UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

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

Date of Report (date of earliest event reported): March 29, 2002

APPLE HOSPITALITY TWO, INC.
(Exact name of registrant as specified in its charter)

Virginia 333-53984 54-2010305
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)

10 South Third Street, Richmond, VA 23219
(Address of principal executive offices) (Zip Code)

(804) 344-8121
(Registrant's telephone number, including area code)

Item 2. Acquisition or Disposition of Assets

Apple Hospitality Two, Inc. (which is referred to below as the "Company" or
as "we," "us" or "our") is filing this report pursuant to Item 2 of Form 8-K.
This report describes certain acquisitions involving a "significant amount" of
assets within the meaning of the General Instructions to Form 8-K. Certain
related matters also are reported below.

Overview

On March 29, 2002, we acquired, through our subsidiaries, Marriott
Residence Inn Limited Partnership, which owns 15 extended-stay hotels. For
simplicity, this entity will be referred to as the "Partnership." Although the
acquisition was conducted through a merger in which our subsidiaries acquired
the Partnership, the purpose and result was our acquisition of the hotels. Each
hotel operates as part of the Residence Inn(R) by Marriott(R) franchise system.
The hotels are described in another section below.

The total base purchase price for the acquisition was $133.4 million. The
purchase price, as subject to certain adjustments at closing, was paid through a
combination of transactions, as described below. In November 2001, we made a
deposit of $35 million, which was applied toward the purchase price at closing.
In addition, we made a cash payment of approximately $7 million at closing. Our
source for these funds was our ongoing and registered public offering of units
(with each unit consisting of one Common Share and one Series A Preferred
Share). To satisfy the remainder of the purchase price, we received a credit at
closing equal to the unpaid balance of existing loans, which are secured by the
hotels.

The secured loans will continue to be an obligation of the Partnership,
which continues to own the hotels. Further details about the secured loans are
provided in the next section. We also used the proceeds of our ongoing offering
to pay 2% of the total base purchase price, which equals $2,667,052, as a
commission to Apple Suites Realty Group, Inc. This entity is owned by Glade M.
Knight, who is one of our directors and our Chief Executive Officer.

Acquisition and Related Matters

New Subsidiaries
----------------

We formed new subsidiaries to acquire the Partnership and its 15 hotels.
Specifically, we formed two direct wholly-owned subsidiaries. One of these
subsidiaries, AHT Res I GP, Inc., acquired the entire general partnership
interest in the Partnership and now holds a 1% interest as its sole general
partner. The other newly-formed and directly-owned subsidiary, AHT Res I LP,
Inc., acquired the entire limited partnership interest in the Partnership and
now holds a 99% interest as its sole limited partner. The Partnership directly
owns all of the hotels.

We also formed new subsidiaries in connection with the leasing of the
hotels from the Partnership under a master hotel lease agreement, which is one
of the material contracts summarized in another section below. Specifically, we
formed AHM Res I GP, Inc. and AHM Res I LP, Inc., to serve as the sole general
partner and sole limited partner, respectively, of AHM Res I Limited
Partnership. This limited partnership was formed as one of our indirect,
wholly-owned subsidiaries to lease the hotels and will be referred to, for
simplicity, as the "Lessee."

Loans Secured By Hotels
-----------------------

The Partnership, the direct owner of the hotels, is also the borrower under
secured loans from two lenders (with one being the senior lender and the other
being the subordinate lender). The senior lender is LaSalle Bank National
Association as Trustee for Mortgage Pass-Through Certificates Series 1996-2. The
senior lender holds separate loans for each hotel in the aggregate original
principal amount of $100 million. Each loan held by the senior lender is secured
by a first mortgage on the hotel involved and by a related first priority
security interest in the rents, revenues and other personal property of such
hotel. On March 29, 2002, the aggregate unpaid principal balance of these senior
loans was $70,868,403. Each senior loan bears interest at an annual rate of
8.60% and has a maturity date of September 30, 2002. The aggregate monthly
payment under the senior loans is $874,163. An aggregate balloon payment in the
amount of approximately $70 million is scheduled to be due at maturity.

The subordinate lender is LaSalle Bank National Association, as Indenture
Trustee for Benefit of the Holders of iStar Asset Receivables Trust
Collaterialized Mortgage Bonds Series 2000-1. The subordinate lender holds a
loan in the original principal amount of $30 million. The subordinate loan is
secured by a subordinate mortgage on the hotels and by related second priority
security interests in the rents, revenues and other personal property of the
hotels. On March 29, 2002, the unpaid principal balance of the subordinate loan
was $20,734,191. The subordinate loan bears interest at an annual rate of 15.25%
and requires monthly payments of $400,590. The maturity date is September 30,
2002. A balloon payment in the amount of approximately $20 million is scheduled
to be due at maturity.

We expect that revenues from the hotels will be sufficient to make monthly
payments under the secured loans described in the above paragraphs. If hotel
revenues are not sufficient and other sources of funds are not available, we
could lose the hotels through foreclosure. While the secured loans remain
outstanding, certain covenants apply to the Partnership, as the borrower, and
its general partner. Among other things, these covenants (a) prohibit the
borrower and its general partner from engaging in any business that is not
related to the hotels or the secured loans, (b) require the borrower and its
general partner to each maintain a separate legal identity and an arms-length
relationship with affiliates, (c) restrict the transfer of ownership interests
in the borrower, its general partner or the hotels, (d) limit the extent to
which modifications may be made to the organizational documents of the borrower
or its general partner, or to the master hotel lease agreement or the amendment
and restatement of management agreement, and (e) require the general partner of
the borrower to maintain a net worth of at least $6,600,000, which has been
funded through an inter-company transfer.

Currently, we plan to pay the balloon payments due September 30, 2002 under
the secured loans by using proceeds from new financing provided by a suitable
lender. However, we have not yet obtained any commitment for such financing and
the terms of any such financing, including the interest rate and maturity date,
cannot be predicted. We would expect, however, that the financing would be
secured by the hotels and would have other terms and conditions customary for a
large secured commercial loan transaction.

Other Actions
-------------

The hotels are being managed by Residence Inn By Marriott, Inc., which will
be referred to, for simplicity, as the "Manager." Such management is being
undertaken in accordance with an amendment and restatement of management
agreement, which is among the material contracts described in the next section.

Summary of Material Contracts

Agreement and Plan of Merger
----------------------------

The acquisition of the Partnership and the 15 hotels occurred in accordance
with an agreement and plan of merger dated as of November 28, 2001. The closing
occurred on March 29, 2002 after a number of required conditions to closing were
satisfied.

Master Hotel Lease Agreement
----------------------------

The Lessee is one of our indirect, wholly-owned subsidiaries and is leasing
the 15 hotels from the Partnership under a master hotel lease agreement dated as
of March 29, 2002. For simplicity, this agreement will be referred to as the
"Master Lease." The Master Lease provides for an initial term of 15 years. The
Lessee has the option to extend the Master Lease term for two additional
five-year periods, provided it is not in default at the end of the prior term or
at the time the option is exercised. The Master Lease provides that the Lessee
will pay an annual base rent, a quarterly percentage rent and a quarterly sundry
rent. Each type of rent is explained below.

Annual base rent is payable in advance in equal monthly installments. The
base rent will be adjusted each year in proportion to the Consumer Price Index
(based on the U.S. City Average). The lease commencement date for each of the
hotels is March 29, 2002. The base rents for the hotels range from $406,223 to
$4,231,315. Percentage rent is payable quarterly. Percentage rent depends on a
formula that compares fixed "suite revenue breakpoints" with a portion of "suite
revenue," which is equal to gross revenue from suite rentals less sales and room
taxes, credit card fees and sundry rent (as described below). The suite revenue
breakpoints will be adjusted each year in proportion to the Consumer Price Index
(based on the U.S. City Average). Specifically, the percentage rent is equal to
the sum of (a) 17% of all year-to-date suite revenue, up to the applicable suite
revenue breakpoint; plus (b) 55% of the year-to-date suite revenue in excess of
the applicable suite revenue breakpoint, as reduced by base rent and the
percentage rent paid year to date. The sundry rent is payable quarterly and
equals 55% of all sundry revenue, which consists of revenue other than suite
revenue, less the amount of sundry rent paid year-to-date.

Amendment and Restatement of Management Agreement
-------------------------------------------------

The Manager has agreed to manage the hotels under an amendment and
restatement of management agreement with the Lessee dated as of March 29, 2002.
For simplicity, this agreement will be referred to as the "Management
Agreement." The Management Agreement is similar to the prior management
agreement for the hotels, which had been executed in 1988. Management services
under the Management Agreement include supervising the operation of the hotels
and collecting revenues from their operation for the benefit of the Lessee.

The initial term of the Management Agreement will continue until December
28, 2007. The Manager may renew the term of the Management Agreement for five
periods of 10 years each, provided that an event of default by the Manager has
not occurred and provided that the Manager exercises its renewal option with
respect to at least 80% of the hotels that either meet the then-current brand
standards for Residence Inn(R) by Marriott(R) or are subject to property
improvement programs reasonably required by the Manager. The Manager may elect
to renew for an additional term by giving notice to the Lessee at least 18
months before the expiration of the then current term. Such renewal may apply to
all or only some of the hotels. The Lessee may terminate the Management
Agreement with respect to all of the hotels if the total operating profit for
any specified period of time does not reach a specified minimum amount. Written
notice of any such termination must be delivered to the Manager no later than 60
days after the receipt by the Lessee of the pertinent annual accounting. The
Manager has the option to avoid

such termination by advancing the amount of any deficiency in operating profit
to the Lessee within 60 days after the Manager's receipt of the termination
notice.

The Manager will receive a management fee for its services. The total
management fee consists of (a) a base management fee calculated on the basis of
gross revenues, (b) a Residence Inn(R) system fee calculated on the basis of
suite revenues and (c) an incentive management fee calculated on the basis of
operating profit. The formulas for these fees are complex and were the result of
prior negotiations between the Partnership and the Manager, but were not
materially modified in connection with our acquisition of the Partnership.

The Manager also may exercise a right of first refusal if the Partnership,
as the direct owner of the hotels, receives a bona fide written offer from a
third party for the purchase or lease of any one or more of the hotels or for
the purchase of a "controlling interest" (generally, a majority interest) in the
Partnership or the Lessee or the general partner of either of them. In such an
event, the Lessee must cause the Partnership to give prior notice to the
Manager, which will then have 30 days in which to exercise its right of first
refusal. Any such purchase, lease or other acquisition of the hotels by the
Manager would occur on the same terms and conditions as those set forth in the
bona fide offer. The Management Agreement would remain in effect as to any other
hotels not involved in such sale, lease or other disposition.

Owner Agreement
---------------

In an owner agreement dated as of March 29, 2002, the Manager granted its
consent to our acquisition of the Partnership and to the Master Lease. In
return, the Partnership, as the direct owner of the hotels, agreed to guarantee
the performance of the obligations, including monetary obligations, of the
Lessee under the Management Agreement.

Agreements with Lenders
-----------------------

The two secured lenders granted their consent to our acquisition of the
Partnership and to the leasing of the hotels to the Lessee by separate consents
to merger agreement, each dated as of March 29, 2002.

In two separate loan modification agreements, each dated as of March 29,
2002, the Partnership, its general partner, the Lessee and the secured lenders
agreed to modify the secured loans to reflect the transactions described above,
including our acquisition of the Partnership.

In a first amendment to four party agreement dated as of March 29, 2002,
the Partnership, the Lessee, the secured lenders and the Manager amended an
earlier agreement among such parties (or their predecessors) to reflect the
transaction and, in essence, to agree that upon the occurrence of a default
under the secured loans, the Manager would pay monies otherwise payable to the
Partnership or the Lessee to a cash collateral account benefiting the secured
lenders.

In separate environmental liability indemnity agreements, each dated as of
March 29, 2002, the subsidiary we formed to serve as the new general partner of
the Partnership and the

Lessee jointly and severally agreed to indemnify the secured lenders and related
parties against the presence or release of hazardous materials at the hotels.

In separate security agreements and separate assignments of rents and
revenues, each dated as of March 29, 2002, the Lessee granted security interests
to the secured lenders in the personal property at the hotels and in the rents
and revenues from the operation of the hotels.

Our Properties

All of the hotels we acquired on March 29, 2002 operate within the
Residence Inn(R) by Marriott(R) franchise system. Each hotel was in operation
when acquired. Each hotel first began operations during the period from 1984
through 1987. Each hotel offers one and two room suites with the amenities
generally offered by upscale extended-stay hotels. The hotels are located in
developed areas in competitive markets. We believe the hotels are
well-positioned to compete in these markets based on their location, amenities,
rate structure and franchise affiliation. In the opinion of management, all of
the hotels are adequately covered by insurance. The following table shows the
location and number of suites for each hotel we acquired on March 29, 2002.

Number
City or Locality State of Suites
- ---------------------------------------------------------------------------

Costa Mesa ......................... California 144
La Jolla ........................... California 288
Long Beach ......................... California 216
Boulder ............................ Colorado 128
Atlanta-Northeast-Buckhead ......... Georgia 136
Chamblee-Dunwoody .................. Georgia 144
Smyrna-Cumberland .................. Georgia 130
Lombard ............................ Illinois 144
Southfield ......................... Michigan 144
Chesterfield ....................... Missouri 104
St. Louis .......................... Missouri 152
Cincinnati ......................... Ohio 144
Columbus ........................... Ohio 96
Dayton ............................. Ohio 64
Miamisburg-Dayton .................. Ohio 96
-------------

Total 2,130

Item 7. Financial Statements and Exhibits

a. Financial Statements of Businesses Acquired

Marriott Residence Inn Limited Partnership

Report of Independent Public Accountants ..................................................... 8

Balance Sheets as of December 31, 2001 and 2000 .............................................. 9

Statements of Operations for the Fiscal Years Ended
December 31, 2001, 2000 and 1999 ............................................................. 10

Statements of Changes in Partners' Capital for the Fiscal Years Ended
December 31, 2001, 2000 and 1999 ............................................................. 11

Statements of Cash Flows for the Fiscal Years Ended
December 31, 2001, 2000 and 1999 ............................................................. 12

Notes to Financial Statements ................................................................ 13

b. Pro Forma Financial Information (It is impracticable to include pro forma financial information
herein. The required pro forma financial information will be filed by amendment to this report as
soon as possible, and in any event within 60 days after the date of this report.)

Apple Hospitality Two, Inc.

Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 2001 (unaudited)

Notes to Pro Forma Condensed Consolidated Balance Sheet (unaudited)

Pro Forma Condensed Consolidated Statements of Operations
For the Year Ended December 31, 2001 (unaudited)

Notes to Pro Forma Condensed Consolidated Statements of Operations (unaudited)

Report of Independent Public Accountants

TO THE PARTNERS OF MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP:

We have audited the accompanying balance sheets of Marriott Residence Inn
Limited Partnership (a Delaware limited partnership) as of December 31, 2001 and
2000, and the related statements of operations, changes in partners' capital and
cash flows for each of the three fiscal years in the period ended December 31,
2001. These financial statements 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 Marriott Residence Inn Limited
Partnership as of December 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three fiscal years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.

/s/ ARTHUR ANDERSEN LLP

Vienna, Virginia
April 1, 2002

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

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

ASSETS

Property and equipment, net .................................................... $ 134,121 $ 137,497
Due from Residence Inn by Marriott, Inc......................................... 2,142 2,160
Property improvement fund ...................................................... 4,249 2,889
Deferred financing costs, net of accumulated amortization ...................... 363 835
Cash and cash equivalents ...................................................... 16,238 10,755
------------- --------------

$ 157,113 $ 154,136
============= ==============

LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES
Mortgage debt ............................................................... $ 92,596 $ 98,213
Incentive management fees due to Residence Inn by Marriott, Inc .............. 6,713 3,626
Accounts payable and accrued expenses ........................................ 379 277
------------- --------------

Total Liabilities ...................................................... 99,688 102,116
------------- --------------

PARTNERS' CAPITAL
General Partner
Capital contribution ....................................................... 663 663
Capital distributions ...................................................... (436) (436)
Cumulative net income ...................................................... 424 370
------------- --------------

651 597
------------- --------------
Limited Partners
Capital contribution ....................................................... 58,050 58,050
Capital distributions ...................................................... (43,233) (43,233)
Cumulative net income ...................................................... 41,957 36,606
------------- --------------

56,774 51,423
------------- --------------

Total Partners' Capital ................................................ 57,425 52,020
------------- --------------

$ 157,113 $ 154,136
============= ==============

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

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

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

REVENUES
Suites ......................................................... $ 61,423 $ 66,044 $ 63,112
Other operating departments .................................... 2,621 3,154 3,086
----------- ----------- -----------
Total revenues .............................................. 64,044 69,198 66,198
----------- ----------- -----------

OPERATING COSTS AND EXPENSES
Suites ......................................................... 13,084 14,529 14,078
Other department costs and expenses ............................ 1,455 1,790 2,889
Selling, administrative and other .............................. 16,668 17,362 15,290
Depreciation ................................................... 6,479 6,362 6,952
Incentive management fee ....................................... 3,375 4,892 3,521
Residence Inn system fee ....................................... 2,457 2,642 2,524
Property taxes ................................................. 2,460 2,460 2,230
Base management fee ............................................ 1,281 1,384 1,324
Equipment rent and other ....................................... 1,892 1,128 913
----------- ----------- -----------

49,151 52,549 49,721
----------- ----------- -----------

OPERATING PROFIT .................................................. 14,893 16,649 16,477
Interest expense ............................................... (10,152) (10,700) (11,315)
Interest income ................................................ 664 690 304
----------- ----------- -----------

INCOME BEFORE EXTRAORDINARY ITEMS ................................. 5,405 6,639 5,466
Extraordinary gain on the forgiveness of deferred incentive
management fees ............................................. -- 29,781 --
----------- ----------- -----------

NET INCOME ........................................................ $ 5,405 $ 36,420 $ 5,466
=========== =========== ===========

ALLOCATION OF NET INCOME
General Partner ................................................ $ 54 $ 364 $ 55
Limited Partners ............................................... 5,351 36,056 5,411
----------- ----------- -----------

$ 5,405 $ 36,420 $ 5,466
=========== =========== ===========

NET INCOME PER LIMITED PARTNER UNIT (65,600 Units) ................ $ 82 $ 550 $ 83
=========== =========== ===========

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

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

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

Balance, December 31, 1998 .............. $ 178 $ 9,956 $ 10,134

Net income ......................... 55 5,411 5,466
----------- ----------- -----------

Balance, December 31, 1999 .............. 233 15,367 15,600

Net income ......................... 364 36,056 36,420
----------- ----------- -----------

Balance, December 31, 2000 .............. 597 51,423 52,020

Net income ......................... 54 5,351 5,405
----------- ----------- -----------

Balance, December 31, 2001 .............. $ 651 $ 56,774 $ 57,425
=========== =========== ===========

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

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

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

OPERATING ACTIVITIES
Net income ......................................................... $ 5,405 $ 36,420 $ 5,466
Extraordinary gain on the forgiveness of deferred incentive
management fees .................................................. -- (29,781) --
Depreciation ....................................................... 6,479 6,362 6,952
Deferral of incentive management fees due to
Residence Inn by Marriott, Inc. .................................. 3,087 3,626 2,752
Amortization of deferred financing costs as interest ............... 472 472 472
Loss on dispositions of property and equipment ..................... 1 8 14
Changes in operating accounts:
Due from Residence Inn by Marriott, Inc. ......................... 18 (176) 57
Accounts payable and accrued expenses ............................ 102 (35) (794)
----------- ----------- -----------

Cash provided by operating activities ...................... 15,564 16,896 14,919
----------- ----------- -----------

INVESTING ACTIVITIES
Additions to property and equipment ................................ (3,104) (5,075) (5,475)
Change in property improvement fund ................................ (1,360) (2,022) (644)
----------- ----------- -----------

Cash used in investing activities .......................... (4,464) (7,097) (6,119)
----------- ----------- -----------

FINANCING ACTIVITIES
Principal payments on mortgage debt ................................ (5,617) (5,069) (6,802)
----------- ----------- -----------

Cash used in financing activities .......................... (5,617) (5,069) (6,802)
----------- ----------- -----------

INCREASE IN CASH AND CASH EQUIVALENTS ................................. 5,483 4,730 1,998

CASH AND CASH EQUIVALENTS at beginning of year ........................ 10,755 6,025 4,027
----------- ----------- -----------

CASH AND CASH EQUIVALENTS at end of year .............................. $ 16,238 $ 10,755 $ 6,025
=========== =========== ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for mortgage interest ............................ $ 9,680 $ 10,228 $ 11,770
=========== =========== ===========

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

NOTE 1. THE PARTNERSHIP

Description of the Partnership

Marriott Residence Inn Limited Partnership, a Delaware limited partnership, was
formed on March 29, 1988 to acquire, own and operate 15 Residence Inn by
Marriott hotels and the land on which the Inns are located. The Inns are located
in seven states in the United States: four in Ohio, three in California, three
in Georgia, two in Missouri and one in each of Illinois, Colorado and Michigan,
and as of December 31, 2001, have a total of 2,130 suites. The Inns are managed
by Residence Inn by Marriott, Inc. (the "Manager"), a wholly-owned subsidiary of
Marriott International, Inc. ("Marriott International"), as part of the
Residence Inn by Marriott hotel system.

The partnership was formed through a public offering of 65,600 limited
partnership units in 1988. The sole general partner, with a 1% interest, is RIBM
One LLC (the "General Partner"), a Delaware single member limited liability
company, which is owned directly and indirectly by Host Marriott, L.P. ("Host
LP") as of December 31, 2001. See Note 8 Subsequent Events for other changes in
ownership.

Partnership Allocations and Distributions

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

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

(b) 85% to the limited partners and 15% to the general partner, if the
partners have received aggregate cumulative distributions of Capital
Receipts equal to or greater than 50% but less than 100% of their
original capital contributions; or

(c) 70% to the limited partners and 30% 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.

Losses and net losses are allocated 99% to the limited partners and 1% to the
general partner.

Capital Receipts not retained by the partnership will generally be distributed
(i) first, 99% to the limited partners and 1% to the general partner until the
partners have received cumulative distributions from all sources equal to a
cumulative simple return of 12% per annum on their Net Capital Investment, as
defined, and an amount equal to their contributed capital, payable only from
Capital Receipts; (ii) next, if the Capital Receipts are from a sale, 100% to
the general partner until it has received 2% of the gross proceeds from the
sale; and (iii) thereafter, 70% to the limited partners and 30% to the general
partner.

Gains will generally be allocated (i) first, to those partners whose capital
accounts have negative balances until such negative balances are brought to
zero; (ii) second, to all partners in amounts necessary to bring each of their
respective capital account balances equal to their Invested Capital, as defined,
plus a 12%

return on such Invested Capital; (iii) next, to the general partner in an amount
necessary to bring the general partner's capital account balance to an amount
which is equal to 2% of the gross proceeds from the sale; and (iv) thereafter,
70% to the limited partners and 30% to the general partner.

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

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

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

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

Use of Estimates in the Preparation of Financial Statements

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

Property and Equipment

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

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

All property and equipment is pledged as security for the mortgage debt.

The partnership assesses impairment of its real estate properties based on
whether estimated undiscounted future cash flows from such properties on an
individual property basis will be less than the net book value of the property.
If a property is impaired, its basis is adjusted to fair market value. There
were no such adjustments required at December 31, 2001 or 2000.

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 its profits and losses to the partners. Significant
differences exist between the net income or loss for financial reporting
purposes and the net income or loss reported in the partnership's tax return.
These differences are due primarily to the use, for income tax purposes, of
accelerated depreciation methods and shorter depreciable lives of the assets and
differences in the timing of the recognition of base and incentive management
fees. As a result of these differences, the partnership's net assets reported in
the accompanying financial statements is less than the

tax basis of such net assets by $409,000 as of December 31, 2001. As of December
31, 2000, the tax basis of net assets was less than the net assets reported in
the accompanying financial statements by $3,675,000.

Deferred Financing Costs

Deferred financing costs represent the costs incurred in connection with the
mortgage debt refinancing and are amortized using the straight-line method over
the term of the loan. At December 31, 2001 and 2000, deferred financing costs,
net of accumulated amortization, totaled $363,000 and $835,000, respectively.
Amortization of deferred financing costs totaled $472,000 in both 2001 and 2000.

Cash and Cash Equivalents

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

Reclassifications

Certain reclassifications were made to the prior year financial statements to
conform to the 2001 presentation.

Application of New Accounting Standards

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

NOTE 3. LITIGATION SETTLEMENT

In September 2000, the general partner, Marriott International, Inc., and
related defendants closed on the settlement of a lawsuit filed by limited
partners from seven limited partnerships, including the partnership's limited
partners ("Litigation Settlement"). In accordance with the terms of the
settlement, the defendants made cash payments of approximately $152 per unit to
the limited partners, in exchange for dismissal of the litigation and a complete
release of all claims. In addition to these cash payments, the Manager agreed to
forgive $29.8 million of deferred incentive management fees payable by the
partnership, which is reflected as an extraordinary gain in the statement of
operations for the year ended December 31, 2000.

NOTE 4. PROPERTY AND EQUIPMENT

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

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

Land and improvements ............................ $ 46,441 $ 46,441
Buildings and improvements ....................... 126,717 123,898
Furniture and equipment .......................... 31,119 29,429
Construction in progress ......................... 800 2,273
------------- -------------
205,077 202,041
Less accumulated depreciation .................... (70,956) (64,544)
------------- -------------
$ 134,121 $ 137,497
============= =============

NOTE 5. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS

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

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

Senior mortgage debt ............................. $ 71,593 $ 70,997 $ 75,731 $ 76,796
Second mortgage debt ............................. $ 21,003 $ 21,772 $ 22,482 $ 25,080

The estimated fair values of debt obligations are based on the expected future
debt service payments discounted at risk adjusted rates.

NOTE 6. MORTGAGE DEBT

The partnership's mortgage debt is comprised of a $100 million note (the "Senior
Mortgage") which bears interest at a fixed rate of 8.6% and a $30 million note
(the "Second Mortgage") which bears interest at a fixed rate of 15.25% for a
blended interest rate of 10.13%. Both the Senior Mortgage and Second Mortgage
require monthly payments of principal and interest and mature on September 30,
2002. During 2001 and 2000, the partnership made principal payments of $4.1
million and $3.8 million on the Senior Mortgage and $1.5 million and $1.3
million on the Second Mortgage, respectively. At December 31, 2001, the
outstanding principal balance of the Senior Mortgage was $71.6 million and the
outstanding principal balance of the Second Mortgage was $21.0 million. At
December 31, 2000, the outstanding principal balance of the Senior Mortgage was
$75.7 million and the outstanding principal balance of the Second Mortgage was
$22.5 million.

The mortgage debt is expected to be refinanced at maturity by the partnership.

Both the Senior Mortgage and the Second Mortgage are secured by the Inns, the
land on which they are located, a security interest in all personal property
associated with the Inns including furniture and equipment, inventory, contracts
and other general intangibles and an assignment of the partnership's rights
under the management agreement.

NOTE 7. MANAGEMENT AGREEMENT

The Manager operates the Inns pursuant to a long-term management agreement with
an initial term expiring December 28, 2007. The Manager has the option to extend
the agreement on one or more of the Inns for up

to five 10-year terms. The partnership may terminate the management agreement
if, during any three consecutive years after 1992, specified minimum operating
results are not achieved. However, the Manager may prevent termination by paying
to the partnership the amount by which the minimum operating results were not
achieved. The Manager earns a base management fee equal to 2% of gross sales.
Base management fees are paid currently.

In addition, the Manager is entitled to an incentive management fee equal to 15%
of operating profit, as defined (20% in any year in which operating profit is
equal to or greater than $23.5 million). In 2001 and 1999, incentive management
fees were calculated as 15% of operating profit. However, in 2000, incentive
management fees were calculated as 20% of operating profit. The incentive
management fee is payable out of 50% of cash flow from operations remaining
after payments of qualifying debt service, retention by the partnership of
annual cash flow from operations of $6,626,263 and the deferred base management
fee. If the partnership retains an additional 5% return, the incentive
management fee is payable out of 75% of the remaining cash flow from operations.
Incentive management fees earned are payable in the future from operating cash
flow, as defined. Unpaid incentive management fees are paid from cash flow
available for incentive management fees following payment of the then current
incentive management fees. For the years ended December 31, 2001, 2000, and
1999, $3.4 million, $4.9 million and $3.5 million, respectively, in incentive
management fees were earned, of which $0.3 million, $1.3 million and $.8
million, respectively, were paid. As of December 31, 2001 and 2000, deferred
incentive management fees were $6.7 million and $3.6 million, respectively. In
connection with the Litigation Settlement, the Manager waived $29.8 million of
deferred incentive management fees, which was recognized as an extraordinary
gain during 2000.

The management agreement also provides for annual payments of the Residence Inn
system fee equal to 4% of gross suite sales from the Inns. In addition, the
Manager is reimbursed for each inn's pro rata share of the actual costs and
expenses incurred by the Manager in providing certain chain services on a
central or regional basis to all hotels operated by the Manager. As franchiser
of the Residence Inn by Marriott system, the Manager maintains a marketing fund
to pay the costs associated with certain system-wide advertising, promotional,
and public relations materials and programs, and operating a toll-free
reservation system. Each inn contributes 2.5% of suite sales to the marketing
fund. For the years ended December 31, 2001, 2000 and 1999, respectively, the
partnership paid a Residence Inn system fee of $2.5 million, $2.6 million and
$2.5 million, reimbursed the Manager $1.2 million, $1.3 million and $1.3 million
for chain services, and contributed $1.5 million, $1.7 million and $1.6 million
to the marketing fund.

In addition, the Inns participate in Marriott International's Marriott's Rewards
Program ("MRP"). The costs of this program are based upon the MRP sales at each
hotel. MRP costs were $221,000, $283,000 and $224,000 in 2001, 2000, and 1999,
respectively. Chain services, contributions to the marketing fund and MRP costs
are included in selling, administrative and other expenses in the accompanying
statement of operations.

The partnership is required to provide the Manager with working capital to meet
the operating needs of the Inns. The Manager converts cash advanced by the
partnership into other forms of working capital consisting primarily of
operating cash, inventories, and trade receivables and payables that are
maintained and controlled by the Manager. Upon termination of the management
agreement, the working capital will be returned to the partnership. The
individual components of working capital controlled by the Manager are not
reflected in the partnership's balance sheet. As of December 31, 2001 and 2000,
$775,000 has been advanced to the Manager for working capital and is included in
Due from Residence Inn by Marriott, Inc. on the accompanying balance sheets.

The management agreement provides for the establishment of a property
improvement fund to provide for the replacement of furniture, fixtures and
equipment ("FF&E") at the Inns. Total contributions during 2001, 2000 and 1999
were $3.5 million, $5.0 million and $5.1 million, respectively. Based on capital
budgets, it was determined that the property improvement fund was insufficient
beginning in 1998, primarily due to the

need to complete total suite refurbishments at the majority of the Inns in the
next several years. To reduce this shortfall, the partnership increased the
contribution rate to the property improvement fund beginning in 1999 to 5.5% of
gross Inn revenues. In 2000 and 1999, the contributions include additional cash
contributions provided by the partnership of $1,200,000 and $1,450,000,
respectively.

NOTE 8. SUBSEQUENT EVENTS

Pursuant to an Agreement and Plan of Merger dated as of November 28, 2001, the
general partner of the partnership and others agreed upon a merger between the
partnership and a subsidiary of Apple Hospitality Two, Inc. that would, in
essence, effect Apple Hospitality Two Inc.'s acquisition, through subsidiaries,
of the partnership. There were a number of conditions to the transaction,
including approval by the holders of a majority of the limited partnership
interests of the partnership. All conditions were met, and the transaction
closed on March 29, 2002. The partnership is now a wholly-owned, indirect
subsidiary of Apple Hospitality Two, Inc.

[Intentionally Blank]

c. Exhibits

Exhibit Description
- ------- -----------

2.1 Agreement and Plan of Merger dated as of November 28, 2001 by and
between Apple Hospitality Two, Inc., Marriott Residence Inn Limited
Partnership, AHT Res Acquisition, L.P. and RIBM One LLC.

2.2 Certificate of Merger dated March 28, 2002 (with effective date of
March 29, 2002) for merger of AHT Res Acquisition, L.P. with and into
Marriott Residence Inn Limited Partnership.

4.1 First Amendment to Loan Agreement dated as of April 23, 1996 by and
between Marriott Residence Inn Limited Partnership (Borrower) and
German American Capital Corporation (Lender) (Incorporated by
Reference to Exhibit 10.1 to Annual Report of Marriott Residence Inn
Limited Partnership on Form 10-K filed on January 23, 1998; SEC File
No. 033-20022).

4.2 Loan Agreement dated as of October 10, 1995 by and between Marriott
Residence Inn Limited Partnership (Borrower) and German American
Capital Corporation (Lender) (Incorporated by Reference to Exhibit
10.2 to Annual Report of Marriott Residence Inn Limited Partnership
on Form 10-K filed on January 23, 1998; SEC File No. 033-20022).

4.3 Indemnity Agreement dated October 10, 1995 by Marriott Residence Inn
Limited Partnership (Borrower) and RIBM One Corporation
(collectively, the Indemnitors) in favor of German American Capital
Corporation (Lender) (Incorporated by Reference to Exhibit 10.3 to
Annual Report of Marriott Residence Inn Limited Partnership on Form
10-K filed on January 23, 1998; SEC File No. 033-20022).

4.4 Four Party Agreement dated as of October 10, 1995 by and among
Marriott Residence Inn Limited Partnership (Borrower), German
American Capital Corporation (Senior Lender), Starwood Mezzanine
Investors, L.P. (Subordinate Lender) and Residence Inn by Marriott,
Inc. (Manager) (Incorporated by Reference to Exhibit 10.4 to Annual
Report of Marriott Residence Inn Limited Partnership on Form 10-K
filed on January 23, 1998; SEC File No. 033-20022).

4.5 Loan Agreement dated as of October 10, 1995 by and between Marriott
Residence Inn Limited Partnership (Borrower) and Starwood Mezzanine
Investors, L.P. (Lender) (Incorporated by Reference to Exhibit 10.5
to Annual Report of Marriott Residence Inn Limited Partnership on
Form 10-K filed on January 23, 1998; SEC File No. 033-20022).

4.6 Loan Agreement dated as of April 20, 1988 by and between Marriott
Residence Inn Limited Partnership and The Sanwa Bank Limited
(Incorporated by Reference to Exhibit 10.6 to Annual Report of
Marriott Residence Inn Limited Partnership on Form 10-K filed on
January 23, 1998; SEC File No. 033-20022).

4.7 Loan Modification Agreement dated as of March 29, 2002 by and among
Marriott Residence Inn Limited Partnership, AHT Res I GP, Inc., AHM
Res I Limited Partnership and LaSalle Bank National Association, as
Trustee for Mortgage Pass-Through Certificates Series 1996-2.

4.8 Loan Modification Agreement dated as of March 29, 2002 by and among
Marriott Residence Inn Limited Partnership, AHT Res I GP, Inc., AHM
Res I Limited Partnership and LaSalle Bank National Association, as
Indenture Trustee for the benefit of the Holders of iStar Asset
Receivables Trust Collateralized Mortgage Bonds Series 2000-1.

4.9 Security Agreement dated as of March 29, 2002 by and between AHM Res
I Limited Partnership and LaSalle Bank National Association, as
Trustee for Mortgage Pass-Through Certificates Series 1996-2.

4.10 Security Agreement dated as of March 29, 2002 by and between AHM Res
I Limited Partnership and LaSalle Bank National Association, as
Indenture Trustee for the benefit of the Holders of iStar Asset
Receivables Trust Collateralized Mortgage Bonds Series 2000-1.

4.11 First Amendment to Four Party Agreement dated as of March 29, 2002 by
and between Marriott Residence Inn Limited Partnership, Residence Inn
by Marriott, Inc., AHM Res I Limited Partnership, LaSalle Bank
National Association, as Trustee for Mortgage Pass-Through
Certificates Series 1996-2, and LaSalle Bank National Association, as
Indenture Trustee for the benefit of the Holders of iStar Asset
Receivables Trust Collateralized Mortgage Bonds Series 2000-1.

4.12 Ratification and First Amendment to Intercreditor Agreement dated as
of March 29, 2002 by and between Marriott Residence Inn Limited
Partnership, LaSalle Bank National Association, as Trustee for
Mortgage Pass-Through Certificates Series 1996-2, and LaSalle Bank
National Association, as Indenture Trustee for the benefit of the
Holders of iStar Asset Receivables Trust Collateralized Mortgage
Bonds Series 2000-1.

10.1 Consent to Merger dated as of March 29, 2002 by and between Marriott
Residence Inn Limited Partnership, AHT Res I GP, Inc., RIBM One LLC,
AHM

Res I Limited Partnership and LaSalle Bank National Association, as
Trustee for Mortgage Pass-Through Certificates Series 1996-2.

10.2 Consent to Merger dated as of March 29, 2002 by and between Marriott
Residence Inn Limited Partnership, AHT Res I GP, Inc., RIBM One LLC,
AHM Res I Limited Partnership and LaSalle Bank National Association,
as Indenture Trustee for the benefit of the Holders of iStar Asset
Receivables Trust Collateralized Mortgage Bonds Series 2000-1.

10.3 Amendment and Restatement of Management Agreement dated as of March
29, 2002 by and between Residence Inn by Marriott, Inc. and AHM Res I
Limited Partnership.

10.4 Master Hotel Lease Agreement dated as of March 29, 2002 by and
between Marriott Residence Inn Limited Partnership and AHM Res I
Limited Partnership.

10.5 Owner Agreement dated as of March 29, 2002 by and between Marriott
Residence Inn Limited Partnership, AHM Res I Limited Partnership and
Residence Inn By Marriott, Inc.

10.6 Amended and Restated Limited Partnership Agreement of Marriott
Residence Inn Limited Partnership (a subsidiary of registrant owning
real property).

10.7 Limited Partnership Agreement of AHM Res I Limited Partnership (a
subsidiary of registrant leasing real property).

10.8 Limited Liability Company Operating Agreement of Residence Inn III
LLC (a subsidiary of registrant owning real property).

10.9 Amendment to Limited Liability Company Operating Agreement of
Residence Inn III LLC.

99 Confirmation of Receipt of Assurances from Arthur Andersen LLP
(provided in accordance with SEC Release 34-45590 (effective March
18, 2002)).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

Apple Hospitality Two, Inc.

By: /s/ Glade M. Knight
-------------------------------
Glade M. Knight, President

April 15, 2002