FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 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 33-13983 ASSOCIATED PLANNERS REALTY GROWTH FUND (Exact name of registrant as specified in its charter) CALIFORNIA 95-4119808 (State or other Jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5933 W. CENTURY BLVD., SUITE 900 LOS ANGELES, CALIFORNIA 90045 (Address of principal executive offices) (Zip Code) (310) 670-0800 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) 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 ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) ITEM 1. FINANCIAL STATEMENTS In the opinion of the General Partner of Associated Planners Realty Growth Fund (the "Partnership"), all adjustments necessary for a fair presentation of the Partnership's results for the three and six months ended June 30, 1996 and 1995 have been made in the following financial statements which are normal and recurring in nature. However, such financial statements are unaudited and are subject to any year-end adjustments that may be necessary. BALANCE SHEETS JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 JUNE 30, DECEMBER 31, 1996 1995 ASSETS REAL ESTATE, net of accumulated depreciation (Notes 2 & 3) $1,260,088 $1,285,445 CASH AND CASH EQUIVALENTS 18,326 --- OTHER RECEIVABLES 3,784 26,329 OTHER ASSETS 10,014 16,289 $1,292,212 $1,328,063 LIABILITIES AND PARTNERS' EQUITY PAYABLE TO AFFILIATES $ 219,990 $ 240,095 BANK OVERDRAFT --- 328 OTHER ACCRUED LIABILITIES 146,403 35,336 NOTE PAYABLE - RELATED PARTY (Note 4(d)) 150,000 150,000 SECURITY DEPOSITS AND PREPAID RENTS 20,559 25,977 NOTE PAYABLE (Note 3) 1,674,918 1,676,385 2,211,870 2,128,121 MENTS AND CONTINGENCIES PARTNERS' EQUITY: Limited Partner: $1,000 stated value per unit; authorized 10,000 units; issued - 2,061 (902,496) (784,092) General Partner: (17,162) (15,966) TOTAL PARTNERS EQUITY (919,658) (800,058) $1,292,212 $1,328,063 [FN] See accompanying notes to financial statements. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' EQUITY SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) LIMITED PARTNERS GENERAL TOTAL UNITS AMOUNT PARTNER BALANCE, DECEMBER 31, 1995 $(800,058) 2,061 $(784,092) $(15,966) Net loss (119,600) --- (118,404) (1,196) BALANCE, JUNE 30, 1996 $(919,658) 2,061 $(902,496) $(17,162) SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED) LIMITED PARTNERS GENERAL TOTAL UNITS AMOUNT PARTNER BALANCE, DECEMBER 31, 1994 $1,301,837 2,061 $1,296,785 $5,052 Net loss (68,811) --- (68,123) (688) BALANCE, JUNE 30, 1995 $1,233,026 2,061 $1,228,662 $4,364 [FN] See accompanying notes to financial statements. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS ENDED ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1996 1995 1996 1995 REVENUES: Rental $61,635 $65,438 $118,597 $121,315 Interest 89 41 95 91 61,724 65,479 118,692 121,406 COSTS AND EXPENSES: Operating 42,387 19,248 76,029 38,662 Property taxes 2,610 4,495 5,220 8,990 Property management fees 3,117 2,678 5,750 4,977 Interest 68,639 42,360 114,923 83,975 General & administrative 10,665 10,199 20,530 20,415 Depreciation & amortization 7,920 16,599 15,840 33,198 135,338 95,579 238,292 190,217 NET LOSS $(73,614) $(30,100) $(119,600) $(68,811) NET LOSS PERR LIMITED PARTNERSHIP UNIT $(35.36) $(14.46) $(57.45) $(33.05) [FN] See accompanying notes to financial statements. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited) SIX MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, 1996 1995 Cash flow from operating activities: Net Loss $(119,600) $(68,811) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization 15,840 33,198 Accrued interest on notes payable 92,847 --- Increase (decrease) from changes in: Other receivables and assets 38,337 17,609 Accounts payable (2,213) 21,928 Security deposits and prepaid rent (5,418) 796 Net cash provided by operating activities 19,793 4,720 Cash flows from financing activities: Repayments on note payable (1,467) (7,776) Net cash (used in) financing activities (1,467) (7,776) Net increase (decrease) in cash & cash equivalents 18,326 (3,056) Cash and cash equivalents at beginning of period --- 5,657 CASH AND CASH EQUIVALENTS AT END OF PERIOD$18,326 $2,601 [FN] See accompanying notes to financial statements. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) SUMMARY OF ACCOUNTING POLICIES BUSINESS Associated Planners Realty Growth Fund (the "Partnership"), a California limited partnership, was formed on March 9, 1987 under the Revised Limited Partnership Act of the State of California. The Partnership met its minimum funding of $1,200,00 on August 29, 1988 and terminated its offering on September 5, 1989. The Partnership was formed to acquire income-producing real property throughout the United States with emphasis on properties located in California and southwestern states. The Partnership intends to purchase such properties by borrowing up to an aggregate of fifty percent of the purchase price of such properties and intends to own and operate such properties for investment over an anticipated holding period of approximately five to ten years. BASIS OF PRESENTATION The financial statements do not give effect to any assets that the partners may have outside of their interest in the partnership, nor to any personal obligations, including income taxes, of the partners. The Partnership's financial statements for the six months ended June 30, 1996 have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Partnership has suffered recurring loses from operations and has a net capital deficiency of $919,658 at June 30, 1996. The deficiency is attributable to a $1,912,727 impairment loss recognized in the fourth quarter of 1995 on the difference between the carrying amount of rental real estate and the fair value of such real estate less the costs to sell. The Partnership plans to seek relief from the debt holder, while at the same time seeking to enhance the value of the property by increasing occupancy and contracting long-term leases. Failure to obtain additional funding from the General Partner, relief from the lender, or significantly improved operations could result in the eventual loss of the building through foreclosure proceedings. NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" (SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is effective for financial statements for fiscal years beginning after December 15, 1995. The new standard establishes new guidelines regarding when impairment losses on long-lived assets, which include plant and equipment, and certain identifiable intangible assets, should be recognized and how impairment losses should be measured. At the beginning of the fourth quarter of 1995, the Partnership elected the early adoption of SFAS NO. 121. Prior to the adoption of SFAS No. 121, real estate was carried at the lower of cost of net realizable value. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) SUMMARY OF ACCOUNTING POLICIES RENTAL REAL ESTATE AND DEPRECIATION Assets are stated at the lower of cost or market. Depreciation is computed using the straight-line method over estimated useful lives ranging from 31.5 to 40 years for financial reporting and income tax reporting purposes. In the event that facts and circumstances indicate that the cost of an asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the carrying amount to determine if a write-down to market value is required. Prior to the adoption of SFAS 121, the Partnership would not record an impairment in the value of properties unless circumstances and surrounding facts dictated that the value of the property could not possibly be recovered upon future sale. Prior to 1995, there were no circumstances or facts that dictated the recording of an impairment in value. LOAN ORIGINATION FEES Loan origination fees are capitalized and amortized over the life of the loan. LEASE COMMISSIONS Lease commissions which are paid to real estate brokers for locating tenants are capitalized and amortized over the life of the lease. RENTAL REVENUE Rental revenue is recognized on a straight-line basis to the extent that rental revenue is deemed collectible. STATEMENTS OF CASH FLOWS For purposes of the statements of cash flows, the Partnership considers cash in the bank and all highly liquid investments purchased with original maturities of three months or less to be cash and cash equivalents. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting priciples requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 1995 NOTE 1 - NATURE OF PARTNERSHIP The Partnership began accepting subscriptions in October 1987 and closed the offering on September 5, 1989. The Partnership began operations in September 1988. Under the terms of the partnership agreement, the General Partners (West Coast Realty Advisors, Inc., and W. Thomas Maudlin, Jr.) are entitled to cash distributions from 10% to 15%. The General Partners are also entitled to net income or loss allocations varying from 1% to 15% in accordance with the partnership agreement. Further, the General Partners will receive acquisition fees for locating and negotiating the purchase of rental real estate, management fees for operating the Partnership and a commission on the sale of the partnership properties. NOTE 2 - RENTAL REAL ESTATE The Partnership owns the following two rental real estate properties - one wholly-owned and a 10% undivided interest in the other property. Location (Property Name) Date Purchased Original Cost Santa Ana, California November 17, 1989 $ 3,228,102 San Marcos, California January 9, 1990 311,878 The major categories of property are: June 30, 1996 December 31, 1995 Land $519,777 $519,777 Building and Improvements 796,951 806,468 1,316,728 1,326,245 Less accumulated depreciation 56,640 40,800 Net rental real estate 1,260,088 1,285,445 ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 1995 (CONTINUED) NOTE 2- RENTAL REAL ESTATE (CONTINUED) A significant portion of the Partnership's rental revenue was earned from tenants whose individual rents represent more than 10% of total rental revenue. Specifically: One tenant accounted for 50% in 1996; Two tenants accounted for 14% and 41%, respectively, in 1995. In December 1994, the County of Orange (where the Santa Ana Building is located) declared bankruptcy due to large losses in connection with unauthorized derivative and bond investment activity. The County's problems had a trickle down effect on the entire area as a large number of businesses dependent upon County purchases went out of business or moved away. This put further pressure on all commercial property owners to further lower rents to attract or retain tenants. The Partnership saw the negative cash flow situation on the Santa Ana Building worsen as a result of these problems. In December 1995, the property tax assessment on the Santa Ana, California office building was significantly reduced. It is the intention of the General Partner to sell the Santa Ana property when it is reasonably feasible. The Partnership determined that the total expected future cash flows from operations and disposition of the property are less than the carrying value of the property. Therefore the property was deemed to be impaired. As a result, an impairment loss of $1,912,727 was recorded, measured as the amount by which the carrying amount of the asset exceeded its fair value, less costs to sell. Fair value was determined based on comparable sales. The Partnership intends to continue to annually assess the carrying values of its long-lived assets. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) AND YEAR ENDED DECEMBER 31,1995 (CONTINUED) NOTE 3 - NOTE PAYABLE The Partnership has a 9.75% promissory note payable secured by a Deed of Trust. This note is due January 1, 2000, and provides significant prepayment penalties. Payments are made in monthly installments of $15,088 including principal and interest. The outstanding balance is $1,674,918 and $1,676,385 at June 30, 1996 and December 31, 1995. The carrying amount is a reasonable estimate of fair value of notes payable because the interest rates approximate the borrowing rates currently available for mortgage loans with similar terms and average maturities. The aggregate annual future maturities at June 30, 1996 are as follows: Amount 1996 $ 15,344 1997 20,129 1998 22,182 1999 24,443 2000 1,592,820 Total $1,674,918 NOTE 4 - RELATED PARTY TRANSACTIONS (a) For administrative services rendered by the corporate General Partner, in accordance with the partnership agreement, the Partnership incurred $6,000 for the six months ended June 30, 1996 and June 30, 1995 and $3,000 for the quarter ending June 30, 1996 and 1995 for these services. These costs were unpaid as of June 30, 1996. (b) Property management fees incurred in accordance with the partnership agreement with West Coast Realty Management, Inc., ("WCRM") an affiliate of the corporate General Partner, totaled $5,750 for the six months ended June 30, 1996, and $4,977 for the six months ended June 30, 1995, $3, 117 for the three months ended June 30, 1996 and $2,678 for the three months ended June 30, 1995. These costs were unpaid as of June 30, 1996. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 1995 (CONTINUED) NOTE 4 - RELATED PARTY TRANSACTIONS (CONTINUED) (c) During the year ended December 31, 1990, the Partnership, in a joint venture with Associated Planners Realty Income Fund (an affiliate), purchased a one-story office building located in San Marcos, California (Note 2). The acquisition was paid for entirely in cash totaling $3,119,000 of which $311,900 was provided by the Partnership and $2,807,100 by Associated Planners Realty Income Fund. The Partnership owns a 10% interest in this joint venture. (d) The Partnership has a note payable to a General Partner of $150,000 at December 31, 1995 and June 30, 1996. The note bears interest of 7.5% and is payable in equal installments of principal and interest amortized over a 10 year period, with all remaining unpaid interest and principal due on May 1, 1997. Accrued interest payable on the note was $102,188 and $90,938 as of June 30, 1996 and 1995, respectively. (e) Related party accounts payables are as follows: JUNE 30, 1996 DECEMBER 31, 1995 West Coast Realty Advisors 133,184 108,408 West Coast Realty Management 86,806 81,056 Associated Financial Group, Inc. --- 50,631 $219,990 $240,095 NOTE 5 - NET LOSS AND CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT The Net Loss per Limited Partnership Unit was computed in accordance with the partnership agreement using the weighted average number of outstanding Limited Partnership Units of 2,061 for 1996 and 1995. No distributions were made in 1996 or 1995. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 1995 (CONTINUED) NOTE 6 - FOURTH QUARTER ADJUSTMENT - 1995 In the fourth quarter of 1995 the Partnership recorded an adjustment to the carrying value of rental real estate to recognize an impairment loss of $1,912,727 as discussed in Note 2. NOTE 7 - SUBSEQUENT EVENT - PARK CENTER OFFICE BUILDING FORECLOSURE On March 4, 1996 the Partnership requested that the lender re-structure the loan on the Park Center Office Building. On April 4, 1996, the Partnership received a reply from the lender denying the request to modify the loan and also notified the Partnership that an event of default had occurred under the deed of trust securing the loan due to the Partnership's nonpayment of the March 1, 1996 loan payment. The Partnership also did not make the loan payments due April 1, May 1, June 1, July 1, or August 1, 1996. The Partnership anticipates that the Lender and the Partnership will execute a deed-in-lieu-of-foreclosure, in connection with the Parkcenter Office Building, if the Partnership and Lender can come to an agreement regarding the terms of such transaction. It is anticipated that the ParkCenter Office Building will be conveyed to the lender in the latter half of the third calendar quarter of 1996. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION Associated Planners Realty Growth Fund (the "Partnership") was organized in December 1986, under the California Revised Limited Partnership Act. The Partnership began offering units for sale on October 20, 1987. As of December 31, 1989, the Partnership had raised $2,061,000 in gross capital contributions. The Partnership netted approximately $1,820,000 after sales commissions and syndication costs. The Partnership was organized for the purpose of investing in, holding, and managing improved, leveraged income-producing property, such as residential property, office buildings, commercial buildings, industrial properties, and shopping centers. The Partnership intends to own and operate such properties for investment over an anticipated holding period of approximately five to ten years. The Partnership's principal investment objectives are to invest in rental real estate properties which will: (1) Preserve and protect the Partnership's invested capital; (2) Provide for cash distributions from operations; (3) Provide gains through potential appreciation; and (4) Generate Federal income tax deductions so that during the early years of property operations, a portion of cash distributions may be treated as a return of capital for tax purposes and, therefore, may not represent taxable income to the limited partners. The ownership and operation of any income-producing real estate is subject to those risks inherent in all real estate investments, including national and local economic conditions, the supply and demand for similar types of properties, competitive marketing conditions, zoning changes, possible casualty losses, increases in real estate taxes, assessments, and operating expenses, as well as others. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Partnership is operated by West Coast Realty Advisors, Inc. ("WCRA") (the corporate General Partner) and Mr. W. Thomas Maudlin Jr. (an individual General Partner), collectively the "General Partner," subject to the terms of the Amended and Restated Agreement of Limited Partnership. The Partnership has no employees, and all administrative services are provided by WCRA, the corporate General Partner. LIQUIDITY AND CAPITAL RESOURCES In reading the discussion of operations, the reader should understand that the Partnership has a 100% interest in an office building in Santa Ana, California, and a 10% interest in a commercial building in San Marcos, California. The results of the Partnership's operations have been dominated by the results of operations for the Santa Ana building; thus, the discussion of the Partnership's results of operations will emphasize the operations of that building. Due to the recurring losses from operations and a net capital deficiency of $800,058 at December 31, 1995, the Partnership's independent certified public accountants have included an explanatory paragraph in their report at December 31, 1995 stating that these factors raise substantial doubt as to Partnership ability to continue as a going concern. From 1992 to 1994, the overall operations of the Partnership gradually improved; however, the Partnership continued to generate net losses and negative cash flows. (These negative cash flows first started appearing in calendar 1991). For example, the net loss for 1993 of $123,357 was $17,737 (13%) less than the $141,094 net loss for 1992, while the negative cash flow (net loss excluding depreciation and amortization) dropped from $70,738 to $54,276, a $16,462 (23%) decrease. Progress continued in 1994, with the net loss of $115,143 that year being $8,214 (7%) less than that for 1993, and the negative cash flow dropping to $47,779, a $6,497 (12%) decrease from 1993's level. Despite these improvements, the fact remained that the Partnership's operations were still insufficient to support the Company without cooperation from the General Partner in deferring collection of various management fees, interest expense, and overhead cost allocations. As of June 30, 1996, the amount payable to the General Partner and its affiliates for deferred fees, overhead expense allocations, cash advances, and interest on those advances, was $219,990. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Partnership intends to sell the Santa Ana property when conditions, at a minimum, would result in the full payment of the outstanding debt on the property. At this time, those conditions are not being met. In the absence of an impairment in the value of the property, foreclosure by the lender is inevitable. 1995 was a turning point in terms of the viability of the Partnership. Although the general economy in which the Santa Ana building is located was generally poor from 1990 to 1994, the operations of the Partnership's building were still somewhat stable (if not overly profitable) as explained above. However, in December of 1994, the County of Orange (in which the Santa Ana Building is located) declared bankruptcy due to large losses in connection with unauthorized derivative and bond investment activity. The County's problems had a trickle down effect on the entire area as a large number of small businesses dependent upon County purchases went out of business or moved away. This put further pressure on all commercial property owners to further lower rents to attract or retain tenants. The Partnership saw the negative cash flow situation on the Santa Ana building worsen as a result of these problems. On July 31, 1995, at the Partnership's request, the holder of the first deed of trust on the Santa Ana property agreed to provide relief to the Partnership by deferring collection of debt payments due on the loan for September 1995 to January 1996. The General Partner used this opportunity to improve the liquidity of the Partnership, and to allow for the implementation of necessary capital improvements to the Property. However, the relief offered by the lender in the latter part of 1995 and the first month of 1996 was not sufficient to improve the operating results for the Partnership. Largely as a result of the economic problems in Orange County, the net loss from operations for the Partnership increased to $189,168 -- a $74,025 (64%) increase in loss. Cash basis loss (net loss from operations plus depreciation expense) increased from $47,779 to $122,772 -- a $74,993 (157%) increase. In addition, during the fourth quarter of 1995, despite the Partnership's best efforts to enhance the value of the property with tenant improvements and greater occupancy, it was determined that the surrounding economic conditions of the area dictated a thorough review of the carrying value of the property. Using recent comparative building sales data for the general area in which the building is located, it was determined that a $1,912,727 impairment loss in the value of the building should be recorded on the Partnership's Statement of Loss for 1995. This loss is unrealized, and thus does not flow through to the partners for tax purposes, and may not flow through until the Park Center Office Building is sold or otherwise disposed of. This allowance, in itself, does not directly affect the liquidity of the Partnership, which as previously set forth, is extremely poor. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) This impairment in value means that the equity of the Partnership is now a deficit, and the sale of the Santa Ana property would probably result in less proceeds than what is currently outstanding on the first deed of trust attached to the building. In February 1996, the Partnership failed to make the first payment due following the debt relief period granted by the holder of the first deed of trust. The Partnership again approached the holder of the first deed of trust to attempt to obtain additional debt relief. The holder of the note declined to provide additional relief, and demanded immediate payment of the installment due to prevent immediate foreclosure of the property. The Partnership met this demand and default provisions were not instituted. The General Partner has made no commitment at this time concerning the availability of further cash advances to the Partnership. The Partnership will continue to seek relief from the debt holder, while at the same time seeking to enhance the value of the property by increasing occupancy and contracting long term leases. Failure to obtain additional funding from the General Partner, relief from the lender, or significantly improved operations could result in the eventual loss of the building through foreclosure proceedings. Management intends upon increasing occupancy at the Santa Ana property by offering concessions to potential long term tenants (such as free rent, no security deposit requirement, generous leasehold improvement allowances) and by offering to pay local brokers a higher commission for bringing in qualified, long-term tenants. This plan is intended to enable the Partnership to operate during the twelve month period following December 31, 1995, and to operate beyond that 1996 twelve month period as well. However, there is no assurance that this plan will be successful. On March 4, 1996 the Partnership requested that the lender re-structure the loan on the Park Center Office Building. On April 4, 1996, the Partnership received a reply from the lender denying the request to modify the loan and also notified the Partnership that an event of default had occurred under the deed of trust securing the loan due to the Partnership's nonpayment of the March 1, 1996 loan payment. The Partnership also did not make the loan payments due April 1, and May 1, June 1, July 1 and August 1, 1996. The Partnership anticipates that the Lender and the Partnership will execute a deed-in-lieu-of-foreclosure, in connection with the Parkcenter Office Building, if the Partnership and Lender can come to an agreement regarding the terms of such transaction. It is anticipated that the ParkCenter Office Building will be conveyed to the lender in the latter half of the third calendar quarter of 1996. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Management uses cash as its primary measure of a partnership's liquidity. The amount of cash that represents adequate liquidity for a real estate limited partnership depends on several factors. Among them are: 1. Relative risk of the partnership; 2. Condition of the partnership's properties; 3. Time in the partnership's life cycle (e.g., money-raising, acquisition, operating or disposing phase) and 4. Partner distributions. Due to the large amount of vacancies, general economic problems in the area, and an increase in maintenance and repair expenses at the Santa Ana Property, the 3% reserve remained depleted during the six months ended June 30, 1996. In addition, the General Partner has made loans to the Partnership and deferred collection of miscellaneous amounts owed to it by the Partnership. For this reason, there were no distributions made to the limited partners during the six months ended June 30, 1996. It is the Partnership's intention to eliminate partner distributions until such time as the reserves are built back up to acceptable levels and various deferred liabilities due to the Advisor and its affiliates are paid. It is uncertain at this point how long it will take the Partnership to rebuild cash reserves and operate profitably on a cash basis; however, the possibility of partners receiving future cash distributions or a significant portion of their original investment back is considered remote. The Partnership's ability to meet cash requirements in the short-run is dependent upon the willingness of the General Partner and its affiliates to defer collection of amounts due for property management fees and overhead allocations, advance cash as needed for ongoing operating expenses, and the stabilization of the tenant base and rental rates at the Santa Ana property. In addition, the retention of the Santa Ana property, or the minimization of cash losses in connection with its operation, is largely dependent upon the consummation of successful negotiations with the Lender. The ability of the General Partner to make advances to the Partnership is also dependent upon the liquidity of the Parent company of the General Partner. The General Partner is a wholly owned subsidiary of Associated Financial Group (the "Parent"), which consolidated, as of December 31, 1995, had $6.2 million in assets, $2.1 million in cash and cash equivalents, and $3.3 million in equity, and had net income of $.2 million for the year ended December 31, 1995. In addition, the General Partner must be willing to make advances, and as of June 30, 1996, the General Partner has no future commitments to do so. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) In the long run, the Partnership's cash requirements will be further affected by the need to pay off the Deed of Trust that secures the Santa Ana property. This note is due on January 1, 2000, and is projected to have a balance of approximately $1,592,820 at that time (assuming the property is not deeded back to the lender or the loan is not re-negotiated). A sale or refinance of the property will be necessary prior to that date. The Partnership has a 10% interest in a building in San Marcos, California. In February 1995, the building was leased to a tenant at a rate 70% of the previous rental rate. Because the Partnership has such a small percentage interest in this property, the decrease in rent resulted in only a $750 per month decrease in cash flow. This particular decrease is not expected to have a material impact on operations. The San Marcos property has no debt financing and there are currently no plans by the Partnership or Associated Planners Realty Income Fund to seek financing on that jointly owned property. In the short-term, the fact that this property has a quality tenant and operates under a triple net lease, allows the Partnership to collect a nominal amount of cash from the operations of this property. In the long-run, the Partnership expects to benefit from the sale of this property when it is sold. The General Partner anticipates that the San Marcos property will be sold prior to the year 2000. The condition of the properties is relatively good, therefore there are no unusually large capital improvements or repair costs that would further deplete the cash reserves. The Tax Reform Acts of 1986 and 1987 and the Revenue Reconciliation Acts of 1990 and 1993 did not have a material impact on the Partnership's operations. During the years of the Partnership's existence, inflationary pressures in the U.S. economy have been minimal, and this has been consistent with the experience of the Partnership in operating rental real estate in California. The Partnership has clauses in its leases with some of its properties' tenants that will help alleviate some of the negative impact of inflation. However, the lack of inflation is hurting the Partnership due to the stagnation of office rental rates. There are currently no plans for any material renovation, improvement or further development of the properties. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS-SIX MONTHS ENDED JUNE 30, 1996 Operations for the six months ended June 30, 1996 and 1995 reflect a full six months of rental activities for the Partnership's properties. For the six months ended June 30, 1996, the return on funds invested in property was -1.8% vs. -.2% in the six months ended June 30, 1995. Rental revenue decreased $2,718 (2%) for the six months ending June 30, 1996 vs. June 30, 1995, as a result of timing differences in the recognition of revenue. Interest expense increased $30,948 (37%) due to an increase in the size of monthly mortgage obligations on the note payable that is attributable to the Partnerships deferral of the mortgage payments in 1995 and 1996. Operating expenses increased $37,367 (97%) due to increased maintenance expenses incurred in order to improve the appearance of the Santa Ana Building. The cash basis loss for the six months ended June 30, 1996 was $103,760 vs. $35,613 for the six months ended June 30, 1995. This loss continued to push the Partnership close to default on its ability to meet its current loan and property tax obligations. As previously discussed, continual support from the lender and/or the General Partner and its affiliates will be necessary to avoid foreclosure of the Partnership's primary real estate asset. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS-SIX MONTHS ENDED JUNE 30, 1996 (CONT.) During the six months ended June 30, 1996, $19,793 in cash was provided by operating activities. This resulted from an $38,337 decrease in receivables and other assets (primarily due to the write-off of prepaid insurance and amortization of repairs and maintenance costs incurred in 1995) plus $92,847 increase in accrued interest on notes payable (resulting from the relief the Partnership received in making payments on the debt), offset by the net cash basis loss of $103,760 from operations (net loss plus depreciation expense) plus a decrease in accounts payable of $2,213 (primarily resulting a decrease in normal trade payables) and a $5,418 decrease in security deposits and prepaid rent, (due to a security deposit refund paid to a vacating tenant during the six months ending June 30, 1996). In contrast, during the six months ending June 30, 1995, $4,720 was provided by operating activities. This resulted primarily from a $17,609 decrease in other assets (primarily the result of a decrease in prepaid insurance balance) plus a $21,928 increase in accounts payable (resulting from payments due to third-party vendors being postponed until later periods), offset by the net cash basis loss of $35,613 from operations. There were no investing activities during the six months ending June 30, 1996 and 1995 by the Partnership; in recent years, some cash had been used for capital improvements to the properties. Financing activities resulted in a use of cash of $1,467 for the six months ended June 30, 1996 in connection with the Partnership's debt payment on the Santa Ana Building. In contrast, $7,776 was used in financing activities for the six months ended June 30, 1995 in connection with debt payments on the Santa Ana Building. Cash increased a net $18,326 as a result of the net cash provided by operating activities for the six months ended June 30, 1996. The number of limited partnership units outstanding remained at 2,061. ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) PART II O T H E R I N F O R M A T I O N ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K (a) Information required under this section has been included in the financial statements. (b) Reports on Form 8-K. None ASSOCIATED PLANNERS REALTY GROWTH FUND (A CALIFORNIA LIMITED PARTNERSHIP) S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ASSOCIATED PLANNERS REALTY GROWTH FUND A California Limited Partnership (Registrant) August 14, 1996 By: WEST COAST REALTY ADVISORS, INC. A California Corporation, A General Partner Neal E. Nakagiri Vice President/Secretary August 14, 1996 Michael G. Clark Vice President/Treasurer