-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Em4LY7RFlPWGkVoYUXyMAXuyNIx4GEkAK2R9cHNXoJCj5MXtJg5bef5yNcvqA2sD pvNcznIOx7/letlLmG5tYw== 0000928790-96-000051.txt : 19960401 0000928790-96-000051.hdr.sgml : 19960401 ACCESSION NUMBER: 0000928790-96-000051 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUTTON CONAM REALTY INVESTORS 2 CENTRAL INDEX KEY: 0000357099 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133100545 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11085 FILM NUMBER: 96540957 BUSINESS ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 BUSINESS PHONE: 2125263237 MAIL ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER STREET 2: 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 10-K 1 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 [Fee Required] For the fiscal year ended December 31, 1995 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: 0-11085 HUTTON/CONAM REALTY INVESTORS 2 Exact name of Registrant as specified in its charter California State or other jurisdiction of incorporation or organization 13-3100545 10285 I.R.S. Employer Identification No. Zip Code Attention: Andre Anderson 3 World Financial Center, 29th Floor, New York, New York 10285 Address of principal executive offices zip code Registrant's telephone number, including area code: (212) 526-3237 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: UNITS OF LIMITED PARTNERSHIP INTEREST Title of Class Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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) Documents Incorporated by Reference: Portions of Prospectus of Registrant dated July 9, 1982 (included in Amendment No. 1 to Registration Statement, No. 2-75519, of Registrant filed July 9, 1982) are incorporated by reference into Part III of this report. Portions of Parts I, II, III and IV are incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1995. PART I Item 1. Business General Development of Business Hutton/ConAm Realty Investors 2 (the "Registrant" or the "Partnership") is a California limited partnership in which RI 2 Real Estate Services Inc. ("RI 2 Services", formerly Hutton Real Estate Services V, Inc.), a Delaware corporation, and ConAm Property Services II, Ltd., a California limited partnership ("ConAm Services"), are the general partners (together, the "General Partners"). Commencing July 9, 1982, the Registrant began offering through E.F. Hutton & Company Inc., of the Registrant, up to a maximum of 80,000 units of limited partnership interest (the "Units") at $500 per Unit. Investors who purchased the Units (the "Limited Partners") are not required to make any additional capital contributions. The Units were registered under the Securities Act of 1933, as amended (the "Act"), under Registration Statement No. 2-75519, which Registration Statement was declared effective on July 9, 1982. The offering of Units was terminated on October 8, 1982. Upon termination of the offering, the Registrant had accepted subscriptions for 80,000 Units for an aggregate of $40,000,000. Narrative Description of Business The Registrant is engaged in the business of acquiring, operating and holding for investment multifamily residential properties, which by virtue of their location and design and the nature of the local real estate market have the potential for capital appreciation and generation of current income. All of the proceeds available for investment in real estate were originally invested in four joint ventures and one limited partnership, each of which owned a specified property. Funds held as a working capital reserve are invested in unaffiliated money market funds or other highly liquid short-term investments where there is appropriate safety in principal in accordance with the Registrant's investment objectives and policies. The Registrant's principal investment objectives with respect to its interests in real property are: (1) capital appreciation; (2) distributions of Net Cash From Operations attributable to rental income; and (3) preservation and protection of capital. Distributions of Net Cash From Operations will be the Registrant's objective during its operational phase, while preservation and appreciation of capital continues to be the Registrant's longer term objectives. The attainment of the Registrant's objectives will depend on many factors, including future economic conditions in the United States as a whole and, in particular, in the localities in which the Registrant's properties are located, especially with regard to achievement of capital appreciation. From time to time the Registrant expects to sell its real property investments taking into consideration such factors as the amount of appreciation in value, if any, to be realized and the possible risks of continued ownership. In consideration of these factors and improving market conditions, the General Partners have commenced marketing certain of the properties for sale. No property will be sold, financed or refinanced by the Registrant without the agreement of both General Partners. Proceeds from any future sale, financing or refinancing of the properties will not be reinvested and may be distributed to the Limited Partners and General Partners (sometimes referred to herein as the "Partners"), so that the Registrant will, in effect, be self-liquidating. If deemed necessary, the Registrant may retain a portion of the proceeds from any sale, financing or refinancing as capital reserves. As partial payment for properties sold, the Registrant may receive purchase money obligations secured by mortgages or deeds of trust. In such cases, the amount of such obligations will not be included in Net Proceeds From Sale or Refinancing (distributable to the Partners) until and only to the extent the obligations are realized in cash, sold or otherwise liquidated. Originally, the Registrant acquired five residential apartment complexes (collectively, the "Properties") through investments in joint ventures and one limited partnership. One of these, Country Place Village I, was sold on July 20, 1995. As of December 31, 1995, the Registrant had interests in the Properties as follows: (1) Creekside Oaks, a 120-unit apartment complex located in Jacksonville, Florida; (2) Ponte Vedra Beach Village I, a 122-unit apartment complex located in Ponte Vedra Beach, Florida; (3) Rancho Antigua, a 220-unit apartment complex located in the McCormick Ranch area of Scottsdale, Arizona; and (4) Village at the Foothills I, a 60-unit apartment complex located in Tucson, Arizona. For a further description of the Properties, see Item 2 of this report and Note 4 to the Consolidated Financial Statements, incorporated herein by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1995, which is filed as an exhibit under Item 14. Competition The Registrant's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and such competition has increased since the Registrant's investment in the Properties due principally to the addition of newly- constructed apartment complexes offering increased residential and recreational amenities. The Properties have also been subject to competition from condominiums and single-family properties, especially during periods of low mortgage interest rates. The Registrant competes with other real estate owners and developers in the rental and leasing of its Properties by offering competitive rental rates and, if necessary, leasing incentives. Such competition may affect the occupancy levels and revenues of the Properties. The occupancy levels at all four Properties reflect some seasonality, which is also reflected in the markets. In some cases, the Registrant may compete with other partnerships affiliated with either General Partner of the Registrant. For a discussion of current market conditions in each of the areas where the Partnership's Properties are located, see Item 2 below. Employees The Registrant has no employees. General services are performed by RI 2 Services, ConAm Services, ConAm Management Corporation ("ConAm Management"), an affiliate of ConAm Services, as well as Service Data Corporation and First Data Investor Services Group, both unaffiliated companies. The Registrant has entered into management agreements pursuant to which ConAm Management provides management services with respect to the Properties. First Data Investor Services Group has been retained by the Registrant to provide all accounting and investor communication functions, while Service Data Corporation provides transfer agent services. See Item 13 for a further description of the service and management agreements between the Registrant and affiliated entities. Item 2. Properties Below is a description of the Properties and a discussion of current market conditions in each of the areas where the Properties are located. For information on the purchase of the Properties, reference is made to Note 4 to the Consolidated Financial Statements in the Partnership's Annual Report to Unitholders for the year ended December 31, 1995, which is filed as an exhibit under Item 14. Average occupancy rates and appraised values of the Partnership's Properties are incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1995, which is filed as an exhibit under Item 14. Creekside Oaks - Jacksonville, Florida This 120-unit apartment complex is situated ten miles west of the Intercostal Waterway in the Baymeadows/Deerwood section of southeast Jacksonville. Market conditions in the Southeast submarket of Jacksonville remain competitive, reflecting the lingering effects of prior overbuilding, much of which was concentrated in this area. The use of rental concessions has diminished in recent years, and average rental rates in the Southeast submarket increased 1.7% from the second quarter of 1994 to the second quarter of 1995. Average occupancy increased from 93.3% to 94.3% during the same period. Construction of new units, relatively dormant in 1992 and 1993, has increased since 1994, with 373 units permitted in 1994 and 593 units permitted as of June 30, 1995. The area's favorable demographics (i.e. growing population and job growth), are expected to absorb the new supply. Ponte Vedra Beach Village I - Ponte Vedra Beach, Florida Ponte Vedra Beach Village I is a 122-unit apartment community in southeast Jacksonville. The Ponte Vedra Beach area has experienced notable population growth and limited new construction in recent years, resulting in strong occupancy for area apartment complexes. A local survey of the Ponte Vedra Beach area reported an average apartment occupancy rate of 95% in the fourth quarter of fiscal 1995. The use of rental concessions in the market is virtually non-existent. Given the strong market conditions, several apartment projects are in the planning or construction phase. In July 1995, construction of phase one of a new development containing 240 units was completed. Phase two of this project, which will contain an additional 178 units, is expected to be completed by the end of 1996. A separate project containing 252 units is to be built in the Ponte Vedra area and a project with an additional 200 to 300 units is awaiting permits to begin construction. This construction is expected d to intensify competition in the Ponte Vedra area market. Rancho Antigua - Scottsdale, Arizona This 220-unit apartment community is located eight miles northeast of Phoenix in southwest Scottsdale. The Scottsdale apartment market evidenced strong competition during 1995, reflecting increasing construction in the area and notable competition from condominiums and single family houses as affordable prices and low mortgage rates entice renters to buy. Average vacancy in the Scottsdale submarket increased from 4.6% as of June 30, 1994 to 5.6% at June 30, 1995, reflecting the addition of recently completed units in the area. Following a two year lull, construction of new units picked up pace beginning in 1993 with 1,058 units opened in 1993, 1,533 units opened in 1994 and 2,240 new units within the submarket either under construction or permitted as of June 30, 1995. While the area's strong population and job growth are likely to absorb some of this new supply, competition for tenants is expected to remain strong, affecting area occupancies and limiting rental rate increases in t he coming year. Village at the Foothills I - Tucson, Arizona This 60-unit apartment community is situated in the "foothills" section of Tucson in the Catalina Foothill submarket. Village at the Foothills I competes with a number of apartment complexes and condominium developments within the Tucson area. Tucson's economy began to weaken as population and job growth slowed during 1995. Despite the economic slowdown, construction of multifamily properties has increased significantly. As of the third quarter of 1995, 1,123 units were under construction in the Catalina Foothills submarket with an additional 656 units not yet begun. These units are being added to the 7,226 completed units in the market. There are an additional seven projects planned for the Catalina Foothills market although all of these projects may not proceed to construction. In addition, the multifamily market has been unfavorably impacted by a decline in interest rates which has made home ownership a viable alternative for renters. As a result, vacancy rates are beginning to rise and increases in rental rates are moderating. A local survey of metropolitan Tucson conducted in the fourth quarter of fiscal 1995 showed an average occupancy rate of 92% among multifamily properties with five or more units, down from 96% at the same period in 1994. Three of the Partnership's four properties are encumbered by mortgage loans. See Note 5 to the Consolidated Financial Statements for a description of such mortgage financing. Item 3. Legal Proceedings An offer dated August 3, 1995, was sent by Everest Investors, LLC and W. Robert Kohorst (collectively, "Everest") to limited partners of the Partnership to purchase up to 4.9% of their limited partnership interests for $70 per unit less any distributions paid prior to the expiration of the offer on September 8, 1995. On August 16, 1995, the General Partners of the Partnership sent a letter to limited partners recommending against the offer because the price was inadequate especially in view of the Net Asset Value of the units and the capital return that was to be made from the July 20, 1995 sale of one of its properties. On August 29, 1995, the Partnership filed a complaint with the United States District Court, Central District of California (the "Court") that Everest's solicitation letter constituted a tender offer which violated Section 14(e) of the Securities Exchange Act of 1934, which prohibits false or misleading statements of material fact in connection with any tender offer. Additionally, the Partnership requested a Temporary Restraining Order against Everest until Everest issues a disclosure that complies with Section 14(e) of the Securities Exchange Act of 1934 and offers rescission to any limited partners that have tendered their limited partnership interests. On August 31, 1995, the Court dismissed the Partnership's request for a Temporary Restraining Order. As a result, the Partnership dropped its complaint. Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of the year ended December 31, 1995, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Limited Partnership Units and Related Security Holder Matters As of December 31, 1995, the number of Unitholders of record was 4,235. No established public trading market exists for the Units, and it is not anticipated that such a market will develop in the future. Distributions of Net Cash Flow From Operations, when made, are paid on a quarterly basis, with distributions generally occurring approximately 45 days after the end of each quarter. Such distributions have been made primarily from net operating income with respect to the Registrant's investment in the Properties and from interest on short-term investments, and partially from excess cash reserves. Information on cash distributions paid by the Partnership for the past two years is incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1995, which is filed as an exhibit under Item 14. The level of future distributions will be evaluated on a quarterly basis and will depend on the Partnership's operating results and future cash needs. Reference is made to Item 7 for a discussion of the General Partners' expectations for future cash distributions. Item 6. Selected Financial Data Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1995, which is filed as an exhibit under Item 14. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources At December 31, 1995, the Partnership had cash and cash equivalents of $710,686 which was invested in unaffiliated money market funds, compared with $1,183,787 at December 31, 1994. The decrease is primarily attributable to cash used for distributions, mortgage payments and additions to real estate, which exceeded net cash provided by operating activities and proceeds from the sale of Country Place Village I. The Partnership also maintained a restricted cash balance of $651,661 at December 31, 1995, compared with $779,328 at December 31, 1994. The restricted cash balance represents escrows for insurance, real estate taxes, and property replacements and repairs, required under the terms of the current mortgage loans. Pursuant to the refinancing of the Creekside Oaks loan, the lender required funds escrowed for various repairs including roofing work and exterior painting. Following an inspection of the complete work by the lender, the balance of the repair escrow will be returned to the Partnership. The General Partners expect sufficient cash flow to be generated from operations to meet its current operating expenses and debt service requirements. In light of improving market conditions in certain of the areas where the Partnership's properties are located, the General Partners have begun marketing some of the properties for sale. On July 20, 1995, Country Place Village I was sold to an unaffiliated party. The property was sold for a gross price of $3,665,000, which included the assumption by the buyer of the property's mortgage payable in the amount of $2,051,078. The sale resulted in the Partnership receiving net proceeds of approximately $1,522,000. Primarily as a result of the sale, investments in real estate, other assets and mortgages payable decreased from December 31, 1994 to December 31, 1995. The Partnership recognized a gain on sale of $232,402 in the third quarter and on August 17, 1995 paid a special distribution of $1,600,000, or $20.00 per Unit, to the partners. The special distribution was comprised of net proceeds from the sale of Country Place Village I and Partnership cash reserves. Cash distributions to the Limited Partners were suspended from the first quarter of 1992 through the second quarter of 1994 in consideration of the costs related to the refinancing of the Partnership's four mortgage loans. Cash distributions to investors were reinstated commencing with the third quarter 1994 distribution in the quarterly amount of $2.75 per Unit. This quarterly level was reduced to $2.25 per Unit commencing with the 1995 first quarter distribution. The level was reduced due to increased capital expenditures and, to a lesser extent, the sale of Country Place Village I. This quarterly level was maintained for the remainder of 1995. The level of future distributions will be evaluated on a quarterly basis and will be based on cash flow generated by the Partnership. On March 15, 1996, based upon, among other things, the advice of Partnership counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a resolution that states, among other things, if a Change of Control (as defined below) occurs, the General Partners may distribute the Partnership's cash balances not required for its ordinary course day-to-day operations. "Change of Control" means any purchase or offer to purchase more than 10% of the Units that is not approved in advance by the General Partners. In determining the amount of the distribution, the General Partners may take into account all material factors. In addition, the Partnership will not be obligated to make any distribution to any partner and no partner will be entitled to receive any distribution until the General Partners have declared the distribution and established a record date and distribution date for the distribution. The Partnership filed a Form 8-K disclosing this resolution on March 21, 1996. Results of Operations 1995 versus 1994 Partnership operations for the year ended December 31, 1995 resulted in a net loss of $112,522, compared with net income of $37,325 in 1994. As a result of the sale of Country Place Village I in July 1995, the Partnership realized a gain of $232,402. Excluding this gain, the Partnership incurred a loss from operations of $344,924 for the year ended December 31, 1995 compared with income from operations of $37,325 in 1994. The change from income to loss is primarily the result of (i) reduced rental income following the sale of Country Place Village I, (ii) increased property operating expense and, (iii) an increase in general and administrative expense. Rental income totaled $4,448,549 for the year ended December 31, 1995 compared with $4,669,676 in 1994. The decrease is primarily due to the sale of Country Place Village I in July 1995. This was partially offset by increases in rental income at Rancho Antigua and Village at the Foothills I, reflecting rate increases instituted during the year. Interest income totaled $67,819 for the year ended December 31, 1995 compared with $48,289 for the year ended December 31, 1994. The increase is primarily due to higher rates earned on the Partnership's cash balances. Property operating expenses totaled $2,515,717 for the year ended December 31, 1995, compared with $2,262,915 in 1994. The increase primarily reflects higher repair and maintenance expenses at Creekside Oaks and Rancho Antigua due primarily to exterior painting work. Interest expense and depreciation and amortization expense both decreased from 1994, primarily due to the sale of Country Place Village I. General and administrative expense totaled $222,881 for the year ended December 31, 1995 compared with $144,052 for the year ended December 31, 1994. The increases primarily reflect legal expenses due to the Partnership's response to the offer for the limited partnership units in the third quarter of 1995. (See Item 3) 1994 versus 1993 Partnership operations for the year ended December 31, 1994 resulted in net income of $37,325, compared with a net loss of $527,539 in 1993. The change from net loss to net income in 1994 is primarily the result of increased rental income and lower interest expense. Rental income totaled $4,669,676 for the year ended December 31, 1994 compared with $4,429,975 in 1993. The increase in 1994 reflects higher rental income at all the properties, primarily due to rental rate increases instituted over the past year. Property operating expenses totaled $2,262,915 for the year ended December 31, 1994, compared with $2,069,986 in 1993. The increase primarily reflects higher expenses at Rancho Antigua as repair and maintenance expense increased due to carpet replacement, asphalt resealing and general repairs, while rental administration expenses increased primarily due to higher utilities expense. Interest expense totaled $1,110,434 for the year ended December 31, 1994, compared with $1,686,402 in 1993. The decrease is due to lower interest rates and the reduction of approximately $1.1 million of the principal balances as a result of the replacement financing secured in late 1993 (see Note 5 of Notes to the Consolidated Financial Statements included in Exhibit 13 to this report for a description of the refinancing). General and administrative expenses totaled $144,052 for the year ended December 31, 1994, compared with $153,236 in 1993. The decrease primarily reflects one-time expenses incurred i n 1993 relating to the attempt at securing a loan for the Village at the Foothills I. The average occupancy levels at each of the properties for the years ended December 31, 1995, 1994 and 1993 were as follows: Twelve Months Ended December 31, Property 1995 1994 1993 Creekside Oaks 93% 96% 94% Ponte Vedra Beach Village I 96% 96% 96% Rancho Antigua 92% 95% 95% Village at the Foothills I 95% 96% 96% Item 8. Financial Statements and Supplementary Data The financial statements are incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1995, which is filed as an exhibit under Item 14. Supplementary Data is incorporated by reference to pages F-1 and F-4 of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The Registrant has no officers or directors. RI 2 Services and ConAm Services, the co-General Partners of the Registrant, jointly manage and control the affairs of the Registrant and have general responsibility and authority in all matters affecting its business. RI 2 Services RI 2 Services (formerly Hutton Real Estate Services V, Inc.) is a Delaware Corporation, formed on October 30, 1980, and is an affiliate of Lehman Brothers, Inc. See the section captioned "Certain Matters Involving Affiliates of RI 2 Services" for a description of the Hutton Group's acquisition by Shearson Lehman Brothers, Inc. ("Shearson") and the subsequent sale of certain of Shearson's domestic retail brokerage and asset management businesses to Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney"), which was followed by a change in the general partner's name. Certain officers and directors of RI 2 Services are now serving (or in the past have served) as officers or directors of entities which act as general partners of a number of real estate limited partnerships which have sought protection under the provisions of the Federal Bankruptcy Code. The partnerships which have filed bankruptcy petitions own real estate which has been adversely affected by the economic conditions in the markets in which the real estate is located and, consequently, the partnerships sought the protection of the bankruptcy laws to protect the partnerships' assets from loss through foreclosure. The names and positions held by the directors and executive officers of RI 2 Services are set forth below. There are no family relationships between any executive officers or directors. Name Office Paul L. Abbott Director, President, Chief Financial Officer and Chief Executive Officer Donald E. Petrow Vice President Kate D. Hobson Vice President Paul L. Abbott, 50, is a Managing Director of Lehman Brothers. Mr. Abbott joined Lehman Brothers in August 1988, and is responsible for investment management of residential, commercial and retail real estate. Prior to joining Lehman Brothers, Mr. Abbott was a real estate consultant and a senior officer of a privately held company specializing in the syndication of private real estate limited partnerships. From 1974 through 1983, Mr. Abbott was an officer of two life insurance companies and a director of an insurance agency subsidiary. Mr. Abbott received his formal education in the undergraduate and graduate schools of Washington University in St. Louis. Donald E. Petrow, 39, is a First Vice President of Lehman Brothers Inc. Since March 1989, he has been responsible for the investment management and restructuring of various investment portfolios, including but not limited to, federal insured mortgages, tax exempt bonds, multifamily and commercial real estate. From November 1981 to February 1989, Mr. Petrow, as Vice President of Lehman, was involved in investment banking activities relating to partnership finance and acquisitions. Prior to joining Lehman, Mr. Petrow was employed in accounting and equipment leasing firms. Mr. Petrow holds a B.S. Degree in accounting from Saint Peters College and an M.B.A in Finance from Pace University. Kate D. Hobson, 29, is an Assistant Vice President of Lehman Brothers and has been a member of the Diversified Asset Group since 1992. Prior to joining Lehman Brothers, Ms. Hobson was associated with Cushman & Wakefield serving as a real estate accountant from 1990 to 1992. Prior to that, Ms. Hobson was employed by Cambridge Systematics, Inc. as a junior land planner. Ms. Hobson received a B.A. degree in sociology from Boston University in 1988. ConAm Services ConAm Services is a California limited partnership organized on August 30, 1982. The sole general partner of ConAm Services is Continental American Development, Inc. ("ConAm Development"). The names and positions held by the directors and executive officers of ConAm Development are set forth below. There are no family relationships between any executive officers or directors. Name Office Daniel J. Epstein President and Director E. Scott Dupree Vice President/Director Robert J. Svatos Vice President/Director Ralph W. Tilley Vice President J. Bradley Forrester Vice President Daniel J. Epstein, 56, has been the President and a Director of ConAm Development and ConAm Management (or its predecessor firm) and a general partner of Continental American Properties, Ltd. ("ConAm"), an affiliate of ConAm Services, since their inception. Prior to that time Mr. Epstein was Vice President and a Director of American Housing Guild, which he joined in 1969. At American Housing Guild, he was responsible for the formation of the Multi-Family Division and directed its development and property management activities. Mr. Epstein holds a Bachelor of Science degree in Engineering from the University of Southern California. E. Scott Dupree, 45, is a Vice President and general counsel of ConAm Management responsible for negotiation, documentation, review and closing of acquisition, sale and financing proposals. Mr. Dupree also acts as principal legal advisor on general legal matters ranging from issues and contracts involving the management company to supervision of litigation and employment issues. Prior to joining ConAm Management in 1985, he was corporate counsel to Trusthouse Forte, Inc., a major international hotel and restaurant corporation. Mr. Dupree holds a B.A. from United States International University and a Juris Doctorate degree from the University of San Diego. Robert J. Svatos, 37, is a Vice President and Chief Financial Officer of ConAm Management, and has been with the company since 1988. His responsibilities include the accounting, treasury and data processing functions of the organization. Mr. Svatos is part of the firm's due diligence team, analyzing a broad range of projects for ConAm Management's fee client base. Prior to joining ConAm Management, he was the Chief Financial Officer for AmeriStar Financial Corporation, a nationwide mortgage banking firm. Mr. Svatos holds an M.B.A. in Finance from the University of San Diego and a Bachelor of Science degree in Accounting from the University of Illinois. Mr. Svatos is a Certified Public Accountant. Ralph W. Tilley, 41, is a Vice President and Treasurer of ConAm Management. He is responsible for the financial aspects of syndications and acquisitions, ConAm Management's asset management portfolio and risk management activities. Prior to joining ConAm Management in 1980, he was a senior accountant with KPMG Peat Marwick, specializing in real estate. He holds a Bachelor of Science degree in Accounting from San Diego State University and is a Certified Public Accountant. J. Bradley Forrester, 38, currently serves as a Senior Vice President of ConAm Management Corporation. He is responsible for property acquisition and disposition on a nationwide basis. Additionally, he is involved with the company's real estate development activities. Prior to joining ConAm, Mr. Forrester served as Senior Vice President - Commercial Real Estate for First Nationwide Bank in San Francisco, where he was responsible for a $2 billion problem asset portfolio including bank-owned real estate and non-performing commercial real estate loans. His past experience includes significant involvement in real estate development and finance, property acquisitions and dispositions and owner's representation matters. Prior to entering the real estate profession, he worked for KPMG Peat Marwick in Dallas, Texas. Mr. Forrester holds a Bachelor of Science degree in Accounting from Louisiana State University. He received his CPA certification in the state of Texas. Certain Matters Involving Affiliates of RI 2 Services On July 31, 1993, Shearson sold certain of its domestic retail brokerage and asset management businesses to Smith Barney. Subsequent to the sale, Shearson changed its name to "Lehman Brothers Inc." The transaction did not affect the ownership of the Partnership's General Partners. However, the assets acquired by Smith Barney included the name "Hutton." Consequently, the Hutton Real Estate Services general partner changed its name to "RI 2 Real Estate Services Inc.," and the Hutton Group changed its name to "LB I Group Inc." to delete any reference to "Hutton." Item 11. Executive Compensation Neither of the General Partners nor any of their directors or executive officers received any compensation from the Registrant. See Item 13 below with respect to a description of certain costs of the General Partners or their affiliates reimbursed by the Registrant. Item 12. Security Ownership of Certain Beneficial Owners and Management As of December 31, 1995, no person was known by the Registrant to be the beneficial owner of more than five percent of the Units of the Registrant. No other directors or executive officers of the General Partners own any Units. Item 13. Certain Relationships and Related Transactions Pursuant to the Amended and Restated Certificate and Agreement of Limited Partnership of the Registrant, for the year ended December 31, 1995, $228,953 of Registrant's net income was allocated to the General Partners ($152,636 to RI 2 Services and $76,317 to ConAm Services). For a description of the share of Net Cash From Operations and the allocation of income and loss to which the General Partners are entitled, reference is made to the material contained on pages 78 through 80 of the Prospectus of the Registrant dated July 9, 1982 ( the "Prospectus"), contained in Amendment No. 1 to Registrant's Registration Statement No. 2-75519, filed July 9, 1982, under the section captioned "Profit and Losses and Cash Distributions," which section is incorporated herein by reference thereto. The Registrant has entered into property management agreements with ConAm Management pursuant to which ConAm Management has assumed direct responsibility for day-to-day management of the Properties. It is the responsibility of ConAm Management to select resident managers and monitor their performance. ConAm Management's services also include the supervision of leasing, rent collection, maintenance, budgeting, employment of personnel, payment of operating expenses, and related services. For such services, ConAm Management is entitled to receive a management fee as described on pages 33 and 34 of the Prospectus under the caption "Investment Objectives and Policies - Management of Properties," which description is herein incorporated by reference. A summary of property management fees earned by ConAm Management during the past three fiscal years is incorporated by reference to Note 6 to the Consolidated Financial Statements included in the Partnership's Annual Report to Unitholders f or the year ended December 31, 1995, which is filed as an exhibit under Item 14. Pursuant to Section 12(g) of Registrant's Certificate and Agreement of Limited Partnership, the General Partners may be reimbursed by the Registrant for certain of their costs as described on page 16 of the Prospectus, which description is incorporated herein by reference thereto. First Data Investor Services Group provides partnership accounting and investor relations services for the Registrant. Prior to May 1993, these services were provided by an affiliate of a general partner. The Registrant's transfer agent and certain tax reporting services are provided by Service Data Corporation. Both First Data Investor Services Group and Service Data Corporation are unaffiliated companies. A summary of amounts paid to the General Partners or their affiliates during the past three years is incorporated by reference to Note 6 to the Consolidated Financial Statements, included in the Partnership's Annual Report to Unitholders for the fiscal year ended December 31, 1995, which is filed as a n exhibit under Item 14. PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K (a)(1) Financial Statements: Page Consolidated Balance Sheets - December 31, 1995 and 1994 (1) Consolidated Statements of Partners' Capital (Deficit) - For the years ended December 31, 1995, 1994 and 1993 (1) Consolidated Statements of Operations - For the years ended December 31, 1995, 1994 and 1993 (1) Consolidated Statements of Cash Flows - For the years ended December 31, 1995, 1994 and 1993 (1) Notes to the Consolidated Financial Statements (1) Report of Independent Accountants (1) (a)(2) Financial Statement Schedule: Schedule III - Real Estate and Accumulated Depreciation F-1 Report of Independent Accountants F-4 (1) Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1995 filed as an exhibit under Item 14. (a)(3) Exhibits: (3)(A) Amended and Restated Certificate and Agreement of Limited Partnership (included as, and incorporated herein by reference to, Exhibit A to the Prospectus of Registrant dated July 9, 1982 (the "Prospectus"), contained in Amendment No. 1 to Registration Statement, No. 2-75519, of Registrant filed July 9, 1982). (B) Subscription Agreement and Signature Page (included as, and incorporated herein by reference to, Exhibit B to the Prospectus). (10)(A) Settlement Agreement by and among the Managing Joint Venturers and the Epoch Joint Venturers dated July 1, 1992 (included as, and incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q (Commission File No. 0-11085)). (B) Amended and Restated Agreement of General Partnership of Country Place Village I Joint Venture dated as of July 1, 1992 (included as, and incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q (Commission File No. 0-11085)). (C) Amended and Restated Agreement of General Partnership of Creekside Oaks Joint Venture dated as of July 1, 1992 (included as, and incorporated herein by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q (Commission File No. 0-11085)). (D) Amended and Restated Agreement of General Partnership of Ponte Vedra Beach Village I dated July 1, 1992 (included as, and incorporated herein by reference to Exhibit 10.4 of the Registrant's Quarterly Report on Form 10-Q (Commission File No. 0-11085)). (E) Joint Venture Agreement of Rancho Antigua (included as, and incorporated herein by reference to Exhibit 10(M) to the Registrant's 1991 Annual Report on Form 10-K for the year ended December 31, 1991 (Commission File No. 0-11085)). (F) Amended and Restated Agreement of General Partnership of Village at the Foothills I Joint Venture Limited Partnership dated July 1, 1992 (included as, and incorporated herein by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q (Commission File No. 0-11085)). (G) Property Management Agreement between Creekside Oaks Joint Venture and ConAm Management Corporation for the Creekside Oaks property (included as, and incorporated herein by reference to Exhibit 10-G to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (H) Property Management Agreement between Ponte Vedra Beach Joint Venture and ConAm Management Corporation for the Ponte Vedra Beach Village I property (included as, and incorporated herein by reference to Exhibit 10-H to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (I) Property Management Agreement between Rancho Antigua Joint Venture and ConAm Management Corporation for the Rancho Antigua property (included as, and incorporated herein by reference to Exhibit 10-I to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (J) Property Management Agreement between Country Place Village I Joint Venture and ConAm Management Corporation for the Country Place Village I property (included as, and incorporated herein by reference to Exhibit 10-J to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (K) Property Management Agreement between Village at the Foothills I Joint Venture and ConAm Management for the Village at the Foothills I property (included as, and incorporated herein by reference to Exhibit 10-K to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (L) Loan Documents: Mortgage and Security Agreement, Promissory Note and Assignment of Rents and Leases with respect to the refinancing of Country Place Village I, between Registrant and The Penn Mutual Insurance Company (included as, and incorporated herein by reference to Exhibit 10-L to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (M) Loan Documents: Mortgage and Security Agreement, Promissory Note and Assignment of Rents and Leases with respect to the refinancing of Creekside Oaks, between Registrant and The Penn Mutual Insurance Company (included as, and incorporated herein by reference to Exhibit 10-M to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (N) Loan Documents: Mortgage and Security Agreement, Promissory Note and Assignment of Rents and Leases with respect to the refinancing of Ponte Vedra Beach Village I, between Registrant and The Penn Mutual Insurance Company (included as, and incorporated herein by reference to Exhibit 10-N to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (O) Loan Documents: Deed of Trust and Assignment of Rents with Security Agreement and Financing Statement with respect to the refinancing of Rancho Antigua, between Registrant and The Penn Mutual Insurance Company (included as, and incorporated herein by reference to Exhibit 10-O to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (13) Annual Report to Unitholders for the year ended December 31, 1995. (21) List of Subsidiaries - Joint Ventures (included as, and incorporated herein by reference to Exhibit 22 to the Registrant's Annual Report for the year ended December 31, 1994, on Form 10-K (Commission File No. 0-11085)). (27) Financial Data Schedule (99) Portions of Prospectus of Registrant dated July 9, 1983 (included as, and incorporated herein by reference to Exhibit 28 of the Registrant's 1988 Annual Report filed on Form 10-K for the fiscal year ended December 31, 1988 (Commission File No. 0-11085)). (b) Reports on Form 8-K: No reports on Form 8-K were filed in the fourth quarter of 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: March 27, 1996 HUTTON/CONAM REALTY INVESTORS 2 BY: RI 2 Real Estate Services Inc. General Partner BY: /S/ Paul L. Abbott Name: Paul L. Abbott Title: Director, President, and Chief Executive Officer and Chief Financial Officer BY: ConAm Property Services II, Ltd. General Partner BY: Continental American Development, Inc. General Partner BY: /S/ Daniel J. Epstein Name: Daniel J. Epstein Title:President, Director and Principal Executive Officer 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 in the capabilities and on the dates indicated. RI 2 REAL ESTATE SERVICES INC. A General Partner Date: March 27, 1996 BY: /S/ Paul L. Abbott Paul L. Abbott Director, President, and Chief Executive Officer and Chief Financial Officer Date: March 27, 1996 BY: /S/ Donald Petrow Donald Petrow Vice President Date: March 27, 1996 BY: /S/ Kate Hobson Kate Hobson Vice President 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 in the capacities and on the dates indicated. CONAM PROPERTY SERVICES II, LTD. A General Partner By: Continental American Development, Inc. General Partner Date: March 27, 1996 BY: /S/ Daniel J. Epstein Daniel J. Epstein Director and President Date: March 27, 1996 BY: /S/ E. Scott Dupree E. Scott Dupree Vice President/Director Date: March 27, 1996 BY: /S/ Robert J. Svatos Robert J. Svatos Vice President/Director Date: March 27, 1996 BY: /S/ Ralph W. Tilley Ralph W. Tilley Vice President Date: March 27, 1996 BY: /S/ J. Bradley Forrester J. Bradley Forrester Vice President EX-13 2 RI2 EXHIBIT 13 - 1995 ANNUAL REPORT Hutton/ConAm Realty Investors 2 1995 Annual Report HUTTON/CONAM REALTY INVESTORS 2 Hutton/ConAm Realty Investors 2 is a California limited partnership formed in 1982 to acquire, operate and hold for investment multifamily housing properties. At December 31, 1995, the Partnership's portfolio consisted of four apartment properties located in Arizona and Florida. Provided below is a comparison of average occupancy levels for the years ended December 31, 1995 and 1994 Average Occupancy Property Location 1995 1994 -------------------------------------------------------------------------- Creekside Oaks Jacksonville, Florida 93% 96% Ponte Vedra Beach Village I Ponte Vedra Beach, Florida 96% 96% Rancho Antigua Scottsdale, Arizona 92% 95% Village at the Foothills I Tucson, Arizona 95% 96% -------------------------------------------------------------------------- Administrative Inquiries Performance Inquiries/Form 10-Ks Address Changes/Transfers First Data Investor Services Group Service Data Corporation P.O. Box 1527 2424 South 130th Circle Boston, Massachusetts 02104-1527 Omaha, Nebraska 68144-2596 Attn: Financial Communications 800-223-3464 (select option 1) 800-223-3464 (select option 2) Contents 1 Message to Investors 2 Performance Summary 3 Financial Highlights 4 Consolidated Financial Statements 7 Notes to the Consolidated Financial Statements 13 Report of Independent Accountants 14 Net Asset Valuation MESSAGE TO INVESTORS Presented for your review is the 1995 Annual Report for Hutton/ConAm Realty Investors 2. In this report, we review Partnership operations and discuss general market conditions affecting the Partnership's properties. We have also included a performance summary which addresses operating results at each of the properties and financial highlights for the year. Country Place Village I Sale The most significant event during 1995 was the sale of Country Place Village I on July 20, 1995 to an unaffiliated institutional buyer. Country Place Village I was sold for $3,665,000, which includes the assumption of the mortgage payable on the property by the buyer in the amount of $2,051,078. The Partnership received net sales proceeds of $1,522,242 and recorded a gain of $232,402 on the sale. Cash Distributions The Partnership paid cash distributions totaling $29 per Unit for the year ended December 31, 1995, including the fourth quarter distribution of $2.25 per Unit, which was credited to your brokerage account or sent directly to you on February 7, 1996. This amount also includes the special return of capital distribution of $20 per Unit which was paid on August 17, 1995 and resulted primarily from the sale of Country Place Village I. Since inception, the Partnership has paid distributions totaling $328.19 per original $500 Unit, including $220 per Unit in return of capital payments. The level of future distributions will be evaluated on a quarterly basis and will depend on the Partnership's operating results and future cash needs. It is anticipated that cash from reserves may be required to fund a portion of the distributions during 1996 as a result of the expenditures for improvements required at the Partnership's properties which are discussed in this report. Operations Overview The solid recovery of multifamily housing in most regions of the country began to level off during 1995. New construction intensified competition in many areas with building permits for multifamily units up almost 22% in 1995 compared to 1994 levels. In addition, falling interest rates induced many renters to purchase homes. Despite these trends, strong population and job growth in the areas where the Partnership's properties are located helped strengthen the demand for multifamily housing, and brought about stable performance at the Partnership's properties. All four properties sustained average occupancy rates for the year at or above 92%, and both Rancho Antigua and Village at the Foothills I recorded higher rental income from the prior year. During the remainder of 1996, we intend to implement an extensive improvement program, which includes roof repairs at three of the four properties and improvements to unit interiors at all four properties. This program is intended to maintain the properties' positions within their respective markets, which are growing increasingly competitive with the addition of new apartment properties. This is particularly true in the Jacksonville market where two of the Partnership's four properties are located. It is also hoped that these improvements will allow for greater increases in rental rates, thereby improving each property's revenue and value, and making them better positioned for eventual sale. Updates on the improvements at each property will be included in future correspondence. Summary During 1996, we will continue to seek to maintain high occupancy levels, implement rental rate increases as conditions permit, and make property improvements necessary to keep the properties competitive in their respective markets. We will keep you apprised of significant developments affecting your investment in future reports. Very truly yours, /s/ Paul L. Abbott /s/ Daniel J. Epstein President President RI 2 Real Estate Services, Inc. Continental American Development Inc. General Partner of ConAm Property Services II, Ltd. March 27, 1996 PERFORMANCE SUMMARY Creekside Oaks, Jacksonville, Florida Creekside Oaks, a 120-unit apartment community, is situated in the Baymeadows-Deerwood neighborhood of southeast Jacksonville. The average occupancy level at Creekside Oaks was 93% in 1995 compared with 96% during 1994. The decline in occupancy was offset by rental rate increases instituted during the year, and rental income remained in line with 1994. Market conditions in the Baymeadows-Deerwood area remain competitive, with a number of newer apartment properties offering greater amenities and commanding higher rents. Additionally, two new properties are scheduled to open in the area during 1996. Although the use of rental concessions diminished considerably in the last two years, asking rental rates in this submarket increased only 2% in 1995. Average occupancy increased from 93% in the second quarter of 1994 to 94% in the second quarter of 1995. Improvements at the property during 1995 included exterior painting and carpet replacement in selected units. Ponte Vedra Beach Village I, Ponte Vedra Beach, Florida Located in an oceanside residential area south of Jacksonville, this 122-unit property reported stable occupancy of 96% during 1995. The property's average occupancy rate has remained consistent at 96% for the past three years. While modest rental rate increases were instituted in renewal units during the year, rental income remained largely unchanged from 1994, reflecting a seasonal dip in occupancy during the second quarter. Property improvements during 1995 primarily consisted of roof repairs and the replacement of carpet and tile. A local survey of the Ponte Vedra Beach area reported an average apartment occupancy rate of 95% in the third quarter of 1995. The use of rental concessions in the market is virtually non-existent. Given the strong market conditions, several apartment projects are in the planning or construction phase. This construction is expected to intensify competition in the Ponte Vedra area market. Rancho Antigua, Scottsdale, Arizona This 220-unit complex, located approximately eight miles northeast of Phoenix, achieved average occupancy of 92% in 1995, compared with 95% in 1994. Despite the decrease in average occupancy, the property was able to achieve a small increase in rental income as a result of rate increases instituted during the year. The lower average occupancy reflects a number of tenants not renewing leases to purchase condominiums and single family homes. Affordable home prices in the area and low mortgage rates have induced a large number of renters to purchase homes and increased competition for tenants. While population and job growth remain strong in the Phoenix area, construction of new apartment projects has picked up in recent years and a number of new units are planned or under construction in the Scottsdale/Paradise Valley submarket. The addition of new apartment units resulted in a decrease in the market's average occupancy to 94% at the end of the second quarter of 1995. Given increased ed construction and continued strong competition from condominiums and single family housing, competition for tenants is likely to increase in the coming year. Property improvements during 1995 included the painting of the property's exterior and carpet and appliance replacement in renewal units. Village at the Foothills I, Tucson, Arizona Village at the Foothills I is a 60-unit apartment and townhouse community, located in the Catalina Foothills, overlooking Tucson. Occupancy at this property averaged 95% in 1995 compared with 96% in 1994. Rental income increased 6% from 1994, reflecting rental rate increases on renewals and turnover during the year. Property improvements during 1995 were minimal and consisted primarily of carpet replacement in selected units. The property continued to perform well despite intensifying competition in the metro Tucson area brought on by new construction. Competition for tenants is also increasing as renters take advantage of low interest rates on mortgages and opt to purchase homes. Evidence of the intensifying competition can be seen in the area's vacancy rate, which has reached 8%, its highest level since 1990. FINANCIAL HIGHLIGHTS Selected Financial Data For the Periods Ended December 31, (dollars in thousands, except per Unit data) 1995 1994 1993 1992 1991 Total Revenue $ 4,516 $ 4,718 $ 4,479 $ 4,316 $ 4,263 Gain on Sale of Property 232 ----- ----- ----- ----- Net Income (Loss) (113) 37 (528) (409) (513) Net Cash Provided by (used for) Operating Activities 864 1,150 (180) 680 380 Long-term Obligations 11,969 14,219 14,418 15,636 15,750 Total Assets at Year End 19,931 24,772 25,237 26,946 27,579 Net Income (Loss) per Limited Partnership Unit* (4.27) .42 (6.53) (5.06) (6.34) Distributions per Limited Partnership Unit* 9.00 5.50 ----- ----- 5.20 Special Distributions per Limited Partnership Unit* 20.00 ----- ----- ----- ----- * 80,000 units outstanding * Total revenue decreased 4% from 1994, reflecting the sale of Country Place Village I on July 20, 1995. This was partially offset by increased rental income at Rancho Antigua and Village at the Foothills I and higher interest income. * The change from net income in 1994 to a net loss in 1995 and the reduction in cash provided by operating activities is primarily attributable to the decrease in rental income following the sale of Country Place Village I, as well as an increase in property operating expenses and general and administrative expenses. Property operating expenses increased due primarily to painting and repair costs at Creekside Oaks and Rancho Antigua. General and administrative expenses increased largely due to higher legal costs in the 1995 period. Cash Distributions Per Limited Partnership Unit 1995 1994 Special Distributions* $ 20.00 $ ----- First Quarter 2.25 ----- Second Quarter 2.25 ----- Third Quarter 2.25 2.75 Fourth Quarter 2.25 2.75 Total $ 29.00 $ 5.50 * On August 17, 1995, the Partnership paid a special cash distribution totaling $20 per Unit, reflecting a return of capital from the net proceeds of the sale of Country Place Village I and Partnership cash reserves. Consolidated Balance Sheets December 31, 1995 and 1994 Assets 1995 1994 Investments in real estate: Land $ 5,744,972 $ 6,797,328 Buildings and improvements 23,442,403 27,258,895 29,187,375 34,056,223 Less accumulated depreciation (10,931,382) (11,699,378) 18,255,993 22,356,845 Cash and cash equivalents 710,686 1,183,787 Restricted cash 651,661 779,328 Other assets, net of accumulated amortization of $135,458 in 1995 and $88,397 in 1994 312,359 452,164 Total Assets $ 19,930,699 $ 24,772,124 Liabilities and Partners' Capital Liabilities: Mortgages payable $ 11,968,504 $ 14,218,948 Accounts payable and accrued expenses 121,445 106,337 Due to general partners and affiliates 33,949 40,523 Security deposits 106,218 133,210 Distribution payable 200,000 244,445 Total Liabilities 12,430,116 14,743,463 Partners' Capital (Deficit): General Partners (485,103) (618,500) Limited Partners 7,985,686 10,647,161 Total Partners' Capital 7,500,583 10,028,661 Total Liabilities and Partners' Capital $ 19,930,699 $ 24,772,124 Consolidated Statements of Partners' Capital (Deficit) For the years ended December 31, 1995, 1994 and 1993 General Limited Partners Partners Total Balance at January 1, 1993 $ (568,068) $ 11,575,832 $ 11,007,764 Net loss (5,275) (522,264) (527,539) Balance at December 31, 1993 (573,343) 11,053,568 10,480,225 Net income 3,732 33,593 37,325 Distributions (48,889) (440,000) (488,889) Balance at December 31, 1994 (618,500) 10,647,161 10,028,661 Net income (loss) 228,953 (341,475) (112,522) Distributions (95,556) (2,320,000) (2,415,556) Balance at December 31, 1995 $ (485,103) $ 7,985,686 $ 7,500,583 Consolidated Statements of Operations For the years ended December 31, 1995, 1994 and 1993 Income 1995 1994 1993 Rental $ 4,448,549 $ 4,669,676 $ 4,429,975 Interest 67,819 48,289 48,981 Total Income 4,516,368 4,717,965 4,478,956 Expenses Property operating 2,515,717 2,262,915 2,069,986 Depreciation and amortization 1,099,215 1,163,239 1,096,871 Interest 1,023,479 1,110,434 1,686,402 General and administrative 222,881 144,052 153,236 Total Expenses 4,861,292 4,680,640 5,006,495 Income (loss) from operations (344,924) 37,325 (527,539) Gain on sale of property 232,402 ----- ----- Net Income (Loss) $ (112,522) $ 37,325 $ (527,539) Net Income (Loss) Allocated: To the General Partners $ 228,953 $ 3,732 $ (5,275) To the Limited Partners (341,475) 33,593 (522,264) Net Income (Loss) $ (112,522) $ 37,325 $ (527,539) Per Limited Partnership Unit (80,000 outstanding) Income (loss) from operations $ (4.27) $ .42 $ (6.53) Gain on sale of property --- --- --- Net Income (Loss) $ (4.27) $ .42 $ (6.53) Consolidated Statements of Cash Flows For the years ended December 31, 1995, 1994 and 1993 Cash Flows from Operating Activities: 1995 1994 1993 Net income (loss) $ (112,522) $ 37,325 $ (527,539) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 1,099,215 1,163,239 1,096,871 Gain on sale of property (232,402) ----- ----- Increase (decrease) in cash arising from changes in operating assets and liabilities: Fundings to restricted cash (361,130) (407,336) (1,057,502) Release of restricted cash 488,797 409,471 276,039 Other assets ----- 6,310 (5,317) Accounts payable and accrued expenses 15,108 (59,566) 40,477 Due to general partners and affiliates (6,574) 3,616 (11,199) Security deposits (26,992) (2,961) 7,848 Net cash provided by (used for) operating activities 863,500 1,150,098 (180,322) Cash Flows from Investing Activities: Net proceeds from sale of property 1,522,242 Additions to real estate (199,476) (114,067) (34,711) Net cash provided by (used for) investing activities 1,322,766 (114,067) (34,711) Cash Flows from Financing Activities: Distributions (2,460,001) (244,444) ----- Mortgage principal payments (199,366) (199,306) (15,667,949) Receipt (payment) of deposit on mortgage refinancing ------- 72,058 (74,631) Mortgage fees ------- (39,283) (491,095) Mortgage proceeds ------- ------- 14,450,000 Net cash used for financing activities (2,659,367) (410,975) (1,783,675) Net increase (decrease) in cash and cash equivalents (473,101) 625,056 (1,998,708) Cash and cash equivalents at beginning of year 1,183,787 558,731 2,557,439 Cash and cash equivalents at end of year $ 710,686 $ 1,183,787 $ 558,731 Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $1,023,479 $ 1,110,434 $ 1,686,402 Supplemental Disclosure of Non-Cash Financing Activities: In connection with the sale of Country Place Village I, the $2,051,078 mortgage obligation on the property was assumed by the buyer, thereby releasing the Partnership from its mortgage obligation. Notes to the Consolidated Financial Statements For the years ended December 31, 1995, 1994 and 1993 1. Organization Hutton/ConAm Realty Investors 2 (the "Partnership") was organized as a limited partnership under the laws of the State of California pursuant to a Certificate and Agreement of Limited Partnership (the "Partnership Agreement") dated December 17, 1981, as amended and restated October 8, 1982. The Partnership was formed for the purpose of acquiring and operating certain types of residential real estate. The General Partners of the Partnership are RI 2 Real Estate Services Inc., an affiliate of Lehman Brothers Inc. (see below), and ConAm Property Services II, Ltd. ("ConAm"), an affiliate of Continental American Properties, Ltd (the "General Partners"). The Partnership will continue until December 31, 2010 unless sooner terminated pursuant to the terms of the Partnership Agreement. On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic retail brokerage and asset management businesses to Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman Brothers Inc. changed its name to Lehman Brothers Inc. ("Lehman Brothers"). The transaction did not affect the ownership of the General Partners. However, the assets acquired by Smith Barney included the name "Hutton." Consequently, effective January 13, 1994, the Hutton Real Estate Services V, Inc. general partner changed its name to "RI 2 Real Estate Services, Inc." On March 15, 1996, based upon, among other things, the advice of Partnership counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a resolution that states, among other things, if a Change of Control (as defined below) occurs, the General Partners may distribute the Partnership's cash balances not required for its ordinary course day-to-day operations. "Change of Control" means any purchase or offer to purchase more than 10% of the Units that is not approved in advance by the General Partners. In determining the amount of the distribution, the General Partners may take into account all material factors. In addition, the Partnership will not be obligated to make any distribution to any partner and no partner will be entitled to receive any distribution until the General Partners have declared the distribution and established a record date and distribution date for the distribution. The Partnership filed a Form 8-K disclosing this resolution on March 21, 1996. 2. Significant Accounting Policies Financial Statements The consolidated financial statements include the accounts of the Partnership and its affiliated ventures. The effect of transactions between the Partnership and its ventures have been eliminated in consolidation. Real Estate Investments Real estate investments are recorded at cost less accumulated depreciation which includes the initial purchase price of the property, legal fees, acquisition and closing costs. Leases are accounted for under the operating method. Under this method, revenue is recognized as rentals are earned and expenses (including depreciation) are charged to operations when incurred. Leases are generally for terms of one year or less. Depreciation is computed using the straight-line method based upon the estimated useful lives of the properties. Maintenance and repairs are charged to operations as incurred. Significant betterments and improvements are capitalized and depreciated over their estimated useful lives. For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period. Accounting for Impairment In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"), which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flow estimated to be generated by those assets are less than the assets' carrying amount. FAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Partnership has adopted FAS 121 in the fourth quarter of 1995. Based on current circumstances, the adoption of FAS 121 had no impact on the financial statements. Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" ("FAS 107"), requires that the Partnership disclose the estimated fair values of its financial instruments. Fair values generally represent estimates of amounts at which a financial instrument could be exchanged between willing parties in a current transaction other than in forced liquidation. Fair value estimates are subjective and are dependent on a number of significant assumptions based on management's judgment regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. In addition, FAS 107 allows a wide range of valuation techniques, therefore, comparisons between entities, however similar, may be difficult. Other Assets Included in other assets are deferred mortgage costs incurred in connection with obtaining financing on four of the Partnership's properties. Such costs are amortized over the term of the loans. Offering Costs Costs relating to the sale of limited partnership units were deferred during the offering period and charged to the limited partners' capital accounts upon the consummation of the public offering. Income Taxes No provision for income taxes has been made in the financial statements since income, losses and tax credits are passed through to the individual partners. Cash and Cash Equivalents Cash equivalents consists of short-term highly liquid investments which have maturities of three months or less from the date of issuance. The carrying amount approximates fair value because of the short maturity of these instruments. Cash and cash equivalents include security deposits of $79,936 and $106,213 at December 31, 1995 and 1994, respectively, restricted under certain state statutes. Restricted Cash Restricted cash consists of escrows for real estate taxes, casualty insurance, and replacement reserves as required by the first mortgage lender in the amount of $651,661 and $779,328 at December 31, 1995 and 1994, respectively. Concentration of Credit Risk Financial instruments which potentially subject the Partnership to a concentration of credit risk principally consist of cash and cash equivalents in excess of the financial institutions' insurance limits. The Partnership invests available cash with high credit quality financial institutions. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. The Partnership Agreement The Partnership Agreement provides that net cash from operations, as defined, will be distributed quarterly, 90% to the limited partners and 10% to the General Partners. Net loss and all depreciation will be allocated 99% to the limited partners and 1% to the General Partners. Net income will generally be allocated in accordance with the distribution of net cash from operations. Net proceeds from sales or refinancing will be distributed 99% to the limited partners and 1% to the General Partners until each limited partner has received an amount equal to his adjusted capital value (as defined) and an annual, cumulative 7% return thereon. The balance, if any, will be distributed 85% to the limited partners and 15% to the General Partners. Gain from sales will be allocated to each partner having a negative capital account balance, pro-rata, to the extent of such negative balance. Thereafter, such gain will be allocated in accordance with the distribution of net proceeds from sale or refinancing, with the balance allocated to the limited partners. 4. Real Estate Investments Real estate investments consist of four residential apartment complexes acquired through investments in joint ventures as follows: Apartment Date Purchase Property Name Units Location Acquired Price Creekside Oaks 120 Jacksonville, FL 11/18/83 $ 5,960,045 Ponte Vedra Beach Village I 122 Ponte Vedra Beach, FL 2/10/84 6,804,000 Rancho Antigua 220 Scottsdale, AZ 3/8/84 10,873,757 Village at the 60 Tucson, AZ 2/27/85 3,623,741 Foothills I To each venture, the Partnership contributed the apartment projects as its initial capital contribution. On July 20, 1995, the Partnership sold Country Place Village I to an institutional buyer (the "Buyer"), which is unaffiliated with the Partnership. The selling price was determined by arm's length negotiations between the Partnership and the Buyer. Country Place Village I was sold for $3,665,000, which includes the assumption of the mortgage payable on Country Place Village I by the Buyer in the amount of $2,051,078. The Partnership received net proceeds of $1,522,242. On August 17, 1995, the Partnership paid a special distribution of $1,600,000 to the partners. The special distribution was comprised of net proceeds from the sale of Country Place Village I and Partnership cash reserves. The transaction resulted in a gain on sale of $232,402 which included a $69,926 write off of unamortized mortgage fees. The gain was allocated in accordance with the Partnership Agreement. The initial joint venture agreements of Country Place Village I, Creekside Oaks, Ponte Vedra Beach Village I, Village at the Foothills I and Rancho Antigua substantially provide that: a. Net cash from operations will be distributed 100% to the Partnership until it has received an annual, noncumulative 12% return on its adjusted capital contribution. Any remaining balance will be distributed 60% to the Partnership and 40% to the co-venturer. b. Net income of the joint venture and gain from sale will be allocated basically in accordance with the distribution of net cash from operations, as defined, and net proceeds from sales, respectively. All net losses will be allocated 98% to 100% to the Partnership depending on the joint venture agreement. c. Net proceeds from a sale or refinancing will be distributed 100% to the Partnership until it has received an amount equal to 120% of its adjusted capital contribution and an annual, cumulative 12% return on its adjusted capital contribution. Thereafter, the Partnership will receive approximately 50% to 75% of the balance depending on the joint venture agreement. The amended joint venture agreements and limited partnership agreements of Country Place Village I, Creekside Oaks, Ponte Vedra Beach Village I and Village at the Foothills I substantially provide that: a. Available cash from operations will be distributed 100% to the Partnership until it has received an annual, non-cumulative preferred return, as defined. Any remaining balance will be distributed 99% to the Partnership and 1% to the corporate General Partners. b. Net income will be allocated first, proportionately to partners with negative capital accounts, as defined, until such capital accounts, as defined, have been increased to zero. Then, to the Partnership up to the amount of any payments made on account of its preferred return; thereafter, 99% to the Partnership and 1% to the corporate General Partners. All losses will be allocated first, to the partners with positive capital accounts, as defined, until such accounts have been reduced to zero. Then 99% to the Partnership and 1% to the corporate General Partners. c. Income from a sale will be allocated first, to the Partnership until the Partnership's capital accounts, as defined, are equal to the fair market value of the ventures' assets at the date of the amendments. Then, any remaining balance will be allocated 99% to the Partnership and 1% to the corporate General Partners. Net proceeds from a sale or refinancing will be distributed first to the partners with a positive capital account balance, as defined; thereafter, 99% to the Partnership and 1% to the corporate General Partners. 5. Mortgages Payable On October 28, 1993, the extended maturity date, the Partnership obtained replacement financing on its Creekside Oaks, Ponte Vedra Beach I, Rancho Antigua and Country Place Village I properties from The Penn Mutual Life Insurance Company and a subsidiary, both unaffiliated parties. Total proceeds of $14,450,000 were received and collateralized by Mortgages and Security Agreements and Assignments of Rents and Leases Agreements encumbering the respective properties. Each of the loans is a non-recourse loan with periodic payments of principal and interest based on a twenty-five year amortization schedule with the balance of the principal due at maturity. On July 20, 1995, County Place Village I was sold and the underlying mortgage, in the amount of $2,051,078, was assumed by the Buyer. Mortgages payable at December 31, 1995, consist of the following first mortgage loans: Interest Maturity Property Principal Rate Date Creekside Oaks $ 2,568,141 7.75% 11/01/2000 Ponte Vedra Beach Village I $ 3,876,438 7.75% 11/01/2000 Rancho Antigua $ 5,523,925 7.75% 11/01/2000 The proceeds of this financing along with Partnership cash reserves were used to repay the outstanding amounts due Aetna Life Insurance Company on the Partnership's four prior mortgages. Interest Original Property Principal Rate Maturity Date Creekside Oaks $ 2,921,071 10.50% 05/01/93 Ponte Vedra Beach Village I $ 3,115,809 10.50% 05/01/93 Rancho Antigua $ 7,024,911 10.27% 05/20/93 Country Place Village I $ 2,531,595 10.50% 05/01/93 Partnership cash reserves were also used to pay refinancing expenses of $491,095 and fund escrows of $995,372. The escrowed funds are applied to the payment of taxes, insurance and repairs and improvements. Annual maturities of mortgage notes principal over the next five years are as follows: Year Amount 1996 $ 198,801 1997 214,768 1998 232,016 1999 250,650 2000 11,072,269 $ 11,968,504 Based on the borrowing rates currently available to the Partnership for mortgage loans with similar terms and average maturities, the fair value of long-term debt approximates carrying value. 6. Transactions With Related Parties The following is a summary of fees earned and reimbursable expenses for the years ended December 31, 1995, 1994, and 1993, and the unpaid portion at December 31, 1995: Unpaid at December 31, Earned 1995 1995 1994 1993 Reimbursement of: Out-of-pocket expenses $ ----- $ 2,577 $ 1,390 $ 82 Administrative salaries and expenses 16,500 62,150 46,124 38,103 Property operating salaries ----- 336,760 345,626 340,913 Property management fees 17,449 223,677 233,152 221,231 $ 33,949 $ 625,164 $ 626,292 $ 600,329 The above amounts have been paid and/or accrued to the General Partners and affiliates as follows: Unpaid at December 31, Earned 1995 1995 1994 1993 RI 2 Real Estate Services Inc. $ 16,500 $ 64,727 $ 47,514 $ 38,185 ConAm and affiliates 17,449 560,437 578,778 562,144 $ 33,949 $ 625,164 $ 626,292 $ 600,329 7. Reconciliation of Financial Statement and Tax Information The following is a reconciliation of the net income (loss) for financial statement purposes to net income (loss) for federal income tax purposes for the years ended December 31, 1995, 1994 and 1993: 1995 1994 1993 Net income (loss) per financial statements $ (112,522) $ 37,325 $ (527,539) Tax basis joint venture net loss in excess of GAAP basis joint venture net income (loss) (233,232) (270,609) (339,161) Gain on sale of property for tax purposes in excess of gain per financial statements 1,536,333 ----- ----- Other (5,457) (1,438) (5,603) Taxable net income (loss) $1,185,122 $(234,722) $ (872,303) The following is a reconciliation of partners' capital for financial statement purposes to partners' capital for federal income tax purposes as of December 31, 1995, 1994 and 1993: 1995 1994 1993 Partners' capital per financial statements $ 7,500,583 $ 10,028,661 $ 10,480,225 Adjustment for cumulative difference between tax basis loss and income (loss) per financial statements (4,793,353) (6,090,997) (5,818,950) Partners' capital per tax return $ 2,707,230 $ 3,937,664 $ 4,661,275 8. Distributions Paid Cash distributions, per the consolidated statements of partners' capital are recorded on the accrual basis, which recognizes specific record dates for payments within each calendar year. The consolidated statements of cash flows recognize actual cash distributions paid during the calendar year. The following table discloses the annual differences as presented on the consolidated financial statements: Distributions Distributions Payable Distributions Distributions Payable Beginning of Year Declared Paid December 31 1995 $244,445 $2,415,556 $2,460,001 $200,000 1994 ------- 488,889 244,444 244,445 1993 ------- ------- ------- ------- REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Hutton/ConAm Realty Investors 2: We have audited the consolidated balance sheets of Hutton/ConAm Realty Investors 2, a California limited partnership, and Consolidated Ventures as of December 31, 1995 and 1994, and the related consolidated statements of operations, partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1995. 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hutton/ConAm Realty Investors 2, a California limited partnership, and Consolidated Ventures as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Hartford, Connecticut February 1, 1996 Comparison of Acquisition Costs to Appraised Value and Determination of Net Asset Value Per $280 Unit at December 31, 1995 (Unaudited) Acquisition Cost (Purchase Price Partnership's Plus General Share of Partners' December 31, Acquisition 1995 Appraised Property Date of Acquisition Fees) Value (1) Creekside Oaks 11-18-83 $ 6,238,445 $ 5,450,000 Ponte Vedra Beach Village I 02-10-84 7,123,950 7,650,000 Rancho Antigua 03-08-84 11,446,176 11,700,000 Village at the Foothills I 02-27-85 3,756,741 2,300,000 $ 28,565,312 $ 27,100,000 Cash and cash equivalents 1,362,347 Other assets 10,183 28,472,530 Less: Total liabilities (12,430,116) Partnership Net Asset Value (2) $ 16,042,414 Net Asset Value Allocated: Limited Partners $ 15,800,007 General Partners 242,407 $ 16,042,414 Net Asset Value Per Unit (80,000 units outstanding) $ 197.50 (1) This represents the Partnership's share of the December 31, 1995 Appraised Values which were determined by an independent property appraisal firm. (2) The Net Asset Value assumes a hypothetical sale at December 31, 1995 of all the Partnership's properties at a price based upon their value as a rental property as determined by an independent property appraisal firm, and the distribution of the proceeds of such sale, combined with the Partnership's cash after liquidation of the Partnership's liabilities, to the Partners. Limited Partners should note that appraisals are only estimates of current value and actual values realizable upon sale may be significantly different. A significant factor in establishing an appraised value is the actual selling price for properties which the appraiser believes are comparable. In addition, the appraised value does not reflect the actual costs which would be incurred in selling the properties. As a result of these factors and the illiquid nature of an investment in Units of the Partnership, the variation between the appraised value of the Partnership's properties and the price at which Units of the Partnership could be sold may be significant. Fiduciaries of Limited Partners which are subject to ERISA or other provisions of law requiring valuations of Units should consider all relevant factors, including, but not limited to Net Asset Value per Unit, in determining the fair market value of the investment in the Partnership for such purposes. HUTTON/CONAM REALTY INVESTORS 2 and Consolidated Ventures Schedule III - Real Estate and Accumulated Depreciation December 31, 1995 Costs Capitalized Subsequent Initial Cost to Partnership To Acquisition Land, Buildings and Buildings and Description Encumbrances Land Improvements Improvements Residential Property: Consolidated Ventures: Creekside Oaks Jacksonville, FL $ 2,568,141 $ 400,317 $ 5,854,636 $ 248,258 Ponte Vedra Beach Village I Ponte Vedra Beach, FL 3,876,438 1,015,028 6,181,290 105,430 Rancho Antigua Scottsdale, AZ 5,523,925 3,490,498 7,975,346 100,653 Village at the Foothills I Tucson, AZ ------- 798,823 3,005,280 11,816 $ 11,968,504 $ 5,704,666 $ 23,016,552 $ 466,157 Gross Amount at Which Carried at Close of Period Buildings and Accumulated Description Land Improvements Total Depreciation Residential Property: Consolidated Ventures: Creekside Oaks Jacksonville, FL $ 403,193 $ 6,100,018 $ 6,503,211 $ 2,876,365 Ponte Vedra Beach Village I Ponte Vedra Beach, FL 1,045,472 6,256,276 7,301,748 2,953,265 Rancho Antigua Scottsdale, AZ 3,497,484 8,069,013 11,566,497 3,797,147 Village at the Foothills I Tucson, AZ 798,823 3,017,096 3,815,919 1,304,605 $ 5,744,972 $ 23,442,403 $ 29,187,375 $ 10,931,382 (1) (2) Life on which Depreciation in Latest Date of Date Income Statements Description Construction Acquired is Computed Residential Property: Consolidated Ventures: Creekside Oaks Jacksonville, FL 1982 11/18/83 (3) Ponte Vedra Beach Village I Ponte Vedra Beach, FL 1983 02/10/84 (3) Rancho Antigua Scottsdale, AZ 1984 03/08/84 (3) Village at the Foothills Tucson, AZ 1984 02/27/85 (3) (1) Represents aggregate cost for both financial reporting and Federal income tax purposes. (2) The amount of accumulated depreciation for Federal income tax purposes is $19,633,341 (3) Buildings and improvements - 25 years; personal property - 10 years. A reconciliation of the carrying amount of real estate and accumulated depreciation for the years ended December 31, 1995, 1994 and 1993 follows: Real Estate Investments: 1995 1994 1993 Beginning of year $ 34,056,223 $ 33,942,156 $ 33,907,445 Additions 199,476 114,067 34,711 Dispositions (5,068,324) End of year $ 29,187,375 $ 34,056,223 $ 33,942,156 Accumulated Depreciation: Beginning of year $ 11,699,378 $ 10,612,843 $ 9,527,665 Depreciation expense 1,029,336 1,086,535 1,085,178 Dispositions (1,797,332) -------- -------- End of year $ 10,931,382 $ 11,699,378 $ 10,612,843 Report of Independent Accountants Our report on the consolidated financial statements of Hutton/ConAm Realty Investors 2, a California limited partnership, and Consolidated Ventures has been incorporated by reference in this Form 10-K from the Annual Report to unitholders of Hutton/ConAm Realty Investors 2 for the year ended December 31, 1995. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Hartford, Connecticut February 1, 1996 EX-27 3 RI-2 FINANCIAL DATA SCHEDULE FOR 1995 FORM 10-K
5 12-MOS DEC-31-1995 DEC-31-1995 1,362,347 0 0 0 0 0 29,187,375 (10,931,382) 19,930,699 0 11,968,504 0 0 0 7,500,583 19,930,699 0 4,516,368 0 2,515,717 1,322,096 0 1,023,479 0 0 0 0 0 0 (112,522) (4.27) (4.27)
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