing costs represent the costs incurred in connection with
obtaining the debt financing and are amortized over the term of the debt. As of
December 31, 2001 and 2000, deferred financing costs, net of accumulated
amortization, totaled $1,738,000 and $2,150,000, respectively. Amortization of
deferred financing costs totaled $412,000, $412,000 and $411,000 in 2001, 2000,
and 1999, 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 6.
The balances in those reserves, along with other reserves, as of December 31 are
as follows (in thousands):

2001 2000
---------- ----------

Capital Expenditure Reserve ....................... $ 1,523 $ 2,291
Debt Service Reserve .............................. 5,172 4,426
Real Estate Tax and Insurance Reserve ............. 1,067 976
---------- ----------
$ 7,762 $ 7,693
========== ==========

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 2001 presentation.

Notes to Consolidated Financial Statements
Marriott Residence Inn II Limited Partnership and Subsidiary

Application of New Accounting Standards

In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" which replaces
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets SFAS No. 121"
to determine when a long-lived asset should be classified as held for sale,
among other things. Those criteria specify that the asset must be available for
immediate sale in its present condition, subject only to terms that are usual
and customary for sales of such assets, and the sale of the asset must be
probable, and its transfer expected to qualify for recognition as a completed
sale, within one year. This Statement is effective for fiscal years beginning
after December 15, 2001. The Partnership does not believe implementation of the
standard will have a material effect on the Partnership.

NOTE 3. LITIGATION SETTLEMENT

In September 2000, the general partner, Marriott International, Inc., and
related defendants closed on the settlement of a lawsuit filed by limited
partners from seven limited partnerships, including the partnership's limited
partners ("Litigation Settlement"). In accordance with the terms of the
settlement, the defendants made cash payments of approximately $152 per Unit to
the limited partners, in exchange for dismissal of the litigation and a complete
release of all claims. In addition to these cash payments, the Manager agreed to
forgive $22.7 million of deferred incentive management fees payable by the
partnership, which is reflected as an extraordinary gain in the statements of
operations for the year ended December 31, 2000.

NOTE 4. PROPERTY AND EQUIPMENT

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

2001 2000
----------- ------------

Land .............................................. $ 36,613 $ 36,613
Building and improvements ......................... 132,841 128,145
Furniture and equipment ........................... 34,093 32,497
----------- ------------
203,547 197,255
Accumulated depreciation .......................... (71,410) (64,129)
----------- ------------

$ 132,137 $ 133,126
=========== ============

NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

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

Notes to Consolidated Financial Statements
Marriott Residence Inn II Limited Partnership and Subsidiary

As of December 31, 2001 As of December 31, 2000
-------------------------- ---------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ---------- ---------- -----------

Mortgage debt ........................... $ 132,198 $ 132,628 $ 134,166 $ 137,427

The estimated fair value of the mortgage debt obligation is based on expected
future debt service payments discounted at estimated risk adjusted rates.

NOTE 6. MORTGAGE DEBT

The partnership's mortgage debt (the "Mortgage Debt") is comprised of a $140
million note. 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 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, 2001 is as follows
(in thousands):

2002 ................... $ 2,152
2003 ................... 2,353
2004 ................... 2,540
2005 ................... 2,811
2006 ................... 122,342
Thereafter ............. --
---------
$ 132,198
=========

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 agreements. The Bossier City Residence Inn did not pass certain
required thresholds to enable the property to collateralize the Mortgage Debt.
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 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 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. The
balance of this reserve, as of December 31, 2001, is $1,292,000 and is included
in capital expenditure reserves, a component of restricted cash on the
accompanying consolidated balance sheets.

Pursuant to the terms of the Mortgage Debt, the partnership was 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 due to a downgrade of the credit rating
of MII by Standard and Poor Rating Services in 1997. The partnership funded the
Real Estate Tax and Insurance Escrow Reserve for $834,000 in 1997. As a result
of this downgrade, the Mortgage Debt also required the partnership to fund an

Notes to Consolidated Financial Statements
Marriott Residence Inn II Limited Partnership and Subsidiary

additional month's debt service into the debt service reserve account over a six
month period and the Manager required the partnership to fund an additional
working capital reserve. Additionally, the terms of the Mortgage Debt require
the partnership to maintain a debt service reserve equal to three months of debt
service and a reserve for environmental remediation projects identified during
the course of the environmental studies undertaken in conjunction with the
refinancing.

NOTE 7. MANAGEMENT AGREEMENTS

The Manager operates the Inns pursuant to two long-term management agreements
("Management Agreements") with initial terms expiring December 31, 2012. The
Management Agreements expire in 2012 with renewal at the option of the Manager
for one or more of the Inns for up to 45 years thereafter. The Manager earns a
base management fee equal to 2% of the Inns' gross revenues. Base management
fees are paid currently.

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 $2,545,000,
$2,895,000 and $3,090,000 were earned during 2001, 2000 and 1999, respectively.
The partnership did not pay incentive management fees in 2001 or 2000. During
1999, the partnership paid incentive management fees of $14,000. Deferred
incentive management fees were $5,440,000 and $2,895,000 as of December 31, 2001
and 2000, respectively. In connection with the Litigation Settlement, the
Manager waived $22,693,000 of deferred incentive management fees, which was
recognized as an extraordinary gain during 2000.

The Management Agreements also provide for annual payments of the 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 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 operating a toll-free reservation system. Each Inn contributes
2.5% of suite revenues to the marketing fund. The Inns also participate 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, 2001, 2000
and 1999, respectively, the partnership paid a Residence Inn system fee of
$2,549,000, $2,789,000 and $2,734,000, reimbursed the Manager for $1,803,000,
$1,941,000 and $1,975,000 of chain services, contributed $1,593,000, $1,743,000
and $1,705,000 to the marketing fund, and paid MRP costs of $191,000, $277,000
and $249,000. Chain services, contributions to the marketing fund and MRP costs
are included in other operating expenses in the accompanying consolidated
statements 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 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

Notes to Consolidated Financial Statements
Marriott Residence Inn II Limited Partnership and Subsidiary

consolidated balance sheets. For December 31, 2001
and 2000, $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 sheets.

The Management Agreements provide for the establishment of a property
improvement fund for the Inns to cover the cost of replacements and renewals to
the Inns' property and improvements. Total contributions to the property
improvement fund for the years ended December 31, 2001, 2000 and 1999 were
$4,657,000, $6,716,000 and $7,535,000, respectively. Based on capital budgets,
it was determined that the property improvement fund was insufficient to meet
current needs beginning in 1998. The shortfall is primarily due to the need to
complete total suite refurbishments at the majority of the partnership's Inns.
To reduce this shortfall, the partnership provided additional cash contributions
of $1.6 million and $2.5 million to the property improvement fund in the first
quarters of 2000 and 1999, respectively, and increased the contribution rate
beginning in 1999 to 7% of gross Inn revenues. In addition, the Partnership has
agreed to fund $9.7 million of capital expenditures. Actual funding of these
improvements is not expected to occur until the end of the year.

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, 2001
------------------------------- ------------------------------------------- -----------------

Robert E. Parsons, Jr. President and Manager 46
W. Edward Walter Executive Vice President and Treasurer 46

Business Experience

Robert E. Parsons, Jr. joined Host Marriott'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, and in 1995, he
was elected Executive Vice President and Chief Financial Officer of Host
Marriott. He is also an Executive Vice President and Chief Financial Officer of
Host LP and serves as a director, manager and officer of numerous Host Marriott
subsidiaries.

W. Edward Walter joined Host Marriott in 1996 as Senior Vice President for
Acquisitions and was made Treasurer of Host Marriott in 1998, Executive Vice
President in May 2000, and Chief Operating Officer in 2001. He also serves as a
director, manager and officer of numerous Host Marriott subsidiaries. Prior to
joining Host Marriott, Mr. Walter was a partner with Trammell Crow Residential
Company and President of Bailey Capital Corporation, a real estate firm focusing
on tax exempt real estate investments.

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. To the extent that any officer or director
devotes time to the partnership, the general partner or Host LP, as applicable,
is entitled to reimbursement for the cost of providing such services. For the
fiscal years ending December 31, 2001, 2000 and 1999, the partnership reimbursed
Host Marriott or its subsidiaries in the amount of $176,000, $374,000 and
$105,000, respectively, for the cost of providing all administrative and other
services as general partner.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of December 31, 2001, no 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,
Marriott International, Inc. and their respective affiliates do not own any
Units as of December 31, 2001.

The general partner is currently attempting to sell the Inns or, in the
alternative, find a buyer for the partnership interests. The general partner is
currently involved in discussions with a potential acquirer but there can be no
assurance that a transaction will occur or, if it were to occur, the timing or
ultimate value of any such transaction.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Management Agreement

Incorporated by reference to the description of the management agreements in
Note 7 to the financial statements set forth in Part I, Item 8.

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, page 27.

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 of N/A
Marriott Residence Inn II Limited Partnership dated
November 23, 1988.

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

*3.3 First Amendment to Amended and Restated Agreement of N/A
Limited 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 II N/A
Limited Partnership and the Sanwa Bank Limited dated
December 27, 1988.

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

99 Confirmation on Receipt of Assurances from Arthur Andersen LLP

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

(b) Reports on Form 8-K: None

SCHEDULE III

MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(in thousands)

Initial Costs Gross Amount at December 31, 2001
-------------------------- ---------------------------------------------------
Subsequent
Land and Building and Costs Land and Buildings and
Description Debt Improvements Improvements Capitalized Improvements Improvements Total Depreciation
- -------------------- --------- ------------ ------------ ----------- ------------ ------------- --------- ------------

Las Vegas, NV $ 15,795 $ 4,967 $ 8,284 $ 3,004 $ 3,310 $ 12,945 $ 16,255 $ 3,772
Irvine, CA 6,856 3,503 5,843 532 2,335 7,543 9,878 2,328
Arcadia, CA 8,654 3,426 5,714 387 2,283 7,244 9,527 2,417
Greensboro, NC 8,040 2,937 4,926 1,045 1,965 6,943 8,908 2,332
Birmingham, AL 6,957 2,886 4,840 964 1,924 6,766 8,690 2,458
Boca Raton, FL 7,009 1,753 5,809 968 1,753 6,777 8,530 2,539
Other properties,
each less than 5% of total 78,887 37,352 59,228 11,086 23,043 84,623 107,666 31,376
--------- ----------- ----------- ---------- ----------- ------------ --------- -----------
$ 132,198 $ 56,824 $ 94,644 $ 17,986 $ 36,613 $ 132,841 $ 169,454 $ 47,222
========= =========== =========== ========== =========== ============ ========= ===========

Date of
Completion of Date Description
Description 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
Boca Raton, FL 1988 1988 40 years
Other properties,
each less than 5% of total 1983-1989 1988-1989 40 years

Notes:
- -----

1999 2000 2001
----------- ----------- -----------

(a) Reconciliation of Real Estate:
Balance at beginning of year ....................... $ 164,009 $ 168,090 $ 164,758
Capital Expenditures ............................... 4,092 1,840 4,696
Dispositions ....................................... (11) (2) -
Impairments of long-lived assets ................... -- (5,170) -
----------- ----------- -----------
Balance at end of year ............................. $ 168,090 $ 164,758 $ 169,454
=========== =========== ===========

(b) Reconciliation of Accumulated Depreciation:
Balance at beginning of year ....................... $ 33,834 $ 38,328 $ 42,776
Depreciation ....................................... 4,494 4,448 4,446
----------- ----------- -----------
Balance at end of year ............................. $ 38,328 $ 42,776 $ 47,222
=========== =========== ===========

(c) The aggregate cost of land, buildings and
improvements for Federal income tax purposes
is approximately $172.0 million at December 31, 2001.

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 18th day of March,
2002.

MARRIOTT RESIDENCE INN II
LIMITED PARTNERSHIP

By: RIBM TWO LLC
General Partner

/s/ Robert E. Parsons, Jr.
-----------------------------------
President and Manager

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 Title
- --------- -----

/s/ Robert E. Parsons, Jr. President and Manager
- ---------------------------------
Robert E. Parsons, Jr.

/s/ W. Edward Walter Executive Vice President
- ---------------------------------
W. Edward Walter

/s/ John A. Carnella Treasurer
- ---------------------------------
John A. Carnella

/s/ Mathew J. Whelan Vice President (Chief Accounting Officer)
- ---------------------------------
Mathew J. Whelan