As filed with the Securities and Exchange Commission on September 21, 2001
Registration No. 333-__________

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

FAIRFIELD INN BY MARRIOTT
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)

DELAWARE 7011 52-1638296
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)

7 BULFINCH PLACE
SUITE 500
BOSTON, MA 02114
(617) 570-4600
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

MICHAEL L. ASHNER
7 BULFINCH PLACE
SUITE 500
BOSTON, MA 02114
(617) 570-4600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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

COPIES TO:
MARK I. FISHER, ESQ.
ROSENMAN & COLIN LLP
575 MADISON AVENUE
NEW YORK, NEW YORK 10022
TEL: (212) 940-8800
FAX: (212) 940-8776

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

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [ ]

If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]

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

CALCULATION OF REGISTRATION FEE
==================================================================================================================================
AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT (1) PRICE REGISTRATION FEE
----------------------------------------------------------------------------------------------------------------------------------

Subordinated Notes due 2007 $23,000,000 100% $23,000,000 $5,750
==================================================================================================================================

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.

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

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL, NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

PROSPECTUS

$23,000,000
FAIRFIELD INN BY MARRIOTT
LIMITED PARTNERSHIP
SUBORDINATED NOTES DUE 2007

Fairfield Inn by Marriott Limited Partnership is offering its limited
partners the non-transferable right to purchase its subordinated notes due 2007,
in the aggregate principal amount of $23 million. You will have the right to
purchase notes in the principal amount of $275 for each unit that you own. In
order to subscribe, you must complete and return the subscription form
accompanying this prospectus, together with payment for the notes for which you
subscribe, by 5:00 p.m., New York City time, on November 20, 2001. You may
purchase less than the full amount of the notes to which you are entitled but
you will not be entitled to subscribe for any notes not purchased by other
limited partners.

An affiliate of the general partner has agreed to purchase all notes not
purchased by limited partners in this offering. Accordingly, the partnership is
assured of receiving gross proceeds of $23 million from the sale of the notes.
No fee will be paid to the affiliate for its agreement.

The notes will be subordinated in right of payment to the partnership's
existing mortgage debt, which as of June 15, 2001 had an outstanding balance of
$151.3 million, and other obligations of the partnership. For a discussion of
certain tax consequences to limited partners who subscribe, see "Certain U.S.
Federal Income Tax Considerations."

The notes will be evidenced by an original promissory note payable to the
order of, and delivered to, each subscriber and recorded and transferable on the
books of our partnership.

There is no existing market for the notes and it is anticipated that a
market for the notes will not develop.

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

BUYING THE NOTES INVOLVES SIGNIFICANT RISKS.

YOU SHOULD SEE "RISK FACTORS" BEGINNING ON PAGE 6.

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

THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

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

The date of this Prospectus is October __, 2001

YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, NOTES ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS TO THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF THE NOTES.

TABLE OF CONTENTS

Page

PROSPECTUS SUMMARY...........................................................1
RISK FACTORS.................................................................6
NOTE REGARDING FORWARD-LOOKING STATEMENTS...................................13
USE OF PROCEEDS.............................................................14
DISTRIBUTIONS...............................................................14
SELECTED FINANCIAL DATA.....................................................15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................................17
BUSINESS....................................................................23
MANAGEMENT..................................................................32
PRINCIPAL EQUITYHOLDERS.....................................................34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................34
DESCRIPTION OF OFFERING.....................................................34
DESCRIPTION OF NOTES........................................................36
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS..............................40
LEGAL MATTERS...............................................................43
EXPERTS.....................................................................43
WHERE YOU CAN FIND MORE INFORMATION.........................................43
INDEX TO FINANCIAL STATEMENTS..............................................F-1

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

iii

PROSPECTUS SUMMARY

This summary highlights information found in greater detail elsewhere in
this prospectus and may not contain all information important to you. In
addition to this summary, we urge you to read the entire prospectus carefully,
especially the "Risk Factors" and our financial statements and accompanying
notes appearing elsewhere in this prospectus.

IN THIS PROSPECTUS, THE TERMS "THE PARTNERSHIP," "OUR PARTNERSHIP," "WE,"
"US," AND "OUR" REFER TO FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP, A
DELAWARE LIMITED PARTNERSHIP. THE TERM "YOU" AND "YOUR" REFER TO A HOLDER OF
UNITS AS OF SEPTEMBER 30, 2001 (THE "RECORD DATE").

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

We were formed on August 23, 1989 to acquire and operate 50 Fairfield Inn
by Marriott properties ("inns") in 16 states, which compete in the economy
segment of the lodging industry. We lease the land underlying 32 of our inns
from Marriott International, Inc. ("Marriott International") and some of its
affiliates. Our executive offices are located at 7 Bulfinch Place, Boston, MA
02114. The telephone number of our general partner is (617) 570-4600.

RECENT DEVELOPMENTS

As of August 16, 2001, holders of a majority of the units consented to the
amendment of our partnership agreement as part of a restructuring plan. As part
of the plan, on that date AP-Fairfield GP, LLC, a Delaware limited liability
company, replaced our old general partner, FIBM One LLC.

Upon the closing of this offering, our general partner will implement each
of the following additional steps of the restructuring plan:

o retain Sage Management Resources III, LLC ("Sage") as the new manager
for our inns. Sage has extensive experience in managing limited service
hotels similar to our inns (see "Business - New Manager for our Inns"
and "- New Management Agreements");

o execute a new franchise agreement with Marriott International for each
inn (see "Business - New Franchise Agreements"); and

o amend the ground leases underlying 32 of our inns (see "Business -
Ground Lease Modifications").

THE OFFERING

Notes Offered....................... Subordinated Notes due 2007 in the
aggregate principal amount of
$23,000,000.

Subscription........................ We will distribute to each limited
partner of record as of September 30,
2001, a non-transferable subscription
form to purchase

notes in the principal amount of $275 for
each unit owned.

No Over-Subscription Right.......... You will not be entitled to subscribe for
notes not purchased by other limited
partners.

Subscription Commitment............. An affiliate of our general partner has
agreed to purchase all notes not
purchased by limited partners in this
offering. No fee will be paid to the
affiliate for its agreement.

Subscription Price.................. 100% of the principal amount of the
notes.

Expiration Date..................... November 20, 2001, at 5:00 p.m., New York
City time.

Procedure for Subscription.......... You must complete and return the
subscription form accompanying this
prospectus, together with payment for the
notes for which you subscribe.

Termination of Offering............. The general partner intends to use
reasonable efforts to negotiate the new
management agreement, franchise agreement
and ground lease modification agreement,
discussed under "Business", to
incorporate the terms described in that
section and such other terms which may be
satisfactory to it so as to implement
this offering. The general partner may
not be successful in these negotiations.
Furthermore, other factors affecting
economic conditions, including the
destruction of the World Trade Center on
September 11, 2001, may prevent the
implementation of these agreements and
this offering. In such event, we may
terminate this Offering and return to
the limited partners the payments sent
by them to us to subscribe for the notes.

Use of Proceeds..................... We anticipate using the net proceeds from
this offering for capital expenditures
and working capital.

Maturity Date....................... December 1, 2007; the maturity date may
be extended at our request with the
consent of the holders of at least a
majority of the aggregate principal
amount of the outstanding notes.

Interest ........................... The initial interest rate will be 16.5%
per annum. Such rate shall increase by 1%
per annum on each January 1, commencing
on January 1, 2003, if the notes are
outstanding on each such date. Interest
on the notes is payable on the first day
of each month, commencing on January 1,
2002. If an interest payment is not made
when due as a result of the subordination
agreement discussed under "Risks of the
Offering" below, the interest shall
accrue, be compounded monthly and shall
be due on the next interest payment date,
subject to further deferral as a result
of the subordination agreement.

Principal........................... The principal amount of the notes shall
be due on the maturity date; provided,
however that our partnership shall be
required to prepay the principal amount,
pro rata, from funds otherwise
distributable to the partners under

our partnership agreement. The notes may
be prepaid at any time without penalty or
premium.

Exit Fee ........................... Upon payment in full of the principal
amount of the notes and accrued and
unpaid interest thereon, an additional
payment will be made to each holder of
notes of his pro rata share of an amount
equal to the product of (a) the greater
of (i) $23,000,000 and (ii) the principal
and accrued and unpaid interest
outstanding at the time of such payment,
and (b) the difference between (i) the
interest rate on the notes when they are
paid in full and (ii) the lesser of 30
day LIBOR and the 5 year United States
treasury rate on the date of such
payment, multiplied by the years or
portion thereof that the principal amount
has been outstanding.

Subordination ...................... Principal and interest payments on the
notes may be made only out of cash
available to our partnership after the
payment of ground rent, operating
expenses, franchise fees, management
fees, mortgage debt service, and the
funding of capital expenditures and
reserves.

Security ........................... The notes are unsecured. However, if the
notes are not paid in full on or before
the maturity date, our partnership shall,
at the request of the holders of a
majority in outstanding principal amount
of the notes, grant to the holders of all
of the notes, a security interest in all
of our inns, accounts receivable, cash
accounts and certain other assets of our
partnership. Such security interest shall
be subordinate to our mortgage debt
outstanding at the time.

Form of Notes....................... The notes will be evidenced by a
registered note payable to the order of
and delivered to each subscriber.

Events of Default................... The following will be events of default
for the notes:

o we fail to pay the outstanding
principal of the notes on the
maturity date;

o we fail to pay accrued and unpaid
interest on the notes when cash is
available for such payment (see
"Subordination" above) and the
failure continues for 30 days;

o we fail to pay accrued and unpaid
interest on the notes on the maturity
date; and

o events of bankruptcy, insolvency or
reorganization with respect to us.

SUMMARY FINANCIAL DATA

You should read the following financial data in conjunction with, and is
qualified by reference to, our financial statements and accompanying notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.

The following table presents selected historical financial data for each of
the five years in the period ended December 31, 2000 and the twenty-four week
periods ended June 15, 2001 and June 16, 2000. This data has been derived from
our audited financial statements for each of the five years in the period ended
December 31, 2000 and from our unaudited historical financial data for the
twenty-four week periods ended June 15, 2001 and June 16, 2000.

Summary Financial Data
(in thousands, except per unit amounts)

Twenty-four Weeks
Ended Fiscal Year
----------------------- -------------------------------------------------------------------------
June 15, June 16,
2001 2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
(unaudited)

Income Statement Data:
----------------------
Revenues .................... $ 39,711 $ 42,040 $ 91,478 $ 93,084 $ 94,370 $ 95,721 $ 97,441
Operating profit
(loss) ................... 1,658 1,493 (2,848) 3,885 (522) 11,963 17,316
Net income (loss) ........... (3,810) (4,096) 8,709(a)(b) (8,552)(b) (12,999)(b) (1,411) 1,420
Net income (loss) per limited
partner unit
(83,337 units) ............ (45) (49) 103 (102) (154) (17) 17
Balance Sheet Data:
-------------------
Total assets ................ $ 142,968 $ 158,299 $ 147,082 $ 163,574 $ 173,064 $ 185,503 $ 184,992
Total liabilities ........... 160,107 184,434 160,411 185,612 186,550 185,990 183,226

-------------------------------
(a) Net income in fiscal year 2000 included the recognition of an
extraordinary gain on the forgiveness of incentive management fees of
$23.5 million.

(b) Net income (loss) in fiscal years 2000, 1999 and 1998 included the
recognition of impairment charges on the partnership's inns of $8.1
million, $2.8 million and $9.5 million, respectively.

RISK FACTORS

You should carefully consider the following risk factors and all other
information contained in this prospectus before subscribing.

RISKS RELATED TO OUR BUSINESS

DECLINING OPERATIONS; CAPITAL SHORTFALL

Our inns have experienced a substantial decline in operating results over
the past several years. Since 1996, our annual revenues have declined each year,
from $97.4 million in 1996 to $91.5 million in 2000. Our operating profit has
declined over the same period from a $17.3 million operating profit in 1996 to a
$2.8 million operating loss in 2000. This trend has continued into the first and
second quarters of 2001. Rooms revenues for the second quarter 2001 were down
over $1.6 million or approximately 7% from the prior year quarter, and
year-to-date, rooms revenues decreased by $2.6 million, or 6% from the same
period in the prior year. Operating profit was down $94,000 from the prior year
quarter. Year-to-date operating profit is up due to other revenues of $656,000
in the first quarter of 2001. The other revenues represent a reimbursement of
funds previously paid by the partnership to On Command Video to provide for
television equipment maintenance. On Command Video determined that the equipment
maintenance was no longer necessary and the funds were subsequently reimbursed
to the partnership during the first quarter of 2001. We do not expect that
operations will improve during the remainder of the year and therefore believe
that we will see declines in both revenue and operating profit. The decline in
inn operations is primarily due to increased competition, over-supply of limited
service hotels in the markets where our inns operate, the deferral of capital
improvements needed to make our inns more competitive, and a slowdown in the
economy resulting in a softness in the lodging industry as a whole. The current
estimated debt service shortfall before ground rent deferrals is approximately
$3 to $4 million for 2001. The shortfall has been funded from partnership cash,
amounts in various debt service reserves and, as permitted under our ground
lease agreements, deferral of a portion of the ground rent. Forecasts provided
by our current manager indicate that our operating cash flow will be
insufficient to cover debt service during the balance of 2001. We estimate that
the total amount of ground rent that we will defer for 2001 is approximately
$1.2 million. However, our ground lessors have agreed to cancel our obligation
to pay the deferred ground rent for all of 2000 and 2001 effective on the
closing of this offering. We believe there is sufficient cash to fund the debt
service shortfall for 2001 by the deferral of ground rent and the use of
partnership cash and amounts in certain debt service reserves. We currently
estimate that the net decrease in partnership cash accounts and debt service
reserves will be approximately $1 to $2 million in 2001.

In light of the age of our inns, which range in age from 11 to 14 years,
major capital expenditures will be required over the next several years to
remain competitive in the markets where we operate and to satisfy brand
standards. These capital expenditures include room refurbishments planned for 22
of our inns over the next several years and the replacement of roofs and
facades. The capital expenditure needs for the next two years for our inns are
estimated to total approximately $33 million.

These expenditures will exceed our available funds. Based upon information
provided by our current manager, the estimated capital shortfall in funds
available for capital improvements is expected to be between $15 million to $20
million. We believe that the shortfall should be covered by the (a) proceeds
from the sale of the notes, (b) cash flow savings from the reduction of ground
rent described in "Business - "Ground Lease Modifications" and (c) funds drawn
from our contribution of 7% of each inn's gross monthly revenues into an escrow
account over the next 18 months described in "Business-New Franchise
Agreements". However, there can be no assurance that the entire shortfall will
be covered, if at all. If we need additional capital, there are no assurances
that we can obtain capital on favorable terms to us, if at all. Moreover, we
cannot ensure you that such additional funds will maintain or increase our
revenues and operating results.

For further discussion of our results of operations, shortfall of capital,
and liquidity situation, as well as efforts being undertaken to address these
problems, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

WE ARE SUBJECT TO NUMEROUS CONDITIONS AFFECTING THE HOTEL INDUSTRY.

Our revenues and the value of our inns are subject to conditions affecting
the hotel industry. These include:

o changes in the national, regional and local economic climate;

o local conditions such as an oversupply of hotel properties or a
reduction in demand for hotel properties;

o the attractiveness of our inns to consumers and competition from
comparable hotels;

o changes in travel patterns;

o changes in room rates and increases in operating costs due to inflation
and other factors; and

o the need periodically to repair and renovate our inns.

Adverse changes in these conditions could adversely affect our financial
performance and our ability to service the notes. In addition, the hotel
industry is highly competitive. Our inns compete with other hotel properties in
their geographical markets, and some of our competitors may have substantially
greater marketing and financial resources than we do.

OUR EXPENSES MAY REMAIN CONSTANT EVEN IF REVENUE DROPS.

If our inns do not generate sufficient income to pay our expenses, service
our debt and maintain our inns, we will be unable to make interest payments on
the notes. The expenses of owning an inn are not necessarily reduced when
circumstances, such as market factors and competition, cause a reduction in
income from the inn. If an inn is mortgaged or leased and we are unable to meet
the mortgage or lease payments, the lender could foreclose and take the inn or
the landlord could terminate the lease on the inn. In addition, interest rate
levels, the availability of financing, the cost of compliance with government
regulation, including tax laws, and changes

in laws and governmental regulations, including those governing usage, zoning
and taxes, could adversely affect our financial condition and ability to service
our debt, including the notes.

WE MAY BE UNABLE TO SELL OUR INNS WHEN NECESSARY BECAUSE THEY ARE ILLIQUID.

The sale of our inns is subject to a collateral substitution obligation in
our mortgage debt and the inns generally cannot be sold quickly. However, upon
the closing of this offering, we will obtain a waiver of this provision to allow
proceeds from the sale of certain inns to reduce the outstanding mortgage debt.
We may not be able to sell the inns promptly in response to economic or other
conditions. Our inability to sell the inns could adversely affect our financial
condition and ability to service our debt, including the notes.

WE ARE DEPENDENT ON MARRIOTT INTERNATIONAL.

Our inns will be franchised under the Fairfield Inn by Marriott brand and
our potential desire, from time-to-time, to refinance or sell any of our inns
may result in a need to obtain the consent of Marriott International. Any such
consent may not be acceptable to Marriott International, and the lack of consent
from Marriott International could adversely affect our ability to consummate
such refinancing or sale. In addition, as a franchisee of Marriott
International, we will be dependent on, among other things, its ability to
continue to develop national brand loyalty and marketing programs that
effectively market the Fairfield Inn by Marriott brand.

THE HOTEL INDUSTRY IS SEASONAL IN NATURE.

The hotel industry is seasonal in nature; however, the periods during which
our inns experience higher hotel revenue vary from property to property and
depend principally upon location. The seasonal nature of our industry affects
our cash flow, and if we do not effectively manage our cash flow, it may affect
our ability to service our debt.

THE HOTEL BUSINESS IS CAPITAL INTENSIVE.

In order for our inns to remain attractive and competitive, we have to
spend money periodically to keep them well maintained, modernized and
refurbished. This creates an ongoing need for cash and, to the extent
expenditures cannot be funded from cash generated by our operations, we may be
required to borrow or otherwise obtain these funds. Accordingly, our financial
results may be sensitive to the cost and availability of funds. We may not be
able to obtain additional capital, if necessary, to maintain our inns which
could have materially adverse effects on our financial condition and operating
results.

WE MAY BE ADVERSELY AFFECTED BY THE LIMITATIONS IN OUR NEW FRANCHISE AGREEMENTS
AND POSSIBLE ADDITIONAL CAPITAL EXPENDITURES ASSOCIATED WITH FRANCHISING.

Our inns will be operated pursuant to new franchise agreements with
Marriott International, a nationally recognized hotel brand. The franchise
agreements contain specific standards for, and restrictions and limitations on,
the operation and maintenance of an inn in order to maintain uniformity within
the Marriott International system. Standards are often subject to change over
time, and may restrict our ability to make improvements or modifications

to an inn without the consent of Marriott International. In addition, compliance
with standards could require us to incur significant expenses or capital
expenditures.

Loss of the franchise agreements without a replacement would likely have an
adverse effect on our inn revenues. Moreover, the loss of a franchise could have
a material adverse effect upon the operations or the underlying value of the
inns covered by the franchise agreements because of the loss of associated name
recognition, marketing support and centralized reservation systems provided by
Marriott International.

RISKS OF THE NOTES AND THIS OFFERING

THE NOTES ARE SUBORDINATED TO THE MORTGAGE DEBT AND GROUND LEASES OF OUR
PARTNERSHIP.

The notes will be subordinated in right of payment to our mortgage
indebtedness of approximately $151.3 million as of June 15, 2001, to our
obligations to pay ground rent and to certain other obligations described below.
Under the terms of the subordination agreement and loan agreement with our
mortgage lender, so long as the mortgage debt is outstanding, until January 11,
2007, principal and interest on the notes may be paid from our funds after gross
revenues have been applied as follows:

o first, to fund a ground rent reserve account until the amount therein
equals one month's anticipated ground rent;

o second, to fund certain tax and insurance escrows;

o third, to fund a debt service reserve account until the amount in the
account equals three times the monthly debt service payment on our mortgage
debt;

o fourth, to fund a capital expenditure and FF&E reserve account until the
amount therein equals 7% (or such greater percentage as may be required
under the new management agreements) of gross revenues;

o fifth, to pay all fees due under the franchise agreements;

o sixth, to fund an operating reserve account used to pay anticipated
operating expenses;

o seventh, to pay ground rent;

o eighth, to pay to the ground lessors quarterly option payments of $187,500
each;

o ninth, to pay the monthly debt service and any other debt owed on our
mortgage debt; and

o tenth, to fund an earthquake restoration reserve account until the amount
therein is a maximum of $300,000.

As of September 20, 2001, all of the reserve and escrow accounts described
above were funded in full.

After January 11, 2007, our gross revenues are applied for the purposes set
forth in items first through eighth above, and then:

o ninth, to pay the cost of major repairs, alterations, improvements,
renewals or replacements to our inns that are required by reason of any
law, subject to certain limitations;

o tenth, to remit to us the lesser of (x) the aggregate amount of payments
for, or reserves created for the payment of, our administrative expenses
not previously remitted to us and (y) $450,000 for the year ended December
31, 1997, increased by a cost of living index for each year thereafter;

o eleventh, if an earthquake has occurred and the earthquake restoration cost
of the applicable inn is less than 50% of the release price for the inn
contained in the loan agreement, at our direction (i) to fund the
earthquake restoration reserve account in the amount of such earthquake
restoration cost (which we may be use to restore the applicable property)
or (ii) to apply such amount in accordance with the provisions of the
applicable mortgage with respect to casualty;

o twelfth, to pay to the ground lessors quarterly payments of $187,500 for
our option to purchase the land underlying certain of our inns; and

o thirteenth, (i) first, to prepay the outstanding principal amount of the
mortgage debt, and (ii) next, to pay all accrued and unpaid interest on the
mortgage debt; provided, however, that the mortgage lender, in the exercise
of its sole discretion, may elect to apply any funds payable to it to fund
any shortfall in the earthquake restoration reserve account.

Accordingly, after January 11, 2007, so long as the mortgage debt is
outstanding, no gross revenues of our partnership can be used to pay amounts due
on the notes.

LEVERAGE AND DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT OUR CASH FLOW.

Because of the mortgage debt outstanding, we may be unable to generate cash
sufficient to pay the principal of and interest on the notes when due.

Our substantial leverage could have significant negative consequences,
including:

o increasing our vulnerability to general adverse economic and industry
conditions;

o requiring the dedication of a substantial portion of our expected cash
flow from operations to service our mortgage debt, thereby reducing the
amount of our expected cash flow available for other purposes,
including capital expenditures; and

o limiting our flexibility in planning for, or reacting to, changes in
our business and the industry in which we compete.

WE MAY BE UNABLE TO REPAY THE NOTES.

On the maturity date, the entire outstanding principal amount of the notes
and accrued and unpaid interest will become due and payable. On the maturity
date, we may not have

sufficient funds or may be unable to arrange to refinance our mortgage debt to
pay the principal and interest amount due. In such event, we will be unable to
repay the notes. Furthermore, any future borrowing arrangements to which we
become a party may contain restrictions on, or prohibitions against, our
repayment of the notes.

THE NOTES MAY CREATE CONFLICTS OF INTEREST BETWEEN OUR GENERAL PARTNER AND YOU.

Since it is likely that an affiliate of our general partner will purchase
notes, certain decisions concerning our operations or financial structure may
present conflicts of interest between our general partner and you, other than in
your capacity as purchasers of the notes.

YOU MAY BE ALLOCATED ADDITIONAL TAXABLE INCOME BY OUR PARTNERSHIP IF YOU DO NOT
PURCHASE NOTES.

Upon the closing of this offering, if the notes are respected as
indebtedness of our partnership for federal income tax purposes, it is likely
that, over time, depreciation deductions (in a maximum aggregate amount equal to
the principal amount of the notes) and deductions attributable to accrued and
unpaid interest on the notes that would otherwise be allocable to all holders
will be allocated solely to holders who subscribe for notes. Because our
partnership's operating income will continue to be allocated to holders as
provided under the partnership agreement, the decrease in depreciation and
interest deductions allocated to holders who do not subscribe for notes would
cause a corresponding increase in their taxable income from our partnership. It
is impossible to predict with certainty when, or to what extent, this increase
in taxable income will occur. As the notes are repaid, holders who purchase
notes will be allocated income and gain by our partnership that will offset the
depreciation and accrued interest deductions allocated to them in previous years
on account of the notes (and, accordingly, the taxable income of holders who do
not purchase notes will decrease at that time as a result of such allocations).

YOU COULD SUFFER ADVERSE CONSEQUENCES IF THE NOTES ARE NOT RESPECTED AS
INDEBTEDNESS FOR FEDERAL INCOME TAX PURPOSES.

If the notes are not respected as indebtedness of our partnership for
federal income tax purposes, then holders who do not subscribe for notes could
suffer adverse tax consequences. The nature and extent of any such adverse tax
consequences could depend to some extent upon the circumstances of the
individual holder. Whether the notes will be respected as indebtedness for
federal income tax purposes ultimately will depend on a number of factors,
including a finding that our partnership has retained the burdens and benefits
of ownership of the inns. No legal opinion will be provided to our partnership
concerning this issue.

YOUR TAX LIABILITY MAY EXCEED THE CASH PAYMENTS MADE TO YOU IN VARIOUS YEARS.

Under federal income tax law, if you purchase notes, you generally will be
required to report and pay tax on interest as accrued on the notes. If our
partnership is unable to pay interest in full as accrued on the notes, or is
unable to repay the notes at maturity, then you will likely be required to
report interest income for the applicable year in excess of the cash payments
actually made to you during the year. In that event, your resulting tax
liability with respect to such interest income could exceed the cash payments
made to you on the notes in such year(s)

(although the amount of our partnership's taxable income allocable to you should
be reduced by deductions for interest accruing on the notes).

A TRADING MARKET FOR THE NOTES MAY NOT DEVELOP.

The notes are a new issue of securities for which there is currently no
active trading market. We do not intend to apply for listing of the notes on any
securities exchange. If the notes are traded after their initial issuance, they
may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, the financial
condition and the prospects of our partnership and other factors beyond our
control, including general economic conditions. Since we do not intend to
develop a trading market, such trading market is unlikely to develop and you may
not be able to sell the notes.

RISKS RELATED TO THE PARTNERSHIP

WE WILL RELY ON OUR NEW MANAGER FOR THE OPERATION OF OUR INNS.

Under the new management agreements, Sage will be given the exclusive
authority to manage and operate the day to day operations of our inns. Also, it
will be required to devote only such time as is reasonably needed to the
operations of our inns. Therefore, our success will depend, in part, upon the
ability of Sage, as manager, or the ability of any future manager, as well as
upon the ability of our general partner to manage our partnership and our
manager.

IMPLEMENTATION OF THE RESTRUCTURING PLAN MAY NOT REVERSE OUR DECLINE IN
OPERATING RESULTS.

The restructuring plan is intended to address our continued decline in
operating results which, among other things, has resulted in debt service and
capital expenditure shortfalls. There can be no assurance, however, that the
implementation of the actions contemplated by the restructuring plan will be
successful in reversing the decline in our operating results or, if successful,
will be sufficient to remedy our debt service and capital expenditure
shortfalls.

THE AGE OF OUR INNS SUGGEST THAT FURTHER CAPITAL WILL BE REQUIRED IN THE FUTURE.

Significant capital expenditures are currently required in order for our
inns to remain competitive and to satisfy brand standards that will be required
by the new management agreements with Sage. The age and physical condition of
our inns, which range in age from 11 to 14 years, make it likely that further
and, perhaps more substantial, capital expenditures will be required in the
future. There can be no assurance that the proceeds from the notes and, given
current operating levels, cash from operations in the future will be sufficient
to fund these expenditures.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this prospectus contains
forward-looking statements within the meaning of the federal securities law.
Forward-looking statements include information relating to our intent, belief or
current expectations, primarily, but not exclusively, with respect to:

o economic outlook;

o capital expenditures;

o cost reductions;

o cash flow;

o operating performance;

o financing activities;

o our tax status; or

o related industry developments, including trends affecting our business,
financial condition and results of operations.

We intend to identify forward-looking statements in this prospectus 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).

The forward-looking information involves important risks and uncertainties
that could cause our actual results, performance or achievements to differ
materially from our anticipated results, performance or achievements expressed
or implied by such forward-looking statements. These risks and uncertainties
include, but are not limited to:

o our inability to meet our debt service obligations out of operating
cash flow and the need to use our reserves to fund seasonal shortfalls
in funds available for debt service;

o the exhaustion of our reserves and the requirement to replenish them
from future excess cash flow, if any;

o our limited cash reserves and inability to raise additional capital;

o the continued impact of new supply in the markets our inns are located;

o the need for capital expenditures to make our properties competitive
and satisfy standards for comparable lodging facilities;

o national and local economic and business conditions that will affect,
among other things, demand for products and services at our inns, the
level of room rates and occupancy that can be achieved by our inns, the
availability and terms of financing, and the level of development of
competing lodging facilities;

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

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

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

o other factors discussed - See "Risk Factors - Risks Related to Our
Business - Declining Operations; Capital Shortfall" and "Liquidity and
Capital Resources" in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Although we believe the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, we cannot assure you that such
expectations will be attained or that any deviations will not be material. We
disclaim any obligation or undertaking to disseminate to you any updates or
revisions to any forward-looking statement contained in this prospectus to
reflect any change in our expectations or any changes in events, conditions or
circumstances on which any statement is based.

USE OF PROCEEDS

We estimate that the net proceeds from the sale of the notes will be
approximately $_______ million, after deducting the estimated offering expenses
payable by us. We intend to use the proceeds of this offering to make capital
improvements to our inns and furnish working capital to our partnership.

DISTRIBUTIONS

We have not made any distributions to limited partners in the last 3 years.
Our ability to make any additional cash distributions to limited partners is
subject to the limitations of the partnership agreement. Our former general
partner determined that it is appropriate for our partnership to distribute to
limited partners $25 per unit (approximately $2.1 million). We shall make such
distribution as soon as our cash flow permits such distribution to be made. We
do not anticipate making any other cash distributions in the foreseeable future.

SELECTED FINANCIAL DATA

The following table provides you with selected historical financial data
derived from our audited financial statements as of December 31, 2000, 1999,
1998, 1997 and 1996 and for each of the five years in the period ended December
31, 2000 and our unaudited interim financial statements as of and for the
twenty-four week periods ended June 15, 2001 and June 16, 2000. Such summary
information may not be indicative of our future performance. In our opinion, all
adjustments, which are normal and recurring in nature, considered necessary for
a fair presentation have been included in our summary interim financial data.
The results of operations for the periods ended June 15, 2001 and June 16, 2000
are not necessarily indicative of the results to be expected for the entire
fiscal year or any other interim period. The summary financial information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Risk Factors" and our financial
statements, and the accompanying notes thereto, included elsewhere in this
prospectus.

Selected Financial Data
(in thousands, except per unit amounts and ratio data)

Twenty-Four Weeks
Ended Fiscal Year
------------------------ ---------------------------------------------------------------------
June 15, June 16,
2001 2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
(unaudited)

Balance Sheet Data:
-------------------
Total assets ................ $ 142,968 $ 158,299 $ 147,082 $ 163,574 $ 173,064 $ 185,503 $ 184,992
Total liabilities ........... 160,107 184,434 160,411 185,612 186,550 185,990 183,226

Other Data (Unaudited):
-----------------------
Cash distributions per
limited partner unit
(83,337 Units) ......... -- -- -- -- -- 10 100
Ratio of earnings to
fixed charges ............ -- -- -- -- -- -- 1.1x
Deficiency of earnings
to fixed charges ......... $ 3,810(b) $ 4,096(b) $ 14,774(b) $ 8,552(b) $ 12,999(b) $ 1,411(b) --

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

(a) Net income in fiscal year 2000 included the recognition of an
extraordinary gain on the forgiveness of incentive management fees of
$23.5 million.

(b) The ratio of earnings to fixed charges is computed by dividing income
(loss) from continuing operations before interest expense and other
fixed charges by total fixed charges, including interest expense,

amortization of debt issuance costs and the portion of rent expense
that is deemed to represent interest. The deficiency of earnings to
fixed charges is largely the result of depreciation of $5,423, $6,807,
$13,463, $14,413, $14,990 and $14,107 during the twenty-four weeks
ended June 15, 2001 and June 16, 2000 and the fiscal years ended
December 31, 2000, 1999, 1998 and 1997, respectively. The deficiency of
earnings to fixed charges was also impacted by the partnership's
recording impairment charges on the inns of $8,127, $2,843 and $9,497
during the years ended December 31, 2000, 1999 and 1998, respectively.

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table sets forth certain unaudited quarterly financial data
for each of the quarters in the years ended December 31, 2000 and 1999, and for
the first two quarters of 2001. This quarterly information has been derived from
and should be read in conjunction with our financial statements and the notes
thereto, and, in management's opinion, reflects all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of the
information. Operating results for any quarter are not necessarily indicative of
results for any future period.

QUARTERLY FINANCIAL DATA
(unaudited)
(in thousands, except per unit amounts)

1st 2nd 3rd 4th
FISCAL YEAR 2001: Quarter Quarter Quarter Quarter Full Year
-----------------------------------------------------------

Revenues $ 18,785 $ 20,926 $ 39,711
Operating profit (loss) 368 1,290 1,658
Net income (loss) (2,394) (1,416) (3,810)
Net income (loss) per
Limited Partner Unit (28) (17) (45)

FISCAL YEAR 2000:
Revenues $ 19,413 $ 22,627 $ 24,252 $ 25,186 $ 91,478
Operating profit (loss) 109 1,384 2,886 (7,227)(a) (2,848)
Net income (loss) (2,728) (1,368) 175 12,630 (a) 8,709
Net income (loss) per
Limited Partner Unit (33) (16) 2 150 103

FISCAL YEAR 1999:
Revenues $ 20,462 $ 23,099 $ 24,298 $ 25,225 $ 93,084
Operating profit (loss) 947 2,813 3,280 (3,155)(b) 3,885
Net income (loss) (2,057) (77) 448 (6,866)(b) (8,552)
Net income (loss) per
Limited Partner Unit (24) (1) 5 (82) (102)

----------
(a) Operating loss and net income include recognition of a loss on impairment
of assets of $8.1 million. Net income includes recognition of an
extraordinary gain on the forgiveness of incentive management fees of $23.5
million.

(b) Operating loss and net loss include the recognition of a loss on impairment
of assets of $2.8 million.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following "Management's Discussion and Analysis of Financial Condition
and Results of Operations" should be read in conjunction with "Selected
Financial Data" and our financial statements, and accompanying notes, included
elsewhere in this prospectus. Our discussion contains forward-looking statements
based upon current expectations that involve risks and uncertainties, such as
statements of our plans, objectives and intentions. Our actual results may
differ materially from those indicated in these forward-looking statements. See
"Note Regarding Forward-Looking Statements." Factors that could cause or
contribute to these differences include but are not limited to those discussed
in "Risk Factors" and elsewhere in this prospectus.

GENERAL

During the period from 1998 through 2000, our revenues declined from $94.4
million to $91.5 million. Our revenues are primarily generated from room
revenues per available room or "RevPAR." RevPAR represents the combination of
the average daily room rate charged and the average daily occupancy achieved and
is a commonly used indicator of hotel performance. During the period from 1998
through 2000, our combined RevPAR decreased approximately 3% from $37.79 to
$36.76. For the twenty-four week period ended June 15, 2001, combined RevPAR
further decreased to $34.15.

Our operating costs and expenses are, to a great extent, fixed. Therefore,
we derive substantial operating leverage from increases in revenue. Operating
leverage is offset primarily by certain variable expenses, including base and
incentive management fees which are calculated based on inn sales.

The table below presents performance information for our inns for the
indicated periods:

Twenty-four Weeks
Ended Year Ended December 31
---------------------- ------------------------------------
June 15, June 16,
2001 2000 2000 1999 1998
------- ------- ------- ------- -------

Number of inns ........ 50 50 50 50 50

Number of rooms ....... 6,676 6,676 6,676 6,676 6,676

Average daily rate .... $ 54.47 $ 52.64 $ 54.06 $ 52.35 $ 51.28

Occupancy ............. 62.7% 69.3% 68.0% 71.1% 73.7%

RevPAR ................ $ 34.15 $ 36.48 $ 36.76 $ 37.22 $ 37.79

% RevPAR change ....... (6.4%) -- (1.2%) (1.5%) --

RESULTS OF OPERATIONS

The following discussion and analysis addresses results of operations for
the three years ended December 31, 2000, and the second quarters and second
quarters year-to-date ended June 15, 2001 and June 16, 2000, and should be read
together with the "Selected Financial Data" and our historical financial
statements, and accompanying notes, included elsewhere in this prospectus.

2000 compared to 1999

Rooms Revenues. Rooms revenues decreased $1.4 million, or approximately
1.5%, to $89.3 million in 2000 from $90.7 million in 1999, reflecting a 3.1
percentage point decrease in average occupancy to 68.0% partially offset by the
$1.71 increase in average rate to $54.06. The decrease in average occupancy was
primarily the result of increased competition in the economy segment. In 2000,
total inn revenues decreased $1.6 million, or 1.7%, to $91.5 million when
compared to 1999.

Operating Expense. Operating expenses increased $5.1 million, or 5.7%, to
$94.3 million when compared to 1999. The individual components are discussed
below.

Rooms Costs. In 2000, room costs decreased $0.6 million, or 2.1%, to $27.9
million when compared to 1999. The overall decrease in controllable room costs
is a result of the occupancy decreases at our inns. These decreases were
partially offset by an increase in the reservation costs due to the
implementation of Marriott International's Guestview reservation system in 2000.

Selling, Administrative and Other Expenses. Selling, administrative and
other expenses increased by $0.8 million in 2000 to $27.7 million, or a 3.0%
increase when compared to 1999. The increase in expenses was due to an increase
in labor costs, repairs and maintenance expenses.

Loss on Impairment of Long-Lived Assets. In 2000, we recorded an impairment
of long-lived assets of $8.1 million related to our inns located in Johnson
City, Tennessee, Raleigh and Charlotte Airport, North Carolina, and Columbus
North, Ohio. We recorded an impairment charge of $2.8 million in 1999 related to
our inns located in Lansing, Illinois and Charlotte- Northeast, North Carolina.

Operating Profit (Loss). As a result of the changes in revenues and
operating expenses discussed above, operating profit decreased by $6.7 million
resulting in an operating loss of $2.8 million for 2000, when compared to an
operating profit of $3.9 million in 1999.

Interest Expense. Interest expense decreased by $0.3 million to $13.2
million in 2000 when compared to 1999. This decrease is due to the payment of
$4.3 million of principal on the mortgage debt.

Loss Before Extraordinary Item. We generated a loss before extraordinary
item of $14.8 million in 2000 compared to a loss of $8.6 million in 1999. This
increased loss is primarily due to the decrease in revenues coupled with the
increase in operating expenses discussed above.

Extraordinary Gain. In connection with the class action litigation
settlement agreement that became effective in 2000, Fairfield FMC Corporation,
the current manager of our inns, waived $23.5 million of deferred incentive
management fees.

Net Income (Loss). Net income for 2000 was $8.7 million compared to a net
loss of $8.6 million for 1999. The increase is primarily due to the $23.5
million of deferred management fees waived in 2000 offset by slightly lower
revenues and increases in operating expenses.

1999 compared to 1998

Rooms Revenues. Rooms revenues decreased $0.8 million, or approximately
1.0%, to $90.7 million in 1999 from $91.5 million in 1998 reflecting the 2.6
percentage point decrease in average occupancy to 71.1% partially offset by the
slight increase in average rate to $52.35. The decrease in average occupancy was
primarily the result of increased competition in the economy segment. In 1999,
inn revenues decreased $1.3 million, or 1.4%, to $93.1 million when compared to
1998.

Operating Expenses. Operating expenses decreased $5.7 million, or 6.0%, to
$89.2 million when compared to 1998. The individual components are discussed
below.

Rooms Costs. In 1999, rooms costs increased $1.3 million, or 4.8%, to $28.5
million when compared to 1998. The overall increase in room costs is due to an
increase in salary and benefits.

Selling, Administrative and Other Expenses. Selling, administrative and
other expenses increased by $1.0 million in 1999 to $26.9 million, or a 3.9%
increase when compared to 1998. The increase in expenses was due to an increase
in labor costs, repairs and maintenance expenses and chain services.

Incentive Management Fees. Incentive management fees decreased $0.8 million
in 1999 when compared to 1998 due to the addition of $2.4 million to the
property improvement fund in 1999 by us to cover capital expenditures that
exceeded the amount in the property improvement fund. This amount was treated as
a deduction in calculating incentive management fees in 1999 under the terms of
the current management agreement.

Loss on Impairment of Long-Lived Assets. We recorded an impairment of
long-lived assets of $2.8 million in 1999 related to our inns in Lansing,
Illinois and Charlotte-Northeast, North Carolina and $9.5 million in 1998
related to our inns in Buena Park, California; Atlanta Airport, Georgia;
Montgomery, Alabama; and Orlando South, Florida.

Operating Profit (Loss). As a result of the changes in revenues and
operating expenses discussed above, our operating loss in 1998 of $0.5 million
increased to an operating profit of $3.9 million in 1999.

Interest Expense. Interest expense decreased $0.3 million to $13.5 million
in 1999 when compared to 1998. This decrease is due to the payment of principal
on the mortgage debt.

Net Loss. We generated a net loss of $8.6 million in 1999 compared to a net
loss of $13.0 million in 1998. This decrease is primarily due to the loss
associated with an impairment of long-lived assets of approximately $9.5 million
in 1998 compared to $2.8 million in 1999 related to the inns discussed above
partially offset by the further decline in inn revenues in 1999.

Second Quarter and Year-to-Date 2001 compared to Second Quarter and Year-to-Date
2000

Rooms Revenues. Rooms revenues decreased $1.6 million, or approximately 7%
to $20.5 million for the second quarter of 2001 from $22.1 million for the same
period in 2000. Year-to-date, rooms revenue decreased $2.6 million, or
approximately 6%, to $38.3 million in 2001 from $40.9 million in 2000 reflecting
a 6.6 percentage point decrease in occupancy to 62.7%, partially offset by the
$1.83 increase in average room rate to $54.47. These changes in occupancy and
room rates caused a decrease in revenue per available room of 6.4% to $34.15.
The decrease in average occupancy was primarily the result of increased
competition in the economy segment, the deferral of capital improvements needed
to make our inns more competitive in their marketplace, and the slowdown in the
economy resulting in a softness in the lodging industry as a whole.

Total Revenues. Total revenues decreased $1.7 million, or approximately 7%,
to $20.9 million for the second quarter of 2001 from $22.6 million in the second
quarter of 2000. Year-to-date, total revenues decreased $2.3 million, or
approximately 6%, to $39.7 million in 2001 from $42.0 million for the same
period in 2000. The decrease is due to the decline in rooms revenues. This is
offset by other revenue of $656,000 that was recognized in the first quarter of
2001. The other revenues represent a reimbursement of funds previously paid by
our partnership to On Command Video to provide for television equipment
maintenance. The television program provider determined that the equipment
maintenance was no longer necessary and the funds were subsequently reimbursed
to our partnership during the first quarter of 2001.

Operating Expenses. Operating expenses declined during the second quarter
of 2001 by $1.6 million, or approximately 8%, to $19.6 million when compared to
$21.2 million for the second quarter of 2000. Year-to-date, operating expenses
decreased $2.4 million, or approximately 6%, to $38.1 million in 2001 from $40.5
million for the same period in 2000. The decline is due to a decline in
property-level expenses associated with the decline in occupancy, and a decrease
in depreciation expense of $1.4 million due to the decrease in the basis of
certain inns due to impairment charges recorded during 2000.

Operating Profit. Operating profit for the second quarter of 2001 decreased
by $94,000 to $1.3 million when compared to the second quarter of 2000.
Year-to-date, operating profit increased by $165,000 to $1.7 million from $1.5
million for the same period in 2000. The increase is due primarily to the
non-recurring reimbursement and the decrease in depreciation expense previously
discussed. Without these two items, year-to-date operating profit would have
decreased by approximately $1.9 million when compared to the same period in
2000. We expect to see continuing declines in revenues and operating profit
during the remainder of the year.

Interest Expense. Interest expense decreased $80,000 to $3.0 million in the
second quarter of 2001 when compared to the second quarter of 2000 and decreased
$265,000 to $5.9 million year-to-date. This decrease is due to the payment of
principal on the mortgage debt.

Net Loss. Our net loss increased $48,000 to $1.4 million in the second
quarter of 2001 as compared to the net loss in the second quarter of 2000.
Year-to-date, our net loss decreased $286,000 to $3.8 million when compared to
2000. This decrease is due primarily to the decrease in operations discussed
above partially offset by the increase in other revenues.

LIQUIDITY AND CAPITAL RESOURCES

Adequate liquidity and capital are critical to our ability to continue as a
going concern. We have experienced declining operations in each year since 1996.
As a result, cash flow from operations has declined from $19.4 million in 1997
to $10.5 million in 2000. This trend continued during the first and second
quarters of 2001, resulting in cash flows from operations for the twenty-four
weeks ended June 15, 2001 of $2.8 million. During these periods, we have faced
increasing needs to make capital improvements to our inns to enable them to
compete more effectively in their markets and to satisfy standards for the
Fairfield Inn by Marriott brand. Our general partner is attempting to address
the decline in operating cash flow and need for additional capital through
various avenues, such as raising proceeds in this offering. We believe that
there is sufficient liquidity, including the availability of cash reserves, to
fund operations and meet debt service for the current year. There can be no
assurance that we will be able to reverse the decline in operations or obtain
additional financing that may be required to meet operating needs in the future.

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, fund the property improvement fund and
maintain required reserves, pursuant to the terms of our mortgage debt.

Cash provided by operations was $10.5 million in 2000, $16.4 million in
1999 and $16.5 million in 1998. The decrease from 1999 to 2000 is primarily
attributable to the decline in property level operating results and a decrease
in the amount of restricted cash made available for investing and financing
activities. Through the twenty-four week periods ended June 15, 2001 and June
16, 2000, cash provided by operations was $2.8 million and $1.7 million,
respectively. The increase from 2000 to 2001 (for the comparable twenty-four
week periods) is primarily attributable to a decrease in the amount of cash used
to provide working capital for our partnership.

Cash used in investing activities was $8.3 million, $12.7 million and $10.5
million in 2000, 1999 and 1998, respectively. Through the twenty-four week
periods ended June 15, 2001 and June 16, 2000, cash used in investing activities
was $4.0 million and $4.1 million, respectively. Our cash investing activities
primarily consisted of contributions to the property improvement fund and
capital expenditures for improvements to our inns.

Cash used in financing activities was $4.6 million, $2.3 million and $4.8
million in 2000, 1999 and 1998, respectively. Cash used in financing activities
was $1.6 million and $1.9 million through the twenty-four week periods ended
June 15, 2001 and June 16, 2000, respectively. Our financing activities
consisted of repayment of the mortgage debt and changes to the restricted cash
reserves as required under the terms of the mortgage debt.

LIQUIDITY CONCERNS AND CAPITAL SHORTFALLS

Operating Income in 2001 May be Inadequate to Fund Debt Service.

Forecasts provided by our current manager indicate that our operating cash
flow is likely to be insufficient to cover mortgage debt service during 2001.
The current estimated shortfall before any ground rent deferrals is
approximately $3 to $4 million for 2001, but due to seasonality, it may
fluctuate by quarter. We expect to fund this shortfall from partnership cash
(which totals approximately $11.0 million, including approximately $6.0 million
held in mortgage lender reserve accounts at June 15, 2001) and, as permitted
under the ground lease documents, from deferral of a portion of ground rent
expense. Based upon current estimates, the ground rent deferral could provide
approximately $1.2 million of additional cash flow in 2001. Ground Rent of $1.1
million was deferred during 2000 and an additional $566,000 was deferred through
the second quarter of 2001. Our ground lessors have agreed to cancel our
obligation to pay the deferred ground rent for 2000 and 2001 effective on the
closing of this offering. Through reserves held by our mortgage lender,
partnership cash, deferral of ground rent and property cash flow, we expect to
meet our mortgage debt service requirement during 2001.

Shortfall in Funds Available for Capital Expenditures.

In light of the age of our inns, which range in age from 11 to 14 years,
major capital expenditures will be required over the next several years in an
effort to remain competitive in the market where we operate and to satisfy brand
standards which will be required by our new franchise and management agreements.
These capital expenditures include room refurbishments planned for 22 of our
inns over the next several years and the replacement of roofs, facades, carpets,
wall vinyl and furniture. The capital expenditure needs for our inns for 2001
and 2002 are estimated to total approximately $33 million.

The cost of future capital expenditures for our inns is estimated to exceed
our available funds. Our property improvement fund became insufficient to meet
anticipated capital expenditures in 1999 and continued to be insufficient
through the second quarter of 2001. To address this shortfall, we deposited an
additional $2.4 million into the property improvement fund during 1999 from our
partnership cash beyond the required contributions. In addition, the
contribution rate to the property improvement fund was increased to 7% of gross
sales for 1997 and thereafter. We contributed $2.7 million and $2.9 million
through the second quarters of 2001 and 2000, respectively, to the property
improvement fund.

These expenditures will continue to exceed our available funds. Based upon
information provided by our current manager, the estimated capital shortfall in
funds available for capital improvements is

expected to be between $15 million to $20 million. We believe that the shortfall
will be covered by the (a) proceeds from the sale of the notes, (b) cash flow
savings from the reduction of ground rent described in "Business - "Ground Lease
Modifications" and (c) funds drawn from our deposit of 7% of each inn's gross
month revenues into a capital expenditure escrow account over the next 18 months
described in "Business-New Franchise Agreements." However, there can be no
assurance that the shortfall will be covered. If we need additional capital,
there are no assurances that we can obtain capital on favorable terms to us, if
at all.

Under the new management agreements, if Sage determines that we have not
provided it with sufficient working capital, Sage may terminate its management
of those inns which fail to provide the necessary capital.

Our current manager and future franchisor, Marriott International, has
indicated that certain of our inns need capital improvements to satisfy brand
standards. Our failure to maintain minimum brand standards under the new
franchise agreements would constitute a default under the franchise agreements.
If a franchise agreement were terminated, the loss of the Fairfield Inn by
Marriott brand name and of the Marriott affiliation and reservation system could
negatively impact the affected inn's operating results, our cash flows and the
value of the affected inn. There can be no assurance that we would be able to
obtain another brand name for such inn. Moreover, termination of a franchise
agreement could lead to a default under our mortgage debt.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not have market risk with respect to interest rates, foreign currency
exchanges or other market rate or price risks, and we do not hold any financial
instruments for trading purposes. As of September 30, 2001 all of our debt has a
fixed interest rate.

INFLATION

The rate of inflation has been relatively low in the past three years.

SEASONALITY

Demand, and thus room occupancy, is affected by seasonality. For most of
our inns, demand is higher in the spring and summer months (March through
October) than during the remainder of the year.

BUSINESS

OVERVIEW

Our partnership was formed on August 23, 1989 to acquire and operate 50
Fairfield Inn by Marriott inns, which compete in the economy segment of the
lodging industry. We lease the land underlying 32 of our inns from Marriott
International and some of its affiliates. Our 50 inns are located in 16 states.
Our inns are currently managed by Fairfield FMC Corporation, an affiliate of
Marriott International. Upon the closing of this offering, our inns will be
managed by Sage as part of the Fairfield Inn by Marriott system under new
management agreements with Sage and franchise agreements with Marriott
International.

GENERAL

NEW MANAGER FOR OUR INNS

Upon the closing of this offering, our general partner will terminate our
existing management agreement and retain Sage, an independent hotel management
company, to manage our inns under separate management agreements for each inn.
We believe that Sage has the expertise and managerial skills required to address
the operating performance and capital improvement issues faced by our inns. Sage
is a privately held, nationally recognized hospitality company not affiliated
with our current or previous general partner. Sage currently manages 25
Fairfield Inn by Marriott hotels. Including its expertise in the management of
the Fairfield Inn by Marriott brand, Sage:

o has managed over 225 hotels, many in turn-around situations;

o has significant experience as a work-out manager;

o manages 41 limited service hotels; and

o manages 36 Marriott International franchise hotels.

NEW MANAGEMENT AGREEMENTS

The following description is a summary of the material provisions of our
new management agreements with Sage. It does not restate the management
agreements in their entirety.

The management agreements have a term of five years and provide that the
inns will be operated as part of the Fairfield Inn by Marriott franchise system
and that Sage will be responsible for the day-to-day operation of the inns. We
have the right to terminate a management agreement under certain circumstances,
including a change in control of Sage, the sale of all the inns (in which event
a termination fee may be payable) or Sage's failure to achieve certain
performance levels during the third year of the agreement, unless such failure
is due to circumstances beyond Sage's control. Sage may terminate a management
agreement under certain circumstances, including our failure to provide
sufficient working capital for the operation of an inn.

Sage will receive a base management fee under the management agreements in
the aggregate equal to 3% of our adjusted gross revenue, and an incentive
management fee equal to 10% of the excess of earnings before interest, taxes,
depreciation and amortization of all our inns during the applicable fiscal year
("EBITDA") over (i) $25,000,000, to be adjusted if an inn is no longer managed
by Sage (during the first three years of the management agreements) and (ii)
107.5% of the greater of (x) $25,000,000 and (y) the prior year's EBITDA (during
the last two years of the management agreements). The right to continue to
manage and operate our inns shall be subordinate to the mortgage. The incentive
management fee shall be subordinate in payment to the mortgage debt. The total
fees and expenses payable by us under the new franchise agreements and the new
management agreements, exclusive of the incentive management fee payable to
Sage, will not exceed the amount that is being paid to Marriott International
under the current management agreement.

We are required to provide Sage with working capital sufficient to meet all
disbursements and operating expenses necessary to permit the uninterrupted and
efficient operation of our inns. Sage may request additional contributions to
working capital if any additional funds are necessary to satisfy the needs of
our inns as their operations may require from time to time. Each year, Sage will
provide us with an annual budget with detailed estimates for each month. Sage
will also provide us with monthly financial statements and reports.

We are also required to establish a reserve account to cover expenditures
for capital improvements and replacement of furniture, fixtures and equipment
for our inns. Contributions to the account will be made on a monthly basis in an
amount equal to the greater of (i) 4% of the month's adjusted gross revenue and
(ii) the amount required by the franchise agreements. If funds are insufficient
to meet required monthly contributions to the reserve account, we are required
to provide additional funds.

NEW FRANCHISE AGREEMENTS

Upon the closing of this offering, our general partner will enter into
franchise agreements with Marriott International for each inn, which will permit
us to continue to use the Fairfield Inn by Marriott brand. The following
description is a summary of the material provisions of our new franchise
agreements. It does not restate the franchise agreements in their entity.

Our general partner believes that the new franchise agreements have the
most favorable terms currently offered by Marriott International to its
franchisees.

Under the new franchise agreements, we will pay the following fees for each
inn:

o a $10,000 non-refundable application fee per inn to cover Marriott
International's application processing expenses;

o a royalty fee of 4% of gross room revenue;

o a marketing fund contribution of 2.5% of gross room revenue;

o a reservation system fee equal to 1% of gross room revenue, plus $3.50
for each reservation confirmed and a communications support fee of $379
per month for each inn;

o a property management system fee of $323 per month for each inn plus an
additional $30 per month for each inn to access the Marriott intranet
site; and

o training and software charges.

In addition, we are required to deposit 7% of each inn's gross monthly
revenues into an escrow account to be applied towards capital improvements. Each
new franchise agreement will include a termination fee to Marriott International
if the franchise for a particular inn is terminated. To facilitate a potential
sale, we will not be required to pay the termination fee on five of eight
specified inns if the inns are sold within 18 months of the date of the
franchise agreements. Each franchise agreement will have a 10-year term. We will
have the option to renew each agreement for two additional five-year periods
subject to our successful maintenance of brand standards and compliance with all
of the material terms of the agreement. The total fees

and expenses payable by us under the new franchise agreements and the new
management agreements, exclusive of the incentive management fee payable to
Sage, will not exceed the amount that is being paid to Marriott International
under the current management agreement.

Marriott International may terminate the franchise agreements under certain
circumstances, including our failure to operate an inn under the Fairfield Inn
by Marriott brand, certain transfers of an interest in our partnership and our
failure to complete required upgrading and remodeling of the inns.

As a condition to entering into the franchise agreements, an affiliate of
our general partner will guaranty our obligations to pay the termination fees
that may come due under the agreements up to a maximum of $25 million, and up to
a maximum of $10 million on our other obligations under the agreements.

GROUND LEASE MODIFICATIONS

The ground lessors for the land on which 32 inns are located have agreed to
modify our existing ground leases effective upon the closing of this offering
to:

o reduce the annual ground rent for the 32 inns to $100,000 per year for
3 years, subject to a cumulative increase of up to an additional
$800,000 per year, to the extent we have sufficient cash flow after the
payment of our mortgage debt service, and thereafter to $3 million per
year;

o cancel our obligations to pay all deferred ground rent accrued in 2000
and 2001, which is currently estimated to be $2.3 million;

o grant us an option, exercisable at any time after ten years, to
purchase the land underlying any or all of the 32 inns at an aggregate
purchase price of $43 million, less the aggregate amount, as of the
time the option is exercised, of all quarterly option payments of
$187,500 that we will be required to make from and after December 1,
2005 in order to keep the option in effect; provided, however, that
prior to December 31, 2051, the option may be exercised only in
connection with the sale of an inn;

o grant us the right to assign at any time the foregoing option to
purchase the land underlying any of the inns to a successor tenant
under the applicable ground lease; and

o grant us the option to purchase during the next 18 months, the land
underlying five of six specified inns in connection with the sale of
such inns for the allocable portion of the $43 million purchase price
referred to above, reduced by an allocable portion of the option
payments made through the date of the purchase.

Under the ground leases, we pay all costs, expenses, taxes and assessments
relating to our inns and the underlying land, including real estate taxes. Each
ground lease provides that we have a first right of refusal if the ground lessor
decides to sell the leased premises. Upon

expiration or termination of a ground lease, title to the applicable inn and all
improvements revert to the ground lessor. Even with the favorable terms on the
ground lease modifications, there can be no assurances that such changes will be
sufficient to improve our financial condition and reduce our operating costs.

POSSIBLE SALE OF CERTAIN INNS

Our general partner has identified eight inns for potential sale and may
attempt to sell such inns, subject to the approval of our mortgage lender. We do
not believe that funding the anticipated capital improvements to these inns will
improve their performance sufficiently to justify such investment.

Our current mortgage debt permits sales of inns only if U.S. government
securities in specified amounts are substituted as collateral for the benefit of
the mortgage lender. Upon the closing of this offering, we will obtain a waiver
of this provision in order to allow proceeds from the sale of certain inns to be
applied to reduce the outstanding balance on the mortgage loans, which will
reduce debt service commensurately. However, the proceeds of sales may not be
sufficient to satisfy required prepayment minimums. In that event, we may
supplement sale proceeds with proceeds from this offering in order to satisfy
the required prepayment minimums. In addition, we cannot assure you that we will
be able to find a buyer for the inns or sell such inns on terms and conditions
favorable to us.

In connection with the new franchise agreements, Marriott International
will allow us to sell up to five of eight inns without paying a termination fee,
if the sales occur within 18 months of the date of the new franchise agreements.

MORTGAGE DEBT

As of June 15, 2001, we had $151.3 million of mortgage debt. The mortgage
debt is non-recourse, bears interest at a fixed rate of 8.40% and requires
monthly payments of principal and interest based upon a 20-year amortization
schedule for a 10-year term expiring on January 11, 2007. Thereafter, until the
final maturity date of January 11, 2017, interest is payable at an adjusted
rate, and all excess cash flow is applied toward principal amortization. The
mortgage debt is secured by first mortgages on all of our inns, the land on
which they are located or an assignment of our interest under the ground leases,
including ownership interest in all improvements thereon, fixtures and personal
property related thereto.

Our mortgage lender, Nomura Asset Capital Corporation, securitized the loan
through the issuance and sale of commercial mortgage backed securities ("CMBS")
backed by mortgages on a total of 71 properties. Our inns represent 50 of the 71
properties and approximately 33% of the principal amount of the certificates. As
a result of our decline in operating performance, Fitch IBCA, a major credit
rating agency, downgraded the two lowest classes of the CMBS on September 2,
1999. On May 23, 2000, Fitch IBCA once again downgraded the two lowest classes
of the CMBS due to our continued decline in operating performance. The downgrade
of these securities has no effect on the current terms of our mortgage debt,
although it would impair our ability to obtain new funding from other sources.

In November 2000, Pacific Mutual Life Insurance Company ("PacLife"),
engaged to service our mortgage loan on behalf of the securities holders,
notified our general partner that it had declared the loan a "specially serviced
mortgage loan" to be managed by a special servicer, Clarion Partners LLC.

COMPETITION

The United States lodging industry is segmented into full service and
limited service properties. Our inns are included within the limited service
segment and directly compete in the sub-segment of mid-scale properties without
food and beverage facilities. This segment is highly competitive and includes
many name brands including Comfort Inn and Suites, Holiday Inn Express, Hampton
Inn and Suites, La Quinta Inn and Suites, Sleep Inn, Country Inn and Suites,
Candlewood Hotels and Wingate Inns. Competition is based primarily on the level
of service, quality of accommodations, convenience of locations and room rates.
Full service hotels generally offer restaurant and lounge facilities and meeting
space, as well as a wide range of services and amenities. Hotels within our
competitive set generally offer basic guestroom accommodations with limited or
no services and amenities.

Based on data by Smith Travel Research, supply in this sub-segment
increased significantly in the late 1990's, growing at rates in excess of 11%
annually. This supply increase exceeded demand growth for each year during the
period from 1995 through 1999 by as much as 3%. Additionally, the supply growth
rate is projected to continue to grow at 5-6% annually for the next three years,
which will increase the competitive pressure on our inns. These new products
frequently reflect updated designs and features, which increases the need to
make capital expenditures at our inns in order for them to compete effectively.
In addition to competing brands, customers compare our inns to other Fairfield
Inn by Marriott properties. The Fairfield Inn by Marriott brand currently
consists of 450 hotels, of which we own 50, within the United States, and
continues to grow, with 50 hotel openings and construction of an additional 35
inns expected to commence in 2001, according to our current manager. Our inns,
which range in age from 11 to 14 years, struggle to compete with newer Fairfield
Inn by Marriott properties, which benefit from design enhancements and a more
contemporary feel, as well as other limited service properties in the
marketplaces where we operate.

The inclusion of our inns within the nationwide Fairfield Inn by Marriott
system provides advantages of name recognition, centralized reservations and
advertising, system-wide marketing and promotion, centralized purchasing and
training and support services. As economy hotels, our inns compete with limited
service hotels in their respective markets by providing streamlined services and
amenities at prices that are significantly lower than those available at full
service hotels.

EMPLOYEES

We have no employees; however, our general partner provides the services of
some of its employees, including its executive officers, to perform
administrative and other services for us. We and our general partner anticipate
that each executive officer of our general partner will generally devote a
sufficient portion of his or her time to our business; however, each such
executive officer also will devote a significant portion of his or her time to
the business of our

general partner and its other affiliates. We reimburse our general partner for
the cost of providing such services.

FACILITIES

Our general partner's offices are located in Boston, Massachusetts.

PROPERTIES

The following table presents the location and number of rooms for each of
our inns.

Number of
Location Rooms
-------- ---------

Alabama
Birmingham--HomeWood (1).......................................132
Montgomery (2).................................................133

California
Los Angeles--Buena Park (1)....................................135
Los Angeles--Placentia.........................................135

Florida
Gainesville (1)................................................135
Miami--West (1)................................................135
Orlando--International Drive (1)...............................135
Orlando--South (1)(2)..........................................132

Georgia
Atlanta--Airport (1)...........................................132
Atlanta--Gwinnett Mall.........................................135
Atlanta--Northlake (1).........................................133
Atlanta--Northwest (1).........................................130
Atlanta--Peachtree Corners.....................................135
Atlanta--Southlake (2).........................................134
Savannah (1)...................................................135

Iowa
Des Moines--West (1)...........................................135

Illinois
Bloomington--Normal (1)........................................128
Chicago--Lansing (1)(2)........................................135
Peoria.........................................................135
Rockford.......................................................135

Indiana
Indianapolis--Castleton (1)....................................132
Indianapolis--College Park.....................................132

Kansas
Kansas City--Merriman..........................................135
Kansas City--Overland Park.....................................134

Michigan
Detroit--Airport (1)...........................................133
Detroit--Auburn Hills (1)......................................134
Detroit--Madison Heights (1)...................................134
Detroit--Warren (1)............................................132
Detroit--West (Canton) (1).....................................133
Kalamazoo (1)..................................................133

Missouri
St. Louis--Hazelwood...........................................135
--------------------------------------------------------------------------------

North Carolina
Charlotte--Airport (1)(2)......................................135
Charlotte--Northeast (1)(2)....................................133
Durham (1).....................................................135
Fayetteville (1)...............................................135
Greensboro (1).................................................135
Raleigh--Northeast (1)(2)......................................132
Wilmington.....................................................134

Ohio
Cleveland--Airport.............................................135
Columbus--North (1)(2).........................................135
Dayton--North (1)..............................................135
Toledo--Holland................................................134

South Carolina
Florence.......................................................135
Greenville.....................................................132
Hilton Head (1)................................................120

Tennessee
Johnson City (1)...............................................132

Virginia
Hampton........................................................134
Virginia Beach (1).............................................134

Wisconsin
Madison (1)....................................................135
Milwaukee--Brookfield..........................................135
-------
Total 6,676
=======

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

(1) The land on which the inn is located on is leased by us from Marriott
International and its affiliates under a long-term lease agreement. Our
partnership has an option to purchase the land. See "Business - Ground
Lease Modifications."

(2) Identified by our general partner for potential sale. See: "Business -
Possible Sale of Certain Inns."

LEGAL PROCEEDINGS

We are also involved in routine litigation and administrative proceedings
arising in the ordinary course of business, which are expected to be covered by
liability insurance and which we do not believe in the aggregate will have a
material adverse effect on our partnership.

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

AP-Fairfield GP, LLC, our general partner, manages our operations. We have
no directors, officers or employees. Our business policy making functions are
carried out through the executive officers of our general partner, who are
listed below:

Name Age Position
---- --- --------
Michael L. Ashner 49 Chief Executive Officer
Peter Braverman 49 Executive Vice President
Carolyn Tiffany 35 Vice President and Treasurer
Lara Sweeney 29 Vice President and Secretary

DIRECTORS AND EXECUTIVE OFFICERS

Michael L. Ashner. Mr. Ashner serves as the Chief Executive Officer of
Winthrop Financial Associates and its affiliates, a position he has held since
January 15, 1996, as well as the Chief Executive Officer of the Newkirk Group.
From June 1994 until January 1996, Mr. Ashner was a Director, President and
Co-chairman of National Property Investors, Inc., a real estate investment
company. Mr. Ashner was also a Director and executive officer of NPI Property
Management Corporation from April 1984 until January 1996. Since 1981 Mr. Ashner
has been Chairman of Exeter Capital Corporation, a firm that has organized and
administered real estate limited partnerships. He has also served since February
2001 as Chief Executive Officer of GFB-DAS Manager Corp., the general partner of
various entities that own and operate 28 senior assisted living facilities. Mr.
Ashner also currently serves on the Board of Directors of the following publicly
traded companies: Nexthealth Corp., a provider of alternative health care
services, Greater Bay Hotel and Casino Inc., a hotel and casino operator,
Burnham Pacific Properties, Inc., a real estate investment trust, and NBTY Inc.,
a manufacturer, marketer and retailer of nutritional supplements.

Peter Braverman. Mr. Braverman has served as the Executive Vice President
of Winthrop Financial Associates and its affiliates since January 1996. Mr.
Braverman also serves as the Executive Vice President of the Newkirk Group. He
has also been an Executive Vice President of GFB-DAS Manager Corp. since
February 2001. From June 1995 until January 1996, Mr. Braverman was a Vice
President of National Property Investors, Inc. and NPI Property Management
Corporation. From June 1991 until March 1994, Mr. Braverman was President of the
Braverman Group, a firm specializing in management consulting for the real
estate and construction industries.

Carolyn Tiffany. Ms. Tiffany has been with Winthrop Financial Associates
since January 1993. From 1993 to September 1995, Ms. Tiffany was a Senior
Analyst and Associate in

Winthrop Financial Associates' accounting and asset management departments. Ms.
Tiffany was a Vice President in the asset management and investor relations
departments of Winthrop Financial Associates from October 1995 to December 1997,
at which time she became the Chief Operating Officer of Winthrop Financial
Associates. In addition, Ms. Tiffany is the Chief Operating Officer of The
Newkirk Group. She has also been Chief Operating Officer of GFB-DAS Manager
Corp. since February 2001.

Lara Sweeney. Ms. Sweeney has been a Senior Vice President of Winthrop
Financial Associates since 1996. She has also been an Executive Vice President
of GFB-DAS Manager Corp. since February 2001. She is also a Senior Vice
President of the Newkirk Group. Ms. Sweeney was Director of Investor Relations
for National Property Investors, Inc. from 1994 until 1996.

Our general partner is required to devote to us such time as may be
necessary for the proper performance of its duties, but the executive officers
of our general partner are not required to devote their full time to our
matters.

SECURITIES OWNED BY MANAGEMENT

No units are owned by the executive officers of our general partner.

INDEMNIFICATION

Except as specifically provided in the Delaware Revised Uniform Limited
Partnership Act, our general partner is liable for our obligations in the same
manner as a partner would be liable in a partnership without limited partners,
to persons other than the partnership and the other partners. Generally
speaking, any general partner is fully liable for any and all of the debts or
other obligations of the partnership as and to the extent the partnership is
either unable or fails to meet such obligations. Thus, the assets of our general
partner may be reached by our creditors to satisfy our obligations or other
liabilities, other than non-recourse liabilities, to the extent our assets are
insufficient to satisfy such obligations or other liabilities.

Our partnership agreement also provides that our general partner will be
indemnified out of partnership assets against any loss, liability or expense
arising out of any act or omission so long as our general partner has satisfied
the specific requirements of our partnership agreement. We, however, may
indemnify our general partner for losses, costs and expenses incurred in
successfully defending or settling claims arising out of alleged securities laws
violations only if certain specific additional requirements are met. Our
partnership agreement provides that any indemnification obligation shall be paid
solely out of our assets.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to our partners and controlling persons
pursuant to the foregoing provisions or otherwise, we have been advised that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act, and is, therefore, unenforceable.
If a claim for indemnification against such liabilities (other than our payment
of expenses incurred or paid in the successful defense of any action, suit or
other proceeding) is asserted against us by such a person in connection with the
securities registered

hereby, and if the Securities and Exchange Commission is still of the same
opinion, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by us is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

PRINCIPAL EQUITYHOLDERS

The following table sets forth each person that, to our knowledge,
beneficially owned more than 5% of the total number of the units as of September
30, 2001.

Name and Address of
Beneficial Owner Number of Units Percent of Total Units
---------------- --------------- ----------------------
AP-Fairfield LP, LLC 18,379 22.05%
7 Bulfinch Place
Boston, MA 02114

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

An affiliate of our general partner will purchase notes not subscribed for
by our limited partners in this offering. As a result, certain decisions
concerning the operations or financial structure of our partnership may present
conflicts of interest between our general partner and our limited partners other
than in their capacity as participants in this offering. In addition, an
affiliate of our general partner has agreed to guaranty up to $25 million of
certain partnership obligations under the new franchise agreements.

DESCRIPTION OF OFFERING

PURPOSE OF THIS OFFERING

This offering is intended to provide us with capital to make necessary
capital improvements to our inns and to provide working capital. This offering
is part of the restructuring plan described previously intended to improve our
declining operations. However, there can be no assurance that this offering or
the restructuring plan will improve our financial condition or operating
results. Also, it is unlikely that those limited partners who do not participate
in this offering will receive any additional cash distributions, other than the
cash distribution contemplated by this offering, if our operations and operating
results do not significantly improve.

DISTRIBUTION OF SUBSCRIPTION RIGHTS

We will distribute to each limited partner as of September 30, 2001, at no
cost, a non-transferable right to subscribe to notes in the principal amount of
$275 for each unit owned. You may purchase less than the full amount of notes to
which you are entitled but you will not be entitled to subscribe for notes not
purchased by other limited partners.

SUBSCRIPTION COMMITMENT

An affiliate of our general partner has agreed to subscribe for all of the
notes that our limited partners do not subscribe to in this offering. No fee or
other compensation shall be paid to such affiliate for this agreement.

EXPIRATION OF THE OFFERING

You may subscribe at any time before 5:00 p.m., New York City time, on
November 20, 2001. We will not honor your subscription if we receive the
documents after such time, regardless of when you transmitted the documents.
Delivery by facsimile will not constitute valid delivery.

SUBSCRIPTION

You may subscribe by delivering to us prior to the expiration date your
properly completed and executed subscription form and your subscription payment.
Notes subscribed for will be mailed to you as soon as practicable after the
closing of this offering and will be registered in the name of the holder of the
units. We will place all proceeds of this offering into an escrow account until
such funds are distributed to us upon the closing of this offering.

METHOD OF PAYMENT

Payment of the subscription price must be paid in U.S. dollars, for the
full principal amount of the notes you are purchasing (less the amount of your
cash distribution applied to the subscription price) by a bank certified or
cashier's check made payable to "Fairfield Inn by Marriott Partnership."

AMENDMENTS AND WAIVERS

We reserve the right to amend the terms and conditions of this offering,
whether the amended terms are more or less favorable to you. We will decide all
questions as to the validity, form and eligibility (including times of receipt
and compliance with other procedural matters) in our sole discretion, and our
determination shall be final and binding. We reserve the right to reject any
subscription if such subscription is not in accordance with the terms of this
offering.

TERMINATION OF THE OFFERING

The general partner intends to use reasonable efforts to negotiate the new
management agreement, franchise agreement and ground lease modification
agreement to incorporate the terms described above and such other terms which
may be satisfactory to it so as to implement this offering. The general partner
may not be successful in these negotiations. Furthermore, other factors
affecting economic conditions, including the destruction of the World Trade
Center on September 11, 2001, may prevent the implementation of these agreements
and this offering. In such event, we may terminate this Offering and return to
the limited partners the payments sent by them to us to subscribe for the notes.

OTHER MATTERS

We are not making this offering in any state or other jurisdiction in which
it is unlawful to do so, nor are we selling or accepting any offers to purchase
notes from holders who are residents of those states or other jurisdictions. We
may delay the commencement of this offering

in those states or other jurisdictions, or change the terms of this offering, in
order to comply with the securities law requirements of those states or other
jurisdictions. We may decline to make modifications to the terms of this
offering requested by those states or other jurisdictions, in which case, if you
are a resident in those states or other jurisdictions, you will not be eligible
to participate in this offering.

All communications, including the delivery of the subscription form and
payment of the subscription price, should be addressed as follows:

Fairfield Inn by Marriott Limited Partnership
7 Bulfinch Place
Suite 500
Boston, MA 02114

Your delivery to an address other than the address set forth above will not
constitute valid delivery.

DESCRIPTION OF NOTES

We will issue the notes under a document called the "Indenture." The
Indenture is a contract between us and LaSalle Bank National Association as
trustee. The Indenture and the notes are governed by Delaware law. Because this
section is a summary, it does not describe every aspect of the notes and the
Indenture. We urge you to read the Indenture in its entirety as it, not this
description, defines your rights. Wherever we refer to particular defined terms,
such terms are defined in the Indenture.

GENERAL

The notes will be general, unsecured obligations of our partnership. The
notes will be limited to $23,000,000 aggregate principal amount.

The principal amount of the notes shall be due on the maturity date;
provided, however that our partnership shall be required to prepay the principal
amount, pro rata, from funds otherwise distributable to the partners under our
partnership agreement. The initial interest rate will be 16.5% per annum. Such
rate shall increase by 1% per annum on each January 1, commencing on January 1,
2003, if the notes are outstanding on each such date. Interest on the notes is
payable on the first day of each month commencing on January 1, 2002. If an
interest payment is not made when due as a result of the subordination
agreement, the interest shall accrue, be compounded monthly and shall be due on
the next interest payment date, subject to further deferral as a result of the
subordination agreement.

Upon payment in full of the principal amount of the notes and accrued and
unpaid interest thereon, the notes provide for an additional payment to be made
to each holder of notes of his pro rata share of an amount equal to the product
of (a) the greater of (i) $23,000,000 and (ii) the principal and accrued and
unpaid interest outstanding at the time of such payment and (b) the difference
between (i) the interest rate on the notes when they are paid in full and (ii)
the lesser of 30 day LIBOR and the 5

year United States treasury rate on the date of payment in full, multiplied by
the years or portion thereof that the principal amount has been outstanding.

FORM AND TRANSFER

The notes will be issued in registered form and will be transferable upon
the conditions set forth in the Indenture.

SUBORDINATION

The notes are subordinated to our mortgage debt. See "Risk Factors - Risks
of the Offering."

PAYMENT

Payment of principal and interest on each note will be made to the order of
the person in whose name the note is registered at the close of business on a
record date immediately preceding the relevant payment date.

We will not be required to make any payment on the notes due on any day
which is not a business day until the next succeeding business day. The payment
made on the next succeeding business day will be treated as though it were paid
on the original due date and no interest will accrue on the payment for the
additional period of time.

We have initially appointed the trustee as paying agent. We may terminate
the appointment of any paying agent and appoint additional or other paying
agents. Notice of any termination or appointment of any paying agent will be
given in accordance with "Notices" below.

All moneys deposited with the trustee or any paying agent, or then held by
us, in trust for the payment of principal of, or interest on, any notes which
remain unclaimed at the end of two years after the payment has become due and
payable will be repaid to us, and you will then look only to us for payment.

MERGERS AND SALES OF ASSETS BY THE PARTNERSHIP

We may not consolidate with or merge into any person or convey, transfer,
sell or lease our properties and assets substantially as an entirety to any
person, and we may not permit any person to consolidate with or merge into us or
convey, transfer, sell or lease such person's properties and assets
substantially as an entirety to us unless:

o the person formed by such consolidation or into or with which we are
merged or the person to which our properties and assets are so
conveyed, transferred, sold or leased, shall be a corporation, limited
liability company, partnership or trust organized and existing under
the laws of the United States, any state within the United States or
the District of Columbia and, if we are not the surviving person, the
surviving person assumes the payment of the principal of, and interest
on, the notes and the performance of our other covenants under the
Indenture; and

o immediately after giving effect to the transaction, no Event of
Default, and no event that, after notice or lapse of time or both,
would become an Event of Default, will have occurred and be continuing.

EVENTS OF DEFAULT

The following will be Events of Default under the Indenture:

o we fail to pay the outstanding principal of any note on the maturity
date;

o we fail to pay any accrued interest on any note when cash is available
for such payment, the payment is permitted by the subordination
agreement and the failure continues for 30 days;

o we fail to pay accrued and unpaid interest on any note on the maturity
date; and

o events of bankruptcy, insolvency or reorganization with respect to us.

Subject to the provisions of the Indenture relating to the duties of the
trustee in case an Event of Default shall occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any holder of notes, unless the holder
shall have offered reasonable indemnity to the trustee. Subject to providing
indemnification of the trustee, the holders of a majority in aggregate principal
amount of the notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or exercising
any right or power conferred on the trustee.

If an Event of Default other than an Event of Default arising from events
of insolvency, bankruptcy or reorganization with respect to us occurs and is
continuing, either the trustee or the holders of at least 25% in aggregate
principal amount of the outstanding notes may, subject to the subordination
agreement, accelerate the maturity of all notes. If an Event of Default arising
from events of insolvency, bankruptcy or reorganization occurs, then, subject to
the subordination agreement, the principal of, and accrued interest on, all the
notes will automatically become immediately due and payable without any act on
the part of the holders of the notes or the trustee.

You will not have any right to institute any proceeding for any remedy
under the Indenture, unless you give the trustee written notice of a continuing
Event of Default and the holders of at least 25% in aggregate principal amount
of the outstanding notes have made written request, and offered reasonable
indemnity, to the trustee to institute the proceeding, and the trustee has not
received from the holders of a majority in aggregate principal amount of the
outstanding notes direction inconsistent with the written request, and shall
have failed to institute the proceeding within 60 days. However, these
limitations do not apply to a suit instituted by you for the enforcement of
payment of the principal of, or interest, on your note on or after the
respective payment dates expressed in your note.

SECURITY

If the notes are not paid in full on or before the maturity date, our
partnership shall at the request of the holders of a majority in outstanding
principal amount of the notes, grant to the

holders of all of the notes, a security interest in all of our inns, account
receivables, cash accounts and certain other assets of our partnership. Such
security interest shall be subordinate to our current mortgage debt outstanding
at the time.

MEETINGS, MODIFICATION AND WAIVER

The Indenture contains provision for convening meetings of the holders of
notes to consider matters affecting their interests.

Certain limited amendments of the Indenture may be made without obtaining
the consent of the holders of the notes. Other amendments of the Indenture,
including, without limitation, to extend the maturity date of the notes at our
request, may be made either (i) with the written consent of the holders of at
least a majority in aggregate principal amount of the outstanding notes or (ii)
by the adoption of a resolution, at a meeting of holders of the outstanding
notes, by the holders of at least a majority in aggregate principal amount of
the notes represented at such meeting.

However, an amendment requires the consent of the holders of each
outstanding note affected if it would:

o reduce the principal amount of, or interest on, any note;

o change the place or currency of payment on a note;

o impair the right to institute suit for the enforcement of any payment
on any note;

o modify the subordination provisions in a manner that is adverse to the
holders of the notes;

o reduce the above-stated percentage of the principal amount of the
holders whose consent is needed to modify or amend the Indenture; or

o reduce the percentage required for the adoption of a resolution or the
quorum required at any meeting of holders of notes at which a
resolution is adopted.

NOTICES

Notice to holders of the notes will be given by mail to the addresses as
they appear in the note register. Notices will be deemed to have been given on
the date of mailing.

REPLACEMENT OF NOTES

We will replace any note that becomes mutilated, destroyed, stolen or lost
at the expense of the holder upon delivery to the trustee of the mutilated note
or evidence of the destruction, theft or loss satisfactory to us and the
trustee. In the case of a destroyed, stolen or lost note, indemnity satisfactory
to the trustee and us may be required at the expense of the holder of the note
before a replacement note will be issued.

THE TRUSTEE

If an Event of Default occurs and is continuing, the trustee will be
required to use the degree of care of a prudent person in the conduct of his own
affairs in the exercise of its powers. Subject to such provisions, the trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the holders of notes, unless they shall have
offered to the trustee reasonable security or indemnity for its expenses in
exercising the rights and powers.

PAYMENT OF STAMP AND OTHER TAXES

We will pay all stamp and other duties, if any, which may be imposed by the
United States or any political subdivision thereof or taxing authority thereof
or therein with respect to the issuance of the notes. We will not be required to
make any payment with respect to any other tax, assessment or governmental
charge imposed by any government or any political subdivision thereof or taxing
authority thereof or therein.

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a general discussion of certain U.S. federal income tax
considerations relevant to "U.S. Holders" (as defined below) who purchase notes.
This discussion is based upon the Internal Revenue Code of 1986 (the "Code"),
Treasury Regulations, Internal Revenue Service (the "IRS") rulings and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) or different interpretations. There can be no assurance that
the IRS will not challenge one or more of the tax consequences described herein,
and we have not obtained, nor do we intend to obtain, a ruling from the IRS or
an opinion of legal counsel with respect to the U.S. federal income tax
consequences of acquiring or holding notes. This discussion does not purport to
deal with all aspects of U.S. federal income taxation that may be relevant to a
particular U.S. Holder in light of his circumstances (for example, persons
subject to the alternative minimum tax provisions of the Code), and does not
address any of the federal income tax aspects that are specifically applicable
to certain categories of holders, such as dealers in securities or currencies,
traders in securities that elect to use a mark-to-market method of accounting,
banks, insurance companies, tax-exempt organizations, and persons holding the
notes as part of a hedging or conversion transaction or straddle, or persons
deemed to sell the notes under the constructive sale provisions of the Code. The
discussion also does not discuss any aspect of state, local or foreign law, or
U.S. federal estate and gift tax law as applicable to U.S. Holders. In addition,
this discussion is limited to U.S. Holders who purchase notes pursuant to this
offering, and who will hold the notes as "capital assets" within the meaning of
Section 1221 of the Code.

All limited partners are advised to consult their own tax advisors
regarding the federal, state, local and foreign tax consequences of the
purchase, ownership and disposition of the notes in their particular situations.

As used herein, the term "U.S. Holder" means a limited partner who or which
is generally subject to U.S. federal income tax, who subscribes for notes.

ACCRUAL OF INTEREST

The federal income tax consequences of the notes to U.S. Holders, as well
as to our partnership, depend in large part on whether the notes are treated as
indebtedness (and not as an equity interest in our partnership) for tax
purposes. No legal opinion or IRS ruling has been obtained concerning this
issue. Our general partner believes that the notes should be treated as
indebtedness for federal income tax purposes, but this result cannot be assured.
Our general partner's determination has been made based on numerous factors and
ultimately rests on a factual determination that our partnership has retained
the burdens and benefits of ownership of the inns.

If the notes are treated as debt for federal income tax purposes, interest
on the notes generally must be included in a U.S. Holder's gross income as
ordinary income at the time interest accrues in accordance with the terms of the
notes and applicable federal income tax rules, even if such interest is not paid
currently. (Subsequent payments of previously accrued interest will not be
taxable to U.S. Holders.) The amount required to be accrued as interest income
on the notes each year will be based on a schedule, to be prepared by our
general partner, of the payments projected to be made by our partnership on the
notes for each year of their term, but the amount required to be accrued in each
year cannot be less than the minimum stated interest rate (e.g., 16.5% for the
first year). The terms of the notes will permit our partnership to defer paying
interest on the notes under various circumstances, and the projected payment
schedule prepared by our general partner is not binding on the IRS.
Consequently, it is possible that a U.S. Holder's interest income from the
notes, and his income tax liability with respect thereto, may exceed the cash
payments made to the U.S. Holder in one or more year(s), although such holder's
allocable share of our partnership's taxable income will be reduced by his
allocable share of our partnership's deductions for interest accruing on the
notes.

The tax consequences to a U.S. Holder of purchasing notes will be
determined separately from the holder's tax consequences from our partnership.
Thus, a U.S. Holder will be required to report interest as accrued on the notes
irrespective of whether our partnership reports taxable income or loss for the
same year. Under the exception to the passive activity loss rules provided for
"self-charged" interest (see Proposed Treasury Regulation (Section)1.469-7), a
U.S. Holder's interest income from the notes generally should be treated as
passive activity income, which could be offset by the holder's unused passive
activity losses from our partnership or other passive activities.

EFFECTS OF NOT SUBSCRIBING

If the notes are treated as indebtedness of our partnership for tax
purposes, then it is possible that deductions for depreciation (up to a maximum
aggregate amount equal to the principal balance of the notes) and accrued and
unpaid interest that would otherwise have been allocated to all the limited
partners of our partnership might have to be allocated solely to limited
partners who subscribe for notes, resulting in an increase in the amount of
taxable income allocated to limited partners who do not subscribe for notes.
Should that occur, limited partners who are U.S. Holders will be allocated
additional income and gain by our partnership as the notes are repaid that will
offset the additional depreciation and interest deductions allocated to

them in previous years, and, to that extent, the taxable income allocated to
limited partners who are not U.S. Holders will decrease at the time.

If the notes are not respected as indebtedness, then limited partners who
do not subscribe for notes may suffer adverse tax consequences in the current
year. The nature and extent of any such adverse tax consequences could vary to
some extent depending on the particular circumstances of each limited partner
who does not subscribe for notes, and could result in an out-of-pocket income
tax liability for such limited partner.

SALE, EXCHANGE OR RETIREMENT OF THE NOTES

A U.S. Holder generally will recognize income or loss upon the sale,
exchange, retirement or other disposition (collectively, a "disposition") of the
notes, measured by the difference (if any) between (i) the amount of cash and
the fair market value of any property received, and (ii) such U.S. Holder's
adjusted tax basis in the notes. A U.S. Holder's adjusted tax basis in the notes
will be the purchase price, increased by the amount of interest accrued on the
notes and reduced by cash payments made on the notes. Income recognized on a
disposition of the notes generally will be treated as interest income for tax
purposes, while loss recognized on the disposition of the notes will be an
ordinary loss up to the amount of accrued and unpaid interest previously
included in the U.S. Holder's income, and the balance will be a capital loss.

INFORMATION REPORTING AND BACKUP WITHHOLDING

A U.S. Holder may be subject to "backup withholding" at a rate of 30.5%
with respect to certain "reportable payments," including interest payments and,
under certain circumstances, principal payments on the notes. Backup withholding
generally will not apply, however, to a U.S. Holder who furnishes a correct
taxpayer identification number or who is otherwise exempt from backup
withholding, such as a corporation. Generally, a U.S. Holder will provide such
certification on Form W-9 (Request for Taxpayer Identification Number and
Certification).

We will report to U.S. Holders and to the IRS, the amount of any
"reportable payment" for each calendar year and the amount of tax withheld, if
any, with respect to such payment.

FUTURE LEGISLATION

Legislation may be enacted or interpretive Treasury Regulations may be
issued in the future that could be retroactive with respect to transactions
entered into prior to the effective date thereof or that could generally affect
U.S. Holders or the notes. Hence, there can be no assurance that future
legislation will not affect, perhaps adversely, the tax treatment of a U.S.
Holder's income, gains, losses and expenses relating to the notes.

STATE AND LOCAL TAXES

In addition to federal income tax, U.S. Holders may be subject to state and
local taxes on their taxable income from the notes. Limited partners should
consult with their own professional tax advisors concerning the state and local
tax consequences to them of purchasing the notes.

* * *

The foregoing summary is not intended as a substitute for professional tax
advice, and does not discuss any state or local tax aspects of this investment,
nor does it discuss certain federal income tax aspects of this investment.
Accordingly, limited partners must consult with and rely upon the advice of
their own tax advisors with respect to the tax consequences to them of this
investment.

LEGAL MATTERS

The validity of the notes offered hereby will be passed upon for us by
Rosenman & Colin LLP.

EXPERTS

The audited financial statements and schedule included in this prospectus
and elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the reporting requirements of the Securities Exchange Act
of 1934. We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission ("SEC"). We have
filed with the SEC a registration statement on Form S-1, together with exhibits
thereto, relating to the notes offered hereby. This prospectus, which
constitutes a part of the registration statement, omits certain of the
information set forth in the registration statement. For further information
about our partnership, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other documents referred to are not necessarily complete, and in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference. The registration statement and exhibits, and any
other filing we made, may be inspected and copied at the public reference
section at the SEC's principal office at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. In addition, the SEC maintains a website on the
Internet that contains reports, proxy and information statements and other
information regarding registrants (including the partnership) that file
electronically with the SEC. The address of the SEC's website is
http://www.sec.gov.

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Public Accountants..................................................... F-2

Balance Sheets as of December 31, 2000 and 1999.............................................. F-3

Statements of Operations for the fiscal years ended December 31, 2000, F-4
1999 and 1998................................................................................

Statements of Changes in Partners' Capital (Deficit) for the fiscal years ended F-5
December 31, 2000, 1999 and 1998.............................................................

Statements of Cash Flows for the fiscal years ended December 31, 2000, F-6
1999 and 1998................................................................................

Notes to Financial Statements................................................................ F-7

Condensed Balance Sheets as of June 15, 2001 and December 31, 2000 (Unaudited)................ F-16

Condensed Statements of Operations for the twelve and twenty-four weeks ended June 15, 2001 F-17
and June 16, 2000 (Unaudited).................................................................

Condensed Statements of Cash Flows for the twenty-four weeks ended June 15, 2001 and June 16, F-18
2000 (Unaudited).............................................................................

Notes to Condensed Financial Statements (Unaudited).......................................... F-19

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE PARTNERS OF FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP:

We have audited the accompanying balance sheets of Fairfield Inn by
Marriott Limited Partnership (a Delaware limited partnership) as of December 31,
2000 and 1999, and the related statements of operations, changes in partners'
capital (deficit) and cash flows for the three years in the period ended
December 31, 2000. These financial statements are the responsibility of the
General Partner's management. Our responsibility is to express an opinion on
these financial statements 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 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 financial statements referred to above present fairly,
in all material respects, the financial position of Fairfield Inn by Marriott
Limited Partnership as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for the three years in the period ended December
31, 2000, in conformity with accounting principles generally accepted in the
United States.

ARTHUR ANDERSEN LLP

Vienna, Virginia
April 5, 2001 (except with
respect to the matter discussed
in Note 9, as to which the date
is September 20, 2001)

F-2

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS)

2000 1999
-------- --------

ASSETS
Property and equipment, net................................... $122,013 $136,937
Deferred financing costs, net of accumulated amortization..... 2,937 3,424
Due from Marriott International, Inc. and affiliates.......... 1,215 1,285
Property improvement fund..................................... 5,489 3,886
Restricted cash ............................................ 7,726 7,981
Cash and cash equivalents..................................... 7,702 10,061
-------- --------
Total assets................................... $147,082 $163,574
======== ========

LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Mortgage debt............................................ $153,569 $157,897
Due to Marriott International, Inc. and affiliates....... 3,931 24,529
Accounts payable and accrued liabilities................. 2,911 3,186
-------- --------
Total liabilities.............................. 160,411 185,612
-------- --------
PARTNERS' DEFICIT
General Partner
Capital contribution................................ 813 813
Capital distributions............................... (517) (517)
Cumulative net losses............................... (379) (466)
-------- --------
(83) (170)
-------- --------
Limited Partners
Capital contributions............................... 75,479 75,479
Capital distributions............................... (51,270) (51,270)
Cumulative net losses............................... (37,455) (46,077)
-------- --------
(13,246) (21,868)
-------- --------
Total partners' deficit........................ (13,329) (22,038)
-------- --------
$147,082 $163,574
======== ========

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

F-3

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT AMOUNTS)

2000 1999 1998
------- ------- --------
REVENUES

Rooms .................................................................. $89,308 $90,653 $ 91,546
Other .................................................................. 2,170 2,431 2,824
------- ------- --------
Total revenues....................................................... 91,478 93,084 94,370
------- ------- --------

OPERATING EXPENSES
Rooms .................................................................... 27,894 28,481 27,191
Other department costs and expenses....................................... 1,670 1,597 1,604
Selling, administrative and other......................................... 27,701 26,907 25,851
Depreciation.............................................................. 13,463 14,413 14,990
Property taxes............................................................ 3,886 3,749 3,702
Fairfield Inn system fee.................................................. 2,744 2,792 2,831
Incentive management fee.................................................. 2,849 2,775 3,640
Ground rent............................................................... 2,964 2,742 2,646
Base management fee....................................................... 1,830 1,862 1,887
Insurance and other....................................................... 1,198 1,038 1,053
Loss on impairment of long-lived assets (Note 2).......................... 8,127 2,843 9,497
------- ------- --------
Total operating expenses............................................. 94,326 89,199 94,892
------- ------- --------
OPERATING PROFIT (LOSS)........................................................ (2,848) 3,885 (522)
Interest expense.......................................................... (13,238) (13,528) (13,792)
Interest income........................................................... 1,312 1,091 1,315
------- ------- --------

LOSS BEFORE EXTRAORDINARY ITEM................................................. (14,774) (8,552) (12,999)
EXTRAORDINARY ITEM
Gain on the forgiveness of incentive management fees...................... 23,483 -- --
------- ------- --------

NET INCOME (LOSS).............................................................. $ 8,709 $(8,552) $(12,999)
======= ======= ========
ALLOCATION OF NET INCOME (LOSS)
General Partner........................................................... $ 87 $ (86) $ (130)
Limited Partners.......................................................... 8,622 (8,466) (12,869)
------- ------- --------
$ 8,709 $(8,552) $(12,999)
======= ======= ========
NET INCOME (LOSS) PER LIMITED PARTNER UNIT (83,337 UNITS)...................... $ 103 $ (102) $ (154)
======= ======= ========

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

F-4

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FISCAL YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)

GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- -------- --------
Balance, December 31, 1997 ............ $ 46 $ (533) $ (487)
Net loss ......................... (130) (12,869) (12,999)
-------- -------- --------
Balance, December 31, 1998 ............ (84) (13,402) (13,486)
Net loss ......................... (86) (8,466) (8,552)
-------- -------- --------
Balance, December 31, 1999 ............ (170) (21,868) (22,038)
Net income ....................... 87 8,622 8,709
-------- -------- --------
Balance, December 31, 2000 ............ $ (83) $(13,246) $(13,329)
======== ======== ========

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

F-5

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)

2000 1999 1998
-------- -------- --------

OPERATING ACTIVITIES
Net income (loss) .......................................................... $ 8,709 $ (8,552) $(12,999)
Extraordinary gain on the forgiveness of incentive management fees ......... (23,483) -- --
Depreciation ............................................................... 13,463 14,413 14,990
Deferral of incentive management fee ....................................... 2,849 2,775 3,640
Amortization of deferred financing costs as interest expense ............... 487 486 486
Amortization of mortgage debt premium ...................................... (350) (350) (350)
Loss on disposition of equipment ........................................... 16 28 --
Loss on impairment of long-lived assets .................................... 8,127 2,843 9,497
Changes in operating accounts:
Due to/from Marriott International, Inc. and affiliates ............... 106 823 1,083
Accounts payable and accrued liabilities .............................. (335) 776 910
Change in restricted reserves ......................................... 913 3,119 (734)
-------- -------- --------
Cash provided by operations ...................................... 10,502 16,361 16,523
-------- -------- --------
INVESTING ACTIVITIES
Additions to property and equipment ........................................ (6,682) (8,973) (14,438)
Change in property improvement fund ........................................ (1,603) (3,678) 3,907
-------- -------- --------
Cash used in investing activities ................................ (8,285) (12,651) (10,531)
-------- -------- --------
FINANCING ACTIVITIES
Repayment of mortgage debt ................................................. (3,978) (3,689) (3,390)
Change in restricted reserves .............................................. (598) 1,386 (1,387)
-------- -------- --------
Cash used in financing activities ................................ (4,576) (2,303) (4,777)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................ (2,359) 1,407 1,215
CASH AND CASH EQUIVALENTS at beginning of year .................................. 10,061 8,654 7,439
-------- -------- --------
CASH AND CASH EQUIVALENTS at end of year ........................................ $ 7,702 $ 10,061 $ 8,654
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest ............................................ $ 13,121 $ 13,409 $ 13,710
======== ======== ========

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

F-6

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999

NOTE 1. THE PARTNERSHIP

Description of the Partnership

Fairfield Inn by Marriott Limited Partnership (the "Partnership"), a
Delaware limited partnership, was formed on August 23, 1989, to operate 50
Fairfield Inn by Marriott properties (the "Inns") located in sixteen states. The
Partnership leases the land underlying 32 of the Inns from Marriott
International, Inc. ("MII") and certain of its affiliates (the "Land Leases").
Of the Partnership's 50 Inns, seven are located in each of Georgia and North
Carolina; six in Michigan; four in each of Florida, Illinois, and Ohio; and
three or less in each of ten other states. The Inns are managed by Fairfield FMC
Corporation (the "Manager"), a wholly-owned subsidiary of MII, as part of the
Fairfield Inn by Marriott hotel system under a long-term management agreement.
The Inns represent all of the revenues and expenses on the accompanying
statements of operations. The Partnership considers the Inns to represent a
single business segment due to the autonomous nature of each of the Inns. Each
Inn is similarly constructed, has a similar number of rooms and is operated
under the same brand name. The Inns are evaluated collectively by Partnership
management without regard to geographic location and operate in similar markets.

Inn operations commenced on July 31, 1990 (the "Closing Date") after 83,337
limited partnership interests (the "Units") were sold in a public offering for
$1,000 per Unit. Marriott FIBM One Corporation ("FIBM One") contributed $841,788
for a 1% general partnership interest and $1.1 million to establish the initial
working capital reserve of the Partnership at $1.5 million. In addition, FIBM
One had a 10% limited partnership interest while the remaining 90% of the
limited partnership interest is owned by outside parties.

On December 29, 1998, Host Marriott Corporation ("Host Marriott"), the
parent of FIBM One announced that it had completed substantially all the steps
necessary to qualify as a real estate investment trust ("REIT") under the
applicable Federal income tax laws beginning January 1, 1999 (the "REIT
Conversion"). Subsequent to the REIT Conversion, Host Marriott is referred to as
Host REIT. In connection with the REIT Conversion, Host REIT contributed
substantially all of its hotel assets to a newly-formed partnership, Host
Marriott L.P. ("Host LP").

In connection with Host Marriott's REIT conversion, the following steps
occurred. Host Marriott formed FIBM One LLC, having three classes of member
interests (Class A--1% economic interest, managing; Class B--98% economic
interest, non-managing; Class C--1% economic interest, non-managing). FIBM One
merged with and into FIBM One LLC on December 24, 1998. On December 28, 1998,
Host Marriott contributed its entire interest in FIBM One LLC to Host LP, which
on December 30, 1998, contributed its 98% Class B and 1% Class C interests in
FIBM One LLC to Rockledge Hotel Properties, Inc. ("Rockledge"), a non-controlled
subsidiary, in which Host LP has a 95% economic non-voting interest.

Partnership Allocations and Distributions

Partnership allocations and distributions are generally made as follows:

a. Cash available for distribution for each fiscal year will be distributed
quarterly as follows: (i) 99% to the limited partners and 1% to the General
Partner (collectively, the "Partners") until the Partners have received, with
respect to such fiscal year, an amount equal to the Partners' Preferred
Distribution (10% of the excess of original cash contributions over cumulative
distributions of net refinancing and sales proceeds ("Capital Receipts") on an
annualized basis); (ii) remaining cash available for distribution will be
distributed as follows, depending on the amount of Capital Receipts previously
distributed:

F-7

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

1) 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

2) 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

3) 80% to the limited partners and 20% 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.

b. Refinancing proceeds and sale proceeds from the sale or other
disposition of less than substantially all of the assets of the Partnership will
be distributed (i) 99% to the limited partners and 1% to the General Partner
until the Partners have received the then outstanding Partners' 12% Preferred
Distribution, as defined, and cumulative distributions of Capital Receipts equal
to 100% of their original capital contributions; and (ii) thereafter, 80% to the
limited partners and 20% to the General Partner.

c. Sale proceeds from the sale of substantially all of the assets of the
Partnership will be distributed to the Partners pro-rata in accordance with
their capital account balances as adjusted to take into account gain or loss
resulting from such sale.

d. Net profits for each fiscal year generally will be allocated in the same
manner in which cash available for distribution is distributed. Net losses for
each fiscal year generally will be allocated 99% to the limited partners and 1%
to the General Partner.

e. Gains recognized by the Partnership generally will be allocated in the
following order of priority: (i) to those Partners whose capital accounts have
negative balances until such negative balances are brought to zero; (ii) to all
Partners up to the amount necessary to bring the Partners' capital account
balances to an amount equal to their pro-rata share of the Partners' 12%
Preferred Distribution, as defined, plus their Net Invested Capital, as defined;
and (iii) thereafter, 80% to the limited partners and 20% to the General
Partner.

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

Liquidity and Financing Requirements

Adequate liquidity and capital are critical to the ability of the
Partnership to continue as a going concern. The Partnership has experienced
declining operations during the last four years. If operations in 2001 are
consistent with the results from 2000 and the budgeted operations for 2001, the
Partnership will have adequate cash flow to meet debt service during the year.
However, if operating results decline in 2001 the Partnership may not have
sufficient cash flow from current operations to make the required debt service
payments. In the event operations decline, the Partnership has the following
options in order to provide debt service funding. The Partnership can defer the
payment of ground rental expense exceeding 3% of gross revenues from the 32
leased Inns. The deferral becomes the obligation of the Partnership and is
payable thereafter to the extent that there is cash available after the payment
of debt service. The Partnership also has cash reserves to fund debt service.
However, depending on actual operating results, the reserves could be diminished
significantly. By virtue of subordinated ground rent and cash reserves, the
Partnership believes it will have sufficient cash to fund debt service in 2001.

The lack of available funds from operations over the past several years has
also delayed room refurbishments at the Inns. Based upon information provided by
the Manager, the estimated capital expenditure shortfall in available funds is
expected to be $15 million to $20 million. With the cost of the capital
expenditures reaching these levels, the cost does now, and will continue to,
exceed the Partnership's available funds. We currently are pursuing a plan that,
if approved by limited partners and various third parties, will result in the
investment of additional capital in the partnership to address this capital
shortfall. Until we reach a

F-8

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

resolution concerning funding of the capital expenditure shortfall, the
discretionary capital expenditures exceeding the amount available in our
property improvement fund will be deferred. The shortfall relates to scheduled
room refurbishments at the Inns as well as certain planned improvements to other
areas of the Partnership's Inns. Given the age of the properties, major
renovations are required, including the replacement of roofs, facades, carpets,
wall vinyl and furniture. Some of these capital expenditures are required by the
management agreement in order to satisfactorily maintain the Partnership Inns as
Fairfield Inn properties.

The General Partner is working with the Manager to address the capital
expenditure needs of the Inns. Under the management agreement, if the Manager
determines that the Partnership Inns are not satisfactorily maintained as
Fairfield Inn properties due to insufficient capital improvements, the Manager
may terminate the agreement. The Partnership recently received a notice from the
Manager stating that the Partnership's failure to fund the shortfall in funds
available for replacements of furniture, fixtures and equipment constitutes a
default under the management agreement and asserting a right to terminate the
management agreement in the future if the alleged default is not cured. The
Partnership notified the Manager that, based on the Partnership's review of the
management agreement, the failure to fund this shortfall does not constitute a
default and that they do not have the right to terminate the management
agreement at this time because they did not send a notice within the time period
specified under the management agreement. Accordingly because there is no
existing default, the Partnership has not developed a plan to address this
issue. If the capital shortfall is not satisfactorily resolved, however, the
Manager may have the right to terminate the management agreement and the
Partnership's right to use the Fairfield Inn by Marriott brand as early as the
first quarter of 2002. The Partnership currently does not have a plan in place
to catch up the shortfall. If the management agreement were terminated and the
Partnership lost the right to use the Fairfield Inn by Marriott brand, the
Partnership would need to replace the Manager with another nationally recognized
hotel operator and become part of a comparable nationally recognized hotel
system in order to comply with the obligations under the Partnership loan
documents. The Partnership is developing a restructuring plan that includes
seeking a buyer of its general partner interest who will invest new funds into
the Partnership (see Note 9).

For the years ended December 31, 2000, 1999 and 1998, the Partnership
contributed $5,987,000, $6,516,000 and $6,606,000, respectively, to the property
improvement fund. However, the Partnership's property improvement fund became
insufficient beginning in 1999. Therefore, in both 2000 and 1999 the Partnership
deposited $2.4 million to the property improvement fund to cover the capital
expenditure shortfall. The shortfall is primarily due to room refurbishments
which are planned for a majority of the Partnership's Inns in the next several
years. Therefore, no cash is expected to be available for distribution to the
partners in 2001.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The Partnership 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

F-9

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the estimated useful lives of the assets which is, generally 30 years for
building, leasehold and land improvements, and 4 to 10 years for furniture and
equipment. The Partnership records depreciation using the modified accelerated
cost recovery system for income tax purposes. All property and equipment is
pledged as security for the refinanced mortgage debt.

The Partnership assesses impairment of its real estate properties based on
whether estimated undiscounted future cash flows from such properties will be
less than their net book value. If a property is impaired, its basis is adjusted
to its estimated fair value. The Partnership's policy for measuring the fair
value of impaired properties is to calculate the estimated present value of the
future cash flows used to determine whether an impairment exists. The discount
rate used is based on our estimate of discount rates reflected in prices paid
for similar assets. In 1998 and 1999, the Inns located in Atlanta Airport,
Georgia; Montgomery, Alabama; Orlando, Florida; Buena Park, California; Lansing,
Illinois and Charlotte-Northeast, North Carolina experienced declining cash
flows, primarily due to additional competition in their local markets. In 2000,
Inns located in Johnson City, Tennessee, Raleigh and Charlotte Airport, North
Carolina, and Columbus North, Ohio also experienced declining cash flows due to
additional competition in their local markets. As a result, during 2000, 1999
and 1998, the Partnership concluded that these Inns were impaired and adjusted
their basis to their estimated fair market value. The Partnership recorded an
impairment charge of $8,127,000 in 2000, $2,843,000 in 1999 and $9,497,000 in
1998.

Deferred Financing Costs

Deferred financing costs represent the costs incurred in connection with
the mortgage debt refinancing and are amortized over the term of the Mortgage
Debt. The Partnership incurred $4,864,000 of financing costs in connection with
the Mortgage Debt. The financing costs are being amortized using the
straight-line method, which approximates the effective interest method, over the
ten year term of the Mortgage Debt. At December 31, 2000 and 1999, accumulated
amortization of deferred financing costs totaled $1,927,000 and $1,440,000,
respectively.

Restricted Cash

The Partnership was required to establish certain reserves pursuant to the
terms of the mortgage debt. These are fully discussed in Footnote 5.

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.

Revenues

Revenue from operation of the Partnership's hotels is recognized when the
services are provided.

Ground Rent

The Land Leases include scheduled increases in minimum rents per property.
These scheduled rent increases, which are included in minimum lease payments,
are being recognized by the Partnership on a straight-line basis over the 99
year term of the leases. The adjustment included in ground rent expense and Due
to Marriott International, Inc. and affiliates to reflect minimum lease payments
on a straight-line basis was a decrease of $12,000 for the year ended December
31, 2000 and $218,000 for each of the years ended December 31, 1999 and 1998.
Deferred straight-line ground rent as of December 31, 1999 was $12,000. At year
end 2000, all deferred straight-line ground rent had been recognized.

F-10

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In addition, ground rent exceeding 3% of gross revenues of $1,082,000 and
$1,034,000 was deferred at December 31, 2000 and 1999, respectively. For a full
discussion see Note 6.

Income Taxes

Provision for Federal and state income taxes has not been made in the
accompanying 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 loss for financial reporting
purposes and the net loss as reported in the Partnership's tax return.

Application of New Accounting Standards

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This standard
establishes accounting and reporting standards requiring that derivative
instruments (including certain derivative instruments imbedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement is effective for fiscal years
beginning after June 15, 2000. The Partnership has determined that there will be
no impact from the implementation of SFAS No. 133.

Reclassifications

Certain reclassifications were made to prior year financial statements to
conform to the 2000 presentation.

NOTE 3. PROPERTY AND EQUIPMENT

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

2000 1999
--------- ---------
Land and improvements............................... $ 14,873 $ 14,873
Building and leasehold improvements................. 169,454 173,705
Furniture and equipment............................. 74,374 74,714
Construction in progress............................ 3,077 2,403
--------- ---------
261,778 265,695
Less accumulated depreciation and amortization...... (139,765) (128,758)
--------- ---------
$ 122,013 $ 136,937
========= =========

NOTE 4. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

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

AS OF DECEMBER 31, 2000 AS OF DECEMBER 31, 1999
------------------------- ------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------

Mortgage debt....................................... $153,569 $135,033 $157,897 $130,888
Incentive management fee due to Fairfield FMC
Corporation...................................... $ 2,849 $ 194 $ 23,483 $ --

The estimated fair value of the mortgage debt obligation is based on the
expected future debt service payments discounted at estimated market rates.
Incentive management fee due to the Manager are valued based on the expected
future payments from operating cash flow discounted at estimated risk adjusted
rates. In connection with the litigation settlement agreement, the Manager
forgave $23.5 million of deferred incentive management fees payable as of
December 31, 2000 which is included as an extraordinary gain on the statement of
operations for 2000.

F-11

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5. DEBT

Mortgage Debt

In 1997, the Partnership's mortgage debt was refinanced and increased to
$165.4 million. The mortgage debt is non-recourse, bears interest at a fixed
rate of 8.40% and requires monthly payments of principal and interest based upon
a 20-year amortization schedule for a 10-year term expiring January 11, 2007.
Thereafter, until the final maturity date of January 11, 2017, interest is
payable at an adjusted rate, and all excess cash flow is applied toward
principal amortization. The lender securitized the loan through the issuance and
sale of commercial mortgage backed securities.

The mortgage premium of $3.5 million is being amortized based on a 20-year
amortization schedule for a 10-year term expiring January 11, 2007. Accumulated
amortization of the mortgage premium at December 31, 2000 and 1999 was
$1,387,000 and $1,037,000, respectively, resulting in an unamortized balance of
$2,113,000 and $2,463,000, respectively.

Principal amortization of the Mortgage Debt at December 31, 2000 is as
follows (in thousands):

2001 ............................................... $ 4,369
2002 ............................................... 4,756
2003 ............................................... 5,177
2004 ............................................... 5,602
2005 ............................................... 6,132
Thereafter.......................................... 125,420
--------
151,456
Mortgage premium.................................... 3,500
Accumulated amortization of mortgage premium........ (1,387)
--------
2,113
Total mortgage debt............................ $153,569
========

The mortgage debt is secured by first mortgages on all of the Inns, the
land on which they are located, or an assignment of the Partnership's interest
under the Land Leases, including ownership interest in all improvements thereon,
fixtures and personal property related thereto.

Reserves

The Partnership was required by the lender or the manager to establish
various reserves for capital expenditures, working capital, debt service and
insurance needs.

The balances in those reserves as of December 31 are as follows (in
thousands):

2000 1999
------ ------
Debt service reserve.................. $4,873 $4,275
Supplemental debt service reserve..... 1,440 1,469
Working capital reserve............... 677 691
Taxes and insurance reserve........... 300 241
Ground rent reserve................... 225 225
Condemnation reserve.................. 211 201
Capital expenditure reserve........... -- 879
------ ------
Total restricted cash............ $7,726 $7,981
====== ======

F-12

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Partnership established reserves totaling $3,899,000 for certain
capital expenditure which were completed as of December 31, 1999 and the
remaining balance of $879,000 was returned to the Partnership during first
quarter 2000. Additionally, the Partnership was required to deposit two months'
debt service payments, or $2,850,000, into a debt service reserve. The
Partnership was also required to establish a ground rent reserve, which is
adjusted annually to equal one month's anticipated ground rent. The
Partnership's loan agreement requires that if a single downgrade of MII's debt
occurs, the Partnership is required to contribute an additional month's debt
service payment to the debt service reserve which was fully funded in 1999 and
over funded in 2000 by $598,000 due to timing. In addition, pursuant to the
terms of the mortgage debt subsequent to a downgrade of MII's debt, the
Partnership is required to establish with the lender a separate escrow account
for payments of insurance premiums and real estate taxes (the "Tax and Insurance
Escrow Reserve") for each mortgaged property. During 1998, Orange County in
Florida (the "County") paid the Partnership $197,000 for a portion of the land
in front of the Orlando South Fairfield Inn in Orlando, Florida. The funds have
been placed in an escrow account and shown as the condemnation reserve pending
the final resolution on the value of the land taken by the County they will
remain and accrue interest.

In addition, the Partnership entered into a Working Capital Maintenance and
Supplemental Debt Service Agreement ("Agreement") with the Manager, effective
January 13, 1997. As part of this Agreement, the Partnership agreed to furnish
the Manager additional working capital to be deposited into a segregated
interest bearing account (the "Working Capital Reserve"). The Working Capital
Reserve is to be funded from Operating Profit, as defined, retained by or
distributed to the Partnership as such amounts become available, until the
Working Capital Reserve reaches $670,000. This Agreement also requires the
funding of another segregated account for debt service shortfalls (the
"Supplemental Debt Service Reserve"). This reserve is also to be funded out of
Operating Profit, as defined, retained or distributed to the Partnership as such
amounts become available, until the Supplemental Debt Service Reserve reaches
$1,425,000. Interest earned on these reserve accounts was transferred to the
Partnership during first quarter 2001.

NOTE 6. LAND LEASES

The land on which 32 of the Inns are located is leased from MII or its
affiliates. The Land Leases expire on November 30, 2088 and provide that the
Partnership will pay annual rents equal to the greater of a specified minimum
rent for each property or a percentage rent based on gross revenues of the Inn
operated thereon. The minimum rentals are adjusted at various anniversary dates
through 2000, as defined in the agreements. The minimum rentals are adjusted
annually for the remaining life of the leases based on changes in the Consumer
Price Index. The percentage rent, which also varies from property to property,
is fixed at predetermined percentages of gross revenues that increase over time.

Minimum future rental payments during the term of the Land Leases as of
December 31, 2000 are as follows (in thousands):

MINIMUM
-------
LEASE YEAR RENTAL
---------- ------
2001.......... $ 2,825
2002.......... 2,825
2003.......... 2,825
2004.......... 2,825
2005.......... 3,093
Thereafter.... 539,827
--------
$554,220
========

F-13

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Total rental expense on the Land Leases was $2,965,000 for 2000, $2,742,000
for 1999 and $2,646,000 for 1998.

In connection with the refinancing, beginning in 1997 until the Mortgage
Debt is repaid, the payment of rental expense exceeding 3% of gross revenues
from the 32 leased Inns in the aggregate shall be deferred in any fiscal year
that cash flow is less than the regularly scheduled principal and interest
payments on the Mortgage Debt. The deferral shall then be payable in the
following year if cash flow is sufficient to pay the regularly scheduled
principal and interest payments for the Mortgage Debt. Ground rent payable to
MII and its affiliates at December 31, 2000 and 1999 was $1,082,000 and
$1,034,000, respectively, and is included in Due to Marriott International, Inc.
and affiliates on the accompanying balance sheet.

Under the leases, the Partnership pays all costs, expenses, taxes and
assessments relating to the Inns and the underlying land, including real estate
taxes. Each Land Lease provides that the Partnership has a first right of
refusal in the event the applicable ground lessor decides to sell the leased
premises. Upon expiration or termination of a Land Lease, title to the
applicable Inn and all improvements reverts to the ground lessor.

NOTE 7. MANAGEMENT AGREEMENT

The Partnership is a party to a long-term management agreement (the
"Management Agreement") with the Manager.

In conjunction with the 1997 mortgage refinancing, the initial term of the
Management Agreement was extended ten years to December 31, 2019. The Manager
has the option to renew the Management Agreement as to one or more of the Inns
at its option, for up to four additional 10-year terms plus one five-year term.
The Manager is paid a base management fee equal to 2% of gross Inn revenues and
a Fairfield Inn system fee equal to 3% of gross Inn revenues. In addition, the
Manager is entitled to an incentive management fee equal to 15% of Operating
Profit as defined, increasing to 20% after the Inns have achieved total
Operating Profit during any 12 month period equal to or greater than $33.9
million. As of December 31, 2000, operating profit did not exceed $33.9 million.
The incentive management fee with respect to each Inn is payable out of 50% of
cash flow from operations remaining after payment of ground rent, debt service,
partnership administrative expenses and the owner's priority return, as defined.

In accordance with the Management Agreement, incentive management fees
earned through 1992 were waived by the Manager. Incentive management fees earned
after 1992 accrue and are payable as outlined above or from Capital Receipts.
Due to the litigation settlement agreement (see Note 8), $23,483,000 of deferred
incentive management fees were waived by the Manager in 2000. As a result, the
Partnership recognized an extraordinary gain for this amount in 2000. During
2000, 1999 and 1998, the Manager deferred $2,849,130, $2,775,000 and $3,640,000
of incentive management fees, respectively. Deferred incentive management fees
at December 31, 2000 and 1999 were $2,849,130 and $23,483,000, respectively.

The Manager is required to furnish certain services ("Chain Services")
which are furnished generally on a central or regional basis to all managed or
owned Inns in the Fairfield Inn by Marriott hotel system. Costs and expenses
incurred in providing such services are allocated among all domestic Fairfield
Inn by Marriott hotels managed, owned or leased by MII or its subsidiaries,
based upon one or a combination of the following: (i) percent of revenues, (ii)
total number of hotel rooms, (iii) total number of reservations booked, and (iv)
total number of management employees. The Inns also participate in MII's
Marriott Rewards Program ("MRP"). The cost of this program is charged to all
hotels in the full-service, Residence Inn by Marriott, Courtyard by Marriott and
Fairfield Inn by Marriott systems based upon the MRP revenues at each hotel. The
total amount of chain services and MRP costs allocated to the Partnership for
the years ended December 31, 2000, 1999 and 1998 was $1,691,000, $1,773,000 and
$1,600,000, respectively. In addition, the Manager maintains a marketing fund to
pay the costs associated with certain system-wide advertising, marketing, sales,
promotional and public

F-14

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

relations materials and programs. Each Inn within the system contributes
approximately 2.4% of gross Inn revenues to the marketing fund. For the years
ended December 31, 2000, 1999 and 1998, the Partnership contributed $2,526,000,
$2,262,000 and $2,359,000, respectively, to the marketing fund.

Pursuant to the terms of the Management Agreement, the Partnership is
required to provide the Manager with working capital and supplies 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. This advance earns no interest and
remains the property of the Partnership throughout the term of the Management
Agreement. The Partnership is required to advance upon request of the Manager
any additional funds necessary to satisfy the needs of the Inns as their
operations may require from time to time. Upon termination of the Management
Agreement, the Manager will return to the Partnership any unused working capital
and supplies. The individual components of working capital and supplies
controlled by the Manager are not reflected in the Partnership's balance sheet.
At the inception of the Partnership, $1,000,000 was advanced to the Manager for
working capital and supplies which is included in Due from Marriott
International, Inc. and affiliates in the accompanying balance sheet.

The Management Agreement provides for the establishment of a property
improvement fund for the Inns to cover (a) the cost of certain non-routine
repairs and maintenance to the Inns which are normally capitalized; and (b) the
cost of replacements and renewals to the Inns' property and improvements.
Contributions to the property improvement fund are based on a percentage of
gross revenues of each Inn equal to 7%. During 2000, $416,000 of these
contributions were reallocated to pay for debt service. For the years ended
December 31, 2000, 1999 and 1998, the Partnership contributed $5,987,000,
$6,516,000, and $6,606,000, respectively, to the property improvement fund.
However, if the Manager determines 7% exceeds the amount needed for making
capital expenditures, then the Manager can adjust the incentive management fee
calculation to exclude as a deduction in calculating incentive management fees
up to one percentage point of contributions to the property improvement fund. No
adjustment was necessary for 2000. However, the Partnership's property
improvement fund became insufficient during 1999. Therefore, in 1999 the
Partnership deposited $2.4 million to the property improvement fund to cover the
capital expenditure shortfall. This amount was treated as a deduction in
calculating incentive management fees in 2000 under the terms of the Management
Agreement. The shortfall is primarily due to room refurbishments planned for a
majority of the Partnership's Inns over the next several years.

The Management Agreement provides that the Partnership may terminate the
Management Agreement and remove the Manager if, specified minimum operating
results are not achieved. The Manager may, however, prevent termination by
paying to the Partnership such amount as necessary to achieve the above
performance standard.

NOTE 8. LITIGATION

In March 2000, the Defendants entered into a settlement agreement with
counsel for the plaintiffs to resolve litigation in seven partnerships,
including the Partnership. Under the terms of the settlement, the Defendants
paid $18,809,103 in cash in exchange for dismissal of the litigation and a
complete release of all claims in October 2000. Each limited partner received
$152 per Unit. In addition to the Defendants' cash payments, the Manager forgave
$23,483,000 of deferred management fees.

NOTE 9. SUBSEQUENT EVENTS

As of August 16, 2001, holders of a majority of the partnership units
consented to the amendment of the Partnership agreement as part of a
restructuring plan. As part of that plan, on that date, FIBM One LLC,
transferred its general partner interest in the Partnership to AP-Fairfield GP,
LLC (the "New General Partner").

Also, as part of the restructuring plan, the Partnership filed a Form S-1
Registration Statement, in which the Partnership is offering its limited
partners the right to purchase $23 million in subordinated notes due in 2007.

Upon closing of the offering, the New General Partner plans to implement
each of the following additional steps to the restructuring plan:

o Terminate the management agreement with the existing Manager and
retain Sage Management Resources III, LLC ("Sage") as the new
manager for its inns;

o Execute a new franchise agreement with MII for each inn; and

o Amend the ground lease underlying 32 of its inns.

Implementation of such steps is subject to the review and ultimate approval
by all of the involved parties.

F-15

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

CONDENSED BALANCE SHEETS
(in thousands)

June 15, December 31,
2001 2000
------------- ----------------
(unaudited)

ASSETS

Property and equipment, net....................................................$ 122,045 $ 122,013
Due from Marriott International, Inc. and affiliates........................... 3,162 1,215
Deferred financing costs, net of accumulated amortization...................... 2,712 2,937
Property improvement fund...................................................... 4,013 5,489
Restricted cash................................................................ 6,035 7,726
Cash and cash equivalents...................................................... 5,001 7,702
------------- ----------------

$ 142,968 $ 147,082
============= ================

LIABILITIES AND PARTNERS' DEFICIT

LIABILITIES
Mortgage debt..................................................................$ 151,252 $ 153,569
Due to Marriott International, Inc. and affiliates............................. 5,573 3,931
Accounts payable and accrued liabilities....................................... 3,282 2,911
------------- ----------------

Total Liabilities........................................................ 160,107 160,411
------------- ----------------

PARTNERS' DEFICIT
General Partner................................................................ (121) (83)
Limited Partners............................................................... (17,018) (13,246)
------------- ----------------

Total Partners' Deficit.................................................. (17,139) (13,329)
------------- ----------------

$ 142,968 $ 147,082
============= ================

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

F-16

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

CONDENSED STATEMENTS OF OPERATIONS
(Unaudited, in thousands)

Twelve Weeks Ended Twenty-Four Weeks Ended
June 15, June 16, June 15, June 16,
2001 2000 2001 2000
------------- ------------- ------------- -------------

REVENUES
Rooms............................................. $ 20,525 $ 22,120 $ 38,292 $ 40,898
Other inn revenues................................ 401 507 763 1,142
Other revenues.................................... -- -- 656 --
------------- ------------- ------------- -------------
20,926 22,627 39,711 42,040
------------- ------------- ------------- -------------

OPERATING EXPENSES
Rooms............................................. 6,324 6,876 12,041 12,902
Other department costs and expenses............... 675 436 962 864
Selling, administrative and other................. 6,219 6,766 12,301 12,885
Depreciation...................................... 2,757 3,410 5,423 6,807
Ground rent, taxes and other...................... 1,955 1,896 4,297 3,731
Incentive management fee.......................... 660 727 1,076 1,256
Fairfield Inn system fee.......................... 628 679 1,172 1,261
Base management fee............................... 418 453 781 841
------------- ------------- ------------- -------------
19,636 21,243 38,053 40,547
------------- ------------- ------------- -------------

OPERATING PROFIT..................................... 1,290 1,384 1,658 1,493
Interest expense.................................. (2,970) (3,050) (5,889) (6,154)
Interest income................................... 264 298 421 565
------------- ------------- ------------- -------------

NET LOSS............................................. $ (1,416) $ (1,368) $ (3,810) $ (4,096)
============= ============= ============= =============

ALLOCATION OF NET LOSS
General Partner................................... $ (14) $ (14) $ (38) $ (41)
Limited Partners.................................. (1,402) (1,354) (3,772) (4,055)
-------------- -------------- -------------- --------------

$ (1,416) $ (1,368) $ (3,810) $ (4,096)
============== ============== ============== ==============

NET LOSS PER LIMITED PARTNER UNIT
(83,337 Units).................................... $ (17) $ (16) $ (45) $ (49)
============== ============== ============== ==============

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

F-17

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

Twenty-Four Weeks Ended
June 15, June 16,
2001 2000
------------- --------------

OPERATING ACTIVITIES
Net loss.........................................................................$ (3,810) $ (4,096)
Depreciation..................................................................... 5,423 6,807
(Gain)/loss on disposition of fixed assets....................................... (10) 10
Amortization of deferred financing costs......................................... 225 225
Amortization of mortgage debt premium............................................ (161) (161)
Deferral of incentive management fee ............................................ 1,076 1,256
Changes in operating accounts.................................................... 83 (2,380)
------------- --------------

Cash provided by operating activities...................................... 2,826 1,661
------------- --------------

INVESTING ACTIVITIES
Additions to property and equipment.............................................. (5,445) (2,085)
Change in property improvement fund.............................................. 1,476 (2,910)
Change in restricted cash........................................................ -- 879
------------- --------------

Cash used in investing activities.......................................... (3,969) (4,116)
------------- --------------

FINANCING ACTIVITIES
Repayment of mortgage debt....................................................... (2,156) (1,947)
Change in restricted cash........................................................ 598 --
------------- --------------

Cash used in financing activities.......................................... (1,558) (1,947)
------------- --------------

DECREASE IN CASH AND CASH EQUIVALENTS............................................... (2,701) (4,402)

CASH AND CASH EQUIVALENTS at beginning of period.................................... 7,702 10,061
------------- --------------

CASH AND CASH EQUIVALENTS at end of period..........................................$ 5,001 $ 5,659
============= ==============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for mortgage interest..................................................$ 6,232 $ 6,603
============= ==============

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

F-18

FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

1. ORGANIZATION

Fairfield Inn by Marriott Limited Partnership (the "Partnership"), a Delaware
limited partnership, owns 50 Fairfield Inn by Marriott properties (the "Inns")
located in sixteen states within the contiguous United States. The Partnership
leases 32 of the inns from Marriott International, Inc. ("MII") and certain of
its affiliates. The Inns are operated under a management agreement by Fairfield
FMC Corporation (the "Manager"), a wholly-owned subsidiary of MII.

On July 13, 2001, the general partner requested consent from the limited
partners to permit the implementation of a restructuring plan intended to
address the Partnership's continued decline in operating results and provide up
to $23 million of additional capital. Consent of more than half of the limited
partners is required to implement the restructuring plan (see Note 4).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed financial statements have been prepared by
the Partnership. Certain information and footnote disclosures normally included
in financial statements presented in accordance with accounting principles
generally accepted in the United States have been condensed or omitted from the
accompanying statements. The Partnership believes the disclosures made are
adequate to make the information presented not misleading. However, the
unaudited, condensed financial statements should be read in conjunction with the
Partnership's audited financial statements and notes thereto for the year ended
December 31, 2000 included elsewhere in this registration statement.

In the opinion of the Partnership, the accompanying unaudited, condensed
financial statements reflect all normal and recurring adjustments necessary to
present fairly the financial position of the Partnership as of June 15, 2001,
the results of its operations for the twelve and twenty-four weeks ended June
15, 2001 and June 16, 2000, and cash flows for the twenty-four weeks ended June
15, 2001 and June 16, 2000. Interim results are not necessarily indicative of
full year performance because of seasonal and short-term variations.

For financial reporting purposes, the net income of the Partnership is allocated
99% to the limited partners and 1% to FIBM One LLC (the "General Partner").
Significant differences exist between the net income for financial reporting
purposes and the net income for Federal income tax purposes. These differences
are due primarily to the use, for Federal income tax purposes, of accelerated
depreciation methods and shorter depreciable lives for certain assets and
differences in the timing of the recognition of certain fees and straight-line
rent adjustments.

3. AMOUNTS PAID TO MARRIOTT INTERNATIONAL, INC.

The following table provides the significant expenses payable to Marriott
International and its affiliates year-to-date as of June 15, 2001 and June 16,
2000 (in thousands):

Year-to-Date as of
June 15, June 16,
2001 2000
----------- -----------
Fairfield Inn system fee........................$ 1,172 $ 1,261
Ground rent..................................... 1,342 1,364
Reservation costs............................... 1,212 1,366
Marketing fund contribution..................... 957 1,022
Incentive management fee........................ 1,076 1,256
Base management fee............................. 781 841
Chain services allocation....................... 683 736
----------- -----------
Total..................................$ 7,223 $ 7,846
=========== ===========

4. SUBSEQUENT EVENTS

Upon closing of the offering, the New General Partner plans to implement
each of the following additional steps to the restructuring plan:

o Terminate the management agreement with the existing Manager and
retain Sage Management Resources III, LLC ("Sage") as the new
manager for its inns;

o Execute a new franchise agreement with MII for each inn; and

o Amend the ground lease underlying 32 of its inns.

Implementation of such steps is subject to the review and ultimate approval
by all of the involved parties.

F-19

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all costs and expenses payable by the
Registrant in connection with the issuance and distribution of the securities
described in this registration statement. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee.

Item Amount
---- ------
Securities and Exchange Commission registration fee................. $5,750
Blue Sky qualification fees and expenses............................ *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Miscellaneous expenses.............................................. *
-------
Total............................................................... $ *

* To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Except as specifically provided in the Revised Uniform Limited Partnership
Act of the State of Delaware (the "Delaware Act"), the general partner is liable
for our obligations in the same manner as a partner would be liable in a
partnership without limited partners to persons other than the partnership and
the other partners. Generally speaking, any general partner is fully liable for
any and all of the debts or other obligations of the partnership as and to the
extent the partnership is either unable or fails to meet such obligations. Thus,
the assets of the general partner may be reached by our creditors to satisfy our
obligations or other liabilities, other than non-recourse liabilities, to the
extent our assets are insufficient to satisfy such obligations or liabilities.

The Delaware Act provides that: "Subject to such standards and
restrictions, if any, as set forth in its partnership agreement, a limited
partnership may, and shall have the power to, indemnify and hold harmless any
partner or other person from and against any and all claims and demands
whatsoever." The partnership agreement provides that the general partner and its
affiliates who perform services for the partnership on behalf of the general
partner (within the scope of its authority as the general partner of the
partnership) will not be liable to the partnership or the limited partners for
liabilities, costs and expenses incurred as a result of any act or omission of
the general partner or such person provided:

II-1

o such acts or omissions were determined by the general partner or such
person, in good faith, to be in our best interests;

o such acts or omissions were within the general partner's scope of
authority granted by the partnership agreement, by law or by the
limited partners in accordance with the partnership agreement; and

o the conduct of the general partner or such person did not constitute
negligence, fraud, misconduct or breach of fiduciary duty to us or any
partner. The partnership agreement also provides that the general
partner and such persons will be indemnified out of partnership assets
against any loss, liability or expense arising out of any act or
omission so long as the general partner or such persons has satisfied
the requirements of clauses (1), (2) and (3) above. We, however, may
indemnify the general partner or any other person for losses, costs and
expenses incurred in successfully defending or settling claims arising
out of alleged securities laws violations only if certain specific
additional requirements are met. The partnership agreement provides
that any indemnification obligation shall be paid solely out of our
assets.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to partners and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, we have been advised that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act, and is, therefore, unenforceable.
If a claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid in the successful defense or any
action, suit or other proceeding) is asserted against us by such a person in
connection with the securities registered hereby, and if the Securities and
Exchange Commission is still of the same opinion, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

There were no sales of securities within the past three years by the
Registrant.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

EXHIBIT NUMBER DESCRIPTION
-------------- -----------

3.1 Amended and Restated Agreement of Limited Partnership of
Fairfield Inn by Marriott Limited Partnership by and among
Marriott FIBM One Corporation (General Partner),
Christopher G. Townsend (Organizational Limited Partner),
and those persons who become Limited Partners (Limited
Partners) dated July 31, 1990.*

3.1.1 First Amendment to Amended and Restated Agreement of
Limited Partnership (the "LPA") dated as of December 28,
1998.*

II-2

3.1.2 Second Amendment to the LPA dated as of May 31, 2001.**

3.1.3 Third Amendment to the LPA dated as of August 16, 2001.**

3.1.4 Fourth Amendment to the LPA dated as of August 16, 2001.**

4.1 Form of Indenture.**

4.2 Form of Note.**

5.1 Opinion of Rosenman & Colin LLP.

10.1 Management Agreement by and between Fairfield Inn by
Marriott Limited Partnership (Owner) and Fairfield FMC
Corporation (Management Company) dated November 17, 1989.*

10.1 Loan Agreement between Fairfield Inn by Marriott Limited
Partnership and Nomura Asset Capital Corporation dated
January 13, 1997 (the "Loan Agreement").*

10.2 Secured Promissory Note made by Fairfield Inn by Marriott
Limited Partnership (the "Maker") to Nomura Asset Capital
Corporation (the "Payee") dated January 13, 1997.*

10.3 Form of Ground Lease.*

10.3.1 Form of Amendement to Ground Lease.**

10.4 Form of Management Agreement by and between Fairfield Inn
by Marriott Limited Partnership and Sage Management
Resources III, LLC.**

10.5 Form of Franchise Agreement by and between Fairfield Inn
by Marriott Limited Partnership and Marriott
International.**

10.6 Form of Fifth Amendment to the Loan Agreement.**

10.7 Form of Subordination Agreement.**

12.1 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.

23.1 Consent of Arthur Andersen LLP, independent public
accountants.

23.2 Consent of Rosenman & Colin LLP (included in Exhibit 5.1).

24.1 Power of Attorney.

25.1 Statement of Eligibility under the Trust Indenture Act of
1939.**

99.1 Subscription Form.

(B) FINANCIAL STATEMENT SCHEDULES

SCHEDULE NUMBER DESCRIPTION
--------------- -----------
Schedule III Real Estate and Accumulated Depreciation

---------------------
* Filed as an Exhibit to the Company's Registration Statement on Form 10
(File No. 000-23685), which was declared effective by the Securities and
Exchange Commission, and incorporated herein by reference.

II-3

** To be filed by amendment.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes (i) that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof and (ii) to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the amount of unsubscribed securities to be purchased by the
Guarantor and the terms of any subsequent reoffering thereof. If any public
offering by the undersigned registrant is to be made on terms differing from
those set forth on the cover page of the prospectus, a post-effective amendment
will be filed to set forth the terms of such offering.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on September 21, 2001.

FAIRFIELD IN BY MARRIOT LIMITED
PARTNERSHIP

By: AP-Fairfield GP, LLC
its general partner

By: AP-Fairfield Manager Corp.,
its manager

By: /s/ Michael L. Ashner
---------------------------------
Michael L. Ashner
Chief Executive Officer

II-5

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael L. Ashner and Peter Braverman as such
person's true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
fully to all intents and purposes as such person might or could do in person
thereby ratifying and confirming all that said attorney-in- fact and agent, or
his substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dated indicated.

Signature Title Date
------------ ------ -----

/s/ Michael L. Ashner Chief Executive Officer September 21, 2001
------------------------- and sole director of AP-
Michael L. Ashner Fairfield Manager Corp.,
the manager of the general
partner of the Registrant

/s/ Carolyn T. Tiffany Chief Operating Officer September 21, 2001
------------------------- of AP-Fairfield Manager Corp.
Carolyn T. Tiffany (Principal Financial Officer)

II-6

EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION
-------------- -----------

3.1.1 First Amendment to Amended and Restated Agreement of
Limited Partnership (the "LPA") dated as of December 28,
1998.*

3.1.2 Second Amendment to the LPA dated as of May 31, 2001.**

3.1.3 Third Amendment to the LPA dated as of August 16, 2001.**

3.1.4 Fourth Amendment to the LPA dated as of August 16, 2001.**

4.1 Form of Indenture.**

4.2 Form of Note.**

5.1 Opinion of Rosenman & Colin LLP.

10.1 Management Agreement by and between Fairfield Inn by
Marriott Limited Partnership (Owner) and Fairfield FMC
Corporation (Management Company) dated November 17, 1989.*

10.1 Loan Agreement between Fairfield Inn by Marriott Limited
Partnership and Nomura Asset Capital Corporation dated
January 13, 1997 (the "Loan Agreement").*

10.2 Secured Promissory Note made by Fairfield Inn by Marriott
Limited Partnership (the "Maker") to Nomura Asset Capital
Corporation (the "Payee") dated January 13, 1997.*

10.3 Form of Ground Lease.*

10.3.1 Form of Amendement to Ground Lease.**

10.4 Form of Management Agreement by and between Fairfield Inn
by Marriott Limited Partnership and Sage Management
Resources III, LLC.**

10.5 Form of Franchise Agreement by and between Fairfield Inn
by Marriott Limited Partnership and Marriott
International.**

10.6 Form of Fifth Amendment to the Loan Agreement.**

10.7 Form of Subordination Agreement.**

12.1 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.

23.1 Consent of Arthur Andersen LLP, independent public
accountants.

23.2 Consent of Rosenman & Colin LLP (included in Exhibit 5.1).

24.1 Power of Attorney.

25.1 Statement of Eligibility under the Trust Indenture Act of
1939.**

99.1 Subscription Form.

** To be filed by amendment.