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. As of December 31, 1994, all of the proceeds available for investment in real estate were invested in four joint ventures and one limited partnership, each of which owns 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 will be the Registrant's long-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 begun marketing certain of the properties and recently entered into preliminary negotiations with an institutional buyer to sell Country Place Village I. There is no assurance that a sale will be completed or that any particular price for the properties can be obtained. 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 ne cessary, 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.
Since inception, the Registrant has acquired five residential apartment complexes (collectively, the "Properties") through investments in joint ventures and one limited partnership. As of December 31, 1994, 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; (4) Country Place Village I, an 88-unit apartment complex located in Clearwater, Florida; and (5) Village at the Foothills I, a 60-unit apartment complex located in Tucson, Arizona. See Item 2

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 on page 7 of the Partnership's Annual Report to Unitholders for the year ended December 31, 1994, which is filed as an exhibit under Item 14. Appraised values of the Partnership's real estate investments are incorporated by reference to page 14 of the Partnership's Annual Report to Unitholders. Average occupancy rates at each property are incorporated by reference to page 2 of the Partnership's Annual Report to Unitholders.
Country Place Village I - Clearwater, Florida This 88-unit apartment complex is situated in northeastern Clearwater, on the Gulf Coast west of Tampa. The Clearwater apartment market remains strong, with an overall average occupancy of 95% during the fourth quarter of 1994. High occupancy has permitted increases in rental rates at many complexes, and the limited availability of vacant land for new construction has constrained new development in the area.
Creekside Oaks - Jacksonville, Florida This 120-unit apartment complex is situated ten miles west of the Intracoastal Waterway in the Baymeadows/Deerwood section of southeast Jacksonville. Significant prior period overbuilding has left the Baymeadows/Deerwood area highly competitive for rental properties. Although market conditions have improved steadily over the past two years, many complexes continue to offer rental concessions to attract tenants. A survey of the Baymeadows/Deerwood submarket indicated average occupancy of area apartments has climbed to 93% as of the second quarter of 1994, and average rental rates had increased approximately 5% from a year earlier. Average occupancy is rising in the Jacksonville area, with the market in a recovery stage which is steady albeit slow. New construction, however, has remained limited, with no new permits issued in 1992 or 1993, and only 370 units permitted in 1994.
Ponte Vedra Beach Village I - Ponte Vedra Beach, Florida Ponte Vedra Beach, an oceanfront community in southeast Jacksonville, is the location of this 122-unit apartment complex. 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 1994. Construction of new apartments has been limited in recent years; however, two residential projects are planned which would add approximately 120 new units in the area. The completion date of these projects remains uncertain and land available for further apartment development is limited.
Rancho Antigua - Scottsdale, Arizona This 220-unit apartment community is located eight miles northeast of Phoenix in southwest Scottsdale. Strong population and job growth have characterized Phoenix in recent years, bringing about favorable market conditions for apartment complexes in the area. A survey of the Scottsdale/Paradise Valley submarket reported average occupancy of 96% as of the third quarter of 1994, and most area complexes have instituted rent increases in 1994. Construction, while limited in recent years, picked up in 1994 and eight projects in the Scottsdale/Paradise Valley submarket were in the planning or construction phase as of the third quarter of 1994. The new supply is likely to limit rental rate increases in the coming year, however, the area's strong population and job growth are expected to keep pace with new supply.
Village at the Foothills I - Tucson, Arizona This 60-unit apartment community is situated in the "foothills" section of Tucson. Tucson continues to experience brisk population and job growth, which have fueled strong demand for apartment housing in recent years. A local survey of metropolitan Tucson conducted in the fourth quarter of fiscal 1994 showed an average occupancy rate of 96% among multifamily properties with five or more units. While construction of new units has been minimal during the past four years, eight new complexes commenced construction in 1994. When completed, these projects can be expected to compete with Village at the Foothills I.
Four of the Partnership's five properties are encumbered by mortgage loans. See Note 5 to the Consolidated Financial Statements for a description of such mortgage financing.
Item 3.

Item 3. Legal Proceedings
The Registrant is not a party to, nor are any of the Properties the subject of, any material pending legal proceedings.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the year ended December 31, 1994, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise.
PART II
Item 5.

Item 5. Market for the Registrant's Limited Partnership Units and Related Security Holder Matters
As of December 31, 1994, the number of Unitholders of record was 4,264.
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. For a full accounting of the cash distributions paid to the Limited Partners during the past two years, reference is made to page 3 of the Partnership's Annual Report to Unitholders for the year ended December 31, 1994, which is filed as an exhibit under Item 14.
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. Although the loans were refinanced in October 1993, the amount of such refinancing proceeds was less than outstanding amounts due under the maturing loans. Partnership cash reserves were used to meet this shortfall and to pay mortgage fees and establish escrows required under the new loans. As these payments substantially depleted the Partnership's cash reserve, cash distributions remained suspended until the third quarter of 1994 at which time the General Partners determined that the cash reserve had increased to a level considered adequate to meet anticipated funding needs. Accordingly, cash distributions to investors were reinstated commencing with the third quarter 1994 distribution in the quarterly amount of $2.75 per Unit. The level of future distributions will be evaluated on a quarterly basis.
Item 6.

Item 6. Selected Financial Data
Incorporated by reference to page 3 of the Partnership's Annual Report to Unitholders for the year ended December 31, 1994, which is filed as an exhibit under Item 14.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
At December 31, 1994, the Partnership had cash and cash equivalents of $1,183,787 which was invested in unaffiliated money market funds, compared with $558,731 at December 31, 1993. The increase is primarily attributable to net cash from operations exceeding cash used for distributions, mortgage principal payments, building improvements and mortgage fees. The Partnership also maintained a restricted cash balance of $779,328 at December 31, 1994, compared with $781,463 at December 31, 1993. The restricted cash balance represents escrows for required insurance deductibles, real estate taxes, and property replacements and repairs, required under the terms of the current mortgage loans. 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 and recently entered into preliminary negotiations with an institutional buyer to sell Country Place Village I. There is no assurance that a sale will be completed or that any particular price for the property can be obtained. In the event that a sale is completed, the General Partners intend to distribute the net proceeds following a review of the Partnership's cash reserve requirements.
On October 28, 1993, the General Partners obtained replacement financing on the Partnership's mortgages secured by Creekside Oaks, Ponte Vedra Beach Village I, Country Place Village I and Rancho Antigua. Since the proceeds of the current mortgage loans were significantly less than the amounts due on the prior mortgages, the Partnership used cash reserves of approximately $1.1 million to pay down principal balances. Additionally, $491,095 of Partnership cash reserves was used to pay refinancing expenses, and $995,372 was used to fund various escrows required by the new lender. See Note 5 to the Consolidated Financial Statements for additional information concerning the terms of the replacement financing.
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. Although the loans were refinanced in October 1993, cash outlays associated with the refinancing discussed above substantially depleted the Partnership's cash reserve, and cash distributions remained suspended until the third quarter of 1994, at which time the General Partners determined that the cash reserve had increased to a level considered adequate to meet anticipated funding needs. Accordingly, quarterly cash distributions to investors were reinstated commencing with the third quarter 1994 distribution in the amount of $2.75 per Unit. The level of future distributions will be evaluated on a quarterly basis.
Results of Operations
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. After adding back depreciation and amortization, both non-cash expenses, and subtracting mortgage amortization, operations generated cash flow of $1,001,258 for the year ended December 31, 1994, compared with cash flow of $494,769 in 1993. The increase in cash flow and 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. 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 in 1993 relating to the attempt at securing a loan for the Village at the Foothills I.
1993 versus 1992
Partnership operations for the year ended December 31, 1993 resulted in a net loss of $527,539 compared with a net loss of $408,905 in 1992. After adding back depreciation and amortization, non-cash expenses, and subtracting mortgage amortization, operations generated cash flow of $494,769 in 1993 compared with cash flow of $560,889 in 1992. The reduced cash flow and larger net loss in 1993 are primarily a result of higher property operating costs and, to a lesser extent, higher interest expense, which more than offset increased rental income.
Rental income for the year ended December 31, 1993 was $4,429,975 compared with $4,251,122 in 1992. The approximate 4% increase in 1993 is primarily the result of higher rental income from the Rancho Antigua property, reflecting higher average occupancy during 1993.
Property operating expenses were $2,069,986 for the year ended December 31, 1993, compared with $1,829,468 for 1992. The increase primarily reflects higher repair and maintenance expenses at Creekside Oaks, Rancho Antigua and Country Place Village I. Interest expense totalled $1,686,402 for the year ended December 31, 1993, compared with $1,632,135 for the year ended December 31, 1992. The increase reflects the higher default interest rates which were applied to the Partnership's loans beginning at the time of their maturity in May 1993 through the closing of the refinancing in October. General and administrative expenses totalled $153,236 for the year ended December 31, 1993, compared with $179,752 for 1992. The decrease is primarily attributable to reduced legal fees and lower postage costs for investor reports.
The average occupancy levels at each of the Properties for the years ended December 31, 1994, 1993 and 1992, were as follows:
Twelve Months Ended December 31, Property 1994 1993 1992 Creekside Oaks 96% 94% 94% Ponte Vedra Beach Village I 96% 96% 96% Rancho Antigua 95% 95% 91% Country Place Village I 97% 95% 97% Village at the Foothills I 96% 96% 97%
Item 8.

Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 4 - 13 of the Partnership's Annual Report to Unitholders for the year ended December 31, 1994, which is filed as an exhibit under Item 14. Supplementary Data is incorporated by reference to page F - 1 of this report.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.

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 ages of, as well as the 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 Age Office
Paul L. Abbott 49 Director, President, Chief Financial Officer and Chief Executive Officer Janet M. Hoynes 30 Vice President Kate D. Hobson 28 Vice President
Paul L. Abbott 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.
Janet M. Hoynes is a Vice President at Lehman Brothers in the Diversified Asset Group and is responsible for asset management of residential real estate. Prior to joining Shearson in July 1989, she was employed as an analyst in a public real estate investment trust based in California. Ms. Hoynes received a B.A. in Economics from the State University of New York at Stony Brook in 1986.
Kate D. Hobson 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 ages of, as well as the 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 Age Office
Daniel J. Epstein 55 President and Director Nancie Larimore 55 Secretary/Treasurer and Director E. Scott Dupree 44 Vice President Robert J. Svatos 36 Vice President Ralph W. Tilley 40 Vice President
Daniel J. Epstein 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.
Nancie Larimore has been employed by ConAm Management or its affiliates since 1976 and has been a Vice President of ConAm Management (or its predecessor firm) and the Secretary/Treasurer and a Director of ConAm Development since their inception. Ms. Larimore's responsibilities include leasing, consumer relations, advertising and promotion. From 1972 to 1975, she held a similar position with American Housing Guild. From 1969 to 1972, she was Director of Property Management for Larwin Group, Inc. Ms. Larimore is a graduate of the University of California at Los Angeles, and holds a Master's of Business Administration degree from the University of California at Los Angeles.
E. Scott Dupree 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 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 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.
Certain Matters Involving Affiliates of RI 2 Services
On January 13, 1988, SLBP Acquisition Corp. (the "Purchaser"), a wholly-owned subsidiary of Shearson Lehman Brothers Holding Inc., acquired the right to purchase 29,610,000 shares of stock of the Hutton Group pursuant to a cash tender offer commenced on December 7, 1987. On January 21, 1988, the Purchaser assigned its right to purchase the shares so accepted to Shearson. Shearson purchased the 29,610,000 shares which constituted approximately 90% of the outstanding shares of the Hutton Group. Shearson subsequently acquired the remaining shares of the Hutton Group. Thus, the Hutton Group became a wholly-owned subsidiary of Shearson.
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.

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 transactions between the General Partners or their affiliates and the Registrant.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1994, no person was known by the Registrant to be the beneficial owner of more than five percent of the Units of the Registrant. Nancie Larimore, Secretary/Treasurer and a Director of ConAm Development, owned four Units as of December 31, 1994. No other directors or executive officers of the General Partners own any Units.
Item 13.

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, 1994, $3,732 of Registrant's net income was allocated to the General Partners ($2,488 to RI 2 Services and $1,244 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 local property managers, where appropriate, 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 for the year ended December 31, 1994, which is filed as an exhibit under Item 14.

Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a)(1) Financial Statements: Page
Consolidated Balance Sheets - December 31, 1994 and 1993 (1)
Consolidated Statements of Partners' Capital (Deficit) - For the years ended December 31, 1994, 1993 and 1992 (1) 		 Consolidated Statements of Operations - For the years ended December 31, 1994, 1993 and 1992 (1)
Consolidated Statements of Cash Flows - For the years ended December 31, 1994, 1993 and 1992 (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
Report of Independent Accountants
(1) Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1994 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, 1994.
(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)).
(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)(3) Reports on Form 8-K:
No reports on Form 8-K were filed in the fourth quarter of 1994.
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 28, 1995 HUTTON/CONAM REALTY INVESTORS 2 BY: RI 2 Real Estate Services Inc. General Partner
BY: /S/ Paul L. Abbot Name: Paul L. Abbott Title: Director, President, 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
BY: Continental American Development, Inc. General Partner
Date: March 28, 1995 BY: /S/ Paul L. Abbott Paul L. Abbott Director, President, Chief Executive Officer and Chief Financial Officer
Date: March 28, 1995 BY: /S/ Janet Hoynes Janet Hoynes Vice President
Date: March 28, 1995 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 28, 1995 BY: /S/ Daniel J. Epstein Daniel J. Epstein Director and President
Date: March 28, 1995 BY: /S/ Nancie Larimore Nancie Larimore Secretary/Treasurer and Director
Date: March 28, 1995 BY: /S/ E. Scott Dupree E. Scott Dupree Vice President
Date: March 28, 1995 BY: /S/ Robert J. Svatos Robert J. Svatos Vice President
Date: March 28, 1995 BY: /S/ Ralph W. Tilley Ralph W. Tilley Vice President
Hutton/ConAm Realty Investors 2
Exhibit 13
Hutton/ConAm Realty Investors 2
Annual Report 1994
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, 1994, the Partnership's portfolio consisted of five apartment properties located in Arizona and Florida.
		 Average Occupancy Property Location 1994 1993 _________________________________________________________________________ Country Place Village I Clearwater, Florida 97% 95% Creekside Oaks Jacksonville, Florida 96% 94% Ponta Vedra Beach Village I Ponte Vedra Beach, Florida 96% 96% Rancho Antigua Scottsdale, Arizona 95% 95% Village at the Foothills I Tucson, Arizona 96% 96% _________________________________________________________________________
Administrative Inquires Performance Inquires/Form 10-Ks Address Changes/Transfers The Shareholder Services Group Service Data Corporation P.O.Box 1527 2424 South 130th Circle Boston, Massachusetts 02104-1527 Omaha, Nebraska 68144 Attn: Financial Communications (800) 223-3464 (800) 223-3464
Contents
1 Message to Investors 2 Performance Summary 3 Financial Highlights 4 Consolidated Financial Statements 6 Notes to Consolidated Financial Statements 13 Report of Independent Accountants 14 Net Asset Valuation
Presented for your review is the 1994 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.
Cash Distributions Following an evaluation of the Partnership's cash reserves, anticipated cash flow and funding needs, the General Partners reinstated cash distributions to investors commencing with the 1994 third quarter distribution. A fourth quarter distribution, in the amount of $2.75 per Unit, was credited to your brokerage account or sent directly to you on February 6, 1995. Since inception, the Partnership has paid distributions totalling $299.19 per original $500 Unit, including $200 per Unit in return of capital payments. The level of future distributions will be evaluated on a quarterly basis and will be based on cash flow generated by the Partnership. Please see page 3 of this report for a summary of cash distributions paid for the past eight quarters.
Operations Overview The past year has witnessed a solid recovery of multifamily housing in most regions of the country. The improving economy and limited new construction in most areas have boosted occupancy levels and rental rates, while rising mortgage rates have curtailed renters from purchasing condominiums and single family homes. These favorable conditions are especially prevalent in the sunbelt states, which continue to benefit from long-term population growth.
Operating results at the Partnership's properties reflect these strengthening market conditions. Occupancy rates at each of the properties remained competitive with local averages during 1994, and all of the properties instituted rental rate increases on lease renewals resulting in a 5% increase in rental income. While construction of new units has picked up in several areas, positive demographic trends, especially in the Florida markets, are expected to keep pace with new supply. The General Partners intend to closely monitor these conditions and will continue to make select property improvements and age-related repairs to keep the Partnership's properties competitive with newer units.
Summary The healthy market conditions and strong performance of the Partnership's properties during 1994 bode well for their eventual sale. In light of these improving conditions the General Partners have begun marketing some of the properties and recently entered into preliminary negotiations with an institutional buyer to sell Country Place Village I. There can be no assurance that a sale will be completed or that any particular price for the property can be obtained. In the interim, the General Partners will continue to effectively manage the Partnership's properties by seeking to maintain high occupancy levels and implementing rental rate increases as conditions permit. We will keep you updated on developments affecting your investment in future reports.
Very truly yours,
Paul L. Abbott Daniel J. Epstein President President RI 2 Real Estate Services, Inc. Continental American Development Inc. General Partner of ConAm Property March 28, 1995 Services IV, Ltd.
Performance Summary
Country Place Village I, Clearwater, Florida. Located in the northeastern section of Clearwater, this 88-unit apartment complex boasted a 97% average occupancy rate in 1994, up two percent from 1993. The higher occupancy reflects an aggressive marketing campaign as well as strong market conditions in Clearwater. Average occupancy in the Clearwater area stood at 95% in the fourth quarter of 1994 and many area complexes, including Country Place Village I, have increased rents. Rental income at Country Place increased 8% over the previous year. Capital improvements during the year included carpet replacement and roof repairs.
Creekside Oaks, Jacksonville, Florida Creekside Oaks, a 120-unit apartment community, is situated in the Baymeadows-Deerwood neighborhood of southeast Jacksonville. Average occupancy levels at Creekside Oaks increased to 96% during 1994, resulting in a 5% increase in rental income from 1993. While rental rate increases are being implemented on renewals, market conditions in the Baymeadows-Deerwood area remain highly competitive as a result of significant prior-period overbuilding. Property improvements included roof replacement and related repairs, as well as selected exterior painting.
Ponte Vedra Beach Village I, Ponte Vedra Beach, Florida This 122-unit property is located in an oceanside residential area south of Jacksonville. Ponte Vedra Beach Village I reported stable occupancy of 96% during 1994, unchanged from 1993. Rental income increased 3%, reflecting rate increases on most units during the year. While the local rental market remains strong, planned construction of two residential projects will add approximately 120 new units in the area that are likely to compete with the Partnership's property. The completion date of these projects remains uncertain. Capital improvements during the year were minor and included the replacement of porches on select units.
Rancho Antigua, Scottsdale, Arizona Located approximately eight miles northeast of Phoenix, this 220-unit complex achieved average occupancy of 95% in 1994, unchanged from the prior year. The healthy local economy and strong market conditions for rental properties have permitted rental increases, resulting in a 6% increase in rental income from 1993. Construction, while limited in recent years, picked up in 1994 and eight new projects in the Scottsdale/Paradise Valley submarket were in the process of planning or construction as of the third quarter of 1994, according to an area survey. Capital improvements included carpet and tile upgrades and the replacement of aging appliances in certain units.
Village at the Foothills I, Tucson, Arizona This 60-unit apartment and townhouse community is located in the rugged Catalina Foothills, overlooking Tucson. Occupancy rates at this property remained steady in 1994, at 96%, and rental income increased 7% from 1993 as a result of rental increases instituted on all turnovers and renewals. While market conditions have improved notably in Tucson in recent years, eight new apartment complexes in the Foothills region recently commenced construction which are likely to provide strong competition when completed. Property improvements included carpet replacement in selected units, roof repairs and landscape upgrades.
Selected Financial Data
For the Periods Ended December 31, (dollars in thousands, except per Unit data)
1994 1993 1992 1991 1990 Total Income $4,718 $ 4,479 $ 4,316 $ 4,263 $ 4,182
Net Income (Loss) 37 (528) (409) (513) (523)
Net Cash Provided by (used for)Operating Activities 1,150 (180) 680 380 642 Long-term Obligations 14,219 14,418 15,636 15,750 15,853 Total Assets at Year End 24,772 25,237 26,946 27,579 28,807 Net Income (Loss) per Limited Partnership Unit 80,000 Units) .42 (6.53) (5.06) (6.34) (6.47) Distributions per Limited Partnership Unit (80,000 Units) 5.50 - - 5.20 2.20
Total income increased 5% from 1993 to 1994, primarily due to higher rental income at all of the Partnership's properties due to rental rate increases implemented during 1994.
The increase in net income and net cash provided by operating activities is attributable to the increase in rental income, as well as a decrease in interest expense due to a lower interest rate and a $1.1 million reduction of the Partnership's outstanding principal balance as a result of the replacement financing secured in late 1993. This decrease was partly offset by a 9% increase in property operating expense, reflecting higher repair and maintenance expenses and rental administration expense at Rancho Antigua.
Quarterly Cash Distributions Per Limited Partnership Unit 	 1994 1993 First Quarter $ - $ - Second Quarter - - Third Quarter 2.75 - Fourth Quarter 2.75 -
Total 5.50 0
Consolidated Balance Sheets December 31, 1994 and 1993
Assets 1994 1993
Investments in real estate: Land $6,797,328 $6,797,328 Buildings and improvements 27,258,895 27,144,828
34,056,223 33,942,156 Less- accumulated depreciation (11,699,378) (10,612,843)
22,356,845 23,329,313 Cash and cash equivalents 1,183,787 558,731 Restricted cash 779,328 781,463 Other assets, net of accumulated amortization of $88,397 in 1994 and $11,693 in 1993 452,164 567,953
Total Assets $24,772,124 $25,237,460
Liabilities and Partners' Capital
Liabilities: Mortgages payable $14,218,948 $14,418,254 Accounts payable and accrued expenses 106,337 165,903 Due to general partners and affiliates 40,523 36,907 Security deposits 133,210 136,171 Distribution payable 244,445 -
Total Liabilities 14,743,463 14,757,235
Partners' Capital (Deficit): General Partners (618,500) (573,343) Limited Partners 10,647,161 11,053,568
Total Partners' Capital 10,028,661 10,480,225
Total Liabilities and Partners' Capital $24,772,124 $25,237,460
Consolidated Statements of Partners' Capital (Deficit) For the years ended December 31, 1994, 1993 and 1992
General Limited Total Partners' Partners' Partners'
Balance at January 1, 1992 $(563,979) $11,980,648 $11,416,669 Net loss (4,089) (404,816) (408,905)
Balance at December 31, 1992 (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
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Operations For the years ended December 31, 1994, 1993 and 1992
	 Income 1994 1993 1992
Rental $4,669,676 $4,429,975 $4,251,122 Interest 48,289 48,981 65,327
Total Income 4,717,965 4,478,956 4,316,449
Expenses
Property operating 2,262,915 2,069,986 1,829,468 Depreciation and amortization 1,163,239 1,096,871 1,083,999 Interest 1,110,434 1,686,402 1,632,135 General and administrative 144,052 153,236 179,752
Total Expenses 4,680,640 5,006,495 4,725,354
Net income (loss) $37,325 $(527,539) $(408,905)
Net Income (Loss) Allocated:
To the General Partners $3,732 $(5,275) $(4,089) To the Limited Partners 33,593 (522,264) (404,816)
Net income (loss) $37,325 $(527,539) $(408,905)
Per limited partnership unit (80,000 outstanding) $.42 $(6.53) $(5.06)
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Cash Flows For the years ended December 31, 1994, 1993 and 1992
Cash Flows from Operating Activities: 1994 1993 1992
Net income (loss) $37,325 $(527,539) $(408,905) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 1,163,239 1,096,871 1,083,999 Increase (decrease) in cash arising from changes in operating assets and liabilities: Fundings to restricted cash (407,336) (1,057,502) - Release of restricted cash 409,471 276,039 - Other assets 6,310 (5,317) (658) Accounts payable and accrued expenses (59,566) 40,477 6,034 Due to general partners and affiliates 3,616 (11,199) 13,071 Security deposits (2,961) 7,848 (13,968)
Net cash provided by (used for) operating activities 1,150,098 (180,322) 679,573
Cash Flows from Investing Activities:
Additions to real estate (114,067) (34,711) - Acquisition of joint venture partner interests - - (36,764)
Net cash used for investing activities (114,067) (34,711) (36,764)
Cash Flows from Financing Activities:
Distributions (244,444) - (115,556) Mortgage principal payments (199,306) (15,667,949) (114,205) 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 (410,975) (1,783,675) (229,761)
Net increase (decrease) in cash and cash equivalents 625,056 (1,998,708) 413,048 Cash and cash equivalents at beginning of year 558,731 2,557,439 2,144,391
Cash and cash equivalents at end of year $1,183,787 $558,731 $2,557,439
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $1,110,434 $1,686,402 $1,632,135
Supplemental Disclosure of Cash and Non-Cash Investing Activities:
During the year ended December 31, 1992, the Partnership purchased the Joint Venture Partner interest of the co-venturers to Country Place Village I Joint Venture, Creekside Oaks Joint Venture, Ponte Vedra Beach Village I Joint Venture, and Village at the Foothills I Joint Venture. The Creekside Oaks Joint Venture included a minority interest of $10,500. Total consideration of $35,000 was paid for the purchase of such interest. In addition, $12,264 of legal costs were incurred as a result of this transaction, resulting in a net building basis adjustment of $36,764.
See accompanying notes to the consolidated financial statements.
Notes to the Consolidated Financial Statements For the years ended December 31, 1994, 1993 and 1992
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 business 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."
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 the lower of cost or net realizable value 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.
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 date of issuance. Cash and cash equivalents include security deposits of $106,213 and $104,508 at December 31, 1994 and 1993, respectively, restricted under certain state statutes.
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.
Restricted Cash Consists of escrows for real estate taxes, casualty insurance, and replacement reserves as required by the first mortgage lender.
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 five 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
Country Place Village I 88 Clearwater, FL 4/13/84 4,732,000
Village at the Foothills I 60 Tucson, AZ 2/27/85 3,623,741
To each venture, the Partnership contributed the apartment projects as its initial capital contribution.
On July 1, 1992, a Settlement Agreement was executed by and among the Partnership, Hutton/ConAm Realty Investors 81, Hutton/ConAm Realty Investors 3, Hutton/ConAm Realty Investors 4, Hutton/ConAm Realty Investors 5, as Managing Joint Venturers, and Epoch Properties, Inc., James H. Pugh, Jr. and John McClintock, Jr., as the Epoch Joint Venturers (the Epoch Joint Venturers being collectively referred to herein as "Epoch"), the Partnership's partners and co-venturers in Country Place Village I, Creekside Oaks, Ponte Vedra Beach Village I, and Village at the Foothills I.
Pursuant to the Settlement Agreement, the Partnership paid $35,000 to Epoch. Epoch withdrew as a partner in the respective Joint Ventures which owned Country Place Village I, Creekside Oaks, Ponte Vedra Beach Village I, and Village at the Foothills I. General Releases were executed between the Partnership, the Joint Ventures, Epoch and Epoch Management Corporation. While the title to these properties continues to be held by the respective Joint Ventures and limited partnership, the Partnership and its General Partners are the sole co-venturers and partners.
In the cases of Country Place Village I, Creekside Oaks, and Ponte Vedra Beach Village I, the Joint Venture form was retained. The Partnership has entered into amended and restated Agreements of General Partnership, dated as of July 1, 1992 with its two corporate General Partners, RI 2 Real Estate Services, Inc. and ConAm Property Services II, Ltd. In the case of Village at the Foothills I, the joint venture has been converted to a limited partnership. The Partnership has entered into an amended and restated Agreement of Limited Partnership, dated as of July 1, 1992 with its two corporate General Partners, RI 2 Real Estate Services, Inc. and ConAm Property Services II, Ltd., as General Partners and the Partnership as the sole limited partner. There has been no interruption in either management or operating activities of the Partnership as a result of this Agreement.
The initial joint venture agreements of Country Place Village I, Creekside Oaks, Ponte Vedra Beach Village I, Village at the Foothills 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. Mortgages payable, at December 31, 1994, consist of the following first mortgage loans:

Interest Maturity Property Principal Rate Date
Creekside Oaks $2,607,627 7.75% 11/01/2000 Ponte Vedra Beach Village I $3,936,041 7.75% 11/01/2000 Rancho Antigua $5,608,858 7.75% 11/01/2000 Country Place Village I $2,066,422 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.
Original Interest Maturity Property Principal Rate 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
1995 $215,313 1996 232,605 1997 251,287 1998 271,468 1999 293,272 Thereafter 12,955,003
$14,218,948
6. Transactions with related Parties The following is a summary of fees earned and reimbursable expenses for the years ended December 31, 1994, 1993, and 1992, and the unpaid portion at December 31, 1994:
Unpaid at December 31, Earned 1994 1994 1993 1992
Reimbursement of: Out-of-pocket expenses $ - $1,390 $82 $1,918 Administrative salaries and expenses 20,612 46,124 38,103 43,632 Property operating salaries - 345,626 340,913 321,580
Property management fees 19,911 233,152 221,231 213,597
$40,523 $626,292 $600,329 $580,727
The above amounts have been paid and/or accrued to the General Partners and affiliates as follows:
Unpaid at December 31, Earned 1994 1994 1993 1992
RI 2 Real Estate Services, Inc. $20,612 $47,514 $38,185 $45,550
ConAm and affiliates 19,911 578,778 562,144 535,177
$40,523 $626,292 $600,329 $580,727
7. Reconciliation of Financial Statement and Tax Information The following is a reconciliation of the net income (loss) for financial statement purposes to net loss for federal income tax purposes for the years ended December 31, 1994, 1993 and 1992:
1994 1993 1992
Net income (loss) per financial statements $37,325 $(527,539) $(408,905)
Tax basis joint venture net loss in excess of GAAP basis joint venture net income (loss) (241,789) (339,161) (474,069)
Other (1,438) (5,603) 10,172
Taxable net loss $(205,902) $(872,303) $(872,802)
The following is a reconciliation of partners' capital for financial statement purposes to partners' capital for federal income tax purposes as of December 31, 1994, 1993 and 1992:
1994 1993 1992
Partners' capital per financial statements $10,028,661 $10,480,225 $11,007,764
Adjustment for cumulative difference between tax basis loss and income (loss) per financial statements (6,062,177) (5,818,950) (5,474,186)
Partners' capital per tax return $3,966,484 $4,661,275 $5,533,578
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
1994 $- $488,889 $244,444 $244,445 1993 - - - - 1992 115,556 - 115,556 -
9. Supplementary Information Maintenance and repairs, advertising costs, and real estate taxes included in property operating expenses for the years ended December 31, 1994, 1993 and 1992 are as follows:
1994 1993 1992
Maintenance and repairs $857,988 $734,408 $588,786 Advertising costs 53,878 52,017 49,607 Real estate taxes 403,670 395,830 370,950
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut March 9, 1995
Comparison of Acquisition Costs to Appraised Value and Determination of Net Asset Value Per $300 Unit at December 31, 1994 (Unaudited)
Acquisition Cost (Purchase Price Partnership's Plus General Share of Partners' December 31, Acquisition 1994 Appraised Property Date of Acquisition Fees) Value (1)
Creekside Oaks 11-18-83 $6,238,445 $5,200,000 Ponte Vedra Beach Village I 02-10-84 7,123,950 7,150,000 Rancho Antigua 03-08-84 11,446,176 11,200,000 Country Place Village I 04-13-84 4,968,222 3,800,000 Village at the Foothills I 02-27-85 3,756,741 2,400,000
$33,533,534 $29,750,000
Cash and cash equivalents 1,963,115 Other assets 10,183
31,723,298 Less: Total liabilities (14,743,463)
Partnership Net Asset Value (2) $16,979,835
Net Asset Value Allocated: Limited Partners $16,810,037 General Partners 169,798
$16,979,835
Net Asset Value Per Unit (80,000 units outstanding) $210.13
(1) This represents the Partnership's share of the December 31, 1994 Appraised Values which were determined by an independent property appraisal firm.
(2) The Net Asset Value assumes a hypothetical sale at December 31, 1994 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, 1994
Cost Capitalized Subsequent Initial Cost to Partnership To Acquisition
Buildings and Buildings and Description Encumbrances Land Improvements Improvements
Residential Property: Consolidated Ventures:
Creekside Oaks Jacksonville, FL $2,607,627 $400,317 $5,854,636 $72,152
Ponte Vedra Beach Village I Ponte Vedra Beach, FL 3,936,041 1,015,028 6,181,290 105,430
Rancho Antigua Scottsdale, AZ 5,608,858 3,490,498 7,975,346 77,283
Country Village Place I Clearwater, FL 2,066,422 1,049,122 3,955,178 64,025
Village at the Foothills I Tucson, AZ - 798,822 3,005,280 11,816
$14,218,948 $6,753,787 $26,971,730 $330,706
HUTTON/CONAM REALTY INVESTORS 2 and Consolidated Ventures
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1994
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 $5,923,912 $6,327,105 $2,633,273
Ponte Vedra Beach Village I Ponte Vedra Beach, FL 1,045,472 6,256,276 7,301,748 2,702,791
Rancho Antigua Scottsdale, AZ 3,497,484 8,045,643 11,543,127 3,471,611
Country Village Place I Clearwater, FL 1,052,357 4,015,968 5,068,325 1,707,965
Village at the Foothills I Tucson, AZ 798,822 3,017,096 3,815,918 1,183,738
$6,797,328 $27,258,895 $34,056,223 $11,699,378
(1) (2)
HUTTON/CONAM REALTY INVESTORS 2 and Consolidated Ventures
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1994
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)
Country Place Village I Clearwater, FL 1984 04/13/84 (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 $21,675,619. (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, 1994, 1993 and 1992:
Real Estate investments: 1994 1993 1992
Beginning of year $33,942,156 $33,907,445 $33,870,681 Additions 114,067 34,711 36,764
End of year $34,056,223 $33,942,156 $33,907,445
Accumulated Depreciation:
Beginning of year $10,612,843 $9,527,665 $8,443,666 Depreciation expense 1,086,535 1,085,178 1,083,999
End of year $11,699,378 10,612,843 $9,527,665

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, 1994. 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 March 9, 1995