UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number: 0-11085 HUTTON/CONAM REALTY INVESTORS 2 Exact name of Registrant as specified in its charter California 13-3100545 State or other jurisdiction of I.R.S. Employer Identification No. incorporation or organization 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 herein by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1996. 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 sold one property in 1995 and intend to sell the remaining properties over the next few years. 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, 1996, 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, 1996, 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, 1996, 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, 1996, which is filed as an exhibit under Item 14. Creekside Oaks - Jacksonville, Florida Creekside Oaks is a 120-unit apartment community situated in the Baymeadows-Deerwood neighborhood of southeast Jacksonville. The Southeast submarket, where Creekside Oaks is located, 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 Southeast submarket reported an average apartment occupancy rate of 95.4% as of the second quarter of 1996. The use of rental concessions in the market is minimal. Given the strong market conditions, several apartment projects are in the planning or construction phase. During 1995, 953 new units were permitted for construction with an additional 1,597 units permitted through the second quarter of 1996. Despite the rise in new units which could be added to the market, strong absorption in the submarket due to the area's increasing popularity is expected to ameliorate the adverse effects the new construction could have on the market. Ponte Vedra Beach Village I - Ponte Vedra Beach,Florida This 122-unit property is located in an oceanside residential area south of Jacksonville, Florida. 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 93.2% in the second quarter of 1996. The use of rental concessions in the market is minimal. Given the strong market conditions, several apartment projects are in the planning or construction phase. Additionally, three apartment complexes containing a total of 631 units were recently completed which is expected 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 experienced continued strong competition during 1996, reflecting high levels of construction in the area and notable competition from condominiums and single family houses as affordable prices and low mortgage rates entice renters to buy. City-wide, 5,229 apartment units were permitted during the first six months of 1996, 1,938 of these in the Scottsdale submarket and 1,042 of these had been completed or were currently under construction. Although vacancy rates in Phoenix and the Scottsdale submarket remained low in 1996, declining to 4.4% and 3.5% as of the second quarter, respectively, vacancies are expected to increase with the new construction. While the area's strong population and job growth are likely to absorb much of this new supply, competition for tenants is expected to remain strong. 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. While Tucson's economy began to slow in 1995 and 1996, construction of multifamily properties has increased significantly. The addition of new properties is beginning to put downward pressure on occupancy rates and limiting rental rate increases. The increased competition has also led to the reemergence of rental incentives. In addition, the multifamily market has been unfavorably impacted by relatively low interest rates which has made home ownership a viable alternative for renters. A local survey of metropolitan Tucson conducted in the second quarter of 1996 showed an average occupancy rate of 88.9% among multifamily properties, down from 91.1% during the same period in 1995. In the Catalina Foothills submarket, where Village at the Foothills I is located, occupancy rates declined from 91% in the second quarter of 1995 to 84.5% in the same period in 1996. 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 The Registrant is not subject to any material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of the year ended December 31, 1996, 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, 1996, the number of Unitholders of record was 4,055. 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, 1996, 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, 1996, 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, 1996, the Partnership had cash and cash equivalents of $962,290, which were invested in unaffiliated money market funds, an increase from $710,686 at December 31, 1995. The increase is attributable to cash provided by operating activities exceeding cash used for distributions, mortgage principal payments, and additions to real estate. The Partnership also maintains a restricted cash balance, which totaled $317,268 at December 31, 1996, representing escrows for insurance, and real estate taxes 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 completed work by the lender, the balance of the repair escrow totaling $354,675 was returned to the Partnership. The Partnership expects sufficient cash to be generated from operations to meet its current operating expenses and debt service requirements. The General Partners continually perform various improvements at the properties. During the fourth quarter of 1996 these repairs included unit interior repairs at each of the four properties, roof repairs at Rancho Antigua, plumbing and asphalt work at Creekside Oaks, and irrigation repairs at Ponte Vedra Beach Village I. Other repair work was also performed to prepare vacant units for reoccupancy. Existing problems with the roofs at Ponte Vedra Beach Village I were aggravated by severe tropical rain storms late in 1996. After evaluating the damages, the General Partners received several competitive bids to repair the roofs, and subsequently selected a contractor. The roof repairs are currently underway and are scheduled to be completed this year. The anticipated cost of repairing the roofs is approximately $400,000. The General Partners declared a cash distribution of $2.25 per Unit for the quarter ended December 31, 1996 which was paid to investors on February 5, 1997. 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. In order to fund the costs of the roof repairs at Ponte Vedra Beach Village I, the General Partners are considering reducing or temporarily suspending cash distributions. Given the performance of the Partnership's properties, and the improvement in the real estate capital markets which has increased demand by potential buyers, the General Partners have determined that it is in the best interest of the Partnership to attempt to sell the remaining four properties in an orderly manner over the next few years. Assuming these efforts are successful, the General Partners expect to distribute the sales proceeds and subsequently dissolve the Partnership in 1998 or 1999. However, meeting this objective will be dependent upon a variety of factors, many of which are not within the Partnership's control. Consequently, there can be no assurance that any specific property or all the properties can be sold, that particular prices will be achieved, or that all the properties can be sold within this time frame. On March 15, 1996, based upon, among other things, the advice of legal 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. Results of Operations 1996 versus 1995 Partnership operations for the year ended December 31, 1996 resulted in a net loss of $2,600, compared with a net loss of $112,522 in 1995. 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. The decline in net loss is primarily the result of a decline in property operating expenses and other expense categories due to the sale of Country Place Village I in July 1995. Rental income totaled $4,264,370 for the year ended December 31, 1996 compared with $4,448,549 in 1995. 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 Creekside Oaks, Rancho Antigua and Ponte Vedra Beach Village I, primarily reflecting rental rate increases instituted during the year. Property operating expenses totaled $2,222,474 for the year ended December 31, 1996, compared with $2,515,717 in 1995. The decrease is primarily due to the sale of Country Place Village I, and lower repairs and maintenance expenses at Creekside Oaks. This was partially offset by an increase in repairs and maintenance expenses at Ponte Vedra Beach Village I. Interest expense and depreciation and amortization expense both decreased from 1995, primarily due to the sale of Country Place Village I. General and administrative expense totaled $181,896 for the year ended December 31, 1996 compared with $222,881 for the year ended December 31, 1995. The decrease primarily reflects a reduction in legal expenses and lower Partnership administrative expenses in the 1996 period. 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 was 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 was 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 was 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. The average occupancy levels at each of the properties for the years ended December 31, 1996, 1995 and 1994 were as follows: Twelve Months Ended December 31, Property 1996 1995 1994 Creekside Oaks 94% 93% 96% Ponte Vedra Beach Village I 95% 96% 96% Rancho Antigua 94% 92% 95% Village at the Foothills I 94% 95% 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, 1996, which is filed as an exhibit under Item 14. Supplementary Data is incorporated by reference to pages F-1 and F-2 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 David Sclafani Vice President Paul L. Abbott, 51, 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, 40, 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. David Sclafani, 24, is an Associate of Lehman Brothers Inc. Mr. Sclafani joined Lehman Brothers in March 1996 and is responsible for the investment management and restructuring of various limited partnerships holding multi-family real estate. Prior to joining Lehman Brothers, Mr. Sclafani worked in the real estate finance department of a major foreign bank managing performing and non-performing loans. Mr. Sclafani holds a B.S. Degree in Finance from Siena College in Loudonville, N.Y. 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, 57, 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, 46, is a Senior 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, 38, is a Senior 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, 42, is a Senior 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, 39, currently serves as an Executive 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, 1996, no person was known by the Registrant to be the beneficial owner of more than five percent of the Units of the Registrant. No directors or executive officers of the General Partners own any Units. Item 13. Certain Relationships and Related Transactions RI 2 Services and ConAm Services each received $40,000 as its allocable share of Net Cash From Operations with respect to the year ended December 31, 1996. Pursuant to the Amended and Restated Certificate and Agreement of Limited Partnership of the Registrant, for the year ended December 31, 1996, $26 of Registrant's net loss was allocated to the General Partners ($13 to RI 2 Services and $13 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 for the year ended December 31, 1996, 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, 1996, which is filed as an 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, 1996 and 1995 (1) Consolidated Statements of Partners' Capital (Deficit) - For the years ended December 31, 1996, 1995 and 1994 (1) Consolidated Statements of Operations - For the years ended December 31, 1996, 1995 and 1994 (1) Consolidated Statements of Cash Flows - For the years ended December 31, 1996, 1995 and 1994 (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 on Schedule III F-2 (1) Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1996 filed as an exhibit under Item 14. (a)(3) Exhibits: (3) 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). (4) 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, 1996. (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, 1995, 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 1996. 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, 1997 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, 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, 1997 BY: /S/ Paul L. Abbott Paul L. Abbott Director, President,Chief Executive Officer and Chief Financial Officer Date: March 27, 1997 BY: /S/ Donald Petrow Donald Petrow Vice President Date: March 27, 1997 BY: /S/ David Sclafani David Sclafani 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, 1997 BY: /S/ Daniel J. Epstein Daniel J. Epstein Director and President Date: March 27, 1997 BY: /S/ E. Scott Dupree E. Scott Dupree Vice President/Director Date: March 27, 1997 BY: /S/ Robert J. Svatos Robert J. Svatos Vice President/Director Date: March 27, 1997 BY: /S/ Ralph W. Tilley Ralph W. Tilley Vice President Date: March 27, 1997 BY: /S/ J. Bradley Forrester J. Bradley Forrester Vice President