American Entertainment Partners II L.P. (the "Partnership") is a limited
partnership formed in 1986 for the purpose of contributing funds to a
joint venture (the "Joint Venture") with Twentieth Century Fox Film
Corporation ("Fox"). The Joint Venture acquired interests in ten
feature-length motion pictures. The Partnership receives a percentage of
the revenue generated by the films as they are distributed in different
markets. To date, cumulative cash distributions total approximately
$1,104 per $1,000 Unit, representing approximately 110% of an investor's
original investment.
Films in Release Release Date
Predator June 1987
Revenge of the Nerds II July 1987
The Pick-Up Artist September 1987
Less Than Zero November 0000
Xxxx Xxxxxx December 1987
Broadcast News December 1987
Off Limits March 1988
Bad Dreams April 1988
Big June 1988
Alien Nation October 1988
Contents
1 Message to Investors
2 Financial Overview
3 Financial Statements
6 Notes to the Financial Statements
8 Report of Independent Auditors
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
0000 Xxxxx 000xx Xxxxxx Xxxxxx, Xxxxxxxxxxxxx 00000-0000
Xxxxx, Xxxxxxxx 00000-0000 Attn: Financial Communications
000-000-0000 000-000-0000
Message to Investors
Presented for your review is the 1996 Annual Report for American
Entertainment Partners II L.P. This report provides an update on
the status of the Partnership's investment in the Joint Venture
films, financial highlights and the Partnership's audited
financial statements for the year ended December 31, 1996.
The Partnership continued to collect revenues from its interests
in the Joint Venture films during 1996. Currently, the Joint
Venture films generate revenues predominantly in domestic and
foreign television syndication markets, which typically represent
the final markets to be exploited in a film's life cycle.
Through October 31, 1996, the Partnership had received payments
totaling $30,011,983 as compared to an original contribution
after expenses to the Joint Venture of $20,552,271. As discussed
in prior reports, due to the mature stage of the films future
revenues received by the Partnership will most likely decline.
Cash Distributions
The Partnership's annual distribution for 1996, in the amount of
$27.60 per $1,000 Unit, was paid to Limited Partners in February
1997. Cumulative cash distributions to date total $1,103.84 per
$1,000 Unit, which represents approximately 110% of an investor's
original investment. Currently, cash distributions are paid on
an annual basis. The Partnership's next cash distribution will
be paid to investors in early 1998.
Based upon current projections of future revenue, the General
Partner estimates that investors will recover approximately 113%
of their original investment in the Partnership, including the
distributions which have been paid to date. Please note that
this projected return is based on estimates which the General
Partner believes to be reasonable. Such estimates, however, are
subject to change.
Outlook
Pursuant to the terms of the Joint Venture Agreement, Fox's right
to purchase the Partnership's interest in the Joint Venture films
at an appraised fair market value determined by an independent
appraisal will commence on December 31, 1997. At this time, Fox
has given the Partnership no indication that it intends to
exercise this option. Consequently, the Partnership will focus
its efforts on maximizing the return on your investment and
continue to make cash distributions from available cash flow on
an annual basis. We will update you on the Partnership's status
in future correspondence.
Very truly yours,
AEP Premiere Corporation II
General Partner
/s/ Xxxxx Xxxxxx
Xxxxx Xxxxxx
President
March 14, 1997
Financial Overview
Graph detailing amounts contributed by the Partnership to the Joint Venture and
cumulative payments received by the Partnership from Fox through October 31,
1996. Graph content follows:
Films in Release
Cumulative payments
received from Amount contributed
Fox through to Joint Venture
October 31, 1996
Predator $ 2,626,000 $ 1,170,000
Revenge of the Nerds II 679,000 497,000
The Pick-up Artist 464,000 806,000
Less Than Zero 2,515,000 4,105,000
Wall Street 2,002,000 889,000
Broadcast News 1,373,000 1,333,000
Off Limits 497,000 595,000
Bad Dreams 781,000 1,388,000
Big 15,487,000 6,185,000
Alien Nation 3,590,000 3,590,000
Financial Highlights (in thousands except per Unit data)
Years Ended December 31,
1996 1995 1994 1993 1992
Revenues from
motion picture
exploitation $ 675 $ 520 $ 1,027 $ 936 $ 975
Net Income 399 243 601 413 589
Net Income per
Limited Partnership
Unit 15.68 9.14 23.74 16.27 22.94
Total Assets 1,377 2,345 2,893 2,914 2,618
Total Liabilities 1,015 1,685 1,031 860 370
Total Partners'
Capital 362 660 1,862 2,054 2,248
Cash Distributions/
Unit (1) (2) (3)
First Quarter - - - - -
Second Quarter - - - - 48.24
Third Quarter - - - - -
Fourth Quarter 27.60 57.25 31.39 24.05 12.77
Totals 27.60 57.25 31.39 24.05 61.01
(1) Cash distributions were paid to investors on an annual
basis during 1993, 1994, 1995 and 1996. All future
distributions will be paid on an annual basis.
(2) Cash distributions were paid to investors on a
semiannual basis during 1992.
(3) Distributions paid to investors on a per Unit basis
in 1987, 1988, 1989, 1990 and 1991 totaled $31.60,
$310.86, $204.41, $265.40 and $90.27, respectively.
The financial data set forth above reflects the Partnership's pro rata share of
all assets, liabilities, revenues and expenses of the Joint Venture.
Balance Sheets At December 31, At December 31,
(000's Omitted) 1996 1995
Assets
Cash and cash equivalents $ 1,315 $ 2,085
Motion picture released, net of
accumulated amortization of $21,081
in 1996 and $21,031 in 1995 62 112
Receivable from Twentieth Century Fox _ 148
Total Assets $ 1,377 $ 2,345
Liabilities and Partners' Capital
Liabilities:
Distribution payable $ 697 $ 1,445
Accrued management fees 200 200
Accounts payable and accrued expenses 26 40
Unearned motion picture revenue 92 _
Total Liabilities 1,015 1,685
Partners' Capital:
General Partner _ _
Limited Partners (25,000 outstanding) 362 660
Total Partners' Capital 362 660
Total Liabilities and Partners' Capital $ 1,377 $ 2,345
Statements of Partners' Capital
(000's Omitted)
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partners Total
Balance at December 31, 1993 $ _ $ 2,054 $ 2,054
Net Income 8 593 601
Distributions (8) (785) (793)
Balance at December 31, 1994 _ 1,862 1,862
Net Income 14 229 243
Distributions (14) (1,431) (1,445)
Balance at December 31, 1995 _ 660 660
Net Income 7 392 399
Distributions (7) (690) (697)
Balance at December 31, 1996 $ _ $ 362 $ 362
Statements of Operations
(000's Omitted- except unit information)
For the years ended December 31, 1996 1995 1994
Net Revenues
Revenues from motion picture exploitation $ 675 $ 520 $ 1,027
Less: Amortization of motion picture costs 50 33 164
Net Revenues 625 487 863
Other Income (Expenses)
Interest Income 37 36 20
Professional fees (19) (34) (33)
General and administrative (44) (46) (49)
Management fees (200) (200) (200)
Net Other Expenses (226) (244) (262)
Net Income $ 399 $ 243 $ 601
Net Income Allocated:
To the General Partner $ 7 $ 14 $ 8
To the Limited Partners 392 229 593
$ 399 $ 243 $ 601
Per limited partnership unit
(25,000 outstanding) $ 15.68 $ 9.14 $ 23.74
Statements of Cash Flows
(000's Omitted)
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities
Net Income $ 399 $ 243 $ 601
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of motion picture costs 50 33 164
Increase (decrease) in cash arising
from changes in operating assets
and liabilities
Receivable from Twentieth Century Fox 148 1,227 (35)
Accounts payable and accrued expenses (14) 1 (14)
Unearned motion picture revenue 92 _ _
Net cash provided by operating activities 675 1,504 716
Cash Flows From Financing Activities
Cash distributions (1,445) (792) (608)
Net cash used for financing activities (1,445) (792) (608)
Net decrease (increase) in cash and
cash equivalents (770) 712 108
Cash and cash equivalents, beginning
of period 2,085 1,373 1,265
Cash and cash equivalents, end of period $ 1,315 $ 2,085 $ 1,373
Notes to the Financial Statements
December 31, 1996, 1995 and 1994
1. Organization
American Entertainment Partners II L.P. (the "Partnership") is a limited
partnership which was organized December 19, 1986 under the laws of the State
of Delaware to produce, finance, acquire interests in and exploit feature
length motion picture films through its participation in Amercent Films II (the
"Joint Venture"), a Joint Venture with Twentieth Century Fox Film Corporation
("Fox").
AEP Premiere Corporation II, formerly Shearson Xxxxxx Premiere Corporation II,
is the general partner (the "General Partner") of the Partnership and is an
affiliate of Xxxxxx Brothers. On July 31, 1993, certain of Shearson Xxxxxx
Brothers, Inc.'s domestic retail brokerage and management businesses were sold
to Xxxxx Xxxxxx, Xxxxxx Xxxxx & Co., Inc. Included in the purchase was the
name "Shearson." Consequently, the General Partner's name was changed to AEP
Premiere Corporation II to delete any reference to "Shearson."
A public offering (the "Offering") of depositary units of limited partnership
interests (the "Units") was completed in June 1987 by the Partnership. A total
of 25,000 Units were sold totaling approximately $24,940,000 representing
24,403.5 Units at $1,000 per Unit and 596.5 Units at $900 per Unit purchased by
the parent company of the General Partner (which amount represents a price of
$1,000 per Unit less selling commission of $100 per Unit which was not payable
by the Partnership on these Units).
2. Significant Accounting Policies
Basis of Accounting
The accompanying financial statements have been prepared on the accrual basis
of accounting in accordance with generally accepted accounting principles.
Revenues are recognized as earned and expenses are recorded as obligations are
incurred.
Revenue Recognition
Net revenues from motion picture exploitation consist of the Partnership's pro
rata share of revenues from the licensing of film exhibition rights, less
related expenses for prints and advertising, other distribution expenses,
participations to third parties and distribution fees, unless deferred (see
Note 6).
Cash Equivalents
Cash equivalents consist of short-term highly liquid investments with
maturities of three months or less from the date of issuance. The carrying
amount approximates fair value because of the short maturity of these
instruments.
Concentration of Credit Risk
Financial instruments which potentially subject the Partnership to a
concentration of credit risk principally consist of cash in excess of the
financial institutions' insurance limits. The Partnership invests available
cash with high credit quality financial institutions.
Amortization of Motion Picture Costs
Costs, including production administration fees, which benefit future periods
are capitalized. Amortization is computed under the individual-film-forecast
method based upon net revenues recognized in proportion to the Joint Venture's
estimate of ultimate net revenues to be received. Unamortized costs are
compared with net realizable value on a film by film basis, and losses are
recognized to the extent costs exceed estimated net realizable value.
Income Taxes
No provision for income taxes has been made in the financial statements since
such taxes are the responsibility of the individual partners rather than that
of the Partnership.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Partnership Allocations
The Partnership Agreement ("Agreement") substantially provides the following:
Cash Distributions
Cash distributions will be made at the discretion of the General Partner and
allocated 1% to the General Partner and 99% to the Unitholders, until such time
as the Unitholders have received a return of their adjusted capital
contribution, as defined in the Agreement. Thereafter, cash will be
distributed 15% to the General Partner and 85% to the Unitholders.
Allocation of Losses
Losses in any fiscal year shall be allocated 15% to the General Partner and 85%
to the Unitholders, except that if the Unitholders have an Unallocated Return,
as defined in the Agreement, then 1% shall be allocated to the General Partner
and 99% to the Unitholders. In any event, losses will not be allocated to
Unitholders if such allocation would cause or increase a deficit in the
Unitholders' capital accounts.
Allocation of Profits
Profits in any fiscal year shall be allocated 1% to the General Partner and 99%
to the Unitholders until the Unallocated Return, as defined in the Agreement,
is reduced to zero; thereafter, 15% shall be allocated to the General Partner
and 85% to the Unitholders.
Notwithstanding the foregoing provisions, the Agreement provides that to the
extent the General Partner has a negative capital account at any time, profit
shall first be allocated to the General Partner until the capital account has
been increased to zero.
In 1996, 1995 and 1994, pursuant to the provisions of the Partnership Agreement
described above, income was allocated to the General Partner to increase its
negative capital account to zero.
Dissolution of Partnership
If, upon dissolution of the Partnership, the General Partner has a negative
capital account, it shall contribute capital equal to the amount of the
deficit.
4. Interests and Participations in Motion Pictures
As of December 31, 1988, the Partnership invested approximately $21,143,000 in
ten films of which approximately $20,552,000 was contributed to the Joint
Venture, and approximately $591,000 of production administration fees were paid
by the Partnership to the General Partner. As this represents the total funds
available for investment in films, no further investment in films will be made
by the Partnership.
The Partnership has a participation interest in six films not produced by the
Joint Venture and an interest in four films produced by the Joint Venture. All
of the ten films invested in by the Partnership were released between June 1987
and October 1988.
5. Transactions with Fox
Fox, as distributor of Joint Venture films, has entered into licensing
agreements with other Fox affiliated companies in the United States and United
Kingdom television markets. In the United States, Fox has licensed two
participation films to Fox Television Stations, Inc., a Fox affiliate, and
seven Joint Venture and participation films to Fox Broadcasting Company, a Fox
affiliate, for the free television market. In the United Kingdom, Fox has
licensed all of the Joint Venture films to British Sky Broadcasting, a Fox
affiliate, for the pay television market.
At December 31, 1996, the Partnership had unearned motion picture revenue from
Fox as distributor totaling $92,000. The receivable from Fox as distributor at
December 31, 1995 represents accrued net revenues of approximately $148,000. No
interest is charged on amounts receivable from or payable to Fox.
6. Deferred Distribution Fee
Fox, as distributor, retains a distribution fee of 17-1/2% from substantially
all gross receipts of the films. The fee is deferred for a film until the
Joint Venture receives, from the distribution of that film, an amount equal to
its investment in the film. The distribution fees for four films have been
earned since the Joint Venture has received distributions from such films
greater than its investment. A portion of the distribution fee for one of the
remaining six films released has been earned since the Joint Venture has
received distributions from the film equal to its investment. No distribution
fees are expected to be earned by Fox for the other five films.
7. Transactions with Related Parties
The General Partner is entitled to receive an annual management fee of $200,000
from which the General Partner pays certain expenses incurred in connection
with the management of the Partnership. The General Partner waived its right
to management fees from January 1, 1989 through December 31, 1992, which
totaled $800,000. The Partnership paid the General Partner its 1994 management
fee in 1995, and its 1995 management fee in 1996. The Partnership accrued
$200,000 in management fees payable to the General Partner as of December 31,
1996.
8. Reconciliation of Financial Statement Net Income to Tax Basis Net Income
(Loss)
The Partnership has reported for the year ended December 31, 1996 net income
for federal income tax purposes (tax basis) of approximately $550,000. The
Partnership has reported for the year ended December 31, 1995 net income for
federal income tax purposes (tax basis) of approximately $465,000. The
Partnership has reported for the year ended December 31, 1994 a net loss for
federal income tax purposes (tax basis) of approximately $170,000. Differences
between financial statement net income and tax basis net income (loss) are due
to the timing of revenue recognition and related amortization of motion picture
costs. Report of Independent Auditors
To Partners
American Entertainment Partners II L.P.
We have audited the accompanying balance sheets of American Entertainment
Partners II L.P. as of December 31, 1996 and 1995, and the related statements
of operations, partners' capital, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of American Entertainment
Partners II L.P. at December 31, 1996 and 1995, and the results of operations
and its cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 10, 1997
