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

                                   FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the fiscal year ended January 2, 1998
     OR
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the transition period from ______________ to __________________

                         Commission File Number 1-13486

                          JOHN Q. HAMMONS HOTELS, L.P.
                   JOHN Q. HAMMONS HOTELS FINANCE CORPORATION
                 JOHN Q. HAMMONS HOTELS FINANCE CORPORATION II
           (Exact Name of Registrants as specified in their charters)

                                                         43-1523951
               Delaware                                  43-1680322
               Missouri                                  43-1720400
               Missouri                     (I.R.S. employer identification no.)
        (State of Organization)

  300 John Q. Hammons Parkway, Ste. 900
         Springfield, Missouri                              65806
(Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code: (417)864-4300

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

Securities registered pursuant to Section 12(g) of the Act:  None

     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 files 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.  [X]

<PAGE>
 
                                    PART I


Item 1.  Business.

     As used herein, the term "Company" means John Q. Hammons Hotels, L.P., a
Delaware limited partnership, and its corporate and partnership subsidiaries
collectively, or, as the context may require, John Q. Hammons Hotels, L.P. only.
As used herein, the term "General Partner" means John Q. Hammons Hotels, Inc., a
Delaware corporation, or Hammons, Inc., a Missouri corporation, the predecessor
general partner of the Company.  As used herein, the term "Fiance Corp." means
John Q. Hammons Hotels Finance Corporation, a wholly owned subsidiary of the
Company which has nominal assets and does not conduct any operations, and
Finance Corp. II means John Q. Hammons Hotels Finance Corporation II, each of
which is co-obligor for the 1994 Notes and the 1995 Notes (as defined herein).
As used herein, the term "Registrants" means John Q. Hammons Hotels, L.P.,
Finance Corp. and Finance Corp. II.

Overview

     The Company is a leading independent owner, manager and developer of
affordable upscale hotels in capital city, secondary and airport markets.  The
Company owns and manages 45 hotels located in 20 states, containing 11,108 guest
rooms or suites (the "Owned Hotels"), and manages four additional hotels located
in two states, containing 952 guest rooms (the "Managed Hotels").  On January 2,
1998, the Company also owned seven upscale hotels at various stages of
development, which are scheduled to open during 1998 and 1999 (the "Scheduled
Hotels").  The Company's existing 49 Owned Hotels and Managed Hotels (together,
the "JQH Hotels") operate primarily under the Holiday Inn and Embassy Suites
trade names.  Most of the Company's hotels are near a state capitol, university,
airport or corporate headquarters, plant or other major facility and generally
serve markets with populations of up to 300,000 people (or larger populations in
the case of airport markets and many of the markets in which the Company is
developing new hotels).

     The Company's strategy is to increase cash flow and thereby enhance
shareholder value primarily through (i) developing new hotels in carefully
selected growth market areas in which the Company believes it can establish a
leading and sustainable market position,(ii) converting the franchises of its
existing hotels to franchise brands that are considered to be more upscale, in
terms of these brands' higher average room rates, as opportunities for such
conversions arise, (iii) selling certain mature assets and re-investing the net
proceeds in new hotels constructed by the Company, on a selective basis, and
(iv) capitalizing on positive operating fundamentals in the upscale full-service
sector of the industry, by owning and operating its hotel portfolio.  In
implementing its development strategy, the Company works closely with local
businesses and local and state officials to develop hotels which meet business
and social needs of the community and satisfy long-term demand for hotel rooms.

     In some of the Company's developments, it benefits from development
incentives provided by local governments and other organizations interested in
ensuring the development of a quality


                                      -2-
<PAGE>
 
hotel in their community.  The Company designs each new hotel to meet the
specific needs of the market and engages in selling efforts in advance of the
hotel's opening.  The Company's entire management team, including senior
management, architects, design specialists, hotel managers and sales personnel,
is involved in the development of each new hotel.  The Company is evaluating
development of a number of hotels in addition to the seven Scheduled Hotels.

     The JQH Hotels are designed to appeal to a broad range of hotel customers,
including frequent business travelers, groups or conventions, as well as leisure
travelers.  Each of the JQH Hotels is individually designed by the Company, and
most contain an expansive multi-storied atrium, with water features and lush
plantings, expansive meeting space, large guest rooms or suites and comfortable
lounge areas.  The Company believes that these design features enhance guest
comfort and safety and increase the value perceived by the guest.  The JQH
Hotels' meeting facilities can be readily adapted to accommodate both larger and
smaller meetings, conventions and trade shows.  The 25 Holiday Inn JQH Hotels
are affordably priced hotels designed to attract the business and leisure
traveler desiring quality accommodations, including meeting facilities, in-house
restaurants, cocktail lounges and room service, and contain an average of 262
rooms.  The 11 Embassy Suites JQH Hotels are all-suite hotels which appeal to
the traveler needing or desiring greater space and specialized services and
contain an average of 242 suites.  The JQH Hotels also include four non-
franchise hotels, two Radissons, one Hampton Inn & Suites, two Marriotts, two
Homewood Suites, one Crowne Plaza and one Days Inn.  Three of the non-franchise
hotels have the word "Plaza" in their name and average 232 rooms.  The fourth
non-franchise hotel is a resort hotel with 301 rooms.  The Company determines
which brand of hotel to develop depending upon the demographics of the market to
be served.

     Management of the JQH Hotels is coordinated from the Company's headquarters
in Springfield, Missouri by its senior management team.  Five regional vice
presidents are responsible for supervising a group of general managers of JQH
Hotels in day-to-day operations.  Centralized management services and functions
include development, design, sales and marketing, purchasing and financial
controls.  Through these centralized services, significant cost savings are
realized due to economies of scale.

     The General Partner conducts all of its business operations through the
Company and its subsidiaries.  Mr. Hammons beneficially owns all 294,100 shares
of Class B Common Stock of the General Partner, representing 70.88% of the
combined voting power of both classes of the General Partner Common Stock.  The
General Partner is the sole general partner of the Company through its ownership
of all 6,336,100 general partner units (the "GP Units"), representing 28.31% of
the total equity in the Company.  Mr. Hammons beneficially owns all 16,043,900
limited partnership units of the Company (the "LP Units"), representing 71.69%
of the total equity in the Company.  The 6,042,000 shares of Class A Common
Stock of the General Partner represent 27.00% of the total equity of the
Company, and the Class B Common Stock and LP Units beneficially owned by Mr.
Hammons represent 73.00% of the total equity in the Company.  Mr. Hammons is
also the beneficial owner of 110,100 shares of Class A Common Stock.


                                      -3-
<PAGE>
 
     The Company's executive offices are located at 300 John Q. Hammons Parkway,
Suite 900, Springfield, Missouri 65806 and its telephone number is (417) 864-
4300. The Company is a Delaware limited partnership that was formed September 5,
1989.

Development

     The Company plans to continue expanding into target market areas where it
believes it can establish a leading market position.  The following table sets
forth information as to the Scheduled Hotels:

<TABLE>
<CAPTION>
                                                 Number of  
                                                 ---------   
Location                        Franchise/Name  Rooms/Suites  Description           Stage of Development
--------                        --------------  ------------  -----------           --------------------   
<S>                             <C>             <C>           <C>                   <C>
Tampa, FL....................   Embassy Suites      247       Atrium; Convention    Opened January 1998      
                                                              Center                                         

St. Augustine, FL............   Resort              300       Atrium; Convention    Construction commenced;  
                                                              Center                2nd Quarter 1998         
                                                                                    expected opening         

Topeka, KS...................   Capitol Plaza       224       Atrium; Convention    Construction commenced;  
                                                              Center                3rd Quarter 1998         
                                                                                    expected opening         

Portland, OR.................   Embassy Suites      251       Atrium; Convention    Construction commenced;  
                                                              Center                3rd Quarter 1998         
                                                                                    expected opening         

Mesquite, TX.................   Hampton Inn &       160       Convention Center     Construction commenced;  
                                Suites                                              1st Quarter 1999 expected
                                                                                    opening                  

Coral Springs, FL............   Radisson Plaza      224       Atrium; Convention    Construction commenced;  
                                                              Center                2nd Quarter 1999         
                                                                                    expected opening         

Dallas/Ft. Worth Airport, TX.   Embassy Suites      330       Atrium; Convention    Construction commenced;  
                                                              Center                4th Quarter 1999         
                                                                                    expected opening          
</TABLE>

     The Company is currently evaluating development of a number of hotels in
addition to the Scheduled Hotels already under construction.

     Effective February 6, 1998, the Company completed the sale of six hotels to
an unrelated party for approximately $40 million, including $34.9 million in
cash and the assumption of approximately $5.1 million in debt and other
obligations. The purchase price approximated the aggregate net book value of the
hotels sold. Five of these hotels served as collateral under the 1994 and 1995
Mortgage Notes. The Company intends to provide replacement collateral in
accordance with the indenture provisions. Therefore, the net proceeds of the
sale will not be available for new hotel development.

     Although the Company has in the past chosen to develop rather than acquire
existing hotels, the Company may in the future acquire hotels if suitable
opportunities arise. The Company continues to be approached from time to time by
third-party hotel owners seeking to sell or buy hotels. The Company will
continue to evaluate each offer

                                      -4-
<PAGE>
 
and base its decision on the market location, capital required, and return on
investment alternatives.  The Company continually monitors its portfolio for
under-performing hotels which are then evaluated for potential sale based on
investment considerations.

     The Company's development activity restricts its ability to grow per share
income in the short term. Fixed charges for new hotels (such as depreciation and
amortization expense and interest expense) exceed new hotel operating cash flow
in the first one to three years of operations. As new hotels mature, the Company
expects, based on past experience, that the operating expenses for these hotels
will decrease as a percentage of revenues, although there can be no assurance
that this will continue to occur.

     The Company plans to continue with its development of full-service, and 
all-suite hotels based on favorable market fundamentals and because few hotels
are being constructed in the upscale sector of the hotel industry. While the
Company believes its development efforts represent the best long-term strategy,
continued aggressive new hotel development is likely to have a negative effect
on short-term earnings.

Operations

     Management of the JQH Hotels network is coordinated by the Company's senior
management team at the Company's headquarters in Springfield, Missouri. The
management team is responsible for managing the day-to-day financial needs of
the Company, including the Company's internal accounting audits. The Company's
management team administers insurance plans and business contract review,
oversees the financial budgeting and forecasting for the JQH Hotels, analyzes
the financial feasibility of new hotel developments, and identifies new systems
and procedures to employ within the JQH Hotels to improve efficiency and
profitability. The management team also coordinates each JQH Hotel's sales
force, designing sales training programs, tracking future business under
contract, and identifying, employing and monitoring marketing programs aimed at
specific target markets. The management team is indirectly responsible for
interior design of all hotels and each hotel's product quality, and directly
oversees the detailed refurbishment of existing operations. The overall
management of the JQH Hotels is coordinated by the central management team
through five regional vice presidents responsible for guiding the general
managers of each JQH Hotel in day-to-day operations.

     Central management utilizes information systems that track each JQH Hotel's
daily occupancy, average room rate, and rooms and food and beverage revenues.
Contracted business is tracked for each hotel individually five years into the
future using the Company's sales projection and usage reporting system. By
having the latest information available at all times, management is better able
to respond to changes in each market by focusing sales and yield management
efforts on periods of demand extremes (low periods and high periods of demand)
and controlling variable expenses to maximize the profitability of each JQH
Hotel.

     Creating operating, cost and guest service efficiencies in each hotel is a
top priority to the Company. With a total of 49 hotels under management, the
Company is able to realize significant cost savings due to economies of scale.
By leveraging the total hotels/rooms under its management, the Company is able
to secure volume pricing from its vendors that is not available to smaller hotel
companies. The Company employs a systems trainer who is responsible for
installing new computer systems and providing training to hotel employees to
maximize the effectiveness of these systems and to ensure that guest service is
enhanced. Total involvement at each level by management in the layout and design
phases of new hotel developments ensures that each hotel is built to meet the
operational needs of the hotel staff and best serve the guest.

     Regional management constantly monitors each JQH Hotel to verify that the
Company's high level of operating standards are being met. The Company's
franchisors maintain rigorous inspection programs in which chain representatives
visit their respective JQH Hotels (typically 2 or 3 times per year ) to evaluate
product and service quality. Each chain also provides feedback to each hotel
through their guest satisfaction rating systems in which guests who visited the
hotel are asked to rate a variety of product and service issues.

Sales and Marketing

                                      -5-
<PAGE>
 
     The Company's marketing strategy is to market the JQH Hotels both through
national and marketing programs. These are local sales managers and a director
of sales at each of the JQH Hotels. While the Company makes periodic
modifications to the concept in order to address differences and maintain a
sales organization structure based on market needs and local preferences, it
generally utilizes the same major campaign concept throughout the country. The
concepts are developed at its management headquarters while the modifications
are implemented by the JQH Hotels regional vice presidents and local sales
force, all of whom are experienced in hotel marketing. The sales force reacts
promptly to local changes and market trends in order to customize marketing
programs to meet each hotel's competitive needs. In addition, the local sales
force is responsible for developing and implementing marketing programs targeted
at specific customer segments within each market. The Company requires that each
of its sales managers complete an extensive sales training program. Before
finishing the program, the sales manager must successfully complete
certifications in three development phases.

     The Company's core market consists of business travelers who visit a given
area several times per year, including salespersons covering a regional
territory, government and military personnel and technicians. The profile of the
primary target customer is a college educated business traveler, age 25 to 54,
from a two-income household with a middle management white collar occupation or
upper level blue collar occupation. The Company believes that business travelers
are attracted to the JQH Hotels because of their convenient locations in state
capitals, their proximity to airports or corporate headquarters, plants,
convention centers or other major facilities, the availability of ample meeting
space and the high level of service relative to other hotel operators serving
the same markets. The Company's sales force markets to organizations which
consistently produce a high volume of room nights and which have a significant
number of individuals traveling in the Company's operating regions. The Company
also targets groups and conventions attracted by a JQH Hotel's proximity to
convention or trade centers (often adjacent). JQH Hotels' group meetings
logistics include flexible space readily adaptable to groups of varying size,
high-tech audio-visual equipment and on-site catering facilities. The Company
believes that suburban convention centers attract more convention sponsors due
to lower prices than larger, more cosmopolitan cities. In addition to the
business market, the Company's targeted customers also include leisure travelers
looking for secure, comfortable lodging at an affordable price as well as women
travelers who find the security benefits of the Company's atrium hotels
appealing.

     The Company advertises primarily through direct mail, magazine
publications, directories, and newspaper advertisements, all of which focus on
value delivered to and perceived by the guest. The Company has developed in-
house marketing materials including professional photographs and written
materials that can be mixed and matched to appeal to a specific target group
(business traveler, vacationer, religious group, reunions, etc.). The Company's
marketing efforts focus primarily on business travelers who account for
approximately 50% of the rooms rented in the JQH Hotels.

     The Company's franchise hotels utilize the centralized reservation systems
of its franchisors, which the Company believes are among the more advanced
reservation systems in the hotel industry. The franchisors' reservation systems
receive reservation requests entered (i) on terminals located at all of their
respective franchises, (ii) at reservation centers utilizing 1-800 phone access
and (iii) through several major domestic airlines. Such reservation systems
immediately confirm reservations or indicate accommodations available at
alternate system hotels. Confirmations are transmitted automatically to the
hotel for which the reservations are made. The Company believes that these
systems are effective in directing customers to the Company's franchise hotels.

Franchise Agreements

     The Company enters into non-exclusive franchise licensing agreements (the
"Franchise Agreements") with franchisors which it believes are the most
successful brands in the hotel industry. The term of the individual Franchise
Agreement for a hotel typically is 20 years. The Franchise Agreements allow the
Company to start with and then build upon the reputation of the brand names by
setting higher standards of excellence than the brands themselves require. The
non-exclusive nature of the Franchise Agreements allows the Company the
flexibility to continue to develop properties with the brands that have shown
success in the past or to develop in conjunction with other brand names. While
the Company currently has a good relationship with its franchisors, there can be
no assurance that a desirable replacement would be available if any of the
Franchise Agreements were to be terminated.


                                      -6-
<PAGE>
 
     Holiday Inn. The Franchise Agreement grants to the Company a nonassignable,
non-exclusive license to use the Holiday Inns service mark and computerized
reservation network. The Franchisor maintains the right to improve and change
the reservation system to make it more efficient, economical and competitive.
Monthly fees paid by the Company are based on a percentage of gross revenues
attributable to room rentals, plus marketing and reservation contributions which
are also a percentage of gross revenues. The term of the Franchise Agreement is
20 years with a renewal option in the 15th year.

     Embassy Suites. The Franchise Agreement grants to the Company a
nonassignable, non-exclusive license to use the Embassy Suites service mark and
computerized reservation network. The franchisor maintains the exclusive right
to improve and change the reservation system for the purpose of making it more
efficient, economical and competitive. Monthly fees paid by the Company are
based on a percentage of gross revenues attributable to suite rentals, plus
marketing and reservation contributions which are also a percentage of gross
revenues. The term of the Franchise Agreement is 20 years with a renewal option
in the 18th year.

     Other Franchisors. The franchise agreements with other franchisors not
listed above are similar in that they are nonassignable, non-exclusive licenses
to use the franchisor's service mark and computerized reservation network.
Payments and terms of agreement vary based on specific negotiations with the
franchisor.

Competition

     Each of the JQH Hotels competes in its market area with numerous full
service lodging brands, especially in the upscale market, and with numerous
other hotels, motels and other lodging establishments.  Chains such as Sheraton
Inns, Marriott Hotels, Ramada Inns, Radisson Inns, Comfort Inns, Hilton hotels
and Red Lion Inns are direct competitors of JQH Hotels in their respective
markets.  There is, however, no single competitor or group of competitors of the
JQH Hotels that is consistently located nearby and competing with most of the
JQH Hotels.  Competitive factors in the lodging industry include reasonableness
of room rates, quality of accommodations, level of service and convenience of
locations.

Regulations and Insurance

     General. A number of states regulate the licensing of hotels and
restaurants including liquor license grants by requiring registration,
disclosure statements and compliance with specific standards of conduct. In
addition, various federal and state regulations mandate certain disclosures and
practices with respect to the sales of license agreements and the licensor/
licensee relationship. The Company believes that each of the JQH Hotels
has the necessary permits and approvals to operate its respective businesses.
The Company believes that all necessary permits and approvals to operate the
Scheduled Hotels will be obtained in the ordinary course of business. Umbrella,
property, auto, commercial liability and worker's compensation insurance are
provided to the JQH Hotels under a blanket policy. Insurance expenses for the
JQH Hotels were approximately $5.8 million, $6.3 million and $6.2 million in
1995, 1996 and 1997, respectively. The Company believes that the JQH Hotels are
adequately covered by insurance.

     Americans with Disabilities Act. The JQH Hotels and any newly developed or
acquired hotels must comply with Title III of the Americans with Disabilities
Act ("ADA") to the extent that such properties are "public accommodations" and
/or "commercial facilities" as defined by the ADA. Compliance with the ADA
requirements could require removal of structural barriers to handicapped areas
in certain public areas of the JQH Hotels where such removal is readily
achievable. Noncompliance could result in a judicial order requiring compliance,
an imposition of fines or an award of damages to private litigants. The Company
has taken into account an estimate of the expense required to make any changes
required by the ADA and believes that such expenses will not have a material
adverse effect on the Company's financial condition or results of operations. If
required changes involve a greater expenditure than the Company currently
anticipates, or if the changes must be made on a more accelerated basis than the
Company anticipates, the Company could be adversely affected. The Company
believes that its competitors face similar costs to comply with the requirements
of the ADA.

                                      -7-
<PAGE>
 
     Asbestos Containing Materials. Certain, federal, state and local laws,
regulations and ordinances govern the removal, encapsulation or disturbance of
Asbestos Containing Materials ("ACMs") when ACMs are in poor condition or in the
event of building, remodeling, renovation or demolition. These laws may impose
liability for the release of ACMs and may permit third parties to seek recovery
from owners or operators of real estate for personal injury associated with
ACMs. Based on prior environmental assessments, seven of the Owned Hotels
contain ACMs and four of the Owned Hotels may contain ACMs, generally in 
sprayed-on ceiling treatments or in roofing materials. However, no removal of
asbestos from the Owned Hotels has been recommended, and the Company has no
plans to undertake any such removal, beyond the removal that has already
occurred. The Company believes that the presence of ACMs in the Owned Hotels
will not have a material adverse effect on the Company, but there can be no
assurance that this will be the case.

     Environmental Regulations. The JQH Hotels are subject to environmental
regulations under federal, state and local laws. Certain of these laws may
require a current or previous owner or operator of real estate to clean up
designated hazardous or toxic substances or petroleum product releases affecting
the property. In addition, the owner or operator may be held liable to a
governmental entity or to third parties for damages or costs incurred by such
parties in connection with the contamination. The Company does not believe that
it is subject to any material environmental liability.

Employees

     The Company employs approximately 8,000 full time employees, approximately
350 of whom are members of labor unions. The Company believes that labor
relations with employees are good.

Management

     The following is a biographical summary of the experience of the executive
officers and other key officers of the General Partner.

     John Q. Hammons is the Chairman, Chief Executive Officer, a director and
founder of the General Partner, and a founder of the Company. Mr. Hammons has
been actively engaged in the development, management and acquisition of hotel
properties since 1959. From 1959 through 1969, Mr. Hammons and a business
partner developed 34 Holiday Inn franchises, 23 of which were sold in 1969 to
Holiday Inns, Inc. Since 1969, Mr. Hammons has developed 81 hotels on a
nationwide basis, primarily under the Holiday Inn and Embassy Suites trade
names.

     David B. Jones is the President, Chief Operating Officer and a director of
the General Partner. Mr. Jones has been President and a director of the General
Partner since February 1993. From 1992 until joining the General Partner, Mr.
Jones was Chief Executive Officer of Davidson Hotel Partnership, a Memphis-based
hotel management company. Prior to 1992, Mr. Jones was President and Chief
Executive Officer of Homewood Suites, Inc., a subsidiary of The Promus Companies
Incorporated, which also then owned Holiday Inns, Inc. Mr. Jones began his
career in the hotel industry with Holiday Inns, Inc. in 1966. While with Holiday
Inns, Inc., Mr. Jones held the position of Senior Vice President of Franchise
and Senior Vice President of Development. He is a former board member of the
American Hotel and Motel Association.

     Debra M. Shantz is Corporate Counsel of the General Partner. She joined the
General Partner in May 1995. Prior thereto, Ms. Shantz was a partner of
Farrington & Curtis, P.C. (now Husch & Eppenberger, LLC), a law firm which
serves as Mr. Hammons' primary outside counsel, where she practiced primarily in
the area of real estate law. Ms. Shantz had been with that firm since 1988.

     Pat A. Shivers is Senior Vice President, Administration and Control, of the
General Partner. He has been active in Mr. Hammons' hotel operations since 1985.
Prior thereto, he had served as Vice President of Product Management in
Winegardner & Hammons, Inc., a hotel management company.


                                      -8-
<PAGE>
 
     Steven E. Minton is Senior Vice President, Architecture, of the General
Partner. He has been active in Mr. Hammons' hotel operations since 1985. Prior
to that time, Mr. Minton was a project manager with the firm of Pellham and
Phillips working on various John Q. Hammons projects.

     Jacqueline A. Dowdy has been the Secretary and a director of the General
Partner since 1989. She has been active in Mr. Hammons' hotel operations since
1981. She is an officer of several affiliates of the General Partner.

     John D. Fulton is Vice President, Design and Construction of the General
Partner. He joined the General Partner in 1989 from Integra/Brock Hotel
Corporation, Dallas, Texas where he had been Director of Design and Purchasing
for ten years.

     Glenn R. Malone is Senior Vice President, Financial Planning and Corporate
Development, of the General Partner. From 1989 until joining the General Partner
in 1993, he served as Senior Manager, Operations Support for the national chains
operated by Hampton Inns, Inc. and Homewood Suites, Inc. (each a subsidiary of
The Promus Companies Incorporated). Mr. Malone held the position of Manager,
Finance and Administration for Embassy Suites, the national chain, from 1988
through 1989. Beginning in 1978 through the end of 1987, he held various
accounting, financial, and operations positions at Holiday Inns, Inc.

     Lawrence A. Welch has been Vice President, Food and Beverage, of the
General Partner since March 1994. Prior to joining the General Partner, Mr.
Welch worked in the Food and Beverage division with Davidson Hotel Company for
ten years.

Forward-Looking Statements

     In addition to historical information, this document contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Act of 1995.  These statements typically, but not exclusively, are
identified by the inclusion of phrases such as "the Company believes," "the
Company plans," "the Company intends," and other phrases of similar meaning.
These forward-looking statements involve risks and uncertainties and are based
on current expectations.  Consequently, actual results could differ materially
from the expectations expressed in the forward-looking statements.  Among the
various factors that could cause actual results to differ include a downturn in
the economy (either regionally or nationwide) affecting overall hotel occupancy
rates, revenues at New Hotels not reaching expected levels as quickly as planned
as the result of competitive factors or the Company's inability to obtain
permanent financing for New Hotels on terms similar to those available in the
past.

Item 2.  Properties.

     The Company leases its headquarters in Springfield, Missouri from a
Missouri general partnership of which Mr. Hammons is a 50% partner. In 1997, the
Company made aggregate annual lease payments of approximately $231,000 to such
Missouri general partnership. The Company leases from John Q. Hammons the real
estate on which two of the Company's hotels are located. These leases are more
fully described in Item 13 "Certain Relationships and Related Transactions." The
Company owns the land on which 37 of the Owned Hotels are located, while eight
of the Owned Hotels are subject to long-term ground leases.

Description of Hotels

     General

     The JQH Hotels are located in 20 states and contain a total of 12,060
rooms. The JQH Hotels have an average of 246 guest rooms or suites. The JQH
Hotels operate primarily under the Holiday Inn and Embassy Suites trade names.
The average size of a Holiday Inn hotel room and an Embassy suite is 350 square
feet and 545 square feet, respectively. Most of the JQH Hotels have assumed a
leadership position in their local market by providing a high quality product in
a market unable to economically support a second competitor of similar quality.


                                      -9-
<PAGE>
 
     Each of the JQH Hotels is individually designed by the Company. Many of the
JQH Hotels contain an expansive multi-storied atrium, large indoor water
features, lush plantings, expansive meeting space, large guest rooms or suites
and comfortable lounge areas. In addition to the visual appeal, the Company
believes that an atrium design in which each of the hotel's room doors face into
the atrium, combined with glass elevators, achieves a greater level of security
for all guests. The Company believes this safety factor is particularly relevant
to women, who represent a growing portion of its business clientele. The JQH
Hotels also appeal to fitness conscious guests as all of the JQH Hotels have at
least one swimming pool and most have exercise facilities.

     The Company believes that the presence of adjacent convention centers
provides incremental revenues for its hotel rooms, meeting facilities, and
catering services, and that hotels which are adjacent to convention centers
occupy a particularly successful niche within the hotel industry.  These
convention or trade centers are available for rent by hotel guests.  Each of the
JQH Hotels has a restaurant/catering service on its premises which provides an
essential amenity to the convention trade.  The Company chooses not to lease out
the restaurant business to third-party caterers or vendors since it considers
the restaurant business an important component of securing convention business.
All of the restaurants in the JQH Hotels are owned and managed by the Company
specifically to maintain direct quality control over a vital aspect of the
convention and hotel business.  The Company also derives significant revenue and
operating profit from food and beverage sales due to its ownership and
management of all of the restaurants in the JQH Hotels.  The Company believes
that its food and beverage sales are more profitable than its competitors due to
the amount of catering business provided to convention and other meetings at the
Owned Hotels.

     The Company retains responsibility for all aspects of the day-to-day
management of each of the JQH Hotels, including establishing and implementing
standards of operation at all levels; hiring, training and supervising staff;
creating and maintaining financial controls; regulating compliance with laws and
regulations relating to the hotel operations; and providing for the safekeeping,
repair and maintenance of the hotels owned by the Company.  The Company
typically refurbishes individual hotels every four to six years, and has spent
an average per year of $21.2 million in 1994, 1995, 1996 and 1997 on the Owned
Hotels.  During 1998, the Company expects to spend approximately $20.8 million
on refurbishment of the Owned Hotels.

Owned Hotels

     The Owned Hotels consist of 45 hotels, which are located in 20 states and
contain a total of 11,108 guest rooms or suites. The following table sets forth
certain information concerning location, franchise/name, number of rooms/suites,
description and opening date for each Owned Hotel:

<TABLE>
<CAPTION>
                                                    Number of 
                                                    ---------  
Location                Franchise/Name              Rooms/Suites  Description                              Opening Date
--------                --------------              ------------  -----------                              ------------
<S>                     <C>                         <C>           <C>                <C>                   <C>      
Montgomery, AL          Embassy Suites              237           Atrium;                                       8/95
                                                                  Meeting Space:     15,000 sq. ft.  (c)    
Fort Smith, AR(a)(d)    Holiday Inn                 255           Atrium;                                       5/86
                                                                  Meeting Space:     15,000 sq. ft.         
Springdale, AR          Holiday Inn                 206           Atrium;                                       7/89
                                                                  Meeting Space:     18,000 sq. ft.         
                                                                  Convention Ctr:    29,280 sq. ft.         
Springdale, AR          Hampton Inn & Suites        102           Meeting Space         400 sq. ft.            10/95
Tucson, AZ              Holiday Inn                 299           Atrium;                                      11/81
                                                                  Meeting Space:     14,000 sq. ft.         
Tucson, AZ              Marriott                    250           Atrium;                                      12/96
                                                                  Meeting Space:     11,500 sq. ft.         
Bakersfield, CA         Holiday Inn Select          259           Meeting Space:      9,735 sq. ft.  (c)        6/95
Fresno, CA(a)(d)        Holiday Inn                 210           Meeting Space:      5,000 sq. ft.            12/73
Fresno, CA              Holiday Inn (Centre Plaza)  321           Atrium;                                      10/83
                                                                  Meeting Space:     16,000 sq. ft.  (c)    
Monterey, CA            Embassy Suites              225           Meeting Space:     13,700 sq. ft.            11/95
Sacramento, CA          Holiday Inn                 364           Meeting Space:      9,000 sq. ft.             8/79
San Francisco, CA       Holiday Inn                 279           Meeting Space:      9,000 sq. ft.             6/72

</TABLE> 

                                     -10-
<PAGE>


<TABLE>
<CAPTION>
                                                    Number of 
                                                    ---------  
Location                Franchise/Name              Rooms/Suites  Description                              Opening Date
--------                --------------              ------------  -----------                              ------------
<S>                     <C>                         <C>           <C>                <C>                   <C>      
 
Denver, CO(a)           Holiday Inn                 236           Atrium;                                      10/82
                        (International Airport)                   Trade Center:      66,000 sq. ft.  (b)
                                                                                                        
Denver, CO              Holiday Inn (Northglenn)    236           Meeting Space:     20,000 sq. ft.            12/80
Fort Collins, CO        Holiday Inn                 259           Atrium;                                       8/85
                                                                  Meeting Space:     12,000 sq. ft.     
Cedar Rapids, IA        Collins Plaza               221           Atrium;                                       9/88
                                                                  Meeting Space:     11,250 sq. ft.     
Davenport, IA           Radisson                    223           Meeting Space:      7,800 sq. ft.  (c)       10/95
Des Moines, IA          Embassy Suites              234           Atrium;                                       9/90
                                                                  Meeting Space:     13,000 sq. ft.     
Des Moines, IA          Holiday Inn                 288           Atrium;                                       1/87
                                                                  Meeting Space:     15,000 sq. ft.     
Joliet, IL              Holiday Inn                 200           Meeting Space:      5,500 sq. ft.             3/71
Bowling Green, KY       University Plaza            219           Meeting Space:      4,000 sq. ft.  (c)        8/95
Jefferson City, MO      Capitol Plaza               255           Atrium;                                       9/87
                                                                  Meeting Space:     14,600 sq. ft.     
Joplin, MO              Holiday Inn                 264           Atrium;                                       6/79
                                                                  Meeting Space:      8,000 sq. ft.     
                                                                  Trade Center:      32,000 sq. ft.  (b)
Kansas City, MO(a)      Embassy Suites              236           Atrium;                                       4/89
                                                                  Meeting Space:     12,000 sq. ft.     
Springfield, MO         Holiday Inn                 188           Atrium;                                       9/87
                                                                  Meeting Space:      3,020 sq. ft.     
Billings, MT(d)         Holiday Inn                 315           Atrium;                                      10/72
                                                                  Meeting Space:     15,000 sq. ft.     
                                                                  Trade Center       30,000 sq. ft.  (b)
Reno, NV                Holiday Inn                 286           Meeting Space:      8,700 sq. ft.             2/74
Albuquerque, NM         Holiday Inn                 311           Atrium;                                      12/86
                                                                  Meeting Space:     123,00 sq. ft.     
Greensboro, NC(a)       Embassy Suites              221           Atrium;                                       1/89
                                                                  Meeting Space:     10,250 sq. ft.     
Greensboro, NC(a)       Homewood Suites             104           Extended Stay                                 8/96
Portland, OR(a)         Holiday Inn                 286           Atrium;                                       4/79
                                                                  Trade Center:      37,000 sq. ft.  (b)
Columbia, SC            Embassy Suites              214           Atrium;                                       3/88
                                                                  Meeting Space:     13,000 sq. ft.     
Greenville, SC          Embassy Suites              268           Atrium;                                       4/93
                                                                  Meeting Space:     20,000 sq. ft.     
Beaumont, TX            Holiday Inn                 253           Atrium;                                       3/84
                                                                  Meeting Space:     12,000 sq. ft.     
Houston, TX(a)          Holiday Inn                 288           Atrium;                                      12/85
                                                                  Meeting Space:     14,300 sq. ft.     
Lubbock, TX(d)          Holiday Inn (Civic Center)  293           Atrium;                                       9/82
                                                                  Meeting Space:      7,000 sq. ft.  (c)
Lubbock, TX(d)          Holiday Inn                 202           Atrium;                                      10/85
                                                                  Meeting Space:     24,000 sq. ft.     
Madison, WI             Holiday Inn                 295           Atrium;                                      10/85
                                                                  Meeting Space:     15,000 sq. ft.     
                                                                  Convention Ctr:    50,000 sq. ft.  (b)
Cheyenne, WY(d)         Holiday Inn                 244           Meeting Space:     12,000 sq. ft.             6/81
</TABLE>

------------------------
 
(a)  Airport location

(b)  The trade or convention center is located adjacent to hotel and is owned by
     Mr. Hammons, except the convention centers in Madison, Wisconsin and
     Denver, Colorado, which are owned by the Company.

(c)  Large civic center is located adjacent to hotel.


                                     -11-
<PAGE>
 
(d)  Sold effective February 6, 1998.

Managed Hotels

     The Managed Hotels consist of four hotels (three Holiday Inns and one Days
Inn) located in two states (Missouri and South Dakota), and contain a total of
952 guest rooms.  Mr. Hammons directly owns three of these four hotels.  The
remaining hotel is owned by an entity controlled by Mr. Hammons in which he has
a 50% interest.  Jacqueline Dowdy, a director and officer of the General
Partner, and Daniel L. Earley, a director of the General Partner, each own a 25%
interest in this entity.  The Managed Hotels contain an average of 238 rooms per
hotel and two of the Managed Hotels have an atrium.  There is a convention and
trade center adjacent to two of the Managed Hotels.

     The Company provides management services to the Managed Hotels within the
guidelines contained in annual operating and capital plans submitted to the
hotel owner for review and approval during the final 30 days of the preceding
year.  The Company is responsible for the day-to-day operations of the Managed
Hotels.  While the Company is responsible for the implementation of major
refurbishment and repairs, the actual cost of such refurbishments and repairs is
borne by the hotel owner.  The Company earns a fee based on the size of the
project.  The Company earns an average annual management fee of 3% of the
hotel's gross revenues.  Each of the Managed Hotels' management contracts is for
an initial term of 20 years, which automatically extends for four periods of
five years, unless otherwise canceled.  The Company has received an option from
Mr. Hammons or entities controlled by him to purchase each of the Managed
Hotels.

Item 3.  Legal Proceedings.

     The Company is not presently involved in any litigation which if decided
adversely to the Company would have a material effect on the Company's financial
condition.  To the Company's knowledge, there is no litigation threatened other
than routine litigation arising in the ordinary course of business which would
be covered by liability insurance.

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

     None.



                                    PART II

Item 5.  Market for Registrant's Common Equity and Related Shareholder Matters.

     Not Applicable.

Item 6.  Selected Financial Data

     The selected consolidated financial information of the Company for the
1997, 1996, 1995, 1994 and 1993 Fiscal Years has been derived from and should be
read in conjunction with the audited consolidated financial statements of the
Company, which statements have been audited by Arthur Andersen LLP, independent
public accountants.  The information presented below also should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included under Item 7.   The Company's fiscal year
ends on the Friday nearest December 31.  Consequently, the Company's 1996 Fiscal
Year included 53 weeks of operations while the 1993, 1994, 1995 and 1997 Fiscal
Years included 52 weeks of operations.


                                     -12-
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                                Fiscal Year-Ended
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                   1997       1996      1995        1994       1993
-----------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                                                   <C>       <C>        <C>         <C>        <C>
          STATEMENT OF   Revenues:
      OPERATIONS DATA:     Rooms(a)                                            $195,295   $171,206  $148,432    $137,387   $130,754
                           Food and beverage                                     86,183     79,580    70,840      65,308     67,748
(DOLLARS IN THOUSANDS,     Meeting room rental and other(b)                      20,795     18,061    15,907      13,998     12,360
  EXCEPT OPERATING AND                                                         --------   --------  --------    --------   --------
       PER SHARE DATA)       Total revenues                                     302,274    268,847   235,179     216,693    210,862
                                                                               --------   --------  --------    --------   --------
                         Operating expenses:
                           Direct operating costs and expenses(c)
                            Rooms                                                50,265     43,610    38,543      34,413     33,189
                            Food and beverage                                    62,383     57,956    54,228      49,721     51,772
                            Other                                                 3,385      2,929     2,521       2,397      2,225
                           General, administrative, sales and management
                            expenses(d)(e)                                       85,766     74,646    64,234      57,981     57,097
                           Repairs and maintenance                               12,578     11,528    10,131       9,888      9,624
                           Depreciation and amortization                         34,781     24,034    18,346      13,975     14,153
                                                                               --------   --------  --------    --------   --------
                             Total operating expenses                           249,158    214,703   188,003     168,375    168,060
                                                                               --------   --------  --------    --------   --------
                         Income from operations                                  53,116     54,144    47,176      48,318     42,802
                         Interest expense and amortization of deferred
                          financing fees, net                                    44,325     35,620    28,447      32,932     27,412
                                                                               --------   --------  --------    --------   --------
                         Income before extraordinary item(f)                      8,791     18,524    18,729      15,386     15,390

                         Other data:
                         EBITDA(g)                                             $ 87,897   $ 78,178  $ 65,522    $ 62,293   $ 56,955
                           Net cash provided by operating activities             27,769     72,052    44,037      46,107     32,341
                           Net cash used in investing activities               (193,271)  (136,296)  (78,085)   (149,510)    (9,259)
                           Net cash provided by (used in) financing activities  161,014     68,916    66,113     104,884    (17,742)
                         Margin and ratio data:
                           EBITDA margin (% of total revenue)(g)                   29.1%      29.1%     27.9%       28.8%      27.0%
                           Earnings to fixed charges ratio (h)                     0.97x      1.26x     1.39x       1.42x      1.55x
                         Operating data:
                         Owned Hotels:
                           Number of hotels                                          45         39        37          31         31
                           Number of rooms                                       11,108      9,666     9,312       8,054      8,054
                           Average occupancy                                       62.9%      64.7%     67.1%       68.5%      68.7%
                           Average daily room rate                             $  82.38   $  76.16  $  71.68    $  68.45   $  65.63
                           Room revenue per available room(i)                  $  51.84   $  49.25  $  48.09    $  46.88   $  45.11
                           Increase in yield(j)                                     5.3%       2.4%      2.6%        3.9%       3.0%
                         Balance sheet data:
                         Total assets                                          $816,733   $658,072  $542,371    $443,044   $297,599
                         Total debt, including current portion                  695,791    531,143   458,094     380,869    342,165
                         Minority interest of holders of the LP Units            39,399     33,662    23,082      14,820         --
                         Equity (deficit)                                        18,580     16,094    10,955       5,852    (71,626)

------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 

(a)  Includes revenues derived from rooms.

(b)  Includes meeting room rental, management fees for providing management 
     services to the Managed Hotels and other.

(c)  Includes expenses incurred in connection with rooms, food and beverage and 
     telephones.

(d)  Includes expenses incurred in connection with franchise fees,
     administrative, marketing and advertising, utilities, insurance, property
     taxes, rent and other.

(e)  Includes expenses incurred providing management services to the Managed 
     Hotels.

(f)  The 1994 and 1995 Fiscal Years do not include a $3.3 million and a $0.3
     million, respectively, extraordinary charge related to prepayment fees on
     early debt retirement in connection with (i) the issuance by the Company
     and John Q. Hammons Hotel Finance Corporation ("Finance Corp."), as co-
     obligors, of $300 million aggregate principal amount of 8-7/8% First
     Mortgage Notes due 2004 (the "1994 Notes") in February 1994 (the "1994 Note
     Offering") and the issuance by the General Partner of 6,042,000 shares of
     its Class A Common Stock (the "Class A Common Stock") in November, 1994
     (the "Common Stock Offering"), and (ii) the issuance by the Company and 
     John Q. Hammons Hotels Finance Corporation II ("Finance Corp. II"), as co-
     obligors, of $90 million aggregate principal amount of 9-3/4% First
     Mortgage Notes due 2005 (the "1995 Notes") in October 1995 (the "1995 Note
     Offering"). After such charges, net income is $12.0 million for the 1994
     Fiscal Year and $18.4 million for the 1995 Fiscal Year.

(g)  EBITDA represents earnings before net interest expense, provision for
     income taxes (if applicable) and depreciation and amortization. EBITDA is
     used by the Company for the purpose of analyzing its operating performance,
     leverage and liquidity. Such data are not a measure of financial
     performance under generally accepted accounting principles and should not
     be considered as an alternative to net earnings as an indicator of the
     Company's operating performance or as an alternative to cash flows as a
     measure of liquidity.

(h)  Earnings used in computing the earnings to fixed charges ratios consist of
     net income plus fixed charges. Fixed charges consist of interest expense
     and that portion of rental expense representative of interest (deemed to be
     one third of rental expense).

(i)  Total room revenue divided by number of available rooms. Available rooms
     represent the number of rooms available for rent multiplied by the number
     of days in the period presented.

(j)  Increase in yield represents the period-over-period increases in yield.
     Yield is defined as the room revenue per available room.

                                     -13-
<PAGE>

Supplemental Financial Information Relating to the 1994 and 1995 Collateral 
Hotels

     The following tables set forth, as of January 2, 1998, unaudited selected
financial information with respect to the 20 hotels collateralizing the 1994
Notes (the "1994 Collateral Hotels") and the eight hotels collateralizing the
1995 notes ("the 1995 Collateral Hotels") and the Company, excluding
Unrestricted Subsidiaries (as defined in the indentures relating to the 1994
Notes and the 1995 Indentures) (the "Restricted Group"). Under the heading
"Management Operations," information with respect to revenues and expenses
generated by the Company as manager of the 1994 Collateral Hotels, the 1995
Collateral Hotels, the other Owned Hotels owned by John Q. Hammons Hotels Two,
L.P. ("L.P. Two"), and the Managed Hotels is provided.

<TABLE>
<CAPTION>
                                                        12 Months Ended January 2, 1998
                                              --------------------------------------------------
                                                 1994          1995                     Total
                                              Collateral    Collateral   Management   Restricted
                                                Hotels        Hotels     Operations     Group
                                              ----------    ----------   ----------   ----------
<S>                                            <C>            <C>          <C>         <C>
Statement of Operations Data:
Operating Revenues                             $151,797       $62,209      $ 4,828(a)  $218,834
Operating Expenses:
 Direct operating costs and expenses             57,511        24,030           --       81,541
 General Administrative, Sales and 
   Management expenses (b)                       41,960        18,303       (1,524)(c)   58,739
 Repairs and Maintenance                          6,089         2,771           --        8,860
 Depreciation & Amortization                     12,072         5,391           76       17,539
                                               --------       -------      -------     --------
      Total Operating Expense                   117,632        50,496       (1,448)     166,679
                                               --------       -------      -------     --------
Income from Operations                         $ 34,165       $11,713      $ 6,276     $ 52,154
                                               ========       =======      =======     ========
Operating Data:
   Occupancy                                       65.2%         65.2%
   Average Daily Room Rate                     $  80.32       $ 75.30
   RevPAR                                      $  52.33       $ 49.06

                                                        12 Months Ended January 3, 1997
                                              --------------------------------------------------
                                                 1994          1995                     Total
                                              Collateral    Collateral   Management   Restricted
                                                Hotels        Hotels     Operations     Group
                                              ----------    ----------   ----------   ----------
Statement of Operations Data:
Operating Revenues                             $153,001       $61,376      $ 3,219(a)  $217,596
Operating Expenses:
 Direct operating costs and expenses             59,014        24,255           --       83,269
 General Administrative, Sales and
   Management expenses(b)                        42,196        18,193       (1,861)(c)   58,527
 Sales and Management expenses
 Repairs and Maintenance                          6,322         2,835           --        9,157
 Depreciation & Amortization                     10,236         4,714          120       15,070
                                               --------       -------      -------     --------
      Total Operating Expenses                  117,768        49,997       (1,741)     166,024
                                               --------       -------      -------     --------
Income from operations                         $ 35,233       $11,378      $ 4,961     $ 51,572
                                               ========       =======      =======     ========
Operating Data:
   Occupancy                                      66.48%        67.12%
   Average Daily Room Rate                     $  77.06       $ 71.41
   RevPAR                                      $  51.23       $ 47.93
</TABLE>

(a)  Represents management revenues derived from the Owned Hotels owned by L.P.
     Two and the Managed Hotels. 

(b)  General administrative, sales and management expenses for the 1994 and 1995
     Collateral Hotels includes management expenses allocated to the respective
     hotels.

(c)  General, administrative, sales and management expenses applicable to
     management operations is net of management revenues allocated to the 1994
     and 1995 Collateral Hotels.

                                     -14-
<PAGE>


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

General

     The following discussion and analysis primarily addresses results of
operations of the Company for the fiscal years ended January 2, 1998 ("1997"),
January 3, 1997 ("1996") and December 29, 1995 ("1995").  The consolidated
financial statements of the Company present the consolidated assets,
liabilities, revenues and expenses of those entities which now comprise the
Company as if the Company had been a single entity for all the periods
presented.  The following discussion should be read in conjunction with the
selected consolidated financial information of the Company and the consolidated
financial statements of the Company included elsewhere herein.

     The Company's consolidated financial statements include revenues from the
Owned Hotels and management fee revenues for providing management services to
the Managed Hotels.  References to the JQH Hotels include both the Owned Hotels
and the Managed Hotels.  Revenues from the Owned Hotels are derived from rooms,
food and beverage, and meeting rooms and other revenues.  The Company's beverage
revenues include only revenues from the sale of alcoholic beverages, while
revenues from the sale of non-alcoholic beverages are shown as part of food
revenues.  Direct operating costs and expenses include expenses incurred in
connection with the direct operation of rooms, food and beverage and telephones.
General, administrative, sales and management services expenses include expenses
incurred from franchise fees, administrative, sales and marketing, utilities,
insurance, property taxes, rent, management services and other expenses.

     From 1993 through 1997, the Company's total revenues grew at an annual
compounded growth rate of 9.4%, from $210.9 million to $302.3 million.
Occupancy for the Owned Hotels during that period decreased 5.8 percentage
points from 68.7% to 62.9%.  However, the Owned Hotels' average room rate
increased by 25.5% from $65.63 to $82.38 during that period.  Room revenue per
available room (RevPAR) increased by 14.9% from $45.11 to $51.84.

     In general, hotels opened during the period from 1993 to 1997 decreased
overall occupancy but increased the overall average room rate.  The Company
tracks the performance of the Owned Hotels in two groups.  One group of hotels
are those opened by the Company during the current and prior fiscal years (New
Hotels).  During 1997, the New Hotels included six hotels opened in 1997 and two
hotels opened in 1996.  The remainder of the Owned Hotels, excluding the New
Hotels, are defined as Mature Hotels.  In 1997, the Mature Hotels included 37
hotels opened prior to 1996.   New hotels typically generate positive cash flow
from operations before debt service in the first year, generate cash sufficient
to service mortgage debt in the second year and create positive cash flow after
debt service in the third year.

     Given the current positive trends in the upscale, full-service sector of
the hotel industry, the Company continues to develop new hotels, including the
seven Scheduled Hotels anticipated to open in 1998 and 1999.

                                     -15-
<PAGE>

Results of Operations of the Company

The following table shows selected consolidated operating statistics for the
total Owned Hotels:
<TABLE>
<CAPTION>
                                                Fiscal Year
------------------------------------------------------------------------------------
                         1997         1996         1995         1994         1993
------------------------------------------------------------------------------------
<S>                   <C>          <C>          <C>          <C>          <C>
Average occupancy          62.9%        64.7%        67.1%        68.5%        68.7%
Average room rate     $    82.38   $    76.16   $    71.68   $    68.45   $    65.63
Room revenue per      $    51.84   $    49.25   $    48.09   $    46.88   $    45.11
 available room
Available rooms(a)     3,767,387    3,476,279    3,087,700    2,930,893    2,901,516
Number of hotels              45           39           37           31           31
====================================================================================
</TABLE>

The following table shows selected operating statistics for the Mature Hotels
(including the six hotels opened in 1995):
<TABLE>
<CAPTION>
                                                Fiscal Year
------------------------------------------------------------------------------------
                         1997         1996         1995         1994         1993
------------------------------------------------------------------------------------
<S>                   <C>          <C>          <C>          <C>          <C>
Average occupancy          63.8%        64.8%        67.1%        68.5%        68.7%
Average room rate     $    79.80   $    76.06   $    71.68   $    68.45   $    65.63
Room revenue per      $    50.90   $    49.29   $    48.09   $    46.88   $    45.11
 available room
Available rooms(a)     3,388,896    3,454,899    3,087,700    2,930,893    2,901,516
Number of hotels              37           37           37           31           31
====================================================================================
</TABLE>

The following table shows selected operating statistics for the New Hotels:
<TABLE>
<CAPTION>
                                                Fiscal Year
------------------------------------------------------------------------------------
                         1997         1996         1995         1994         1993
------------------------------------------------------------------------------------
<S>                   <C>          <C>             <C>          <C>          <C>
Average occupancy        55.3%       42.2%           --           --           --
Average room rate     $ 108.97     $100.49           --           --           --
Room revenue per      $  60.21     $ 42.42           --           --           --
 available room
Available rooms(a)     378,491      21,380           --           --           --
Number of hotels             8           2           --           --           --
====================================================================================
</TABLE>
(a) Available rooms represent the number of rooms available for rent multiplied
by the number of days in the period reported, or in the case of New Hotels, the
number of days the hotel was opened during the period reported. The Company's
1996 Fiscal Year contained 53 weeks or 371 days while its 1993, 1994, 1995 and
1997 Fiscal Years each contained 52 weeks or 364 days.

                                     -16-
<PAGE>
 
The following table shows selected components of the Company's operating income
as a percentage of revenues
<TABLE>
<CAPTION>
                                                    Fiscal Year
----------------------------------------------------------------------------
                                        1997    1996    1995    1994    1993
----------------------------------------------------------------------------
<S>                                    <C>     <C>     <C>     <C>     <C>
REVENUES
Rooms                                   64.6%   63.7%   63.1%   63.4%   62.0%
Food and beverage                       28.5    29.6    30.1    30.1    32.1
Meeting room rental and other            6.9     6.7     6.8     6.5     5.9
                                       -----   -----   -----   -----   -----
  Total Revenues                       100.0   100.0   100.0   100.0   100.0
                                       -----   -----   -----   -----   -----
 
Direct operating costs and expenses
  Rooms                                 16.6    16.2    16.4    15.9    15.7
  Food and beverage                     20.6    21.6    23.0    22.9    24.6
  Other                                  1.1     1.1     1.1     1.1     1.0
General, administrative, sales and
  management service expense            28.4    27.8    27.3    26.8    27.1
Repairs and maintenance expenses         4.2     4.3     4.3     4.6     4.6
Depreciation and amortization           11.5     8.9     7.8     6.4     6.7
                                       -----   -----   -----   -----   ----- 
  Total Operating Expenses              82.4    79.9    79.9    77.7    79.7
                                       -----   -----   -----   -----   -----
  Income from Operations                17.6%   20.1%   20.1%   22.3%   20.3%
                                       =====   =====   =====   =====   =====
</TABLE>
 1997 FISCAL YEAR COMPARED TO 1996 FISCAL YEAR

 Total revenues increased to $302.3 million in 1997 from $268.8 million in 1996,
 an increase of $33.5 million or 12.4%. Of total 1997 revenues, 64.6% were
 revenues from rooms, compared to 63.7% in 1996, continuing the gradual shift
 over the past several years, as the average room rate continued to increase.
 Revenues from food and beverage represented 28.5% of total 1997 revenues,
 compared to 29.6% in 1996, and revenues from meeting room rental and other
 represented 6.9% of total revenues compared to 6.7% in 1996.

 Rooms revenue increased to $195.3 million in 1997 from $171.2 million in 1996,
 an increase of $24.1 million or 14.1% as a result of the addition of six hotels
 opened in 1997, a full year of operation for the two hotels opened in 1996, and
 a 4.9% increase in the average room rate. Average room rates of Mature Hotels
 increased to $79.80 in 1997 from $76.06 in 1996, from increases in pricing
 schedules. Partially offsetting the increased average room rate in the Mature
 Hotels was a 1.0 percentage point decline in occupancy to 63.8% in 1997
 compared to 64.8% in 1996. This occupancy decline was the result of competition
 from new limited service hotels in the Mature Hotels' markets. The Mature
 Hotels' room revenue per available room (RevPAR) improved to $50.90 in 1997
 from $49.29 in 1996, an increase of $1.61 or 3.3%. In 1997, the New Hotels
 included eight hotels which generated a RevPAR of $60.21, up 41.9% from the
 1996 RevPAR of $42.42 when only two of the New Hotels were open. In general,
 management believes the New Hotels are more insulated from the effects of new
 hotel supply than are the Mature Hotels since the New Hotels utilize franchise
 brands that are considered to be more upscale in nature, and the New Hotels
 have higher quality guest rooms and public spaces.

 Food and beverage revenues increased to $86.2 million in 1997 from $79.6
 million in 1996, an increase of $6.6 million or 8.3%. This increase was due to
 revenues associated with the New Hotels.

 Meeting room rental and other revenues increased to $20.8 million in 1997 from
 $18.1 million in 1996, an increase of $2.7 million or 15.1%. This increase was
 primarily a result of the New Hotels.

 Direct operating costs and expenses for rooms increased to $50.3 million in
 1997 from $43.6 million in 1996, an increase of $6.7 million or 15.3%. As a
 percentage of rooms revenue, these expenses increased slightly to 25.7% in 1997
 from 25.5% in 1996. The increased expense was associated with the New Hotels.
 These costs

                                      -17-
<PAGE>
 
 generally represent a higher represent a higher percentage of rooms revenues in
 newer hotels until these hotels reach stabilized occupancy levels.

 Direct operating costs and expenses for food and beverage increased to $62.4
 million in 1997 from $58.0 million in 1996, an increase of $4.4 million or
 7.6%, but decreased slightly as a percentage of food and beverage revenues, to
 72.4%, from 72.9% in 1996. The dollar increase was due to costs associated with
 the higher volume of sales associated with the New Hotels. .

 Direct operating costs and expenses for other were $3.4 million in 1997 and
 $2.9 million in 1996, a 15.6% increase. As a percentage of meeting room rental
 and other revenues, these expenses were 16.3% in 1997 and 16.2% in 1996.

 General, administrative, sales and management services expenses increased to
 $85.8 million in 1997 from $74.6 million in 1996, an increase of $11.2 million
 or 14.9%. Increases in these expenses are primarily attributable to expenses
 associated with the New Hotels. Due to a large portion of these expenses being
 fixed costs in nature, new hotel openings cause these expenses to rise faster
 than revenues in the first one to two years of operation. As a percentage of
 total revenues, these expenses increased to 28.4% in 1997 from 27.8% in 1996.

 Repairs and maintenance expenses increased to $12.6 million in 1997 from $11.5
 million in 1996, an increase of $11.1 million or 9.1%, but decreased slightly
 as a percentage of revenues, to 4.2% from 4.3% in 1996.

 Depreciation and amortization increased by $10.8 million, or 44.7%, to $34.8
 million in 1997 from $24.0 million in 1996. As a percentage of total revenues,
 these expenses increased to 11.5% in 1997 from 8.9% in 1996. The increase was a
 direct result of the opening of the eight New Hotels during 1996 and 1997. This
 amount will continue to increase in the foreseeable future as the result of the
 Company's continuing development of new hotels.

 Income from operations decreased to $53.1 million in 1997 from $54.1 million in
 1996, a decrease of $0.1 million or 1.9%. As a percentage of total revenues,
 income from operations was 17.6% in 1997 compared to 20.1% in 1996, due
 primarily to the non-cash expense of depreciation and amortization associated
 with the New Hotels.

 Interest expense and amortization of deferred financing fees, net increased to
 $44.3 million in 1997 from $35.6 million in 1996, an increase of $8.7 million
 or 24.4%. The increase was attributable to debt associated with the financing
 of the New Hotels.

 Income before extraordinary item decreased to $8.8 million in 1997 from $18.5
 million in 1996, a decrease of $9.7 million or 52.5%.

 1996 FISCAL YEAR COMPARED TO 1995 FISCAL YEAR

 Total revenues increased to $268.8 million in 1996 from $235.2 million in 1995,
 an increase of $33.6 million or 14.3%. Of the total revenues reported in 1996,
 63.7% were revenues from rooms, 29.6% were revenues from food and beverage, and
 6.7% were revenues from meeting room rental and other, compared with 63.1%,
 30.1% and 6.8%, respectively, during 1995.

 Room revenue increased to $171.2 million in 1996 from $148.4 million in 1995,
 an increase of $22.8 million or 15.3% as a result of the operation of six
 hotels which opened in 1995, two hotels which opened in 1996 and the increase
 in average daily room rate. Average daily room rates of Mature Hotels increased
 to $74.47 in 1996 from $71.44 in 1995, in increase of $3.03 or 4.2%. During
 1996, the Mature Hotels included the 31 hotels opened prior to 1995. The higher
 average daily room rate was attributable to continued increases in pricing
 schedules in both the transient and corporate market segments. RevPAR was flat
 with $49.11 in 1996 and $49.13 in 1995.

                                     -18-
<PAGE>
 
 Food and beverage revenues increased to $79.6 million in 1996 from $70.8
 million in 1995, an increase of $8.8 million or 12.3%. This increase was due to
 revenues associated with the New Hotels and new food franchise operations.
 During 1996, the New Hotels included two hotels opened in 1996 and six hotels
 opened in 1995.

 Meeting room rental and other revenues increased to $18.1 million in 1996 from
 $15.9 million in 1995, an increase of $2.2 million or 13.5%. This increase was
 due to the addition of meeting space in the New Hotels.

 Direct operating costs and expenses for rooms increased to $43.6 million in
 1996 from $38.5 million in 1995, an increase of $5.1 million or 13.1%. As a
 percentage of rooms revenue, these expenses decreased slightly to 25.5% in 1996
 from 26.0% in 1995.

 Direct operating costs and expenses for food and beverage increased to $58.0
 million in 1996 from $54.2 million in 1995, an increase of $3.8 million or
 6.9%. The increase was due to costs associated with the higher volume of sales.

 Direct operating costs and expenses for other increased to $2.9 million in 1996
 from $2.5 million in 1995, an increase of $0.4 million or 16.2%.

 General, administrative, sales and management services expenses increased to
 $74.6 million in 1996 from $64.2 million in 1995, an increase of $10.4 million
 or 16.2%. Increases in these expenses are primarily attributable to expenses
 associated with the opening of the New Hotels in 1995 and 1996, increases in
 certain insurance costs and certain other increases in expenses associated with
 increased room revenues. As a percentage of total revenues, these expenses
 increased to 27.8% in 1996 from 27.3% in 1995.

 Repairs and maintenance expenses increased to $11.5 million in 1996 from $10.1
 million in 1995, an increase of $1.4 million or 13.8%.

 Depreciation and amortization increased to $24.0 million in 1996 from $18.3
 million in 1995. As a percentage of total revenues, these expenses increased to
 8.9% in 1996 from 7.8% in 1995. The increase was a direct result of the
 increased level of capital expenditures for renovation of existing hotels and
 construction of New Hotels.

 Income from operations increased to $54.1 million in 1996 from $47.2 million in
 1995, an increase of $6.9 million or 14.8%. The increase was due to higher
 profit margins related to the six New Hotels opened in 1995. As a percentage of
 total revenues, income from operations was 20.1% in 1996 and 1995.

 Interest expense and amortization of deferred financing fees, net increased to
 $35.6 million in 1996 from $28.5 million in 1995, an increase of $7.1 million
 or 25.2%. The increase was primarily attributable to new hotel borrowing for
 new construction offset in part by capitalized interest associated with
 projects under construction during the year.

 Income before extraordinary item decreased to $18.5 million in 1996 from $18.7
 million in 1995, a decrease of $0.2 million or 1.1%. The $18.7 million in 1995
 does not include a $0.3 million extraordinary charge related to prepayment fees
 on early debt retirement in connection with the Note Offering incurred in 1995.

 LIQUIDITY AND CAPITAL RESOURCES

     In general, the Company has financed its operations through internal cash
 flow, loans from financial institutions, the issuance of public debt and equity
 and the issuance of industrial revenue bonds. The Company in the future will
 obtain mortgage financing secured by construction in progress to provide
 funding for the hotels it develops. The Company's principal uses of cash are to
 pay operating expenses, to service debt and to fund capital expenditures, new
 hotel development and permitted distributions to the partners to fund some of
 the taxes associated with income allocable to the partners.

                                     -19-
<PAGE>
 
     At January 2, 1998, the Company had $42.0 million of cash and equivalents
 and also had $12.7 million of marketable securities, compared to $46.4 million
 in cash and equivalents and $2.4 million of marketable securities at the end of
 1996. Such amounts are available for development of new hotels and other
 working capital requirements of the Company.

     Net cash provided by operating activities decreased significantly, to $27.8
 million at the end of 1997 from $72.1 million at the end of 1996, a decrease of
 $44.3 million or 61.5%. This decrease was primarily due to the timing of
 payment of construction related accounts payable associated with hotels opened
 during 1997.

     The Company incurred net capital expenditures of $179.4 million and $155.6
 million, respectively, for 1997 and 1996. Capital expenditures typically
 include capital improvements on existing hotel properties and expenditures for
 development of new hotels. Capital expenditures in 1997 included a $160.3
 million for new hotel development and $19.1 million for existing hotels. During
 1996, capital expenditures for existing hotels and new hotel development were
 $129.1 million and $26.5 million, respectively. During 1998, the Company
 expects capital expenditures to total $158.5 million, representing
 approximately $137.7 million for capital improvements on existing hotels and
 for continued new hotel development and $20.8 million for capital improvements 
 on existing hotels.

     At the end of 1997, total debt was $695.8 million compared with $531.1
 million in 1996. The increase is attributable to the six hotels opened during
 1997 as well as six Scheduled Hotels under construction at the end of 1997.
 Current portion due of long-term debt was $61.5 million at the end of 1997,
 compared with $12.4 million at the end of 1996. The increase is primarily
 attributable to two loans totaling $43.5 million. The Company will exercise its
 option to extend one loan in the amount of $23.5 million and plans to either
 extend or refinance a second loan in the amount of $20 million.

     In February 1998, the Company completed the sale of six hotels for
 approximately $40 million, consisting of assumption of debt and other
 obligations of approximately $5.1 million and cash of approximately $34.9
 million. Five of the six hotels sold served as collateral for the 1994 and 1995
 Mortgage Notes.. The Company intends to provide replacement collateral for
 these mortgage notes and, therefore, the net proceeds realized from the sale
 will generally not be available for new hotel development.

     The Company estimates that building, pre-opening and other costs of the six
 Scheduled Hotels will require aggregate funding of $140.7 million from the
 Company (net of $77.6 million included in construction in progress at year
 end). The Company has obtained loans and commitments of $122.8 million ($36.3
 million of which had been drawn at year end) on five of the Scheduled Hotels
 and expects the remaining capital requirements to be funded by cash, cash flow
 from operations, refinancing of certain existing hotels and loans on two
 unencumbered Scheduled Hotels.

     In addition to the capital expenditures for the Scheduled Hotels, the
 Company is at various stages in evaluating other new hotel development. Capital
 requirements for the hotels under development are expected to be provided by
 (i) construction loans; (ii) refinancing of certain existing hotels; (iii)
 contributions from third parties; and (iv) cash flow from operations.

     The Company expects to fund development of new hotels through limited
 partnerships in which the Company will be the general partner and a wholly-
 owned corporate subsidiary of the Company will be the limited partner. As
 permitted by the indenture relating to the Notes (the "Note Indenture"), each
 of these entities will be an "Unrestricted Subsidiary" for purposes thereof,
 and, accordingly, the ability of the Company to fund these entities is subject
 to certain limitations contained in the Note Indenture. All of the indebtedness
 of this entity will be non-recourse to the Company. The Company believes that
 funding permitted under the Note Indenture will be sufficient to meet its
 current hotel development plans.

     Based upon current plans relating to the timing of new hotel development
 and loan draw schedules, the Company anticipates that its capital resources
 will be adequate to satisfy its 1998 capital requirements for the currently
 planned projects and normal recurring capital improvement projects.

                                     -20-
<PAGE>
 
     The Company distributed $0.6 million in 1997, and $2.7 million in 1996 to
 its partners. Distributions by the Company to its partners must be made in
 accordance with the provisions of the Note Indentures.

     The Company has reviewed the effects of the upcoming Year 2000 on its
 computer systems and operations, as well as on those of the Owned Hotels. The
 company does not anticipate any material impact on its corporate operation,
 given the current systems used are believed to be Year 2000 compliant. Systems
 for several of the Owned Hotels are also believed to be Year 2000 compliant.
 The Company has not yet determined the effect on 16 of the Owned Hotels
 operated as Holiday Inn franchises. The franchisor has indicated that it will
 announce its proposal for addressing Year 2000 compliance in May 1998. For all
 other Owned Hotels, the Company has included amounts in its capital
 expenditures budget for software upgrades and for other systems initiatives.
 These planned upgrades and modifications are intended to address Year 2000
 issues. Planned costs for system upgrades and modifications currently
 approximate $0.8 million to $1.0 million. Virtually all such upgrades were
 anticipated by the Company and would have been implemented within the next few
 years even absent a Year 200 issue.

 Seasonality

 Demand is affected by normally recurring seasonal patterns. For most of the JQH
 Hotels, demand is higher in the spring and summer months (March through
 October) than during the remainder of the year. Accordingly, the Company's
 operations are seasonal in nature, with lower revenue, operating project and
 cash flow in the first and fourth quarters due to decreased travel during the
 winter months.

 Inflation

 The rate of inflation as measured by changes in the average consumer price
 index has not had a material effect on the revenues or operating results of the
 Company during the three most recent fiscal years.

 Item 7A. Quantitative and Qualitative Disclosures About Market Risk

    Not applicable.

 Item 8.  Financial Statements and Supplementary Data.

     Reference is made to the Index to Consolidated Financial Statements and the
 Financial Statements following such index in Item 14.

 Item 9.  Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure.

    None.

                                     -21-
<PAGE>
 
                                    PART III

 Item 10. Directors and Executive Officers of the Registrant.

     The Company does not have any directors or officers. The General Partner in
 its capacity as general partner, manages and controls the activities of the
 Company. The following sets forth certain information concerning the directors
 and director nominees of the General Partner who are not also officers of the
 General Partner. Information required by this item with respect to officers of
 the General Partner is provided in Item 1 of this report. See "Management."
 Finance Corp. and Fiance Corp. II each have the same directors and officers as
 the General Partner, except that Messrs. Earley, Hart, Lopez-Ona, and Moore are
 not directors of Finance Corp. or Finance Corp. II.

     Daniel L. Earley, age 55, has been a director of the General Partner since
 February 1994. Since 1985, Mr. Earley has been President, Chief Executive
 Officer and a director of The Clermont Savings Bank, a community bank located
 Milford, Ohio, which is owned by Mr. Hammons.

     William J. Hart, age 57, has been a director of the General Partner since
 December 1993. He is a partner in the law firm of Husch & Eppenberger, LLC
 formerly Farrington & Curtis, P.C., a position he has held since 1970. Mr.
 Hart's firm performs legal services on a regular basis for the Company and
 personally for Mr. Hammons. Mr. Hart has also been a director since 1981 of
 Johnston Industries, Inc., a commercial textiles company listed on the New York
 Stock Exchange.

     John E. Lopez-Ona, age 40, became a director of the General Partner in May
 1996. Mr. Lopez-Ona was a Managing director of Kidder Peabody & Company, Inc.
 an investment banking firm, from March 1990 through March 1995. Since June 1995
 Mr. Lopez-Ona has been the President of Anvil Capital, Inc., a firm owned by
 him, which specializes in principal investments.

    James F. Moore, age 56, became a director of the General Partner in May
 1995. Since 1987, Mr. Moore has been Chairman, Chief Executive Office and a
 Director of Champion Products, Incorporated, a privately owned manufacturing
 company serving the telecommunications industry located in Strafford, Missouri.
 Prior to 1987, Mr. Moore had served as President of the Manufacturing Division
 of Service Corporation International, a company listed on the New York Stock
 Exchange.

 Item 11. Executive Compensation.

 Cash Compensation

     The following table sets forth the salary, cash bonus and certain other
 forms of compensation paid by the General Partner and its subsidiaries for
 services rendered in all capacities during the 1997, 1996 and 1995 fiscal years
 to the Chief Executive Officer of the General Partner and the four most highly
 compensated executive officers of the General Partner other than the Chief
 Executive Officer serving at the end of the 1997 fiscal year (the "named
 executive officers").

                                     -22-
<PAGE>

                                     Summary Compensation Table
<TABLE>
<CAPTION>
                                                   Annual Compensation
                                                   -------------------         All Other
                                     Fiscal                                   Compensation
Name and Principal Positions          Year       Salary ($)     Bonus ($)         ($)
----------------------------         ------      ----------     ---------     ------------
<S>                                  <C>         <C>           <C>            <C>
John Q. Hammons                       1997        $100,000      $             $
  Chairman of the Board and           1996         100,000           --                 --
   Chief Executive Officer            1995          36,000           --                 --

David B. Jones
  President and Chief                 1997         300,000       65,000              3,892(a)
   Operating Officer                  1996         251,750       89,200              3,547(a)
                                      1995         240,250       85,000                 --
Mel J. Volmert
  Executive Vice President--          1997         199,184           --            277,336(b)
   Finance, Chief Financial           1996         186,375       66,937              3,902(a)
   Officer and Treasurer              1995         180,188       63,550                 --

Pat A. Shivers                        1997         120,000       37,500              1,296(a)
  Senior Vice President,              1996         112,125       30,000              2,072(a)
   Administration and Control         1995         103,000       25,000                 --

Steven E. Minton                      1997         118,000       40,000              1,275(a)
  Senior Vice President,              1996         106,000       25,000              1,490(a)
  Architecture                        1995          99,000       22,500                 --
</TABLE>

(a) Matching contributions to Company's 401(k) Plan.
(b) Includes matching contributions to Company's 401(k) Plan and severance
    payment of $275,000 under employment agreement.

Option Grants

   No stock options were granted by the Company during the fiscal year ended
January 2, 1998.

Option Holdings
<TABLE>
<CAPTION>
                            Fiscal Year-End Option Values

                           Number of Unexercised            Value of Unexercised
                                  Options                   In-the-Money Options
Name                    Exercisable    Unexercisable    Exercisable    Unexercisable
----                    -----------    -------------    -----------    -------------
<S>                     <C>            <C>              <C>            <C>
David B. Jones            131,250         43,750             --              --
Pat A. Shivers             18,750          6,250             --              --
Steven A. Minton           18,750          6,250             --              --
</TABLE>

   The named executive officers did not exercise any stock options during the
fiscal year ended January 2, 1998. The $16.50 exercise price per share of all
stock options that have been granted by the Company is greater than the $9.00
closing price of the Company's Class A Common Stock as reported on the New York
Stock Exchange on January 2, 1998.

401(k) Plan

                                      -23-
<PAGE>
 
   Effective January 1, 1996, the Company adopted a contributory retirement plan
(the "401(k) Plan") for its employees age 21 and over with at least one year of
service to the Company. The 401(k) Plan is designed to provide tax-deferred
income to the Company's employees in accordance with the provisions of Section
401(k) of the Internal Revenue Code of 1986. The 401(k) Plan provides that the
Company will make a matching contribution to each participant's account equal to
50% of such participant's eligible contributions up to a maximum of 3% of such
participant's annual compensation.

Employment Agreements

   David B. Jones entered into an Amended and Restated Employment Agreement with
the Company on July 28, 1996, effective January 1, 1997. Under that agreement,
Mr. Jones' annual base salary for the current year is $300,000, plus a
discretionary bonus of up to $100,000, with such annual increases in
compensation as may be determined by the Board of Directors of the Company. In
the event the Company terminates or fails to renew the agreement without cause,
Mr. Jones is entitled to a $350,000 payment. The agreement contains significant
non-competition provisions extending for one year after termination of the
agreement. Mr. Jones' agreement continues on a year to year basis unless either
the Company or Mr. Jones terminates the agreement by giving the other 45 days'
written notice.

   The Company intends to enter into an employment agreement with Kenneth J.
Weber, effective April 27, 1998. Under that agreement, Mr. Weber's annual base
salary will be $250,000, plus a discretionary bonus of up to 35% of his base
salary, with such annual increases in compensation as may be determined by the
Board of Directors of the Company. The agreement will contain significant non-
competition provisions extending for a period of one year following termination
of the agreement. The initial term of the agreement will be for three years.

Compensation of Directors

   Non-employee directors of the Genal Partner received $1,000 for each regular
Board meeting attended during the fiscal year ended January 2, 1998. No
compensation was paid to non-employee directors for attending meetings of
committees of the Board. Employee directors are not compensated for their
services as directors or committee members.

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

   Mr. Hammons is the beneficial owner of all 16,043,900 limited partnership
units of the Company, representing 71.69% of the total equity in the Company.
The General Partner owns all 6,336,100 general partner units of the Company,
representing 28.31% of the total equity of the Company.

Item 13. Certain Relationships and Related Transactions.

   The Company is controlled by Mr. Hammons through his control of the General
Partner. His equity interest in the Company (based on his beneficial ownership
of 110,100 shares of Class A Common Stock of the General Partner, all of the
294,100 shares of Class B Common Stock of the General Partner, and all of the
16,043,900 limited partnership units of the Company (the "LP Units") is 73.4%.
There are significant potential conflicts of interests between Mr. Hammons, as
limited partner of the Company, and the holders of Class A Common Stock of the
General Partner, which conflicts may be resolved in favor of Mr. Hammons.

   The holders of the LP Units have the right to require the redemption of the
LP Units. Such redemption right will be satisfied, at the sole option of the
General Partner, by the payment of the cash equivalent thereof or by the
issuance of shares of Class A Common Stock on a one-for-one basis. Mr. Hammons
beneficially owns all 16,043,900 LP Units. If Mr. Hammons, as a holder of LP
Units, requires the Company to redeem LP Units, the non-employee directors of
the General Partner would decide consistently with their fiduciary duties as to
the best interests of the General Partner whether to redeem the LP Units for
cash or for shares of Class A Common Stock. Mr. Hammons would not vote or
otherwise participate in the decision of the non-employee directors. Mr. Hammons
has informed the General Partner that he has no current plan to require the
Company to redeem his LP Units.

   During 1997, the Company provided management services to four hotels not
owned by the Company (the "Managed Hotels") pursuant to management contracts
(the "Management Contracts"). Three of the Managed Hotels

                                     -24-
<PAGE>
 
are owned by Mr. Hammons and the other hotel is owned 50% by Mr. Hammons, 25% by
Jacqueline A. Dowdy, the Secretary and a director of the General Partner, and
25% by Daniel Earley, a director of the General Partner. Management fees of
approximately 3% of gross revenues were paid to the Company by the Managed
Hotels in the aggregate amount of $642,798 in 1997. Each of the Management
Contracts is for an initial term of 20 years which automatically extends for
four periods of five years, unless otherwise canceled. In addition to the
management fees paid by the Managed Hotels to the Company in 1997, the Managed
Hotels reimbursed the Company for a portion of the salaries paid by the General
Partner to its five regional vice presidents, whose duties include management
services related to the Managed Hotels, and for certain marketing and other
expenses allocated to the Managed Hotels. Such reimbursed services and expenses
aggregated $131,307 in 1997.

   The Company has an option granted by Mr. Hammons or persons or entities
controlled by him to purchase the Managed Hotels. The options are effective
until February 2009. If an option is exercised, the purchase price is based on a
percentage of the fair market value of the Managed Hotel as determined by an
appraisal firm of national standing. One Owned Hotel and two Managed Hotels are
located in Springfield, Missouri. These hotels are potentially competing with
one another for customers. The Company, however, believes that these hotels do
not significantly compete with one another due to their respective locations and
attributes.

   Mr. Hammons has a 45% ownership interest in Winegardner & Hammons, Inc.
("WHI"). The JQH Hotels have contracted with WHI to provide accounting and other
administrative services. The accounting and administrative charges expensed by
the Owned Hotels were approximately $1.4 million in 1997. The fee may increase
if the number of hotels for which accounting and administrative services are
performed drops below 35 hotels. The accounting services contract expires in
June 1999.

   The Company leases space in the John Q. Hammons Building for its headquarters
from a Missouri general partnership, of which Mr. Hammons is a 50% partner and
the remaining 50% is collectively held by other employees including Jacqueline
A. Dowdy, the Secretary and a director of the Company, who is a 9.5% partner.
Pursuant to four lease agreements, expiring December 31, 1998, the Company pays
monthly rental payments of approximately $19,250. The Company made aggregate
annual lease payments to the Missouri general partnership of approximately
$231,000 in 1997.

   Mr. Hammons owns trade centers adjacent to three of the Owned Hotels (the
"JQH Trade Centers"). The Company leases the convention space in the JQH Trade
Center located in Portland, Oregon from Mr. Hammons pursuant to a long-term
lease expiring in 2004, requiring annual payments of approximately $300,000.
With respect to the other two JQH Trade Centers, the Company makes nominal
annual lease payments to Mr. Hammons. The Company has assumed responsibility for
all operating expenses of the JQH Trade Centers and receives all of the revenue
derived from the Company's convention business at the JQH Trade Centers.

   The Company leases the real estate for which the Company's new Chateau on the
Lake Resort, opened in mid-1997, in Branson, Missouri, from Mr. Hammons. Annual
rental is $80,000 in the first year of operation and $120,000 in the second
year. Thereafter, rent will be an amount based on adjusted gross revenues from
room sales on the property. The lease runs for 50 years, with an option to renew
for an additional 10 years. The Company also has an option to purchase the land
after March 1, 2118, at the greater of $3,000,000 or the current appraised
value.

   The Company also leases the real estate for the Company's Embassy Suites
Hotel in Little Rock, Arkansas, which opened in the fall of 1997, from Mr.
Hammons. Annual rent is $80,000 in the first year of operation, $100,000 for the
second year, and $120,000 a year for the next three years. The lease runs for 55
years, with options to renew for three one-year periods. The Company also has an
option to purchase the land after the fifth lease year, at the greater of
$1,900,000 or the current appraised value.

   Mr. Hammons owns parcels of undeveloped land throughout the United States.
Although there are no current plans to do so, the Company may purchase or lease
one or more of these parcels in the future in order to develop hotels. Since Mr.
Hammons controls the Company, such purchases would not be arm's-length
transactions but will be subject to restrictions contained in the 1994 and 1995
Note Indentures.

   The General Partner receives no management fee or similar compensation in
connection with its management of the Company. The General Partner receives the
following remuneration from the Company: (i) distributions in

                                      -25-
<PAGE>
 
respect of its equity interest in the Company; and (ii) reimbursement for all
direct and indirect costs and expenses incurred by the General Partner for or
on behalf of the Company and all other expenses necessary or appropriate to the
conduct of the business of, and allocable to, the Company.

     In 1997, the Company paid Anvil Capital, an investment and consulting firm
owned by Mr. Lopez-Ona, a director of the General Partner approximately $180,000
for consulting services, including the reimbursement of expenses. In the past,
Mr. Hammons has engaged Anvil Capital to provide personal financial advisory
services. Mr. Hammons and Anvil Capital also have formed a limited liability
company through which they have invested in securities of one or more companies
in industries unrelated to the Company's business. Mr. Lopez-Ona has entered
into a consulting agreement with a major consulting firm to provide services to
that firm in connection with their hospitality industry practice. Under that
contract, Mr. Lopez-Ona receives a percentage of any compensation from the
Company to the consulting firm in connection with services provided to the
Company by that firm, if any.

     The Company is unaware of any other transactions to which the Company is a
party in which any director or executive officer of the Company has or will have
a direct or indirect material interest.


                                    PART IV

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

14(a)(1)  Financial Statements

     Reference is made to the Index to Consolidated Financial Statements and the
Consolidated Financial Statements following such index.

14(a)(2)  Financial Statement Schedules

     All schedules have been omitted because the required information in such
schedules is not present in amounts sufficient to require submission of the
schedule or because the required information is included in the consolidated
financial statements or is not required.

14(a)(3)  Exhibits

Exhibits required to be filed by Item 601 of Regulation S-K are listed in the
Exhibit Index attached hereto, which is incorporated by reference.  Set forth
below is a list of management contracts and compensatory plans and arrangements
required to be filed as exhibits by Item 14(c).


     10.5     Form of Option Purchase Agreement
     10.14b   Amended and restated employment agreement between John Q. Hammons
              Hotels, Inc. and David B. Jones
     10.18    1994 Stock Option Plan of the General Partner


14(b)    Reports on Form 8-K

         No reports on Form 8-K were filed during the year ended January 2,
         1998.

14(c)    Exhibits

         Reference is made to the exhibit index which has been filed with the
         exhibits.

14(d)    Financial Statements

                                     -26-              
<PAGE>
 
                   Report of Independent Public Accountants
                   ----------------------------------------



To the Partners of
   John Q. Hammons Hotels, L.P.:


     We have audited the accompanying consolidated balance sheets of John Q.
Hammons Hotels, L.P. (Note 1) as of January 2, 1998 and January 3, 1997 and the
related consolidated statements of income, changes in equity and cash flows for
each of the three fiscal years ended January 2, 1998, January 3, 1997 and
December 29, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
John Q. Hammons Hotels, L.P. (Note 1) as of January 2, 1998 and January 3, 1997,
and the results of their operations and their cash flows for each of the three
fiscal years ended January 2, 1998, January 3, 1997 and December 29, 1995 in
conformity with generally accepted accounting principles.
 
 
 
                                                             Arthur Andersen LLP

Cincinnati, Ohio,
  February 9, 1998
             
                                     -27-
<PAGE>
 
                     John Q. Hammons Hotels, L.P. (Note 1)

                          Consolidated Balance Sheets

                                (000's omitted)

                                    ASSETS
                                    ------



<TABLE>
<CAPTION>
                                                                   Fiscal      Fiscal
                                                                    1997        1996
                                                                  Year-End    Year-End
                                                                 ----------  ----------
<S>                                                              <C>         <C>
CASH AND EQUIVALENTS (Restricted cash of $1,235 and
 $5,191 in 1997 and 1996, respectively) (Notes 2 and 5)           $  41,961   $  46,449
 
MARKETABLE SECURITIES (Notes 2 and 5)                                12,742       2,355
 
RECEIVABLES:
  Trade, less allowance for doubtful accounts of $188 and $163
   in 1997 and 1996, respectively                                     7,652       5,790
  Management fees (Note 3)                                               50          45
  Construction reimbursements, shareholder and other (Note 3)         3,739         780
 
INVENTORIES                                                           1,206       1,019
 
PREPAID EXPENSES AND OTHER                                            1,386       1,928
                                                                  ---------   ---------
          Total current assets                                       68,736      58,366
                                                                  ---------   ---------
 
PROPERTY AND EQUIPMENT, at cost (Notes 2, 5 and 6):
  Land and improvements                                              40,511      29,712
  Buildings and improvements                                        527,856     433,059
  Furniture, fixtures and equipment                                 197,177     160,198
  Construction in progress                                           78,946     120,525
                                                                  ---------   ---------
                                                                    844,490     743,494
  Less- Accumulated depreciation and amortization                  (166,125)   (174,899)
                                                                  ---------   ---------
                                                                    678,365     568,595
  Property and equipment available for sale, net (Note 9)            38,791           -
                                                                  ---------   ---------
                                                                    717,156     568,595
                                                                  ---------   ---------
 
DEFERRED FINANCING COSTS, FRANCHISE FEES
 AND OTHER, net (Notes 2 and 5)                                      30,841      31,111
                                                                  ---------   ---------
                                                                  $ 816,733   $ 658,072
                                                                  =========   =========
</TABLE>


          The accompanying notes to consolidated financial statements
           are an integral part of these consolidated balance sheets.
               
                                     -28-
<PAGE>
 
                     John Q. Hammons Hotels, L.P. (Note 1)

                          Consolidated Balance Sheets

                                (000's omitted)

                             LIABILITIES AND EQUITY
                             ----------------------



<TABLE>
<CAPTION>
                                                                  Fiscal        Fiscal
                                                                   1997          1996
                                                                 Year-End      Year-End
                                                                ----------    ----------
<S>                                                             <C>           <C>
LIABILITIES:
      Current portion of long-term debt (Note 5)                $ 61,517      $ 12,444
      Accounts payable, including construction payables of
       approximately $3,391 and $17,721, respectively             11,232        29,977
      Accrued expenses-
         Payroll and related benefits                              5,529         4,611
         Sales and property taxes                                  8,676         7,069
         Insurance (Notes 2 and 3)                                11,242         9,511
         Interest                                                 12,603        12,634
         Utilities, franchise fees and other                       5,822         6,242
                                                                --------      --------
              Total current liabilities                          116,621        82,488

      Long-term debt (Note 5)                                    634,274       518,699
      Other obligations and deferred revenue (Note 2)              7,900         7,023
                                                                --------      --------
              Total liabilities                                  758,795       608,210
                                                                --------      --------

    COMMITMENTS AND CONTINGENCIES (Note 6)

    EQUITY (Notes 1 and 8):
      Contributed capital                                         96,436        96,436
      Partners' and other deficits, net                          (38,498)      (46,574)
                                                                --------      --------
              Total equity                                        57,938        49,862
                                                                --------      --------
                                                                $816,733      $658,072
                                                                ========      ========
</TABLE>



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

                                      -29-
<PAGE>
 
                     John Q. Hammons Hotels, L.P. (Note 1)

                       Consolidated Statements of Income

                                (000's omitted)


<TABLE>
<CAPTION>
                                                           Fiscal Year Ended
                                                    -------------------------------
                                                      1997      1996        1995
                                                    --------  ---------  ----------
<S>                                                 <C>       <C>        <C>
 REVENUES:
   Rooms                                            $195,296   $171,206   $148,432
   Food and beverage                                  86,183     79,580     70,840
   Meeting room rental and other                      20,795     18,061     15,907
                                                    --------   --------   --------
           Total revenues                            302,274    268,847    235,179
                                                    --------   --------   --------

 OPERATING EXPENSES (Notes 3, 4 and 6):
   Direct operating costs and expenses-
      Rooms                                           50,265     43,610     38,543
      Food and beverage                               62,383     57,956     54,228
      Other                                            3,385      2,929      2,521
   General, administrative, sales and
    management service expenses                       85,766     74,646     64,234
   Repairs and maintenance                            12,578     11,528     10,131
   Depreciation and amortization                      34,781     24,034     18,346
                                                    --------   --------   --------
           Total operating expenses                  249,158    214,703    188,003
                                                    --------   --------   --------

 INCOME FROM OPERATIONS (Note 9)                      53,116     54,144     47,176

 OTHER EXPENSE:
   Interest expense and amortization of deferred
    financing fees, net of $1,279, $2,103 and
    $4,044 of interest income in 1997, 1996 and
    1995, respectively
   (Note 2(e))                                        44,325     35,620     28,447
                                                    --------   --------   --------

    Income before extraordinary item                   8,791     18,524     18,729

 EXTRAORDINARY ITEM:
   Loss from early extinguishment of debt
    (Note 8)                                               -          -       (325)
                                                    --------   --------   --------
           Net income (Note 2(j))                   $  8,791   $ 18,524   $ 18,404
                                                    ========   ========   ========
</TABLE>


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

                                      -30-
<PAGE>
 
                     John Q. Hammons Hotels, L.P. (Note 1)

                 Consolidated Statements of Changes in Equity

                                (000's omitted)

<TABLE>
<CAPTION>
                                                     Partners and Other 
                            Contributed Capital       Equity (Deficit) 
                            -------------------     ---------------------
                            General     Limited      General      Limited
                            Partner     Partner      Partner      Partner     Total
                            -------     -------     --------     --------    ------- 
<S>                         <C>         <C>         <C>          <C>         <C>
Balance, Year-End 1994      $96,436     $    --     $(90,583)    $14,820     $20,673
Distributions                    --          --           --      (4,932)     (4,932)
Net income                       --          --        5,210      13,197      18,404
                            -------     -------     --------     -------     -------
Balance, Year-End 1995       96,436          --      (85,373)     23,082      34,145
Distributions                    --          --         (107)     (2,700)     (2,807)
Net income                       --          --        5,244      13,280      18,524
                            -------     -------     --------     -------     -------
Balance, Year-End 1996       96,436          --      (80,236)     33,662      49,862
Distributions                    --          --         (150)       (565)       (715)
Net income                       --          --        2,489       6,302       8,791
                            -------     -------     --------     -------     -------
Balance, Year-End 1997      $96,436     $    --     $(77,897)    $39,399     $57,938
                            =======     =======     ========     =======     =======
</TABLE>


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


                                      -31-

<PAGE>
 
                     John Q. Hammons Hotels, L.P. (Note 1)

                     Consolidated Statements of Cash Flows

                                (000's omitted)

<TABLE>
<CAPTION>
                                                                          Fiscal Year Ended
                                                                  ----------------------------------
                                                                    1997         1996         1995
                                                                  ---------    ---------    ---------
<S>                                                               <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES: 
    Net income                                                    $   8,791    $  18,524    $  18,404
    Adjustments to reconcile net income to cash provided by
      operating activities--
        Depreciation, amortization and loan cost amortization        37,662       26,414       19,956
        Extraordinary item                                               --           --          325
    Changes in certain assets and liabilities-- 
        Receivables                                                  (4,826)         999       (3,003)
        Inventories                                                    (187)          91         (137)
        Prepaid expenses and other                                      542         (804)        (138)
        Accounts payable                                            (18,745)      21,595         (236)
        Accrued expenses                                              3,805        3,896        4,268
        Other obligations and deferred revenue                          877        1,444        4,598
                                                                  ---------    ---------    ---------
            Net cash provided by operating activities                27,919       72,159       44,037
                                                                  ---------    ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES: 
    Additions to property and equipment, net                       (179,385)    (155,579)    (132,419)
    Franchise fees and other                                         (3,499)      (4,936)      (5,755)
    (Purchase) sale of marketable securities, net                   (10,387)      24,219       60,089
                                                                  ---------    ---------    ---------
            Net cash used in investing activities                  (193,271)    (136,296)     (78,085)
                                                                  ---------    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES: 
    Loan financing fees and debt offering costs                      (3,069)      (1,433)      (6,180)
    Proceeds from borrowings                                        186,684       76,239      112,296
    Payment of notes payable to affiliates                               --           --         (547)
    Repayments of debt                                              (22,036)      (3,190)     (34,524)
    Distributions to partners, net                                     (715)      (2,807)      (4,932)
                                                                  ---------    ---------    ---------
            Net cash provided by financing activities               160,864       68,809       66,113
                                                                  ---------    ---------    ---------
            Increase (decrease) in cash and equivalents              (4,488)       4,672       32,065
CASH AND EQUIVALENTS, beginning of period                            46,449       41,777        9,712
                                                                  ---------    ---------    ---------
CASH AND EQUIVALENTS, end of period                               $  41,961    $  46,449    $  41,777
                                                                  =========    =========    =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID FOR INTEREST, net of amounts capitalized                $  43,399    $  35,441    $  29,035
                                                                  =========    =========    =========
</TABLE> 


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


                                     -32-

<PAGE>
 
                         John Q. Hammons Hotels, L.P.

                  Notes To Consolidated Financial Statements

                                (000's omitted)



(1) Basis of Presentation-
    --------------------- 

     (a)  Entity Matters--The accompanying consolidated financial statements
          include the accounts of John Q. Hammons Hotels, L.P. and its wholly-
          owned subsidiaries (the Partnership), John Q. Hammons Hotels Finance
          Corporation, a corporation with nominal assets and no operations, the
          catering corporations, which consist of separate corporations for each
          hotel location chartered to own the respective food and liquor
          licenses as well as operate the related food and beverage facilities
          and certain wholly-owned subsidiaries which consist of certain hotel
          operations. As of fiscal year-end 1997, 1996 and 1995, the Partnership
          had forty-five, thirty-nine, and thirty-seven, respectively, hotels in
          operation of which thirty-five in 1997 and thirty-two in 1996 and 1995
          operate under the Holiday Inn and Embassy Suites trade names. The
          Partnership's hotels are located in twenty states throughout the
          United States.

          In conjunction with a public offering of debt securities in February,
          1994 and a public offering of equity securities in November, 1994 by
          John Q. Hammons Hotels, Inc., J.Q.H. Hotels, L.P., which owned and
          operated ten hotel properties, obtained through transfers or
          contributions from Mr. John Q. Hammons (Mr. Hammons) or enterprises
          which he controlled, twenty-one additional operating hotel properties,
          equity interests in two hotels under construction, the stock of the
          catering corporations and management contracts relating to all of Mr.
          Hammons' hotels. Upon consummation of these transactions J.Q.H.
          Hotels, L.P. changed its name to John Q. Hammons Hotels, L.P. and the
          allocation of income or loss was modified from 1% to its general
          partner and 99% to its limited partner to 10% and 90%, respectively,
          upon completion of the public debt offering and to 28.31% to its
          general partner and 71.69% to its limited partner upon completion of
          the public equity offering.

          The Partnership is directly or indirectly owned and controlled by Mr.
          Hammons, as were all enterprises which transferred or contributed net
          assets to the Partnership. Accordingly, the accompanying financial
          statements present, as a combination of entities under common control
          as if using the pooling method of accounting, the financial position
          and related results of operations of all entities on a consolidated
          basis for all periods presented. All significant balances and
          transactions between the entities and properties have been eliminated.

     (b)  Partnership Matters--A summary of selected provisions of the
          Partnership agreement and other matters are as follows:
             
                                     -33-
<PAGE>
 
          General and Limited Partner; John Q. Hammons Hotels, Inc. was formed
          in September 1994 and had no operations or assets prior to its initial
          public offering of 6,042,000 Class A common shares at $16.50 per share
          on November 23, 1994. Immediately prior to the initial public offering
          Mr. Hammons contributed approximately $5 million in cash in exchange
          for 294,100 shares of Class B common stock (which represents
          approximately 72% of the voting control of the company). John Q.
          Hammons Hotels, Inc. contributed the approximate $96 million of the
          net proceeds from the Class A and Class B common stock offerings to
          the Partnership in exchange for an approximate 28% general partnership
          interest.

          As a result of the public equity offering, John Q. Hammons Hotels,
          Inc. became the sole general partner and John Q. Hammons Revocable
          Living Trust and Hammons, Inc., entities beneficially owned and
          controlled by Mr. Hammons, became its limited partners.

          Allocation of Income, Losses and Distributions; Income, losses and
          distributions of the Partnership will generally be allocated between
          the general partner and the limited partners based on their respective
          ownership interests of approximately 28% and 72%.

          In the event the Partnership has taxable income, distributions are to
          be made to the partners in an aggregate amount equal to the amount
          that the Partnership would have paid for income taxes had it been a C
          corporation during the applicable period. Aggregate tax distributions
          will first be allocated to the general partner, if applicable, with
          the remainder allocated to the limited partners.

          Additional Capital Contributions; In the event proceeds from the sale
          of the twenty hotel properties which secure the $300 million first
          mortgage notes (1994 notes) (Note 5) are insufficient to satisfy
          amounts due on the 1994 notes, Mr. Hammons and Hammons, Inc. (as
          general partners at the time the 1994 notes were secured) are
          severally obligated to contribute up to $135 million and $15 million,
          respectively, to satisfy amounts due, if any. In the event proceeds
          from the sale of the eight hotel properties which secure the $90
          million first mortgage notes (1995 notes) (Note 5) are insufficient to
          satisfy amounts due on the 1995 notes, Mr. Hammons is obligated to
          contribute up to $45 million to satisfy amounts due, if any. In
          addition, with respect to the eleven hotel properties contributed by
          Mr. Hammons concurrent with the public equity offering (Note 8), Mr.
          Hammons is obligated to contribute up to $50 million in the event
          proceeds from the sale of these hotel properties are insufficient to
          satisfy amounts due on the then outstanding mortgage indebtedness
          related to these properties.

          Redemption of Limited Partner Interests; Subject to certain
          limitations, the limited partners have the right to require redemption
          of their limited partner interests at any time subsequent to November,
          1995. Upon redemption, the limited partners receive, at the sole
          discretion of the general partner, one share of John Q. Hammons
          Hotels,
                
                                     -34-
<PAGE>
 
          Inc.'s Class A common stock for each limited partner unit tendered or
          the then cash equivalent thereof.

          Additional General Partner Interests; Upon the issuance by the general
          partner of additional shares of its common stock, including shares
          issued upon the exercise of its stock options, the general partner
          will be required to contribute to the Partnership the net proceeds
          received and the Partnership will be required to issue additional
          general partner units to the general partner in an equivalent number
          to the additional shares of common stock issued.


(2)  Summary of Major Accounting Policies-
     ------------------------------------ 

     (a)  Cash and Equivalents--Cash and equivalents include operating cash
          accounts and investments, with an original maturity of three months or
          less, and certain balances of various money market and common bank
          accounts.

          Restricted cash consists of certain funds maintained in escrow for
          property taxes and certain other obligations.

     (b)  Marketable Securities--Marketable securities consist of available-for-
          sale commercial paper and government agency obligations which mature
          or will be available for use in operations in 1998. These securities
          are valued at current market value, which approximates cost. Realized
          gains and losses in 1997 and 1996, determined using the specific
          identification method, were nominal.

     (c)  Inventories--Inventories consist of food and beverage items. These
          items are stated at the lower of cost, as determined by the first-in,
          first-out valuation method, or market.

     (d)  Deferred Financing Costs, Franchise Fees and Other--Franchise fees
          paid to the respective franchisors of the hotel properties are
          amortized on a straight-line basis over ten to twenty years which
          approximates the terms of the respective agreements. Costs of
          obtaining financing are capitalized and amortized over the respective
          terms of the debt.

          Costs directly related to commencing a hotel's operations are deferred
          until the hotel has opened. The preopening expense is amortized over
          one year using the straight-line method. Unamortized preopening costs
          were approximately $3,825 and $1,239 as of fiscal year-end 1997 and
          1996, respectively (See Note 2(p)).
                        
                                     -35-
<PAGE>

     The components of deferred financing costs, franchise fees and other
     are summarized as follows:

                                                      Fiscal Year-End
                                                     ------------------
                                                       1997      1996
                                                     --------  --------


       Deferred financing costs                      $24,025   $20,956
       Franchise fees                                  4,716     4,877
       Less- Accumulated amortization                 (9,466)   (7,212)
                                                     -------   -------
                                                      19,275    18,621
       Restricted cash deposit, interest bearing,
        related to insurance coverages                     -     4,934
       Deposits                                        7,397     5,986
       Preopening expenses and other, net              4,169     1,570
                                                     -------   -------
                                                     $30,841   $31,111
                                                     =======   =======

     In October 1997, the Partnership entered into an irrevocable stand-by
     letter of credit agreement with a bank for approximately $5.6 million. The
     letter of credit replaced the restricted cash deposit which was required by
     and maintained with an insurance carrier. The letter of credit expires in
     October 1998.

(e)  Property and Equipment--Property and equipment are stated at cost 
     (including interest, real estate taxes and certain other costs incurred
     during development and construction) less accumulated depreciation and
     amortization. Buildings and improvements are depreciated using the 
     straight-line method while all other property is depreciated using both
     straight-line and accelerated methods. The estimated useful lives of the
     assets are summarized as follows:

                                            Lives In Years
                                            --------------
       Land improvements                         5-25
       New buildings and improvements            5-40
       Purchased buildings                        25
       Furniture, fixtures and equipment         5-10

     Construction in progress includes primarily land, development and
     construction costs of certain hotel developments. Costs associated with
     hotel development construction in progress approximated $75 million in 1997
     and $120 million in 1996, with the remainder representing refurbishments of
     operating hotels.

     The Partnership periodically reviews the carrying value of these assets and
     other long-lived assets and impairments are recognized when the expected
     undiscounted future cash flows are less than the carrying amount of the
     asset. Based on its most recent analysis, the Partnership believes no
     impairment exists at January 2, 1998.

     Interest costs, construction overhead and certain other carrying costs are
     capitalized during the period hotel properties are under construction.
     Interest costs capitalized were $10,259, $7,162, and $5,270 for the fiscal
     years ended 1997, 1996 and 1995, respectively. Construction in progress is
     recorded at the lower of cost or market.

                                     -36-
<PAGE>
 

         Costs incurred for prospective hotel projects ultimately abandoned are
         charged to operations in the period such plans are finalized. Costs of
         significant improvements are capitalized, while costs of normal
         recurring repairs and maintenance are charged to expense as incurred.

         The accompanying 1997 consolidated financial statements include the
         land costs for thirty-seven of the operating hotel properties. Land for
         six of the remaining eight operating hotel properties is leased by the
         Partnership from unrelated parties over long-term leases. Land for the
         remaining two operating hotel properties is leased by the Partnership
         from a related party over long-term leases. Rent expense for all land
         leases was $464, $450, and $288 for the fiscal years ended 1997, 1996
         and 1995, respectively.

     (f) Par Operating Equipment--A hotel's initial expenditures for the
         purchase of china, glassware, silverware, linens and uniforms are
         capitalized into furniture, fixtures and equipment and amortized on a
         straight-line basis over a three to five year life. Costs for
         replacement of these items are charged to operations in the period the
         items are placed in service.

     (g) Advertising--The Partnership expenses the cost of advertising
         associated with operating hotels as incurred. Advertising costs
         incurred for a hotel prior to its opening are deferred and charged to
         expense in the period the hotel commences operations.

         Advertising expense for 1997, 1996 and 1995 was approximately $21,405,
         $17,373 and $16,206, respectively, of which approximately $1,296, $291
         and $1,038, respectively, pertained to preopening advertising expenses
         of the hotels which opened in these respective years.

     (h) Pensions and Other Benefits--The Partnership contractually provides
         retirement benefits for certain union employees at two of its hotel
         properties under a union sponsored defined benefit plan and a defined
         contribution plan. Contributions to these plans, based upon the
         provisions of the respective union contracts, approximated $66, $54,
         and $52 for the fiscal years ended 1997, 1996 and 1995, respectively.

         Effective January 1996, the Partnership implemented an employee savings
         plan (a 401(k) plan). The Partnership matches a percentage of an
         employee's contribution. The Partnership's matching contributions are
         funded currently. The cost of the matching program and administrative
         costs charged to income were approximately $381 and $293 in 1997 and
         1996, respectively. The Partnership does not offer any other post-
         employment or post-retirement benefits to its employees.

     (i) Self-Insurance--The Partnership is self-insured for certain levels of
         general liability and workers' compensation coverage. Estimated costs
         of these self-insurance programs are accrued based on known claims and
         projected settlements of unasserted claims. Subsequent changes in,
         among others, assumed claims, claim costs, claim

                                     -37-
<PAGE>
 
          frequency, as well as changes in actual experience, could cause these
          estimates to change.

     (j)  Income Taxes--Prior to 1994 the entities and properties included in
          the accompanying consolidated financial statements consisted of a
          Partnership, S Corporations and a sole proprietorship. Accordingly,
          the Partnership generally is not responsible for payment of income
          taxes. Rather, the respective partner, stockholder or sole proprietor,
          as applicable, is taxed on the Partnership's taxable income at the
          respective individual federal and state income tax rates. Therefore,
          no income taxes have been provided in the accompanying consolidated
          financial statements.

          As described in Note 1, the Partnership and its general partner, as
          applicable, completed public offerings of first mortgage notes and
          equity securities. Prior to the consummation of these offerings, the S
          Corporation status of the catering companies was terminated, and,
          accordingly, the Partnership is subject to federal and state income
          taxes on taxable income, if any, earned by the catering companies
          after the effective date of the securities registrations. There were
          nominal, if any, earnings attributable to the catering companies after
          the applicable public offerings and there were no undistributed
          earnings of the S Corporations at the time of termination.

     (k)  Revenue Recognition--The Partnership recognizes revenues from its
          rooms, catering and restaurant facilities as earned on the close of
          business each day.

     (l)  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 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.

     (m)  Fiscal Year--The Partnership's fiscal year ends on the Friday nearest
          December 31 which includes 52 weeks in 1997, 53 weeks in 1996 and 52
          weeks in 1995.

          The periods ended in the accompanying consolidated financial
          statements are summarized as follows:

<TABLE>
<CAPTION>
                     Year                     Fiscal Year-End
                     ----                     ---------------
                   <C>                       <S> 
 
                     1997                     January 2, 1998
                     1996                     January 3, 1997
                     1995                     December 29, 1995
</TABLE>

     (n)  Reclassifications--Certain reclassifications have been reflected in
          1996 and 1995 to conform with the current period presentation.

     (o)  New Accounting Pronouncements--In June 1997, the Financial Accounting
          Standards Board (FASB) issued Statement of Financial Accounting
          Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130),
          which requires comprehensive
                           
                                     -38-                    
<PAGE>
 
          income and the associated income tax expense or benefit be reported in
          a financial statement that is displayed with the same prominence as
          other financial statements with an aggregate amount of comprehensive
          income reported in that same financial statement. "Other Comprehensive
          Income" refers to revenues, expenses, gains and losses that under
          generally accepted accounting principles are included in comprehensive
          income but not in net income. The Partnership intends to adopt this
          statement in the first quarter of fiscal 1998 and does not anticipate
          such adoption to have any significant impact on the Partnership's
          reported consolidated financial position, results of operations, cash
          flows or related disclosures.

          In June 1997, the FASB issued Statement of Financial Accounting
          Standards No. 131, "Disclosures About Segments of an Enterprise and
          Related Information" (SFAS No. 131), which requires disclosures for
          each segment in which the chief operating decision maker organizes
          these segments within a company for making operating decisions and
          assessing performance. Reportable segments are based on products and
          services, geography, legal structure, management structure and any
          manner in which management segregates a company. This statement, which
          the Partnership intends to adopt in fiscal 1998, expands or modifies
          disclosures and, accordingly, will have no impact on the Partnership's
          reported consolidated financial position, results of operations or
          cash flows.

     (p)  Proposed Accounting Pronouncements--In April 1997, the American
          Institute of Certified Public Accountants released a proposed
          Statement of Position (SOP) - "Reporting on the Costs of Start-Up
          Activities." The proposed SOP, which is expected to be finalized and
          issued in 1998, would require costs of start-up activities, including
          preopening expenses, to be expensed as incurred. The Partnership's
          current practice is to defer these expenses until a hotel has
          commenced operations, at which time the costs, other than advertising
          costs which are expensed upon opening, are amortized over a one-year
          period. Included in the accompanying 1997 consolidated balance sheet
          is approximately $3,825 of unamortized preopening expenses which would
          have been expensed had this pronouncement been effective as of January
          2, 1998.


(3)  Related Party Transactions-
     -------------------------- 

     (a)  Hotel Management Fees--In addition to managing the hotel properties
          included in the accompanying consolidated financial statements, the
          Partnership provides similar services for other hotel properties owned
          or controlled by Mr. Hammons, which included four properties at
          January 2, 1998. A management fee of approximately 3% of gross
          revenues (as defined) is paid to the Partnership by these hotels which
          aggregated approximately $643, $717 and $694 for the fiscal years
          ended 1997, 1996 and 1995, respectively.

     (b)  Accounting and Administrative Services--The hotels have contracted for
          accounting and other administrative services with Winegardner &
          Hammons, Inc. (WHI), a company related by common ownership. The
          accounting and administrative charges
           
                                     -39-
<PAGE>
 
          expensed by the hotel properties, included in administrative expenses,
          were approximately $1,411, $1,228, and $1,181 for the fiscal years
          ended 1997, 1996 and 1995, respectively.

          In 1995, Mr. Hammons negotiated a new contract with WHI to continue to
          provide accounting and administrative services through June 1999.
          Charges for these services provided by WHI will approximate $32 per
          year for each hotel property for the duration of the agreement.

     (c)  Insurance Coverage--Umbrella, property, auto, commercial liability and
          workers' compensation insurance are provided to the hotel properties
          under a blanket commercial policy purchased by John Q. Hammons Hotels,
          Inc. or WHI, covering hotel properties owned by the Partnership, Mr.
          Hammons, or managed by WHI. Generally, premiums allocated to each
          hotel property are based upon factors similar to those used by the
          insurance provider to compute the aggregate group policy premium.
          Insurance expense for the properties included in operating expenses
          was approximately $6,196, $6,265 and $5,764 for the fiscal years ended
          1997, 1996 and 1995, respectively.

     (d)  Allocation of Common Costs--The Partnership incurs certain hotel
          management expenses incidental to the operations of all hotels
          beneficially owned or controlled by Mr. Hammons.  These costs
          principally include the compensation and related benefits of certain
          senior hotel executives.  Commencing in May of 1993, these costs were
          allocated by the Partnership to hotels not included in the
          accompanying statements, based on the respective number of rooms of
          all hotels owned or controlled by Mr. Hammons. These costs
          approximated $131, $150, $180 for the fiscal years ended 1997, 1996
          and 1995, respectively. Management considers these allocations to be
          reasonable.

     (e)  Transactions with Partners and Directors--At fiscal year-end, there
          were certain prepayments to a partner associated with the
          Partnership's estimated 1998 and 1997 taxable income, which
          approximated $2,031 and $315, respectively, and are included as a
          component of construction reimbursements, shareholder and other
          receivables.

          The Partnership reimburses Mr. Hammons for development costs incurred
          on behalf of the Partnership, at approximate cost. These costs
          amounted to approximately $7,251 (including debt assumed of $4,728)
          and $4,621 in 1997 and 1996, respectively. In addition to actual costs
          incurred, the 1997 reimbursement includes a return on capital employed
          by Mr. Hammons of approximately $120, calculated based on the
          Partnership's approximate incremental borrowing rate.

          During 1996, the Partnership entered into an agreement with a director
          relating to certain financial advisory services.  The Partnership has
          recognized approximately $180 and $188 in expense for the fiscal years
          ended 1997 and 1996 under this agreement.
              
                                     -40-
<PAGE>

     (f) Summary of Related Party Expenses--The following summarizes expenses
         reported as a result of activities with related parties:

<TABLE>
<CAPTION>
                                                          Fiscal Year-End
                                                  -------------------------------
                                                   1997        1996        1995
                                                  -------     -------     -------
<S>                                               <C>         <C>         <C>
         Expenses included within general,
          administrative, sales and management
          service expenses:
           Accounting and administrative           $1,411      $1,228      $1,181
           Rental expenses (Note 6)                   465         520         420
           Financial advisory services from a
            director                                  180         188           -
                                                   ------      ------      ------
                                                   $2,056      $1,936      $1,601
                                                   ======      ======      ======

         Allocated insurance expense from the
          pooled coverage included within
          various operating categories             $6,196      $6,265      $5,764
                                                   ======      ======      ======
</TABLE>

(4)  Franchise Agreements-
     --------------------

     As of year-end 1997 and 1996, forty-one of the forty-five and thirty-six of
     the thirty-nine, respectively, operating hotel properties included in the
     accompanying consolidated balance sheets have franchise agreements with a
     national hotel chain which require each hotel to remit to the franchisor
     monthly fees equal to approximately four percent of gross room revenues, as
     defined. Franchise fees expensed under these contracts were $7,165, $6,250
     and $5,534 for the fiscal years ended 1997, 1996 and 1995, respectively.

     As part of the franchise agreement, each hotel also pays additional
     advertising, reservation and maintenance fees to the franchisor which range
     from 1.0% to 3.5% of room revenues, as defined. The amount of expense
     related to these fees included in the consolidated statements of income as
     a component of sales expenses was approximately $6,497, $5,493, and $4,666
     for the fiscal years ended 1997, 1996 and 1995, respectively.

(5)  Long-Term Debt-
     ---------------

     The components of long-term debt are summarized as follows:

<TABLE>
<CAPTION>
                                                                         Fiscal Year-End
                                                                      ---------------------
                                                                        1997         1996
                                                                      --------     --------
<S>                                                                   <C>          <C>
     First mortgage notes, interest at 8.875%, interest only
     payable February 15 and August 15, principal due
     February 15, 2004, secured by a first mortgage lien on
     twenty hotel properties and additional capital contributions
     of up to $150 million by Mr. Hammons and an entity
     under his control.  (Note 1(b))                                  $300,000     $300,000

</TABLE> 
                                      -41-
<PAGE>
<TABLE>
<CAPTION>
                                                                        1997         1996
                                                                        ----         ----
<S>                                                                    <C>          <C>
First mortgage notes, interest at 9.75%, interest only 
payable April 1 and October 1, principal due October 1,
2005, secured by a first mortgage lien on six hotel
properties and a second mortgage lien on two hotel 
properties and additional capital contributions of up to 
$45 million by Mr. Hammons. (Note 1(b))                                 90,000        90,000

Development Bonds, variable interest rate approximating
85% of the bond equivalent yield of thirteen week U.S.
Treasury bills (not to exceed 12%) and fixed rates ranging
from 7.125% to 9.00%, payable in scheduled installments
through April, 2024, certain of the obligations are subject
to optional prepayments by the bondholders, secured by
certain hotel facilities, fixtures, assignment of rents, a letter
of credit and, with respect to approximately $16,102 of
development bonds, a personal guarantee of Mr.
Hammons.                                                                36,063        36,873

Mortgage notes payable to banks, insurance companies and
a state retirement plan variable interest rates at prime to
prime plus 1% with certain instruments subject to a ceiling
rate and a floor rate, fixed rates ranging from 8% to 11%,
payable in scheduled installments through April, 2027,
secured by certain hotel facilities, fixtures, assignment of
rents, certain other real property controlled by Mr.
Hammons and, with respect to approximately $252,909 of
mortgage notes, a personal guarantee of Mr. Hammons.                   261,071        93,874

Other notes payable, various variable interest rates and
fixed rates ranging from 6.5% to 8.1%, payable in
scheduled installments through July 2002, secured by
certain hotel improvements, furniture, fixtures and related
equipment and, with respect to approximately $2,100 of
notes, a personal guarantee of Mr. Hammons.                              8,657        10,396
                                                                      --------      --------
                                                                       695,791       531,143

Less - current portion                                                 (61,517)      (12,444)
                                                                      --------      --------
                                                                      $634,274      $518,699
                                                                      ========      ========
</TABLE>

The indenture agreements relating to the 1994 and 1995 notes include
certain covenants which, among others, limit the ability of the Partnership
and its restricted subsidiaries (as defined) to make distributions, incur
debt and issue preferred equity interests, engage in certain transactions
with its partners, stockholders or affiliates, incur certain liens, engage
in mergers or consolidations and achieve certain interest coverage ratios,
as defined.  In addition, certain of the other credit agreements include
subjective acceleration clauses and limit, among others, the incurrence of
certain liens and additional indebtedness.  The 1994 and 1995 notes and
certain other obligations include scheduled prepayment penalties in the
event the obligations are paid prior to their scheduled maturity.

                                      -42-
<PAGE>
 
     Scheduled maturities of long-term debt are summarized as follows:

<TABLE>
<CAPTION>
 
                Year-End
Year Ending       1997
-----------     --------
 
<S>            <C>
1998 (A)        $ 61,517
1999              32,968
2000               9,780
2001              13,893
2002              38,533
Thereafter       539,100
                --------
                $695,791
                ========
</TABLE>

    (A) Maturities of long-term debt of approximately $5.1 million in 1998 are
        scheduled to be amortized over periods extending subsequent to 2002.



(6) Commitments and Contingencies-
    ----------------------------- 

    (a) Operating Leases--The hotel properties lease certain equipment and land
        from unrelated parties under various lease arrangements. In addition,
        the Partnership leases certain parking spaces at one hotel for the use
        of its patrons and is billed by the lessor based on actual usage. Rent
        expense for these leases was approximately $1,819, $1,629, and $1,076
        for the fiscal years ended 1997, 1996 and 1995, respectively, which has
        been included in general and management service expenses.

        Included in the accompanying consolidated financial statements are the
        operating results of trade centers located in Billings, Montana; Joplin,
        Missouri and Portland, Oregon. Each of the trade centers are owned by
        Mr. Hammons. The lease agreements for the Billings and Joplin trade
        centers stipulate nominal rentals for each of the fiscal years ended
        1997, 1996, 1995 and for each ensuing year through 2014. The lease
        agreement for the Portland facility extends through 2004 and requires
        minimum annual rents of $300 to Mr. Hammons. In addition, the
        Partnership leases office space in Springfield, Missouri from a
        partnership (of which Mr. Hammons is a partner) for annual payments of
        approximately $231 through December 1998. The Partnership has also
        entered into land leases with Mr. Hammons for two operating hotel
        properties. Subject to the Partnership exercising purchase options
        provided under these agreements, these leases extend through 2036 and
        2045, respectively, and require aggregate minimum annual payments of
        approximately $270. Rent expense for these related party leases was
        approximately $465, $520, and $420 for the fiscal years ended 1997, 1996
        and 1995, respectively.

        The minimum annual rental commitments for these noncancelable operating
        leases at January 2, 1998 are as follows:

                                     -43-
<PAGE>
 
<TABLE>
<CAPTION>

                Fiscal Year
                  Ending      Mr. Hammons     Other       Total
                  ------      -----------     -----       -----
                <S>           <C>            <C>         <C>
                   1998           $   791    $ 1,489     $ 2,280
                   1999               570      1,243       1,813
                   2000               570        970       1,540
                   2001               570        683       1,253
                   2002               570        604       1,174
                Thereafter         11,245     41,903      53,148
                                  -------    -------     -------
                                  $14,316    $46,892     $61,208
                                  =======    =======     =======
</TABLE>

     (b)  Hotel Development--In 1998 and early 1999, the Partnership plans to
          complete construction and open seven new hotels. The total estimated
          aggregate development and construction costs for these hotels are
          expected to exceed $218 million.

     (c)  Legal Matters--The Partnership is party to various legal proceedings
          arising from its consolidated operations. Management of the
          Partnership believes that the outcome of these proceedings,
          individually and in the aggregate, will have no material adverse
          effect on the Partnership's consolidated financial position, results
          of operations or its cash flows.


(7)  Fair Value of Financial Instruments-
     ----------------------------------- 

     The fair values of marketable securities, and long-term debt approximate
     their historical carrying amounts except with respect to the 1994 and 1995
     notes for which fair market value was approximately $404 million and $387
     million at 1997 and 1996, respectively. The fair value of the first
     mortgage note issues is estimated by obtaining quotes from brokers.


(8)  Public Offerings-
     ---------------- 

     In addition to the completion of the sale of equity securities as more
     fully described in Note 1, the Partnership completed the sale of $90
     million of first mortgage notes in 1995. Proceeds of the offerings were
     primarily used for retirement of then existing mortgage debt, transaction
     costs associated with the debt offerings and to provide funding for new
     hotel development.

     In conjunction with the retirement or refinancing of its then existing
     mortgage debt, the Partnership incurred approximately $0.3 million of
     prepayment charges in 1995. These prepayment charges have been reflected in
     the accompanying 1995 consolidated statement of income as an extraordinary
     item.


(9)  Subsequent Event-
     ---------------- 

     Effective February 6, 1998, the Partnership completed the sale of six
     hotels to an unrelated party for $40 million, which approximates the
     aggregate net book value of the hotels.

                                      -44-
<PAGE>
 
     Certain of these hotels served as collateral under the 1994 and 1995 first
     mortgage notes (Note 5). Under the terms of these indentures the
     Partnership must provide replacement collateral of equivalent value or
     apply the net proceeds from the sale to amounts outstanding. The
     Partnership intends to provide replacement collateral in accordance with
     the indenture provisions.

     Summary unaudited operating results for the six hotels for each of the
     three years ended 1997, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                                      1997     1996     1995
                                                      ----     ----     ----  
 <S>                                                <C>      <C>      <C>
 
 Revenues                                          $27,485  $28,947  $29,717
                                                   =======  =======  =======
 
  Income from operations,
   including depreciation and
   amortization of $2,447, $2,418
   and $2,358, respectively                        $ 3,590  $ 3,373  $ 3,287
                                                   =======  =======  =======
</TABLE>

                                      -45-
<PAGE>
 
                                  SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized, in the City of
Springfield, Missouri, on the 31st day of March, 1998


                           JOHN Q. HAMMONS HOTELS, L.P.

                           By:  John Q. Hammons Hotels, Inc.,
                               its general partner


                           By: /s/ John Q. Hammons
                               ------------------------------------
                               John Q. Hammons
                               Chairman and Founder


                           JOHN Q. HAMMONS HOTELS FINANCE
                           CORPORATION



                           By: /s/ John Q. Hammons
                               ------------------------------------
                               John Q. Hammons
                               Chairman and Founder

                           JOHN Q. HAMMONS HOTELS FINANCE
                           CORPORATION II


                           By: /s/ John Q. Hammons
                               ------------------------------------
                               John Q. Hammons
                               Chairman and Founder



     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
in their capacities at John Q. Hammons Hotels, Inc. as general partner of John
Q. Hammons Hotels, L.P., and in the capacities indicated for John Q. Hammons
Hotels Finance Corporation, and John Q Hammons Hotels Finance Corporation II, on
March 31, 1997.

     Signatures                                     Title
     ----------                                     -----

                                      -46-
<PAGE>

<TABLE> 
<S>                      <C>
/s/ John Q.Hammons       Chairman and Founder of John Q. Hammons Hotels, Inc., 
-----------------------  John Q. Hammons Hotels Finance Corporation and John Q.
John Q. Hammons          Hammons Finance Corporation II (Principal Executive
                         Officer)

 
/s/ Glenn R. Malone      Senior Vice President, Financial Planning and Corporate
-----------------------  Development (Principal Financial Officer and Principal
Glenn R. Malone          Accounting Officer)

/s/ David B. Jones       Director, President of John Q. Hammons Hotels, Inc., 
-----------------------  John Q. Hammons Hotels Finance Corporation and John Q. 
David B. Jones           Hammons Finance Corporation II

 
/s/ Jacqueline A.        Director, Secretary of John Q. Hammons Hotels, Inc., 
Dowdy                    John Q. Hammons Hotels Finance Corporation and John Q. 
-----------------------  Hammons Finance Corporation II
Jacqueline A. Dowdy


/s/ William J. Hart      Director of John Q. Hammons Hotels, Inc.
-----------------------
William J. Hart


/s/ Daniel L. Earley     Director of John Q. Hammons Hotels, Inc.
-----------------------
Daniel L. Earley


/s/ Robert T. Jones,     Director of John Q. Hammons Hotels, Inc.
Jr.
-----------------------
Robert T. Jones, Jr.  


/s/ James F. Moore       Director of John Q. Hammons Hotels, Inc.
-----------------------
James F. Moore


/s/ John E. Lopez-       Director of John Q. Hammons Hotels, Inc.
Ona
-----------------------
John E. Lopez-Ona
</TABLE>

                                     -47-
<PAGE>
 
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
   No.                                                Title                                              Page
---------  --------------------------------------------------------------------------------------------  ----
<C>         <S>                                                                                           <C>
     *3.1    Second Amended and Restated Agreement of Limited Partnership of the Company (the
             "Partnership Agreement")
      3.2    Amendment No. 1 to Partnership Agreement (incorporated by reference to the Company's
             Annual Report on Form 10-K for the fiscal year ended December 30, 1994)
    **3.3    Amendment No. 2 to Partnership Agreement
  ****3.4    Certificate of Limited Partnership of the Company filed with the Secretary of State of the
             State of Delaware
     *3.5    Restated Certificate of Incorporation of the General Partner
   ***3.6    Certificate of Incorporation of John Q. Hammons Hotels Finance Corporation II
   **10.1    1994 Note Indenture
   **10.2    1995 Note Indenture
   **10.3    Embassy Suites License Agreement
   **10.4    Form of Option Purchase Agreement
    *10.5    Collective Bargaining Agreement between East Bay Hospitality Industry Association, Inc.
             and Service Employee's International Union
  ***10.6    Collective Bargaining Agreement between Hotel Employee and Restaurant Employee Union
             Local 49 and Holiday Inn Sacramento--Capitol Plaza, for 06/01/95 to 5/31/98
    *10.7    Letter Agreement re: Hotel Financial Services for Certain Hotels Owned and Operated by
             John Q. Hammons or JQH Controlled Companies
  ***10.9a   John Q. Hammons Building Lease Agreement - 9th Floor (6000 sq. ft.)
  ***10.9b   John Q. Hammons Building Lease Agreement - 7th Floor (2775 sq. ft.)
  ***10.9c   John Q. Hammons Building Lease Agreement - 7th Floor (2116 sq. ft.)
  ***10.9d   John Q. Hammons Building Lease Agreement - 8th Floor (6000 sq. ft.)
   *10.10    Triple Net Lease
   *10.11    Lease Agreement between John Q. Hammons and John Q. Hammons Hotels, L.P.
 ***10.13    Amended and restated employment agreement between John Q. Hammons Hotels, Inc. and
             David B. Jones
 ***10.14    Ground lease between John Q. Hammons and John Q. Hammons-Branson, L.P. - (Chateau
             on the Lake, Branson, Missouri)
 ***10.15    Ground lease between John Q. Hammons and John Q. Hammons-Hotels Two, L.P. -
             (Little Rock, Arkansas)
   *10.16    Operating Agreement of Rivercenter Plaza Development Co., L.C., an Iowa limited
             liability company
 ***10.17    Agreement of Limited Partnership of John Q. Hammons Hotels, L.P. Two
   *10.18    1994 Stock Option Plan
****10.19    Agreement of Limited Partnership of John Q. Hammons Hotels--Montgomery L.P.
     12.1    Computations of Ratio of Earnings to Fixed Charges of the Company
     27      Financial Data Schedule
</TABLE>

 ________________________

*     Incorporated by reference to the General Partner's Registration Statement
      on Form S-1, No. 33-84570.

**    Incorporated by reference to the Company's Registration Statement on Form
      S-4, No. 33-73340.
 
***   Incorporated by reference to the Company's Annual Report on Form 10-K for
      the Fiscal Year Ended January 3, 1997.

****  Incorporated herein by reference to the Company's Registration Statement
      (Registration No. 33-99614) previously filed with the Commission.
                  
                                     -48-