<PAGE>


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

         o


                  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

                          Commission File Number:   333-2336-01

                        COURTYARD II ASSOCIATES LIMITED PARTNERSHIP
  -----------------------------------------------------------------------------
                    (Exact name of registrant as specified in its charter)

         Delaware                             52-1955662
  --------------------                ---------------------------
(State or other jurisdiction of             (I.R.S. Employer
incorporation or organization)              Identification No.)

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


       Registrant's telephone number, including area code:  301-380-2070
          Securities registered pursuant to Section 12(b) of the Act:
                             Not Applicable
             Securities  registered  pursuant to Section 12(g) of
             the Act:
                         Units of Limited Partnership Interest
                                   (Title of Class)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days: Yes x/ No

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

                         Documents Incorporated by Reference
                                        None
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<PAGE>



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                   COURTYARD II ASSOCIATES LIMITED PARTNERSHIP
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                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                    PAGE NO.

                                                      PART I
<S>          <C>                                                                                   <C>          
Item 1.      Business...............................................................................1       

Item 2.      Properties.............................................................................7

Item 3.      Legal Proceedings......................................................................15

Item 4.      Submission of Matters to a Vote of Security Holders....................................15


                                                      PART II

Item 5.      Market For The Partnership's Limited Partnership Units
             and Related Security Holder Matters..............................................................15

Item 6.      Selected Financial Data..........................................................................15

Item 7.      Management's Discussion and Analysis of Financial Condition
             and Results of Operations........................................................................16

Item 8.      Financial Statements and Supplementary Data......................................................26

Item 9.      Changes In and Disagreements With Accountants on Accounting
             and Financial Disclosure.........................................................................46


                                                     PART III

Item 10.     Directors and Executive Officers.................................................................46

Item 11.     Management Remuneration and Transactions.........................................................47

Item 12.     Security Ownership of Certain Beneficial Owners and Management...................................47

Item 13.     Certain Relationships and Related Transactions...................................................47


                                                      PART IV

Item 14.     Exhibits, Supplemental Financial Statement Schedules
             and Reports on Form 8-K..........................................................................52


</TABLE>

                                                         i

<PAGE>




                                                      PART I

ITEM 1.          BUSINESS

Description of the Partnership

Courtyard II Associates,  L.P.  ("Associates"),  a Delaware limited partnership,
was formed December 22, 1995. Substantially all of the assets of Associates,  as
defined  below,  were  contributed  to  Associates  by  Courtyard by Marriott II
Limited  Partnership (the "Partnership") on January 24, 1996, in connection with
the  Partnership's  refinancing  (see Note 6). The managing  general  partner of
Associates is Courtyard II Associates  Management  Corporation  (a  wholly-owned
subsidiary of the  Partnership)  with a 1% interest.  The Partnership  owns a 1%
general partner interest and a 98% limited partner  interest in Associates.  CBM
Funding Corporation ("CBM Funding") a wholly-owned subsidiary of Associates, was
formed on December 29, 1995, to make a mortgage loan to Associates in connection
with the refinancing (see Note 6). Associates  directly owns 69 Courtyard hotels
and the land on which  certain of the Hotels are located.  One hotel  located in
Deerfield,  Illinois (the "Deerfield  Hotel"), is owned by CBM Associates II LLC
("Associates  II").  Associates hold a 99% membership  interest in Associates II
and  Courtyard  II  Associates  Management  Corporation  holds the  remaining 1%
interest in Associates II. The 70 hotel properties (the "Hotels") are located in
29 states and contain a total of 10,335 guest rooms as of December 31, 1996.

Associates is engaged solely in the business of owning and operating  hotels and
therefore  is engaged in one  industry  segment.  The  principal  offices of the
Associates are located at 10400 Fernwood Road, Bethesda, Maryland 20817.

The Hotels are  operated  as part of the  Courtyard  by Marriott  system,  which
includes over 286 hotels worldwide in the moderately-priced  segment of the U.S.
lodging  industry.  The Hotels are managed by Courtyard  Management  Corporation
(the  "Manager"),  a  wholly-owned  subsidiary of Marriott  International,  Inc.
("MII"),  under a long-term management  agreement (the "Management  Agreement").
The  Management  Agreement as restated on December 30, 1995 expires in 2013 with
renewals at the option of the Manager for one or more of the Hotels for up to 35
years  thereafter.  The Hotels have the right to use the  Courtyard  by Marriott
name pursuant to the Management  Agreement  and, if the Management  Agreement is
terminated  or not  renewed,  the  Partnership  would  lose  that  right for all
purposes  (except  as part of the  Partnership's  name).  See  Item 13  "Certain
Relationships and Related Transactions."

The objective of the Courtyard by Marriott system,  including the Hotels,  is to
provide  consistently  superior  lodging  at a fair  price  with  an  appealing,
friendly and contemporary  residential  character.  Courtyard by Marriott hotels
have  fewer  guest  rooms  than  traditional,  full-service  hotels,  containing
approximately 150 guest rooms, including approximately 12 suites, as compared to
full-service Marriott hotels which typically contain 350 or more guest rooms.

Each Courtyard by Marriott hotel is designed  around a courtyard area containing
a swimming pool (indoor pool in northern climates),  walkways,  landscaped areas
and a gazebo.  Each Hotel  generally  contains a small lobby, a restaurant  with
seating for  approximately  50 guests,  a lounge,  a hydrotherapy  pool, a guest
laundry, an exercise room and two small meeting rooms. The hotels do not contain
as much public space and related facilities as full-service hotels.


                                                         1

<PAGE>



Courtyard by Marriott  hotels are  designed for business and vacation  travelers
who desire high quality  accommodations  at moderate prices.  Most of the Hotels
are located in suburban areas near office parks or other commercial  activities.
See Item 2  "Properties."  Courtyard  by Marriott  hotels  provide  large,  high
quality guest rooms which contain furnishings  comparable in quality to those in
full-service  Marriott hotels. Each guest room contains a large,  efficient work
desk, remote control television,  a television  entertainment  package,  in-room
coffee and tea  services  and other  amenities.  Approximately  70% of the guest
rooms contain king-size beds.

Organization of Associates

In connection with the refinancing  discussed below, the limited partners of the
Partnership  approved  certain  amendments to the partnership  agreement and the
Management Agreement.  The partnership agreement amendment,  among other things,
allowed the formation of certain  subsidiaries of the  Partnership,  including a
wholly-owned   subsidiary,   Courtyard  II  Associates  Management   Corporation
("Managing  General  Partner").  Managing  General  Partner was formed to be the
managing  general  partner with a 1 % general  partner  interest in Courtyard II
Associates, L.P. ("Associates"), a Delaware limited partnership. The Partnership
owns a 1%  general  partner  interest  and a 98%  limited  partner  interest  in
Associates. On January 24, 1996, the Partnership contributed 69 Hotels and their
related  assets  to  Associates.   Formation  of  Associates   resulted  in  the
Partnership's   primary  assets  being  its  direct  and  indirect  interest  in
Associates.  Additionally,  substantially  all of Associates' net equity will be
restricted to dividends, loans or advances to the Partnership.

Associates holds a 99% membership interest in CBM Associates II LLC ("Associates
II") and Managing General Partner holds the remaining 1% membership interest. On
January 24, 1996, the Partnership contributed the Hotel located in Deerfield, IL
(the  "Deerfield  Hotel") and its related  assets to Associates and the Managing
General Partner who simultaneously  contributed the Hotel and its related assets
to Associates II.

Each of the Managing General  Partner,  Associates and Associates II were formed
as a single purpose  bankruptcy-remote  entity to facilitate the  refinancing in
January, 1996.

CBM  Funding  Corporation,   ("CBM  Funding"),  a  wholly-owned   subsidiary  of
Associates,  was also formed to make a mortgage  loan (the  "Mortgage  Loan") to
Associates from the proceeds of the sale of the multi-class  commercial mortgage
pass through certificates.

Debt Financing

As  of  December  31,  1995,  the  Partnership  had  outstanding  bank  mortgage
indebtedness  of $275 million related to 36 Hotels and $230.5 million related to
29 Hotels. As of December 31, 1995, the Partnership also had approximately $25.6
million of industrial  revenue bond  financing (the "IRB Debt") on the remaining
five Hotels and owed  approximately  $6.5 million to Host Marriott in connection
with such IRB Debt with  respect  to those five  Hotels  ("Host  Marriott's  IRB
Liability"). The bank mortgage indebtedness, the IRB Debt and advances from Host
Marriott's  IRB Liability were repaid with the net proceeds of the Senior Notes,
as defined below, and Certificates, as defined in the overview below, on January
24, 1996.



                                                         2

<PAGE>



Refinancing

Debt Refinancing - Overview

On January 24, 1996,  the  Partnership  completed a refinancing  of the existing
debt through the private  placement of $410.2 million of multi-class  commercial
mortgage pass-through certificates (the "Certificates").

A concurrent  offering of  $127,400,000  of senior notes (the "Senior Notes") by
the  Partnership  was also  completed on January 24, 1996.  The Senior Notes are
secured by a first priority pledge of the Partnership's 99% partnership interest
in Associates and the  Partnership's  100% equity  interest in Managing  General
Partner.  The  Senior  Notes are not  reflected  in the  accompanying  financial
statements of Associates  because Associates does not guarantee the Senior Notes
nor do the assets of Associates secure the Senior Notes.  Payments on the Senior
Notes  are made from  distributions  of the  excess  cash of  Associates  to the
Partnership;  such  distributions  are restricted  only upon a monetary event of
default under the Mortgage  Loan,  as defined in Note 6 of Associates  financial
statements.  The  Partnership  has no  other  source  of cash  flow  other  than
distributions from Associates.

The net proceeds from the placement of the  Certificates and cash contributed by
the  Partnership  were  used  as  follows:   (i)  to  repay  the  existing  bank
indebtedness  of $385.6  million,  (ii) to repay the IRB Debt of $19.7  million,
(iii) to repay the advances from Host Marriott  related to certain IRB Hotels of
$4.9  million  and (iv) to pay  certain  costs of  structuring  and  issuing the
Certificates.

Upon  repayment of the bank  indebtedness,  Host  Marriott was released from its
obligations under (i) the bank indebtedness  debt service  guarantees,  (ii) the
foreclosure guarantee and (iii) the Ground Rent Facility as defined.

Debt Refinancing - Certificates

The Certificates in an initial principal amount of $410.2 million were issued by
CBM Funding.  Proceeds  from the sale of the  Certificates  were utilized by CBM
Funding to provide a Mortgage Loan to Associates. The Certificates/Mortgage Loan
require  monthly   payments  of  principal  and  interest  based  on  a  17-year
amortization  schedule.  The Mortgage Loan matures on January 28, 2008. However,
the  maturity  date of the  Certificates/Mortgage  Loan  may be  extended  until
January 28,  2013 with the consent of 66 2/3% of the holders of the  outstanding
Certificates  affected  thereby.  The Certificates  were issued in the following
classes and pass-through rates of interest.


                                                         3

<PAGE>
<TABLE>
<CAPTION>




                                             Initial Certificate               Pass-Through
                    Class                          Balance                         Rate
                           
                  <S>                     <C>                                     <C> 
                  Class A-1               $             45,500,000                7.550%
                  Class A-2               $             50,000,000                6.880%
               Class A-3P & I             $            129,500,000                7.080%
                 Class A-3IO                        Not Applicable                0.933%
                   Class B                $             75,000,000                7.480%
                   Class C                $            100,000,000                7.860%
                   Class D                $             10,200,000                8.645%
</TABLE>

The Class  A-3IO  Certificates  receive  payments  of  interest  only based on a
notional balance equal to the Class A-3P & I Certificate Balance.

The  balance of the  Certificates  was  $398.9  million at  December  31,  1996.
Principal  amortization of $11.3 million of the Class A-1  Certificates was made
during 1996.

The Certificates/Mortgage Loan maturities are as follows (in thousands):

                    1997                  $        13,298
                    1998                           14,331
                    1999                           15,443
                    2000                           16,642
                    2001                           17,934
                 Thereafter                       321,205
                                          --------------- 
                                          $       398,853
                                          =============== 

The   Mortgage   Loan  is   secured   primarily   by  69   cross-defaulted   and
cross-collateralized mortgages representing first priority mortgage liens on (i)
the fee or leasehold interest in the 69 Hotels, related furniture,  fixtures and
equipment and the property  improvement  fund, (ii) the fee interest in the land
leased  from MII or their  affiliates  on which 53 Hotels are  located,  (iii) a
pledge of  Associates  membership  interest in and the related  right to receive
distributions  from  Associates  II which owns the  Deerfield  Hotel and (iv) an
assignment of the Management  Agreement,  as defined below. The Mortgage Loan is
non-recourse to Associates, the Partnership and its partners.

Operating  profit from the Hotels in excess of debt service on the Mortgage Loan
is available to be distributed to the  Partnership.  Amounts  distributed to the
Partnership  are used for the  following,  in  order of  priority:  (i) for debt
service on the Senior Notes, (ii) to fund the Supplemental Debt Service Reserve,
if  necessary,  (iii) to offer to purchase a portion of the Senior Notes at par,
if necessary,  (iv) for working capital, see Item 13 "Certain  Relationships and
Related  Transactions,"  and  (v)  for  distributions  to  the  partners  of the
Partnership.

Prepayments  of the Mortgage  Loan are  permitted  with the payment of a premium
(the "Prepayment  Premium").  The Prepayment  Premium is equal to the greater of
(i) one percent of the Mortgage Loan being  prepaid or (ii) a yield  maintenance
amount  based  on a spread  of .25% or .55%  over the  U.S.  treasury  rate,  as
defined.

                                                         4

<PAGE>




On June 30,  1996,  CBM Funding  completed an exchange  offer of its  Multiclass
Mortgage Pass- Through Certificates,  Series 1006-1A with a principal balance of
$406.2  million  at that  time  ("Old  Certificates"),  for an equal  amount  of
Multiclass   Mortgage   Pass-Through   Certificates,    Series   1996-1B   ("New
Certificates").  The form and terms of the New  Certificates  are  substantially
identical  to the form and terms of the Old  Certificates,  except  that the New
Certificates  are  registered  under the  Securities Act of 1933, as amended and
their transfers are not restricted.

Ground Rent Facility

Fifty-three  of the Hotels are situated on land leased from MII or affiliates of
MII, eight of the Hotels are situated on land leased from third parties. MFS had
agreed to lend the Partnership up to $25 million (the "Ground Rent Facility") to
the extent that the Partnership has insufficient  funds to pay ground rent under
any ground  lease,  including  third party ground  leases,  after payment of (i)
hotel  operating  expenses  (except for ground rent) and (ii) debt  service.  No
amounts were ever advanced under the Ground Rent Facility.  Upon  refinancing of
the Partnership  Debt in January 24, 1996, MFS was released from the Ground Rent
Facility.

Material Contracts

Management Agreement

To  facilitate  the  refinancing,  effective  December  30,  1995,  the original
management  agreement  was  restated  into two separate  management  agreements.
Associates  entered  into a  management  agreement  with the  Manager for the 69
Hotels  which  Associates  directly  owns  and  Associates  II  entered  into  a
management   agreement  for  the  Deerfield  Hotel  which  Associates  II  owns,
collectively, (the "Management Agreement"). The primary provisions are discussed
in Item 13, "Certain Relationships and Related Transactions."

Ground Leases

The land on which 53 of the Hotels are located is leased from MII or  affiliates
of MII. In  addition,  eight of the Hotels are located on land leased from third
parties.  The land leases  have  remaining  terms  (including  renewal  options)
expiring  between  the years  2024 and 2068.  The MII land  leases and the third
party land leases  provide for rent based on  specific  percentages  (from 2% to
15%) of gross  sales in certain  categories,  subject to  minimum  amounts.  The
minimum rentals are adjusted at various  anniversary  dates throughout the lease
terms,  as  defined  in the  agreements.  For 1996,  Associates  paid a total of
$12,018,000 in ground rent. See Item 2 "Properties" for a listing of Hotels that
have ground leases.

In connection with the refinancing,  the Partnership, as lessee, transferred its
rights and obligations  pursuant to the 53 ground leases with MII and affiliates
to  Associates.  Additionally,  MII and affiliates  agreed to subordinate  their
right to receive  rental  payments under the MII ground leases to the payment of
debt service on the Senior Notes and the Mortgage Loan.



                                                         5

<PAGE>



Competition

The United States lodging industry generally is comprised of two broad segments:
full-service  hotels and limited-service  hotels.  Full-service hotels generally
offer  restaurant and lounge  facilities and meeting  spaces,  as well as a wide
range  of  services,   typically   including  bell  service  and  room  service.
Limited-service  hotels  generally  offer  accommodations  with  limited  or  no
services  and  amenities.  As  moderately-priced   hotels,  the  Hotels  compete
effectively  with  both  full-service  and   limited-service   hotels  in  their
respective  markets by providing  streamlined  services and amenities  exceeding
those   provided   by  typical   limited-service   hotels  at  prices  that  are
significantly lower than those available at full-service hotels.

Significant competitors in the moderately-priced lodging segment include Holiday
Inn, Ramada Inn,  Sheraton Inn, Hampton Inn and Hilton Inn. The lodging industry
in  general,  and  the  moderately-priced   segment  in  particular,  is  highly
competitive,  but the degree of competition varies from location to location and
over time. An increase in supply growth began in 1996 with the introduction of a
number of new national brands.  For 1997, the outlook  continues to be positive.
Courtyards  continue to command a premium share of the markets in which they are
located in spite of the growth of new chains. It is expected that Courtyard will
continue  outperforming  both  national  and  local  competitors.  The  brand is
continuing  to  carefully  monitor the  introduction  of new  mid-priced  brands
including Wingate Hotels, Hilton Garden Inns, Four Points by Sheraton, Mainstay,
Candlewood, Club Hotels and Clarion.

The Manager  believes that by emphasizing  management and personnel  development
and maintaining a competitive price structure,  the  Partnership's  share of the
market will be maintained  or increased.  The inclusion of the Hotels within the
nationwide   Courtyard  by  Marriott   system  provides  the  benefits  of  name
recognition, centralized reservations and advertising, system-wide marketing and
promotion, centralized purchasing and training and support services.

Conflicts of Interest

Because Host Marriott, the parent of the general partner of the Partnership, MII
and their affiliates own and/or operate hotels other than Associates Hotels' and
Marriott International, Inc. and its affiliates license others to operate hotels
under the various  brand names owned by  Marriott  International,  Inc.  and its
affiliates,  potential  conflicts  of  interest  exist.  With  respect  to these
potential conflicts of interest,  Host Marriott, MII and their affiliates retain
a free right to compete with Associates' Hotels, including the right to develop,
own, and operate  competing hotels now and in the future in markets in which the
Hotels are located,  in addition to those  existing  hotels which may  currently
compete directly or indirectly with the Hotels.

Policies with Respect to Conflicts of Interest

It is the policy of the  Managing  Partner  and the  Partnership  (the  "General
Partners")  that  Associates'   relationship  with  the  General  Partners,  any
affiliate of the General  Partners,  or persons employed by the General Partners
or its affiliates be conducted on terms that are fair to Associates and that are
commercially  reasonable.  Agreements  and  relationships  involving the General
Partners or its affiliates and Associates are on terms consistent with the terms
on which the  General  Partners  or its  affiliates  have dealt  with  unrelated
parties.

                                                         6

<PAGE>




Employees

Neither the General  Partners nor Associates  have any employees.  Host Marriott
provides the services of certain  employees of Host Marriott to  Associates  and
the General Partners.  Associates and the General Partners  anticipate that each
of the  executive  officers  of the General  Partners  will  generally  devote a
sufficient  portion of his or her time to the business of  Associates.  However,
each of such executive officers also will devote a significant portion of his or
her time to the business of Host Marriott and its other  affiliates.  No officer
or  director of the General  Partners  or  employee of Host  Marriott  devotes a
significant  percentage  of time to Associates  matters.  To the extent that any
officer,  director or  employee  does  devote  time to  Associates,  the General
Partners or Host Marriott,  as applicable,  is entitled to reimbursement for the
cost of  providing  such  services.  See Item 11  "Management  Remuneration  and
Transactions"  for information  regarding  payments made to Host Marriott or its
subsidiaries for the cost of providing administrative services to Associates.

ITEM 2.        PROPERTIES

Introduction

The properties  consisted of 70 Courtyard by Marriott  hotels as of December 31,
1996.  After the  refinancing on January 24, 1996,  sixty nine of the Hotels are
directly  owned by Associates  whereas one Hotel is owned by Associates  II. The
Hotels have been in operation for at least seven years.  The Hotels range in age
between 7 and 11 years.  The  Hotels  are  geographically  diversified  among 29
states, and no state has more than nine Hotels.

The  lodging  industry  in  general,  and  the   moderately-priced   segment  in
particular,  is highly  competitive,  but the degree of competition  varies from
location to location  and over time.  On a combined  basis,  competitive  forces
affecting  the Hotels are not,  in the  opinion of the  General  Partners,  more
adverse  than the overall  competitive  forces  affecting  the lodging  industry
generally. See Item 1 "Business--Competition."

The following table summarizes certain attributes of each of the Hotels.


                                                         7

<PAGE>
<TABLE>
<CAPTION>




                                   COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
                                               SUMMARY OF ATTRIBUTES
                                               (70 COURTYARD HOTELS)

           PROPERTY                       TITLE TO LAND              # OF   OPENING   LOCATION
                                                                     ROOMS    DATE
 <S> <C>                                   <C>                       <C>   <C>        <C>
   1 Birmingham/Homewood, AL               Owned in fee              140   12/21/85   Five miles southeast of downtown
     500 Shades Creek Parkway                                                         Birmingham and two miles north of I-459
     Homewood, AL 35209                                                               on Shades Creek Parkway across from
                                                                                      Brookwood Village Mall in the Homewood    
                                                                                      commercial and residential area.             
                                                                                                                                    
 2 Birmingham/Hoover, AL                Leased from Essex House    153   08/08/87   In the Riverchase Galleria area in greater
   1824 Montgomery Highway South        Condominium Corp. *                         southwest Birmingham 1/2 mile from I-
   Hoover, AL 35244                                                                 459 and Route 31 (Montgomery
                                                                                       Highway), Riverchase Galleria Mall and
                                                                                       Riverchase office developments.

   3 Huntsville, AL                       Leased from Marriott       149   08/15/87   On University Drive, one mile from the
     4808 University Drive                International, Inc.                         NASA Space Center, five miles from
     Huntsville, AL  35816                                                            Redstone Arsenal and across from
                                                                                       Cummings Research Park entrance.

   4 Phoenix/Mesa, AZ                     Leased from Marriott       148   03/19/88   On corner of Southern Avenue at
     1221 S. Westward Avenue              International, Inc.                         Westwood Street, approximately 1/2 mile
     Mesa, AZ  85210                                                                  north of Superstition Freeway and 1/2 mile
                                                                                       east of Fiesta Mall.

   5 Phoenix/Metrocenter, AZ              Leased from Marriott       146   11/29/87   In northwest Phoenix, 11 miles from
     9631 N. Black Canyon                 International, Inc.                         downtown.  Hotel is across from Metro
     Phoenix, AZ 85021                                                                Center regional mall and adjacent to
                                                                                       YWCA Leadership Development Center.


   6 Tucson Airport, AZ                   Leased from Marriott       149   10/01/88   One-half mile north of Tucson
     2505 E. Executive Drive              International, Inc.                         International Airport at the intersection of
     Tucson, AZ  85706                                                                Tucson Boulevard and Valencia Road.
                                                                                      The Hotel is part of Bay Colony Business 
                                                                                      Park and near IBM, Hughes Aircraft, and 
                                                                                      Gates Learjet facilities. 
 
   7 Little Rock, AR                      Leased from Marriott       149   05/28/88   In West Little Rock on Financial Centre
     10900 Financial Centre Parkway       International, Inc.                         Parkway, just west of the intersection of
     Little Rock, AR 72211                                                            Shackleford Road and I-630/I-430.

   8 Bakersfield, CA                      Leased from Marriott       146   02/13/88   Off Highway 99 at Rosedale Highway in
     3601 Marriott Drive                  International, Inc.                         north Bakersfield.  Close to Shell
     Bakersfield, CA 93308                                                            California, Occidental and Contel offices.

   9 Cupertino, CA                        Leased from Vallco         149   05/14/88   In Silicon Valley near Santa Clara, at
     10605 N. Wolfe Road                  Park, Ltd.                                  intersection of I-280 and Wolfe Road in
     Cupertino, CA  95014                                                             the center of commercial and retail
                                                                                      development.  Near major corporate computer
                                                                                      firms in area and 1/2 mile from Valco Park
                                                                                      regional mall.

                                         8

<PAGE>




   10 Foster City, CA                      Leased from Essex House   147   09/26/87    Eight miles south of San Francisco
      550 Shell Blvd.                      Condominium Corp. *                         International Airport just off Highway 92
      Foster City, CA  94404                                                           at Foster City Boulevard.  Within Foster
                                                                                       City commercial and residential development.


   11 Fresno, CA                           Leased from Richard,      146   09/13/86    In north Fresno just off Highway 41 at
      140 E. Shaw Avenue                   Miche, Aram & Aznive                        Shaw Avenue.  Located two miles west of
      Fresno, CA 93710                     Erganian                                    Fresno State University  and near Fashion
                                                                                       Fair Shopping Mall.

   12 Hacienda Heights, CA                 Leased from Marriott      150   03/28/90    East of Los Angeles at intersection of
      1905 Azusa Avenue                    International, Inc.                         Azusa Avenue and Colima Road, 1/2 mile
      Hacienda Heights, CA  91745                                                      from State Highway 60.  Near over
                                                                                       45 million square feet of industrial and
                                                                                       office development in the City of Industry.

   13 Marin/Larkspur Landing, CA           Leased from Essex House   146   07/25/87    Twelve miles north of San Francisco in
      2500 Larkspur Landing Circle         Condominium Corp. *                         Marin County of Highway 101 at
      Larkspur, CA 94939                                                               Richmond San Rafael Bridge exit.  Hotel
                                                                                       is in Larkspur Landing commercial and
                                                                                       residential development.

   14 Palm Springs, CA                     Leased from Marriott      149   10/08/88    On northeast corner of Hermosa Drive and
      300 Tahquitz Canyon Way              International, Inc.                         Tahquitz McCallum Way 1/2 mile from
      Palm Springs, CA 92262                                                           downtown Palm Springs Airport.

   15 Torrance, CA                         Leased from Marriott      149   10/15/88    On Sepulveda Boulevard, west of
      2633 West Sepulveda Boulevard        International, Inc.                         Crenshaw Boulevard, in Park Del Amo
      Torrance, CA 90505                                                               business park.  Approximately one mile
                                                                                       from Del Amo Fashion Center Mall.

   16 Boulder, CO                          Leased from Marriott      148   08/06/88    At the intersection of 28th and Pearl
      4710 Pearl East Circle               International, Inc.                         Streets, in the north central area of
      Boulder, CO 80301                                                                Boulder.  One mile from downtown
                                                                                       Boulder and the University of Colorado.
   17 Denver, CO                           Owned in fee              146   08/15/87    Near the intersection of I-70 and Quebec
      7415 East 41st Avenue                                                            Avenue, approximately one-half mile from
      Denver, CO 80301                                                                 the Denver Airport.

   18 Denver/Southeast, CO                 Leased from Essex House   152   05/30/87    In southeast Denver off I-25 and
      6565 S. Boston Street                Condominium Corp.*                          Arapachoe Road near Tech Center office
      Englewood, CO 80111                                                              and commercial developments.

   19 Norwalk, CT                          Leased from Mary          145   07/30/88    Fronting U.S. Route y, 1/2 mile north of
      474 Main Avenue                      Fabrizio                                    Merritt Parkway, next to the Merritt Office
      Norwalk, CT 06851                                                                Park and near Perkin Elmer, Pitney
                                                                                       Bowes, Emery, and Richardson Vicks
                                                                                       Corporate Headquarters.

   20 Wallinford, CT                       Leased from Marriott      149   04/21/90    At the Route 68 and I-91 interchange.
      600 Northrop Road                    International, Inc.                         The site is near the Bristol-Myers World
      Wallingford, CT 06492                                                            Research Headquarters, Mid-Way
                                                                                       Industrial Park and Barnes Industrial Park.


   21 Ft. Myers, FL                        Leased from Marriott      149   08/27/88    At the intersection of Colonial Boulevard
      4455 Metro Parkway                   International, Inc.                         and Metro Parkway in Metro Park office
      Ft. Myers, FL  33901                                                             development, five miles from Ft. Myers
                                                                                       Regional Airport and close to General
                                                                                       Electric offices and Metro Mall.




                                         9

<PAGE>




   22 Ft. Lauderdale/Plantation, FL        Leased from Marriott      149   09/21/88    In Broward County eight miles west of
      7780 S.W. 6th Street                 International, Inc.                         central Ft. Lauderdale at the intersection
      Plantation, FL  33324                                                            of Mall Avenue and University Drive. The
                                                                                       site is located in the heart of the retail
                                                                                       and office developments near Broward Mall and
                                                                                       major American Express, Motorola, Southern  
                                                                                       Bell, and Racal-Milgo facilities.

   23 St. Petersburg, FL                   Leased from Marriott      149   10/14/89    On Ulmerton Road near Roosevelt
      3131 Executive Drive                 International, Inc.                         Boulevard and two miles from St.
      Clearwater, FL  34622                                                            Petersburg Airport.  Near Honeywell, and
                                                                                       Paradyne offices and Carillon and Feather
                                                                                       Sound office parks.

   24 Tampa/Westshore, FL                  Leased from               145   10/27/86    Three miles southeast of Tampa
      3805 West Cypress                    Hotsinger, Inc. and                         International Airport at the intersection of
      Tampa, FL 33607                      Owned in fee                                I-275 and Dale Mabry in the greater
                                                                                       Tampa Westshore office and commercial
                                                                                       development area.

   25 West Palm Beach, FL                  Leased from Marriott      149   01/14/89    At intersection of I-95 and 45th Street in
      600 Northpoint Parkway               International, Inc.                         the Northpoint Corporate Park.  Near Palm
      West Palm Beach, FL 33407                                                        Beach Lakes Boulevard, Barnett Bank
                                                                                       Operations Center, Palm Beach Mall, and
                                                                                       the Forum III office complex.

   26 Atlanta Airport South, GA            Owned in fee              144   06/15/86    One mile from Hartsfield International
      2050 Sullivan Road                                                               Airport, off I-85 and Riverdale Road.
      College Park, GA 30337


   27 Atlanta/Gwinnett Mall, GA            Leased from Marriott      146   03/19/87    In northeast Atlanta at the intersection of
      3550 Venture Parkway                 International, Inc.                         I-85 and Pleasant Hill Road adjacent to
      Duluth, GA 30136                                                                 Gwinnett Regional Mall.

   28 Atlanta/Perimeter Ctr., GA           Leased from Essex House   145   12/12/87    In north Atlanta, one mile north of I-285
      6250 Peachtree-Dunwoody Road         Condominium Corp. *                         and Peachtree-Dunwoody Road near
      Atlanta, GA 30328                                                                office, commercial and residential
                                                                                       developments.

   29 Atlanta/Roswell, GA                  Leased from Roswell       154   06/11/88    Fifteen miles north of Atlanta at the
      1500 Market Boulevard                Landing Associates                          intersection of Highway 400 and Holcomb
      Roswell, GA 30076                                                                Bridge Road in the Holcomb Woods office
                                                                                       complex and across from Kimberly-
                                                                                       Clark's Southern Headquarters.

   30 Arlington Heights-South, IL          Owned in fee              147   12/20/85    In the western Chicago area just off I-90
      100 W. Algonquin Road                                                            at Arlington Heights Road 10 miles west
      Arlington Heights, Il 60005                                                      of Chicago O'Hare Airport in office,
                                                                                       commercial and residential developments.

   31 Chicago/Deerfield, IL                Owned in fee              131   01/02/86    In the north Chicago area, 15 miles north
      800 Lake Cook Road                                                               of Chicago O'Hare Airport on Lake Cook
      Deerfield, IL 60015                                                              Road, one mile from Northbrook Court
                                                                                       Mall and several office and residential
                                                                                       developments.

   32 Chicago/Glenview, IL                 Leased from Marriott      149   07/08/89    In the northwest Chicago area at 1-294
      180l Milwaukee Avenue                International, Inc.                         and West Lake Avenue intersection, just
      Glenview, IL 60025                                                               off Milwaukee Avenue and West Lake
                                                                                       Avenue.  Close to Allstate Insurance, A.C.
                                                                                       Nielson, Zenith, Dart, and Culligan
                                                                                       Headquarters office.




                                        10

<PAGE>




   33 Chicago/Highland Park, IL            Leased from Marriott      149   06/10/88    In the north Chicago area at the
      1505 Lake Cook Road                  International, Inc.                         intersection of Edens Expressway and
      Highland Park, IL 60035                                                          Lake Cook Road.  Crosswoods Mall and
                                                                                       Northbrook Court Shopping Center are
                                                                                       located within one mile.

   34 Chicago/Lincolnshire, IL             Owned in fee              146   07/20/87    In the northwest Chicago area, 20 miles
      505 Milwaukee Avenue                                                             north of Chicago O'Hare Airport, across
      Lincolnshire, IL 60069                                                           from Lincolnshire Corporate Center on
                                                                                       Milwaukee Avenue.


   35 Chicago/Oakbrook Terrace, IL         Owned in fee              147   05/09/86    Eighteen miles west of downtown Chicago
      6 TransAm Plaza Drive                                                            in TransAm Plaza office development just
      Oakbrook Terrace, IL 60181                                                       off I-294 and Butterfield Road.  Near
                                                                                       office, commercial and residential
                                                                                       developments in Oakbrook and Oakbrook
                                                                                       Terrace.

   36 Chicago/Waukegan, IL                 Leased from Marriott      149   05/28/88    Thirty miles north of Chicago at the
      800 Lakehurst Road                   International, Inc.                         intersection of Route 43 and Route 120 by
      Waukegan, Il 60085                                                               the Lakehurst Mall.  The Hotel is close to
                                                                                       Abbott Labs, American Hospital Supply,
                                                                                       Johnson Outboard Marine, and Johns
                                                                                       Manville offices and Ft. Sheridan Great
                                                                                       Lakes Naval Training Center.

   37 Chicago/Wood Dale, IL                Leased from Marriott      149   07/02/88    In the west Chicago area at Thorndale
      900 N. Wood Dale Road                International Inc.                          Avenue and Mittel Road near Hamilton
      Wood Dale, IL 60191                                                              Lakes Office Park and Centex Industrial
                                                                                       Park.

   38 Rockford, IL                         Owned in fee              147   04/12/86    Ninety miles west of Chicago just off I-90
      7676 East State Road                                                             at State Street exit.  Near Sundstand
      Rockford, IL 61108                                                               Headquarters, and Chrysler and Barber
                                                                                       Coleman offices.

   39 Indianapolis/Castleton, IN           Leased from Essex House   146   06/06/87    In northeast Indianapolis just off I-465 at
      8670 Allisonville Road               Condominium Corp. *                         Allisonville Road, near Castleton Mall and
      Indianapolis, IN  46250                                                          Castle Creek office development.

   40 Kansas City/Overland Park, KS        Leased from Marriott      149   01/14/89    South of downtown Kansas City on 112th
      11301 Metcalf Avenue                 International, Inc.                         Street and Metcalf Avenue just off I-435.
      Overland Park, KS  66212                                                         Site is adjacent to Kansas City Trade
                                                                                       Mart/Convention Center and several complexes.

   41 Lexington/North, KY                  Leased from Essex House   146   06/04/88    At the intersection of Newtown Pike and
      775 Newtown Court                    Condominium Corp.*                          New Circle Road in the northwest section
      Lexington, KY  40511                                                             of Lexington.  Close to I-75, IBM,
                                                                                       University of Kentucky and Kentucky horse
                                                                                       farms.

   42 Annapolis, MD                        Leased from Essex House   149   03/04/89    On southwest corner of Riva Road and
      2559 Riva Road                                                                   Admiral Cochran Drive, just west of the
      Annapolis, MD 21401                                                              U.S. 50 interchange.  Site is 1/2 mile from
                                                                                       Riva Office Park, one mile from
                                                                                       Annapolis Mall and near the U.S. Naval
                                                                                       Academy and downtown Annapolis.




                                        11

<PAGE>




   43 Silver Spring, MD                    Leased from Marriott      146   08/06/88    At the intersection of U.S. 29 and
      12521 Prosperity Drive               International, Inc.                         Randolph/Cherry Hill Road, approximately
      Silver Spring, MD 20904                                                          four miles north of I-495 and two miles
                                                                                       west of I-95.  The site is near the 
                                                                                       Chesapeake & Potomac Telephone Company
                                                                                       complex, Montgomery Industrial Park, 
                                                                                       Westfield Office Park and Seventh Day
                                                                                       Adventist Headquarters.

   44 Boston/Andorver, MA                  Leased from Marriott      146   12/03/88    Sixteen miles northwest of Boston at I-93
      10 Campanelli Drive                  International, Inc.                         and River Road.  Site is part of Riverfront
      Andover, MA 01810                                                                Industrial Park and near offices of Digital,
                                                                                       Raytheon, Hewlett-Packard, and
                                                                                       Honeywell.

   45 Detroit Airport, MI                  Leased from Marriott      146   12/12/87    On Merriman Road just off I-94 less than
      30653 Flynn Drive                    International, Inc.                         one mile north of the entrance to Detroit
      Romulus, MA 48174                                                                Metropolitan Airport.

   46 Detroit/Livonia, MI                  Leased from Marriott      148   03/12/88    In west Detroit at I-275 and Six Mile
      17200 N. Laurel Park Drive           International, Inc.                         Road.  The site is part of the Laurel Park
      Livonia, MI 48152                                                                office and retail development and near the
                                                                                       Plymouth Road industrial and office
                                                                                       developments.

   47 Minneapolis Airport, MN              Leased from Essex House   146   06/13/87    Two miles southeast of Minneapolis/St.
      1352 Northland Drive                 Condominium Corp. *                         Paul Airport just off I-494 and Pilot Knob
      Mendota Heights, MN 55120                                                        Road in Mendota Heights near Northwest
                                                                                       Airlines headquarters and major office
                                                                                       developments.


   48 St. Louis/Creve Coeur, MO            Leased from Essex House    154   07/22/87   Eighteen miles east of downtown St. Louis
      828 N. New Ballas Road               Condominium Corp. *                         and nine miles southwest of Lambert-
      Creve Coeur, MO  63146                                                           St. Louis International Airport just off I-
                                                                                       270 at Olive Road.  Near Monsanto
                                                                                       Headquarters and Creve Coeur Executive
                                                                                       Park.

   49 St. Louis/Westport, MO               Leased from Marriott       149   08/20/88   In northwest St. Louis, just off I-270 at
      11888 Westline Industrial Drive      International, Inc.                         the corner of Page Avenue and Westport
      St. Louis, MO  63146                                                             Plaza Drive.  The site is near Westport
                                                                                       Plaza and close to several commercial and
                                                                                       light industrial offices, including offices
                                                                                       for Monsanto, DuPont, General Motors, and 
                                                                                       Wausau Insurance.

   50 Lincroft/Red Bank, NJ                Leased from Marriott       146   05/28/88   Fifty-five miles south of New York City at
      245 Half Mile Road                   International, Inc.                         Exit 109 of the Garden State Parkway
      Red Bank, NJ  07701                                                              (The Newman Road interchange).  Near
                                                                                       Bell Laboratories and American Bell
                                                                                       offices and Fort Monmouth, the Garden
                                                                                       State Arts Center and Red Bank.

   51 Poughkeepsie, NY                     Leased from Pizzgalli      149   06/04/88   Just west of Rt. 9, approximately three
      408 South Road                       Investment Company                          miles south of downtown Poughkeepsie.
      Poughkeepsie, NY                                                                 It is one mile north of IBM's main office
                                                                                       and manufacturing center.

   52 Rye, NY                              Leased from Essex House    145   03/19/88   In Westchester County, New York at the
      631 Midland Avenue                   Condominium Corp. *                         intersection of I-95 and I-287.  Near
      Rye, NY  10580                                                                   corporate, commercial and residential
                                                                                       developments in Rye and White Plains.




                                        12

<PAGE>




   53 Charlotte/South Park, NC             Leased from Queens         149   03/25/89   Four miles south of downtown Charlotte
      6023 Park South Drive                Properties, Inc.                            and east of I-77 near intersection of
      Charlotte, NC  28210                                                             Fairview Road and Park Road.  The hotel
                                                                                       is located one mile from the headquarters
                                                                                       of Celanese Corporation and J.A. Jones
                                                                                       and near offices of IBM and Burroughs.


   54 Raleigh/Cary, NC                     Leased from Marriott       149   06/25/88   Approximately 10 miles southwest of
      102 Edinburgh Drive South            International, Inc.                         Raleigh at the intersection of U.S. 64 and
      Cary, NC  27511                                                                  Edinburgh Drive in the MacGregor office
                                                                                       and shopping park.  Near IBM, Hewlett-
                                                                                       Packard, Borg-Warner, and Union Carbide
                                                                                       office.

   55 Dayton Mall, OH                      Leased from Marriott       146   09/19/87   Seven miles south of downtown Dayton,
      100 Prestige Place                   International, Inc.                         just off I-75 at Route 725.  The site is 1/4
      Miamisburg, OH  45342                                                            mile from Dayton Mall and four miles
                                                                                       from NCR Headquarters in the premier
                                                                                       suburban office, commercial, retail and
                                                                                       residential area.

   56 Toledo, OH                           Leased from Marriott       149   04/30/88   At intersection of Airport Road and I-475,
      1435 East Mall Drive                 International, Inc.                         two miles from Toledo Airport.  Close to
      Holland, OH  43528                                                               NCR, Dana Corporation and Commerce
                                                                                       Executive Park.

   57 Oklahoma City Airport, OK            Leased from Marriott       149   07/23/88   Just off I-40 at Meridian Interchange on
      4301 Highline Boulevard              International, Inc.                         Highland Blvd., four miles north of Will
      Oklahoma City, OK  73108                                                         Rogers World Airport and five miles from
                                                                                       downtown.

   58 Portland-Beaverton, OR               Leased from Marriott       149   02/11/89   On Hall Boulevard, 1/4 mile from
      8500 S.W. Nimbus Drive               International, Inc.                         Highway 217 in Koll Business Center, and
      Beaverton, OR  97005                                                             1/2 mile from Washington Square Mall in
                                                                                       southwest Portland.

   59 Philadelphia/Devon, PA               Leased from Three Devon    149   11/19/88   At Route 30 (Lancaster Avenue) and Old
      762 W. Lancaster Ave.                Square Associates                           Eagle School Road.  Near Wyeth
      Wayne, PA  19087                                                                 International, Chilton, and Fidelity Mutual
                                                                                       Corporate Headquarters and Villanova
                                                                                       University and Immaculata College.

   60 Columbia, SC                         Leased from Marriott       149   01/28/89   On Zimalcrest Drive on southwest corner
      347 Zimalcrest Drive                 International, Inc.                         of I-20 and I-126 in northwest Columbia.
      Columbia, SC  29210                                                              The site is within 10 minutes of the
                                                                                       Columbia Metropolitan Airport,
                                                                                       downtown, and the University of South
                                                                                       Carolina.

   61 Greenville, SC                       Leased from Essex House    146   03/05/88   In suburban Greenville at intersection of I-
      70 Orchard Park Drive                Condominium Corp. *                         385 and Haywood Road, four miles from
      Greenville, SC  29615                                                            downtown Greenville, 1/2 mile from
                                                                                       Haywood Mall, and eight miles from 
                                                                                       Greenville/Spartanburg Jetport.

   62 Memphis Airport, TN                  Leased from Essex House    145   07/15/87   One mile from Memphis International
      1780 Nonconnah Boulevard             Condominium Corp. *                         Airport just off I-240 and Mill Branch
      Memphis, TN  38132                                                               Road.  Site is near Federal Express
                                                                                       headquarters and in Nonconnah Corporate
                                                                                       Center, which contains the office of
                                                                                       Nationwide Insurance.



                                        13

<PAGE>




   63 Nashville Airport, TN                Leased from Essex House    145   01/23/88   On the northeast corner of Elm Hill Pike
      2508 Elm Hill Pike                   Condominium Corp. *                         and McGavock Street, two miles from
      Nashville, TN  37214                                                             Nashville Metro Airport, six miles south
                                                                                       of Opryland USA and eight miles from
                                                                                       downtown Nashville.

   64 Dallas/Northeast, TX                 Leased from Marriott       149   01/16/88   Off central expressway (Route 75) and
      1000 South Sherman                   International, Inc.                         Spring Valley Road in Spring Valley
      Richardson, TX  75081                                                            Business Park, near Texas Instruments and
                                                                                       EDS.

   65 Dallas/Plano, TX                     Owned in fee               149   05/07/88   In north Dallas at the intersection of
      4901 W. Plano Parkway                                                            Preston Road and Plano Parkway.  The
      Plano, TX  75093                                                                 site is near EDS, Frito-Lay, and J.C.
                                                                                       Penney Headquarters.

   66 Dallas/Stemmons, TX                  Leased from Essex House    146   09/12/87   At I-35 and Northwest Highway within
      2383 Stemmons Trail                  Condominium Corp. *                         five miles of the high concentration of
      Dallas, TX  75220                                                                offices in the Dallas Market Center area.

   67 San Antonio/Downtown, TX             Leased from Essex House    149   02/30/90   On the southeast corner of Santa Rosa and
      600 Santa Rosa South                 Condominium Corp. *                         Durango Boulevard 1/2 mile from I-35
      San Antonio, TX  78204                                                           and Durango interchange in downtown
                                                                                       San Antonio, 1/2 mile from Market Square and
                                                                                       one mile from Riverwalk and Hemisfair
                                                                                       Plaza.


   68 Charlottesville, VA                  Leased from Marriott       150   01/21/89   On Highway 29 next to Fashion Square
      638 Hillsdale Drive                  International, Inc.                         Mall, approximately five miles north of
      Charlottesville, VA  22901                                                       the University of Virginia.

   69 Manassas, VA                         Leased from Marriott       149   03/04/89   West of Washington, D.C. at I-66 and
      10701 Battleview Parkway             International, Inc.                         Route 234 (Sudley Road), near Atlantic
      Manassas, VA  22110                                                              Research, IBM, and Manassas Battlefield
                                                                                       Park.

   70 Seattle/Southcenter, WA              Leased from Marriott       149   03/11/89   Near Sea/Tac Airport at the intersection of
      400 Andover Park West                International, Inc.                         Stander Boulevard and Andover Park West
      Tukwila, WA  98188                                                               within 1/4 mile of Southcenter Mall and
                                                                                       Boeing Computer Services Headquarters.
                                                                                       Close to Tukwila's office and industrial
                                                                                       parks.



* Essex House Condominium Corporation is a subsidiary of Marriott International, Inc.
                                                                                                                 14
</TABLE>

<PAGE>



ITEM 3.          LEGAL PROCEEDINGS

Associates and the Hotels are involved in routine  litigation and administrative
proceedings  arising  in the  ordinary  course  of  business,  some of which are
expected to be covered by liability  insurance  and which  collectively  are not
expected to have a material adverse effect on the business,  financial condition
or results of operations of Associates.


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

None.


                                                      PART II


ITEM 5.          MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP UNITS
                 AND RELATED SECURITY HOLDER MATTERS

None.


ITEM 6.          SELECTED FINANCIAL DATA

The following selected financial data presents historical operating  information
for  Associates for each of the five years in the period ended December 31, 1996
as if it  were  a  separate  subsidiary  of  the  Partnership  for  all  periods
presented. The Partnership's historical basis in the assets and liabilities have
been  carried  over.  For periods  prior to January 24, 1996,  the  accompanying
financial  statements reflect the pushed-down effects of an equivalent principal
amount of the Partnership's then outstanding indebtedness.
<TABLE>
<CAPTION>

                                              1996           1995           1994           1993           1992
                                          ------------   ------------   ------------   ------------   --------
                                                          (in thousands)
<S>                                       <C>            <C>            <C>            <C>            <C>
Revenues..................................$    133,182   $    121,737   $    112,392   $    102,916   $     93,434
                                          ============   ============   ============   ============   ============

Net income (loss).........................$     24,061   $     18,977   $      6,160   $      5,085   $     (4,972)
                                          ============   ============   ============   ============   ============

Total assets..............................$    526,887   $    526,783   $    531,362   $    546,427   $    563,313
                                          ============   ============   ============   ============   ============

Total liabilities.........................$    445,777   $    468,876   $    464,583   $    461,391   $    460,184
                                          ============   ============   ============   ============   ============

</TABLE>


                                                        15

<PAGE>



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

GENERAL

The following  discussion and analysis  addresses  results of operations for the
fiscal years ended December 31, 1996, 1995 and 1994. The consolidated  financial
statements of Associates present the financial  position,  results of operations
and cash flows of Associates  and its  subsidiaries  (CBM Funding and Associates
II) as if  Associates  were a separate  subsidiary  of  Courtyard by Marriott II
Limited  Partnership  (the   "Partnership")  for  all  periods  presented.   The
Partnership's  historical  basis in the assets and  liabilities  contributed  to
Associates  and  such  subsidiaries  has been  carried  over.  The  consolidated
financial  information has been restated,  under  "pushdown"  accounting for all
fiscal periods presented to reflect the transfer of substantially all the assets
of the  Partnership  to Associates  and  Associates  II in  connection  with the
refinancing   and  the   allocation  to  Associates  of   $410,200,000   of  the
Partnership's  mortgage  debt  repaid  with the  proceeds  of the  Certificates.
Changes  in  Investment  in and Net  Advances  to  Associates  for  all  periods
presented  represent the net income of Associates and  subsidiaries  net of cash
transferred  to the  Partnership.  There are no terms of  settlement or interest
charges  associated  with  the  Investment  in and Net  Advances  to  Associates
balance.

On  December  22,  1995,  substantially  all of the  assets of  Associates  were
contributed  to  Associates  by the  Partnership.  During the  period  from 1994
through 1996,  Associates  revenues grew from $112.4 million to $133.2  million,
while  Associates' total hotel sales grew from $232.1 million to $263.7 million.
Growth in room sales,  and thus hotel sales, is primarily a function of combined
average  occupancy  and room  rates.  The  Hotels'  combined  average  room rate
increased by $9.53 from $66.95 to $76.48,  while the combined average  occupancy
decreased slightly from 81% to 80%.

Associates'  operating  costs  and  expenses  are,  to a  great  extent,  fixed.
Therefore,  Associates derives substantial  operating leverage from increases in
revenue.  This  operating  leverage  is  offset  in part by  variable  expenses,
including (i) base and Courtyard management fees under the management agreement,
which are 3 1/2% and 2 1/2% of gross hotel sales, respectively and (ii) variable
ground lease payments.


                                                        16

<PAGE>



RESULTS OF OPERATIONS

The following table shows selected combined  operating and financial  statistics
for the  Hotels (in  thousands,  except  combined  average  occupancy,  combined
average daily room rate, REVPAR and number of rooms):
<TABLE>
<CAPTION>

                                                                                 Year Ended December 31,
                                                                       --------------------------------------------   
                                                                           1996           1995            1994
                                                                       --------------  ------------  --------------   
<S>                                                                    <C>             <C>           <C>
Combined average occupancy.............................................       80.4%          81.4%           81.1%
Combined average daily room rate.......................................$      76.48   $      71.49    $      66.95
REVPAR.................................................................$      61.49   $      58.19    $      54.30
Number of rooms........................................................      10,355         10,335          10,335
Room sales.............................................................$    235,861   $    218,955    $    204,203
Food and beverage sales................................................      18,227         17,628          18,483
Other hotel sales......................................................       9,619          9,242           9,396
                                                                       ------------   ------------    ------------
  Total hotel sales....................................................     263,707        245,825         232,082
Direct hotel operating costs and expenses..............................     130,525        124,088         119,690
                                                                       ------------   ------------    ------------
Revenues...............................................................$    133,182   $    121,737    $    112,392
                                                                       ============   ============    ============
</TABLE>


The following table shows selected components of Associates' operating income as
a percentage of total hotel sales.
<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                            --------------------------------------
                                                                            1996           1995            1994
                                                                            ------------  -------------  ----------
<S>                                                                         <C>            <C>           <C>
Hotel sales:
Room sales.............................................................        89.4%           89.1%         88.0%
Food and beverage sales................................................         6.9            7.2            8.0
Other .................................................................         3.7            3.7            4.0
                                                                       ------------   ------------    -----------
    Total hotel sales..................................................       100.0          100.0          100.0
Direct operating costs and expenses....................................        49.5           50.5           51.6
                                                                       ------------   ------------    -----------
Revenues...............................................................        50.5           49.5           48.4
Indirect hotel operating costs and expenses:
  Depreciation.........................................................        10.2           11.3           12.1
  Base and Courtyard management fees...................................         6.0            6.0            6.0
  Ground rent..........................................................         4.5            4.7            4.6
  Property taxes.......................................................         3.6            3.8            4.1
  Incentive management fees............................................         4.6            4.3            4.1
  Insurance and other..................................................          .1           (0.1)           0.8
                                                                       ------------   ------------    -----------
  Total indirect hotel operating costs and expenses....................        29.0           30.0           31.7
                                                                       ------------   ------------    -----------
    Operating income...................................................        21.5%          19.5%          16.7%

                                                                       ============   ============    ===========
</TABLE>

1996 Compared to 1995:

Revenues.  Revenues (hotel sales less direct hotel operating costs and expenses)
increased by $11.4  million in 1996,  to $133.2  million,  a 9.4%  increase when
compared to 1995.  This increase in revenues was achieved  primarily  through an
increase in hotel  sales  offset by an  increase  in hotel  operating  costs and
expenses, as discussed below.


                                                        17

<PAGE>



Hotel  sales.  Total  1996 hotel  sales of $263.7  million  represented  a $17.9
million,  or 7.3%,  increase  over 1995  results.  This  increase  was  achieved
primarily  through  increases in the  combined  average room rate from $71.49 in
1995 to $76.48 in 1996. As a result, 1996 room sales increased by $16.9 million,
or 7.7%,  to $235.9  million  from $219.0  million in 1995 despite a one percent
decrease in occupancy to 80.4% during 1996. Forty of the Partnership's 70 Hotels
posted occupancy rates exceeding 80% for 1996.

Direct hotel  operating  costs and expenses.  Direct hotel  operating  costs and
expenses in 1996 increased  $6.4 million,  or 5.2%. The increase in direct hotel
operating costs and expenses is primarily due to an increase in certain variable
costs related to the increase in room sales.  However,  as a percentage of total
hotel sales,  these costs and expenses decreased to 49.5% in 1996 as compared to
50.5% in 1995.

Indirect hotel operating costs and expenses.  Indirect hotel operating costs and
expenses increased by $3.9 million, or 5.3%, from $72.4 million in 1995 to $76.3
million in 1996.  As a percentage  of total hotel sales these costs and expenses
decreased  to  29.0% of  total  hotel  sales  in 1996  from  30.0% in 1995.  The
components of this category are discussed below:

Depreciation.  Depreciation  decreased slightly in 1996 as compared to 1995
due  to a  portion  of  the  Hotels'  furniture  and  equipment  becoming  fully
depreciated in 1995.

Base  and  Courtyard  management  fees.  The  increase  in  base  and  Courtyard
management  fees of 7.4%, from $14.7 million in 1995 to $15.8 million in 1996 is
due to the  improved  combined  hotel  sales  for the 70  Hotels  for 1996  when
compared to 1995.

Ground  rent.  The 1996 ground rent expense of $11.9  million  represents a 3.0%
increase over 1995 levels as improved hotel operations resulted in Hotels paying
more  ground  rent as a percent of sales  rather  than the  minimum  rent.  As a
percentage  of total hotel sales,  ground rent expense was 4.5% and 4.7% in 1996
and 1995, respectively.

Incentive  management  fees. In 1996 $12.0 million of incentive  management fees
were  earned as  compared  to $10.5  million  earned in 1995.  The  increase  in
incentive  management  fees  earned was the result of  improved  combined  hotel
operating results.

Operating  income.  Operating income (hotel revenues less all costs and expenses
other than interest expense) increased by $8.4 million to $56.5 million in 1996,
from $48.1 million in 1995, primarily due to revenues.

Interest expense. Interest expense increased 11.6% to $32.5 million in 1996 from
$29.1  million  in  1995.  This  increase  in  interest  expense  was due to the
refinancing  of debt at fixed  rates  which are  higher  than the  prior  year's
variable  interest rates. The weighted average interest rate in 1996 was 6.6% as
compared to 6.5% in 1995.

Net income. In 1996,  Associates had net income of $24.1 million, an increase of
$5.1  million  from  1995's  net  income of $19.0  million.  This  increase  was
primarily due to higher revenues.


                                                        18

<PAGE>



1995 Compared to 1994:

Revenues.  Revenues (hotel sales less direct hotel operating costs and expenses)
increased by $9.3  million in 1995,  to $121.7  million,  a 8.3%  increase  when
compared to 1994.  This increase in revenues was achieved  primarily  through an
increase in hotel sales offset by an increase in operating  costs and  expenses,
as discussed below.

Hotel  sales.  Total  1995 hotel  sales of $245.8  million  represented  a $13.7
million,  or 5.9%,  increase  over 1994  results.  This  increase  was  achieved
primarily  through  increases in the  combined  average room rate from $66.95 in
1994 to $71.49 in 1995. As a result, 1995 room sales increased by $14.8 million,
or 7.2%, to $219.0 million from $204.2 million in 1994 despite stable  occupancy
of approximately  81% during these periods.  Forty-five of the  Partnership's 70
Hotels posted  occupancy  rates  exceeding 80% for 1995. Food and beverage sales
decreased  by 4.6% from  $18.5  million  in 1994 to $17.6  million  in 1995 as a
result  of the  Manager's  continued  efforts  to match  restaurant  service  to
customer   demands  by  eliminating   under-utilized   services  at  low  volume
restaurants.

Direct hotel  operating  costs and expenses.  Direct hotel  operating  costs and
expenses in 1995 increased  $4.4 million,  or 3.7%. The increase in direct hotel
operating costs and expenses is primarily due to an increase in certain variable
costs related to the increase in room sales.  However,  as a percentage of total
hotel sales,  these costs and expenses decreased to 50.5% in 1995 as compared to
51.6% in 1994.

Indirect hotel operating costs and expenses.  Indirect hotel operating costs and
expenses  decreased by $.4 million,  or .5%, from $72.8 million in 1994 to $72.4
million in 1995.  As a percentage  of total hotel sales these costs and expenses
decreased  to  30.0% of  total  hotel  sales  in 1995  from  31.4% in 1994.  The
components of this category are discussed below:

Depreciation.  Depreciation  decreased slightly in 1995 as compared to 1994
due  to a  portion  of  the  Hotels'  furniture  and  equipment  becoming  fully
depreciated in 1994.

Base  and  Courtyard  management  fees.  The  increase  in  base  and  Courtyard
management  fees of 5.9%, from $13.9 million in 1994 to $14.7 million in 1995 is
due to the  improved  combined  hotel  sales  for the 70  Hotels  for 1995  when
compared to 1994.

Ground  rent.  The 1995 ground rent expense of $11.5  million  represents a 7.1%
increase over 1994 levels as improved hotel  operations  resulted in more Hotels
paying  ground rent as a percent of sales  rather than the  minimum  rent.  As a
percentage of total hotel sales,  ground rent expense  remained the same at 4.7%
in 1994 and 1995.

Incentive  management  fees. In 1995 $10.5 million of incentive  management fees
were  earned as  compared  to $9.4  million  earned  in 1994.  The  increase  in
incentive  management  fees  earned was the result of  improved  combined  hotel
operating results.

Operating  income.  Operating income (hotel revenues less all costs and expenses
other than interest expense) increased by $9.0 million to $48.1 million in 1995,
from $39.1 million in 1994, primarily due to higher hotel sales.


                                                        19

<PAGE>



Interest expense. Interest expense decreased 11.6% to $29.1 million in 1995 from
$32.9  million  in  1994.  This  decrease  in  interest  expense  was due to the
expiration  of the interest rate swaps on Mortgage Debt A and Mortgage Debt B on
August 4, 1994 and October 18, 1994, respectively. Incremental interest expense,
as a result of the interest rate swaps, was $15.0 million for 1994.

Net income. In 1995,  Associates had net income of $19.0 million, an increase of
$12.8  million,  over  1994's  net income of $6.2  million.  This  increase  was
primarily  due  to  higher  revenues  and  lower  interest  expense  due  to the
expiration of the interest rate swap agreements.

CAPITAL RESOURCES AND LIQUIDITY

Principal Sources and Uses of Cash

Associates' principal source of cash is cash from operations. Its principal uses
of cash are to make debt service payments,  fund the property  improvement fund,
and to make  distributions  to the partners.  Cash provided from  operations was
$46.1 million,  $42.6 million and $39.4 million for the years ended December 31,
1996, 1995 and 1994, respectively.  During 1996, Associates repaid $11.3 million
of principal on the  Certificates,  as defined below,  and paid $33.9 million of
interest.  Associates  paid $32.1  million and $36.1 million in interest in 1995
and 1994, respectively.  No principal payments were made on the mortgage debt in
1995 or 1994. Contributions to the property improvement fund were $13.2 million,
$12.3 million and $11.8 million for the years ended December 31, 1996, 1995, and
1994, respectively. Distributions to partners were $17.4 million in 1996.

Refinancing

Associates Structure

On  January  24,  1996,   the   Partnership   completed  a  refinancing  of  the
Partnership's  existing debt through the private placements of $127.4 million of
senior  secured  notes (the "Senior  Notes") and $410.2  million of  multi-class
commercial mortgage pass-through certificates (the "Certificates").

In connection  with the  refinancing,  the limited  partners of the  Partnership
approved  certain  amendments to the  partnership  agreement and the  management
agreement. The partnership agreement amendment,  among other things, allowed the
formation of certain  subsidiaries of the  Partnership,  including  Courtyard II
Finance Company ("Finance"),  a wholly-owned subsidiary of the Partnership,  who
along with the Partnership is the co-issuer of the Senior Notes.

Additionally,  the Partnership  formed a wholly-owned  subsidiary,  Courtyard II
Associates Management Corporation ("Managing General Partner"). Managing General
Partner was formed to be the managing  general partner with a 1% general partner
interest in Courtyard II Associates,  L.P.  ("Associates"),  a Delaware  limited
partnership.  The  Partnership  owns a 1%  general  partner  interest  and a 98%
limited  partner  interest in Associates.  On January 24, 1996, the  Partnership
contributed 69 Hotels and their related assets to Associates.  Substantially all
of Associates' net equity will be restricted to dividends,  loans or advances to
the Partnership.


                                                        20

<PAGE>



Associates holds a 99% membership interest in CBM Associates II LLC ("Associates
II") and Managing General Partner holds the remaining 1% membership interest. On
January 24, 1996, the Partnership contributed the Hotel located in Deerfield, IL
(the  "Deerfield  Hotel") and its related  assets to Associates and the Managing
General Partner who simultaneously  contributed the Hotel and its related assets
to Associates II.

Each of the Managing General  Partner,  Associates and Associates II were formed
as a single purpose bankruptcy-remote entity to facilitate the refinancing.

CBM  Funding   Corporation  ("CBM  Funding"),   a  wholly-owned   subsidiary  of
Associates,  was also formed to make a mortgage  loan (the  "Mortgage  Loan") to
Associates from the proceeds of the sale of the Certificates.

Debt Refinancing - Overview

On January 24, 1996, net proceeds from the placement of the Senior Notes and the
Certificates and existing  Partnership  cash were used as follows:  (i) to repay
the Partnership's existing bank indebtedness of $505.5 million (ii) to repay the
IRB Debt of $25.6 million,  (iii) to repay the Host Marriott IRB Liability loans
of $6.5  million and (iv) to pay certain  costs of  structuring  and issuing the
Senior Notes and the Certificates.

Prior to the completion of the refinancing on January 24, 1996, Host Marriott or
its wholly owned subsidiary, CBM Two Corporation,  (the "General Partner" of the
Partnership)  provided  additional credit support to the Partnership through the
following:   (i)  debt  service  guarantees  on  the  bank  indebtedness,   (ii)
foreclosure  guarantees on the bank  indebtedness,  (iii) obligations to advance
funds related to the IRB Debt and (iv) a facility for the  Partnership to borrow
funds to pay ground rent (the "Ground  Rent  Facility").  Upon  repayment of the
bank  indebtedness,  and the IRB Debt,  Host  Marriott was  released  from these
obligations.

Debt Refinancing - Certificates

The Certificates in an initial  principal  payment of $410.2 million were issued
by CBM Funding.  Proceeds from the sale of the Certificates were utilized by CBM
Funding to provide a Mortgage Loan to Associates. The Certificates/Mortgage Loan
require  monthly   payments  of  principal  and  interest  based  on  a  17-year
amortization  schedule.  The Mortgage Loan matures on January 28, 2008. However,
the  maturity  date of the  Certificates/Mortgage  Loan  may be  extended  until
January 28,  2013 with the consent of 66 2/3% of the holders of the  outstanding
Certificates  affected  thereby.  The Certificates  were issued in the following
classes and pass-through rates of interest.


                       Initial Certificate               Pass-Through
  Class                      Balance                         Rate
-------------------    ------------------------       --------------
              
Class A-1              $             45,500,000                7.550%
Class A-2              $             50,000,000                6.880%
Class A-3P & I         $            129,500,000                7.080%
Class A-3IO                      Not Applicable                0.933%
Class B                $             75,000,000                7.480%
Class C                $            100,000,000                7.860%
Class D                $             10,200,000                8.645%


                                                        21

<PAGE>



The Class  A-3IO Certificates  receive  payments  of  interest  only based on a
notional balance equal to the Class A-3P & I Certificate Balance.

The balance of the Certificates was $398,853,000 at December 31, 1996. Principal
amortization  of $11.3  million of the Class A-1  Certificates  was made  during
1996.

The Certificates maturities are as follows (in thousands):

                    1997                  $        13,298
                    1998                           14,331
                    1999                           15,443
                    2000                           16,642
                    2001                           17,934
                 Thereafter                       321,205
                                          $       398,853

The   Mortgage   Loan  is   secured   primarily   by  69   cross-defaulted   and
cross-collateralized mortgages representing first priority mortgage liens on (i)
the fee or leasehold interest in the 69 Hotels, related furniture,  fixtures and
equipment and the property  improvement  fund, (ii) the fee interest in the land
leased  from MII or their  affiliates  on which 53 Hotels are  located,  (iii) a
pledge of  Associates  membership  interest in and the related  right to receive
distributions  from  Associates  II which owns the  Deerfield  Hotel and (iv) an
assignment of the Management  Agreement,  as defined below. The Mortgage Loan is
non-recourse to Associates, the Partnership and its partners.

Operating  profit from the Hotels in excess of debt service on the Mortgage Loan
is available to be distributed to the  Partnership.  Amounts  distributed to the
Partnership  are used for the  following,  in  order of  priority:  (i) for debt
service on the Senior Notes, (ii) to fund the Supplemental Debt Service Reserve,
if  necessary,  (iii) to offer to purchase a portion of the Senior Notes at par,
if necessary,  (iv) for working capital, see Item 13 "Certain  Relationships and
Related  Transactions,"  and  (v)  for  distributions  to  the  partners  of the
Partnership.

Prepayments  of the Mortgage  Loan are  permitted  with the payment of a premium
(the "Prepayment  Premium").  The Prepayment  Premium is equal to the greater of
(i) one percent of the Mortgage Loan being  prepaid or (ii) a yield  maintenance
amount  based  on a spread  of .25% or .55%  over the  U.S.  treasury  rate,  as
defined.

On June 30,  1996,  CBM Funding  completed an exchange  offer of its  Multiclass
Mortgage Pass- Through Certificates,  Series 1006-1A with a principal balance of
$406.2  million  at that  time  ("Old  Certificates"),  for an equal  amount  of
Multiclass   Mortgage   Pass-Through   Certificates,    Series   1996-1B   ("New
Certificates").  The form and terms of the New  Certificates  are  substantially
identical  to the form and terms of the Old  Certificates,  except  that the New
Certificates  are  registered  under the  Securities Act of 1933, as amended and
their transfers are not restricted.


                                                        22

<PAGE>



Deferred Management Fees and Ground Lease Payments

To  facilitate  the  refinancing,  effective  December  30,  1995,  the original
management  agreement  was  restated  into two separate  management  agreements.
Associates  entered  into a  management  agreement  with the  Manager for the 69
Hotels  which  Associates  directly  owns  and  Associates  II  entered  into  a
management   agreement  for  the  Deerfield  Hotel  which  Associates  II  owns,
collectively, (the "Management Agreement").

Under the Management  Agreement that became  effective on December 30, 1995, the
Manager agreed to subordinate a portion of the Courtyard management fees and all
incentive  management  fees,  and under an amendment  to the ground  leases with
Marriott International,  Inc. and its affiliates (the "Marriott Ground Lessors")
that became effective on January 24, 1996, the Marriott Ground Lessors agreed to
subordinate  their ground rent payments,  to the payment of interest,  principal
and  premiums on the  Mortgage  Loan and the Senior  Notes and debt  incurred to
refinance the Mortgage Loan or the Senior Notes that meets  specified  criteria.
In addition, the Manager agreed to subordinate existing deferred base, Courtyard
and incentive management fees to the payment of debt service.

Deferred base,  Courtyard and incentive  management  fees do not accrue interest
and will be repaid from a portion of operating  cash flow but only after payment
of (i) debt service, (ii) a priority return to the Partnership and (iii) certain
other  priorities as defined in the Management  Agreement.  Deferred ground rent
owed to the Marriott  Ground Lessors does not accrue interest and will be repaid
from a portion of operating  cash flow,  but only after payment of debt service.
Payment of such deferred fees and deferred  ground rent are restricted  payments
under the covenants of the Senior Notes.

Historically,  under the management agreement,  the Manager subordinated receipt
of the Courtyard management fee to the payment of debt service (through the debt
refinancing  date of January 24,  1996) and a 6% return to the limited  partners
(through 1993).  The Manager also agreed to defer payment of the base management
fee to the extent cash was not otherwise available to provide a 6% return to the
limited partners  (through 1993). As of December 31, 1996,  cumulative  deferred
base and Courtyard management fees totaled $30.2 million.

Prior to 1994 no incentive  management fees were earned by the Manager.  For the
year ended December 31, 1995,  $10.5 million in incentive  management  fees were
earned and paid to the Manager.  For the year ended  December  31,  1996,  $12.0
million in incentive  management  fees were earned and $11.4  million were paid.
Therefore, $.6 million was deferred in 1996. In the future, additional incentive
management  fees may be earned,  but payment will be limited by the terms of the
Management  Agreement to 80% of the amount by which  operating  profit less debt
service exceeds the priority return to the Partnership.

The  priority  return to the  Partnership,  as defined,  was reduced from 10% of
invested capital to 7% in 1996, 8% in 1997, 9% in 1998 and then returning to 10%
for 1999 and  thereafter.  Operating  profit from the Hotels (which reflects the
deduction of the base and Courtyard management fees and MII ground rent) will be
used to pay the following,  in order of priority: (i) debt service on the Senior
Notes and Mortgage  Loan,  (ii) to repay  working  capital loans to the Manager,
(iii) to repay deferred ground rent to MII and their  affiliates,  (iv) to repay
ground lease advances to MII and their  affiliates,  (v) the priority  return to
the Partnership which is 7% of invested capital for 1996, (vi) eighty percent of
the remaining operating profit is applied to

                                                        23

<PAGE>



the payment of current incentive management fees, (vii) to repay advances to the
Partnership,  (viii) to repay foreclosure  avoidance advances to the Manager and
(ix)  fifty  percent  of  the  remaining  operating  profit  to  repay  deferred
management fees to the Manager and fifty percent of remaining  operating  profit
is paid to the  Partnership.  In  1996,  the  Partnership  had $2.5  million  of
remaining  operating  profit after the payment of i) through viii) above.  Fifty
percent of this remaining  operating  profit was used to repay a portion of 1996
deferred incentive  management fees to the Manager and the remainder was paid to
the Partnership.

Property Improvement Fund

The Management Agreement requires annual contributions to a property improvement
fund to ensure that the physical condition and product quality of the Hotels are
maintained. Contributions to this fund are based on a percentage of annual total
hotel  sales,  currently  equal  to 5%.  The  Partnership  believes  that the 5%
contribution  requirement is consistent  with industry  standards and provides a
sufficient  reserve for the future capital repair and  replacement  needs of the
Hotels.  In  accordance  with the  Management  Agreement,  the  annual  required
contribution  percentage  may increase to up to 6% after  December 31, 2000. The
balance in the fund totaled  $36.6  million as of December 31, 1996.  During the
period from 1992 through 1995, room renovation projects were completed at all of
the Hotels at an aggregate cost of  approximately  $30.7 million.  Total capital
expenditures for 1996, 1995 and 1994 were $11.2 million,  $8.8 million and $13.4
million,  respectively.  All such  capital  expenditures  were  funded  from the
property improvement fund.

General

The General Partners  believe that cash from hotel operations  combined with the
ability to defer certain management fees to the Manager and ground rent payments
to MII and  affiliates  will provide  adequate  funds in the short term and long
term for the operational and capital needs of Associates.

Competition

The moderately  priced lodging segment  continues to be highly  competitive.  An
increase in supply growth began in 1996 with the introduction of a number of new
national  brands.  For 1997,  the outlook  continues to be positive.  Courtyards
continue to command a premium  share of the markets in which they are located in
spite of the growth of new chains.  It is expected that  Courtyard will continue
outperforming  both national and local  competitors.  The brand is continuing to
carefully  monitor the introduction of new mid-priced  brands including  Wingate
Hotels, Hilton Garden Inns, Four Points by Sheraton, Mainstay,  Candlewood, Club
Hotels and Clarion.


                                                        24

<PAGE>



Inflation

The rate of  inflation  has been  relatively  low in the past  four  years.  The
Manager is generally able to pass through  increased costs to customers  through
higher  room  rates and  prices.  In 1996,  average  rates of  Courtyard  hotels
exceeded  inflationary costs, but lagged the increases of direct competitors who
have been able to realize higher rates due to climbing  occupancies.  On January
24, 1996, the Company  refinanced its mortgage debt and fixed its interest costs
thereby  eliminating the Company's exposure to the impact of inflation on future
interest costs.

Seasonality

Demand,  and thus room  occupancy,  is affected by normally  recurring  seasonal
patterns.  For most of the  Hotels,  demand is higher in the  spring  and summer
months (March through October) than during the remainder of the year.

Forward-Looking Statements

Certain  matters  discussed  herein are  forward-looking  statements  within the
meaning of the  Private  Litigation  Reform Act of 1995 and as such may  involve
known and unknown  risks,  uncertainties,  and other factors which may cause the
actual  results,  performance or achievements of Associates to be different from
any future  results,  performance or  achievements  expressed or implied by such
forward-looking  statements.   Although  Associates  believes  the  expectations
reflected  in  such   forward-looking   statements  are  based  upon  reasonable
assumptions,  it can give no assurance that its  expectations  will be attained.
These  risks are  detailed  from time to time in  Associates'  filings  with the
Securities  and Exchange  Commission.  Associates  undertakes  no  obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect any future events or circumstances.


                                                        25

<PAGE>



ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>

      Index                                                                                         Page

      <S>                                                                                             <C>
      Report of Independent Public Accountants........................................................ 27

      Consolidated Statement of Operations............................................................ 28

      Consolidated Balance Sheet...................................................................... 29

      Consolidated Statement of Changes in Partners' Capital.......................................... 30

      Consolidated Statement of Cash Flows............................................................ 31

      Notes to Consolidated Financial Statements...................................................... 33
</TABLE>

                                                        26

<PAGE>




REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



















TO COURTYARD II ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES:

We have  audited the  accompanying  consolidated  balance  sheet of Courtyard II
Associates,  L.P.  (a  Delaware  limited  partnership)  and  subsidiaries  as of
December  31,  1996  and  1995,  and  the  related  consolidated  statements  of
operations  and cash  flows  for each of the  three  years in the  period  ended
December  31, 1996 and the  statement  of changes in  partners'  capital for the
period from January 24, 1996 to December 31, 1996.  These  financial  statements
and the schedule referred to below are the responsibility of the General Partner
of  Courtyard  by  Marriott II Limited  Partnership.  Our  responsibility  is to
express an opinion  on these  financial  statements  and  schedule  based on our
audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards  require that we plan and perform an audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of  Courtyard  II
Associates,  L.P. and  subsidiaries  as of December  31, 1996 and 1995,  and the
results of its  operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements taken as a whole. The schedule listed in the index at Item
14(a)(2) is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our audit
of the basic  financial  statements  and, in our opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.




                                                          ARTHUR ANDERSEN LLP


Washington, D.C.
March 13, 1997


                                   27
<PAGE>
<TABLE>
<CAPTION>


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


CONSOLIDATED STATEMENT OF OPERATIONS




Courtyard II Associates, L.P. and Subsidiaries
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands)

                                                                                  1996            1995             1994
                                                                              ------------    -------------    --------
<S>                                                                           <C>             <C>              <C>
REVENUES (Note 3).............................................................$    133,182    $     121,737    $    112,392
                                                                              ------------    -------------    ------------

OPERATING COSTS AND EXPENSES
  Interest ...................................................................      32,463           29,080          32,897
  Depreciation ...............................................................      27,062           27,720          27,980
  Base and Courtyard management fees .........................................      15,822           14,749          13,925
  Incentive management fee....................................................      12,040           10,480           9,403
  Ground rent.................................................................      11,899           11,550          10,787
  Property taxes..............................................................       9,537            9,324           9,453
  Insurance and other.........................................................         290             (143)          1,787
                                                                              ------------    -------------    ------------
     .........................................................................     109,113          102,760         106,232
--                                                                            ------------    -------------    ------------

NET INCOME BEFORE MINORITY INTEREST...........................................      24,069           18,977           6,160

MINORITY INTEREST.............................................................           8               --              --
                                                                              ------------    -------------    ------------

NET INCOME....................................................................$     24,061    $      18,977    $      6,160
                                                                              ============    =============    ============

ALLOCATION OF NET INCOME
  General Partners............................................................$        481    $         380    $        123
  Limited Partner.............................................................      23,580           18,597           6,037
                                                                              ------------    -------------    ------------
     .........................................................................$     24,061    $      18,977    $      6,160
                                                                              ============    =============    ============




























The   accompanying   notes  are  an  integral  part  of  these
consolidated financial statements.
</TABLE>

                                                            28

<PAGE>
<TABLE>
<CAPTION>


CONSOLIDATED BALANCE SHEET




Courtyard II Associates, L.P. and Subsidiaries
December 31, 1996 and 1995
(in thousands)

                                                                                                 1996              1995
                                                                                             ------------      --------
<S>                                                                                           <C>              <C>                 
ASSETS
  Property and equipment, net................................................................$    458,687      $    474,480
  Deferred financing costs, net of accumulated amortization..................................      12,273            12,127
  Due from Courtyard Management Corporation..................................................      13,315             7,078
  Prepaid expenses...........................................................................          28                --
  Property improvement fund..................................................................      36,582            33,098
  Cash and cash equivalents..................................................................       6,002                --
                                                                                             ------------      ------------
        .....................................................................................$    526,887      $    526,783
--                                                                                           ============      ============

LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES
  Mortgage debt..............................................................................$    398,853      $    410,200
  Management fees due to Courtyard Management Corporation....................................      36,442            35,809
  Due to Marriott International, Inc. and affiliates.........................................       9,169             9,402
  Accounts payable and accrued liabilities...................................................       1,305            12,718
  Due to Host Marriott Corporation...........................................................          --               747
                                                                                             ------------      ------------

        Total Liabilities....................................................................     445,769           468,876
                                                                                             ------------      ------------

MINORITY INTEREST............................................................................           8                --
                                                                                             ------------      ------------

        ....................................................................................      445,777           468,876
                                                                                             ------------      ------------

PARTNERS' CAPITAL (See discussion of distribution restrictions in Note 2)
  General Partners...........................................................................       1,622                --
  Limited Partner............................................................................      79,488                --
  Investment in and net advances to Associates...............................................          --            57,907
                                                                                             ------------      ------------

        Total Partners' Capital..............................................................      81,110            57,907
                                                                                             ------------      ------------

        .....................................................................................$    526,887      $    526,783
---------------------------------------------------------------------------------------------============      ============


















                  The   accompanying   notes  are  an  integral  part  of  these
consolidated financial statements.
</TABLE>

                                                            29

<PAGE>
<TABLE>
<CAPTION>



CONSOLIDATED STATEMENT OF CHANGES IN
PARTNERS' CAPITAL


Courtyard II Associates, L.P. and Subsidiaries
For the Period from January 24, 1996 through December 31, 1996
(in thousands)

                                                                               General         Limited
                                                                              Partners         Partner          Total

<S>                                                                           <C>              <C>              <C>    
Initial capitalization as of January 24, 1996................................     1,489           72,938         74,427

   Capital  distributions....................................................      (348)         (17,030)       (17,378)

   Net income................................................................       481           23,580         24,061
                                                                             ----------     ------------    -----------

Balance, December 31, 1996...................................................$    1,622     $     79,488    $    81,110
                                                                             ==========     ============    ===========









































The   accompanying   notes  are  an  integral  part  of  these
consolidated financial statements.
</TABLE>

                                                            30

<PAGE>
<TABLE>
<CAPTION>




CONSOLIDATED STATEMENT OF CASH FLOWS



Courtyard II Associates, L.P. and Subsidiaries
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands)

                                                                                      1996           1995           1994
                                                                                   -----------    ----------    --------
<S>                                                                                <C>            <C>           <C>        
OPERATING ACTIVITIES
  Net income.......................................................................$    24,061    $   18,977    $     6,160
  Noncash items:
     Depreciation..................................................................     27,062        27,720         27,980
     Amortization of deferred financing costs as interest..........................      1,195           493            454
     Deferred management fees......................................................        633            --          5,564
     Minority Interest.............................................................          8            --             --
     Deferred interest on IRB advances from Host Marriott Corporation..............         --           147            260
     (Gain) loss on sale of equipment..............................................         --           (12)         1,185
  Changes in operating accounts:
     Due from Courtyard Management Corporation.....................................     (3,737)        1,311         (2,260)
     Accounts payable and accrued liabilities......................................     (2,309)       (5,911)        (2,710)
     Due to Host Marriott Corporation..............................................       (798)           --             --
     Prepaid expenses and other....................................................        (28)          137           (138)
     Management fees due to Courtyard Management Corporation.......................         --          (162)            --
     Due to Marriott International, Inc. ..........................................         --          (106)           (64)
                                                                                   -----------    ----------    -----------

        Cash provided by operations................................................     46,087        42,594         36,431
                                                                                   -----------    ----------    -----------

INVESTING ACTIVITIES
     Additions to property and equipment, net......................................    (11,269)       (8,786)       (13,361)
     Change in property improvement fund...........................................     (3,484)       (5,427)         1,229
     Working capital advanced to Courtyard Management Corporation..................     (2,500)           --             --
                                                                                   -----------    ----------    -----------

        Cash used in investing activities..........................................    (17,253)      (14,213)       (12,132)
                                                                                   -----------    ----------    -----------

FINANCING ACTIVITIES
     Repayments of debt............................................................   (410,200)           --             --
     Proceeds from issuance of debt................................................    410,200            --             --
     Capital distributions.........................................................    (17,378)           --             --
     Investment in and net advances to (from) Associates...........................     16,520       (28,381)       (24,299)
     Payment of principal..........................................................    (11,347)           --             --
     Payment of financing costs....................................................    (10,627)           --             --
                                                                                   -----------    ----------    -----------

        Cash used in financing activities..........................................    (22,832)      (28,381)       (24,299)
                                                                                   -----------    ----------    -----------
















                  The   accompanying   notes  are  an  integral  part  of  these
consolidated financial statements.
</TABLE>

                                                            31

<PAGE>
<TABLE>
<CAPTION>



CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)




Courtyard II Associates, L.P. and Subsidiaries
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands)

                                                                                      1996           1995           1994
                                                                                   -----------    ----------    --------
<S>                                                                                <C>            <C>           <C>      
INCREASE IN CASH AND CASH EQUIVALENTS..............................................$     6,002    $       --    $        --

CASH AND CASH EQUIVALENTS at beginning of year.....................................         --            --             --
                                                                                   -----------    ----------    -----------

CASH AND CASH EQUIVALENTS at end of year...........................................$     6,002    $       --    $        --
                                                                                   ===========    ==========    ===========

SUPPLEMENTAL DISCLOSURE OF
  CASH FLOW INFORMATION:
     Cash paid for mortgage and other interest.....................................$    33,978    $   32,116    $    36,153
                                                                                   ===========    ==========    ===========










































The   accompanying   notes  are  an  integral  part  of  these
consolidated financial statements.
</TABLE>

                                                            32

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Courtyard II Associates, L.P. and Subsidiaries
December 31, 1996 and 1995


NOTE 1.          COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES

Description

Courtyard  II  Associates,  L.P.  and  subsidiaries  ("Associates"),  a Delaware
limited  partnership,  was formed  December 22, 1995.  Substantially  all of the
assets of Associates were  contributed to Associates by Courtyard by Marriott II
Limited  Partnership (the "Partnership") on January 24, 1996, in connection with
the  Partnership's  refinancing  (see Note 6). The managing  general  partner of
Associates is Courtyard II Associates  Management  Corporation  (a  wholly-owned
subsidiary of the Partnership)  with a 1% interest and the Partnership owns a 1%
general  partner  interest  and a 98%  limited  partner  interest.  CBM  Funding
Corporation ("CBM Funding") a wholly-owned subsidiary of Associates,  was formed
on December 29, 1995, to make a mortgage  loan to Associates in connection  with
the refinancing (see Note 6).  Associates  directly owns 69 Courtyard hotels and
the land on which  certain of the Hotels,  as defined  below,  are located.  One
hotel located in Deerfield,  Illinois (the "Deerfield  Hotel"),  is owned by CBM
Associates II LLC ("Associates II").  Associates hold a 99% membership  interest
in Associates II and Courtyard II Associates  Management  Corporation  holds the
remaining 1% interest in Associates II. The 70 hotel  properties  (the "Hotels")
are  located  in 29 states in the  United  States:  nine in  Illinois;  eight in
California;  five in Florida;  four in Georgia; four in Texas; and three or less
in each of the other 24 states.  The Hotels are managed as part of the Courtyard
by Marriott hotel system by Courtyard Management Corporation (the "Manager"),  a
wholly-owned subsidiary of Marriott International, Inc. ("MII").

Partnership Allocations and Distributions

Allocations  and  distributions  for Associates are generally made in accordance
with the  respective  ownership  interests  as  follows:  (i) 98% to the limited
partner,  the Partnership and (ii) 1% to each general  partner,  the Partnership
and Courtyard II Associates Management Corporation.


NOTE 2.          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The  consolidated  financial  statements  of  Associates  present the  financial
position,  results of  operations  and cash flows of  Associates as if it were a
separate   subsidiary  of  the  Partnership  for  all  periods  presented.   The
Partnership's  historical  basis in the assets and  liabilities  contributed  to
Associates  have been  carried  over.  Intercompany  transactions  and  balances
between  Associates  and its  subsidiaries  have  been  eliminated.  Changes  in
Investment in and Net Advances to Associates for all periods  presented prior to
January 24, 1996, represent the net income of Associates net of cash transferred
to the  Partnership.  There  were no terms of  settlement  or  interest  charges
associated with the Investment in and Net Advances to Associates balance.


                                                            33

<PAGE>


An analysis of the activity in Investment in and Net Advances to Associates  for
the two years  ended  December  31,  1995 and the  period  from  January 1, 1996
through January 24, 1996, is as follows (in millions):

  Balance, December 31, 1994....................................$ 67
     Cash transfers to (from) Associates, net.................. (28)
     Net income................................................  19

  Balance, December 31, 1995....................................   58
     Cash transfers to Associates, net.........................   16
     Amount reclassified as Partners' Capital..................  (74)
                                                                -----

  Balance, January 24, 1996.....................................$  --

The average balance for Investment in and Net Advances to Associates for each of
the years 1994 and 1995 was $76  million  and $62.5  million,  respectively.  On
January 24, 1996, the Partnership contributed substantially all of its assets to
Associates for a 1% general partner interest and a 98% limited partner interest.
Courtyard II  Associates  Management  Corporation  owns the remaining 1% general
partner interest.

On January 24, 1996,  Associates  consummated  the offering of  $410,200,000  of
multi-class mortgage  pass-through  certificates (the  "Certificates"),  the net
proceeds of which were used to repay certain  obligations of the  Partnership as
discussed in Note 6. The accompanying  consolidated financial statements present
the  pushed-down  effects of the debt which was repaid with the  proceeds of the
offering as discussed in Note 6.

A concurrent  offering of  $127,400,000  of senior notes (the "Senior Notes") by
the  Partnership  was also  completed on January 24, 1996.  The Senior Notes are
secured by a first priority pledge of the Partnership's 99% partnership interest
in  Associates  and the  Partnership's  100%  equity  interest in  Courtyard  II
Associates Management Corporation. As a result, the Partnership owns directly or
indirectly  100% of  Associates.  The  Senior  Notes  are not  reflected  in the
accompanying  consolidated financial statements of Associates because Associates
does not guarantee  the Senior Notes nor do the assets of Associates  secure the
Senior Notes.  Payments on the Senior Notes are made from  distributions  of the
excess cash of Associates to the Partnership;  such distributions are restricted
only upon a monetary  event of default  under the Mortgage  Loan,  as defined in
Note  6.  The   Partnership  has  no  other  source  of  cash  flow  other  than
distributions from Associates.

Basis of Accounting

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


                                                            34

<PAGE>


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.

Working Capital and Supplies

Pursuant to the terms of Associates  management  agreement  discussed in Note 8,
Associates is required to provide the Manager with working  capital and supplies
to meet the operating needs of the Hotels. The Manager converts cash advanced by
Associates into other forms of working capital consisting primarily of operating
cash,  inventories,  and trade receivables and payables which are maintained and
controlled by the Manager. Upon the termination of the management agreement, the
Manager is required to convert working capital and supplies into cash and return
it to Associates. As a result of these conditions,  the individual components of
working capital and supplies  controlled by the Manager are not reflected in the
accompanying consolidated balance sheet.

Revenues and Expenses

Revenues  represent  house  profit  from  Associates'  Hotels  since  Associates
delegated substantially all of the operating decisions related to the generation
of house  profit of the  Hotels to the  Manager.  House  profit  reflects  hotel
operating  results  which flow to Associates  as property  owner and  represents
hotel  sales  less  property-level  expenses,   excluding  depreciation,   base,
Courtyard and  incentive  management  fees,  real and personal  property  taxes,
ground rent and equipment  rent,  insurance  and certain other costs,  which are
disclosed separately in the consolidated statement of operations.

Property and Equipment

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

                           Buildings and improvements          40 years
                           Leasehold improvements              40 years
                           Furniture and equipment           4-10 years

Certain property and equipment was pledged to secure the mortgage debt described
in Note 6.

Associates  assesses  impairment of its real estate  properties based on whether
estimated  undiscounted  future cash flows from such properties on an individual
hotel basis will be less than their net book value.  If a property is  impaired,
its basis is adjusted to fair market value.


                                                            35

<PAGE>




Deferred Financing Costs

Prior to 1996,  deferred financing costs consist of costs incurred in connection
with obtaining  Mortgage Debt A and B, as defined in Note 6. Financing costs are
amortized  using the  straight-line  method,  which  approximates  the effective
interest rate method,  over the remaining life of the respective  mortgage debt.
At December 31, 1996 accumulated  amortization related to Mortgage Debt A and B,
as defined in Note 6, was  $2,904,000.  At December 31, 1996,  costs  related to
Mortgage Debt A and B were fully amortized. On January 24, 1996, the Partnership
contributed  substantially all of its assets to Associates  including $2,630,000
the  Partnership  had  paid in 1995  in  financing  costs  related  to the  debt
refinancing  discussed in Note 6. During 1996,  Associates  paid  $10,627,000 in
financing costs. At December 31, 1996,  accumulated  amortization related to the
Certificates, as defined in Note 6, was $1,023,000.

Cash and Cash Equivalents

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

Ground Rent

The land leases  with MII or  affiliates  of MII (see Note 7) include  scheduled
increases in minimum rents per property.  These scheduled rent increases,  which
are included in minimum lease payments,  are being recognized by Associates on a
straight-line  basis  over the lease  terms  which  approximate  80  years.  The
adjustment  included in ground rent  expense and Due to Marriott  International,
Inc. and affiliates to reflect minimum lease payments on a  straight-line  basis
for 1996, 1995 and 1994 totalled $119,000 per year.

Income Taxes

Provision for Federal taxes has not been made in the  accompanying  consolidated
financial  statements  since  Associates does not pay income taxes,  but rather,
allocates its profits and losses to the individual partners.

Interest Rate Swap Agreements

Associates  was a party to two  interest  rate swap  agreements  (prior to their
expiration in 1994) to reduce  Associates'  exposure to floating interest rates.
Associates  accounted for the swap arrangements as a hedge of obligations to pay
floating rates of interest and accordingly, recorded interest expense based upon
its  payment  obligations  at fixed  interest  rates.  Interest  expense  on the
consolidated  statement of  operations  reflects  the "pushed  down" effect of a
proportionate amount of total swap interest.

New Statement of Financial Accounting Standards

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


                                                            36

<PAGE>





NOTE 3.       REVENUES

Revenues for Associates  consist of Hotel operating  results for the three years
ended December 31 (in thousands):
<TABLE>

                                                                                1996             1995              1994

                                                                            ------------     -------------    ---------
<CAPTION>

<S>                                                                         <C>              <C>              <C>
HOTEL SALES
  Rooms.....................................................................$    235,861     $     218,955    $     204,203
  Food and beverage.........................................................      18,227            17,628           18,483
  Other.....................................................................       9,619             9,242            9,396
                                                                            ------------     -------------    -------------
    ........................................................................     263,707           245,825          232,082
                                                                            ------------     --------------   -------------
HOTEL EXPENSES
  Departmental Direct Costs
    Rooms...................................................................      50,653            48,091           45,088
    Food and beverage.......................................................      16,073            15,006           15,162
  Other hotel operating expenses............................................      63,799            60,991           59,440
                                                                            ------------     -------------    -------------
    ........................................................................     130,525           124,088          119,690
                                                                            ------------     -------------    -------------

REVENUES....................................................................$    133,182     $     121,737    $     112,392
                                                                            ============     =============    =============

</TABLE>

NOTE 4.       PROPERTY AND EQUIPMENT

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

                                                                                                 1996              1995
                                                                                             -------------    ---------
<S>                                                                                          <C>              <C>                 
Land.........................................................................................$      25,392    $      25,392
Leasehold improvements.......................................................................      438,921          435,913
Building and improvements....................................................................       78,559           77,053
Furniture and equipment......................................................................      142,663          135,908
                                                                                             -------------    -------------
                                                                                                   685,535          674,266

Less accumulated depreciation................................................................     (226,848)        (199,786)
                                                                                             -------------    -------------
                                                                                             $     458,687    $     474,480
                                                                                             =============    =============       
</TABLE>

                                                            37

<PAGE>


NOTE 5.       ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

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

                                                                As of December 31, 1996          As of December 31, 1995
                                                            ------------------------------    --------------------------
                                                                               Estimated                        Estimated
                                                               Carrying          Fair            Carrying         Fair
                                                                Amount           Value            Amount          Value
<S>                                                         <C>             <C>               <C>            <C>            
Financial liabilities
Mortgage debt...............................................$      398,853  $      405,695    $      410,200 $      410,200
Management fees due to Courtyard
  Management Corporation....................................$       36,442  $       16,681    $       35,809 $        9,995
Due to Host Marriott Corporation............................$           --  $           --    $          747 $          747
</TABLE>

The 1996  estimated  fair value of mortgage  debt  obligations  was based on the
quoted market prices at December 31, 1996.

The 1995 estimated fair values of mortgage debt  obligations  and amounts due to
Host Marriott  Corporation  are based on their  carrying  amounts as these items
were  repaid on January  24,  1996.  Consistent  with the prior  year,  the 1996
management fees due to the Courtyard Management  Corporation are valued based on
the  expected  future  payments  from  operating  cash flow  discounted  at risk
adjusted rates.


NOTE 6.       MORTGAGE DEBT

Overview

For  1995,  the  accompanying  consolidated  financial  statements  reflect  the
pushed-down effects of an equivalent  principal amount of the Partnership's debt
which  was  repaid  with  the  proceeds  of the  offering  as  discussed  below.
Therefore, debt consisted of the following at December 31, 1995 (in thousands):

                                            Partnership     Associates

  Mortgage Debt A.......................$     275,000     $     209,612
  Mortgage Debt B.......................      230,500           175,976
  IRB Debt..............................       25,600            19,690
  Host Marriott IRB Liability loans.....        6,489             4,922
                                         -------------     -------------

                                        $     537,589     $     410,200
                                         =============     =============

The following  discussion of bank mortgage debt, swaps, debt service guarantees,
foreclosure guarantees,  Host Marriott IRB Liability advances and repayments and
the ground rent facility  reflect actual amounts in relation to the Partnership.
Therefore, amounts discussed herein are not reflective of "push down" amounts to
Associates.


                                                            38

<PAGE>





On January 24, 1996, the Partnership and Associates  completed two  refinancings
of the existing debt through the private  placements of $127.4 million of Senior
Notes  and  $410.2  million  of  multiclass   commercial  mortgage  pass-through
certificates, respectively.

The net proceeds from the placement of the Senior Notes and the Certificates and
existing  Partnership cash were used as follows:  (i) to repay the Partnership's
existing  Mortgage Debt A of $275 million and Mortgage Debt B of $230.5 million,
(ii) to repay the IRB Debt of $25.6  million,  (iii) to repay  advances from the
Host  Marriott  related to certain IRB Hotels  loans of $6.5 million and (iv) to
pay  certain  costs  of  structuring  and  issuing  the  Senior  Notes  and  the
Certificates.

Upon  repayment  of  Mortgage  Debt A and  Mortgage  Debt B, Host  Marriott  was
released from its obligations  under (i) the Mortgage Debt A and Mortgage Debt B
debt service  guarantees,  (ii) the  foreclosure  guarantee and (iii) the Ground
Rent Facility as defined.

Bank Mortgage Debt

Mortgage  Debt A and B were  non-recourse  and bore  interest at a floating rate
equal to (i) the adjusted CD Rate or LIBOR, as defined, plus (ii) .75 percentage
points.  Mortgage  Debt A and B  required  no  principal  amortization  prior to
maturity on December 15, 1995 and September 5, 1996, respectively.

During the period from 1989 through 1994, to reduce the  Partnership's  exposure
to floating  interest rates,  the  Partnership  entered into two swap agreements
effectively  fixing the interest rates on Mortgage Note A and a large portion of
Mortgage Note B.

The combined  effective  interest  rate for Mortgage Debt A and B was 6.67% from
January 1, 1996 through  January 23, 1996, 7% for 1995,  and 8.08% for 1994. The
combined average interest rate at January 23, 1996 for Mortgage Debt A and B was
6.58%.

As security for the Mortgage  Debt A (36 Hotels) and Mortgage Debt B (29 Hotels)
the banks held mortgages on the Partnership's  fee or leasehold  interest on the
respective  Hotels. The banks also had security interests under their respective
mortgages in the personal property  associated with those Hotels and obtained an
assignment of the  Partnership's  rights under the management  agreement and the
Purchase Agreement.

On December 15, 1995, the  Partnership  and the Mortgage Debt A lenders  amended
the loan  agreement to extend the maturity date of Mortgage Debt A from December
15, 1995 to February 15, 1996 (the "Extension Period").  This amendment provided
for interest during the Extension Period equal to the following:

December 16, 1995 through January 15, 1996.....Adjusted CD Rate or LIBOR plus 1 
                                                 percentage point

January 16, 1996 through February 15, 1996.....Adjusted CD Rate or LIBOR plus 
                                                 1.25 percentage points
 
In  connection  with the Mortgage  Debt A  extension,  the  Partnership  paid an
extension fee to the Banks of $1,085,000 which was amortized as interest expense
during the Extension Period.



                                                            39

<PAGE>





Bank Mortgage Debt Guarantees

Prior to the initial  refinancing,  in 1987 Host Marriott had guaranteed payment
of up to $60  million  of debt  service  on the  $500  million  of  non-recourse
mortgage debt (the "MFS Mortgage Debt") from Marriott Financial  Services,  Inc.
("MFS"), a wholly-owned  subsidiary of Host Marriott. As a result of the initial
refinancing,  this guarantee was allocated  $32.6 million to Mortgage Debt A and
$27.4  million to  Mortgage  Debt B. Any  payments  by Host  Marriott  under the
Mortgage  Debt  guarantees  were  treated as loans to the  Partnership  and bore
interest  at one  percentage  point in  excess  of the  prime  rate of  interest
announced by Bankers Trust Company of New York (the "Prime Rate").

During 1995,  Host Marriott was released from its  remaining  original  Mortgage
Debt A guarantee  obligation of $32.6  million as certain debt service  coverage
requirements  were met. Host  Marriott was released from the remaining  original
guarantees on January 24, 1996,  the date when Mortgage Debt A and Mortgage Debt
B were repaid in full.

During 1994, the  Partnership,  Manager and Mortgage Debt A and B lenders agreed
that the Partnership  would establish reserve accounts for Mortgage Debt A and B
and  contribute  1% of  Hotel  sales  on the  respective  Mortgage  Debt A and B
properties to these  reserves for 1993 through the respective  loan  maturities.
The initial  contribution,  made in 1994, included the required contribution for
1993. On January 24, 1996, these reserves were used to pay costs associated with
the  refinancing  of these  loans and to repay a  portion  of these  loans  upon
maturity.

In addition,  the General  Partner had provided a guarantee to MFS that,  in the
event of a  foreclosure,  proceeds under the MFS Mortgage Debt would be at least
$75 million.  This foreclosure guarantee was allocated $40.8 million to Mortgage
Debt A and  $34.2  million  to  Mortgage  Debt B.  Upon  completion  of the debt
refinancing on January 24, 1996, Host Marriott was released from its obligations
pursuant to the foreclosure guarantee.

IRB Debt

The IRB Debt was  refinanced  on January 24, 1996 and the IRB Debt was repaid in
full. The $25.6 million of IRB Debt  outstanding at December 31, 1995 was backed
by direct-pay letters of credit from commercial banks that would have expired in
February,  November  and December  1996.  These issues were subject to mandatory
prepayment upon expiration of the letters of credit unless  replacement  letters
of credit were  secured.  The IRB Debt bore  interest at daily,  weekly or fixed
rates at the option of the  Partnership,  and was limited to a maximum  interest
rate of 15%.  During the period from January 1, 1996  through  January 23, 1996,
the interest  rates on the IRB Debt ranged from 2.65% to 6.1%. In 1995 and 1994,
the interest  rates on the IRB Debt ranged from 1.9% to 6.1% and 1.15% to 6.05%,
respectively. The interest rate on the IRB Debt was 3.2% at January 23, 1996.

The  bondholders  had the  right to demand  purchase  of any of the bonds at the
expiration of specified  interest rate periods.  Had the  Partnership  failed to
make the  required  payments of  principal  and  interest on the IRB Debt,  Host
Marriott  would have been required to make such payments  ("Host  Marriott's IRB
Liability").  Through  January 24, 1996,  the  Partnership  purchased a total of
$15.4  million of bonds/IRB  Debt with  proceeds  advanced by Host Marriott (see
below) when presented by certain  bondholders.  These loans bore interest at one
percentage  point in excess of the Prime Rate (8.5% at January  23,  1996).  The
weighted  average  interest  rate was 9.5% for the period  from  January 1, 1996
through January 23, 1996,  9.83% for 1995 and 8.14% for 1994. As of December 31,
1995,  $6.5 million of Host Marriott IRB Liability  loans were  outstanding.  As
discussed  above,  the $6.5 million of Host  Marriott IRB  Liability  loans were
repaid on January 24, 1996, from proceeds of the debt refinancing.


                                                            40

<PAGE>




Ground Rent Facility

Fifty-three  of the Hotels are situated on land leased from MII or affiliates of
MII, eight of the Hotels are situated on land leased from third parties. MFS had
agreed to lend the Partnership up to $25 million (the "Ground Rent Facility") to
the extent that the Partnership has insufficient  funds to pay ground rent under
any ground lease under  certain  circumstances.  No amounts  were ever  advanced
under the Ground Rent  Facility.  Upon  refinancing of the  Partnership  Debt on
January 24, 1996, MFS was released from the Ground Rent Facility.

Debt Refinancing - Certificates

The Certificates in an initial principal amount of $410.2 million were issued by
CBM Funding.  Proceeds  from the sale of the  Certificates  were utilized by CBM
Funding to provide a mortgage  loan (the  "Mortgage  Loan") to  Associates.  The
Certificates/Mortgage  Loan require  monthly  payments of principal and interest
based on a 17-year amortization  schedule.  The Mortgage Loan matures on January
28, 2008. However,  the maturity date of the  Certificates/Mortgage  Loan may be
extended until January 28, 2013 with the consent of 662/3% of the holders of the
outstanding  Certificates  affected thereby. The Certificates were issued in the
following classes and pass-through rates of interest.

                          Initial Certificate    Pass-Through
         Class                 Balance             Rate
 -------------------     -------------------    ------------
       Class A-1         $        45,500,000           7.550%
       Class A-2         $        50,000,000           6.880%
    Class A-3P & I       $       129,500,000           7.080%
      Class A-3IO             Not Applicable           0.933%
        Class B          $        75,000,000           7.480%
        Class C          $       100,000,000           7.860%
        Class D          $        10,200,000           8.645%

The Class  A-3IO  Certificates  receive  payments  of  interest  only based on a
notional balance equal to the Class A-3P & I Certificate Balance.

The  balance of the  Certificates  was  $398.9  million at  December  31,  1996.
Principal  amortization of $11.3 million of the Class A-1  Certificates was made
during 1996. The weighted  average  interest rate for January 24, 1996,  through
December 31, 1996, was 7.7%. The average  interest rate at December 31, 1996 was
7.6%.

The Certificates maturities are as follows (in thousands):

                      1997            $            13,298
                      1998                         14,331
                      1999                         15,443
                      2000                         16,642
                      2001                         17,934
                   Thereafter                     321,205
                                      -------------------   
                                      $           398,853
                                      ===================


                                                            41

<PAGE>





The   Mortgage   Loan  is   secured   primarily   by  69   cross-defaulted   and
cross-collateralized mortgages representing first priority mortgage liens on (i)
the fee or leasehold interest in the 69 Hotels, related furniture,  fixtures and
equipment and the property  improvement  fund, (ii) the fee interest in the land
leased  from MII or their  affiliates  on which 53 Hotels are  located,  (iii) a
pledge of  Associates  membership  interest in and the related  right to receive
distributions  from  Associates  II which owns the  Deerfield  Hotel and (iv) an
assignment of the Management  Agreement,  as defined below. The Mortgage Loan is
non-recourse to Associates, the Partnership and its partners.

Operating  profit from the Hotels in excess of debt service on the Mortgage Loan
is available to be  distributed to the  Partnership  and Courtyard II Associates
Management Corporation.

Prepayments  of the Mortgage  Loan are  permitted  with the payment of a premium
(the "Prepayment  Premium").  The Prepayment  Premium is equal to the greater of
(i) one percent of the Mortgage Loan being  prepaid or (ii) a yield  maintenance
amount  based  on a spread  of .25% or .55%  over the  U.S.  treasury  rate,  as
defined.

On June 30,  1996,  CBM Funding  completed an exchange  offer of its  Multiclass
Mortgage Pass-Through  Certificates,  Series 1006-1A with a principal balance of
$406.2  million  at that  time  ("Old  Certificates"),  for an equal  amount  of
Multiclass   Mortgage   Pass-Through   Certificates,    Series   1996-1B   ("New
Certificates").  The form and terms of the New  Certificates  are  substantially
identical  to the form and terms of the Old  Certificates,  except  that the New
Certificates  are  registered  under the  Securities Act of 1933, as amended and
their transfers are not restricted.


NOTE 7.       LEASES

The land on which 53 of the Hotels are located is leased from MII or  affiliates
of MII. In  addition,  eight of the Hotels are located on land leased from third
parties.  The land leases have remaining terms  (including all renewal  options)
expiring  between  the years  2024 and 2068.  The MII land  leases and the third
party land leases  provide for rent based on  specific  percentages  (from 2% to
15%) of certain sales categories subject to minimum amounts. The minimum rentals
are adjusted at various anniversary dates throughout the lease terms, as defined
in the agreements.  The Partnership also rents certain  equipment for use in the
Hotels.

In connection with the refinancing,  the Partnership, as lessee, transferred its
rights and obligations  pursuant to the 53 ground leases with MII and affiliates
to Associates. Additionally, MII and affiliates agreed to defer receipt of their
ground  lease  payments to the extent that the  Partnership  or  Associates  has
insufficient  funds  for debt  service  payments  on the  Senior  Notes  and the
Mortgage Loan.


                                                            42

<PAGE>



Minimum future rental payments during the term of these operating  leases are as
follows (in thousands):

                                       Telephone
       Lease             Land          Equipment          Other
       Year             Leases          Leases           Leases
  --------------      ----------    --------------    ---------
       1997           $    9,230    $        1,125    $       966
       1998                9,230             1,106            561
       1999                9,230               787            101
       2000                9,230               589             --
       2001                9,230                --             --
    Thereafter           542,213                --             --
                      ----------    --------------    -----------
                      $  588,363    $        3,607    $     1,628
                      ==========    ==============    ===========

Total rent expense on land leases was $11,899,000 for 1996, $11,550,000 for 1995
and $10,787,000 for 1994.


NOTE 8.       MANAGEMENT AGREEMENT

To  facilitate  the  refinancing,  effective  December  30,  1995,  the original
management  agreement  was  restated  into two separate  management  agreements.
Associates  entered  into a  management  agreement  with the  Manager for the 69
Hotels  which  Associates  directly  owns  and  Associates  II  entered  into  a
management   agreement  for  the  Deerfield  Hotel  which  Associates  II  owns,
collectively, (the "Management Agreement").

Term

The  Management  Agreement has an initial term expiring in 2013. The Manager may
renew the term, as to one or more of the Hotels, at its option,  for up to three
successive  terms  of  10-years  each  and one  final  term of five  years.  The
Partnership  may  terminate  the  Management  Agreement  if,  during  any  three
consecutive  years  after  1992,  specified  minimum  operating  results are not
achieved.  However,  the  Manager  may  prevent  termination  by  paying  to the
Partnership the amount by which the minimum operating results were not achieved.

Management Fees

The Management Agreement provides for annual payments of (i) the base management
fee  equal  to 3 1/2% of  gross  sales  from  the  Hotels,  (ii)  the  Courtyard
management  fee equal to 2 1/2% of gross  sales from the  Hotels,  and (iii) the
incentive  management fee equal to 15% of operating  profit,  as defined (20% of
operating profit after the partners have received  refinancing proceeds equal to
50% of the  excess of (a)  $154,736,842  over (b)  cumulative  distributions  of
adjusted sale proceeds (the "First Equity Refinancing").

Deferral Provisions

Due  to the  refinancing,  beginning  in  1996,  one  percent  of the  Courtyard
management fee is deferred through maturity of the Senior Notes and the Mortgage
Loan to the extent that the Partnership or Associates has insufficient funds for
debt service  payments on the Senior Notes and the  Mortgage  Loan.  This change
eliminated the previous  deferral of the total Courtyard  management fee to debt
service through December 31, 1997.

                                                            43

<PAGE>




To the extent any Courtyard  management  fee, base  management  fee or incentive
management  fee is  deferred,  it will be added  to  deferred  management  fees.
Deferred management fees accrue without interest, and will be payable out of 50%
of available cash flow after payment of certain priorities as discussed below.

The  priority  return to the  Partnership,  as defined,  was reduced from 10% of
invested capital to 7% in 1996, 8% in 1997, 9% in 1998 and then returning to 10%
for 1999 and  thereafter.  Operating  profit from the Hotels (which reflects the
deduction of the base and Courtyard management fees and MII ground rent) will be
used to pay the following,  in order of priority: (i) debt service on the Senior
Notes and Mortgage  Loan,  (ii) to repay  working  capital loans to the Manager,
(iii) to repay deferred ground rent to MII and their  affiliates,  (iv) to repay
ground lease advances to MII and their  affiliates,  (v) the priority  return to
the Partnership which is 7% of invested capital for 1996, (vi) eighty percent of
the remaining  operating  profit is applied to the payment of current  incentive
management  fees,  (vii) to repay advances to the  Partnership,  (viii) to repay
foreclosure  avoidance  advances to the  Manager  and (ix) fifty  percent of the
remaining  operating profit to repay deferred management fees to the Manager and
fifty percent of remaining operating profit is paid to the Partnership. In 1996,
the Partnership had $2.5 million of remaining operating profit after the payment
of i) through viii) above. Fifty percent of this remaining  operating profit was
used to  repay a  portion  of 1996  deferred  incentive  management  fees to the
Manager and the remainder was paid to the Partnership.

During 1996,  $633,000 of incentive  management  fees were deferred while during
1995, $162,000 were repaid.  Deferred incentive  management fees were $6,197,000
and  $5,564,000  as of  December  31,  1996  and  1995,  respectively.  Deferred
Courtyard management fees totalled $22,341,000 as of December 31, 1996 and 1995.
Deferred base management fees as of December 31, 1996 and 1995 were $7,904,000.

Chain Services

The Manager is required to furnish certain services ("Chain Services") which are
furnished generally on a central or regional basis to all hotels managed,  owned
or leased in the Courtyard by Marriott  hotel system.  The total amount of Chain
Services allocated to the Partnership was $9,474,000 in 1996, $9,224,000 in 1995
and $8,981,000 in 1994.

Working Capital

Associates  is required to provide the Manager  with  working  capital and fixed
asset  supplies  to meet the  operating  needs of the  Hotels.  The  refinancing
required certain  enhancements to the cash management system of the Manager such
that additional working capital may be required for the operation of the Hotels.
Therefore,  on January 24, 1996,  the  Partnership,  Associates  and the Manager
entered into a working  capital  maintenance  agreement  (the  "Working  Capital
Agreement")  and deposited  $2.5 million as additional  working  capital for the
operation of the Hotels.  Upon  termination  of the  Management  Agreement,  the
working capital and supplies will be returned to Associates.  As of December 31,
1996, the working capital  balance was $8,761,000.  This includes the $8,846,000
originally  advanced less the $2,585,000 of excess working  capital  returned to
the Partnership in 1991 and the $2,500,000 advanced during 1996. At December 31,
1996  and  1995,  accumulated  depreciation  related  to the  supplies  totalled
$2,060,000.



                                                            44

<PAGE>




In addition,  the Working  Capital  Agreement  provides that the Partnership and
Associates, collectively, reserve $2 million by February 1, 1997, and additional
amounts  such that the total  balance  is $5 million  by  February  1, 1998 (the
"Working Capital Reserve"). The $2 million was reserved by Associates on January
31, 1997.  The Working  Capital  Reserve will be available  for payment of hotel
operating  expenses  in the event that  there is a  downgrade  in the  long-term
senior  unsecured  debt of MII to below a certain  level,  as  described  in the
Mortgage Loan.

The obligation to fund the amounts required by the Working Capital  Agreement is
subordinate to debt service on the Senior Notes and the Mortgage Loan.

Property Improvement Fund

The  Management  Agreement  provides  for the  establishment  of a  repairs  and
equipment  reserve (property  improvement  fund) for the Hotels.  The funding of
this reserve is based on a percentage  of gross Hotel  sales.  During 1994,  the
Partnership,  Manager  and the  Mortgage  Debt A and B lenders  agreed  that the
Partnership  would establish  refinancing  reserve accounts and contribute 1% of
Hotel  sales  on the  respective  Mortgage  Debt  A and B  properties  to  these
reserves.  Correspondingly,  the  Management  Agreement  was amended in order to
reduce the contribution to the property  improvement fund from 6% to 5% of gross
Hotel  sales for the  Mortgage  Debt A and B  properties  for 1993  through  the
respective loan maturities. The contribution for the five IRB Hotels remained at
6%. Upon completion of the refinancing on January 24, 1996, the  contribution to
the property improvement fund was established initially at 5% for all Hotels and
may be  increased,  at the option of the Manager,  to 6% of gross Hotel sales in
2001.


NOTE 9.       ENVIRONMENTAL CONTINGENCY

Based upon a study  completed in December  1995,  Associates has become aware of
environmental  contamination  at  one  of  the  fee-owned  properties  owned  by
Associates II, the Deerfield Hotel,  caused by the previous use of the site as a
landfill and not caused by Associates.  The property  represents less than 5% of
Associates'  total  assets and revenues as of December 31, 1996 and for the year
ended, respectively. Associates is unable to determine the need for remediation,
its  potential  responsibility,  if  any,  for  remediation  and the  extent  of
Associates'  possible  liability  for any  remediation  costs.  There  can be no
assurance that Associates will not have liability with respect to remediation of
contamination  at  that  site.  Associates  does  not  believe  that  any of the
environmental  matters  are  likely  to have a  material  adverse  effect on its
business and operations.


                                                            45

<PAGE>



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

None.

                                                         PART III

ITEM 10.         DIRECTORS AND EXECUTIVE OFFICERS

Associates  has no  directors  or  officers.  The  business  and  policy  making
functions of  Associates  are carried out through the  directors  and  executive
officers of Courtyard II Associates Management Corporation, the managing general
partner who are listed below:
                                                              Age at
Name                         Current Position             December 31, 1996

Bruce F. Stemerman           President and Director          41
Earla L. Stowe               Vice President and              35
                              Chief Accounting Officer   
Anna Mary Coburn             Secretary                       41
Bruce Wardinski              Treasurer                       36
Mark A. Ferrucci             Director                        43

Business Experience

Bruce F.  Stemerman  was  elected  President  and  Director  in  1995.  Mr.
Stemerman  joined Host Marriott  Corporation  in 1989 as Director -- Partnership
Services.  He became Vice  President - Lodging  Partnerships  in 1994 and became
Senior Vice President--Asset  Management in 1996. Prior to joining Host Marriott
Corporation, Mr. Stemerman spent ten years with Price Waterhouse. He also serves
as a director and an officer of numerous Host Marriott subsidiaries.

Earla L. Stowe was appointed to Vice President and Chief  Accounting  Officer of
CBM Two Corporation in October, 1996. Ms. Stowe joined Host Marriott Corporation
in 1982 and held various  positions in the tax department until 1988. She joined
the  Partnership  Services  department  as an accountant in 1988 and in 1989 she
became  an  Assistant   Manager--Partnership   Services.  She  was  promoted  to
Manager--Partnership Services in 1991 and to Director--Asset Management in 1996.

Anna Mary Coburn  joined Host Marriott as Attorney in 1988,  was made  Assistant
General Counsel in 1993 and elected  Corporate  Secretary and Associate  General
Counsel in 1997. Prior to joining Host Marriott, she was an attorney for the law
firm of Rosenthal and a law clerk for the United States Court of Appeals for the
Fourth Circuit.

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



                                                            46

<PAGE>



Mark  A.  Ferrucci   joined  CT  Corporation   System  in  1977  as  an  Account
Representative.  In 1990,  he became an Assistant  Secretary  of CT  Corporation
System and in 1992 he became Assistant Vice President.


ITEM 11.         MANAGEMENT REMUNERATION AND TRANSACTIONS

As noted in Item 10 above,  Associates  has no directors or officers nor does it
have any  employees.  Under the  Partnership  Agreement,  however,  the Managing
General  Partner has the exclusive  right to conduct the business and affairs of
Associates  subject only to the management  agreements  described in Items 1 and
13. The Managing  General  Partner is required to devote to Associates such time
as may be necessary for the proper  performance of its duties,  but the officers
and directors of the Managing  General  Partner are not required to devote their
full time to the  performance  of such  duties.  No officer or  director  of the
Managing  General Partner devotes a significant  percentage of time to Associate
matters.  To the  extent  that any  officer  or  director  does  devote  time to
Associates,  the Managing General Partner is entitled to  reimbursement  for the
cost of providing such services.  For the fiscal years ending December 31, 1996,
1995 and 1994,  Associates  reimbursed  the  General  Partner  in the  amount of
$108,000,  $233,000 and  $167,000,  respectively,  for the cost of providing all
administrative and other services as Managing General Partners.  For information
regarding all payments made by Associates to Host Marriott and subsidiaries, see
Item 13 "Certain Relationships and Related Transactions."


ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                 AND MANAGEMENT

As of December 31, 1996,  99% of Associates is owned by Courtyard by Marriott II
Limited  Partnership  and 1% is  owned by  Courtyard  II  Associates  Management
Corporation.


ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Management Agreement

To  facilitate  the  refinancing,  effective  December  30,  1995,  the original
management  agreement  was  restated  into two separate  management  agreements.
Associates  entered  into a  management  agreement  with the  Manager for the 69
Hotels  which  Associates  directly  owns  and  Associates  II  entered  into  a
management   agreement  for  the  Deerfield  Hotel  which  Associates  II  owns,
collectively, (the "Management Agreement").

Term

The  Management  Agreement has an initial term expiring in 2013. The Manager may
renew the term, as to one or more of the Hotels, at its option,  for up to three
successive  terms of 10-years each and one final term of five years.  Associates
may terminate the Management  Agreement if, during any three  consecutive  years
after 1992,  specified minimum operating results are not achieved.  However, the
Manager may prevent termination by paying to the Partnership the amount by which
the minimum operating results were not achieved.


                                                            47

<PAGE>



Management Fees

The Management Agreement provides for annual payments of (i) the base management
fee  equal  to 3 1/2% of  gross  sales  from  the  Hotels,  (ii)  the  Courtyard
management  fee equal to 2 1/2% of gross  sales from the  Hotels,  and (iii) the
incentive  management fee equal to 15% of operating  profit,  as defined (20% of
operating profit after the Partners have received  refinancing proceeds equal to
50% of the  excess of (a)  $154,736,842  over (b)  cumulative  distributions  of
adjusted sale proceeds (the "First Equity Refinancing").

Deferral Provisions

Until  1998,  the  Courtyard  management  fee will be deferred to the extent the
Partnership does not have sufficient funds for debt service.  Prior to 1994, the
incentive  management fee earned and paid was limited to a maximum of 55% of the
remainder of (i) available cash flow, as defined, less (ii) the priority return.
Thereafter,  payment of any earned incentive management fee is limited to 80% of
the amount by which available cash flow exceeds the priority return.

Beginning  in 1996,  one  percent of the  Courtyard  management  fee is deferred
through  maturity of the Senior Notes and the  Mortgage  Loan to the extent that
the Partnership or Associates has  insufficient  funds for debt service payments
on the Senior Notes and the Mortgage Loan.

To the extent any Courtyard  management  fee, base  management  fee or incentive
management  fee is  deferred,  it will be added  to  deferred  management  fees.
Deferred management fees accrue without interest, and will be payable out of 50%
of available cash flow after payment of certain priorities as discussed below.

The  priority  return to the  Partnership,  as defined,  was reduced from 10% of
invested capital to 7% in 1996, 8% in 1997, 9% in 1998 and then returning to 10%
for 1999 and  thereafter.  Operating  profit from the Hotels (which reflects the
deduction of the base and Courtyard management fees and MII ground rent) will be
used to pay the following,  in order of priority: (i) debt service on the Senior
Notes and Mortgage  Loan,  (ii) to repay  working  capital loans to the Manager,
(iii) to repay deferred ground rent to MII and their  affiliates,  (iv) to repay
ground lease advances to MII and their  affiliates,  (v) the priority  return to
the Partnership which is 7% of invested capital for 1996, (vi) eighty percent of
the remaining  operating  profit is applied to the payment of current  incentive
management  fees,  (vii) to repay advances to the  Partnership,  (viii) to repay
foreclosure  avoidance  advances to the  Manager  and (ix) fifty  percent of the
remaining operating profit after payment of (i) through (viii) to repay deferred
management  fees to the  Manager  and the  other  fifty  percent  is paid to the
Partnership.  In 1996, the Partnership  had $2.5 million of remaining  operating
profit  after the  payment  of i) through  viii)  above.  Fifty  percent of this
remaining  operating  profit  was  used to  repay  a  portion  of 1996  deferred
incentive  management  fees to the  Manager  and the  remainder  was paid to the
Partnership.

During 1996,  $633,000 of incentive  management  fees were deferred while during
1995, $162,000 were repaid.  Deferred incentive  management fees were $6,197,000
and  $5,564,000  as of  December  31,  1996  and  1995,  respectively.  Deferred
Courtyard management fees totalled $22,341,000 as of December 31, 1996 and 1995.
Deferred base management fees as of December 31, 1996 and 1995 were $7,904,000.


                                                            48

<PAGE>



Chain Services

The Manager is required to furnish certain services ("Chain Services") which are
furnished generally on a central or regional basis to all hotels managed,  owned
or leased in the Courtyard by Marriott  hotel system.  The cost of certain Chain
Services that were allocated to the  Partnership  prior to December 31, 1993 was
limited to 4% of gross Hotel sales. The total amount of Chain Services allocated
to the Partnership was $9,474,000 in 1996,  $9,224,000 in 1995 and $8,981,000 in
1994.

Working Capital

The  Partnership  is required to provide the Manager  with  working  capital and
fixed asset supplies to meet the operating needs of the Hotels.  The refinancing
required certain  enhancements to the cash management system of the Manager such
that additional working capital may be required for the operation of the Hotels.
Therefore,  on January 24, 1996,  the  Partnership,  Associates  and the Manager
entered into a working  capital  maintenance  agreement  (the  "Working  Capital
Agreement")  and deposited  $2.5 million as additional  working  capital for the
operation of the Hotels.  Upon  termination  of the  Management  Agreement,  the
working capital and supplies will be returned to the Partnership. As of December
31,  1996,  the  working  capital  balance was  $8,761,000.  This  includes  the
$8,846,000  originally  advanced less the $2,585,000 of excess  working  capital
returned to the Partnership in 1991 and the $2,500,000  advanced during 1996. At
December  31, 1996 and 1995,  accumulated  depreciation  related to the supplies
totalled $2,060,000.

In addition,  the Working  Capital  Agreement  provides that the Partnership and
Associates,  collectively, reserve $2 million by February 1, 1997 and additional
amounts  such that the total  balance  is $5 million  by  February  1, 1998 (the
"Working Capital Reserve"). The $2 million was reserved by Associates on January
31, 1997.  The Working  Capital  Reserve will be available  for payment of hotel
operating  expenses  in the event that  there is a  downgrade  in the  long-term
senior  unsecured  debt of MII to below a certain  level,  as  described  in the
Mortgage Loan.

The obligation to fund the amounts required by the Working Capital  Agreement is
subordinate to debt service on the Senior Notes and the Mortgage Loan.

Property Improvement Fund

The  Management  Agreement  provides  for the  establishment  of a  repairs  and
equipment  reserve (property  improvement  fund) for the Hotels.  The funding of
this reserve is based on a percentage  of gross Hotel  sales.  During 1994,  the
Partnership,  Manager  and the  Mortgage  Debt A and B lenders  agreed  that the
Partnership  would establish  refinancing  reserve accounts and contribute 1% of
Hotel  sales  on the  respective  Mortgage  Debt  A and B  properties  to  these
reserves.  Correspondingly,  the  Management  Agreement  was amended in order to
reduce the contribution to the property  improvement fund from 6% to 5% of gross
Hotel  sales for the  Mortgage  Debt A and B  properties  for 1993  through  the
respective loan maturities. The contribution for the five IRB Hotels remained at
6%. Upon completion of the refinancing on January 24, 1996, the  contribution to
the property improvement fund was established initially at 5% for all Hotels and
may be  increased,  at the option of the Manager,  to 6% of gross Hotel sales in
2001.  Additionally,  the  Partnership is no longer required to contribute 1% of
gross Hotel sales from the  Mortgage  Debt A and  Mortgage  Debt B Hotels to the
refinancing reserves.


                                                            49

<PAGE>



Payments to MII and Subsidiaries

The following table sets forth the amount paid to MII and affiliates  under both
the  Management  Agreement and the ground lease  agreements  for the years ended
December  31,  1996,  1995 and 1994 (in  thousands).  The table  also sets forth
accrued but unpaid base, Courtyard and incentive management fees:
<TABLE>


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

<CAPTION>
<S>                                                                           <C>             <C>              <C>          
Incentive management fee......................................................$     11,407    $      10,480    $      3,839
Ground rent...................................................................      10,172            9,856           9,284
Chain services allocation.....................................................       9,474            9,224           8,981
Base management fee...........................................................       9,230            8,604           8,123
Courtyard management fee......................................................       6,592            6,145           5,802
Deferred incentive management fees............................................          --              162              --
                                                                              ------------    -------------    ------------
  $...........................................................................$     46,875     $    44,471      $    36,029
                                                                              ============     ============     ===========

Accrued but unpaid fees:
Incentive management fee......................................................$        633    $          --    $      5,564
                                                                              ============    =============    ============

</TABLE>

IRB Advances and General Partner Loans

The IRB Debt was  refinanced  on January 24, 1996 and the IRB Debt was repaid in
full. The $25.6 million of IRB Debt  outstanding at December 31, 1995 was backed
by direct-pay  letters of credit from commercial banks that expired in February,
November and December  1996.  These issues were subject to mandatory  prepayment
upon  expiration of the letters of credit unless  replacement  letters of credit
were secured.  The IRB Debt bore interest at daily, weekly or fixed rates at the
option of the  Partnership,  and was limited to a maximum  interest rate of 15%.
During the period from  January 1, 1996 through  January 23, 1996,  the interest
rates on the IRB Debt ranged from 2.65% to 6.1%. In 1995 and 1994,  the interest
rates on the IRB Debt range from 1.9% to 6.1% and 1.15% to 6.05%,  respectively.
The interest rate on the IRB Debt was 3.2% at January 24, 1996.

The  bondholders  had the  right to demand  purchase  of any of the bonds at the
expiration of specified  interest rate periods.  Had the  Partnership  failed to
make the  required  payments of  principal  and  interest on the IRB Debt,  Host
Marriott  would have been required to make such payments  ("Host  Marriott's IRB
Liability").  Through  January 24, 1996,  the  Partnership  purchased a total of
$15.4  million of bonds/IRB  Debt with  proceeds  advanced by Host Marriott (see
below) when presented by certain  bondholders.  These loans bore interest at one
percentage  point in excess of the Prime Rate (8.5% at January  23,  1996).  The
weighted  average  interest  rate was 9.5% for the period from  January 1, 1996,
through  January 23,  1996,  9.83% for 1995 and 8.14% for 1994.  The two General
Partner  loans would have matured on the earlier of (i)  December  1997 and June
1998,  respectively,  or (ii) the date upon  which the  bonds  were  remarketed.
During 1993 and 1994,  the  Partnership  repaid $8.2 million in General  Partner
loans.  As of December 31, 1995,  $6.5  million of Host  Marriott IRB  Liability
loans were  outstanding.  As discussed  above, the $6.5 million of Host Marriott
IRB Liability  loans were repaid on January 24, 1996,  from proceeds of the debt
refinancing.



                                                            50

<PAGE>



Payments to Host Marriott and Subsidiaries

The  following  sets forth  amounts paid by  Associates to Host Marriott and its
subsidiaries  for  the  years  ended  December  31,  1996,  1995  and  1994  (in
thousands):
<TABLE>

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

<CAPTION>
<S>                                                                           <C>             <C>              <C>           
Principal and interest on General Partner loan................................$      5,669    $         340    $      3,175
Administrative expenses reimbursed............................................         108              233             167
                                                                              ------------    -------------    ------------
  $...........................................................................$      5,777      $    573         $    3,342
                                                                              ============    =============    ============
</TABLE>

Mortgage Debt Guarantees

Prior to the initial  refinancing,  in 1987 Host Marriott had guaranteed payment
of up to $60 million of debt  service on the MFS Mortgage  Debt.  As a result of
the initial refinancing,  this guarantee was allocated $32.6 million to Mortgage
Debt A and $27.4 million to Mortgage Debt B. Any payments by Host Marriott under
the Mortgage Debt  guarantees  were treated as loans to the Partnership and bore
interest  at one  percentage  point in  excess  of the  prime  rate of  interest
announced by Bankers Trust Company of New York (the "Prime Rate").

During  1995,  Host  Marriott was released  from its  original  Mortgage  Debt A
guarantee   obligation  of  $32.6  million  as  certain  debt  service  coverage
requirements  were met. As a result,  as of December 31, 1995,  $5.4 million and
$27.4  million,  respectively,  was  available  under  Mortgage  Debt  A  and  B
guarantees.  Host Marriott was released from the original  guarantees on January
24, 1996, the date when Mortgage Debt A and Mortgage Debt B were repaid in full.

During 1994, the  Partnership,  Manager and Mortgage Debt A and B lenders agreed
that the Partnership  would establish reserve accounts for Mortgage Debt A and B
and  contribute  1% of  Hotel  sales  on the  respective  Mortgage  Debt A and B
properties to these  reserves for 1993 through the respective  loan  maturities.
The initial  contribution,  made in 1994, included the required contribution for
1993. On January 24, 1996, these reserves were used to pay costs associated with
the  refinancing  of these  loans and to repay a  portion  of these  loans  upon
maturity.

In addition, the General Partner CBM TWO Corporation had provided a guarantee to
MFS that, in the event of a  foreclosure,  proceeds  under the MFS Mortgage Debt
would be at least $75 million.  This  foreclosure  guarantee was allocated $40.8
million to Mortgage Debt A and $34.2 million to Mortgage Debt B. Upon completion
of the debt refinancing on January 24, 1996, Host Marriott was released from the
Mortgage Debt A and Mortgage Debt B debt service guarantee  obligations and from
its obligations pursuant to the foreclosure guarantee.

                                                            51

<PAGE>



                                                          PART IV

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

(a)          List of Documents Filed as Part of This Report


             (1)   Financial Statements
                   All financial statements of the registrant as set forth under
                   Item 8 of this Report on Form 10-K.

             (2)   Financial Statement Schedules
                   The following financial  information is filed herewith on the
                   pages indicated.

                   Schedule III - Real Estate and Accumulated Depreciation

All other  schedules are omitted because they are not applicable or the required
information is included in the financial statements or notes thereto.
<TABLE>


             (3)   EXHIBITS
   Exhibit 
   Number                    Description                                                                         Page
----------------------------------------------------------------------------------------------------         ------------
<CAPTION>
     <S>    <C>                                                                                               <C>
     3.6    Agreement of Limited Partnership of Courtyard II Associates, L.P. ("Associates")                    N/A
            (Incorporated by reference herein to Exhibit 3.1 to Associates Form S-4
            filed with the Commission on March 14, 1996.)

     3.7    Certificate  of  Limited   Partnership  of  Associates
            (Incorporated  by reference  herein to N/A Exhibit 3.2
            to  Associates  Form S-4 filed with the  Commission on
            March 14, 1996.)

     3.8    Amended and Restated Certificate of Incorporation of CBM Funding Corporation                        N/A
                         ("Funding") (Incorporated by reference herein to Exhibit 3.3 to Associates
                         Form S-4 filed with the Commission on March 14, 1996.)

     3.9    By-laws of Funding (Incorporated by reference herein to Exhibit 3.4 to Associates Form              N/A
            S-4          filed with the Commission on March 14, 1996.)

    *4.4    Intercreditor Agreement dated as of January 24, 1996 among IBJ Schroder Bank &                      N/A
            Trust        Company, Bankers Trust Company, Marine Midland Bank (the "CMBS
            Trustee"), the Partnership and Finance, Associates, Courtyard II Associates
                         Management Corporation (the "Managing General Partner") and Funding

    *4.5    Trust and Servicing Agreement dated as of January 1, 1996 among Funding, Bankers                    N/A
            Trust        Company and the CMBS Trustee

    *4.6                 Exchange    and    Registration    Rights
                         Agreement  dated as of January  24,  1996
                         among  the N/A  Partnership,  Associates,
                         Funding and Lehman Brothers Inc.

    *10.1   Amended and Restated Management Agreement dated as of December 30, 1995,                            N/A
            between      the Partnership and Courtyard Management Corporation (the "Manager")

    *10.2   Management Agreement dated as of December 30, 1995 between the Partnership and the                  N/A
                         Manager



   52

<PAGE>




   **10.3   Assignment of Lease and Warranty and Assumption of Obligations between Marriott                     N/A
                         Corporation and the Partnership dated October 30, 1987 for the Tampa, FL
                         property.  Marriott Hotel Land Leases between Holtsinger, Inc. and Bert
                         Chase, Trustee dated June 13, 1968.

   **10.4                Assignment  of  Lease  and  Warranty  and
                         Assumption   of    Obligations    between
                         Marriott   N/A    Corporation   and   the
                         Partnership dated August 12, 1988 for the
                         Atlanta- Roswell,  GA property.  Marriott
                         Hotel   Land   Lease   between   Marriott
                         Corporation     and    Roswell    Landing
                         Associates dated June 10, 1986.

   **10.5   Assignment of Lease and Warranty and Assumption of Obligations between Marriott                     N/A
                         Corporation and the Partnership dated July 15, 1988 for the Norwalk, CT
                         property.  Marriott Hotel Land Lease between Marriott Corporation and
                         Mary E. Fabrizio dated January 6, 1986.

   **10.6   Assignment of Lease and Warranty and Assumption of Obligations between Marriott                     N/A
                         Corporation and the Partnership dated February 24, 1988 for the Fresno, CA
                         property.  Marriott Hotel Land Lease between Marriott Corporation and
                         Richard Erganian, Miche Erganian, Aram Erganian and Aznive Erganian
                         dated June 6, 1984.

   **10.7   Assignment of Lease and Warranty and Assumption of Obligations between Marriott                     N/A
                         Corporation and the Partnership dated August 12, 1988 for the Cupertino,
                         CA property.  Marriott Hotel Land Lease between Marriott Corporation and
                         Vallco Park, Ltd. dated March 31, 1987.

   **10.8   Marriott Hotel Land Lease between Marriott Corporation and Pizzagalli Investment                    N/A
                         Company dated September 22, 1986.

   **10.9   Assignment of Lease and Warranty and Assumption of Obligations between Marriott                     N/A
                         Corporation and the Partnership dated May 19, 1989 for the Charlotte South
                         Park, NC property.  Marriott Hotel Land Lease between Marriott
                         Corporation and Queens Properties, Inc. dated January 19, 1987.

   **10.10  Assignment of Lease and Warranty and Assumption of Obligations between Marriott                     N/A
                         Corporation and the Partnership dated January 27, 1989 for the
                         Philadelphia/Devon, PA property.  Marriott Hotel Land Lease between
                         Marriott Corporation and Three Philadelphia/Devon Square Associates dated
                         July 15, 1986.

   **10.11  Associates received an assignment from the Partnership, which had received an                       N/A
                         assignment from Host Marriott, of 15 ground leases for land that Host
                         Marriott had previously leased from various affiliates (the "Original
                         Landlords").  The ground leases are identical in all material respects except
                         as to their assignment dates to the Partnership and the rents due (Exhibit A
                         of each ground lease).  The schedule below sets forth the terms of each
                         ground lease not filed which differ from the copy of the example ground
                         lease (Hoover, AL) which was previously filed with the Commission.  In
                         addition, a copy of Exhibit A was filed for each excluded ground lease.
</TABLE>
<TABLE>
                        

                        Property                            State             Assignment Date               Original Landlord
                        ----------------------              -----             ----------------            ---------------------- 
<CAPTION>
                        <S>                                 <C>               <C>                        <C>
                        Foster City                          CA                  10/30/87                Essex House Condominium
                                                                                                          Corporation ("Essex")
                        Marin/Larkspur Landing               CA                  10/30/87                         Essex
                        Denver/Southeast                     CO                  10/30/87                         Essex
                        Atlanta/Perimeter Center             GA                  02/24/88                         Essex
                        Indianapolis/Castleton               IN                  10/30/87                         Essex


                                         53

<PAGE>




                        Lexington/North                      KY                  10/07/88                         Essex
                        Annapolis                            MD                  05/19/89                         Essex
                        Minneapolis Airport                  MN                  10/30/87                         Essex
                        St. Louis/Creve Couer                MO                  10/30/87                         Essex
                        Rye                                  NY                  03/29/88                         Essex
                        Greenville                           SC                  03/29/88                         Essex
                        Memphis Airport                      TN                  10/30/87                         Essex
                        Nashville Airport                    TN                  02/24/88                         Essex
                        Dallas/Stemmon                       TX                  10/30/87                         Essex
                        San Antonio/Downtown                 TX                  03/23/90                         Essex
</TABLE>

<TABLE>
<S>                   <C>                                                                                                     <C>
**10.12               Associates received an assignment from the Partnership of 38 ground leases which                        N/A
                                   the Partnership had entered into with Marriott International, Inc.,
                                   ("MII").  The 38 ground leases are identical in all material respects
                                   except as to their effective lease dates and the rents due (Exhibit A of
                                   each ground lease).  The schedule below sets forth the terms of each
                                   ground lease not filed which differ from the copy of the example
                                   ground lease (Huntsville, AL) which was previously filed with the
                                   Commission.  In addition, a copy of Exhibit A was filed for each
                                   excluded ground lease.
</TABLE>
<TABLE>


                          Property                       State      Effective Lease Date
                          --------                       -----      --------------------
<CAPTION>
                          <S>                            <C>        <C>                                                   
                          Birmingham/Hoover              AL         10/30/87
                          Huntsville                     AL         10/30/87
                          Phoenix/Mesa                   AZ         04/22/88
                          Phoenix/Metrocenter            AZ         10/01/87
                          Tucson Airport                 AZ         12/30/88
                          Little Rock                    AR         09/09/88
                          Bakersfield                    CA         05/30/88
                          Hacienda Heights               CA         03/30/90
                          Palm Springs                   CA         12/20/88
                          Torrance                       CA         12/30/88
                          Boulder                        CO         11/04/88
                          Wallingford                    CT         04/24/90
                          Ft. Myers                      FL         11/04/88
                          Ft. Lauderdale/Plantation      FL         12/02/88
                          St. Petersburg                 FL         01/26/90
                          West Palm Beach                FL         02/24/89
                          Atlanta/Gwinnett Mall          GA         10/30/87
                          Chicago/Glenview               IL         10/06/89
                          Chicago/Highland Park          IL         07/15/88
                          Chicago/Waukegan               IL         08/12/88
                          Chicago/Wood Dale Park         IL         09/09/88
                          Kansas City/Overland           KS         04/21/89
                          Park
                          Silver Spring                  MD         10/07/88
                          Boston/Andover                 MA         02/24/89
                          Detroit Airport                MI         02/24/88
                          Detroit/Livonia                MI         03/29/88
                          St. Louis/Westport             MO         10/07/88
                          Lincroft/Red Bank              NJ         07/15/88
                          Raleigh/Cary                   NC         08/12/88
                          Dayton Mall                    OH         10/30/87
                          Toledo                         OH         07/15/88
                          Oklahoma City Airport          OK         10/07/88
                          Portland/Beaverton             OR         05/19/89
                          Columbia                       SC         04/21/89


                                        54

<PAGE>




                          Dallas/Northeast               TX         04/22/88
                          Charlottesville                VA         04/21/89
                          Manassas                       VA         05/19/89
                          Seattle/Southcenter            WA         05/19/89
</TABLE>
<TABLE>

<S>                    <C>                                                                                                  <C>  
***10.13               Contribution Agreement dated as of January 24, 1996 among the                                        N/A
                                    Partnership, the Managing General Partner and Associates

***10.14               Bill of Sale and Assignment and Assumption Agreement dated as of                                     N/A
                                    January 24, 1996 by the Partnership to Associates

*10.15                 Assignment and Assumption of Management Agreement dated as of                                        N/A
                                    January 24, 1996 by the Partnership to Associates

***10.16               Contribution Agreement dated as of January 24, 1996 among the                                        N/A
                                    Partnership, the Managing General Partner and Courtyard II
                                    Associates LLC ("Deerfield LLC")

***10.17               Bill of Sale and Assignment and Assumption Agreement dated as of                                     N/A
                                    January 24, 1996 by the Partnership to Deerfield LLC

*10.18                 Deed to the Courtyard by Marriott Hotel in Chicago/Deerfield,                                        N/A
                                    Illinois dated as of January 24, 1996 by the Partnership to
                                    Deerfield LLC

*10.19                 Assignment and Assumption of Management Agreement dated as of                                        N/A
                                    January 24, 1996 by the Partnership to Deerfield LLC

*10.20                 Loan Agreement dated as of January 24, 1996 by and between                                           N/A
                                    Associates and Funding

*10.21                 Mortgage Note, dated as of January 24, 1996, in the principal                                        N/A
                                    amount of $410,200,000 by Associates to Funding

*10.22                 Security Agreement dated as of January 24, 1996 by and between                                       N/A
                                    Associates and Funding

*10.23                 Pledge Agreement dated as of January 24, 1996 by and between                                         N/A
                                    Associates and Funding

*10.24                 Collateral Assignment of Management Agreement and Subordination                                      N/A
                                    Agreement dated as of January 24, 1996, by and among
                                    Associates, the Manager and Funding

*10.25                 Amendment of Ground Leases dated as of January 24, 1996 by and                                       N/A
                                    among Associates, Marriott International, Inc. and Essex
                                    House Condominium Corporation ("Essex")

*10.26                 Environmental Indemnity Agreement dated as of January 24, 1996                                       N/A
                                    by Associates and the Managing General Partner for the
                                    benefit of Funding



       55

<PAGE>




*10.27                 Associates, as mortgagor, and Funding, as mortgagee, entered into                                    N/A
                                    53 fee and leasehold mortgages, each dated as of January 24,
                                    1996.  The 53 mortgages are identical in all material respects
                                    except as to the underlying property to which they relate and,
                                    in certain instances, additional parties thereto.  The schedule
                                    below sets forth the terms of each mortgage not filed which
                                    differ from the copy of the example mortgage
                                    (Birmingham/Hoover, AL) which is filed herewith.
</TABLE>
<TABLE>

                           Property                                State              Additional Party
                           --------                                -----              ----------------
<CAPTION>
                           <S>                                     <C>                <C>   
                           Birmingham/Hoover                         AL                     Essex
                           Huntsville                                AL                      MII
                           Phoenix/Mesa                              AZ                      MII
                           Phoenix/Metrocenter                       AZ                      MII
                           Tucson Airport                            AZ                      MII
                           Little Rock                               AR                      MII
                           Bakersfield                               CA                      MII
                           Foster City                               CA                      MII
                           Hacienda Heights                          CA                      MII
                           Marin/Larkspur Landing                    CA                      MII
                           Palm Springs                              CA                      MII
                           Torrance                                  CA                      MII
                           Boulder                                   CO                      MII
                           Denver/Southeast                          CO                     Essex
                           Wallingford                               CT                      MII
                           Ft. Myers                                 FL                      MII
                           Ft. Lauderdale/Plantation                 FL                      MII
                           St. Petersburg                            FL                      MII
                           West Palm Beach                           FL                      MII
                           Atlanta/Gwinnett Mall                     GA                      MII
                           Atlanta/Perimeter Center                  GA                     Essex
                           Chicago/Glenview                          IL                      MII
                           Chicago/Highland Park                     IL                      MII
                           Chicago/Waukegan                          IL                      MII
                           Chicago/Wood Dale                         IL                      MII
                           Indianapolis/Castleton                    IN                     Essex
                           Kansas City/Overland Park                 KS                      MII
                           Lexington/North                           KY                     Essex
                           Annapolis                                 MD           Essex and the Partnership
                           Silver Spring                             MD            MII and the Partnership
                           Boston/Andover                            MA                      MII
                           Detroit Airport                           MI                      MII
                           Detroit/Livonia                           MI                      MII
                           Minneapolis Airport                       MN                     Essex
                           St. Louis/Creve Couer                     MN                     Essex
                           St. Louis/Westport                        MO                      MII
                           Lincroft/Red Bank                         NJ                      MII
                           Rye                                       NY                     Essex
                           Raleigh/Cary                              NC                      MII
                           Dayton Mall                               OH                      MII
                           Toledo                                    OH                      MII
                           Oklahoma City Airport                     OK                      MII
                           Portland/Beaverton                        OR                      MII
                           Columbia                                  SC                      MII
                           Greenville                                SC                     Essex
                           Memphis Airport                           TN                     Essex
                           Nashville Airport                         TN                     Essex
                           Dallas/Northeast                          TX                      MII


              56

<PAGE>




                           Dallas/Stemmons                           TX                     Essex
                           San Antonio/Downtown                      TX                     Essex
                           Charlottesville                           VA                      MII
                           Manassas                                  VA                      MII
                           Seattle/Southcenter                       WA                      MII
</TABLE>
<TABLE>
<S>                      <C>                                                                                               <C>    
*10.28                   Associates, as mortgager, and Funding, as mortgagee, entered into 16                              N/A
                                      fee leasehold mortgages, each dated as of January 24, 1996.
                                      The 16 mortgages are identical in all material respects except as
                                      to the underlying property to which they relate.  The schedule
                                      below sets forth the terms of each mortgage not filed which
                                      differ from the copy of the example mortgage
                                      (Birmingham/Homewood, AL) which is filed herewith.
</TABLE>


                         Property                                   State
                         --------                                   -----
            
                         Birmingham/Homewood                        AL
                         Cupertino                                  CA
                         Fresno                                     CA
                         Denver Airport                             CO
                         Norwalk                                    CT
                         Tampa/Westshore                            FL
                         Atlanta Airport South                      GA
                         Atlanta/Roswell                            GA
                         Arlington Heights South                    IL
                         Chicago/Lincolnshire                       IL
                         Chicago/Oakbrook Terrace                   IL
                         Rockford                                   IL
                         Poughkeepsie                               NY
                         Charlotte/South Park                       NC
                         Philadelphia/Devon                         PA
                         Dallas/Plano                               TX

<TABLE>
<S>                      <C>                                                                                            <C>    
*10.29                   Assignment of Loan Documents dated as of January                                               N/A
                                      24, 1996 by Funding to the CMBS Trustee

10.30                    Assignment and Assumption of Management Agreement dated as of                                  N/A
                                      January 24, 1996 by the Partnership to Associates with
                                      attached Management Agreement (Incorporated by
                                      reference herein to Exhibit 10.1 to Associates Form S-4
                                      filed with the Commission on March 14, 1996.)

10.31                    Working Capital Maintenance Agreement dated as of January 24,                                  N/A
                         1996, by and among the Partnership, Associates, and the Manager.
                         (Incorporated by reference to the exhibit previously filed as exhibit
                         number 10.23 in Amendment No. 1 to Form S-4 Exchange Offer filed
                         by CBM Funding and Associates with the Commission in May 10,
                         1996.)

*21.1                    Subsidiaries of the Partnership                                                                N/A

</TABLE>



                                                            57

<PAGE>





*      Incorporated  herein by  reference  to the same  numbered  exhibit in the
       Partnership's  and  Finance's  Registration  Statement on Form S-4 for 10
       3/4% Series B Senior  Secured Notes due 2008,  previously  filed with the
       Commission on March 7, 1996.

**     Incorporated   by  reference  to  the  same   numbered   exhibit  in  the
       Partnership's  Annual  Report  on Form  10-K for the  fiscal  year  ended
       December 31, 1994.

***    Incorporated by reference to the same numbered exhibit to Amendment No. 1
       to  the  Form  S-4  Registration  Statement  previously  filed  with  the
       Commission by the Partnership on April 25, 1996.


(b)          REPORTS ON FORM 8-K

None.

                                                            58

<PAGE>

<TABLE>
<CAPTION>


                                                       SCHEDULE III

                                      COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
                                         REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                     December 31, 1996
                                                      (in thousands)



                                 Initial Costs                             Gross Amount at December 31, 1996
                            -----------------------                  ---------------------------------------
                                                      Subsequent
                                        Buildings &     Costs                Buildings &               Accumulated
Description        Encumbrances Land   Improvements   Capitalized    Land   Improvements     Total     Depreciation
-----------        ------------ -----  -------------  ------------   ------  ------------    -----     -------------
<S>                <C>         <C>      <C>            <C>           <C>     <C>             <C>       <C>                  
70 Courtyard by
Marriott Hotels     $398,853   $25,392  $493,565       $23,915       $25,392  $517,480       $542,872   $112,473
                    ========   =======  ========       =======       =======  ========       ========   ========


</TABLE>



                     Date of
                  Completion of      Date            Depreciation
                   Construction     Acquired             Life

70 Courtyard by     1987-1990       1987-1990          40 years
Marriott Hotels



Notes:

<TABLE>
<CAPTION>

                                                            1994                   1995                   1996
                                                     ------------------     ------------------     -----------
<S>  <C>                                             <C>                    <C>                    <C>                  
(a)  Reconciliation of Real Estate:
     Balance at beginning of year....................$          531,750     $          535,546     $         538,358
     Capital Expenditures............................             3,796                  2,812                 4,514
     Dispositions....................................                --                     --                    --
                                                     ------------------     ------------------     -----------------
     Balance at end of year..........................$          535,546     $          538,358     $         542,872
                                                     ==================     ==================     =================

(b)  Reconciliation of Accumulated Depreciation:
     Balance at beginning of year....................$           69,346     $           83,321     $          97,726
     Depreciation....................................            13,975                 14,405                14,747
                                                     ------------------     ------------------     -----------------
     Balance at end of year..........................$           83,321     $           97,726     $         112,473
                                                     ==================     ==================     =================
</TABLE>

(c)  The aggregate cost of land,  buildings and  improvements for Federal income
     tax purposes is approximately $538.2 million at December 31, 1996.

(d)  The Debt  balance as of December 31, 1996  reflects  the $398.9  million of
     Multi-class Mortgage Pass-Through Certificates.



                                                            59

<PAGE>


                                                        SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant has duly caused this Form 10-K to be signed on its
behalf by the  undersigned,  thereunto duly  authorized,  on this 28th of March,
1997.

               COURTYARD II ASSOCIATES, L.P.

               By: COURTYARD II ASSOCIATES MANAGEMENT CORPORATION
                   Managing General Partner


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



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

Signature                                Title
                                         (COURTYARD II ASSOCIATES
                                          MANAGEMENT CORPORATION)














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


/s/ Earla Stowe
--------------------------------------------
                                Vice President and Chief Accounting Officer
Earla Stowe                     (Principal Accounting Officer)


/s/ Anna Mary Coburn
--------------------------------------------
                                Secretary
Anna Mary Coburn


/s/ Bruce Wardinski
--------------------------------------------
                                Treasurer
Bruce Wardinski                 (Principal Financial Officer)


/s/ Mark A. Ferrucci
--------------------------------------------
                                Director
Mark A. Ferrucci



                                                            60

<PAGE>