CONTENTS

                                                                     	Pages

Report of Independent Accountants	                                     25

Financial Statements:

	Consolidated Balance Sheets - December 31, 1996 and 1995	             26

	Consolidated Statements of Operations for the years ended
	 	December 31, 1996, 1995 and 1994	                                   28

	Consolidated Statements of Partners' Deficit for the years
		 ended December 31, 1996, 1995 and 1994	                             29

 Consolidated Statements of Cash Flows for the years ended
  	December 31, 1996, 1995 and 1994                                   	30

	Notes to Consolidated Financial Statements	                        31-39 


Report of Independent Accountants

To the Partners of the 
Prime Motor Inns Limited Partnership
and AMI Operating Partners, L.P.

We have audited the accompanying consolidated balance sheets of
Prime Motor Inns Limited Partnership and Subsidiary Limited
Partnership as of December 31, 1996 and 1995, and the related
consolidated statements of operations, partners' deficit and
cash flows for each of the three years in the period ended
December 31, 1996.  These financial statements are the
responsibility of the Partnerships' 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 financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Prime Motor Inns Limited Partnership and
Subsidiary Limited Partnership as of December 31, 1996 and 1995,
and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting
principles.

The accompanying consolidated financial statements have been
prepared assuming that the Partnerships will continue as a going
concern.  As discussed in Note 1, the Partnerships have incurred
significant operating losses and have a capital deficit at
December 31, 1996.  These matters raise substantial doubt about
the Partnerships' ability to continue as a going concern.  The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

Coopers & Lybrand L.L.P.
Cincinnati, Ohio
February 21, 1997


Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Balance Sheets
December 31, 1996 and 1995 (dollars in thousands)


<TABLE>
<CAPTION>
ASSETS 	 	                      	 	 	 	 	 	 	 	1996 	 	   	1995 	 

<S>                                        <C>         <C>  
Current assets: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
  Cash and cash equivalents 	 	 	 	 	 	 	 	$   	834 	 	$   	792 
 	Accounts receivable, net of 
    allowance for doubtful accounts in
    1996 and	1995 of $19 and $20, 
    respectively 	 	 	 	 	 	 	 	 	              774   	    	661 
 	Prepaid expenses 	 	 	           	 	 	 	 	 	 	952 	    	 	941 
 	Other current assets 	 	 	 	       	 	 	 	 	 	328  	   	 	375 

 	 	Total current assets 	 	     	 	 	 	 	 	 	2,888	 	   	2,769 

Property and equipment: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 	Land                            							  	 	7,653  	 	 	7,653 
 	Buildings and leasehold improvements 	 	 	 55,382	  	 	55,389 
 	Furniture and equipment 	 	 	 	 	 	 	 	 	 	39,978 	 	 	38,244 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	103,013 		 	101,286 

 	Less allowance for accumulated 
    depreciation and amortization 		 	 	 	 	(54,188) 	 	(49,140) 

                        	 	 	 	 	 	 	 	 	 	 	48,825 	 	 	52,146 

Cash and cash equivalents restricted for: 	 	 	 	 	 	 	 	 	 	 	
	  	Acquisition of property and equipment 	 	 1,195 	      	831 
   	Interest and taxes 	 	       	 	 	 	 	 	 	 	522 	    	 	491 

Other assets, net 	 	          	 	 	 	 	 	 	 	 	542 	    	 	764 

 	 	Total assets 	 	 	          	 	 	 	 	  $	53,972 	 	$ 57,001 
</TABLE>

Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Balance Sheets, Continued
December 31, 1996 and 1995 (dollars in thousands)

<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT 	 		 	 	 	 	1996 	 	    1995 	 

<S>                                       <C>         <C>
Current liabilities: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
 	Trade accounts payable 	 	   	 	 	 	 	 	$   	484 	 	$   	568 
 	Accrued payroll           	 	 	 	 	 	 	 	 	 	660    	 	 	688 
 	Accrued payroll taxes 	 	 	 	 	 	 	 	 	 	    165 	    	 	286 
 	Accrued vacation 	 	 	 	 	 	 	 	 	 	         437 	    	 	473 
 	Accrued utilities 	 	 	 	 	 	 	 	 	 	        322 	    	 	326 
 	Sales tax payable 	 	 	 	 	 	 	 	 	 	        274    	 	 	242 
 	Other current liabilities 	 	 	 	 	 	 	 	 	 	772 	 	 	   671 

 	 Total current liabilities 	 		 	 	 	 	 	 	3,114 	  	 	3,254 

Long-term debt 	 	 	 	 	 	 	 	 	 	 	        65,691 	 	 	65,645 
Deferred interest 	 	 	 	 	 	 	 	 	 	       	2,872  	 	 	3,685 
Other liabilities 	 	 	 	 	 	 	 	 	 	         	216 	    	 	150 

 	 Total liabilities 	 	 	       	 	 	 	 	 	71,893 	 	 	72,734 

Commitments 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

Partners' deficit: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
 	General partner 	 	 	 	 	 	 	 	 	 	         (751) 	 	  	(729) 
 	Limited partners 	 	 	 	 	 	 	 	 	      	(17,170) 	 	(15,004) 

 		 Total partners' deficit     							 	 	(17,921) 	 	(15,733) 

 	 	Total liabilities 
      and partners deficit 							 	      $	53,972  	 $	57,001 

</TABLE>

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

Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Statements of Operations
for the years ended December 31, 1996, 1995 and 1994
(dollars in thousands, except per unit amounts)

<TABLE>
<CAPTION>
 	 	 	 	 	 	 	 	 	 	                1996 	 	 	   1995 	 	 	   1994 	 
<S>                              <C>          <C>          <C>
Revenues: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
 	Direct operating revenues: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
 	 	Lodging 	 	 	 	 	 	 	 	      $ 	39,488 	 	$ 	36,668 	 	$ 	34,463 
 	 	Food and beverage 	 	 	 	 	 	 	 	9,735 	   	 	9,402    	 		9,369 
 	Other income 	 	 	 	 	 	 	 	 	      	361     	 	 	374 	     	 	341 
 	Lease settlement proceeds 	 	 	 	 	 	 	- 	   	 	1,025 	        		- 

 	 Total revenues 	 	  	 	 	 	 	 	 	49,584  	 	 	47,469 	 	  	44,173 

Expenses: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
 	Direct operating expenses 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
  		Lodging 			                						9,462     			8,998 	    		8,674 
 	 	Food and beverage 	 	 	 	 	 	 	 	8,112   	 	 	7,809    	 		7,509 
  		Marketing 	              								3,500     			3,334     			3,244 
 	 	Utilities 	       	 	 	 	 	 	 	 	3,053   	 	 	2,956   	 	 	2,875 
 	 	Repairs and maintenance 	 	 	 	 	3,680 	   	 	3,490 	   	 	3,379 
 	 	Rent 	 	 	            	 	 	 	 	 	1,316 	   	 	1,317 	 	   	1,301 
 	 	Insurance 	 	         	 	 	 	 	 	 	705     	 	 	630 	     	 	670 
 	 	Property taxes 	 	  	 	 	 	 	 	 	1,382   	 	 	1,380 	   	 	1,300 
 	 	Other 	           	 	 	 	 	 	 	 	8,369 	   	 	7,718 	   	 	7,593 
   	Other general and 
      administrative 	 	  	 	 	 	 	 	 	701 	 	     	587     	 	 	606 
   	Depreciation and amortization 	 	5,423    	 		5,473 	   	 	5,626 
   	Interest expense 	 	 	 	 	 	 	 	 6,069   	 	 	6,057     	 	6,069 

 	 	 	Total expenses 	 	 	 	 	 	 	 	51,772 	  	 	49,749 	    	48,846 

Net loss 	 	       	 	 	 	 	 	 	 	 	(2,188) 	 	 	(2,280) 	 	 	(4,673) 

Net loss allocable to 
  general partner 	 	 	 	 	 	 	 	 	 	 	(22)        	(23) 	    	 	(47) 

Net loss allocable to 
  limited partners 	 	 	 	 	 	 	 $ 	(2,166) 	 $ 	(2,257) 	 $ 	(4,626) 

Number of limited partner 
  units outstanding 	 	 	 	 	 	 	 	 	4,000 	   	 	4,000 	   	 	4,000 

Net loss allocable to limited 
partners per unit 	 	 	 	 	 		  	$   	(.54)  	$   	(.56)  	$  	(1.16) 
</TABLE>

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

Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Statements of Partners' Deficit
for the years ended December 31, 1996, 1995 and 1994
(dollars in thousands)

<TABLE>
<CAPTION>
             	 	 	 	 	 	 	 	 	 	  General  	 	 	Limited 	 	  	 
                                  Partner       Partner      Total
<S>                             <C>           <C>             <C>
Balance at December 31, 1993 	  $   	(659) 	 	$ 	(8,121)	 	$ 	(8,780) 

Net loss 	         	 	 	 	 	 	 	 	 	 	(47) 	  	 	(4,626) 	 	 	(4,673) 

Balance at December 31, 1994 	 	 	 	 (706) 	  		(12,747) 		 	(13,453) 

Net loss 	                								 	 	(23)  	 	 	(2,257) 	 	 	(2,280) 

Balance at December 31, 1995 	 	 				(729) 	 	 	(15,004)	 	 	(15,733) 

Net loss 	         	 	 	 	 	 	 	 	 	 	(22) 	  	 	(2,166) 	 	 	(2,188)

Balance at December 31, 1996 	 	$   	(751) 	 	$	(17,170)  	$	(17,921) 
</TABLE>

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

Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994
(dollars in thousands)

<TABLE>
<CAPTION>
                           	 	 	 	 	 	 	 	 	 	1996 	    	 	1995 	   	 	1994 	 
<S>                                       <C>          <C>         <C>
Cash flows from operating activities: 	 	 	 	 	 	 	 	 	 	 	 	 	
	 Net loss 	 	 	 	 	 	 	 	 	              $	(2,188) 	 	$	(2,280) 	 $ (4,673) 
 	Adjustments to reconcile net loss 
    to net cash provided by
    (used for) operating activities: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
 	Depreciation and amortization 
    of property 	                        	 		5,201   	 	 	5,158 	 	  	5,126 
 	Lease settlement proceeds 	 	     	 	 	 	 	 	 	- 	  	 	(1,025) 	 	      -
 	Amortization of other assets 	 	 	 	 	 	 	 		222     	 	 	315     		 	500 
 	Amortization of debt discount 	 	 	 	 	 	 	 	 46 	      	 	43 	     	 	40 
 	Changes in operating assets 
    and liabilities: 	 	 	 	 	 	 	 	 	
	 	   Accounts receivable 	 	 	 	 	 	 	 	    	(113)    	 	 	220      	 	(12) 
   	 	Prepaid expenses 	 	        	 	 	 	 	 	 	(11) 	     	 	45 	    	 	(37) 
   	 	Other current assets 			          				 	 	47 	      	 	16 	   	 	(117) 
   	 	Other assets 	              	 	 	 	 	 	 	 	- 	      	 	10 	      	 	2 
   	 	Trade accounts payable 	 	 	 	 	 	 	 	  	(84) 	    	 	166     	 	(206) 
   	 	Accrued payroll 	 	 	 	 	 	         	 	 	(28) 	    	 	(26) 	   	 	124 
   	 	Accrued payroll taxes 	 	 	 	 	 	 	 	  	(121)     	 	 	28 	     	 	39 
   	 	Accrued vacation 	 	 	 	 	 	        	 	 	(36) 	     	 	37 	     	 	59 
   	 	Accrued utilities 	 	 	        	 	 	 	 	 	(4)    	  	 	77 	    	 	(65) 
   	 	Sales tax payable 	 	        	 	 	 	 	 	 	32 	      	 	21 	      	 	9 
   	 	Other current liabilities 	 	 	 	 	 	 	 	101 	      	 	28       	 	82 
   	 	Deferred interest 	      	 	 	 	 	 	 	 	(813) 	   	 	(741) 	   	 	580 
   	 	Other liabilities 	        	 	 	 	 	 	 	 	66 	       	 	- 	 	      	- 
Net cash provided by operating activities 	 	2,317 	 	   	2,092 	  	 	1,451 

Cash flows from investing activities: 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Additions to property and equipment 	 	 	 (1,880)	  	 	(2,423)  	 	(2,773) 
 	Decrease (increase) in restricted cash 	 			(395) 	   	 	(245) 	   	 	291 

Net cash used for investing activities 	 	 	(2,275) 	 	 	(2,668) 		 	(2,482) 

Cash flows from financing activities: 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Long-term borrowings 	 	 	 	 	 	 	 	 	 	 	 	  	-  	 	    	  -         675         
  Borrowings under revolving 
    credit facility                          1,600   	 	 	1,200 	  	 	1,763 
 	Repayment of revolving credit facility 	 	(1,600) 	 	 	(1,200) 		 	(1,763) 

Net cash provided by financing activities 	 	 	  -	 	 	       - 	    	 	675 

Net increase (decrease) in cash and 
  cash equivalents 	 	 	 	 	 	           	 	 	 	42    	 	 	(576)  	 	 	(356) 

Cash and cash equivalents, beginning 
  of year 	 	 	 	 	 	 	 	 	 	                  792   	 	 	1,368 	  	 	1,724 

Cash and cash equivalents, end of year 	 	$   	834	 	  $   	792 	 	$ 	1,368 

Supplementary cash flow data: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
 	Interest paid 	 	 	 	 	 	 	 	 	         $ 	6,836 	  	$ 	6,755 	 	$ 	5,449 

Noncash activities: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
 	Lease settlement proceeds received 
    from former affiliate in the form 
    stock	used to reduce long-term debt 	 $     	-  	 	$ 	1,025 	 	$     	- 
</TABLE>

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

Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Notes to Consolidated Financial Statements

1. 		Organization, Operations and Bankruptcy:

Prime Motor Inns Limited Partnership (the "Partnership") and its
99%-owned subsidiary, AMI Operating Partners, L.P. ("Operating
Partners"), were formed in October 1986 under the Delaware
Revised Uniform Limited Partnership Act.  The Partnership and
Operating Partners are referred to collectively as the
"Partnerships".  Prime-American Realty Corp. (the "General
Partner"), a subsidiary of Prime Hospitality Corporation
("Prime"), formerly Prime Motor Inns, Inc., is the general
partner of and holds as its principal asset a 1% partnership
interest in the Partnership and in Operating Partners.

In December 1986, the Partnership consummated an initial public
offering (the "Offering") of 4,000,000 units of limited
partnership interest (the "Units") in the Partnership, and used
the funds received to acquire the 99% limited partnership
interest in Operating Partners.  Units are evidenced by
depositary receipts which are listed on the New York Stock
Exchange.  Operating Partners commenced operations in December
1986 when it used the Offering proceeds and issued mortgage
notes (the "Mortgage Notes") in the principal amount of
$61,470,000 to purchase 16 full service hotels (the "Inns") from
subsidiaries of Prime.  The Partnerships operate and maintain 9
Inns in Maryland, 5 in Pennsylvania and 2 in Connecticut, all of
which are presently franchised as part of the "Holiday Inn"
system.

Profits and losses from operations and cash distributions of the
Partnerships combined are generally allocated 1.99% to the
General Partner and 98.01% to the limited partners.  Any profits
and losses from operations in excess of certain specified annual
and cumulative returns on investments in limited partner shares,
as defined (generally 12.5%), are allocated approximately 30% to
the General Partner and 70% to the limited partners.

Until November 30, 1990, the Inns were operated by AMI
Management Corp. ("AMI Management"), another subsidiary of
Prime, under the terms of a lease between AMI Management and
Operating Partners (the "Lease"), guaranteed by Prime (the
"Guaranty").  The Lease was a net lease that granted AMI
Management the right to use the Inns until December 31, 1991.

On September 18, 1990, Prime announced that it and certain of
its subsidiaries, including AMI Management but not the General
Partner, had filed for reorganization under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy
Court for the Southern District of Florida.  AMI Management
defaulted on the payment of base rent due November 1, 1990 under
the Lease.  On November 7, 1990, the Partnership gave notice of
default to, and demanded payment from AMI Management and Prime. 
AMI Management and Prime also filed a motion to reject the Lease
and Guaranty and, by order of the bankruptcy court dated
December 7, 1990, the bankruptcy court approved such rejection
and the Lease and Guaranty  were terminated effective as of
November 30, 1990 (see Note 3).

Operating Partners was in default under its mortgage loan
agreement as of and prior to December 31, 1991 as a result of,
among other things, the bankruptcy filing by Prime and AMI
Management.  On March 28, 1991, the Partnerships received a
notice of acceleration and demand for payment of the entire
outstanding balance of the Mortgage Notes along with certain
conditions under which the lenders would pursue discussions with
respect to restructuring the Mortgage Notes.

On February 28, 1992, Operating Partners filed with the United
States Bankruptcy Court a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code, seeking
confirmation by the bankruptcy court of a prepackaged plan of
reorganization (the "Plan"). The New York Bankruptcy Court
confirmed the Plan, on May 28, 1992, which became effective as
of June 12, 1992 (the "Effective Date").  Upon confirmation of
the Plan, the New York Bankruptcy Court approved the Restated
Loan Agreement (the "Restated Loan Agreement") which, among
other things, extended the maturity date of the Mortgage Notes
to December 31, 1999 (refer to Note 5 for a further discussion
of this matter).

Although the Plan was approved, the Partnerships may not be able
to continue as going concerns unless cash flow from operations
are sufficient.  The Partnerships have incurred significant
operating losses and have a capital deficit at December 31,
1996.  The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability of
recorded asset amounts or the amounts of liabilities that might
be necessary should the Partnerships be unable to continue as
going concerns.

2.		Summary of Significant Accounting Policies:

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

The following is a summary of certain significant accounting
policies used in the preparation of the consolidated financial
statements.

a.	Principles of Consolidation:  The consolidated financial
statements include the accounts of the Partnership and its
99%-owned subsidiary limited partnership, Operating Partners. 
Operating partners operates on the basis of a calendar year
ending on the Friday which is most proximate to December 31 of
any given year.  All material intercompany accounts and
transactions have been eliminated.

b.	Cash Equivalents:  Cash equivalents are highly liquid
investments with a maturity of three months or less when
acquired.

c.	Property and Equipment:  Property and equipment are stated at
the lower of cost or fair market value.  The net carrying value
of property and equipment as of December 31, 1991 was reduced to
estimated fair market value, through a charge to expenses in the
amount of $46,354,000.  Expenditures for improvements and major
renewals are capitalized.  Expenditures for maintenance and
repairs, which do not extend the useful life of the asset, are
expensed as incurred.  For financial statement purposes,
provision is made for depreciation and amortization using the
straight-line method over the lesser of the estimated useful
lives of the assets or the terms of the related leases.  For
federal income tax purposes, accelerated methods are used in
calculating depreciation. 

d.	Impairment of Long Lived Assets:  In March 1995, the
Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long Lived Assets" which is
effective for years beginning after December 15, 1996, with
earlier adoption encouraged.  The Partnerships elected early
adoption of SFAS No. 121 in 1995.  In accordance with this new
pronouncement, the Partnerships review for impairment and
recoverability of, primarily, property and equipment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.  If an evaluation is
required, the estimated future undiscounted cash flows
associated with the asset would be compared to the assets
carrying amount to determine if a write-down is required.

e.	Other Assets:  Franchise fees, deferred lease costs, and
deferred debt acquisition costs are amortized on a straight-line
basis over the estimated lives of the assets or the specific
term of the related agreement, lease or mortgage loan.

f.	Net Loss per Unit:  Net loss per Unit is calculated based on
net loss allocable to limited partners divided by the 4,000,000
Units outstanding.

g.	Reclassification:  Certain 1995 and 1994 amounts have been
reclassified to conform to the 1996 presentation.<PAGE>

3.		Operations of the Inns:

a.	Lease and Guaranty:  Prior to the rejection and termination
of the Lease and Guaranty effective as of November 30, 1990, the
Lease granted AMI Management the right to use the Inns for the
operation of hotels and related purposes.

	AMI Management defaulted on the payment of $1,311,000 of base
rent due on November 1, 1990.  Pursuant to the joint motion
approved by order of the bankruptcy court on January 8, 1991,
the Partnerships, AMI Management and Prime entered into an
agreement providing for the assumption by Operating Partners of
the operations of the Inns (the "Agreement").  The Partnerships
also effectively assumed control over certain accounts
receivable, supplies, equipment and other assets and
responsibility for certain accounts payable and other
liabilities arising from the operations of the Inns by AMI
Management during the term of the lease.  Disputes between the
parties existed at December 31, 1991 as to, among other things,
the value of certain assets and liabilities under the Agreement.
 Operating Partners entered into an agreement in 1992 (the
"Omnibus Agreement") under which, among other things, Operating
Partners assigned to the holders of the Mortgage Notes its
claims against Prime and AMI Management and agreed that amounts
recovered on such claims would be allocated among financial
claims (the proceeds of which would be applied to the repayment
of the Mortgage Notes) and operating claims (the proceeds of
which would be available to finance capital improvements to the
Inns).

	In July, 1992 the servicing agent for the holders of the
Mortgage Notes, Prime and AMI Management reached a settlement
(the "Settlement") of claims which was approved by the Florida
Bankruptcy Court.  Under the Settlement, various claims of the
holders of the Mortgage Notes against Prime and AMI Management
were allowed; Operating Partners will not make any payments to
or for the  benefit of any other party; and Prime, AMI
Management and Operating Partners have exchanged mutual releases.

	In February 1995, the Partnership received proceeds totaling
approximately $1,025,000 from the sale of 127,924 shares of
Prime common stock received in the Settlement.  The proceeds
were recognized as lease settlement proceeds in the consolidated
statements of operations and were used to reduce the principal
balance on the Mortgage Notes.

b.	Franchise Agreements:  Holiday Inns, Inc. and it's affiliates
engaged in administering the "Holiday Inn" system (collectively,
"HII") extended the franchise agreement for Baltimore Inner
Harbor Inn to 2005.  The franchise agreements for twelve of the
Inns expire in 1997 and the remaining three Inns' agreements
expire one each in 1998, 1999 and 2001.  

	HII has notified the Partnerships that certain capital
expenditure projects at the Inns will be required to maintain
the Inns' franchise status.  For twelve of the Inns whose
franchises expire in 1997 the capital expenditures have been
estimated by Operating Partners to approximate $13,000,000,
however, such capital expenditures are subject to negotiation
with HII.  Operating Partners will have one year, which may be
negotiable, from the franchise expiration date to complete the
capital improvements.  In addition, Operating Partners will be
required to pay franchise renewal costs of approximately
$884,000 for the twelve Inns whose franchises expire during
1997.  The loss of the Holiday Inn franchise status of any of
the Inns may have a near term adverse impact in the
Partnerships' results of operations.

c.	W&H Management Agreement:  Winegardner & Hammons, Inc.
("W&H") continues to manage the operations of the Inns pursuant
to its management agreement with Operating Partners which
provides for an annual management fee of 2.25% of the gross
revenues of the Inns and certain incentive management fees.  W&H
is also reimbursed for miscellaneous out-of-pocket expenses
allocated to the Inns, including expenses incurred in providing
certain administrative services for the Partnerships, royalties
and marketing, advertising, public relations, and reservation
services, subject to certain limitations.  The management
agreement expires December 31, 2000 and is cancelable by either
W&H or the Operating Partners, without cause or penalty, upon
ninety days written notification.  At December 31, 1996 and
1995, the Partnerships had approximately $61,000, in receivables
from an entity controlled by W&H which manages certain of the
Inns' lounges.

4. 		Other Assets:

The components of other assets are as follows (in thousands):
<TABLE>
<CAPTION>
              	 	 	 	 	 	 	 	 	 	1996  	 	 	1995 	 

<S>                            <C>        <C>
Deferred lease costs 	      	 	$   	21 	 	$   	21 
Debt acquisition costs 	 	      	2,839 	 	 	2,839 
Franchise fees 	 	 	 	 	 	      	 	820 	   	 	820 
Other 	 	 	 	 	 	 	 	 	 	            4 	     	 	4 

      	 	 	 	 	 	 	 	 	 	 	 	 	 	3,684 	 	 	3,684 

Less accumulated amortization 	 	3,142  	 		2,920 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	$  	542 	 	$  	764 
</TABLE>

4.		Other Assets, Continued:

Amortization of debt acquisition costs charged to expense was
$161,000, $174,000 and $359,000 in 1996, 1995 and 1994
respectively.  Amortization of franchise fees charged to expense
was $61,000 in 1996 and $141,000 in 1995 and 1994.



5.		Debt:

Long-term debt consists of:
<TABLE>
<CAPTION>
                           	 	 	 	 	 	 	 	 	 	1996          	 	1995 	 
<S>                                      <C>              <C>
Mortgage notes, net of unamortized 
  discount of $158,000 in 1996 								 	 	 	 	 	 
  and $204,000 in 1995 	         						 	$ 	54,191,000 	 	$ 	54,145,000 

Priming loan, interest at 11% 								 	 	  11,500,000   	 		11,500,000 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	$ 	65,691,000 	 	$ 	65,645,000 
</TABLE>

In confirming the bankruptcy Plan of Reorganization on May 28,
1992, the New York Bankruptcy Court approved the Restated Loan
Agreement which called for the following provisions: $3,467,127
of accrued and unpaid interest at December 31, 1991 (the
"Deferred Amount") to be added to the principal amount of the
Mortgage Notes, but to bear interest only from and after January
1, 1995; the Mortgage Notes (not including the Deferred Amount)
to bear interest payable at a rate of 8% per annum in 1994; the
principal amount of the Mortgage Notes (including the Deferred
Amount) to bear interest at the rate of 10% per annum from
January 1, 1995 until maturity; and maturity of the Mortgage
Notes (including the Deferred Amount) to be extended to December
31, 1999.  In addition, the Restated Loan Agreement provides for
the deeds to the Inns and assignments of other assets of
Operating Partners to be held in escrow until maturity of the
Mortgage Notes.  Under the terms of the Restated Loan Agreement,
the Mortgage Notes are repayable at any time without penalty.<PAGE>

The Restated Loan Agreement also provides for a shared
appreciation feature that calls for Operating Partners to pay
additional interest to the mortgage lenders, based on sale or
appraisal values of the Inns compared to the principal amount of
the Mortgage Notes, upon payment, prepayment, maturity or
acceleration of the Mortgage Notes, or upon sale of one or more
of the Inns.  The Partnerships periodically estimate the fair
value of the Inns to determine if a reserve is needed for future
payments to lenders under the shared appreciation feature. While
the estimates of fair value are based on an analysis of the
facilities and determined under industry standards, the amounts
the Partnerships will ultimately realize upon the sale of the
properties or appraised values could differ materially in the
near term from the estimated fair values used in the calculation
of the reserve.  There was no additional interest accrued or
paid to the lenders under this feature in 1996, 1995 or 1994.

The Restated Loan Agreement was accounted for as a modification
of terms in accordance with Statement of Financial Accounting
Standards No. 15 "Accounting by Debtors and Creditors for
Troubled Debt Restructurings".  Accordingly, the carrying value
of the Mortgage Notes and Deferred Amount was not adjusted to
reflect the terms of the Restated Loan Agreement.  The effect of
the changes in the terms of the Mortgage Notes will be
recognized prospectively over the life of the Mortgage Notes,
through an adjustment of the effective interest rate on the
Mortgage Notes and Deferred Amount to approximately 8.5% per
annum (the "Effective Rate").  The amount by which interest
payable at the Effective Rate exceeded the amount of interest
paid at the stated rate, has been accrued and is included in
deferred interest payable at December 31, 1996 and 1995.  The
amount by which interest paid at the stated rate exceeds the
amount of interest payable at the Effective Rate will reduce the
deferred interest balance in future periods.

As part of the Plan, certain members of the lending group also
agreed to provide Operating Partners post-petition financing
(the "Priming Loan").  Borrowings under the Priming Loan, may be
used to finance capital improvements or to fund operating cash
requirements.  The portion used for capital improvements
(defined as the Tranche A Loan), which may be up to the full
amount of the $14,000,000 available, is due on December 31, 1999
and provides for a prepayment premium of 2%.  The portion used
for operating cash requirements (defined as the Tranche B Loan),
which cannot exceed $2,500,000, is also limited to the amount
remaining after borrowings for capital improvements.  Borrowings
under the Tranche B loan are pursuant to a revolving facility,
such that amounts repaid can be reborrowed up to the limits of
availability.  These revolving credit borrowings are subject to
the mandatory repayment provisions described below.  There were
no outstanding borrowings under the revolving facility at
December 31, 1996 or December 31, 1995.<PAGE>

As of December 31, 1996 and 1995, the outstanding balance under
the Priming loan was $11,500,000.  The entire amount in 1996 and
1995 represents borrowings under the Tranche A loan.  The
Priming Loan agreement places certain restrictions on the use of
Operating Partners' cash flow and sales proceeds.  Operating
cash flow can be used only in accordance with the Priming Loan
agreement, which calls for, among other things, monthly deposits
into an escrow account held by or on behalf of the lenders for
the payment of a furniture, fixtures and equipment reserve of 5%
of gross revenues.  The cash on hand from the operation of the
Inns less the current month projected cash deficiency, if any,
less a working capital reserve not to exceed $2,000,000, shall
be utilized to first repay any outstanding borrowings under the
Tranche B Loan and then paid into an escrow account held on
behalf of the lenders for the payment of taxes and insurance.

6.		Commitments:

a.	Operating Leases:  Four of the Inns are held pursuant to land
leases and three of the Inns are held pursuant to land and
building leases, which are accounted for as operating leases. 
The leases have terms expiring at various dates from 2000
through 2024 and options to renew the leases for terms varying
from ten to forty years.  Five of the leases are subject to an
escalating rent provision based upon inflationary indexes, which
adjusts the lease payment every five to ten years depending on
the respective lease.  One of the leases is a land lease with a
subsidiary of Prime that expires in 2000 (with an option to
extend 40 years) and requires annual rentals of $24,000.  Future
minimum lease payments will be as follows:

<TABLE>
<CAPTION>
Year      	 	 	 	 	 	 	 	Amount 	 

<C>                     <C>
1997 	   	 	 	 	 	 	 	 	1,254,000 
1998 	 	   	 	 	 	 	 	 	1,348,000 
1999 	 	 	   	 	 	 	 	 	1,372,000 
2000 	 	 	 	   	 	 	 	 	1,381,000 
2001 	 	 	 	 	   	 	 	 	1,357,203 
2002 and thereafter 	 	19,552,364 
</TABLE>

Rent expense under these leases totaled $1,258,000, $1,260,000
and $1,253,000 in 1996, 1995, and 1994, respectively. 

7.	Income Taxes:

No federal or state income taxes are reflected in the
accompanying financial statements of the Partnerships.  Based
upon an opinion of counsel of the Partnership obtained in 1986,
which is not binding upon the Internal Revenue Service, the
Partnerships were not taxable entities at their inception.  The
partners must report their allocable shares of the profits and
losses of the Partnerships in their respective income tax
returns.

The Revenue Act of 1987 (the "1987 Act") added several
provisions to the Internal Revenue Code which affect publicly
traded partnerships such as the Partnership.  Under these rules,
a publicly traded partnership is taxed as a corporation unless
90% or more of its income constitutes "qualifying income" such
as real property rents, dividends and interest.  The 1987 Act
also provided certain transitional rules, however, which
generally exempt publicly traded partnerships in existence on
December 17, 1987 from application of the new rules until after
1997, subject to various limitations.

If the Partnership's operations continue as described herein,
the Partnership should not be taxed as a corporation until after
1997.  However, publicly traded partnerships which add a
substantial new line of business are not eligible for relief
under these transitional rules and it is possible that the
Internal Revenue Service could contend that the Partnership
should be taxed as a corporation after November 30, 1990, the
date of termination of the Lease.  Also, it should be noted that
with respect to the partners, the 1987 Act also contained rules
under which the income of the Partnership will be treated,
effectively, as "portfolio income" for tax purposes and will not
be eligible to offset losses from other passive activities. 
Similarly, any losses of the Partnership will not be eligible to
offset any income from other sources.

The Partnerships have determined that they do not have to
provide for deferred tax liabilities based on temporary
differences between financial and tax reporting purposes.  The
tax basis of the net assets of the Partnerships exceeded the
financial reporting basis at December 31, 1996 and is expected
to do so at December 31, 1997.