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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, 1996

[ ] 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: 301-380-2070

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 ____ No ____ (Not
Applicable. On August 25, 1992, the Registrant filed an application for
relief from the reporting requirements of the Securities Exchange Act of
1934 pursuant to Section 12(h) thereof. Pursuant to a grant of the relief
requested in such application, the Registrant was not required to, and did
not make, any filings pursuant to the Securities Exchange Act of 1934 from
October 23, 1989 until the application was voluntarily withdrawn on January
26, 1998.)

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
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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.............................................................. 7

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

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

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

Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.........................................................................28

PART III

Item 10. Directors and Executive Officers.................................................................28

Item 11. Management Remuneration and Transactions.........................................................29

Item 12. Security Ownership of Certain Beneficial Owners and Management...................................29

Item 13. Certain Relationships and Related Transactions...................................................30

PART IV

Item 14. Exhibits, Supplemental Financial Statement Schedules
and Reports on Form 8-K..........................................................................33

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, 1996. The Partnership commenced operations on
December 28, 1988.

On October 8, 1993, Marriott Corporation's operations were divided into two
separate companies: Host Marriott Corporation ("Host Marriott") and Marriott
International, Inc. ("MII"). The sole general partner of the Partnership is
Marriott RIBM Two Corporation, a Delaware corporation (the "General Partner"), a
wholly-owned subsidiary of 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, which
includes over 238 Inns in 43 states and Canada in the extended-stay segment of
the U.S. lodging industry. The Inns are managed by Residence Inn by Marriott,
Inc. (the "Manager"), a wholly-owned subsidiary of 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"). 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 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 November 23, 1988, the Partnership executed a purchase agreement (the
"Purchase Agreement") with Host Marriott to acquire the Inns, all related
personal property, and the land

on which the Inns are located. The total purchase price under the Purchase
Agreement was $185.7 million. 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 (the "LLC"), a Delaware limited liability company. The
general partner of the LLC with a 1% interest is Bossier RIBM Two, Inc., a
wholly owned subsidiary of the Partnership. The remaining 99% interest in the
LLC is owned by the Partnership.

Debt Financing

As of December 31, 1995, the Partnership's mortgage debt consisted of a
$131,500,000 nonrecourse mortgage loan (the "Term Loan") and $5,589,000 borrowed
under a $10 million revolving credit facility (the "Revolving Loan"). Both the
Term Loan and the Revolving Loan matured on December 30, 1995. However, the
third party lender granted the Partnership an initial and subsequent forbearance
which effectively extended the maturity of the loans through March 22, 1996.
During the forbearance period, the Partnership was required to make interest
only payments on the total outstanding debt balance of $137,089,000 at a fixed
rate of 10.174%. During 1995, the Term Loan carried interest at a fixed rate of
10.17% per annum and required no amortization of principal. The Revolving Loan
was available to provide interest payments on up to $20 million of the principal
amount of the Term Loan. Borrowings under the Revolving Loan carried interest
per annum at a floating rate equal to .625% plus the one, two, three or six
month London Interbank Offered Rate ("LIBOR"), as elected by the Partnership and
required no amortization of principal. Interest on the borrowings could also
have been funded under the Revolving Loan. There were no borrowings under the
Revolving Loan in 1995. The weighted average interest rate on the Revolving
Loan was 6.9% and 5.0% in 1995 and 1994, respectively.

Refinancing

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.
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.

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 is 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 and will be maintained 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%. 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 must establish and
maintain certain reserves including:

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

. $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.

. $900,000 Working Capital Reserve - This reserve was provided for from 1996
cash from operations. This reserve will provide additional funds to the
Partnership Inns in the future if needed.

. $500,000 Bossier City Residence Inn Environmental Reserve - As discussed
above, this reserve was funded by the lender.

Material Contracts

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 and the
LLC entered into a management agreement for the Bossier City Residence Inn,
collectively, (the "Restated Management Agreements"). 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 over 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
and AmeriSuites.

Conflicts of Interest

Because Host Marriott, the parent 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 Marriott, 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 unlimited liability for the
obligations of the Partnership, unless those obligations are, by contract,
without recourse to the partners of the Partnership. Since the General Partner
is entitled to manage and control the business and operations of the
Partnership, and because certain actions taken by the General Partner or the
Partnership could expose the General Partner or its parent, Host Marriott, to
liability that is not shared by the limited partners (for example, tort
liability and environmental liability), this control could lead to conflicts of
interest.

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 (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
Marriott provides the services of certain employees (including the General
Partner's executive officers) of Host Marriott 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 Marriott and its other affiliates.
No officer or director of the General Partner or employee of Host Marriott
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 Marriott, 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 Marriott or
its subsidiaries for the cost of providing administrative services to the
Partnership.

Consolidation

The General Partner has undertaken, on behalf of the Partnership, to pursue,
subject to further approval of the partners, a potential transaction (the
"Consolidation") in which (i) subsidiaries of CRF Lodging Company, L.P. (the
"Company"), a newly formed Delaware limited partnership, would merge with and
into the Partnership and up to five other limited partnerships, with the
Partnership and the other limited partnerships being the surviving entities
(each, a "Merger" and collectively, the "Mergers"), subject to the satisfaction
or waiver of certain conditions, (ii) CRF Lodging Trust ("CRFLT"), a Maryland
real estate investment trust, the sole general partner of the Company, would
offer its common shares of beneficial interest, par value $0.01 per share (the
"Common Shares") to investors in an underwritten public offering and would
invest the proceeds of such offering in the Company in exchange for units of
limited partnership interests in the Company ("Units") and (iii) the Partnership
would enter into a Lease for the operation of its Hotels pursuant to which a
Lessee would pay rent to the Partnership based upon the greater of a fixed
dollar amount of base rent or specified percentages of gross sales, as specified
in the Lease. If the partners approve the transaction and other conditions are
satisfied, the partners of the Partnership would receive Units in the Merger in
exchange for their interests in the Partnership.

A preliminary Prospectus/Consent Solicitation was filed as part of a
Registration Statement on Form S-4 with the Securities and Exchange Commission
and which describes the potential transaction in greater detail. Any offer of
Units in connection with the Consolidation will be made solely by a final
Prospectus/Consent Solicitation.

ITEM 2. PROPERTIES

Introduction

The properties consisted of 23 Residence Inn by Marriott hotels as of December
31, 1996. The Inns have been in operation for at least seven years. The Inns
range in age between 7 and 13 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 experienced increased
competition throughout 1996 as new extended-stay purpose-built competitors
entered the market. This trend is expected to continue in 1997. 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
- ----------------------------- ---------------- -----------

Birmingham, AL 128 1986
Arcadia, CA 120 1989
Irvine, CA 112 1989
Placentia, CA 112 1988
Boca Raton, FL 120 1988
Jacksonville, FL 112 1986
Pensacola, FL 64 1985
St. Petersburg, FL 88 1986
Chicago-Deerfield, IL 128 1989
Shreveport-Bossier City, LA 72 1983
Boston-Danvers, MA 96 1989
Kalamazoo, MI 83 1989
Jackson, MS 120 1986
Las Vegas, NV 192 1989
Santa Fe, NM 120 1986
Charlotte North, NC 91 1988
Greensboro, NC 128 1987
Akron, OH 112 1987
Valley Forge, PA 88 1988
Columbia, SC 128 1988
Spartanburg, SC 88 1985
Memphis, TN 105 1986
Lubbock, TX 80 1986
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TOTAL 2,487
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The following table shows selected combined operating and financial statistics
for the Inns (in thousands, except combined average occupancy, combined average
daily room rate and revenue per available room ("REVPAR"). 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,
--------------------------
1996 1995 1994
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Combined average occupancy............. 84.5% 86.5% 87.5%
Combined average daily suite rate...... $84.65 $80.92 $75.25
REVPAR................................. $71.50 $70.01 $65.84

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.

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, 1996, there
were 3,915 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, 1996, the Partnership has distributed a total of $39,030,000
($552 per limited partner unit) since inception. In 1996, no cash was
distributed, however $3,535,000 ($50 per limited partner unit) was distributed
on February 14, 1997 from 1996 cash from operations. In 1995, $4,949,000 ($70
per limited partner unit) was distributed. 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,
1996 presented in accordance with generally accepted accounting principles:

1996 1995 1994 1993 1992
-------- -------- --------- --------- ---------
(in thousands, except per unit amounts)

Revenues.................................... $ 34,035 $ 33,300 $ 30,441 $ 28,290 $ 27,025
======== ======== ======== ======== ========

Net income (loss)........................... $ 2,663 $ 1,603 $ (528) $ (2,452) $ (5,686)
======== ======== ======== ======== ========

Net income (loss)
per limited partner unit (70,000 Units).. $ 38 $ 23 $ (7) $ (35) $ (80)
======== ======== ======== ======== ========

Total assets................................ $165,510 $165,362 $159,801 $162,216 $166,301
======== ======== ======== ======== ========

Total liabilities........................... $156,305 $158,820 $149,913 $146,709 $143,676
======== ======== ======== ======== ========

Cash distributions
per limited partner unit (70,000 Units).. $ -- $ 70 $ 72 $ 66 $ 79
======== ======== ======== ======== ========

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

FORWARD-LOOKING STATEMENTS

Certain matters discussed herein are forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995 and as such may involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Partnership to be different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. 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. These risks are detailed from time to time in the Partnership's
filings with the Securities and Exchange Commission. 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

The following discussion and analysis addresses results of operations for the
fiscal years ended December 31, 1996, 1995 and 1994. Since 1989, the
Partnership has owned the Inns which, as of December 31, 1996, contain a total
of 2,487 suites. During the period from 1994 through 1996, Partnership revenues
grew from $30.4 million to $34.0 million, while the Partnership's total Inn
sales grew from $63.0 million to $69.6 million. Growth in suite sales, and thus
Inn sales, is primarily a function of combined average occupancy and combined
average suite rates. During the period from 1994 through 1996, the Inns'
combined average room rate increased by $9.40 from $75.25 to $84.65, while the
combined average occupancy decreased from 87.5% to 84.5%.

The Partnership's operating costs and expenses are, to a great extent, fixed.
Therefore, the Partnership derives substantial operating leverage from increases
in revenue. This operating leverage is offset in part by variable expenses,
including (i) base and Residence Inn system management fees under the management
agreement, 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

1996 Compared to 1995:

Revenues. Revenues (Inn sales less Inn operating costs and expenses) increased
$.7 million, or 2%, to $34.0 million in 1996 from $33.3 million in 1995.
Revenue and operating profit were impacted primarily by growth in REVPAR.
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. REVPAR does not include food and beverage or other
ancillary revenues generated by the property. Inn sales increased $2.8 million,
or 4%, to $69.6 million in 1996 reflecting the improvements in REVPAR for the
year. REVPAR increased 2% during the year due primarily to an increase in
average suite rates of approximately 5%, with a decrease in average occupancy of
two percentage points. Results were further impacted by a one percentage point
decrease in the house profit margin.

Operating Costs and Expenses. Operating costs and expenses increased $.4
million to $18.6 million in 1996 from $18.2 million in 1995. As a percentage of
Inn revenues, Inn operating costs and expenses represented 55% of revenues for
1996 and 55% in 1995.

Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, operating profit increased $.3 million to $15.4
million, or 45% of revenues, in 1996 from $15.1 million, or 45% of revenues in
1995.

Interest Expense. Interest expense decreased $.7 million to $13.3 million
because the refinanced debt carried a lower average interest rate of 8.85%
versus 10% under the old loan.

Net Income. Net income increased $1.1 million to $2.7 million, or 8% of
revenues, in 1996 from $1.6 million, or 5% of total revenues, in 1995 due
primarily to improved operating results and lower interest expense.

1995 Compared to 1994:

Revenues. Revenues increased $2.9 million, or 10%, to $33.3 million in 1995
from $30.4 million in 1994 as a result of strong growth in REVPAR of over 6%.
The increase in REVPAR was primarily the result of an 8% increase in average
suite rates and a decrease of one percentage point in average occupancy.

Operating Costs and Expenses. Operating costs and expenses increased $1.0
million to $18.2 million, or 55% of revenues, in 1995, from $17.2 million, or
57% of revenues in 1994.

Operating Profit. Operating profit increased $1.9 million to $15.1 million, or
45% of revenues, in 1995 from $13.2 million, or 43% of revenues, in 1994 due to
the changes in revenues and operating costs discussed above.

Interest Expense. Interest expense remained unchanged at $14.0 million for 1995
and 1994.

Net Income. Net income increased $2.1 million to $1.6 million, or 5% of
revenues, in 1995 from a net loss of $.5 million in 1994 due to the items
discussed above.

CAPITAL RESOURCES AND LIQUIDITY

General

The General Partner believes that cash from Inn operations and Partnership
reserves will provide adequate funds in the short term and long term of the
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 $3.9 million in 1996, $19.8 million in 1995 and
$9.9 million in 1994. The $15.9 million decrease in cash from operations in
1996 was primarily the result of changes in operating accounts due to accrued
interest expense at the end of 1995, increased amounts due from the Manager and
payment of deferred base management fees during 1996. This was partially offset
by increased net income of $1.1 million. The $9.9 million increase in cash from
operations in 1995 was mainly the result of changes in operating accounts caused
by accreued interest expense at the end of 1995 and decreased amounts due from
the Manager during 1995, as well as increased net income of $2.1 million. This
was partially offset by the payment of deferred base management fees during
1995.

Cash used in investing activities was $7.2 million, $3.4 million and $3.2
million in 1996, 1995 and 1994, respectively. The Partnership's cash investing
activities consists primarily of contributions to the property improvement fund
and capital expenditures for improvements to existing Inns and contributions to
restricted cash reserves required under the new terms of the mortgage debt.

Cash used in financing activities was $2.6 million, $5.5 million and $5.1
million in 1996, 1995 and 1994, respectively. The Partnership's cash financing
activities consists primarily of capital distributions to partners, repayment of
debt and payment of financing costs, as well as the refinancing of certain debts
of the Partnership. 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. 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.

Refinancing

On March 22, 1996 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. 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.

litigation that may arise from any environmental condition at the Bossier City
Residence Inn. The initial $500,000 deposit will be funded and maintained 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%. 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 provide for the establishment of a property
improvement fund for the Inns. Contributions to the property improvement fund
are 5% of gross Inn revenues. Total contributions to the property improvement
fund for the years ended December 31, 1996, 1995 and 1994 were $3,482,000,
$3,343,000 and $3,152,000, respectively.

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 the LLC entered into a management agreement
for the Bossier City Residence Inn, which the LLC owns, collectively (the
"Restated Management Agreements").

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 $7,070,707.
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 $7,070,707. 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. As of December
31, 1996, $1,190,000 of incentive management fees were paid. There were no
incentive management fees paid to the Manager prior to 1996. Deferred incentive
management fees were $14,610,000 and

$12,258,000 as of December 31, 1996 and 1995, 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. For 1997, the outlook continues to be positive. Residence
Inns continue to command a premium share of the market in which they are located
in spite of the growth of new chains. 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 and AmeriSuites.

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 room rates and prices. In 1996, average suite rates of Residence Inns
exceeded inflationary costs. On March 22, 1996, the Partnership refinanced its
mortgage debt and fixed its interest costs thereby eliminating the Partnership's
exposure to the impact of changing interest rates.

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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

Marriott Residence Inn II Limited Partnership Consolidated Financial Statements:

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

Consolidated Statement of Operations.......................................... 16

Consolidated Balance Sheet.................................................... 17

Consolidated Statement of Changes in Partners' Capital........................ 18

Consolidated Statement of Cash Flows.......................................... 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 sheet of Marriott
Residence Inn II Limited Partnership (a Delaware limited partnership) and
Bossier RIBM Two LLC, its majority-owned subsidiary limited liability company,
as of December 31, 1996 and 1995, 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, 1996. These financial statements and
schedule 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, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.

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 are not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the 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.
March 21, 1997

Consolidated Statement of Operations

Marriott Residence Inn II Limited Partnership and Subsidiary
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands, except per Unit amounts)
- --------------------------------------------------------------------------------

1996 1995 1994
--------- --------- ---------

REVENUES (Note 3)........................... $ 34,035 $ 33,300 $ 30,441
-------- -------- --------

OPERATING COSTS AND EXPENSES
Depreciation and amortization.............. 7,700 7,796 7,279
Incentive management fee................... 3,542 3,502 3,133
Residence Inn system fee................... 2,639 2,535 2,384
Property taxes............................. 2,141 2,092 2,174
Base management fee........................ 1,393 1,337 1,261
Equipment rent and other................... 1,201 897 1,018
-------- -------- --------

18,616 18,159 17,249
-------- -------- --------

OPERATING PROFIT............................ 15,419 15,141 13,192
Interest expense........................... (13,268) (14,038) (13,969)
Interest income............................ 512 500 249
-------- -------- --------

NET INCOME (LOSS)........................... $ 2,663 $ 1,603 $ (528)
======== ======== ========

ALLOCATION OF NET INCOME (LOSS)
General Partner............................ $ 27 $ 16 $ (5)
Limited Partners........................... 2,636 1,587 (523)
-------- -------- --------

$ 2,663 $ 1,603 $ (528)
======== ======== ========

NET INCOME (LOSS) PER LIMITED PARTNER UNIT
(70,000 Units)............................. $ 38 $ 23 $ (7)
======== ======== ========

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, 1996 and 1995
(in thousands)
- --------------------------------------------------------------------------------

1996 1995
-------- --------

ASSETS
Property and equipment, net............................. $144,792 $148,116
Deferred financing costs, net of accumulated
amortization........................................... 3,797 566
Due from Residence Inn by Marriott, Inc................. 2,472 1,150
Property improvement fund............................... 2,150 1,638
Restricted cash reserves................................ 4,291 --
Cash and cash equivalents............................... 8,008 13,892
-------- --------

$165,510 $165,362
======== ========

LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage debt.......................................... $140,000 $137,089
Incentive management fee due to Residence Inn by
Marriott, Inc......................................... 14,610 12,258
Base management fee due to Residence Inn by Marriott,
Inc................................................... -- 743
Accounts payable and accrued expenses.................. 1,695 8,730
-------- --------

Total Liabilities..................................... 156,305 158,820
-------- --------

PARTNERS' CAPITAL
General Partner
Capital contribution.................................. 707 707
Capital distributions................................. (390) (390)
Cumulative net losses................................. (146) (173)
-------- --------

171 144
-------- --------
Limited Partners
Capital contributions, net of offering costs of $7,845 62,155 62,155
Capital distributions................................. (38,640) (38,640)
Cumulative net losses................................. (14,481) (17,117)
-------- --------

9,034 6,398
-------- --------

Total Partners' Capital............................... 9,205 6,542
-------- --------

$165,510 $165,362
======== ========

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, 1996, 1995 and 1994
(in thousands)
- --------------------------------------------------------------------------------

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

Balance, December 31, 1993...................... $ 233 $15,274 $15,507

Capital distributions.......................... (51) (5,040) (5,091)

Net loss....................................... (5) (523) (528)
------ ------- -------

Balance, December 31, 1994...................... 177 9,711 9,888

Capital distributions.......................... (49) (4,900) (4,949)

Net income..................................... 16 1,587 1,603
------ ------- -------

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
====== ======= =======

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

Consolidated Statement of Cash Flows

1996 1995 1994
--------- ------- -------

OPERATING ACTIVITIES
Net income (loss)............................... $ 2,663 $ 1,603 $ (528)
Noncash items:
Depreciation and amortization.................. 7,700 7,796 7,279
Deferred incentive management fee.............. 2,352 3,502 3,133
Amortization of deferred financing costs as
interest...................................... 322 299 302
(Gain) loss on dispositions of property and
equipment..................................... (5) -- 110
Changes in operating accounts:
Accounts payable and accrued expenses.......... (7,035) 7,701 71
Due from Residence Inn by Marriott, Inc........ (1,322) 1,203 (490)
Base management fee due to Residence Inn by
Marriott, Inc................................. (743) (2,296) --
--------- ------- -------

Cash provided by operating activities........ 3,932 19,808 9,877
--------- ------- -------

INVESTING ACTIVITIES
Additions to property and equipment, net........ (4,376) (3,009) (3,309)
Additions to restricted capital expenditure
reserve........................................ (2,357) -- --
Change in property improvement fund............. (507) (416) 137
--------- ------- -------

Cash used in investing activities............ (7,240) (3,425) (3,172)
--------- ------- -------

FINANCING ACTIVITIES
Proceeds from mortgage loan..................... 140,000 -- --
Repayment of mortgage debt...................... (137,089) -- --
Payment of financing costs...................... (3,553) (566) --
Additions to debt service reserve............... (1,934) -- --
Capital distributions to partners............... -- (4,949) (5,091)
--------- ------- -------

Cash used in investing activities............ (2,576) (5,515) (5,091)
--------- ------- -------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS. (5,884) 10,868 1,614

CASH AND CASH EQUIVALENTS at beginning of year... 13,892 3,024 1,410
--------- ------- -------

CASH AND CASH EQUIVALENTS at end of year......... $ 8,008 $13,892 $ 3,024
========= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest.......................... $ 18,985 $ 7,053 $13,666
========= ======= =======

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, 1996 and 1995
- --------------------------------------------------------------------------------

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 North Carolina and South Carolina,
respectively, and one in Alabama, Illinois, Louisiana, Massachusetts, Michigan,
Mississippi, Nevada, New Mexico, Ohio, Pennsylvania, Tennessee and Texas. As of
December 31, 1996, the Inns have a total of 2,487 suites.

On December 29, 1995, Host Marriott Corporation's operations were divided into
two separate companies: Host Marriott Corporation ("Host Marriott") and Host
Marriott Services Corporation. The sole general partner of the Partnership,
with a 1% interest, is Marriott RIBM Two Corporation (the "General Partner"), a
wholly-owned subsidiary of Host Marriott.

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.

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 the 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 represent house profit from the Partnership's Inns because the
Partnership has delegated substantially all of the operating decisions related
to the generation of house profit from the Inns to the Manager. House profit
reflects the net revenues flowing to the Partnership as property owner and
represents Inn operating results less property-level expenses, excluding
depreciation and amortization, base, Residence Inn system and incentive
management fees, property taxes, equipment rent and other costs, which are
disclosed separately in the consolidated statement of operations.

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

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 is pledged as security for the mortgage debt
described in Note 6.

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.

Income Taxes

Provision for Federal and state income taxes has not been made in the 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 (loss) 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 $411,000 as of December 31, 1996 and $3,275,000 as of December 31,
1995.

Deferred Financing Costs

Deferred financing costs represent the costs incurred in connection with
obtaining the debt financing and are amortized over the term thereof. Deferred
financing costs associated with the original mortgage debt totaling $2,114,000
were fully amortized at December 31, 1995 and have been removed from the
Partnership's accounts. As of December 31, 1996, the Partnership incurred
$4,119,000 of additional financing costs in connection with the refinanced
mortgage debt described in Note 6 and 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, 1996 and 1995, accumulated
amortization of deferred financing costs totaled $322,000 and $0, 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 at December 31, 1996 are as follows (in
thousands):

Capital Expenditure Reserve.. $2,357
Debt Service Reserve......... 1,934
------
$4,291
======

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

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.

New Statements of Financial Accounting Standards

In 1996, the Partnership adopted Statement of Financial Accounting Standards
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Adoption of SFAS 121 did not have an
effect on the Partnership's financial statements.

Reclassifications

Certain reclassifications were made to the prior year financial statements to
conform to the 1996 presentation.

NOTE 3. REVENUES

Partnership revenues consist of the following (in thousands):

1996 1995 1994
------- ------- -------
INN SALES

Suites....................... $65,969 $63,374 $59,606
Other operating departments.. 3,675 3,491 3,428
------- ------- -------
69,644 66,865 63,034
------- ------- -------
INN EXPENSES
Departmental direct costs
Suites...................... 14,313 13,279 12,742
Other operating expenses..... 21,296 20,286 19,851
------- ------- -------
35,609 33,565 32,593
------- ------- -------

REVENUES...................... $34,035 $33,300 $30,441
======= ======= =======

NOTE 4. PROPERTY AND EQUIPMENT

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

1996 1995
--------- ---------

Land and improvements...... $ 57,362 $ 57,362
Building and improvements.. 102,054 101,077
Furniture and equipment.... 48,761 45,362
-------- --------
208,177 203,801
Accumulated depreciation... (63,385) (55,685)
-------- --------

$144,792 $148,116
======== ========

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

NOTE 5. 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.

As of December 31, 1996 As of December 31, 1995
======================== =======================
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- -------- ------------
(in thousands) (in thousands)

Mortgage debt $140,000 $140,000 $137,089 $137,089
Incentive management fee
due to Residence
Inn by Marriott, Inc. $ 14,610 $ 2,800 $ 12,258 $ 6,800
Base management fee due to
Residence
Inn by Marriott, Inc. $ -- $ -- $ 743 $ 743

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

NOTE 6. MORTGAGE DEBT

On March 22, 1996 (the "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. 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.

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

Principal amortization of the Mortgage Debt at December 31, 1996 is as follows
(in thousands):

1997................ $ 910
1998................ 1,508
1999................ 1,649
2000................ 1,767
2001................ 1,968
Thereafter.......... 132,198
--------
$140,000
========

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 is
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 and will be maintained 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%. 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.

Pursuant to the terms of the Mortgage Debt, the Partnership must establish and
maintain certain reserves including:

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

. $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.

. $900,000 Working Capital Reserve - This reserve was funded from 1996 cash
from operations. This reserve will provide additional funds to the
Partnership Inns in the future if needed.

. $500,000 Bossier City Residence Inn Environmental Reserve - As discussed
above, this reserve was funded by the lender.

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

NOTE 7. MANAGEMENT AGREEMENT

As of December 31, 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 the 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.

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 $7,070,707. 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. As of
December 31, 1996, $1,190,000 of incentive management fees were paid. There
were no incentive management fees paid to the Manager in 1995. Deferred
incentive management fees were $14,610,000 and $12,258,000 as of December 31,
1996 and 1995, 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. Such reimbursements were limited through 1991 to 2% of
gross revenues from Inn operations. As franchisor 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, 1996, 1995 and 1994, the Partnership paid a
Residence Inn system fee of $2,639,000, $2,535,000 and $2,384,000, reimbursed
the Manager for $1,558,000, $1,498,000 and $1,486,000 of Chain Services and
contributed $1,649,000, $1,584,000 and $1,490,000 to the marketing fund,
respectively. Chain Services and contributions to the marketing fund are
included in other operating expenses in Note 3.

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

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, 1996 and 1995,
$1,150,000 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.

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 Marriott RIBM Two Corporation, the General Partner, who are listed
below:

Age at
Name Current Position December 31, 1996
- --------------------------- -------------------------------- -----------------

Bruce F. Stemerman President and Director 41
Christopher G. Townsend Vice President and Director 49
Patricia K. Brady Vice President and Chief 35
Accounting Officer
Anna Mary Coburn Secretary 41
Bruce Wardinski Treasurer 36

Business Experience

Bruce F. Stemerman joined Host Marriott in 1989 as Director--Partnership
Services. He became Vice President--Lodging Partnerships in 1994 and became
Senior Vice President--Asset Management in 1996. Prior to joining Host
Marriott, Mr. Stemerman spent ten years with Price Waterhouse. He also serves
as a director and an officer of numerous Host Marriott 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 and an officer of numerous Host Marriott subsidiaries.

Patricia K. Brady was appointed to Vice President and Chief Accounting Officer
of the General Partner on October 10, 1996. Ms. Brady joined Host Marriott in
1989 as Assistant Manager--Partnership Services. She was promoted to Manager in
1990 and to Director--Asset Management in June 1996. Ms. Brady also serves as
an officer of numerous Host Marriott subsidiaries.

Anna Mary Coburn joined Host Marriott as an Attorney in 1988, became Assistant
General Counsel in 1993, and was elected Corporate Secretary and Associate
General Counsel in 1997. Prior to joining Host Marriott, Ms. Coburn was an
Attorney for the law firm of Shawe & Rosenthal and was a law clerk for the
United States Court of Appeals for the Fourth Circuit. Ms. Coburn resigned from
the position in January 1998. Christopher G. Townsend will assume her
responsibilities.

Bruce Wardinski joined Host Marriott in 1987 as a Senior Financial Analyst of
Financial Planning & Analysis and was named Manager in June 1988. He was
appointed Director, Financial Planning & Analysis in 1989, Director of Project
Finance in January 1990, Senior Director of Project Finance in June 1993, Vice
President--Project Finance in June 1994, and Senior Vice President of
International Development in October 1995. In June 1996, Mr. Wardinski was
named Senior Vice President and Treasurer of Host Marriott. Prior to joining
Host Marriott, Mr. Wardinski was with the public accounting firm Price
Waterhouse.

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, 1996, 1995 and 1994, the Partnership
reimbursed the General Partner in the amount of $131,000, $89,000 and $126,000,
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, 1996, 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 directors of the General Partner, Host Marriott, MII
and their respective affiliates do not own any Units as of December 31, 1996.

The Partnership is not aware of any arrangements which may, at a subsequent
date, result in a change in control of the Partnership, other than the
Consolidation described in Item 1.

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 the LLC owns, collectively, (the
"Restated Management Agreements").

Term

The Restated Management Agreements have an initial term expiring in 2012. The
Manager may renew the term, as to one or more of the Inns, at its option, for
five years, followed by four successive terms of 10-years each. The Partnership
may terminate the Restated Management Agreements if, during any three
consecutive years specified minimum operating results are not achieved.
However, the Manager may prevent termination by paying to the Partnership the
amount by which the minimum operating results were not achieved.

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).

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 $7,070,707.
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 $7,070,707. 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. As of
December 31, 1996, $1,190,000 of incentive management fees were paid. There
were no incentive management fees paid to the Manager prior to 1996. Deferred
incentive management fees were $14,610,000 and $12,258,000 as of December 31,
1996 and 1995, 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, 1996, 1995 and 1994, the
Partnership paid a Residence Inn system fee of $2,639,000, $2,535,000 and
$2,384,000, reimbursed the Manager for $1,558,000, $1,498,000 and $1,486,000 of
Chain Services and contributed $1,649,000, $1,584,000 and $1,490,000 to the
marketing fund, respectively. Chain Services and contributions to the marketing
fund are included in other operating expenses detailed in the Consolidated
Financial Statements (see Item 8).

Working Capital

Property Improvement Funds

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, 1996, 1995 and
1994 (in thousands):

1996 1995 1994
------ ------ ------

Residence Inn system fee..................... $2,639 $2,535 $2,384
Marketing fund contribution.................. 1,649 1,584 1,490
Chain services............................... 1,558 1,498 1,486
Base management fee.......................... 1,393 1,337 1,261
Incentive management fee..................... 1,190 -- --
Deferred base management fees................ 743 2,296 --
------ ------ ------
$9,172 $9,250 $6,621
====== ====== ======

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, 1996, 1995 and 1994 (in
thousands):

1996 1995 1994
----- ----- -----

Administrative expenses reimbursed.. $ 131 $ 89 $ 126
Cash distributions.................. -- 49 51
----- ----- -----
$ 131 $ 138 $ 177
===== ===== =====

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

* 3.1 Amended and Restated Agreement of Limited
Partnership of Marriott Residence Inn II Limited
Partnership dated November 23, 1988.

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

10.1 Amended and Restated Management Agreement by and
between 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 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 of March 22, 1996.

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

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

SCHEDULE III

MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(in thousands)

Initial Costs
--------------------------
Subsequent
Land and Building and Costs
Description Debt Improvements Improvements Capitalized
- --------------------------- -------- -------------------------- ------------

Las Vegas, NV $ 16,727 $ 4,967 $ 8,284 $ 325
Irvine, CA 7,260 3,503 5,843 76
Arcadia, CA 9,164 3,426 5,714 111
Greensboro, NC 8,515 2,937 4,926 224
Birmingham, AL 7,368 2,886 4,840 316
Other properties,
each less than 5% of total 90,966 39,105 65,037 6,896
-------- ------- -------- --------
$140,000 $56,824 $ 94,644 $ 7,948
======== ======= ======== ========

Gross Amount at December 31, 1996
----------------------------------------------------- Date of
Land and Buildings and Accumulated Completion of Date Depreciation
Description Improvements Improvements Total Depreciation Construction Acquired Life
- --------------------------- ------------ ------------ ---------- ------------ ------------- -------- ------------

Las Vegas, NV $ 5,016 $ 8,560 $ 13,576 $ 2,076 1989 1989 40 years
Irvine, CA 3,522 5,900 9,422 1,348 1989 1989 40 years
Arcadia, CA 3,434 5,817 9,251 1,388 1989 1989 40 years
Greensboro, NC 2,963 5,124 8,087 1,307 1987 1988 40 years
Birmingham, AL 2,929 5,113 8,042 1,360 1986 1988 40 years
Other properties,
each less than 5% of total 39,498 71,540 111,038 18,061 1983-1989 1988-1989 40 years
-------- -------- -------- -------
$ 57,362 $102,054 $159,416 $25,540
======== ======== ======== =======

Notes:
- ------
1994 1995 1996
-------- -------- --------

(a) Reconciliation of Real Estate:
Balance at beginning of year.................... $155,461 $156,679 $158,439
Capital Expenditures............................ 1,218 1,760 977
Dispositions.................................... -- -- --
-------- -------- --------
Balance at end of year.......................... $156,679 $158,439 $159,416
======== ======== ========
(b) Reconciliation of Accumulated Depreciation:
Balance at beginning of year.................... $14,720 $18,115 $21,748
Depreciation.................................... 3,395 3,633 3,792
------- ------- -------
Balance at end of year.......................... $18,115 $21,748 $25,540
======= ======= =======

(c) The aggregate cost of land, buildings and
improvements for Federal income tax purposes
is approximately $154.1 million at December 31, 1996.

(d) The Debt balance is $140 million as of December 31, 1996.

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 26th of January,
1998.

MARRIOTT RESIDENCE INN II
LIMITED PARTNERSHIP

By: MARRIOTT RIBM TWO CORPORATION
General Partner

/s/ Bruce F. Stemerman
-----------------------------------------
Bruce F. Stemerman
President and Director

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
- --------- -----
(MARRIOTT RIBM TWO CORPORATION)

/s/Bruce F. Stemerman President and Director
- --------------------------------- (Principal Executive Officer)
Bruce F. Stemerman

/s/ Christopher G. Townsend Vice President, Secretary and Director
- ---------------------------------
Christopher G. Townsend

/s/ Patricia K. Brady Vice President and Chief Accounting Officer
- ---------------------------------
Patricia K. Brady

/s/ Bruce Wardinski Treasurer
- ---------------------------------
Bruce Wardinski