GROWTH HOTEL INVESTORS II, 10-K, 1998-05-12

GROWTH HOTEL INVESTORS II
10-K, 1998-05-12
HOTELS & MOTELS

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FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

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 [NO FEE REQUIRED]

For the fiscal year ended December 31, 1997, or

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

For the transition period from.............to.............

Commission file number 0-16491

GROWTH HOTEL INVESTORS II
(Exact name of Registrant as specified in its charter)

CALIFORNIA 94-2997382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)

(864) 239-1000
Registrant's telephone number, including area code

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

Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
(Title of class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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 ]

No established trading market for the Limited Partnership Units exists and
therefore a current market value for such Units cannot be readily determined.

DOCUMENTS INCORPORATED HEREIN BY REFERENCE:

(1) Prospectus of the Registrant dated October 10, 1986, and thereafter
supplemented, incorporated in Parts I and IV.

(2) Items 2-4 and 8 of the Schedule 14D-9 of the Registrant, as filed with the
Securities and Exchange Commission on February 29, 1996, as amended by
Amendment No. 1 thereto filed with the Securities and Exchange Commission on
March 7, 1996 and as further amended by Amendment No. 2 thereto filed with the
Securities and Exchange Commission on March 14, 1996 incorporated in Parts I and
II.

GROWTH HOTEL INVESTORS II,
A CALIFORNIA LIMITED PARTNERSHIP

PART I

ITEM 1. BUSINESS:

Growth Hotel Investors II, a California Limited Partnership (the "Registrant" or
the "Partnership"), was organized in 1984 under the California Uniform Limited
Partnership Act. The managing general partner of the Registrant is Montgomery
Realty Company-85 ("MRC-85" or the "Managing General Partner"), a California
general partnership of which NPI Realty Management Corp. ("NPI Realty"), a
Florida corporation, is the managing general partner, and Fox Realty Investors
("FRI"), a California general partnership, is the co-general partner. The
associate general partner of the Registrant is GHI Associates, a California
limited partnership, of which FRI is the general partner and Prudential-Bache
Properties, Inc. is the limited partner. NPI Equity Investments II, Inc. ("NPI
Equity") a Florida Corporation, is the managing general partner of FRI. On
November 15, 1995, Montgomery Realty Corporation, a California corporation,
withdrew as a general partner of MRC-85 and NPI Realty was admitted as a general
partner. In February 1996, NPI Realty became the managing general partner of
MRC-85. Prior to February 1996, FRI was the managing general partner of MRC-85.

Pursuant to a series of transactions which closed during the first half of 1996,
affiliates of Insignia Financial Group, Inc. ("Insignia") acquired all of the
issued and outstanding shares of stock of NPI Equity and National Property
Investors, Inc. ("NPI"), the sole shareholder of NPI Equity until December 31,
1996, at which time the stock of NPI Equity and NPI Realty was acquired by
Insignia Properties Trust. In connection with these transactions, affiliates of
Insignia appointed new officers and directors of NPI, NPI Equity and NPI Realty.
See "Item 9. Directors, Executive officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act."

The Registrant's Registration Statement on Form S-11 (No. 33-4566) filed
pursuant to the Securities Act of 1933, as amended (the "Act"), was declared
effective by the Securities and Exchange Commission (the "Commission") on
October 10, 1986. The Registrant marketed its securities pursuant to its
Prospectus dated October 10, 1986, and thereafter supplemented (hereinafter the
"Prospectus"). The Prospectus was filed with the Commission pursuant to Rule
424(b) of the Act.

The principal business of the Registrant was to acquire primarily through joint
ventures, hold for investment, and ultimately sell hotels. The Registrant is a
"closed" limited partnership real estate syndicate of the unspecified asset
type.

Beginning in October 1986, the Registrant offered $75,000,000 in Limited
Partnership Assignee Units ("Units" or "Limited Partnership Assignee Units").
The offering closed in October 1987 with a total funding of $58,982,000. The
net proceeds of this offering were used to purchase primarily through joint
ventures, twenty-four hotels, including eighteen acquired through a joint
venture, Growth Hotel Investors Combined Fund No. 1, a California Limited
Partnership ("Combined Fund"), with Growth Hotel Investors, a California Limited
Partnership ("GHI") affiliated with the Registrant's managing general partner,
and one wholly owned property. The acquisition activities of the Registrant
were completed on December 29, 1989. The Registrant's original property
portfolio was geographically diversified, with hotels acquired located in twelve
states. In October 1989, GHI - Eden Prairie Associates, a 70 percent owned
joint venture which owned the Hampton Inn - Eden Prairie, was dissolved and the
Registrant assumed the joint venture partner's interest in the property. In
1995, the Registrant acquired its joint venture partner's interest in the joint
ventures which owned each of Hampton Inn-Kansas City and Hampton Inn-Dublin. In
addition, the Registrant acquired all of the economic rights of its joint
venture partner in the joint venture which owns the Hampton Inn-St. Louis.

As required by the settlement of the class action brought in connection with the
tender offer made by Devon Associates discussed below, the Registrant and Growth
Hotel Investors ("GHI"), the Registrant's joint venture partner in the Combined
Fund properties, marketed all of their properties for sale. In this regard, the
Registrant and GHI retained Bear, Stearns & Co Inc. to assist in the marketing
of such properties. As described in "Item 2. Properties", the Registrant sold
all of its assets during 1997. As a result, it is anticipated that a final
distribution will be made to the Registrant's partners during 1998 and that the
Registrant will be dissolved.

The Registrant was involved in only one industry segment, as described above.
The Registrant does not engage in any foreign operations or derive revenues from
foreign sources.

On December 7, 1995, the Registrant acquired, effective for the 1996 calendar
year, all of the economic rights of its joint venture partner in GHI II Big
River Associates, a California partnership, the joint venture which owns the
Hampton Inn - St. Louis, for $375,000. In addition, the Registrant was granted
an option to acquire for $10.00 all of its joint venture partner's ownership
interest in the joint venture at such time as the joint venture partner is no
longer a guarantor or otherwise liable for the loan secured by the Hampton Inn -
St. Louis.

The Registrant has no employees and is dependent on the Managing General Partner
and its affiliates for administration of all partnership activities. The
Partnership Agreement provides for reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The day to day management is dependent
on a third party management company.

The Registrant's affairs were managed by Metric Management, Inc. ("MMI") or its
predecessor from March 1988 to December 1993. On December 16, 1993, the
services agreement with MMI was modified and, as a result thereof, the
Registrant's general partner assumed responsibility for the cash management of
the Registrant as of December 23, 1993, and for investor relations services as
of April 1, 1994.

On December 6, 1993, NPI Equity Investments II, Inc., a Florida corporation
("NPI Equity II"), became the managing partner of FRI. As a result, NPI Equity
II became responsible for the operation and management of the business and
affairs of the Registrant and the other investment partnerships sponsored by
FRI. NPI Equity II is a wholly-owned subsidiary of NPI, Inc. The individuals
who had served previously as partners of FRI contributed their general
partnership interests in FRI to a newly formed limited partnership, Portfolio
Realty Associates, L.P. ("PRA"), in exchange for limited partnership interests
in PRA. In the foregoing capacity, such partners continue to hold, indirectly,
certain economic interests in the Registrant and such other investment
partnerships, but ceased to be responsible for the operation and management of
the Registrant and such other partnerships.

On October 12, 1994, NPI, Inc. sold one-third of the stock of NPI, Inc. to an
affiliate of Apollo Real Estate Advisors, L.P. ("Apollo"). On August 17, 1995,
the stockholders of NPI, Inc. entered into an agreement to sell all of the
issued and outstanding common stock of NPI, Inc. to IFGP Corporation, an
affiliate of Insignia Financial Group, Inc. ("Insignia"). The transaction was
consummated on January 19, 1996. Upon the Closing, the officers and directors
of NPI, Inc., NPI Equity II and NPI Realty resigned and Insignia caused new
officers and directors of each of those entities to be elected. See "Item 10,
Directors and Executive Officers of the Registrant."

On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership. It is anticipated, however, that the Partnership
will be liquidated prior to the consummation of the AIMCO transaction. In any
event, it is not anticipated that this transaction will have a material effect
on the Partnership.

On February 15, 1996, Devon Associates, a New York general partnership,
commenced a tender offer (the "Offer") for up to 21,000 of the outstanding Units
at a purchase price of $750.00 per Unit. Due to the participation in the tender
offer by affiliates of NPI Realty, and the Managing General Partner's related,
existing and potential conflicts of interest, the Partnership, in its Schedule
14D-9 filed with Securities and Exchange Commission and sent to limited
partners, expressed no opinion and made no recommendation as to whether limited
partners should tender their Units pursuant to the Offer. The expiration of the
tender offers described above was midnight, New York time, on March 25, 1996.
See Items 2-4 of the Schedule 14D-9 of the Partnership, as filed with the
Commission on February 29, 1996, as amended by "Amendment No. 1" thereto, as
filed with the Commission on March 7, 1996, and as further amended by "Amendment
No. 2" thereto, as filed with the Commission on March 14, 1996 (collectively,
the "Schedule 14D-9"), for additional information with respect to the Offer and
the current and potential conflicts of interest of MRC-85, which Items 2-4 are
incorporated herein by reference. Devon Associates acquired 17,302 units with
respect to this offer.

ITEM 2. DESCRIPTION OF PROPERTIES

As of December 31, 1997, the Partnership adopted the liquidation basis of
accounting as a result of the sale of all of its investment properties as
discussed below.

On June 24, 1997, the Partnership, sold all of its investment properties,
consisting of the Hampton Inn-Kansas City, Hampton Inn-Eden Prairie, Hampton
Inn-Dublin, and Hampton Inn-Colorado Springs for a sales price of approximately
$20,162,000. The Partnership has a controlling interest in three joint venture
partnerships, GHI II Big River Associates, Hampton/GHI Associates No. 2 and
Growth Hotel Investors Combined Fund No. 1. On June 24, 1997, GHI II Big River
Associates sold its investment property, Hampton Inn-St. Louis for a purchase
price of approximately $5,057,000. Additionally, Hampton/GHI Associates No. 2
sold its investment property, Hampton Inn-North Dallas for a sales price of
$10,371,000. Finally, on June 24, 1997, Hampton/GHI Associates No. 1
("Hampton/GHI"), a joint venture in which Growth Hotel Investors Combined Fund
No. 1 owns 80%, sold 17 of its 18 investment properties, consisting of the
Hampton Inn-Memphis-I-40, Hampton Inn-Columbia West, Hampton Inn-Spartanburg,
Hampton Inn-Little Rock, Hampton Inn-Amarillo, Hampton Inn-Greenville, Hampton
Inn-Charleston, Hampton Inn-Memphis-Poplar, Hampton Inn-Greensboro, Hampton Inn-
Birmingham, Hampton Inn-Atlanta, Hampton Inn-Chapel Hill, Hampton Inn-Dallas,
Hampton Inn-Nashville, Hampton Inn-San Antonio, Hampton Inn-Madison Heights, and
Hampton Inn-Northlake for a purchase price of approximately $107,576,000. The
investment properties were sold to an unrelated third party, Equity Inns
Partnership, L.P., a Tennessee limited partnership. The properties were sold in
accordance with the settlement of the class action lawsuit brought in connection
with the tender offer made by Devon Associates. The Partnership's last hotel
property, the Hampton Inn-Mountain Brook, was sold on August 1, 1997 for a sales
price of approximately $8,758,000.

The aggregate purchase price for all 24 properties was approximately
$151,924,000. The Partnership received net proceeds, after satisfaction of
outstanding indebtedness and closing costs, from the sale of its investment
properties of approximately $19,771,000. In addition, the Partnership received
approximately $59,658,000 from its consolidated joint ventures in distributions
from the sale of its properties and from operations. The Partnership made
distributions of $68,464,000 ($1,160.76 per unit) to its limited partners and
approximately $1,688,000 to the General Partners from these net proceeds in
1997. Included in the distributions paid to the General Partners is
approximately $291,000 of accrued distributions of subordinated sales
incentives. It is anticipated that the Partnership will be dissolved during
1998 and the remaining cash and any funds from operations will be distributed to
the partners at that time.

The Partnership recognized a gain of approximately $67,008,000 due to the sale
of its investment properties and the properties in which the Partnership had a
controlling interest. Approximately $18,422,000 of the gain from the sale of
the properties in Growth Hotel Investors Combined Fund No. 1 was allocated to
the Partnership's joint venture partner, Growth Hotel Investors.

In connection with the sale by Hampton/GHI Associates No. 1 and No. 2
("Hampton/GHI's") of their properties, the Partnership's joint venture partner,
Hampton Inns, Inc. ("Hampton"), was to be distributed a portion of the net sale
proceeds. However, pursuant to the terms of the Hampton/GHI's Joint Venture
Agreements, Hampton was obligated to contribute to Hampton/GHI's an amount equal
to the deficit of its tax capital accounts, which amount was in excess of the
amount to be distributed to Hampton. As a result, the Partnership set aside as
a reserve the amount which otherwise would have been distributed to Hampton.
The joint ventures received such payment from Hampton for its deficit
restoration obligation on November 5, 1997 in the amount of approximately
$9,163,000.

ITEM 3. LEGAL PROCEEDINGS:

The Partnership is unaware of any pending or outstanding litigation that is not
routine in nature. The Managing General Partner of the Partnership believes
that all such pending or outstanding litigation will be resolved without a
material adverse effect upon the business, financial condition, or operations of
the Partnership.

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

During the second quarter of 1997 a proxy statement detailing the particulars of
the sales transactions noted in "Item 2. Description of Properties" was
submitted to a vote of unit holders and approved.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:

The Limited Partnership Assignee Unit holders are entitled to certain
distributions as provided in the Partnership Agreement. No established trading
market for Limited Partnership Assignee Units exists, nor is any expected to
develop. As a result of the sale of all of its investment properties, the
Partnership has adopted the liquidation basis of accounting, and expects to
distribute all remaining funds and terminate the Partnership in 1998.

During the years ended December 31, 1997 and 1996, the Registrant has made the
following cash distributions with respect to the Units to holders thereof as of
the dates set forth below in the amounts set forth opposite such dates:

Distribution with Amount of Distribution
Respect to Quarter Ended Per Unit (*)

1997 1996
March 31 $ 14.38 $14.38
June 30 $ 14.38 $14.38
September 30 $1,149.19 $14.38
December 31 $ 208.14 $14.38

(*) The amounts listed represent distributions of cash from operations and cash
from sales. (See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations", for information relating to
the Partnership's future distributions.)

As of December 31, 1997, there were 3,034 holders of record owning an aggregate
of 58,982 Units.

ITEM 6. SELECTED FINANCIAL DATA:

The following represents selected financial data for the Registrant for the
years ended December 31, 1997, 1996, 1995, 1994 and 1993. The data should be
read in conjunction with Item 8, "Consolidated Financial Statements." This data
is not covered by the independent auditors' report.

<TABLE>
<CAPTION>
For the Year Ended December 31,
1997 1996 1995 1994 1993
(in thousands except per unit data)
<S> <C> <C> <C> <C> <C>
Total Revenues $ 92,449 $51,790 $50,541 $47,164 $ 43,458

Income Before Minority
Interest in Joint Ventures'
Operations and Extraordinary Item $ 66,897 $ 7,092 $ 7,948 $ 6,348 $ 3,270

Minority Interest In Joint Ventures'
Operations (17,640) (1,603) (2,236) (1,417) (546)

Extraordinary Item - (Loss) Gain on
Extinguishment Of Debt (107) -- -- 98 --

Net Income $ 49,150 $ 5,489 $ 5,712 $ 5,029 $ 2,724

Net Income Per Limited
Partnership Assignee Unit (1):

Income Before Extraordinary Item $ 785.61 $ 91.19 $ 94.91 $ 81.92 $ 45.25

Extraordinary Item - (Loss) Gain On
Extinguishment of Debt (1.71) -- -- 1.63 --

Net Income $ 783.90 $ 91.19 $ 94.91 $ 83.55 $ 45.25

Total Assets $ 7,660 $94,689 $95,138 $99,974 $100,254

Notes Payable $ -- $49,215 $50,139 $56,885 $ 57,740

Cash Distributions Per Limited
Partnership Assignee Unit (actual
amount based on admission to
partnership) $ 1,386 $ 58 $ 58 $ 58 $ 51

(1) $1,000 original contribution per unit, based on weighted average limited
partnership assignee units outstanding during the period, after allocation
to the general partner.

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

This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.

Liquidity and Capital Resources

At December 31, 1997, the Partnership had cash and cash equivalents of
approximately $4,228,000 as compared to approximately $8,302,000 at December 31,
1996. The net decrease in cash and cash equivalents for the year ended December
31, 1997 is $4,074,000. The net increase in cash and cash equivalents for the
year ended December 31, 1996 is $1,197,000. The net cash provided by operations
decreased primarily due to the decrease in net income due to the sale of the
Partnership's investment properties. The change in net cash used in investing
activities to net cash provided by investing activities is due to the receipt of
approximately $149,190,000 in proceeds from the sale of investment properties
sold during the year ended December 31, 1997. Net cash used in financing
activities increased due to increased distributions to the partners and the
joint venture partner in 1997 and due to the payoff of all the mortgages
encumbering the Partnership's investment properties.

Cash distributions were made in every quarter of 1997. A cash distribution of
approximately $865,000 from cash from operations was made in both February and
May of 1997. Approximately $848,000 was paid to the limited partners and
$17,000 was distributed to the general partners. A cash distribution of
approximately $69,165,000 was made in July 1997 from sale proceeds and
operations. Approximately $67,782,000 was distributed to the limited partners
and $1,383,000 to the general partners. A cash distribution of approximately
$12,527,000 was made in December 1997 from cash from sale proceeds and
operations. Approximately $12,276,000 was distributed to the limited partners
and $251,000 was distributed to the general partners.

In this regard, it should be noted that in connection with the sale by
Hampton/GHI Associates No. 1 and No. 2 ("Hampton/GHI's") of their properties,
the Partnership's joint venture partner, Hampton Inns, Inc. ("Hampton"), was to
be distributed a portion of the net sale proceeds. However, pursuant to the
terms of the Hampton/GHI's Joint Venture Agreements, Hampton was obligated to
contribute to Hampton/GHI's an amount equal to the deficit of its tax capital
accounts, which amount was in excess of the amount to be distributed to Hampton.
As a result, the Partnership set aside as a reserve the amount which otherwise
would have been distributed to Hampton. The joint venture received such payment
from Hampton for its deficit restoration obligation on November 5, 1997 in the
amount of approximately $9,163,000.

The classification of the funds received from Hampton is not clearly defined in
the partnership agreement. If the funds are classified as funds from
operations, the General Partners would be due a partnership management incentive
on the distribution of these funds in the amount of approximately $1,063,000.
The general partners have agreed to take 50% of such fee or $532,000, which has
been accrued at December 31, 1997. In addition, the general partners are
entitled to a subordinated sales incentive of approximately $582,000. The
general partners have agreed to take 50% of such fee or $291,000.

The Partnership holds a warranty reserve escrow account in the amount of
approximately $3,432,000. This escrow must be held for the period of one year
from the closing date of the sale of the investment properties. If the
purchaser has not notified the Partnership of any amounts owed to it, the
Partnership will distribute such funds to its partners. At March 30, 1998, no
notification had been given from the purchaser that any amounts were due the
purchaser under the agreement.

Results of Operations

1997 Compared to 1996

On June 24 and August 1, 1997, the Partnership sold all of its investment
properties and joint venture properties (see "Item 8. Financial Statements Note
B - Sale of Properties" for information related to the sale). As a result of
the sale of its investment properties and the decision to liquidate the
Partnership, the Partnership changed its basis of accounting to the liquidation
basis of accounting for its financial statements at December 31, 1997.
Consequently, assets have been valued at their estimated net realizable value
(including subsequent actual transactions described below) and liabilities are
presented at their estimated settlement amounts, including estimated costs
associated with carrying out the liquidation. The valuation of assets and
liabilities necessarily requires many estimates and assumptions and there are
substantial uncertainties in carrying out the liquidation. The actual
realization of assets and settlement of liabilities could be higher or lower
than amounts indicated and is based upon the General Partner's estimates as of
the date of the financial statements.

The Partnership's net income for the year ended December 31, 1997 was
approximately $49,150,000 compared to net income of approximately $5,489,000 for
the year ended December 31, 1996. The increase in net income is attributable to
the gain on sale of approximately $67,008,000 due to the sale of all of the
Partnership's investment properties in which the Partnership had a controlling
interest. (See Item 8. Financial Statements Note B - Sale of Properties" for
more information relating to these sales.) As a result of the sale of the
investment properties, hotel operations revenues, hotel operations expense and
depreciation expense decreased. Interest income increased due to an increase in
interest-bearing reserves. Offsetting the increases in net income is an
increase in the minority interest in joint venture operations related to the
minority interest partner's share of the gain on the sale of the investment
properties owned by the joint venture. In addition, the Partnership recognized
increases in general and administrative and litigation settlement expenses and
the extraordinary loss on early extinguishment of debt. The increase in general
and administrative expense is a result of fees owed to the general partners
based upon the distributions paid during the year. The litigation settlement
expense in 1997 relates to amounts paid in connection with the legal settlement
as discussed in "Item 8. Financial Statements Note B - Sale of Properties." The
extraordinary loss on early extinguishment of debt in 1997 is due to prepayment
penalties and the write off of unamortized loan costs in connection with the
sale of the Partnership's investment properties.

The statement of net assets in liquidation as of December 31, 1997, includes
approximately $107,000 of costs, net of income, that the General Partner
estimates will be incurred during the period of liquidation, based on the
assumption that the liquidation process will be completed during the third
quarter of 1998. These costs include anticipated legal fees and administrative
expenses, net of estimated interest income. Because the success in realization
of assets and the settlement of liabilities is based on the General Partner's
best estimates, the liquidation period may be shorter than projected or it may
be extended beyond the projected period.

1996 Compared to 1995

The Partnership's net income for the year ended December 31, 1996, was
approximately $5,489,000 as compared to approximately $5,712,000 for the year
ended December 31, 1995. The decrease in net income is attributable to a
decrease in interest income and an increase in general and administrative
expenses. The decrease in interest income is due to a decrease in restricted
cash available for investments during the year. The increase in general and
administrative expenses is due to an increase in legal fees, cost reimbursements
and additional administrative costs associated with the potential sale of the
Partnership properties and the liquidation of the Partnership. The increase in
expense reimbursements for the year ended December 31, 1996, is directly
attributable to the combined transition efforts of the Greenville, South
Carolina, and Atlanta, Georgia, administrative offices during the year end
close, preparation of the 1995 10-K and tax return (including the limited
partner K-1's), filing the first two quarterly reports and transition of asset
management responsibilities to the new administration. Partially offsetting the
decrease in income was a decrease in the minority interest to joint venture
partners. This decrease is due to a decline of approximately $977,000 in net
income of the Partnerships consolidated joint venture, Growth Hotel Investors
Combined Fund No. 1, caused by an increase in expenses of approximately
$2,148,000 which was partially offset by an increase in revenues of
approximately $1,171,000. Expenses increased at all of these properties except
for the Hampton Inn-Atlanta Roswell property, primarily due to higher
maintenance expenses. The increased maintenance expenses are due to exterior
painting projects at the Hampton Inn-Sycamore, Chapel Hill, Charleston,
Birmingham, Nashville and Memphis properties. The increase in revenues is due to
higher average daily room rates at all eighteen of these properties, which was
offset by decreases in occupancy at all of the Partnership's properties except
Hampton Inn-Colorado Springs, San Antonio-Northwest, and Madison Heights.

Other

Certain items discussed in this annual report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 ("the Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements to be materially different from any future results, performance
or achievements of the Partnership expressed or implied by such forward-looking
statements. Such forward-looking statements speak only as of the date of this
annual report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:

GROWTH HOTEL INVESTORS II
List of Financial Statements

Independent Auditors' Report

Statement of Net Assets in Liquidation - December 31, 1997

Consolidated Balance Sheet - December 31, 1996

Consolidated Statements of Operations - Years Ended December 31, 1997, 1996
and 1995

Consolidated Statements of Partners' Capital (Deficit)/Net Assets in
Liquidation - Years Ended December 31, 1997, 1996 and 1995

Consolidated Statements of Cash Flows - Years Ended December 31, 1997, 1996
and 1995

Notes to Consolidated Financial Statements

To the Partners
Growth Hotel Investors II,
a California Limited Partnership
Greenville, South Carolina

Independent Auditors' Report

We have audited the accompanying consolidated statement of net assets in
liquidation and the consolidated balance sheet of Growth Hotel Investors II, a
California Limited Partnership, (the "Partnership") as of December 31, 1997 and
1996, respectively, and the related consolidated statements of operations,
partners' capital and cash flows for each of the three years in the period ended
December 31, 1997. These consolidated financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these consolidated 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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 Growth
Hotel Investors II, a California Limited Partnership, as of December 31, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

/s/ Imowitz Koenig & Co., LLP

New York, N.Y.
March 30, 1998

GROWTH HOTEL INVESTORS II
STATEMENT OF NET ASSETS IN LIQUIDATION
(in thousands)
December 31, 1997

Assets
Cash and cash equivalents $ 4,228
Restricted escrow 3,432
7,660
Liabilities
Accounts payable and state withholding taxes payable 1,351
Accounts payable affiliates 9
Distribution payable to General Partners 291
Fees due to General Partners 532
Estimated costs during period of liquidation 107
2,290
Net assets in liquidation $ 5,370

See Notes to Consolidated Financial Statements

GROWTH HOTEL INVESTORS II

CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1996

Assets
Cash and cash equivalents $ 8,302
Restricted cash 208
Deferred costs 1,692
Accounts receivable and other assets 1,104
Investment properties:
Land 15,725
Buildings and related personal property 111,335
127,060
Less accumulated depreciation (43,677)
83,383

Total assets $ 94,689

Liabilities and Partners' Capital (Deficit)

Accounts payable and other liabilities $ 2,271
Due to affiliate of the joint venture partner 827
Notes payable 49,215

Minority interest in joint ventures 2,374

Partners' Capital (Deficit):

General partners' (227)
Limited partners' (58,982 units outstanding) 40,229
40,002

Total liabilities and partners' capital $ 94,689

See Notes to Consolidated Financial Statements

GROWTH HOTEL INVESTORS II

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)

Years Ended December 31,
1997 1996 1995
Revenues:
Hotel operations $ 24,680 $51,456 $50,046
Interest income 761 334 495
Gain on sale of investment properties 67,008 -- --
Total revenues 92,449 51,790 50,541

Expenses
Hotel operations 16,883 32,594 31,041
Interest 2,355 4,983 5,461
Depreciation 3,095 5,541 5,103
General and administrative 2,002 1,580 988
Litigation settlement 1,217 -- --
Total expenses 25,552 44,698 42,593

Income before minority interest in joint
ventures' operation and extraordinary item 66,897 7,092 7,948
Minority interest in joint
ventures' operations (17,640) (1,603) (2,236)

Income before extraordinary item 49,257 5,489 5,712
Extraordinary item:
Loss on extinguishment of debt (107) -- --
Net income $ 49,150 $ 5,489 $ 5,712

Net income allocated to general partners $ 2,914 $ 110 $ 114
Net income allocated to limited partners 46,236 5,379 5,598
$ 49,150 $ 5,489 $ 5,712

Net income per limited partnership unit:
Income before extraordinary item $ 785.61 $ 91.19 $ 94.91
Extraordinary item - loss on
extinguishment of debt (1.71) -- --

Net income $ 783.90 $ 91.19 $ 94.91

Cash distributions per limited
partnership unit $1,386.09 $ 57.53 $ 57.53

See Notes to Consolidated Financial Statements

GROWTH HOTEL INVESTORS II

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)/NET ASSETS IN LIQUIDATION
(in thousands, except unit data)

Limited General Limited
Partnership Partners' Partners' Total
Units (Deficit) Capital Capital

Original capital contributions 58,982 $ -- $ 58,982 $ 58,982

Partners' capital (deficit) at
December 31, 1994 58,982 $ (313) $ 36,038 $ 35,725

Net income for the year
ended December 31, 1995 -- 114 5,598 5,712

Distributions paid to partners -- (69) (3,393) (3,462)

Partners' capital (deficit) at
December 31, 1995 58,982 (268) 38,243 37,975

Net income for the year
ended December 31, 1996 -- 110 5,379 5,489

Distributions paid to partners -- (69) (3,393) (3,462)

Partners' capital (deficit) at
December 31, 1996 58,982 (227) 40,229 40,002

Net income for the year
ended December 31, 1997 -- 2,914 46,236 49,150

Distributions paid to partners -- (1,959) (81,754) (83,713)

Partners capital (deficit) at
December 31, 1997 58,982 $ 728 $ 4,711 5,439

Adjustment to liquidation basis (69)

Net assets in liquidation at
December 31, 1997 $ 5,370

See Notes to Consolidated Financial Statements

GROWTH HOTEL INVESTORS II

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 49,150 $ 5,489 $ 5,712
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,195 5,857 5,463
Minority interest in joint ventures' operations 17,640 1,603 2,236
Deferred costs paid -- -- (1,425)
Gain on sale of investment properties (67,008) -- --
Extraordinary loss on early extinguishment of debt 107 -- --
Change in accounts:
Accounts receivables and other assets 825 (103) (533)
Accounts payable, state withholding taxes
payable and other liabilities (551) (24) 366
Fees due to general partners 532 -- --

Net cash provided by operating activities 3,890 12,822 11,819

Cash Flows From Investing Activities
Property improvements and replacements (3,350) (4,677) (4,264)
Purchase of minority interest in joint ventures -- -- (375)
Deposits to restricted escrow (3,432) -- --
Proceeds from sale of investment properties 149,190 -- --
Restricted cash decrease 208 694 1,339

Net cash provided by (used in) investing activities 142,616 (3,983) (3,300)

Cash Flows From Financing Activities
Notes payable principal payments (287) (924) (771)
Repayment of notes payable (48,928) -- (5,975)
Joint venture partners deficit restoration 9,163 -- --
Joint venture partner distributions (26,207) (3,256) (2,982)
Prepayment penalties (81) -- --
Due from affiliate (818) -- --
Cash distributions to partners (83,422) (3,462) (3,462)

Net cash used in financing activities (150,580) (7,642) (13,190)

(Decrease) Increase in Cash and Cash Equivalents (4,074) 1,197 (4,671)

Cash and Cash Equivalents at Beginning of Year 8,302 7,105 11,776

Cash and Cash Equivalents at End of Year $ 4,228 $ 8,302 $ 7,105

Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,376 $ 4,957 $ 4,996

Supplemental disclosure of non-cash financing
activities:
Distribution payable $ 291 $ -- $ --
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>

GROWTH HOTEL INVESTORS II

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization:

Growth Hotel Investors II (the "Partnership" or the "Registrant") is a limited
partnership organized in 1984 under the laws of the State of California to
invest in, acquire, manage and ultimately sell limited service hotels which are
franchised by Hampton Inns, Inc. ("Hampton"), a wholly owned subsidiary of the
Promus Companies, Inc. ("Promus"). The Partnership owned properties in Colorado,
Minnesota, Missouri and Ohio and has joint venture interests in partnerships
which owned properties in Alabama, Arkansas, Georgia, Michigan, North Carolina,
South Carolina, Tennessee and Texas. The managing general partner is Montgomery
Realty Company-85 ("MRC-85"), a California general partnership. The general
partners of MRC-85 are Fox Realty Investors ("FRI"), a California general
partnership, and NPI Realty Management Corp. ("NPI Realty"), a Florida
corporation. On February 13, 1996 NPI Realty, which acquired its interest in
MRC-85 from Montgomery Realty Corporation on November 15, 1995, became the
managing general partner of MRC-85. The associate general partner is GHI
Associates of which FRI is the general partner and Prudential-Bache Properties,
Inc. is the limited partner. Capital contributions of $58,982,000 ($1,000 per
unit) were made by the limited partners.

On February 15, 1996, Devon Associates ("Devon") offered to purchase up to
21,000 limited partnership outstanding units of the Partnership. Devon
Associates acquired 17,302 units, with respect to these offers. An affiliate of
the Managing General Partner has an interest in Devon Associates.

In June 1997, pursuant to the terms of the settlement of the class action
lawsuit brought in connection with the Devon tender offer, the Partnership sold
its investment properties to an unrelated third party, Equity Inns Partnership,
L.P., a Tennessee limited partnership.

As a result of the decision to liquidate the Partnership, the Partnership
changed its basis of accounting for its financial statements at December 31,
1997 to the liquidation basis of accounting. Consequently, assets have been
valued at their estimated net realizable value and liabilities are presented at
their estimated settlement amounts, including estimated costs associated with
carrying out the liquidation. The valuation of assets and liabilities
necessarily requires many estimates and assumptions and there are substantial
uncertainties in carrying out the liquidation. The actual realization of assets
and settlement of liabilities could be higher or lower than amounts indicated
and is based upon the Managing General Partner's estimates as of the date of the
financial statements.

The statement of net assets in liquidation as of December 31, 1997, includes
approximately $107,000 of costs, net of income, that the Managing General
Partner estimates will be incurred during the period of liquidation, based on
the assumption that the liquidation process will be completed June 30, 1998.
These costs include anticipated legal fees and administrative expenses, net of
estimated interest income from cash balances. Because the realization of assets
and the settlement of liabilities is based on the Managing General Partner's
best estimates, the liquidation period may be shorter than projected or it may
be extended beyond the projected period.

Subsequent Event:

On March 17, 1998, Insignia Financial Group, Inc. ("Insignia") entered into an
agreement to merge its national residential property management operations, and
its controlling interest in Insignia Properties Trust, with Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust. The closing, which is anticipated to happen in the third quarter of
1998, is subject to customary conditions, including government approvals and the
approval of Insignia's shareholders. If the closing occurs, AIMCO will then
control the General Partner of the Partnership. It is anticipated, however,
that the Partnership will be liquidated prior to the consummation of the AIMCO
transaction. In any event, it is not anticipated that this transaction will
have a material effect on the Partnership.

Principles of Consolidation:

The consolidated financial statements include the Partnership and joint ventures
in which the Partnership has or had a controlling interest, including Growth
Hotel Investors Combined Fund No. 1, a California Limited Partnership (the
"Combined Fund"), in which the Partnership has a majority (approximately 68%)
interest. The general partners are the Partnership and Growth Hotel Investors,
Ltd. ("GHI") which are affiliated through their general partners. The Combined
Fund was organized to acquire a majority interest in a joint venture,
Hampton/GHI Associates No. 1., which was formed to acquire, manage and
ultimately sell eighteen hotels which are a franchise of Hampton. Cash is
distributed first to the Partnership as a priority return on its invested
capital prior to distributions to Hampton. Income before depreciation and
amortization is allocated between the Combined Fund and Hampton in the same
ratio as their respective cash distributions. Depreciation and amortization are
allocated on the basis of residual interests except for the expenses related to
acquisition and loan fees paid by the Combined Fund which are allocated 100
percent to the Combined Fund. The residual interests in Hampton/GHI Associates
No. 1 are 80 percent for the Combined Fund and 20 percent for Hampton.

All significant intercompany transactions and balances have been eliminated.

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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Investment Properties: Investment properties are stated at cost. Acquisition
fees are capitalized as a cost of real estate. The Partnership records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets.

Cash and Cash Equivalents: The Partnership considers all highly liquid
investments with a maturity, when purchased, of three months or less to be cash
equivalents. At certain times, the amount of cash deposited at a bank may
exceed the limit on insured deposits.

Depreciation: Depreciation is computed using the straight-line method based on
estimated useful lives ranging from 3 to 39 years.

Deferred Costs: Deferred costs represent the buyout of a services agreement,
deferred financing costs and deferred franchise fees. The buyout of the
services agreement was being amortized over the remaining term of the services
agreement which was 7 years. Financing costs were deferred and amortized, as
interest expense, over the lives of the related loans, or expensed, if financing
was not obtained. Franchise fees paid in connection with the acquisition of the
hotels were deferred and are amortized over the lives of the franchise
agreements, which range from ten to twenty years. Land lease costs paid in
connection with acquisition of certain hotels were deferred and amortized over
the lives of the lease agreements. In connection with the sale of properties
during 1997 all remaining deferred cost balances were written off.

Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising expense, included in operating expenses, was approximately
$1,574,000, $2,764,000 and $2,827,000 for the years ended December 31, 1997,
1996 and 1995, respectively.

Net Income Per Limited Partnership Assignee Unit: Net income per limited
partnership assignee unit is computed by dividing net income allocated to the
limited partners by 58,982 assignee units outstanding.

Income Taxes: Taxable income or loss of the Partnership is reported in the
income tax returns of its partners. Accordingly, no provision for income taxes
is made in the financial statements of the Partnership.

Reclassification: Certain reclassifications have been made to the 1996 and 1995
balances to conform to the 1997 presentation.

NOTE B - SALE OF PROPERTIES

On June 24, 1997, the Partnership, sold all of its investment properties,
consisting of the Hampton Inn-Kansas City, Hampton Inn-Eden Prairie, Hampton
Inn-Dublin, and Hampton Inn-Colorado Springs for a sales price of approximately
$20,162,000. The Partnership has a controlling interest in three joint venture
partnerships, GHI II Big River Associates, Hampton/GHI Associates No. 2 and
Growth Hotel Investors Combined Fund No. 1. On June 24, 1997, GHI II Big River
Associates sold its investment property, Hampton Inn-St. Louis for a purchase
price of approximately $5,057,000. Additionally, Hampton/GHI Associates No. 2
sold its investment property, Hampton Inn-North Dallas for a sales price of
$10,371,000. Finally, on June 24, 1997, Hampton/GHI Associates No. 1
("Hampton/GHI"), a joint venture in which Growth Hotel Investors Combined Fund
No. 1 owns 80%, sold 17 of its 18 investment properties, consisting of the
Hampton Inn-Memphis-I-40, Hampton Inn-Columbia West, Hampton Inn-Spartanburg,
Hampton Inn-Little Rock, Hampton Inn-Amarillo, Hampton Inn-Greenville, Hampton
Inn-Charleston, Hampton Inn-Memphis-Poplar, Hampton Inn-Greensboro, Hampton Inn-
Birmingham, Hampton Inn-Atlanta, Hampton Inn-Chapel Hill, Hampton Inn-Dallas,
Hampton Inn-Nashville, Hampton Inn-San Antonio, Hampton Inn-Madison Heights, and
Hampton Inn-Northlake for a purchase price of approximately $107,576,000. The
investment properties were sold to an unrelated third party, Equity Inns
Partnership, L.P. ("Equity Inns"), a Tennessee limited partnership. The
properties were sold in accordance with the settlement of the class action
lawsuit brought in connection with the tender offer made by Devon Associates.
The Partnership's last hotel property, the Hampton Inn-Mountain Brook, was sold
to Equity Inns on August 1, 1997 for a sales price of approximately $8,758,000.

The aggregate purchase price for all 24 properties was approximately
$151,924,000. The Partnership received net proceeds, after satisfaction of
outstanding indebtedness and closing costs, from the sale of its investment
properties of approximately $19,771,000. In addition, the Partnership received
approximately $59,658,000 from its consolidated joint venture in distributions
from the sale of its properties and from operations. The Partnership made
distributions of $68,464,000 ($1,160.76 per unit) to its limited partners and
approximately $1,688,000 to the General Partner from these net proceeds in 1997.
Included in the distributions paid to the General Partners is approximately
$291,000 of accrued distributions of subordinated sales incentives. It is
anticipated that the Partnership will be dissolved during 1998 and the remaining
cash, and any funds from operations, will be distributed to the partners at that
time.

Pursuant to the terms of the settlement agreement with respect to the class
actions brought by limited partners of the Partnership and Growth Hotel
Investors ("GHI"), an affiliated partnership, against, among others, the
Partnership, GHI and their general partners, the Partnership and GHI were
required to pay the plaintiff's attorneys' fees associated with such actions.
As a result, an aggregate of $1,800,000 ($1,217,000 of which is allocable to the
Partnership) was paid in the third quarter of 1997 to the plaintiff's attorneys
for fees and expense reimbursements.

In connection with the sale by Hampton/GHI Associates No. 1 and No. 2
("Hampton/GHI's") of its properties, the Partnership's joint venture partner,
Hampton Inns, Inc. ("Hampton"), was to be distributed a portion of the net sale
proceeds. However, pursuant to the terms of the Hampton/GHI's Joint Venture
Agreements, Hampton was obligated to contribute to Hampton/GHI's an amount equal
to the deficit of its tax capital accounts, which amount was in excess of the
amount to be distributed to Hampton. As a result, the Partnership set aside as
a reserve the amount which otherwise would have been distributed to Hampton.
The joint ventures received such payment from Hampton for its deficit
restoration obligation on November 5, 1997 in the amount of approximately
$9,163,000.

NOTE C - ADJUSTMENT TO LIQUIDATION BASIS OF ACCOUNTING

At December 31, 1997, in accordance with the liquidation basis of accounting,
assets were adjusted to their estimated net realizable value and liabilities
were adjusted to their estimated settlement amount and include all estimated
costs associated with carrying out the liquidation. The net adjustment required
to convert to the liquidation basis of accounting was a decrease in net assets
of approximately $69,000. The adjustments are summarized as follows:

Increase (Decrease)
in Net Assets
(in thousands)

Adjustment to record estimated costs associated
with the liquidation (Note A) $ (107)

Adjustment of other assets and liabilities 38

Net decrease in net liabilities $ (69)

NOTE D - TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES:

The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.

Balances and other transactions with affiliates of Managing General Partner in
1997, 1996, and 1995 are as follows:

1997 1996 1995
(in thousands)

Reimbursement for services of affiliates (primarily
included in general and administrative expenses) $201 $242 $213

In accordance with the partnership agreement, the general partner and affiliates
received a partnership management fee in the amount of 10 percent of cumulative
cash from operations available for distribution (as defined in the partnership
agreement). Fees paid or accrued pursuant to this agreement in 1997, 1996 and
1995 were $756,000, $385,000, and $385,000, respectively, and are included in
general and administrative expenses. Additional fees due to the general
partners have been accrued at December 31, 1997 as described in Note L -
Commitments and Contingencies.

NOTE E - RELATED PARTY TRANSACTIONS

In addition to the fees paid to the general partner and affiliates as set forth
above, the Partnership had agreements with affiliates of its joint venture
partners, which provide for the management and operations of the joint venture
properties and services provided under each property's franchise agreement.
Fees paid pursuant to these agreements are generally based on a percentage of
gross revenues from operations of the property and for the years ended December
31, 1997, 1996 and 1995 were $2,846,000, $6,034,000, and $6,058,000,
respectively. In addition, affiliates of the joint venture partners received
reimbursement of expenses during the years ended December 31, 1997, 1996, and
1995 of $485,000, $863,000 and $986,000, respectively. These expenses are
included in operating expenses.

NOTE F - RESTRICTED CASH

Restricted cash at December 31, 1996, represents funds provided for and
maintained by certain properties pursuant to the related notes payable
agreements, to meet future capital requirements and debt service payments. With
the sale of the properties in 1997, this requirement is no longer applicable.

NOTE G - PURCHASE OF JOINT VENTURE PARTNERS' INTERESTS

On May 1, 1995, the Partnership acquired the 25% minority interest in the joint
venture which owned the Hampton Inn - Kansas City hotel property for $300,000.
The carrying value of the property was increased by $293,000, which reflects the
purchase price of $300,000, offset by the $7,000 payable to the joint venture
partner on May 1, 1995.

On October 1, 1995, the Partnership acquired the 30% minority interest in the
joint venture which owned the Hampton Inn - Dublin hotel property for $75,000.
The carrying value of the property was increased by $123,000, which reflects the
purchase price of $75,000, and the $48,000 receivable from the joint venture
partner on October 1, 1995.

On December 7, 1995, the Partnership acquired all of the economic rights of its
joint venture partner in GHI II Big River Associates, a California partnership.
This purchase was effective January 1, 1996, at a cost of $375,000. The
Partnership had an 80% ownership interest in GHI-II Big River Associates, which
in turn, owned the Hampton Inn-St. Louis property. The carrying value of the
property was increased by $500,000 which reflects the purchase of $375,000 and
$125,000 receivable from the joint venture partner.

NOTE H - DEFERRED COSTS

The Partnership paid $1,425,000 in January 1995, to Metric Management, Inc.
("MMI") amending their services agreement to provide for a reduction in the
monthly asset management fee from $54,500 to $7,000. This amendment eliminates
fees payable to MMI for its assistance in refinancings and sales of properties
owned by the Partnership and provides the Partnership with the ability to
terminate MMI's services at will.

The cost of the amendment is being amortized over the remaining term of the
service agreement of 8 years. For each of the years ended December 31, 1996 and
1995, approximately $143,000 has been amortized and is included in general and
administrative expenses.

At December 31, 1996, accumulated amortization of deferred costs relating to the
service agreement totaled approximately $286,000.

At December 31, 1996, accumulated amortization of deferred costs relating to
franchise fees totaled approximately $350,000.

In conjunction with the sale of properties during 1997 all deferred cost
balances were written off and included with the gain on sale of investment
properties.

NOTE I - NOTES PAYABLE

Individual properties and improvements were pledged as collateral for the
related notes payable. The mortgages encumbering sixteen of the eighteen hotels
owned by the Combined Fund were cross collateralized. The notes carried an
interest rate of approximately 12 percent, except for, the mortgage encumbering
the Partnership's St. Louis, Missouri property which was financed by a private
activity revenue bond. Interest was established monthly as provided in the
agreement. The average monthly interest rate on this note was 6.01 percent.
Upon the sale of the respective properties securing the notes all related notes
payable were paid in full.

At December 31, 1996, accumulated amortization of deferred financing costs
totaled approximately $74,000. As a result of all the notes payable being paid
during 1997 the related deferred financing costs have accordingly been written
off during 1997.

NOTE J - RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING

The differences between the method of accounting for income tax reporting and
the accrual method of accounting used in the financial statements are as
follows:

<TABLE>
<CAPTION>
1997 1996 1995
(in thousands, except unit data)
<S> <C> <C> <C>
Net income - financial statements $49,150 $ 5,489 $ 5,712
Differences resulted from:
Minority interest in joint ventures' operations (3,748) 390 353
Depreciation and other amortization 121 (985) (777)
Deferred costs -- -- (1,425)
Gain on sale and other 7,044 24 (5)

Net income - income tax method $52,567 $ 4,918 $ 3,858

Taxable income per limited partnership
Assignee unit after giving effect to the
Allocation to the general partner $ 837 $ 82 $ 64

Partner's capital-financial statements $ -- $40,002 $37,975
Net assets in liquidation, as reported 5,370
Differences resulted from:
Deferred sales commissions and organization
costs 2,078 2,078 2,078
Capital account adjustment 7 7 7
Minority interest in joint ventures' operations -- 7,890 7,500
Deferred costs -- (1,425) (1,425)
Depreciation and other amortization -- (9,392) (8,407)
Other 998 149 122

Partners' capital-income tax method $ 8,453 $39,309 $37,850
</TABLE>

NOTE K - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION

Reconciliation of Investment Properties and Accumulated Depreciation:

Years Ended December 31,
1997 1996 1995
(in thousands)

Balance at beginning of year $ 127,060 $121,883 $127,768
Property improvements 3,350 4,677 4,264
Purchase of joint venture interests -- 500 415
Sale of investment properties (130,410) -- --
Retirement of assets -- -- (10,564)

Balance at end of year $ -- $127,060 $121,883

Accumulated Depreciation

Balance at beginning of year $ 43,677 $ 38,136 $ 43,597
Additions charged to expense 3,095 5,541 5,103
Sale of investment properties (46,772) -- --
Retirement of assets -- -- (10,564)

Balance at end of year $ -- $ 43,677 $ 38,136

The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1996, was approximately $137,705,000. The accumulated depreciation
taken for Federal income tax purposes at December 31, 1996, was approximately
$61,140,000.

NOTE L - COMMITMENT AND CONTINGENCIES

In connection with the sale of the properties owned by the Hampton/GHI's and the
liquidation of the joint ventures, the Partnership's joint venture partner,
Hampton Inns, Inc. ("Hampton"), was to be distributed a portion of the net sale
proceeds. However, pursuant to the terms of the Hampton/GHI's Joint Venture
Agreements, Hampton was obligated to contribute to Hampton/GHI's an amount equal
to the deficit of its tax capital accounts, which amount was in excess of the
amount to be distributed to Hampton. As a result, the Partnership set aside as a
reserve the amount which otherwise would have been distributed to Hampton.
Hampton/GHI's received such payment from Hampton for its deficit restoration
obligation on November 5, 1997 in the amount of approximately $9,163,000.

NOTE M - TENDER OFFERS

On February 15, 1996, Devon Associates ("Devon") offered to purchase up to
21,000 and 15,000 limited partnership outstanding units (the "Units") of the
Partnership, and GHI, respectively. Devon Associates acquired 17,302 and 13,401
units, with respect to these offers, respectively. The offer for the
Partnerships Units was at a purchase price of $750 and $705, respectively, per
unit, net to the seller in cash, without interest, upon the terms and conditions
set forth in the offer to purchase. Certain beneficial owners of Devon are
affiliated with the general partners of the Partnership and GHI. In addition, an
affiliate of Insignia is both a shareholder in the general partner of Cayuga
Associates, LP, the controlling general partner in Devon, and a limited partner
in Devon.

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

None

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF PROMOTERS AND CONTROL PERSONS:

Neither the Registrant nor Montgomery Realty Company-85 ("MRC"), the general
partner of the Registrant has any officers or directors. NPI Realty Management
Corp. ("NPI Realty"), the managing general partner of MRC, manages and controls
substantially all of the Registrant's affairs and has general responsibility and
ultimate authority in all matters affecting its business. NPI Realty is a
wholly owned subsidiary of National Property Investors, Inc. ("NPI, Inc."),
which in turn is owned by an affiliate of Insignia Financial Group, Inc.
("Insignia").

As of March 1, 1998, the names and positions held by the officers and directors
of NPI Realty are as follows:

Name Age Position

William H. Jarrard, Jr. 51 President and
Director

Ronald Uretta 41 Vice President and
Treasurer

Daniel M. LeBey 32 Vice President and
Secretary

Robert D. Long, Jr. 30 Vice President

Kelley M. Buechler 40 Assistant Secretary

Martha L. Long 38 Controller

William H. Jarrard, Jr. has been President and Director of NPI Realty since
January 1996. He has acted as Senior Vice President of Insignia Properties
Trust ("IPT"), parent of the General Partner since May 1997. Mr. Jarrard
previously acted as Managing Director - Partnership Administration of Insignia
from January 1991 through September 1997 and served as Managing Director -
Partnership Administration and Asset Management from July 1994 until January
1996.

Ronald Uretta has been Vice President and Treasurer of NPI Realty since January
1996 and Insignia's Treasurer since January 1992. Since August 1996, he has also
served as Insignia's Chief Operating Officer. He has also served as Insignia's
Secretary from January 1992 to June 1996 and as Insignia's Chief Financial
Officer from January 1992 to August 1996.

Daniel M. LeBey has been Vice President and Secretary of NPI Realty since
January 29, 1998 and Insignia's Assistant Secretary since April 30, 1997. Since
July 1996 he has also served as Insignia's Associate General Counsel. From
September 1992 until June 1996, Mr. LeBey was an attorney with the law firm of
Alston & Bird LLP, Atlanta, Georgia.

Robert D. Long, Jr. has been Vice President of NPI Realty since January 2, 1998.
Mr. Long joined Metropolitan Asset Enhancement, L.P. ("MAE"), an affiliate of
Insignia, in September 1993. Since 1994 he has acted as Vice President and
Chief Accounting Officer of the MAE subsidiaries. Mr. Long was an accountant
for Insignia until joining MAE in 1993. Prior to joining Insignia, Mr. Long was
an auditor for the State of Tennessee and was associated with the accounting
firm of Harsman Lewis and Associates.

Kelley M. Buechler has been Assistant Secretary of NPI Realty and Assistant
Secretary of Insignia since 1991.

Martha L. Long has been Controller of NPI Realty since December 1996 and Senior
Vice President - Finance and Controller of Insignia since January 1997. In June
1994, Ms. Long joined Insignia as its Controller, and was promoted to Senior
Vice President - Finance in January 1997. Prior to that time, she was Senior
Vice President and Controller of the First Savings Bank, in Greenville, SC.

There are no family relationships between or among any officers and directors.

ITEM 11. EXECUTIVE COMPENSATION:

The Registrant is not required to and did not pay any compensation to the
officers or directors of NPI Realty or NPI Equity Investments II, Inc., the
managing general partner of Fox Realty Investors, a general partner of MRC. NPI
Realty does not presently pay any compensation to any of its officers or
directors. (See "Item 13," "Certain Relationships and Related Transactions").

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:

The following table sets forth certain information regarding limited partnership
units of the Registrant owned by each person who is known by the Registrant to
own beneficially or exercise voting or dispositive control over more than 5% of
the Registrant's limited partnership units, by each of the directors and by all
directors and executive officers of the Managing General Partner as a group as
of March 1, 1998.

Name and address of Amount and nature of
Beneficial Owner Beneficial Owner % of Class

Devon Associates (1) (2) 17,302 29.33%

All directors and executive
officers as a group
(four persons) -- --
___________________

(1) The business address for Devon Associates is 100 Jericho
Quadrangle, Suite 214, Jericho, New York 11753.
(2) Based upon information supplied to the Registrant by Devon
Associates.

The Registrant is a limited partnership and has no officers or directors. The
Managing General Partner has discretionary control over most of the decisions
made by or for the Registrant in accordance with the terms of the Partnership
Agreement. Affiliates of the Managing General Partner own less than one percent
of the Registrant's voting securities. However, an affiliate of the Managing
General Partner holds an interest in Devon Associates.

There are no arrangements known to the Registrant, the operation of which may,
at a subsequent date, result in a change in control of the Registrant.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

Balances and other transactions with affiliates of the Managing General Partner
in 1997, 1996, and 1995 are as follows:

1997 1996 1995
(in thousands)
Reimbursement for services of affiliates $201 $242 $213

In accordance with the partnership agreement, the general partner and affiliates
received a partnership management fee in the amount of 10 percent of cash from
operations available for distribution (as defined in the partnership agreement).
Fees paid or accrued pursuant to this agreement in 1997, 1996 and 1995 were
$756,000, $385,000 and $385,000 for each year, respectively, and are included in
general and administrative expenses.

In addition to the fees paid to the general partner and affiliates as set forth
above, the Partnership has agreements with affiliates of its joint venture
partners, which provide for the management and operations of the joint venture
properties and services provided under each property's franchise agreement.
Fees paid pursuant to these agreements are generally based on a percentage of
gross revenues from operations of the property and for the years ended December
31, 1997, 1996 and 1995 were $2,846,000, $6,034,000, and $6,058,000,
respectively. In addition, affiliates of the joint venture partners received
reimbursement of expenses during the years ended December 31, 1997, 1996, and
1995 of $485,000, $863,000 and $986,000, respectively. These expenses are
included in operating expenses.

As required by the settlement of the class action brought in connection with the
tender offer made by Devon Associates discussed above, the Registrant and Growth
Hotel Investors ("GHI"), the Registrant's joint venture partner in the Combined
Fund properties, marketed all of their properties for sale. In this regard, the
Registrant and GHI retained Bear, Stearns & Co Inc. to assist in the marketing
of such properties. On June 24, 1997, the Partnership, sold all of its
investment properties, consisting of the Hampton Inn-Kansas City, Hampton Inn-
Eden Prairie, Hampton Inn-Dublin, and Hampton Inn-Colorado Springs for a sales
price of approximately $20,162,000. The Partnership has a controlling interest
in three joint venture partnerships, GHI II Big River Associates, Hampton/GHI
Associates No. 2 and Growth Hotel Investors Combined Fund No. 1. On June 24,
1997, GHI II Big River Associates sold its investment property, Hampton Inn-St.
Louis for a purchase price of approximately $5,057,000. Additionally,
Hampton/GHI Associates No. 2 sold its investment property, Hampton Inn-North
Dallas for a sales price of $10,371,000. Finally, on June 24, 1997, Hampton/GHI
Associates No. 1 ("Hampton/GHI"), a joint venture in which Growth Hotel
Investors Combined Fund No. 1 owns 80%, sold 17 of its 18 investment properties,
consisting of the Hampton Inn-Memphis-I-40, Hampton Inn-Columbia West, Hampton
Inn-Spartanburg, Hampton Inn-Little Rock, Hampton Inn-Amarillo, Hampton Inn-
Greenville, Hampton Inn-Charleston, Hampton Inn-Memphis-Poplar, Hampton Inn-
Greensboro, Hampton Inn-Birmingham, Hampton Inn-Atlanta, Hampton Inn-Chapel
Hill, Hampton Inn-Dallas, Hampton Inn-Nashville, Hampton Inn-San Antonio,
Hampton Inn-Madison Heights, and Hampton Inn-Northlake for a purchase price of
approximately $107,576,000. The investment properties were sold to an unrelated
third party, Equity Inns Partnership, L.P., a Tennessee limited partnership. The
properties were sold in accordance with the settlement of the class action
lawsuit brought in connection with the tender offer made by Devon Associates.
The Partnership's last hotel property, the Hampton Inn-Mountain Brook, was sold
on August 1, 1997 for a sales price of approximately $8,758,000.

The aggregate purchase price for all 24 properties was approximately
$151,924,000. The Partnership received net proceeds, after satisfaction of
outstanding indebtedness and closing costs, from the sale of its investment
properties of approximately $19,771,000. In addition, the Partnership received
approximately $59,658,000 from its consolidated joint venture in distributions
from the sale of its properties and from operations. The Partnership made
distributions of $68,464,000 ($1,160.76 per unit) to its limited partners and
approximately $1,688,000 to the General Partners from these net proceeds in
1997. Included in the distributions paid to the General Partners is
approximately $291,000 of accrued distributions of subordinated sales
incentives. It is anticipated that the Partnership will be dissolved during
1998 and the remaining cash, and any funds from operations, will be distributed
to the partners at that time.

In connection with the sale by Hampton/GHI Associates No. 1 and No. 2
("Hampton/GHI's") of their properties, the Partnership's joint venture partner,
Hampton Inns, Inc. ("Hampton"), was to be distributed a portion of the net sale
proceeds. However, pursuant to the terms of the Hampton/GHI's Joint Venture
Agreements, Hampton was obligated to contribute to Hampton/GHI's an amount equal
to the deficit of its tax capital account, which amount was in excess of the
amount to be distributed to Hampton. As a result, the Partnership set aside as a
reserve the amount which otherwise would have been distributed to Hampton. The
joint ventures received such payment from Hampton for its deficit restoration
obligation on November 5, 1997 in the amount of approximately $9,163,000.

PART IV

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

(a)(1)(2) Financial Statements and Financial Statement Schedules

See Item 8 of this Form 10-K for Consolidated Financial Statements for
the Registrant, Notes thereto, and Financial Statement Schedules (A
table of contents to Consolidated Financial Statements and Financial
Statement Schedules is included in Item 8 and incorporated herein by
reference.)

2. NPI, Inc. Stock Purchase Agreement, dated as of August 17, 1995,
incorporated by reference to the Registrant's Current Report on Form
8-K dated August 17, 1995.

3.4. Agreement of Limited Partnership, incorporated by reference to Exhibit
A to the Prospectus of the Registrant dated October 10, 1986, and
thereafter supplemented, included in the Registrant's Registration
Statement on Form S-11 (Reg. No. 33-4566).

16. Letter dated April 27, 1994 from the Registrant's Former Independent
Auditors incorporated by reference to the Registrant's Current Report
on Form 8-K dated April 22, 1994.

20 Letter, dated February 29, 1996, from the Registrant to its limited
partners, incorporated by reference to the Schedule 14D-9 of
Registrant filed with the Commission on February 29, 1996.

27 Financial Data Schedule

99(a) Schedule 14D-9 of the Registrant, as filed with the Commission on
February 29, 1996.

99(b) Amendment No. 1 to Schedule 14D-9 of Registrant, as filed with the
Commission on March 7, 1996.

99(c) Amendment No. 2 to Schedule 14D-9 of Registrant, as filed with the
Commission on March 14, 1996.

99(d) Letter Agreement, dated November 15, 1995 between Montgomery Realty
Corporation, Fox Realty Investors, NPI Equity Investments II,
Inc., and NPI Realty Management Corp. incorporated by reference to the
Schedule 14D-9 of Registrant filed with the Commission on February 29,
1996.

99(e) Second Amended and Restated Partnership Agreement of Montgomery Realty
Company 85, made and entered into to be effective as of November 15,
1995, by and between NPI Realty Management Corp. and Fox Realty
Investors incorporated by reference to the Schedule 14D-9 of
Registrant filed with the Commission on February 29, 1996.

99(f) Third Amended and Restated General Partnership Agreement of Montgomery
Realty Company-85, effective as of February 13, 1996, by and between
NPI Realty Management Corp. and Fox Realty Investors incorporated by
reference to the Schedule 14D-9 of Registrant filed with the
Commission on February 29, 1996.

(b) Reports on Form 8-K:
None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized this 18th day of March 1997.

GROWTH HOTEL INVESTORS II

By: MONTGOMERY REALTY COMPANY-85,
Its General Partner

By: NPI REALTY MANAGEMENT CORP.,
Its Managing General Partner

By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director

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

Signature/Name Title Date

/s/ William H. Jarrard, Jr. President and May 12, 1998
William H. Jarrard, Jr. Director

/s/Ronald Uretta Principal Financial May 12, 1998
Ronald Uretta Officer and Principal
Accounting Officer

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Growth Hotel Investors II 1997 Year-End 10-K and is qualified in its entirety
by reference to such 10-K filing.
</LEGEND>
<CIK> 0000791346
<NAME> GROWTH HOTEL INVESTORS II
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,228
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,660
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,370
<TOTAL-LIABILITY-AND-EQUITY> 7,660
<SALES> 0
<TOTAL-REVENUES> 92,449
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 25,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,355
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,150
<EPS-PRIMARY> 783.90<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>

</TABLE>