<PAGE>

                        SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C.  20549
                                     FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the fiscal year ended December 31, 1996

                                      OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from                    to

                        Commission file number 1-14280

                              HOST FUNDING, INC.
              ---------------------------------------------------
              (Exact name of Company as specified in its charter)

            Maryland                              52-1907962
-------------------------------       ------------------------------------
(State or other jurisdiction of       (I.R.S. Employer Identification No.)
 incorporation or organization)


6116 N. Central Expressway, Suite 1313, Dallas, Texas           75206
-----------------------------------------------------        ----------
      (Address of principal executive offices)               (Zip Code)

Company's telephone number, including area code             214-750-0760

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to Section 12 (g) of the Act.

                    Class A Common Stock - $0.01 Par Value
                    --------------------------------------
                               (Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained to, the
best of the Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K  [ X ]

The aggregate market value of the voting stock held by non-affiliates of the
Company (totaling 789,999 shares) was $7,801,240 (based upon the closing bid
of the Company's common stock on the AMEX on February 28, 1997 of $9.875
per share).  The term affiliates is deemed, for this purpose only, to refer
only to directors, officers and principal stockholders of the Company.

Indicate the number of shares outstanding of each of the Company's classes of
common stock, as of the latest practicable date.

The number of outstanding shares of the Company's Class A Common Stock was
1,374,049 and Class B Common Stock 140,000  as of February 28, 1997.

                    DOCUMENTS INCORPORATED BY REFERENCE
Part III: Proxy Statement for the 1997 Annual Meeting of Stockholders to be held
May 21, 1997.

<PAGE>

                                    PART I

ITEM 1.  BUSINESS

OVERVIEW

   Host Funding, Inc. (the "Company") was incorporated in the State of
Maryland in December, 1994.  The Company's Class A Common Stock began trading
on the American Stock Exchange on April 22, 1996, the date of its initial
public offering.  The Company is a qualified real estate investment trust
("REIT") engaged in the business of acquiring high quality, limited-service
hotels throughout the United States which are affiliated with national or
regional hotel chains.  On April 22, 1996 the Company in connection with the
public offering of its Class A Common Stock commenced operations by acquiring
five geographically diversified Super 8 Hotels located in Miner, Missouri,
Popular Bluff, Missouri, Rock Falls, Illinois, Somerset, Kentucky and San Diego,
California (the "Initial Hotels").  All five Initial Hotels are limited
service hotels.

SUBSEQUENT ACQUISITIONS

   In September, 1996 the Company formed CrossHost, Inc., as a wholly-owned,
special purpose subsidiary of the Company ("CrossHost").  CrossHost is a
qualified REIT subsidiary incorporated under the laws of the State of
Maryland. CrossHost was formed at the request of Credit Suisse First Boston
Capital, LLC (previously known as First Boston Mortgage Capital Corp.)
("First Boston") as a condition to First Boston providing an acquisition and
credit facility (the "Initial Loan Facility") to CrossHost in the amount of
$15,500,000.  CrossHost used a significant portion of the proceeds from the
Initial Credit Facility to acquire Sleep Inn Hotels located in Destin,
Sarasota and Tallahassee, Florida and Ocean Springs, Mississippi (the
"Acquired Hotels").  As a further condition to obtaining the Initial Credit
Facility, First Boston required the Company to transfer to CrossHost the Initial
Hotels.

RECENT ACQUISITIONS

   In March, 1997 the Company formed Host Ventures, Inc., as a wholly-owned,
special purpose subsidiary of the Company ("Host Ventures").  Host Ventures
is a qualified REIT subsidiary incorporated under the laws of the State of
Maryland. Host Ventures was formed at the request of First Boston as a
condition to First Boston providing a revised credit facility which increased
the Initial Loan Facility to $21,725,000 (the "Revised Credit Facility"). The
Revised Credit Facility was allocated $8,725,000 to Host Ventures (the "Host
Ventures Loan Facility") and $13,000,000 to CrossHost (the "CrossHost Loan
Facility").  The proceeds from the Revised Credit Facility were used to
refinance the Initial Loan Facility and for Host Ventures to acquire a Super
8 Hotel located in Flagstaff, Arizona (the "Flagstaff Super 8") for a gross
purchase price of $5,125,000 excluding closing expenses.  The effective
closing date of the Flagstaff Super 8  was March 14, 1997.  As a prerequisite
to obtaining the Revised Credit Facility, First Boston also required
CrossHost to transfer to Host Ventures the Sleep Inn Hotels owned by
CrossHost and located in Ocean Springs, Mississippi and Sarasota, Florida.
As a result of the acquisition of the Flagstaff Super 8, the hotel property
portfolio of the Company was increased to ten properties consisting of 767
rooms all of which are owned through CrossHost and Host Ventures.  Of the
hotel property portfolio, Host Ventures currently owns two Sleep Inn Hotels
located in Ocean Springs, Mississippi and Sarasota, Florida and one Super 8
Hotel located in Flagstaff, Arizona (collectively, the "Host Ventures
Properties"), and CrossHost currently owns the five Initial Hotels and two
Sleep Inn Hotels located in Tallahassee,

<PAGE>

Florida and Destin, Florida (collectively, the "CrossHost Properties").  See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Recent Developments".

   The Host Ventures Loan is secured by the Host Ventures Properties and the
CrossHost Loan is secured by the CrossHost Properties.  The two loans are not
cross-defaulted or cross-collateralized.  The Company signed an Indemnity and
Guaranty Agreement (the "Indemnity Agreement") relating to both the Host
Ventures Loan Facility and the CrossHost Loan Facility.  The Indemnity
Agreement requires the Company (i) to indemnify First Boston in the event
either CrossHost or Host Ventures is in breach of the non-personal liability
"carve outs" typically found in securitized financing documentation such as
the Revised Credit Facility; and (ii) to guaranty to First Boston full
payment and performance of the obligations of CrossHost and Host Ventures in
the event either entity enters into bankruptcy proceedings.

MANAGEMENT OF HOTELS

   Consistent with its status as a REIT, the Company is precluded from
operating the hotel properties which it owns.  Consequently, all of the hotel
properties owned by CrossHost and Host Ventures, including the recently
acquired Flagstaff Super 8, are leased by separate lease agreements to
Crossroads Hospitality Tenant Company, LLC ("Crossroads"), as Lessee, and are
further subject to a Master Agreement among the Company, Crossroads and
Crossroads Hospitality Company, LLC ("Crossroads Hospitality").  See
"Percentage Leases - Master Agreement."  Crossroads was recently formed in
1995 as a Delaware limited liability company of which 75% of the voting
interests are owned by Crossroads Hospitality.  Each of Crossroads and
Crossroads Hospitality is controlled by Interstate Hotels Corporation, a
publicly held, nation wide operator and manager of hotel properties.
Crossroads leases, manages and operates all of the hotel properties owned by
the Company and does not lease, manage or operate any hotels other than those
owned by the Company.  See "Percentage Leases."

PERCENTAGE LEASES

     IN GENERAL

     Each hotel is separately leased by the Company to Crossroads under a
Percentage Lease as amended from time to time. Each Percentage Lease contains
the provisions described below, and the Company intends that future leases with
respect to its hotel property investments will contain substantially similar
provisions, although the Company's Board of Directors may, in its discretion,
alter any of these provisions with respect to any particular lease, depending
on the purchase price paid, economic conditions and other factors deemed
relevant at the time, and consistent with maintaining the Company's status as
a REIT under the Code.

     PERCENTAGE LEASE TERMS

     Each Percentage Lease has an initial term of not less than fifteen years,
subject to earlier termination upon the occurrence of certain contingencies
described in the Percentage Leases (including, particularly, provisions relating
to damage to hotels, condemnation of hotels, and termination on disposition of
hotels).


<PAGE>



     AMOUNTS PAYABLE UNDER THE PERCENTAGE LEASES

     During the term of each Percentage Lease, the Lessee is obligated to pay
(i) the Base Rent, (ii) the Percentage Rent, and (iii) other than the
property taxes on the hotels (the Company is obligated to pay such property
taxes), all taxes, assessments, ground rents, water, sewer or other rents and
charges, excises, tax inspection, authorization or similar fees and all other
governmental charges ( the "Impositions"), (iv) every fine, penalty, interest
and cost for non-payment or late payment of Base Rent, Percentage Rent, or the
Impositions (the "Additional Charges").  Base Rent accrues and is required to
be paid monthly. Percentage Rent is based on percentages of room revenues for
each of the hotels. Percentage Rent is due quarterly; however, the Lessee will
not be in default for payment of Percentage Rent due in any quarter if the
Lessee pays, within 30 days of the end of the quarter, the Percentage Rent due
and unpaid with respect to such quarter.  See "Properties-Hotels".

     MAINTENANCE, MODIFICATIONS AND CAPITAL EXPENDITURES

     Generally, the Lessee, at its expense, is required to maintain the
hotels in good order and repair, except for ordinary wear and tear, and to
make non-structural repairs, foreseen and unforeseen repairs, and ordinary
repairs which may be necessary and appropriate to keep the hotels in good
order and repair.

     The Lessee, at its expense and subject to approval by the Company, may
make non-capital and capital additions, modifications or improvements to the
hotels, provided that such action does not significantly alter the character
or purposes of the hotels or significantly detract from the value or
operating efficiencies of the hotels.  All such alterations, replacements and
improvements shall be subject to all the terms and provisions of the
Percentage Leases and will become the property of the Company upon
termination of the Percentage Leases.  The Company owns substantially all
personal property (other than inventory, linens and other nondepreciable
personal property) not affixed to, or deemed a part of, the real estate or
improvements thereon, except to the extent that ownership of such personal
property would cause the Rents under a Percentage Lease not to qualify as
"rents from real property" for REIT income test purposes.

     Under the Percentage Leases relating to the Initial Hotels, CrossHost is
required to fund into a replacement reserve account (the "Reserve Account")
an amount equal to six percent (6%) of gross room revenue for the preceding
month. In addition, under the Percentage Leases relating to the Acquired
Hotels and the Flagstaff Super 8, CrossHost or Host Ventures, as the case may
be, is required to set aside in the Reserve Account an amount equal to four
percent (4%) of gross room revenue during years one (1) to four (4) and 6% of
gross room revenue during years five (5) and thereafter.  Deposits in the
Reserve Account are used to fund replacements of furniture, fixtures and
equipment and for capital additions to the hotels.  Expenditures from the
Reserve Account generally must be jointly approved by CrossHost or Host
Ventures, as the case may be, and Crossroads.

     INSURANCE AND PROPERTY TAXES

     The Company is responsible for paying the property taxes on the hotels.
Any changes in the terms of the property taxes will be made pursuant to local
tax statutes.  The Lessee is required to pay for all insurance on the hotels,
with extended coverage, including business interruption, casualty,


<PAGE>

comprehensive general public liability, workers' compensation and other
insurance as described in the Percentage Leases, and must name the Company as
the insured or an additional named insured.

     INDEMNIFICATION

     Under each of the Percentage Leases, the Lessee is obligated to
indemnify, and is obligated to hold harmless, the Company from and against
all liabilities, costs and expenses (including reasonable attorneys' fees and
expenses) incurred by, imposed upon or asserted against the Company;
provided, however, that such indemnification will not be construed to require
the Lessee to indemnify the Company against the Company's own grossly
negligent acts or omissions or willful misconduct.

     MASTER AGREEMENTS

     Crossroads and Crossroads Hospitality have entered into separate Master
Agreements with the Company for the Super 8 Hotels and the Sleep Inn Hotels
whereby Crossroads Hospitality secures certain obligations of Crossroads.
The obligations concern payment of termination fees if Crossroads voluntarily
terminates more than one of the Percentage Leases in the first five years of
each of the Percentage Leases and the payment of termination fees and/or rent
in the event Crossroads defaults under any of the Percentage Leases.  To
secure the obligations of Crossroads under the Percentage Leases, Crossroads
Hospitality has pledged as collateral pursuant to each Master Agreement 30,000
shares of the Company's Class A Common Stock (a total of 60,000 shares)
acquired by Crossroads Hospitality in the Company's initial public offering to
collateralize the payment of rent due under the Percentage Leases during the
first three years of the lease terms.  In addition, Crossroads has agreed
under each Master Agreement to maintain a letter of credit after such three
year period equal to annually calculated termination fees that would be due on
the lease anniversary dates throughout the remaining terms of the Percentage
Leases. After the first year, Crossroads Hospitality may substitute the letter
of credit by guaranteeing the equivalent amounts required by the letter of
credit and providing to the Company a copy of Crossroads Hospitality's audited
financial statements which indicate a net worth of at least 2  1/2 times the
value of the letter of credit, with at least 40% of the net worth in cash or
cash equivalent assets.  In addition, Crossroads Hospitality makes certain
negative covenants concerning maintenance of its minimum net worth levels.

FRANCHISE AGREEMENTS

     All of the hotels are currently operated pursuant to franchise
agreements (the "Franchise Agreements") with either Super 8 Hotels or Sleep
Inn Hotels. The Company expects that a majority of any additional hotel
properties it may acquire will also be subject to similar agreements.  The
Company believes that franchises (including hotel licenses) generally provide
advantages to hotel operators through the use of advertising on a much
broader scale than would be possible for an individual hotel or small group
of hotels, nationally recognized brand names, nationally accessible
reservations systems, technical and business assistance to the individual
franchisee and substantial buying power over approved suppliers.

     The Franchise Agreements generally require the franchisee, which
responsibility for payment of fees has been assigned to the Lessee under the
Percentage Leases, to pay a monthly royalty fee based on gross sales and to
pay

<PAGE>

various other marketing fees associated with certain marketing or advertising
and centralized reservation service funds, usually based on gross sales.
Such fees may vary between individual hotels within a franchise system based
on the type of marks, restaurants or other aspects of the franchise system
used.

     The Franchise Agreements generally contain specific standards for, and
restrictions and limitations on, the operation and maintenance of the hotels
which are established by the franchisors to maintain uniformity in the system
created by each such franchisor.  Such standards generally regulate the hours
of operation, maintenance, appearance and cleanliness, quality and type of
goods and services offered, signage, protection of marks and advancement of
marks. Compliance with such standards could require significant expenditures
by the lessee of the hotel for capital improvements. Any such improvements
could increase the value of the applicable hotel to the benefit of the
Company.

     Ongoing training costs, requirements to purchase only from approved
suppliers, financial reporting requirements, insurance requirements and
various covenants not to compete imposed upon the franchisee are other common
terms in the Franchise Agreements.  Such financial reporting requirements
often stipulate the maintenance of books and records, the monthly reporting
of sales and other operating data, quarterly or semi-annual unaudited
financial statements and, in some cases, annual financial statements audited
by an independent certified public accountant.  Required insurance usually
must cover both the franchisor and franchisee with respect to certain
specified liabilities, must fall within certain approved coverage limits and
be written by an approved insurance company.  Covenants not to compete
include prohibitions against engaging in a similar business within a certain
geographical area, hiring employees away from the franchisor or other
unrelated franchisees or otherwise diverting business from other franchisees.

     The Franchise Agreements generally require the consent of the franchisor
to a transfer of an interest in the applicable franchise, and both the
consent of the franchisor and the execution of a new franchise agreement in
the event of a transfer of all or a controlling portion of the franchisee
under the relevant Franchise Agreement.

GROWTH STRATEGY

     The Company's growth strategy is to increase cash flow and enhance
shareholder value by acquiring additional existing hotels that meet the
Company's investment criteria and by participating, through the Percentage
Leases, in revenue growth at its hotels.  Currently, the Company intends to
focus its acquisition strategy primarily upon the acquisition of additional
limited service hotels in the Midwest, Southwest and Southeast areas of the
United States, and its internal growth strategy will focus primarily upon
improvements in occupancy and ADR.  Based upon recent increases in occupancy,
ADR and REVPAR of all U.S. hotels, management of the Company believes that
the U.S. lodging industry is recovering from a period of low profitability
resulting from high levels of debt, economic recession and an over-supply of
hotel rooms.  As a result, management expects the Company to have
opportunities to acquire additional established limited service hotels at
attractive prices because of such factors.


<PAGE>

     The Company intends to consider investments in hotel properties of the
types described above that meet one or more of the following criteria:  (i)
properties in markets with projected growth potential; (ii) properties which
may be under-performing due to poor management, weak franchise affiliation or
a need for renovation; (iii) properties with relatively stable operating
histories; and (iv) properties with attractive purchase prices.  Although the
Company presently anticipates that additional investments in hotel properties
will be made through the Company, additional investments also may be made
indirectly by other entities controlled by the Company.  Such investments may
be financed, in whole or in part, from borrowings, the balance of the net
proceeds from future offerings, if any, subsequent issuances of Common Stock
or other securities or from cash flow.  However, because the Company must
distribute annually at least 95% of its taxable net income to maintain its
REIT status, cash flow available for investment may be limited.

ENVIRONMENTAL MATTERS

     Under various federal, state and local environmental laws, ordinances,
regulations and common law, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous
or toxic substances on, under or in such property.  Such laws, ordinances and
regulations often impose liability whether or not the owner or operator knew
of, or was responsible for, the presence of such hazardous or toxic
substances and the liability under such laws, ordinances and regulations has
been interpreted to be strict, joint and several unless the harm is divisible
and there is a reasonable basis for allocation of responsibility.  In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the market value of
the property, as well as, the owner's ability to sell or lease the real
property or to borrow using such real property as collateral.  Persons who
arrange for the disposal or treatment of hazardous or toxic substances may
also be liable for the costs of removal or remediation of such substances at
the disposal or treatment facility, whether or not such facility is or ever
was owned or operated by such person.  In addition, certain environmental
laws and common law principles govern the responsibility for the removal,
encapsulation or disturbance of ACMs when these ACMs are in poor condition or
when a property with ACMs is undergoing remodeling, renovation or demolition.
Such laws and common law principles could also be used to impose liability
upon owners or operators of real properties for release of ACMs that cause
personal injury or other damage.  The policy of the Company is to obtain a
Phase I environmental assessment report for each of the hotels owned by the
Company, prepared by an independent environmental consultant.

    Certain of the hotels owned by the Company are located on, adjacent to or
in the vicinity of properties (including gasoline stations) that contain or
have contained storage tanks or that have engaged, or may in the future
engage, in activities that may release petroleum products or other hazardous
substances into the soil or groundwater.  Although there can be no assurance
that petroleum products from such properties or other hazardous substances
have not been released or have not migrated, or in the future will not be
released or will not migrate into such hotels, the Company is not aware of
any such releases or migrations. The Company does not believe that it will
have any material liability as a result of such activities; however, there
can be no assurance that the Company will not incur future environmental
liabilities arising out of such activities or that any such liability would
not have a material adverse effect on the future financial condition or
results of operations of the Company.


<PAGE>

    The Company is not aware of any environmental condition with respect to
the hotels owned by the Company that could have had a material adverse effect
on the Company's financial condition or results of operations.  No assurances
can be given, however, that (i) environmental assessments undertaken with
respect to the hotels have revealed all potential environmental liabilities,
(ii) any prior owner or operator of the real property on which the hotels are
located did not create any material environmental condition not known to the
Company, or (iii) a material environmental condition does not otherwise exist
as to any one or more hotels.  Pursuant to the Percentage Leases, the Lessee
has agreed to comply with applicable environmental regulations.  However, in
the event that the Company is held liable for costs and expenses in
connection with a site clean-up or in connection with ACMs, and the Company
is unable to enforce or obtain recoveries under the indemnity provisions of
the Percentage Leases such costs and expenses could have a material effect on
the Company's ability to make distributions to its shareholders.

EMPLOYEES

     As of December 31, 1996, the Company was an externally-advised real
estate investment trust and had no compensated employees for the calendar
year. Effective January 31, 1997, the Company terminated the advisory
agreement with its external advisory company and became self-administered. As
a result of such termination, the Company entered into employment agreements
with three of its executive officers.  See "Certain Relationships and Related
Transactions."

COMPETITION

The hotel industry is highly competitive.  All of the hotels owned by the
Company are located in developed areas and experience competition primarily
from other similarly priced hotels within their immediate vicinity.  In
addition, each hotel competes with other hotel properties in its particular
geographic market.  The number of competitive hotel properties in a
particular market or geograhic area could have a material and adverse affect
on the rental market for the room units at each hotel and the rates which may
be charged for such room units.  The hotels must also compete for occupants
with new hotels in the area.

    In addition, when the Company seeks to acquire hotel properties, the
Company will be competing for investment opportunities with entities which
have substantially greater financial resources than the Company.  Competition
may generally reduce the number of suitable investment opportunities offered
to the Company and increase the bargaining power of property owners seeking
to sell. Further, the Company anticipates that competition from entities
organized for purposes substantially similar to the Company's objectives will
increase significantly over time.

SEASONALITY OF THE HOTEL BUSINESS

    The hotel industry is seasonal in nature.  Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth
quarters.  All of the hotels owned by the Company typically reflect the
effects of this industry seasonality.  This seasonality can be expected to
cause significant quarterly fluctuations in the Company's lease revenues.
See "Management's Discussion and Analysis of Financial Conditions and Results
of Operations -- Seasonality."

<PAGE>

REGULATORY MATTERS

      GENERAL

      Hotel properties are subject to various laws, ordinances and
regulations, including regulations relating to recreational facilities, such
as swimming pools, activity centers and other common areas.  Based on its
inspection and evaluation of the hotels, the Company believes that each hotel
has the necessary permits and approvals required to enable Crossroads to
operate and manage the hotels in the manner contemplated by the Percentage
Leases.

     AMERICANS WITH DISABILITIES ACT

     The hotel properties must comply with Title III of the Americans with
Disabilities Act "ADA" to the extent that such properties are "public
accommodations" and/or "commercial facilities" as defined by the ADA.  Under
the public accommodations provisions of the ADA, the Company as owner of the
hotel properties, will be obligated to reasonably accommodate the patrons of
the hotel properties who have physical, mental or other disabilities.  This
will include the obligation to remove architectural and communication
barriers at the hotel properties when doing so is "readily achievable".  In
addition, under the commercial facilities provisions of the ADA, the Company
will be obligated to ensure that alterations to the hotel properties made
after January 26, 1992, conform to the specific requirements of the ADA
implementing regulations. Noncompliance could result in the imposition of
fines, injunctive relief, and an award of damages and attorneys' fees.  The
Lessee generally is obligated to remedy any ADA compliance matters pursuant
to the Percentage Leases.  However, if required changes were to involve
significant expenditures, the ability of the Lessee to pay rent could be
adversely affected which in turn could adversely affect the Company's ability
to make distributions to its shareholders.  Currently, the Company believes
that all hotels owned by the Company are in compliance with the ADA in all
material respects.

ITEM 2.  PROPERTIES

     The Company's principal executive offices are located at 6116 N. Central
Expressway, Suite 1313, Dallas, Texas.  In addition, the Company owns through
CrossHost and Host Ventures ten properties located in seven states and
consisting of 767 rooms.  Set forth in the chart below is certain information
relating to all of the hotel properties owned by CrossHost and Host Ventures,
excluding the newly acquired Flagstaff Super 8.


<PAGE>

<TABLE>
                                                                                 Gross Revenues
                                                                                 For the 12         Annual          Year
                               Annual Percentage                                 Months Ended       Base            Acquired/
                    Rooms      Rent Formula (Year to Date)                       12-31-96           Rent ****       Built
                    -----      -----------------                                 --------------     ---------       --------
<S>                  <C>            <C>                                             <C>               <C>             <C>
INITIAL HOTELS

Minor, Missouri      63        35% YTD Revenues over initial Break-Even
                               Threshold of $660,000* on first $200,000 over
                               Break-Even Threshold, and 40% thereafter, less
                               Percentage Rent previously paid YTD.               $  727,000        $  296,800       1995/85

Poplar Bluff,        63        35% YTD Revenues over initial Break-Even
 Missouri                      Threshold of $550,000* on first $100,000 over
                               Break-Even Threshold, and 37% thereafter, less
                               Percentage Rent previously paid YTD.               $  655,000        $  233,500       1995/85

Rock Falls,          63        28.75% YTD Revenues over initial Break-Even
 Illinois                      Threshold of $580,000** on first $200,000 over
                               Break-Even Threshold, and 35% thereafter, less
                               Percentage Rent previously paid YTD.               $  676,000        $  232,000       1995/85

Somerset,            63        32% YTD Revenues over initial Break-Even
 Kentucky                      Threshold of $410,000*** on first $200,000
                               over Break-Even Threshold, and 35% thereafter,
                               less Percentage Rent previously paid YTD.          $  538,000        $  143,800       1995/85

Mission Bay,        118        30% YTD Revenues over initial Break-Even
 California                    Threshold of $1,050,000** on first $100,000
                               over Break-Even Threshold, and 40% thereafter,
                               less Percentage Rent previously paid YTD.          $1,236,000        $  308,000       1996/87

ACQUIRED HOTELS

Tallahassee,         78        30% YTD Revenues over initial Break-Even
 Florida                       Threshold of $727,000 on first $300,000 over
(9-13-96)                      Break-Even Threshold, and 35% thereafter,
                               less Percentage Rent previously paid YTD.          $  969,000        $  277,300       1996/94

Destin, Florida      78        30% YTD Revenues over initial Break-Even
(9-13-96)                      Threshold of $850,500 on first $350,000 over
                               Break-Even Threshold, and 35% thereafter,
                               less Percentage Rent previously paid YTD.          $1,171,000        $  437.500       1996/92

Ocean Springs,       82        30% YTD Revenues over initial Break-Even
 Mississippi                   Threshold of $788,400 on first $350,000 over
(9-13-96)                      Break-Even Threshold, and 35% thereafter,
                               less Percentage Rent previously paid YTD.          $  951,000        $  388,900       1996/95

Sarasota, Florida    80        30% YTD Revenues over initial Break-Even
(9-13-96)                      Threshold of $802,800 on first $300,000 over
                               Break-Even Threshold, and 35% thereafter,
                               less Percentage Rent previously paid YTD.          $  933,000        $  313,800       1996/93

Consolidated Total for Hotels                                                     $7,856,000        $2,631,600
</TABLE>
---------------------
*    Break-Even Threshold increases by 2% per year
**   Break-Even Threshold increases by 3% per year
***  Break-Even Threshold remains constant
**** Base Rent Effective 12/31/96


<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

     None.

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

     None.

                                    PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     The Company's Class A Common Stock trades and is reported on the
American Stock Exchange ("AMEX") under the symbol "HFD".  The Class A Common
Stock began trading on April 22, 1996, the date of its initial public
offering.  The initial public offering price of the Class A Common Stock was
$10.00 per share.  The Company also has 140,000 shares of Class B Common
Stock issued and outstanding. There is no public trading market for the Class
B Common Stock. On January 31, 1997, all 140,000 shares of the Company's
issued and outstanding Class C Common Stock was converted to Class A Common
Stock on a one for one basis.  The shares of Class A Common Stock issued upon
conversion are "restricted securities" under the Securities Act of 1933.
No shares of Class C Common Stock remain issued and outstanding.

     The following table shows the range of high and low bid prices of the
Company's Class A Common Stock from the date on which the Class A Common
Stock began trading through December 31, 1996 as reported through AMEX.
These quotations represent prices between dealers without retail markup,
markdown or commissions, and may not necessarily represent actual
transactions.

                                             1996
                                             ----
                                        High        Low
                                        ----        ---

April 22, 1996 to June 30, 1996         9          7 7/8
Third Quarter                           8 5/8      7 5/8
Fourth Quarter                          8 3/4      7 3/8

     At February 28, 1997, there were approximately 1,100 shareholders of
record of the Company's Common Stock and the closing bid price was $9.875.

     The Company declared dividends of $0.2275 per share on August 1, 1996,
$0.2375 per share on November 1, 1996, and $0.24 per share on February 4,
1997. The Company intends to continue to make comparable dividend payments to
its shareholders on a regular quarterly basis in the future.

<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

     Host Funding, Inc. was formed December 22, 1994 and was inactive from
inception until March 31, 1995.

                                     YEAR ENDED         NINE MONTHS ENDED
                                  DECEMBER 31, 1996     DECEMBER 31, 1995
                                  -----------------     ------------------

REVENUES                             $ 1,768,783            $   942,343

LOSS BEFORE INCOME TAXES             $  (149,276)           $   (31,217)

NET LOSS                             $  (149,276)           $   (28,217)

NET LOSS PER COMMON SHARE            $     (0.12)           $     (0.04)

DISTRIBUTIONS PER COMMON SHARE:
  CLASS A                            $     0.465                      -
  CLASS B                                      -                      -
  CLASS C                                      -                      -

TOTAL ASSETS                         $20,435,575            $ 2,694,694

LONG-TERM OBLIGATIONS
  (Including current portion)        $15,500,000            $ 4,230,565


SHAREHOLDERS' EQUITY (DEFICIT)       $ 4,703,395            $(2,064,834)

WEIGHTED AVERAGE NUMBER OF COMMON
    AND COMMON EQUIVALENT
    SHARES OUTSTANDING                 1,244,668               690,000


See Management's Discussion and Analysis of Financial Condition and Results of
Operations for additional information concerning the Company's financial
performance.

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

RECENT DEVELOPMENTS

     On February 3, 1997, the Company entered into an Agreement (the
"Agreement") with HMR Capital, LLC, a Delaware limited liability company ("the
Acquisition Company"), and Host Funding Advisors, Inc., a Delaware corporation,
(the "Advisor"), whereby the Acquisition Company and Company agreed to restate
and amend the Acquisition Agreement between the parties (the "Acquisition
Agreement") and the Advisor and the Company terminated the Advisory Agreement
between the parties ("Advisory Agreement").  See "Certain Relationships and
Related Transactions". The Acquisition Agreement provides for the Acquisition
Company to be responsible for the management, coordination and supervision of
the Company's acquisition of hotel properties and was amended to allow
cancellation with thirty (30) days written notice from either party.  The
Advisory Agreement allowed the Advisor to provide information, advice,
assistance and facilities to the Company and was terminated effective January
31, 1997 to allow the Company to become self-administered.  As compensation to
the Acquisition Company for restating and amending the Acquisition Agreements,
the Company has agreed to issue 225,000 Series A Warrants (the "Series A
Warrants") and 225,000 Series B Warrants (the "Series B Warrants") to the
Acquisition Company.


<PAGE>

As compensation to the Advisory for termination of the Advisory Agreement by
the Company, the Company paid the Advisors $30,000 on February 14, 1997.

     The Series A Warrants provide warrants to purchase 225,000 shares of the
Company's Class A Common Stock, $0.01 par value per share, at $9.90 per share,
and expire on February 2, 2000. The Series B Warrants provide warrants to
purchase 225,000 shares of the Company's Class A Common Stock, $0.01 par value
per share, at $10.80 per share, and expire on February 2, 2001.

    The Company has entered into Employment Agreements (the "Employment
Agreements") with William Birdsall, Chairman of the Board; Michael S.
McNulty, President; and Bona K. Allen, Chief Financial Officer, for a term of
three years from February 1997.  The Employment Agreements provide for base
salaries of $291,000 with a minimum bonus of 15% up to a maximum of 50%,
based upon a prescribed formula in the Employment Agreements, of base
compensation in the first year.  The Employment Agreements also provide for
base salary increases based upon prescribed increases in the Company's asset
size.  The Employment Agreements are terminable by the Company, for cause,
upon thirty (30) days written notice, or upon death or disability, with
severance payments due the employees ranging from nothing to two years of
current base salary then in effect.

     On March 5, 1997, Host Funding formed Host Ventures, Inc., a Maryland
corporation ("Host Ventures"), as a wholly-owned, special purpose subsidiary
of the Company.  Host Ventures was formed at the request of Credit Suisse
First Boston Mortgage Capital, LLC ("First Boston") as a condition to First
Boston revising the existing $15,500,000 Initial Credit Facility (the
"Initial Credit Facility") with CrossHost, Inc., a Maryland corporation
("CrossHost"), formed on September 5, 1996 as a wholly-owned, special purpose
subsidiary of the Company. First Boston refinanced the Initial Credit
Facility at a reduced amount of $13,000,000 (the "CrossHost Loan Facility")
and provided an acquisition and credit facility to Host Ventures in the
amount of $8,725,000 (the "Host Ventures Loan Facility").  A significant
portion of the proceeds from the Host Ventures Loan Facility was used by Host
Ventures to acquire a 90 room Super 8 Hotel in Flagstaff, Arizona (the
"Flagstaff Super 8") from Teachers Retirement System of the State of Illinois
("Teachers") and to pay down the Initial Credit Facility. The effective
closing date for the purchase of the Flagstaff Super 8 was March 14, 1997.
Effective as of the closing date of the Flagstaff Super 8, Host Ventures also
leased the Flagstaff Super 8 to Crossroads Hospitality Tenant Company,
L.L.C., a Delaware limited liability company ("Crossroads") See "Liquidity
and Capital Resources".

     The Flagstaff Super 8 was acquired pursuant to the terms of the Restated
and Amended Post-Formation Acquisition Agreement dated February 3, 1997, (as
amended, the "Acquisition Agreement") by and between the Company and HMR
Capital, LLC (f\k\a Host Acquisition Group, LLC) (the "Acquisition Company").
The Acquisition Company is an affiliate of Mr. Michael S. McNulty, a director
and president of each of the Company, CrossHost and Host Ventures.  Under the
terms of the Acquisition Agreement, the Acquisition Company is responsible
for the management, coordination, and supervision of the Company's
acquisition of additional hotel properties.  The Acquisition Company sought
out the Flagstaff Super 8 and negotiated the terms of the acquisition.
Management and the board of directors of each of the Company and Host
Ventures (including all independent directors) approved the purchase of the
Flagstaff Super 8.

     Pursuant to the terms of the Acquisition Agreement, the Acquisition Company
is entitled to


<PAGE>

receive an acquisition fee of up to 6%, but not less than 2% of the gross
purchase price of the Flagstaff Super 8 plus reimbursement of certain
expenses (the "Acquired Property Acquisition Fee").  The Acquired Property
Acquisition Fee is payable in cash or, at the option of the Acquisition
Company, in the Class A Common Stock of the Company.  The Company and the
Acquisition Company agreed that the Acquired Property Acquisition Fee earned
by the Acquisition Company relating to the Flagstaff Super 8 was 16,000
shares of the Class A Common Stock of the Company valued at $10 per share and
payable as of March 31, 1997.  The shares of Class A Common Stock received by
the Acquisition Company in payment of the Acquired Property Acquisition Fee
will be restricted securities under the Securities Act of 1933 and subject to
the resale provisions of Rule 144 promulgated under the Act.  The last traded
price of the stock of the Company on the American Stock Exchange on March 14,
1997 was $9.50 per share.  The Company will record the Acquired Property
Acquisition Fee on the Flagstaff Super 8 at the fair market value of the
Class A Common Stock on March 14, 1997.  The Acquired Property Acquisition
Fee (based upon a value of $10 and $9.50 per share or $160,000 and $152,000,
respectively) represents approximately 3.1% and 3.0%, respectively, of the
gross purchase price totaling $5,125,000 excluding closing expenses of the
Flagstaff Super 8.

     Hotel Mortgage Resources Corp., an affiliate of Michael S. McNulty,
president and a director of each of the Company, CrossHost and Host Ventures,
received a loan origination fee of $84,907 relating to the financing
provided by First Boston for the acquisition of the Flagstaff Super 8.

     As a further condition to obtaining the Host Ventures Loan, First Boston
required the Company to transfer to Host Ventures two Sleep Inn properties
owned by the Company.  The two Sleep Inns are located in Sarasota, Florida
and Ocean Springs, Mississippi (collectively, the "Transferred Sleep Inns").
Simultaneously with the acquisition of the Flagstaff Super 8, CrossHost
deeded the Transferred Sleep Inns to Host Ventures in a tax free
reorganization.  In addition, the Company assigned to Host Ventures the lease
agreements with Crossroads pertaining to each of the Transferred Sleep Inns.

     The Company declared a cash dividend of $0.24 per share to stockholders of
record on February 4, 1997, which was payable February 18, 1997.

     The Company, as a requirement under the Internal Revenue Code (the "Code")
to elect REIT status, must have no more than five (5) shareholders, who own no
more than 50% of common stock, common stock equivalents, or other forms of
equity outstanding. The Company has not met this requirement as of December 31,
1996. Under the Code, the Company is allowed a six month exemption until
June 30, 1997 to meet the requirement. While management at the Company intends
to meet the Code requirements, no assurance can be given that REIT status will
be maintained, which could result in the Company being taxed as a C corporation.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1995:

     The Company did not acquire any assets until April 1, 1995.  On that date
the four Super 8 hotels located in Miner, Missouri; Poplar Bluff, Missouri; Rock
Falls, Illinois; and Somerset, Kentucky were acquired by the Company which are
collectively referred to as the "Initial Hotels".  Further, on April 22, 1996,
the Company completed an initial public stock offering of 500,000 common shares
that raised net cash proceeds totaling $4,500,000 (the "Stock Offering"), and
the Company acquired the assets of Mission Bay Super 8, Ltd., a California
limited partnership ("Mission Bay"), the owner of a 117 room Super 8 Motel (the
"Acquisition Hotel") located in San Diego, California, pursuant to an asset
acquisition agreement.  In addition, on September 13, 1996 and September 19,
1996 the Company completed the transaction resulting in the acquisition of three
Sleep


<PAGE>

Inn Hotels located in Destin, Sarasota, and Tallahassee, Florida from Capital
Circle Hotel Company ("Capital Circle") and one Sleep Inn Hotel located in
Ocean Springs, Mississippi from Ocean Springs Hotel Company ("Ocean Springs")
(collectively, the "Acquired Properties").  Therefore, comparisons of results
of operations to the corresponding period of the previous year cannot be made.

     Occupancy, average room rates, and revenue per available room of 73%,
$37.42, and $27.18 for the four Initial Hotels for the year ended December
31, 1996, occupancy, average room rates, and revenue per available room of
64%, $45.99, and $29.32 for the Acquisition Hotel from April 22 to December
31, 1996 and occupancy, average room rates, and revenue per available room of
54%, $46.67, and $25.30 for the four Acquired Properties for the period
September 14 to December 31, 1996 resulted in total sales, including room
sales of approximately $4,385,000.  These total sales generated base and
percentage lease revenues of $200,512 from Inn Fund, LLC, a Delaware limited
liability Company ("Inn Fund\Old Lessee") for the period January 1 to March
31, 1996 and $1,262,165 from Crossroads for the period April 1 to December
31, 1996.

     Interest income from a note received from All American Group, Ltd., a
Delaware limited partnership ("AAG"), the principal shareholder of the
Company, (the "Related Party Note"), which is included in Interest income -
related parties, totaled $204,939 for the year ended December 31, 1996, which
interest rate was at 10% until April 22, 1996, at which time it changed to
12% pursuant to the terms of the note.  Interest income from the notes with
the independent directors, which income is included in Interest income -
related parties, totaled $14,528 for the period ending December 31, 1996.

     Based upon an accounting of Furniture, Fixtures and Equipment reserve
expenditures made by Inn Fund\Old Lessee to April 22, 1996, Inn Fund\Old
Lessee owed $77,941 to Host Funding, which has been included in lease revenue
- related party.  This amount has been offset against an approximately equal
net amount owed by Host Funding to affiliates of Mr. Guy E. Hatfield, a
director and affiliate of the Company and member of Inn Fund\Old Lessee,
through April 22, 1996.

     Interest expense incurred for the period January 1 to December 31, 1996
were a result of interest expense and loan fee amortization expense on long
and short-term debt and notes payable resulting from the acquisition of the
Initial Hotels in April 1995 and the execution of the Loan Facility in
September 1996. In April 1996, long-term debt and notes payable for three of
the Initial Hotels were paid off from proceeds from the Stock Offering in the
amount of $3,190,000. On September 13, 1996, the Company borrowed $15,500,000
from the Loan Facility and paid off the remaining Initial Hotels debt of
approximately $980,000 (see Liquidity and Capital Resources).  Interest
expense for the year ended December 31, 1996 totaled $563,515, including
$216,500 of loan fee amortization.

     Depreciation expense, which is included in depreciation and
amortization, is calculated based upon the original historical cost of the
Initial Hotels and the acquisition value of the Acquisition Hotel (Mission
Bay) and the Acquired Properties over their estimated useful lives, totaled
$287,348 for the year ended December 31, 1996.  Franchise fee amortization,
which is included in depreciation and amortization, is calculated based upon
the original cost amortized over the life of the franchise agreement, which
totaled $1,750 for the year ended December 31, 1996.

     Administrative expenses - related party totaling $60,000 per month,
including $44,000 for


<PAGE>

April 1996, were due under a consulting agreement (the "Related Party
Consulting Agreement") to AAG.  The Related Party Consulting Agreement was
terminated upon consummation of the Stock Offering on April 22, 1996.  These
fees are non-recurring.

     Administrative expenditures - other totaled $427,980 for the year ended
December 31, 1996 including the 1995 audit fees of approximately $21,000 billed
and paid in 1996, legal fees totaling $118,000 and accounting fees totaling
$81,000, which amounts are greater than will be expected in future quarters due
to start-up costs, stock transfer fees totaling approximately $41,000, Acquired
Property lease transaction expenses totaling $45,000, expired loan application
fees totaling $38,000, and other administrative expenses totaling approximately
$84,000.  Of these expenditures, approximately $185,000 are non-recurring
administrative expenses on an annualized basis.

     Advisory fees - related party totaling $21,083 were due under an
Advisory Agreement with Host Funding Advisors, Inc., a Delaware corporation
(the "Advisor") entered into upon the close of the Stock Offering.

     Effective January 1, 1996, the Company became responsible for property
taxes under the Percentage Leases for the Initial Hotels.  In addition, the
Company is responsible for property taxes on the Acquisition Hotel and the
Acquired Properties.  Property tax expense, based upon local taxing
authorities' assessment of the values of the Company's real and personal
property owned times the statutory rates in effect in the respective tax
districts, totaled $138,675 for the year ended December 31, 1996.

     Amortization of unearned directors' compensation has been calculated
based upon the terms of the independent directors notes.

     Net income per share and weighted average shares outstanding have been
calculated based upon the daily average of the number of shares outstanding
upon completion of the Stock Offering, the Mission Bay acquisition and those
shares issued to the independent directors which date was April 22, 1996,
plus the shares issued to the Acquisition Company on September 19, 1996 added
to the AAG shares outstanding upon completion of the Stock Offering, which
shares of AAG are considered to have been outstanding from the date of
formation of Host Funding.

LIQUIDITY AND CAPITAL RESOURCES

     CrossHost entered into an Initial Loan Facility with First Boston in the
amount of $15,500,000 on September 13, 1996.  CrossHost immediately borrowed
the entire funds available under the Loan Facility.  The Loan Facility was
payable interest only, monthly, at the LIBOR Rate plus 304.5 basis points
(LIBOR Rate was 5.53906% as of December 31, 1996), with a maturity date of
October 1, 1997 at which time all unpaid interest plus principal was due.

     On March 14, 1997, CrossHost and Host Ventures entered into the
CrossHost Loan Facility totaling $13,000,000 and the Host Ventures Loan
Facility totaling $8,725,000 whereby the Initial Credit Facility was repaid
totaling $15,500,000, the Flagstaff Super 8 was acquired from Teachers for
approximately $5,125,000, closing costs and other expenses of the CrossHost
and Host Ventures Loan Facilities and of the Flagstaff Super 8 were incurred
totaling approximately $757,000, with


<PAGE>

approximately $343,000 in remaining loan proceeds provided to the Company for
working capital.

     The CrossHost Loan Facility is payable over twenty years in equal monthly
installments of $120,838, including interest at a fixed rate of 9.46% per annum
(the "Base Interest Rate") over the first ten years, with an increased fixed
monthly payment the second ten years that fully amortizes remaining principle
plus interest at an interest rate equal to the greater of 2% over the Base
Interest Rate or 2% over the then-existing ten year U.S. Treasury Note rate,
with a due date in March 2017.

     The Host Ventures Loan Facility is payable interest only, monthly, at the
LIBOR Rate plus 350 basis points (LIBOR Rate was 5.4375% as of March 14, 1997),
with a maturity date of April 1, 1999, at which time all unpaid interest plus
principal are due.

     The term of the leases on the Acquired Properties, as amended on March 14,
1997 (the "Acquired Properties Leases"), are for a period of fifteen (15) years
from the date of acquisition of each property (the "Commencement Date").  The
Acquired Properties Leases have combined total annual base rentals of
$1,417,500, plus percentage rentals ranging from 30% to 35% of year to date
revenues less varying breakeven thresholds adjusted annually by defined
percentages for each hotel.  Rentals due CrossHost or Host Ventures from
Crossroads from the Commencement Date of the Acquired Property Leases until
December 31, 1996 require only defined base rents.  During the first four years
after the Commencement Date, Crossroads will be entitled to accumulate a credit
of 50% of base rent paid in excess of hotel cash flow, if any, as defined in the
Acquired Property Leases, for each of the Acquired Properties which may be
applied towards future percentage rentals that may be due (the "Negative Base
Rent").  Should no future percentage rental be due under the Acquired Property
Leases during the lease terms, the Negative Base Rent will expire.  No Negative
Base Rent credit was outstanding as of December 31, 1996.  The Acquired Property
Leases generally require Crossroads to pay all operating expenses of the
properties, including maintenance and insurance, while CrossHost and Host
Ventures are responsible for property taxes.  In addition, CrossHost or Host
Ventures is required to set aside in a replacement reserve an amount equal to 4%
of gross room revenue during years one (1) to four (4) and 6% of gross room
revenue during years five (5) and thereafter, to be used for capital
expenditures which generally must be jointly approved by CrossHost, Host
Ventures and Crossroads.  Further, should CrossHost or Host Ventures decide to
sell any of the properties leased to Crossroads under the Acquired Property
Leases, Crossroads will be provided a 30 day right of first refusal to purchase
such property at the price offered CrossHost or Host Ventures by the third
party.  In addition, should Crossroads choose not to exercise their right of
first refusal to acquire the properties and should CrossHost or Host Ventures
elect to terminate the lease, upon CrossHost's, Host Venture's, Crossroads' and
the buyer's consent, Crossroads may be entitled to some portion of the sale
proceeds based on a formula as provided in the Acquired Property Leases.  In
Addition, CrossHost was required to provide a long-term advance of $30,000 per
Acquired Property to Crossroads, subject to proration adjustments, to be used
for working capital purposes which is due back to CrossHost or Host Ventures at
the end of the term of each Acquired Property Lease.

     As a condition to obtaining the Initial Credit Facility, First Boston
required the Company to transfer to CrossHost the five Super 8 hotel properties
owned by the Company.  The five hotels are located in Somerset, Kentucky; Rock
Falls, Illinois; San Diego, California; Miner, Missouri; and Poplar Bluff,
Missouri (collectively, the "Transferred Properties"). Simultaneously with the

<PAGE>

acquisition of the Acquired Properties located in Florida by CrossHost, the
Company deeded the Transferred Properties to CrossHost in a tax free
reorganization.  In addition, the Company assigned to CrossHost the Lease
Agreements and related Master Agreement pertaining to each of the Transferred
Properties.

     The Transferred Properties lease agreements with Crossroads were
transferred to CrossHost on September 13, 1996 and amended on October 1, 1996
and March 14,1997 (the "Amended Transferred Property Leases").  The Amended
Transferred Property Leases annual base rentals, effective after October 1,
1996, were increased $183,700 to $1,213,800, subject to possible additional
increases annually beginning in calendar 1998 and thereafter throughout the
term of the Amended Transferred Property Leases based upon increases in average
room rates, as defined in the Amended Transferred Property Leases, while
percentage rentals due remained unchanged.  Concurrent with the change in base
rent due for each Amended Transferred Property Lease, the requirement for
Crossroads to set aside in a replacement reserve $125 per room, per quarter,
increased annually by inflation factors, was terminated.  CrossHost is now
required, under the Amended Transferred Property Leases effective October 1,
1996, to fund into a replacement reserve an amount equal to six percent (6%) of
gross room revenue for the proceeding month, which amount to be expended for
capital expenditures will require joint approval of CrossHost and Crossroads.
All remaining significant terms of the Amended Transferred Property Leases
remained the same, except as described above.

     The lease agreement between Crosshost and Host Ventures for the Flagstaff
Super 8 (the "Flagstaff Lease Agreement") is for a term of fifteen (15) years
from March 1997 and provides for annual base rentals of $505,000 plus percentage
rentals of 32% or gross revenues less a breakeven level of $925,000, adjusted
annually.  Remaining terms of the Flagstaff Lease Agreement are similar to the
Acquired Properties Leases.

     The Company has no committed additional sources of external liquidity
available, therefore the Company will rely on its internal cash flow to meet its
liquidity needs.  The Company's principal source of cash to meet its cash
requirements, including distributions to Shareholders, is its share of the
Company's cash flow from the Percentage Leases and interest income from the
Related Party Note.  Although, the obligations of Crossroads, as lessee, under
the Percentage Leases are guaranteed in part by Crossroads Hospitality Company,
LLC, a Delaware limited liability company (a subsidiary of Interstate Hotels,
Inc., a Delaware Corporation and parent company of Crossroads), the ability of
Crossroads to make lease payments under the Percentage Leases, and therefore the
Company's liquidity, including its ability to make distributions to
shareholders, is dependent on the ability of Crossroads to generate sufficient
cash flow from the Hotels.  The following table sets forth certain financial
information for Crossroads Hospitality Company, LLC, as of and for the year
ended December 31, 1996.

     Total Assets                $  874,464
     Total Liabilities           $  881,145
     Partners' Deficit           $    6,681
     Revenues                    $3,850,828
     Net Income                  $    2,081

     Other than debt service on the CrossHost Loan Facility and the Host
Ventures Loan Facility, the capital expenditures required under the Transferred,
Acquired Properties leases with Crossroads or capital expenditures required
under the Loan Facility, property taxes on the Company's hotels, obligation
under the Employment Agreements, other administrative expenses and the Internal
Revenue Service tax requirements (the "Code") to make distributions to
shareholders to maintain the Company's REIT status, the Company is not aware of
any demands, commitments, events or uncertainties that will result or are likely
to result in a change in the Company's liquidity.

<PAGE>

     The Company intends to make additional investments in hotel properties and
may incur indebtedness to make such investments or to meet distribution
requirements imposed on a REIT under the Code to the extent that working capital
and cash flow from the Company's investments are insufficient to make such
distributions.  The Company will invest in additional hotel properties only as
suitable opportunities arise, and the Company will not undertake investments
unless adequate sources of financing are available.  Based upon REIT
distribution requirements, the Company expects that future investments in hotel
properties will be financed, in whole or in part, with common stock, proceeds
from additional issuances of common stock, or from the issuance of other debt or
equity securities.  The Company in the future may seek to obtain a line of
credit or a permanent credit facility, negotiate additional credit facilities,
or issue corporate debt instruments, all in compliance with its charter
restrictions.  Any debt incurred or issued by the Company may be secured or
unsecured, long-term or short-term, charge a fixed or variable interest rate and
may be subject to such other terms as the Board of Directors of the Company
deems prudent.

INFLATION

     Operators of hotels, in general, possess the ability to adjust room rates
quickly.  Competitive pressures may, however, limit the ability of the lessee to
raise room rates in the face of inflation.

SEASONALITY

     Hotel operations are generally seasonal in nature based upon geographic
locations.  This seasonality can be expected to cause fluctuations in the
Company's quarterly lease revenue to the extent that it receives Percentage
Rent.  It is presently anticipated that the Company's cash flow from operation
of the hotels is sufficient to enable it to make distributions at the
estimated initial rate.  To the extent that cash flow form operations is
insufficient during any quarter, due to temporary or seasonal fluctuations in
lease revenue, the Company expects to utilize other cash on hand or borrowings
to make such distributions.  No assurance can be given, however, that the
Company will make distributions in the future at the initially estimated rate,
or at all.

"THE SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF
1995.

     This Annual Report on Form 10-K contains or incorporates statements that
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995.  Those statements appear in a
number of places in this Annual Report on Form 10-K and include statements
regarding, among other matters, the Company's growth opportunities, the
Company's acquisition strategy, regulatory matters pertaining to compliance
with governmental regulations and other factors affecting the Company's
financial condition or results of operations. Stockholders are cautioned that
any such forward looking statements are not guarantees of future performance
and involve risks, uncertainties and other factors which may cause actual
results, performance or achievements to differ materially from the future
results, performance or achievements, expressed or implied in such forward
looking statements.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Item 14(a).

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

     The information required by this Item was previously reported by the
Company on a Current Report on Form 8-K filed with the Commission on April 29,
1996.


<PAGE>

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

     The information required by this Item 10 is included under the caption
"Election of Directors"  of the Company's Proxy Statement for its Annual
Meeting of Stockholders to be held on May 21, 1997, which information is
incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this Item 11 is included under the captions
"Executive Compensation", "Compensation of Directors", and "Certain
Transactions", of the Company's Proxy Statement for its Annual Meeting of
Stockholders to be held on May 21, 1997, which information is incorporated
herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

     The information required by this Item 12 is included under the captions
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management," of the Company's Proxy Statement for its Annual Meeting of
Stockholders to be held on May 21, 1997, which information is incorporated
herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TERMINATION AND AMENDMENT OF CERTAIN AGREEMENTS

     Effective January 31, 1997, the Company terminated the Advisory
Agreement dated effective as of April 22, 1996, by and between the Company
and Host Funding Advisors, Inc. ("Host Advisors"), as amended by the First
Amendment to Advisory Agreement between the parties dated effective as of
June 12, 1996 (as amended, the "Advisory Agreement").  The purpose and effect
of the termination of the Advisory Agreement was to eliminate the status of
the Company as an externally advised real estate investment trust and thereby
become self-administered and advised as of the date of termination.  Also,
effective as of January 31, 1997, the Company amended the Post-Formation
Acquisition Agreement dated effective as of April 22, 1996 by and between the
Company and HMR Capital, LLC (predecessor in name to Host Acquisition Group,
LLC) ("HMR Capital"), as amended by the First Amendment to Post -Formation
Acquisition Agreement between the parties dated effective as of June 12, 1996
(as amended, the Acquisition Agreement"), by entering into and Amended and
Restated Post-Acquisition Agreement dated effective as of February 3, 1997.
The purpose and effect of the restatement and amendment was to (i) redefine
the role and compensation of HMR Capital as the exclusive representative for
property acquisitions by the Company, (ii) provide the Company with the
opportunity to seek and analyze a wider range of hotel property acquisitions
on an internal basis; and (iii) provide for the termination by the Company of
the Acquisition Agreement upon thirty (30) days prior written notice.


<PAGE>

     In consideration for the termination of the Advisory Agreement and the
restatement and amendment of the Acquisition Agreement, the Company agreed to
pay Host Advisors $30,000 in cash, on or before February 15, 1997, and issue
Series A Warrants and Series B Warrants to HMR Capital to purchase a total of
450,000 shares of the Class A Common Stock of the Company (divided 225,000
shares to the Series A Warrants and 225,000 shares to the Series B Warrants).
The Series A Warrants have an expiration date of February 2, 2000 with a
strike price of $9.90 per share.  The Series B Warrants have an expiration
date of February 2, 2001 with a strike price of $10.80 per share.  The
Warrants are subject to price adjustments upon the occurrence of certain
events, including, without limitation, stock splits, mergers,
reclassifications of stock, sale of assets and dividends in the form of
stock.  The Series B Warrants are subject to an additional price adjustment
upon the successful completion by the Company of a public offering in which
the net proceeds to the Company are not less than $50,000,000.  Upon the
consummation of such an offering, the exercise price of the Series B Warrants
is adjusted to be equal to the greater of (i) 110% of the public per share
offering price on the effective date of the public offering or (ii) the per
share exercise price on the date immediately preceding the effective date of
the public offering.  The Series B Warrants are not exercisable during the
period of time commencing ten (10) business days after the Company gives
written notice to the holder of the Series B Warrants that within twenty-four
(24) months after the date of issuance of the Warrant, the Company intends to
file an application with the Securities and Exchange Commission to register
and sell common stock of the Company pursuant to an underwritten public
offering with net proceeds to the Company of not less than $50,000,000 and
ending on the earlier to occur of sixty (60) days after the effective date of
such public offering or twenty-four (24) months after the date of issuance of
the Warrants (the "Registration Period").

     The holders of the Warrants are also entitled to certain limited
registration rights. The Series A Warrants provide that the Company will
prepare and file a Form S-3 Shelf Registration Statement covering all of the
shares issuable upon exercise of the Series A Warrants within ninety (90)
days following the effective date of a public offering of the Company's
common stock in which the net proceeds to the Company are not less than
$20,000,000.  The Series B Warrants provide that the Company will prepare and
file a Form S-3 Shelf Registration Statement covering all of the shares
issuable upon exercise of the Series B Warrants within ninety (90) days
following the earlier to occur of (i) the effective date of a public offering
of the Company's common stock in which the net proceeds to the Company are
not less than $50,000,000 and (ii) the effective date of a public offering of
the Company's common stock after the expiration of the Registration Period
(described above) in which the net proceeds to the Company are not less than
$20,000,000. Upon the filing of a Shelf Registration Statement relating to
either of the Warrant series, the Company is required to keep the Shelf
Registration Statement effective for a period ending on the earlier to occur
of two years after the effective date of the Shelf Registration Statement or
the expiration date of the Warrant.

EMPLOYMENT AGREEMENTS

     In connection with the Company becoming self-administered as of January
31, 1997, the Company entered into Employment Agreements with William
Birdsall, Chairman of the Board, Michael S. McNulty, President, and Bona K.
Allen, Chief Financial Officer (collectively the "Employment Agreements").
Each of the Employment Agreements is for a term of three years from February
1, 1997 and provide for a base salary to Mr. Birdsall of $108,000, Mr.
McNulty $108,000, and Mr. Allen $75,000 with a minimum bonus of 15% up to a
maximum of 50%, based upon a

<PAGE>

prescribed formula in the Employment Agreements of base compensation in the
first year.  The Employment Agreements further provide for base salary
increases based upon prescribed increases in the Company's asset size.  The
Employment Agreements are terminable by the Company, for cause, upon thirty
(30) days written notice, or upon death or disability, with severance
payments from nothing to two years of current base salary then in effect.

ACQUISITION FEES ON FLAGSTAFF PROPERTY

     The Company through Host Ventures, a wholly-owned subsidiary, recently
acquired a Super 8 Hotel located in Flagstaff, Arizona (the "Flagstaff Super
8").  See "Business-Recent Acquisitions."  The Flagstaff Property was
acquired pursuant to the terms of that certain Restated and Amended
Post-Formation Acquisition Agreement dated February 3, 1997 (the "Acquisition
Agreement") by and between the Company and HMR Capital, LLC (f/k/a Host
Acquisition Group, LLC) ("HMR Capital").  Pursuant to the terms of the
Acquisition Agreement, HMR Capital is entitled to receive an acquisition fee
of up to 6%, but not less than 2% of the gross purchase price of the
property.  The acquisition fee is payable in cash or at the option of the
Company in the Class A Common Stock of the Company.  The Company and the
Acquisition Company have agreed that the acquisition fee earned by the
Company relating to the Flagstaff Property is 16,000 shares of the Class A
Common Stock of the Company valued at $10 per share and payable as of March
31, 1997.  The shares of Class A Common Stock of the Company received by HMR
Capital in payment of the acquisition fee will be deemed restricted
securities under the Securities Act of 1933 and subject to the resale
provisions of Rule 144 promulgated under the Act.  The acquisition fee (based
upon a value of $10 per share) represents approximately 3.1% of the gross
purchase price of the Flagstaff Property which totaled $5,125,000 excluding
closing expenses.  HMR Capital is an affiliate of Mr. Michael S. McNulty, a
Director and President of each of the Company, CrossHost and Host Ventures
based upon Mr. McNulty's ownership and control of 10.38% of the membership
units in HMR Capital.  Effective February 1, 1997 HMR Capital has redeemed
all of Mr. McNulty's direct and indirect interest in HMR Capital.

     Hotel Mortgage Resources Corp. ("Hotel Resources") received a loan
origination fee of $84,907 relating to the financing provided  by First
Boston for acquisition of the Flagstaff Property.  Mr. McNulty was an
employee of Hotel Resources during the calendar year 1996 and received a
gross annual salary of $60,000 of which $52,500 was paid during calendar year
1996 and $7,500 is due.  Mr. McNulty terminated his employment relationship
with Hotel Resources effective January 1, 1997.

     The total fees received by HMR and Hotel Resources represent
approximately 4.7% of the gross purchase price of the Flagstaff Property.

     The remaining information required by this Item 13 is included under the
caption "Certain Transactions" of the Company's Proxy Statement for its
Annual Meeting of Stockholders to be held on May 21, 1997, which information
is incorporated herein by reference.

                                     PART IV

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

(a)  The following documents are filed as part of this Form 10-K Annual
     Report:

<PAGE>

(1)  Financial Statements:

     The Report of Independent Accountants and the following consolidated
     Financial Statements of the Company are included herein:

     Consolidated Balance Sheet--December 31, 1996 and December 31, 1995.

     Consolidated Statement of Operations--Year ended December 31, 1996 and
     nine months ended December 31, 1995.

     Consolidated Statement of Shareholders' Equity (Deficit) --Year ended
     December 31, 1996 and nine months ended December 31, 1995.

     Consolidated Statement of Cash Flows--Year ended December 31, 1996 and
     nine months ended December 31, 1995.

     Notes to Consolidated Financial Statements

     Financial Statement Schedules:

     Schedule III - Real Estate and Accumulated Depreciation

     All other schedules to the Consolidated Financial Statements are
     omitted because the required information is inapplicable or has been
     presented in the Financial Statements or Related Notes thereto.

     Financial Statements of Acquired Property:

     It is impracticable at this time to provide the financial statements of
     the Flagstaff Super 8 hotel property recently acquired by the Company.
     The required financial statements relating to the Flagstaff Super 8
     will be filed as soon as they are available.

     Pro Forma Financial Information:

     It is impracticable at this time to provide the pro forma financial
     information of the Company to reflect the acquisitions of Flagstaff
     Super 8.  The required pro forma financial information derived from the
     acquisition of the Flagstaff Super 8 will be filed as soon as such
     information is available.

(b)  Reports of Form 8-K.

     The Company filed a Current Report on Form 8-K, dated September 30,
1996, as amended by a Current Report on Form 8-K/A, dated November 8, 1996,
which disclosed the consummation of the acquisition of four Sleep Inn Hotel
properties and the securing by the Company of a

<PAGE>


$15,500,00 credit facility from Credit Suisse First Boston Capital, LLC.  The
Form 8-K/A included the following financial statements of the Sleep Inn
properties and certain pro forma unaudited financial statements of the
Company:

     FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED:

     1.   Independent Auditor's Reports.

     2.   Combined Balance Sheets as of June 30, 1995, December 31, 1995, 1994
          and 1993.

     3.   Combined Statements of Earnings for the six months ended June 30, 1995
          and the years ended December 31, 1995, 1994 and 1993.

     4.   Combined Statements of Retained Earnings for the six months ended
          June 30, 1995 and the years ended December 31, 1995, 1994, and 1993.

     5.   Combined Statements of Cash Flows for the six months ended June 30,
          1995 and the years ended December 31, 1995, 1994 and 1993.

     6.   Notes to Combined Financial Statements.


      PRO FORMA UNAUDITED FINANCIAL INFORMATION

      1.   Unaudited Estimated Pro Forma Balance Sheet as of June 30, 1996.

      2.   Notes to Pro Forma Balance Sheet.

      3.   Unaudited Estimated Pro Forma Statement of Income for the year ended
           December 31, 1995; the twelve months ended June 30, 1996; and the six
           months ended June 30, 1996 and 1995.

      4.   Notes to Pro Forma Statements of Income.

(c)  Exhibits.

Exhibit Number                Description
--------------                -----------

     3.1          Amended and Restated Charter of the Company (incorporated by
                  reference to Exhibit 3.1 to Company's Amendment No. 8 to
                  Form S-11 effective April 17, 1996).

     3.2          Amended and Restated By-Laws of the Company (incorporated by
                  reference to Exhibit 3.2 to Company's Amendment No. 8 to
                  Form S-11 effective April 17, 1996).

<PAGE>



     4.1          Form of Share Certificate (incorporated by reference to
                  Exhibit 4.1 to Company's Amendment No. 8 to Form S-11
                  effective April 17, 1996).

     4.2          Form of Series A Warrant dated effective as of February 3,
                  1997.

     4.3          Form of Series B Warrant dated effective as of February 3,
                  1997.

    10.1          Agreement to Purchase Motel between Teacher's Retirement
                  System of the State of Illinois, as Seller, and Host Funding,
                  Inc., as Purchaser, as from time to time amended by the
                  parties thereto (Flagstaff, Arizona).

    10.2          Assignment of Agreement to Purchase Motel dated effective as
                  of May 14, 1997, by and between Host Funding, Inc., as
                  Assignor, and Host Ventures, Inc., as Assignee (Flagstaff,
                  Arizona).

    10.3          Promissory Note dated March 14, 1997 from CrossHost, Inc., as
                  Maker, and Credit Suisse First Boston Capital LLC, as Payee,
                  in the principal amount of $13,000,000.

    10.4          Promissory Note dated March 14, 1997 from Host Ventures, Inc.
                  as Maker, and Credit Suisse First Boston, LLC, as Payee,
                  in the principal amount of $8,725,000.

    10.5          Form of Mortgage and Security Agreement, dated as of March 14,
                  1997 by and between CrossHost, Inc., as Mortgagor, and Credit
                  Suisse First Boston Mortgage Capital LLC, as Mortgagee.
                  CrossHost and Host Ventures executed a separate Mortgage
                  Agreement and/or Deed of Trust for each of the hotel
                  properties pledged to secure the Revised Credit Facility. The
                  Mortgage Agreements and/or Deeds of Trust are substantially
                  similar except for the remedy provisions required under the
                  laws of the state in which the hotel property is located in
                  the event of a default by the respective Mortgagor.

    10.6          Lease Agreement dated March 14, 1997 by and between Host
                  Ventures, Inc., as Lessor, and Crossroads Hospitality Tenant
                  Company, L.L.C., as Lessee (Flagstaff, Arizona).

    10.7          Master Agreement dated September 13, 1996 by and among
                  CrossHost, Inc. and Crossroads Hospitality Tenant Company,
                  L.L.C., and Crossroads Hospitality Company, L.L.C., (Sleep
                  Inn Hotels) (incorporated by reference to Exhibit 10.18
                  to Company's Form 8-K filed on September 30, 1996).

    10.8          Master Agreement dated April 1, 1996 by and among Host
                  Funding, Inc. and Crossroads Hospitality Tenant Company,
                  L.L.C. and Crossroads Hospitality Company, L.L.C.  (Super 8
                  Hotels) (incorporated by reference to Exhibit 10.2 to
                  Company's Amendment No. 8 to Form S-11 effective April 17,
                  1996).

<PAGE>

    10.9          Form of Lease Agreement (Super 8 Hotels) (incorporated by
                  reference to Exhibit 10.1 to Company's Amendment No. 8 to
                  Form S-11 effective April 17, 1996 and Exhibit 10.19 to
                  Company's Form 8-K filed on September 30, 1996).

    10.10         Form of Lease Agreement (Sleep Inn Hotels) (incorporated by
                  reference to Exhibit 10.14 to Company's Form 8-K filed on
                  September 30, 1996).

    10.11         Assignment and Assumption of Lease Agreement dated as of
                  March 14, 1997 by and between CrossHost, Inc., as Assignor,
                  and Host Ventures, Inc., as Assignee (Sarasota, Florida).
                  An identical Assignment and Assumption Agreement was executed
                  by Assignor and Assignee for Ocean Springs, Mississippi.

    10.12         Partial Assignment and Assumption of Master Agreement dated as
                  of March 14, 1997 by and among Host Funding, Inc. and
                  Crossroads Hospitality Tenant Company, L.L.C., and Crossroads
                  Hospitality Company, L.L.C. (Sarasota, Florida and Ocean
                  Springs, Mississippi).

    10.13         Restated and Amended Post-Formation Acquisition Agreement
                  dated as of February 3, 1997 by and between Host Funding, Inc.
                  and HMR Capital, LLC.

    10.14         Second Amendment to Lease Agreement dated effective as of
                  March 14, 1997 by and between Host Funding, Inc. and
                  Crossroads Hospitality Tenant Company, LLC (Poplar Bluff,
                  Missouri).  An identical Second Amendment to Lease Agreement
                  was executed by the parties with respect to the hotel
                  properties located in Rock Falls, Illinois, Somerset,
                  Kentucky, Miner, Missouri and San Diego, California.

    10.15         First Amendment to Lease Agreement dated effective as of
                  March 14, 1997 by and between Host Funding, Inc. and
                  Crossroads Hospitality Tenant Company, LLC (Sarasota,
                  Florida).  An identical First Amendment to Lease Agreement
                  was executed by the parties with respect to the hotel
                  properties located in Destin and Tallahassee, Florida and
                  Ocean Springs, Missouri.

    10.16         Termination Agreement dated effective as of February 3, 1997
                  by and between Host Funding, Inc. and Host Funding Advisors,
                  Inc. relating to termination of the Advisory Agreement.

    10.17         Indemnity and Guaranty Agreement dated as of March 14, 1997
                  by and between Host Funding, Inc. and Credit Suisse First
                  Boston Capital, LLC.

    10.18         Agreement dated February 3, 1997 by and between Host Funding,
                  Inc., HMR Capital, LLC and Host Funding Advisors, Inc.

    10.19         Employment Agreement dated effective as of February 1, 1997
                  by and between Host Funding, Inc. and William K. Birdsall.

<PAGE>

    10.20         Employment Agreement dated effective as of February 1, 1997
                  by and between Host Funding, Inc. and Michael S. McNulty.

    10.21         Employment Agreement dated effective as of February 1, 1997
                  by and between Host Funding, Inc. and Bona K. Allen.

    21.1          Subsidiaries of Registrant

    27            Financial Data Schedule

     The Company will furnish copies of these Exhibits upon request and the
payment of $.20 per page.  Requests should be addressed to Bona K. Allen, c/o
Host Funding, Inc., 6116 North Central Expressway, Suite 1313, Dallas, Texas
75206.

<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Host Funding, Inc.


By: /s/  Michael S. McNulty
   --------------------------------
         Michael S. McNulty
Title:   President

Date: March 31, 1997

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

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

/s/ William Birdsall
-------------------------          Chairman of the Board       March 31,1997
William Birdsall


/s/ Michael S. McNulty
-------------------------          President and Director      March 31, 1997
Michael S. McNulty

/s/ Bona K. Allen
-------------------------          Chief Financial and         March 31, 1997
Bona K. Allen                      Accounting Officer

/s/ Don W. Cockroft
-------------------------          Director                    March 31, 1997
Don W. Cockroft

/s/ Guy E. Hatfield
-------------------------          Director                    March 31, 1997
Guy E. Hatfield


/s/ Charles R. Dunn
-------------------------          Director                    March 31, 1997
Charles R. Dunn


<PAGE>

                         INDEX TO FINANCIAL STATEMENTS
                              HOST FUNDING, INC.


Report of Independent Accountants                                         F-2

Consolidated Balance Sheet as of December 31, 1996
 and December 31, 1995                                                    F-3

Consolidated Statement of Operations for the year
 ended December 31, 1996 and nine months ended
 December 31, 1995                                                        F-4

Consolidated Statement of Shareholders' Equity (Deficit)
 for the year ended December 31, 1996 and nine months ended
 December 31, 1995                                                        F-5

Consolidated Statement of Cash Flows for the year
 ended December 31, 1996 and nine months ended
 December 31, 1995                                                    F-6 to F-7

Notes to Consolidated Financial Statements                           F-8 to F-22

Schedule III-Real Estate and Accumulated Depreciation               F-23 to F-24

                                       F-1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
 Host Funding, Inc.


We have audited the consolidated financial statements and the financial
statement schedule of Host Funding, Inc. and subsidiary listed in the index
on page F-1 of this Form 10-K.  These financial statements and schedule are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform 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 consolidated financial position of Host Funding,
Inc. at December 31, 1996 and December 31, 1995 and the results of its
operations and its cash flows for the year ended December 31, 1996 and the
nine months ended December 31, 1995, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.

COOPERS & LYBRAND, L.L.P.

San Diego, California
February 14, 1997, except as to the information presented
  in Note 8, for which the date is March 14, 1997

                                       F-2

<PAGE>
HOST FUNDING, INC.
CONSOLIDATED BALANCE SHEET
                                                     December 31,   December 31,
                                                         1996           1995
ASSETS
LAND, PROPERTY AND EQUIPMENT - AT COST:
 Building and improvements                          $  12,644,239  $  1,813,261
 Furnishings and equipment                              1,952,233       285,929
 Less accumulated depreciation                          (391,009)      (103,663)
                                                       14,205,463     1,995,527
 Land                                                   4,808,047       642,287

   Land, property and equipment - net                  19,013,510     2,637,814

CASH AND CASH EQUIVALENTS                                 218,693           500

RESTRICTED CASH                                           128,952             -

RENT RECEIVABLE - CROSSROADS                              223,160             -

DUE FROM RELATED PARTIES                                   30,390        35,234

LONG-TERM ADVANCES TO CROSSROADS                          225,000             -

LOAN COMMITMENT FEES - Net                                502,338        21,146

FRANCHISE FEES - Net                                       58,250             -

PREPAID AND OTHER ASSETS                                   35,282             -

   TOTAL                                            $  20,435,575  $  2,694,694


LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
LONG-TERM DEBT                                      $  15,500,000  $  4,155,321

NOTES PAYABLE                                                   -        75,244

ACCOUNTS PAYABLE                                           38,354             -

ACCRUED INTEREST                                          114,886        40,963

ACCRUED PROPERTY TAXES                                     78,940             -

ACCOUNTS PAYABLE - STOCK ISSUANCE COSTS                         -       325,000

DEFERRED INCOME TAXES                                           -       163,000

   Total liabilities                                   15,732,180     4,759,528

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY (DEFICIT):
 Class A Common stock, at December 31, 1996 and
  1995, $.01 par value; authorized 50,000,000 and
  1,000, respectively; issued and outstanding
  1,234,049 and 100 shares, respectively                   12,340             1
 Class B Common stock, at December 31, 1996,
  $.01 par value; authorized 4,000,000 shares;
  issued and outstanding 140,000 shares                     1,400             -
 Class C Common stock, at December 31, 1996,
  $.01 par value; authorized 4,000,000 shares;
  issued and outstanding 140,000 shares                     1,400             -
 Additional Paid in Capital                             7,501,494             -
 Accumulated Deficit                                     (744,772)     (259,160)
 Less: Related party note receivable                   (1,805,675)   (1,805,675)
 Less: Unearned directors' compensation                  (262,792)            -

   Total shareholders' equity (deficit)                 4,703,395    (2,064,834)

   TOTAL                                            $  20,435,575  $  2,694,694

See accompanying notes to financial statements.

                                      F-3
<PAGE>

HOST FUNDING, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
NINE MONTHS ENDED DECEMBER 31, 1995

<TABLE>

                                                     TWELVE AND
                                                     NINE MONTHS ENDED
                                                     DECEMBER 31,

                                                         1996           1995
<S>                                                   <C>             <C>
REVENUES:
 Lease revenue - related party                         $  278,453     $  806,670
 Lease revenue - Crossroads                             1,262,165           -
 Interest income - related parties                        219,467        135,673
 Interest income                                            8,698           -
  Total revenue                                         1,768,783        942,343

EXPENSES:
 Interest expense                                         780,015        322,461
 Depreciation and amortization                            289,098        111,099
 Administrative expenses - related party                  224,000        540,000
 Administrative expenses - other                          427,980          -
 Advisory fees - related party                             21,083          -
 Property taxes                                           138,675          -
 Amortization of unearned directors' compensation          37,208          -
  Total expenses                                        1,918,059        973,560

LOSS BEFORE INCOME TAXES                                 (149,276)       (31,217)

BENEFIT FOR INCOME TAXES                                     -            (3,000)

NET LOSS                                               $ (149,276)    $  (28,217)

NET LOSS PER SHARE                                     $    (0.12)    $    (0.04)

WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES OUTSTANDING                            1,244,668        690,000

</TABLE>



See accompanying notes to financial statements.

                                    F-4


<PAGE>

HOST FUNDING, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE
NINE MONTHS ENDED DECEMBER 31, 1995

<TABLE>



                              Class A      Class B   Class C     Additional               Related      Unearned        Total
                              Common       Common    Common       Paid in   Accumulated  Party Note   Directors'    Shareholders'
                              Stock        Stock      Stock       Capital     Deficit    Receivable  Compensation  Equity (Deficit)
<S>                           <C>        <C>        <C>       <C>          <C>         <C>           <C>           <C>
CONTRIBUTION OF NET ASSETS
AND LIABILITIES FOR COMMON
STOCK AND ACCUMULATED
DEFICIT ON APRIL 1, 1995      $    1     $    -     $    -    $        -   $(305,943)  $(1,805,675)  $        -    $(2,111,617)

REDUCTION IN STOCK ISSUANCE
COSTS                              -          -          -             -      75,000             -            -         75,000

NET LOSS                           -          -          -             -     (28,217)            -            -        (28,217)

BALANCE,  December 31, 1995        1          -          -             -    (259,160)   (1,805,675)           -     (2,064,834)

COMMON STOCK ISSUED IN
PUBLIC STOCK OFFERING          3,000          -          -     2,697,000           -             -            -      2,700,000

COMMON STOCK ISSUED IN
PRIVATE PLACEMENT              2,000          -          -     1,798,000           -             -            -      1,800,000

COMMON STOCK ISSUED
PURSUANT TO MISSION BAY
ACQUISITION AGREEMENT          2,520          -          -     2,517,970           -             -            -      2,520,490

COMMON STOCK ISSUED TO
PARTNERS OF AAG                4,099      1,400      1,400        (6,899)          -             -            -              0

COMMON STOCK ISSUED TO
INDEPENDENT DIRECTORS            300          -         -        299,700           -             -     (300,000)             0

COMMON STOCK ISSUED FOR
ACQUIRED PROPERTIES
ACQUISITION FEE                  420          -         -        338,205           -             -            -        338,625

RECLASS OF STOCK ISSUANCE
COSTS AGAINST ADDITIONAL
PAID IN CAPITAL                    -          -         -        (64,943)     64,943              -           -              0

INCREASE IN STOCK ISSUANCE
COSTS                              -          -         -        (77,539)          -              -           -        (77,539)

AMORTIZATION OF UNEARNED
DIRECTORS' COMPENSATION            -          -          -              -          -              -      37,208         37,208

ELIMINATION OF DEFERRED INCOME
TAXES FROM CONVERSION TO REIT      -          -          -              -        163,000          -           -         163,000

DISTRIBUTIONS PAID                 -          -          -              -       (564,279)         -           -         (564,279)

NET LOSS                           -          -          -              -       (149,276)         -           -         (149,276)

BALANCE, December 31, 1996   $12,340     $1,400     $1,400     $7,501,494      $(744,772)$(1,805,675)  $(262,792)     $4,703,395

</TABLE>

See accompanying notes to financial statement



                                            F-5


<PAGE>


HOST FUNDING, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE NINE MONTHS ENDED DECEMBER 31, 1995

<TABLE>

                                                          1996          1995

<S>                                                 <C>              <C>
OPERATING ACTIVITIES:
 Net loss                                           $   (149,276)    $  (28,217)
 Adjustments to reconcile net loss to net cash:
  provided by operating activities
  Depreciation and amortization                          289,098        111,099
  Deferred taxes                                            -            (3,000)
  Amortization of loan fees                               216,500          -
  Amortization of unearned directors' compensation         37,208          -
 Changes in operating assets and liabilities:
  Rent and interest receivable - due from related
   parties                                                  4,844       (35,234)
  Rent receivable - Crossroads                           (223,160)         -
  Payment of loan fees                                   (697,692)         -
  Prepaid and other assets                                (14,800)
  Accounts payable and accrued expenses                   191,217        40,963

  Net cash (used in) provided by operating activities    (346,061)       85,611

INVESTING ACTIVITIES:
 Acquisition of land, property and equipment          (13,803,929)         -
 Restricted cash                                         (128,952)         -
 Long-term advances to Crossroads                        (225,000)         -
 Franchise fees                                           (60,000)
 Prepaid and other assets                                 (20,482)         -

  Net cash used in investing activities               (14,238,363)            0

FINANCING ACTIVITIES:
 Borrowings on long-term debt and notes payable        15,500,000       120,000
 Proceeds from common stock issued in Stock Offering
  and Private Placement                                 4,500,000          -
 Payments on long-term debt and notes payable          (4,230,565)     (105,111)
 Stock issuance costs                                    (402,539)     (100,000)
 Distributions paid                                      (564,279)         -

  Net cash provided by (used in) financing activities  14,802,617       (85,111)

NET CHANGE IN CASH AND CASH EQUIVALENTS                   218,193           500

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD              500             0

CASH AND CASH EQUIVALENTS AT END OF PERIOD             $  218,693    $      500

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION
 Cash paid during the period for interest              $  610,408    $  281,498

 Cash paid during the period for income taxes          $        0    $        0

</TABLE>

                                                               (Continued)

                                    F-6


<PAGE>

HOST FUNDING, INC.

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE NINE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
                                                            1996              1995
<S>                                                         <C>               <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION (Continued)
 Non-cash investing activities:
  Contribution of net assets and liabilities for common
  stock and accumulated deficit
   Land, property and equipment                          $         -       $ 2,741,477
   Loan commitment fees                                            -            28,582
   Related party note receivable                                   -         1,805,675
   Long-term debt                                                  -        (4,215,676)
   Common Stock                                                    -                (1)
                                                                   0           360,057
  Less:  Liabilities and accumulated deficit resulting
  from the contribution of net assets and liabilities
   Accounts payable stock issuance costs                           -          (500,000)
   Reduction in accounts payable stock issuance costs              -            75,000
   Deferred income taxes                                           -          (166,000)
   Accumulated deficit                                             -           305,943
   Reduction in stock issuance costs                               -           (75,000)
                                                                   0          (360,057)
   Net non-cash investing activity                       $         0       $         0
  Common stock issued pursuant to Mission Bay
   Acquisition Agreement
   Land, property and equipment                          $(2,520,490)      $         -
   Class A common stock                                        2,520                 -
   Additional paid in capital                              2,517,970                 -
   Net non-cash investing activity                       $         0       $         0
  Common stock issued to partners of AAG
   Class A common stock                                  $     4,099       $         -
   Class B common stock                                        1,400                 -
   Class C common stock                                        1,400                 -
   Additional paid in capital                                 (6,899)                -

   Net non-cash investing activity                       $         0       $         0

  Common stock issued to independent directors
   Class A common stock                                  $       300       $         -
   Additional paid in capital                                299,700                 -
   Unearned directors' compensation                         (300,000)                -

   Net non-cash investing activity                       $         0       $         0

  Reclass of deferred income taxes and stock issuance
   costs due to Stock Offering
   Deferred income taxes                                 $  (163,000)      $         -
   Additional paid in capital                                (64,943)                -
   Retained earnings                                         227,943                 -

   Net non-cash investing activity                       $         0       $         0

  Common stock issued for Acquired Properties
  Acquisition Fee
   Class A common stock                                  $       420       $         -
   Additional paid in capital                                338,205                 -
   Land, property and equipment                             (338,625)                -

   Net non-cash investing activity                       $         0       $         0
</TABLE>
                                                                    (Concluded)
See accompanying notes to financial statements.



                                       F-7
<PAGE>

                              HOST FUNDING, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION:
The accompanying financial statements include the accounts of Host Funding,
Inc., a Maryland corporation ("Host Funding") and its consolidated
subsidiary.  Host Funding was initially formed on December 22, 1994 as a Real
Estate Investment Trust ("REIT") to acquire and then lease limited service
hotels/motels.  Host Funding's fiscal year end is December 31.  Host Funding
was inactive from inception, December 22, 1994 to March 31, 1995.  Host
Funding intends to elect REIT status with the filing of their consolidated
tax return for the year ending December 31, 1996 (see note 7).

On April 1, 1995, Host Funding and All American Group, Ltd., a Delaware
limited partnership ("AAG") entered into a Contribution and Assumption
Agreement (the "Contribution and Assumption Agreement").  Under the
Contribution and Assumption Agreement, AAG transferred, assigned and conveyed
to Host Funding all of the real property, including land and personal
property ($2,741,477) and loan commitment fees ($28,582), and Host Funding
agreed to assume stock issuance costs payable ($425,000) and all real
property debt ($4,215,676), at historical cost, of four (4) Super 8 motels
located and doing business in Somerset, Kentucky; Miner, Missouri; Poplar
Bluff, Missouri; and Rock Falls, Illinois.  In addition, AAG contributed a
note receivable (the "Related Party Note") ($1,805,675).  In accordance with
generally accepted accounting principles, the Related Party Note has been
offset against shareholder's equity as the Related Party Note was originally
issued for equity in AAG.  As consideration to AAG, Host Funding issued 100
shares of common stock.  As of December 31, 1995, all of the outstanding
stock of Host Funding was owned by AAG.

On April 22, 1996, Host Funding raised additional capital via an initial
public offering of Class A common stock (the "Stock Offering").  The Stock
Offering issued 500,000 common shares and raised net cash proceeds totalling
$3,997,461 (300,000 of publicly offered shares at $3,000,000 net of $300,000
of sales commissions and 200,000 privately placed shares at $1,800,000 for a
total of $4,500,000, net of issuance costs of $502,539).  Host Funding used
the capital raised from the Stock Offering to pay down long-term debt, to pay
expenses of the formation of Host Funding, and for working capital purposes.

Further, on April 22, 1996, Host Funding acquired for a total purchase price
of $2,810,000, certain assets of Mission Bay Super 8, Ltd., a California
limited partnership ("Mission Bay"), the owner of a 117 room Super 8 motel
located in San Diego, California, pursuant to an asset acquisition agreement
(the "Mission Bay Acquisition Agreement").  Host Funding exchanged


                                       F-8

<PAGE>

252,049 shares of common stock at a stated value of $10.00 per share
($2,520,490) plus cash for a reserve for dissenters rights and fractional
share settlements of approximately $290,000  (see note 6).

Upon completion of the Stock Offering and the Mission Bay Acquisition
Agreement, Host Funding issued additional Class A, B and C common shares to
AAG in exchange for 100 initial shares held by AAG based upon appraised
values of Host Funding's assets net of liabilities prior to the Stock
Offering.  The common shares issued upon completion of the Stock Offering
include 410,000 Class A, 140,000 Class B and 140,000 Class C, which number of
shares were determined based upon the net appraised value of assets net of
liabilities of $6,900,000 or $10.00 per share.  The Class B and C shares
include certain restrictions as to the future payment of dividends and are
convertible to Class A common shares at certain times and under certain
circumstances as defined in the charter.  The Class C common shares converted
into Class A common shares effective January 1, 1997.

On September 5, 1996, Host Funding formed CrossHost, Inc., a Maryland
Corporation ("CrossHost"), as a wholly-owned, special purpose, REIT
qualified, subsidiary.  CrossHost was formed at the request of CS First
Boston Mortgage Capital Corp. ("First Boston") as a condition to First Boston
providing an acquisition and credit facility (the "Initial Loan Facility") to
CrossHost (see note 3 and 7).  A significant portion of the proceeds from the
Loan Facility was used by CrossHost to acquire three Sleep Inn Hotels located
in Destin, Sarasota, and Tallahassee, Florida from Capital Circle Hotel
Company ("Capital Circle") and one Sleep Inn Hotel located in Ocean Springs,
Mississippi from Ocean Springs Hotel Company ("Ocean Springs") (collectively,
the "Acquired Properties").  The effective closing dates for the purchase of
the Acquired Properties by CrossHost from Capital Circle and Ocean Springs
were September 13, 1996 and September 19, 1996, respectively (see note 6).

As a further condition to obtaining the Loan Facility, First Boston required
Host Funding to transfer to CrossHost the five Super 8 hotel properties owned
by Host Funding (the "Transferred Properties").  Simultaneously with the
acquisition of the Acquired Properties by CrossHost, Host Funding deeded the
Transferred Properties to CrossHost in a tax free reorganization.

Host Funding is listed on the American Stock Exchange.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Land, Property and Equipment
----------------------------
Buildings and improvements are being depreciated over useful lives of 35
years from the original historical date of acquisition using the
straight-line method.  Hotel furnishings and equipment are being depreciated
using primarily straight-line methods over useful lives ranging from 3 to 7
years from the original historical date of acquisition.

Host Funding assesses impairment of its real estate properties based upon
whether it is probable that undiscounted future cash flows from each
individual property will be less than its net book value.  No impairment has
occurred as of December 31, 1996, nor has impairment been required to be
recorded upon implementation in 1996 of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-lived Assets and
for Long-lived Assets to Be Disposed Of."


                                       F-9

<PAGE>

Cash and Cash Equivalents
-------------------------

Cash and cash equivalents are defined as cash on hand and in banks plus all
short-term investments with a maturity, at the date of purchase, of three
months or less.

Restricted Cash
---------------

Restricted cash represents cash deposited in escrow accounts under
contractual agreements for property taxes and capital improvements that are
restricted as to usage.

Loan Commitment Fees
--------------------

The loan commitment fees are amortized over the terms of the loans using the
straight-line method which approximates the effective interest rate method.
Accumulated amortization of loan fees totalled $195,355 and $28,424 as of
December 31, 1996 and 1995, respectively.

Franchise Fees
--------------

Franchise fees are being amortized on a straight-line basis over the fifteen
(15) year life of the franchise agreements.  Accumulated amortization of
franchise fees totalled $1,750 as of December 31, 1996.

Revenues
--------

Host Funding recognizes lease revenue on an accrual basis over the terms of
the lease agreement.

Net Loss Per Share
------------------

Net loss per share is based on the weighted average number of common shares
outstanding during the year.  The weighted average number of shares
outstanding prior to the Stock Offering were calculated as if the shares
issued to AAG upon completion of the Stock Offering were outstanding from
April 1, 1995.

Fair Value of Financial Instruments and Concentration of Credit Risk
--------------------------------------------------------------------

The following disclosure of estimated fair value was determined by available
market information and appropriate valuation methodologies.  However,
considerable judgment is necessary to interpret market data and develop the
related estimates of fair value.  Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that could be realized upon
disposition of the financial instruments.  The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.

Rent receivable - Crossroads, due from related parties, long-term advances to
Crossroads, accounts payable and accrued expenses, and accounts payable are
carried at amounts which reasonably approximate their fair value.

The carrying value of long-term debt approximates fair value as the related
interest rate is variable and approximates market rates.

Use of Estimates
----------------

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


                                       F-10

<PAGE>

Income Taxes
------------

Host Funding had adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires the use of
the liability method of accounting for deferred income taxes.  Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes
and income tax purposes and operating loss and tax credit carryforwards.

Deferred income tax benefit totalled $3,000 for the year ended December 31,
1995.  The deferred income tax liability as of December 31, 1995, totalling
$163,000, was reversed and credited to retained earnings upon consummation of
the Stock Offering in 1996.  The reason for the reversal of the deferred tax
liability is that upon completion of the Stock Offering, Host Funding will
elect REIT status and intends to meet the Code requirements and be taxed as a
REIT.  As a result, no future deferred tax liability will be required.

Host Funding will elect to be treated as a REIT under the provisions of the
Code beginning with the 1996 year.  As a result, Host Funding will not be
subject to federal income tax on its taxable income at corporate rates to the
extent it distributes annually 95% of its taxable income to its shareholders
and complies with certain other requirements (see note 7).  Host Funding is
subject to state income and franchise taxes in certain states which it
operates.  There is no provision for Federal income taxes for the year ended
December 31, 1996, as Host Funding will elect REIT status and has a net
operating loss carryforward of $348,000 expiring in 2011 and 2010.  Host
Funding elected not to recognize this deferred tax asset as future
utilization of this net operating loss is uncertain.

As of December 31, 1996, Host Funding's net assets for federal tax reporting
purposes totalled approximately $19,900,000.

NOTE 2.  REAL ESTATE INVESTMENTS

As described in note 1, on April 1, 1995, Host Funding acquired fee interests
in four motels.  The motel properties were leased (the "Initial Leases") to
Inn Fund, LLC, a Delaware limited liability company ("Inn Fund").  Guy D.
Hatfield, the controlling partner of AAG, and approximate 46% shareholder of
Host Funding, owns 7.5% and Ian Gardner-Smith owns 92.5% of Inn Fund.  The
four motels were operated for Inn Fund by All American Group, Inc., an entity
100% owned by Guy Hatfield and his wife ("AAG, Inc.").  Lease revenue -
related party under the Initial Leases for the year and nine months ended
December 31, 1996 and 1995, respectively, include $195,025 and $772,350 of
base rentals and $5,487 and $34,320 of percentage rentals, respectively.

On April 1, 1996 and on April 22, 1996, Host Funding agreed to enter into new
motel leases for the four existing motel properties and Mission Bay,
respectively, (the "New Leases") with a limited liability company of a
nationally recognized hotel management company and operator, Crossroads
Hospitality Tenant Company, a Delaware limited liability company
("Crossroads").  Upon execution of the New Leases, the previous leases with
Inn Fund, which leases were similar to the New Leases, were terminated.  The
New Leases with Crossroads were transferred to CrossHost on September 13,
1996 and amended on October 1, 1996 (the "Amended Transferred Property
Leases").


                                       F-11

<PAGE>

Further, effective as of the closing dates of the respective Acquired
Properties, CrossHost also (i) leased each of the Acquired Properties to
Crossroads by separate Lease Agreements (the "Acquired Property Leases") and
(ii) entered into a Master Agreement with Crossroads and Crossroads
Hospitality Company, LLC, a Delaware limited liability company ("Crossroads
Hospitality") a subsidiary of Interstate Hotels, Inc. a Delaware Corporation,
and parent company of Crossroads), relating to the Acquired Property Leases.

The Amended Transferred Property Leases and the Acquired Property Leases (the
"Combined Leases") are for a term of 15 years from the effective dates.
Combined total annual base rentals of $2,631,600 are due, plus percentage
rentals ranging from 28.75% to 40% of year to date revenues less varying
break even thresholds adjusted annually by defined percentages for each motel
under the Combined Leases.  Base and percentage rentals under the Combined
Leases totalled $1,091,654 and $170,511, respectively, for the year ended
December 31, 1996.

The annual base rentals of the Amended Transferred Property Leases are
subject to possible additional increases annually beginning in calendar year
1998 and thereafter based upon increases in average room rates, as defined in
the Amended Transferred Property Leases.

During the first four years after the Commencement Date, Crossroads will be
entitled to accumulate a credit of 50% of base rent paid in excess of hotel
cash flow, if any, as defined in the Acquired Property Leases, for each of
the Acquired Properties which may be applied towards future percentage
rentals that may be due (the "Negative Base Rent").  Should no future
percentage rent be due under the Acquired Property Leases during the lease
terms, the Negative Base Rent will expire.  No Negative Base Rent credit was
outstanding as of December 31, 1996.

The Combined Leases generally require Crossroads to pay all operating
expenses of the properties, including maintenance and insurance, while Host
Funding is responsible for property taxes.

Concurrent with the change in base rent due for each Amended Transferred
Property Lease, the requirement for Crossroads to set aside in a replacement
reserve $125 per room, per quarter, increased annually by inflation factors,
was terminated.  As of December 31, 1996, Crossroads has on deposit in a
replacement reserve account net remaining funds totalling approximately
$80,000 which are available for capital improvements on the Transferred
Properties.

Under the Amended Transferred Property Leases, effective October 1, 1996,
CrossHost is required to fund into a replacement reserve (the "Replacement
Reserve") an amount equal to six percent (6%) of gross room revenue for the
proceeding month.  In addition, under the Acquired Property Leases, CrossHost
is required to set aside in the Replacement Reserve an amount equal to 4% of
gross room revenue during years one (1) to four (4) and 6% of gross room
revenue during years five (5) and thereafter.  Capital expenditures generally
must be jointly approved by CrossHost and Crossroads.  Replacement Reserve
contributions due from CrossHost under the Combined Leases totalled $75,683
for the period October 1 to December 31, 1996.  As of December 31, 1996
Replacement Reserve contributions totalling $67,294 have been funded by
CrossHost, which amount is included in restricted cash, with $8,389 in
Replacement Reserve contributions due.

Based upon an accounting of remaining furniture, fixtures and equipment
reserve contributions


                                       F-12

<PAGE>

due from Inn Fund under the Initial Leases to March 31, 1996, the date of the
cancellation of the Initial Leases, Inn Fund owes $77,941 to Host Funding.
This amount has been included in lease revenue - related party and was offset
against an approximately equal net amount owed by Host Funding to affiliates
of Guy E. Hatfield, an affiliate of the Company. (See note 5.)

Further, should Host Funding decide to sell any of the properties leased to
Crossroads under the Combined Leases, Crossroads will be provided a 30 day
right of first refusal to purchase such property at the price offered Host
Funding by the third party.  In addition, under the Acquired Property Leases,
if Crossroads elects not to exercise its right of first refusal to acquire
the properties and should CrossHost elect to terminate the lease, upon the
consent of CrossHost, Crossroads and the buyer, Crossroads may be entitled to
some portion of the sale proceeds based on a formula as provided in the
applicable Acquired Property Lease.

CrossHost, under the Combined Leases, was required to provide long-term
non-interest bearing advances totalling $225,000 to Crossroads to be used for
working capital purposes which is due back to CrossHost at the end of the
term of each Acquired Property Lease.

Crossroads may terminate any one lease under the Amended Transferred Property
Leases within the first five years without damages.  Should two leases under
the Amended Transferred Property Leases be terminated within the first five
years, Crossroads has agreed to pay a termination fee equal to the previous
twelve months revenue for the hotel times 18% in years one to three, 12% in
year four and 6% in year five.  If more than two leases are terminated within
the first five years under the Amended Transferred Property Leases, Host
Funding has the right to terminate all remaining leases or to collect the
termination fee as described above.

The parent company of Crossroads has agreed to pledge as collateral 30,000
shares of Host Funding Class A common stock acquired by Crossroads parent
under the Stock Offering to collateralize the payment of rent due under the
Amended Transferred Property Leases in the amount of $264,000 during the
first three years of the lease terms.  In addition, Crossroads has agreed to
maintain a letter of credit thereafter equal to annually calculated
termination fees that would be due on the lease anniversary dates throughout
the remaining terms of the Amended Transferred Property Leases.  After the
first year, Crossroads parent may substitute the letter of credit by
guaranteeing the equivalent amounts required by the letter of credit and
providing to Host Funding a copy of Crossroads parent's audited financial
statements which indicate a net worth of at least 2-1/2 times the value of
the letter of credit, with at least 40% of the net worth in cash or cash
equivalent assets.  In addition, Crossroads parent makes certain negative
covenants concerning maintenance of its minimum net worth levels.

Minimum future base rents due under operating leases for the five years
ending December 31, 1997 to 2001 and thereafter are as follows:

   1997            $   2,631,600
   1998                2,992,800
   1999                2,992,800
   2000                2,992,800
   2001                2,992,800
   Thereafter         28,897,150
                   -------------
   Total           $  43,755,942
                   -------------
                   -------------

                                       F-13


<PAGE>

NOTE 3.  LONG-TERM DEBT AND NOTES PAYABLE

Long-term debt:
---------------

A summary of Host Funding's long-term debt as of December 31 follows:

                                                         1996          1995
                                                       --------   -------------
First mortgage note payable to bank;
8.5% interest until March 1994, prime
plus 1.5% but not less than 8.5%
thereafter (prime was 9% at December 31,
1995), adjusted annually; payments of
$11,823 monthly, due March 1998; personal
guarantees of Guy E. and Dorothy Hatfield              $  --      $1,094,146 (A)

First mortgage not payable to bank; 8.75%
interest; payments of $11,244 monthly; due
February 1998.                                            --       1,011,545 (B)

First mortgage note payable to bank; prime
plus 2%, adjusted quarterly (prime was 9%
at December 31, 1995); payments of $9,174
monthly, due March 1998.                                  --         889,630 (A)

First mortgage note payable to bank; prime
plus 1/2% interest rate adjusted daily (prime
was 9% at December 31, 1995); accrued interest
plus principal are due on March 31, 1996.                 --       1,160,000 (A)
First mortgage note payable, interest at
LIBOR plus 304.5 basis points, adjusted
monthly (LIBOR was 5.53906% at December 31,
1996); payable monthly; due October 1997
(for information regarding the refinancing
see note 7).                                      15,500,000              --
                                                  ----------     -----------
                                                  15,500,000       4,155,321

Less current portion                              15,500,000       1,251,844
                                                  ----------     -----------
                                                  $        0     $ 2,903,477
                                                  ----------     -----------
                                                  ----------     -----------

(A) Paid off from proceeds from Stock Offering in April 1996.
(B) Paid off from proceeds of the Initial Loan Facility in September 1996.

                                       F-14

<PAGE>


From the proceeds of the Initial Loan Facility, CrossHost paid approximately
$9,730,000 in cash to Capital Circle and approximately $3,555,000 in cash to
Ocean Springs as consideration for the Acquired Properties plus closing
expenses on the Acquired Properties in the approximate amount of $229,000.
In addition, CrossHost used approximately $980,000 of the loan proceeds to
pay in full the mortgage relating to the Super 8 motel located in Rock Falls,
Illinois.  Further, proceeds from the Initial Loan Facility were used by Host
Funding and CrossHost for loan origination costs and other expenses relating
to the acquisition of the Acquired Properties and the financing of the
Transferred Properties in the approximate amount totaling $693,000, including
related party loan fees and expense reimbursements of $232,500 and $20,000,
respectively, which amount will be amortized over the term of the Initial
Loan Facility (see note 5 and 7).  In addition, CrossHost used approximately
$60,000 of proceeds from the Initial Loan Facility to acquire a ten (10) year
Sleep Inn franchise with Choice Hotels, Inc., a nationally recognized hotel
franchisor.  Additional proceeds from the Loan Facility were escrowed in
restricted cash accounts required under the Initial Loan Facility to be used
to pay property taxes in the approximate amount of $99,000 and for capital
improvements in the approximate amount of $62,000.  The remaining proceeds
from the Loan Facility in the approximate amount of $92,000 were used for
long-term advances due Crossroads under the Acquired Property Leases (see
note 2).  The Initial Loan Facility was collateralized by liens on
substantially all of the assets of CrossHost, including the Acquired
Properties and the Transferred Properties.  The Initial Loan Facility was
refinanced on March 14, 1997 (see note 7).

NOTES PAYABLE:

In July 1995, Host Funding entered into a second mortgage collateralized by
the Poplar Bluff, Missouri and Rock Falls, Illinois motels totalling $100,000
at an interest rate of prime plus 2% payable interest only on August 15, 1995
and, thereafter, in monthly installments of $12,000, including principal and
interest, commencing September 15, 1995.  The note balance as of December 31,
1995 totalled $55,244.  The note was paid off upon completion of the Stock
Offering.

In October 1995, Host Funding entered into an unsecured note payable
totalling $20,000.  This note bore interest at 10% and was due and payable
March 31, 1996.  The note balance as of December 31, 1995 totalled $20,000.
The note was paid off upon completion of the Stock Offering.

NOTE 4.  SHAREHOLDERS' EQUITY

Host Funding is authorized to issue 55,000,000 shares of common stock,
consisting of 50,000,000 shares of Class A common stock, $.01 par value per
share, and 4,000,000 shares of Class B common stock, $.01 par value per share
and 1,000,000 shares of Class C common stock, $.01 par value per share.

Upon consummation of the Stock Offering and Mission Bay Acquisition Agreement,
Host Funding sold to each independent director then in office 10,000 shares of
Class A common stock at a price per share equal to $10 per share.  The purchase
price ($300,000) will be paid by them through delivery of a five year promissory
note executed in favor of Host Funding by each purchaser, which shall bear
interest, payable quarterly, at a fixed rate equal to 7% per annum.  Principal
payments totalling 2% of the original principal will be due annually.  The


                                       F-15

<PAGE>

shares of common stock purchased by each independent director will be pledged
to Host Funding to collateralize payment of the promissory note, which shall
be non-recourse to the maker, except to 10% of the principal amount due from
directors.  Host Funding has agreed to forgive the promissory notes issued in
exchange for the shares of common stock in increments of 18% of the principal
amount per annum for each year that the maker remains a director of Host
Funding.  The estimated annual amortization of unearned director's
compensation is expected to total $54,000 based upon the issuance of a total
of 30,000 shares to three directors.  Interest income - related party, paid
or accrued by the directors, to Host Funding totalled $14,528 for the year
ended December 31, 1996.  As of December 31, 1996, $819 remains payable to
Host Funding and is included in due from related parties.

Host Funding also has 20,000,000 authorized preferred shares, $.01 par value,
none of which are issued or outstanding.

Please refer to Note 1, Organization and Summary of Significant Accounting
Policies, for information regarding common stock issued as a result of the
Stock Offering and the Mission Bay Acquisition Agreement.  Also, refer to
Note 5, Related Party Transactions, for information regarding common stock
issued under the Post-Formation Acquisition Agreement as a result of the
purchase of the Acquired Properties.

NOTE 5.  RELATED PARTY TRANSACTIONS

RELATED PARTY NOTE RECEIVABLE:

As described in note 1, on April 1, 1995, AAG, as part of the Contribution
and Assumption Agreement, contributed the Related Party Note to Host Funding.
 The Related Party Note is due from Guy and Dorothy Hatfield and their two
children, sole limited partners, and AAG, Inc., sole general partner (the
"AAG Partners"), of AAG.   The principal balance of the Related Party Note
dated March 31, 1995, as of December 31, 1996, is $1,805,675, with interest
payable quarterly, commencing November 15, 1995, at 10% per annum, adjusted
to 12% per annum upon completion of the Stock Offering, with remaining
outstanding principal and unpaid accrued interest due and payable on March
31, 2000.  The Related Party Note was secured by second trust deeds on
properties located in Central City, Kentucky; Lebanon, Kentucky; Miner,
Missouri; and Dexter, Missouri.  The collateral for the Related Party Note
was provided via a Lent Collateral Agreement from Hatfield Inn, Inc., a
Delaware corporation ("Hatfield Inn") 100% owned by Guy and Dorothy Hatfield.
 In September 1995, the Related Party Note was amended to remove the
obligation of AAG to maintain real property security, conditioned upon the
delivery to Host Funding of an unconditional guarantee by Guy and Dorothy
Hatfield.  The Related Party Note is classified in the Shareholders' Equity
(Deficit) section of the balance sheet as it was contributed to AAG and, in
turn, Host Funding to provide equity to AAG and Host Funding, respectively.
Interest income - related parties, paid or accrued by the AAG partners to
Host Funding, totalled $204,939 and $135,673 for the year ended December 31,
1996 and for the nine months ended December 31, 1995, respectively.  As of
December 31, 1996, $33,706 of Related Party Note interest is payable and
included in due from related parties.

STOCK PLEDGE AGREEMENT:

Further, on April 1, 1995, the AAG Partners entered into a Stock Pledge
Agreement (the "Stock Pledge Agreement") with Host Funding.  Pursuant to the
Stock Pledge Agreement, the AAG Partners agreed to pledge a security
investment in 26.2%, or 180,780, of the fraction shares


                                       F-16

<PAGE>

issued to AAG in the Stock Offering, together with all additional shares
issued to the AAG Partners by reason of stock split or stock dividend, of
common stock in Host Funding to secure the Related Party Note.

RELATED PARTY CONSULTING AGREEMENT:

Host Funding entered into a consulting agreement (The "Related Party
Consulting Agreement") with AAG effective April 1, 1995 to provide advisory,
accounting and other consulting services to Host Funding for a monthly fee of
$60,000 plus annual additional compensation as mutually agreed upon.  Related
party consulting fees totalling $224,000 and $540,000 for the year ended
December 31, 1996 and for the nine months ended December 31, 1995,
respectively, were paid or accrued to AAG under the Related Party Consulting
Agreement.  The Related Party Consulting Agreement was canceled upon
completion of the Stock Offering.

RELATED PARTY ADVISORY AGREEMENT:

Host Funding has entered into an Advisory Agreement (the "Advisory
Agreement") with Host Funding Advisors, Inc., a Delaware corporation (the
"Advisor") on the close of the Stock Offering.  The Advisor was formed on
June 23, 1994.  Pursuant to the Advisory Agreement, the Advisor will provide
information, advice, assistance, and facilities to Host Funding in connection
with Host Funding's future investment in hotel properties.  Additionally, the
Advisor will administer the daily operations of Host Funding, negotiate on
Host Funding's behalf, act as agent for Host funding in collecting funds and
paying debts, and generally manage and operate Host Funding.  In
consideration for such services, Host Funding will compensate the Advisor in
the amount of $30,000 per year.  The Advisor is an affiliate of Ian
Gardner-Smith, a director and officer of CrossHost, and Michael S. McNulty, a
director and president of Host Funding and CrossHost.  Advisory fees
totalling $21,083 were paid or accrued during the calendar year ended
December 31, 1996.  Effective January 31, 1997, the Advisory Agreement was
canceled for payment of a fee at $30,000 and the Registrant became
self-administered.

RELATED PARTY ACQUISITION AGREEMENT:

Host Funding has entered into a Post-Formation Acquisition Agreement (as
amended, the "Acquisition Agreement") with HMR Capital, LLC, a Delaware
limited liability company, (the "Acquisition Company") on April 22, 1996.

The Acquisition Company is an affiliate of Michael S. McNulty and Ian
Gardner-Smith.  Under the terms of the Acquisition Agreement, the Acquisition
Company is responsible for the management, coordination, and supervision of
Host Funding's acquisition of additional hotel properties.  The Acquisition
Company sought out the Acquired Properties and negotiated the terms of the
acquisition.

The Acquisition Agreement is for a term of five years, as amended, from
February 3, 1997 or when net fees earned by the Acquisition Company exceed $9
million, subject to a 30 day cancellation provision by either party.
Further, the Acquisition Company is entitled to receive an acquisition fee of
no less than 2% and up to 6% of the gross purchase price of the Acquired
Properties, subject to the 30 day cancellation provision, plus reimbursement
of certain expenses (the "Acquired Properties Acquisition Fee").  The
Acquired Properties Acquisition Fee is payable in cash or, at the option of
the Acquisition Company, in the Class A Common Stock of Host Funding.  Host
Funding and the Acquisition Company agreed that the Acquired Properties
Acquisition Fee earned by the Acquisition Company relating to the Acquired
Properties was 42,000 shares of the Class A Common Stock of the Registrant
valued at $10 per

                                       F-17

<PAGE>


share and payable as of September 19, 1996 (the Ocean Springs closing date).
The shares of Class A Common Stock received by the Acquisition Company in
payment of the Acquired Properties Acquisition Fee will be restricted
securities under the Securities Act of 1933 and subject to the resale
provisions of Rule 144 promulgated under the Act.  The last traded price of
the stock of Host Funding on the American Stock Exchange on September 19,
1996 was $8.0625 per share.  Host Funding has recorded the Acquired
Properties Acquisition Fee on the Acquired Properties at the fair market
value of the Class A Common Stock on September 19, 1996.  The Acquired
Properties Acquisition Fee (based upon a value of $8.0625 per share or
$338,625) represents approximately 2.5% of the gross purchase price totalling
$13,285,000 excluding closing expenses of the Acquired Properties.

OTHER RELATED PARTY TRANSACTIONS:

As of the close of the Stock Offering, management of Host Funding, Inn Fund
and AAG and the general and limited partners of AAG have offset the
consulting fees due AAG under the Related Party Consulting Agreement against
accrued interest receivable due under the Related Party Note and accrued rent
receivable and remaining furniture, fixtures and equipment reserve
contributions due under the Initial Leases with Inn Fund.  As of December 31,
1996, $4,135 remains payable to AAG from Host Funding and has been netted
against and included in due from related parties.

Hatfield Inn is the owner and operator of a 40 room motel adjacent to Host
Funding's property located in Miner, Missouri.  Host Funding and Hatfield Inn
have a shared parking agreement allowing cars to park in either property's
parking facilities, compete for similar business, and are managed by the
general partner of AAG.

Hotel Mortgage Resources Corp. ("HMRC"), an affiliate of Mr. Ian
Gardner-Smith and Michael S. McNulty, in connection with the Loan Facility
discussed in Note 1 and 3, received a loan origination fee of $232,500 plus
reimbursement of expenses of approximately $20,000 during the year ended
December 31, 1996.  The total fees received by affiliates relating to the
acquisition of the Acquired Properties, including loan origination fees, the
Acquired Properties Acquisition Fee and the expense reimbursement, totalled
approximately $591,125.

HMRC, during the year ended December 31, 1996,  also received expense
reimbursements for stock issuance costs totaling $105,679 and for travel and
other related expenses which are included in administrative and other
expenses totalling $23,455.  Loan application fees totalling $5,000 were paid
to HMRC during the year ended December 31, 1996.

The parent company of Crossroads, the lessee under the New Leases, purchased
60,000 shares of Class A common stock via the initial Private Placement.

NOTE 6.  ACQUISITIONS

The following unaudited pro forma information has been prepared assuming that
the acquisition of Mission Bay and the Acquired Hotels has occurred at the
beginning of the periods presented.  Permitted pro forma adjustments include
only the effects of events directly attributable to a transaction that are
factually supportable and expected to have continuing impact.  Pro forma
adjustments reflecting anticipated "efficiencies" in operations resulting
from a transaction are,


                                       F-18

<PAGE>

under most circumstances, not permitted.  As a result of the limitations
imposed with regard to the types of permitted pro forma adjustments, Host
Funding believes that this unaudited pro forma information is not indicative
of future results of operations, not the results of historical operations had
the acquisition of Mission Bay and the Acquired Properties been consummated
as of the assumed dates.

                                                 (Unaudited)
                                                        Nine Months
                                       Year Ending        Ending
                                       December 31,     December 31,
                                           1996             1995
                                       -----------      ------------
 Revenues                              $ 3,318,000      $ 2,524,000
 Net Income                            $   463,000      $   382,000
 Earnings Per Share                    $      0.31      $      0.25
 Weighted Average Number of
   Common Shares Outstanding             1,514,049        1,514,049

NOTE 7.  COMMITMENTS AND CONTINGENCIES

REIT STATUS:

Host Funding, as a requirement under the Code to elect REIT status, must have
no more than five (5) shareholders, own no more than 50% of common stock,
common stock equivalents, or other forms of equity outstanding.  Host Funding
has not met this requirement as of December 31, 1996.  Under the Code, Host
Funding is allowed a six month exemption until June 30, 1997 to meet the
requirement.  While management at Host Funding intends to meet the Code
requirements, no assurance can be given that REIT status will be maintained,
which could result in Host Funding being taxed as a C corporation.

FRANCHISE AGREEMENTS:

Host Funding has been granted franchise license agreements from Super 8 and
Sleep Inns for terms expiring in 2005 and 2011, respectively.  Pursuant to
the terms of the agreement, Host Funding is required to pay royalty fees and
advertising fees of 5% to 4% and 3% to 1.3%, respectively, and reservation
fees due under the Sleep Inn agreements of 1.75%, of gross room revenue.  The
responsibility for payment of the fees has been assigned to Crossroads under
the Combined Leases.

DIVIDEND DECLARATION:

On January 27, 1997, Host Funding declared a cash dividend of $0.24 per share
to  stockholders of record on February 4, 1997, which was payable on February
18, 1997.

TERMINATION OF ADVISORY AGREEMENT, AMENDMENT OF ACQUISITION AGREEMENT AND
ISSUANCE OF WARRANTS:

On February 3, 1997, Host Funding entered into an Agreement with the
Acquisition Company and the Advisor whereby the Acquisition Company and Host
Funding agreed to amend the Acquisition Agreement and the Advisor and Host
Funding terminated the Advisory Agreement (see note 5).

As compensation to the Acquisition Company for amending the Acquisition
Agreement allowing


                                       F-19

<PAGE>

a thirty (30) day cancellation, Host Funding has agreed to issue 225,000
Series A Warrants (the "Series A Warrants") and 225,000 Series B Warrants
(the "Series B Warrants") to the Acquisition Company.

The Series A Warrants provide warrants to purchase 225,000 shares of Host
Funding's Class A Common Stock, $0.01 par value per share, at $9.90 per
share, and expire on February 2, 2000.  There are additional provisions in
the Series A Warrants that allow pari passu treatment upon recapitalization
of Host Funding.

The Series B Warrants provide warrants to purchase 225,000 shares of Host
Funding's Class A Common Stock, $0.01 par value per share, at $10.80 per
share, and expire on February 2, 2001.  There are additional provisions in
the Series B Warrants that allow pari passu treatment upon recapitalization
of Host Funding and certain restrictions within the first twenty-four months
of issuance as to the price allowed upon exercise of the Series B Warrants
based upon consummation of a public offering in which proceeds to Host
Funding are not less than $50 million.

EMPLOYMENT AGREEMENTS:

Host Funding has entered into Employment Agreements (the "Employment
Agreements") with  William Birdsall, Chairman of the Board; Michael S.
McNulty, President; and Bona K. Allen, Chief Financial Officer, for a term of
three years from February 1997.  The Employment Agreements provide for base
salaries of $291,000 with a minimum bonus of 15% up to a maximum of 50%,
based upon a prescribed formula in the Employment Agreements, of base
compensation in the first year.  The Employment Agreements also provide for
base salary increases based upon prescribed increases in Host Funding's asset
size.  The Employment Agreements are terminable by Host Funding, for cause,
upon thirty (30) days written notice, or upon death or disability, with
severance payments due employees ranging from nothing to two years of current
base salary then in effect.

NOTE 8.  SUBSEQUENT EVENTS

FORMATION OF HOST VENTURES, REFINANCING OF INITIAL LOAN FACILITY AND ACQUISITION
OF FLAGSTAFF SUPER 8:

On March 5, 1997, Host Funding formed Host Ventures, Inc., a Maryland
corporation ("Host Ventures"), as a wholly-owned, special purpose subsidiary
of Host Funding.  Host Ventures was formed at the request of First Boston as
a condition to refinancing the existing $15,500,000 Initial Loan Facility
with CrossHost at a reduced amount of $13,000,000 (the "CrossHost Loan
Facility") and provided an acquisition and credit facility to Host Ventures
in the amount of $8,725,000 (the "Host Ventures Loan Facility").

The CrossHost Loan Facility is payable over twenty years in equal monthly
installments of $120,838, including interest at a fixed rate of 9.46% per annum
(the "Base Interest Rate") over the first ten years, with an increased fixed
monthly payment the second ten years that fully amortizes remaining principal
plus interest at an interest rate equal to the greater of 2% over the Base
Interest Rate or 2% over the then-existing ten year U.S.Treasury Note rate, with
a due date in March 2017.


                                       F-20

<PAGE>

The Host Ventures Loan Facility is payable interest only, monthly at the
LIBOR Rate plus 350 basis points (LIBOR Rate was 5.4375% as of March 14,
1997), with a maturity date of April 1, 1999, at which time all unpaid
interest plus principal are due.

Aggregate principal payments under the CrossHost and Host Ventures Loan
Facilities for the next five calendar years ended December 31 and thereafter
are as follows:

               1997           $   150,951
               1998               244,973
               1999             8,994,179
               2000               295,777
               2001               325,004
               Thereafter      11,714,116
               Total         $ 21,725,000

A significant portion of the proceeds from the Host Ventures Loan Facility
was used by Host Ventures to acquire a 90 room Super 8 Motel in Flagstaff,
Arizona for $5,125,000 plus closing costs (the "Flagstaff Super 8") from
Teachers Retirement System of the State of Illinois ("Teachers") and to pay
down the Initial Loan Facility in the amount of $2,500,000.  The effective
closing date for the purchase of the Flagstaff Super 8 was March 14, 1997.
Effective as of the closing date of the Flagstaff Super 8, Host Ventures also
leased the Flagstaff Super 8 to Crossroads.  The CrossHost and Host Ventures
Loan Facilities require escrows to be reserved for property taxes and capital
expenditures.

The lease agreement between Crosshost and Host Ventures for the Flagstaff
Super 8 (the "Flagstaff Lease Agreement") is for a term of fifteen (15) years
from March 1997 and provides for annual base rentals of $505,000 plus
percentage rentals of 32% of gross revenues less a breakeven level of
$925,000, adjusted annually.  Remaining terms of the Flagstaff Lease
Agreement are similar to the Acquired Properties Leases.

The Flagstaff Super 8 was acquired pursuant to terms of the Acquisition
Agreement by and between Host Funding and the Acquisition Company.  Pursuant
to the terms of the Acquisition Agreement, the acquisition Company is
entitled to receive an acquisition fee of up to 6% of the gross purchase
price of the Flagstaff Super 8 plus reimbursement of certain expenses (the
"Flagstaff Property Acquisition Fee").  The Flagstaff property Acquisition
Fee is payable in cash or, at the option of the Acquisition Company, in the
Class A Common Stock of Host Funding.  Host Funding and the Acquisition
Company agreed that the Flagstaff Property Acquisition Fee earned by the
Acquisition Company relating to the Flagstaff Super 8 was 16,000 shares of
the Class A Common Stock of Host Funding valued at $10 per share and payable
as of March 31, 1997.  The shares of Class A Common Stock received by the
Acquisition Company in payment of the Flagstaff Property Acquisition Fee will
be restricted securities under the Securities Act of 1933 and subject to the
resale provisions of Rule 144 promulgated under the Act.  The last traded
price of the stock of Host Funding on the American Stock Exchange on March
14, 1997 was $9.50 per share.  Host Funding intends to record the Flagstaff
Property Acquisition Fee on the Flagstaff Super 8 at the fair market value of
the Class A Common Stock on March 14, 1997.  The Flagstaff Property
Acquisition Fee (based upon a value of $10 and $9.50 per share or $160,000
and $152,000, respectively) represents approximately 3.1% and 3.0%,
respectively,


                                       F-21

<PAGE>

of the gross purchase price totaling $5,125,000 excluding closing expenses of
the Flagstaff Super 8.

As a further condition to obtaining the Host Ventures Loan Facility, First
Boston required Host Funding to transfer to Host Ventures two Sleep Inn
properties owned by Host Funding.  The two Sleep Inns are located in
Sarasota, Florida and Ocean Springs, Mississippi (collectively, the
"Transferred Sleep Inns").  Simultaneously with the acquisition of the
Flagstaff Super 8, Host Funding deeded the Transferred Sleep Inns to Host
Ventures in a tax free reorganization.  In addition, Host Funding assigned to
Host Ventures the lease agreements with Crossroads pertaining to each of the
Transferred Sleep Inns.


                                       F-22

<PAGE>

SCHEDULE III
HOST FUNDING, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 1996


<TABLE>
                                                                            Costs Subsequent      Gross amount at which
                                                Initial Cost to Company      to Acquisition     carried at close of period
                                               -------------------------  --------------------  --------------------------
                                                           Buildings and         Buildings and               Buildings and
Description                  Encumbrances(1)      Land     Improvements   Land   Improvements      Land      Improvements
-----------                  --------------    ----------  -------------  ----   -------------  ----------   -------------
<S>                            <C>             <C>          <C>           <C>       <C>         <C>          <C>
Hotel Assets:
Super 8, Rock Falls, IL        $               $  131,627   $   491,711   $ --      $  --       $  131,627   $   491,711
Super 8, Somerset, KY                             170,000       449,541     --         --          170,000       449,541
Super 8, Miner, MO                                187,660       461,494     --         --          187,660       461,494
Super 8, Poplar Bluff, MO                         153,000       410,515     --         --          153,000       410,515
Super 8, San Diego, CA                            702,500     1,826,500     --         --          702,500     1,826,500
Sleep Inn, Ocean Springs, MS                      924,162     2,402,821     --         --          924,162     2,402,821
Sleep Inn, Destin, FL                             993,429     2,582,915     --         --          993,429     2,582,915
Sleep Inn, Sarasota, FL                           834,990     2,170,975     --         --          834,990     2,170,975
Sleep Inn, Tallahassee, FL                        710,679     1,847,767     --         --          710,679     1,847,767

                               $15,500,000     $4,808,047   $12,644,239   $  0      $   0       $4,808,047    12,644,239


                                                                                    Land                       4,808,047
                                                                                    Furniture and equipment    1,952,233

                                                                                    Total hotels and land
                                                                                      under lease            $19,404,519



                               Accumulated
                               Depreciation &      Year of        Date
                               Amortization     Construction    Acquired    Life
                               --------------   ------------    --------    ----
Description
Hotel Assets:
Super 8, Rock Falls, IL          $ 18,099           1985         4/1/95      35
Super 8, Somerset, KY              23,014           1985         4/1/95      35
Super 8, Miner, MO                 25,198           1985         4/1/95      35
Super 8, Poplar Bluff, MO          23,462           1985         4/1/95      35
Super 8, San Diego, CA             26,872           1987         4/22/96     35
Sleep Inn, Ocean Springs, MS       15,439           1995         9/19/96     35
Sleep Inn, Destin, FL              16,596           1992         9/13/96     35
Sleep Inn, Sarasota, FL            13,949           1993         9/13/96     35
Sleep Inn, Tallahassee, FL         11,873           1994         9/13/96     35

                                  174,502

    Land                               --
    Furniture and equipment       216,507

    Total hotels and land
      under lease                $391,009
</TABLE>


(1)  All hotel assets are cross collateralized and encumbered
     by the Initial Loan Facility as of December 31, 1996.


See accompanying notes to financial statements.



                                      F-23
<PAGE>

                                                                    SCHEDULE III
                                                                     Page 2 of 2
HOST FUNDING, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION - NOTES TO SCHEDULE

DECEMBER 31, 1996

NOTES:

(A) The change in total cost of properties for the year ended December 31,
    1996 is as follows:

       Balance at December 31, 1995                        $ 2,741,477
       Additions:  Capital expenditures                     16,663,042
       Balance at December 31, 1996                        $19,404,519

(B) The change in accumulated depreciation and amortization for the year
    ended December 31, 1996 is as follows:

       Balance at December 31, 1995                        $   103,663
       Depreciation and amortization                           287,346
       Balance at December 31, 1996                        $   391,009

                                       F-24