<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to_____________________
Commission file number 0-17507
Kagan Media Partners, L.P.
(Exact name of registrant as specified in its charter)
Delaware 22-2931567
(State of organization) (IRS Employer
Identification No.)
126 Clock Tower Place
Carmel, California 93923
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (408) 624-1536
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__.
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KAGAN MEDIA PARTNERS, LP
QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
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Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Schedule of Investments -
September 30, 1996 (unaudited) 3
Statements of Assets and Liabilities -
September 30, 1996 and December 31, 1995
(unaudited) 4
Statements of Operations for the three
months ended September 30, 1996 and 1995
(unaudited) 5
Statements of Operations for the nine months
ended September 30, 1996 and 1995
(unaudited) 6
Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995
(unaudited) 7
Statements of Changes in Net Assets for the nine
months ended September 30, 1996 and for the year
ended December 31, 1995
(unaudited) 8
Selected Per Unit Data and Ratios (unaudited) 9
Notes to Financial Statements (unaudited) 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 14
Part II. OTHER INFORMATION
Item 1 Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
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Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KAGAN MEDIA PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/
TOTAL INVESTMENT AMORTIZED % OF
SHARES INVESTMENT DATE COST VALUE INVESTMENTS
- ------ ---------- ---- ---- ----- -----------
<S> <C> <C> <C> <C> <C>
PARTICIPATING DEBT INVESTMENT
IN MANAGED COMPANY:
NONE
HIGH-YIELD DEBT INVESTMENTS
IN NON-MANAGED COMPANIES:
NONE
EQUITY INVESTMENTS
IN NON-MANAGED COMPANIES:
NONE
</TABLE>
3
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KAGAN MEDIA PARTNERS, L.P.
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
ASSETS:
Investments -
Participating debt investment in managed
company, at value (amortized cost -
$0 and $6,030,073, respectively) $ -- $ 3,400,000
High-yield debt investments in non-managed
companies, at value (amortized cost -
$0 and $1,897,840, respectively) -- 1,927,275
Equity investments in non-managed companies,
at market value (cost -$0 and $190,750) -- 212,500
----------- -----------
Total investments -- 5,539,775
Cash and cash equivalents 6,664,272 6,144,423
Escrow receivable (Note 4) 350,970 --
Accrued interest receivable 23,089 46,709
Prepaid insurance 53,444 39,795
----------- -----------
Total assets $ 7,091,775 $11,770,702
=========== ===========
LIABILITIES:
Accounts payable and accrued expenses $ 44,713 $ 45,698
Investment advisory fees payable 26,383 25,126
Independent General Partners' fees payable 14,375 14,375
Distributions payable to partners 14,726 4,908,743
----------- -----------
Total liabilities 100,197 4,993,942
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COMMITMENTS AND CONTINGENCIES (Notes 4, 5, 6 and 7)
NET ASSETS:
Operating General Partners 584,451 582,303
Limited Partners (equivalent to $4.61
and $4.46, respectively, per limited
partnership unit based on 1,388,473
units outstanding) 6,407,127 6,194,457
----------- -----------
Net assets 6,991,578 6,776,760
----------- -----------
Total liabilities and net assets $ 7,091,775 $11,770,702
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements
4
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KAGAN MEDIA PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 68,326 $ 62,965
----------- -----------
Total investment income 68,326 62,965
----------- -----------
Expenses:
Investment advisory fees (Note 2) 26,383 25,127
Independent General Partner fees (Note 4) 18,750 18,750
Insurance expense 16,362 18,623
Professional fees 8,968 11,500
General and administrative expenses 18,374 16,593
----------- -----------
Total expenses 88,837 90,593
----------- -----------
NET INVESTMENT LOSS (20,511) (27,628)
----------- -----------
REALIZED AND UNREALIZED (LOSS) GAIN
ON INVESTMENTS:
Net realized loss on investments (2,635,521) --
Net increase (decrease) in unrealized
appreciation of investments 2,979,602 (827,682)
----------- -----------
Net gain (loss) on investments 344,081 (827,682)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 323,570 $ (855,310)
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
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KAGAN MEDIA PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 218,683 $ 401,499
----------- -----------
Total investment income 218,683 401,499
----------- -----------
Expenses:
Investment advisory fees (Note 2) 79,149 75,381
Independent General Partner fees (Note 4) 56,250 56,250
Insurance expense 52,928 60,047
Professional fees 48,333 47,500
General and administrative expenses 61,542 52,803
----------- -----------
Total expenses 298,202 291,981
----------- -----------
NET INVESTMENT (LOSS) INCOME (79,519) 109,518
----------- -----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized loss on investments (2,635,521) --
Net increase in unrealized appreciation
of investments 2,929,858 255,285
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Net gain on investments 294,337 255,285
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NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 214,818 $ 364,803
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
6
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KAGAN MEDIA PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 214,818 $ 364,803
----------- -----------
Adjustments to reconcile net increase in net assets
resulting from operations to net cash provided by
operating activities:
Amortization of discounts and premiums on investments 8,676 (195,965)
Decrease (increase) in accrued interest receivable 23,620 (44,608)
(Increase) in prepaid insurance (13,649) (12,057)
(Decrease) in accounts payable and accrued expenses (985) (5,854)
Increase in investment advisory fees payable 1,257 1,197
Net realized loss on investments 2,635,521 --
Net (increase) decrease in unrealized appreciation
of investments (2,929,858) (255,285)
----------- -----------
Total adjustments (275,418) (512,572)
----------- -----------
Net cash used in operating activities (60,600) (147,769)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from repayment or disposition of investments 5,474,466 --
----------- -----------
Net cash provided by investing activities 5,474,466 --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (4,894,017) (957,256)
----------- -----------
Net cash used in financing activities (4,894,017) (957,256)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 519,849 (1,105,025)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,144,423 2,325,407
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,664,272 $ 1,220,382
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
7
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KAGAN MEDIA PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
(Decrease) increase in net assets resulting from operations:
Net investment (loss) income $ (79,519) $ 68,818
Net realized loss on investments (2,635,521) (3,236,259)
Net decrease in unrealized appreciation of investments 2,929,858 3,623,448
------------ ------------
Net increase in net assets resulting from operations 214,818 456,007
Distributions to partners from:
Net cash from operations -- (899,961)
------------
Net cash from capital transactions -- (4,008,782)
------------ ------------
Total (decrease) in net assets 214,818 (4,452,736)
Net assets:
Beginning of period 6,776,760 11,229,496
------------ ------------
End of period, including undistributed net investment income
of $157,414 and $236,933, respectively $ 6,991,578 $ 6,776,760
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
8
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KAGAN MEDIA PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three months For the Nine months
Ended September 30 Ended September 30
------------------------------- -------------------------------
1996 1995 1996 1995
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Per Unit Data:
Investment income $ .05 $ .04 $ .16 $ .29
Expenses .06 .06 .21 .21
------------- ------------- ------------- -------------
Net investment (loss) income (.01) (.02) (.05) .08
Net realized loss on investments (1.88) -- (1.88) --
Net increase (decrease) in unrealized (.59)
appreciation of investments 2.12 2.08 .18
Cash distributions declared to partners -- -- --
------------- ------------- ------------- -------------
Net increase (decrease) in net asset value .23 (.61) .15 .26
Net asset value:
Beginning of period 4.38 8.51 4.46 7.64
------------- ------------- ------------- -------------
End of period $ 4.61 $ 7.90 $ 4.61 $ 7.90
============= ============= ============= =============
Ratios (annualized):
Ratio of expenses to average net assets 5.20% 3.01% 5.85% 3.29%
Ratio of net investment income to average net assets
(1) (1) (1) 1.23%
Number of limited partnership units at end of period
1,388,473 1,388,473 1,388,473 1,388,473
</TABLE>
(1) Net investment loss reported.
The accompanying notes are an integral part
of these financial statement
9
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KAGAN MEDIA PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. GENERAL
The accompanying unaudited interim financial statements include all
adjustments (including normal recurring adjustments) which are, in the opinion
of the General Partners, necessary to fairly present the financial position of
the Partnership as of September 30, 1996 and the results of its operations,
changes in net assets and its cash flows for the nine months then ended.
These financial statements should be read in conjunction with the
Significant Accounting Policies and other Notes to Financial Statements included
in the Partnership's annual audited financial statements for the year ended
December 31, 1995.
2. INVESTMENT ADVISORY AND ANALYSIS FEES
As the Partnership's principal Investment Adviser, the Managing General
Partner is responsible for the identification of investments and all other
investment advisory services necessary for the operation of the Partnership in
carrying out its investment objectives and policies. As compensation for its
services, the Investment Adviser receives an annual investment advisory fee
which initially was $75,000, escalating by an amount equal to 5% of the prior
year's annual fee in each calendar year. The investment advisory fee to be paid
for the year ended December 31, 1996 is scheduled to be $105,532. The investment
advisory fee attributable to the nine months ended September 30, 1996 of $79,149
has been charged to operations.
The Investment Adviser also received an investment analysis fee equal to
0.75% of the amount invested by the Partnership in senior-participation
instruments, as consideration for structuring, due diligence and financial
analysis in connection with an investment. There were no investment analysis
fees paid during the nine months ended September 30, 1996.
3. INDEPENDENT GENERAL PARTNER FEES
As compensation for services rendered to the Partnership, each of the three
Independent General Partners receives a fee of $6,250 per quarter, plus
out-of-pocket expenses. Fees for the nine months ended September 30, 1996
totaled $56,250.
10
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4. VISTA/NARRAGANSETT SALE
In January 1990, the Partnership acquired $6,800,000, 15.5% Senior
Subordinated Notes (the "Notes") of Vista/Narragansett Cable, L.P.
("Vista/Narragansett") due January 8, 1995. Under the terms of the Notes,
interest at the rate of 12.75% per annum was payable currently with the balance
of interest (2.75% per annum) added to the principal balance of the Notes. On
May 1, 1991, Vista/Narragansett ceased making interest payments. A restructuring
agreement of Vista/Narragansett's capital structure was reached during 1992 and
was executed in March 1993.
Under the restructuring, the Partnership agreed to defer interest accrued
but uncollected as of September 30, 1992 in the amount of $2,247,786 and agreed
to cease accruing interest on the Notes subsequent to September 30, 1992.
The Partnership restated the Notes in the form of a non-interest bearing
note in the principal amount of $9,047,786, which represented the original
principal plus the interest accrued through September 30, 1992. In 1994, the
Partnership received $50,000 which was treated as a reduction in principal. The
Notes were to be paid only out of proceeds of the sale of Vista/Narragansett's
cable systems. Any sale by Vista/Narragansett required the approval of the
Partnership.
In late March 1995 the Partnership was advised by the management of
Vista/Narragansett that a third party offer for purchase of the assets of
Vista/Narragansett had been received on March 22, 1995. The Partnership agreed
to allow management of Vista/Narragansett to pursue the offer. On June 14, 1995,
management of Vista/Narragansett signed a letter of intent to accept the offer,
and on August 8, 1995, entered into a purchase and sale agreement. On December
29, 1995, the sale of the assets of Vista/Narragansett was consummated. The
Partnership received proceeds of $4,778,499 as its share of the distributed
proceeds from the sale. The Partnership has released Vista/Narragansett from all
of its financial obligations under the Notes. The Notes, which had an amortized
cost of $7,837,257, were valued at $4,700,000 at September 30, 1995, which
represented approximately 46% of the investments held by the Partnership based
upon the valuation at such date.
The Partnership was also entitled to receive a portion of any amounts
remaining in a $400,000 escrow account established by Vista/Narragansett at
closing to provide collateral to the buyer in respect of Vista/Narragansett's
compliance with its representations and warranties. The Partnership negotiated
for its share of this escrow account which was not scheduled to be terminated
until December 1996 and which represented the Partnership's last interest other
than its short-term US Government Securities. The Partnership received $350,970
as its share of the escrow account in October 1996. The Partnership accrued such
amount as an unrealized gain at September 30, 1996.
The proceeds received from the Vista/Narragansett sale represented
substantially all of the distributions declared to partners at December 31, 1995
which was paid in February, 1996.
11
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5. TM-MA INVESTMENT
Kagan Media Partners, L.P. (the "Partnership") held a senior-participation
instrument from Tele-Media Company of Mid-America, L.P. ("TM-MA") that was in
the form of a participating debt investment and consisted of $6 million in
principal amount of senior subordinated debt of TM-MA originally due September
30, 2001. The debt, which was subject to certain prepayment provisions, bore
current interest at a rate of 14% and contingent interest to be computed under a
specified formula.
As of December 31, 1993, TM-MA was in default under its senior debt
instruments. As a result of this default, the senior lenders to TM-MA blocked
payment to the Partnership of the interest due on the Partnership's
participating debt investment at December 31, 1993. Consequently, the
Partnership stopped accruing interest on the notes, effective October 1, 1993. A
balance of $210,000 remained outstanding at such date.
In the fourth quarter of 1995, an agreement for the sale of the assets of
TM-MA to an unaffiliated joint venture was completed in principle and
subsequently amended in February 1996 ("TM-MA Sale Agreement"). During 1995, the
Partnership recorded unrealized depreciation of its investment in TM-MA of
$641,754, which represented the difference between the sum of the prior carrying
value of the investment ($4,045,000), adjusted for amortization and the
estimated value of the Partnership's interest based upon the TM-MA Sale
Agreement ($3,400,000). In addition, the Partnership realized a loss of $210,000
to recognize the write-off of the interest receivable previously accrued.
The TM-MA Sale Agreement was consummated August 30, 1996 and the
Partnership received $3,409,091 for its senior participation instrument, which
is significantly less than the principal amount of such instrument, but which
approximates its recent carrying value. The senior participating investment in
TM-MA was the Partnership's largest remaining investment.
6. PARTNERSHIP LIQUIDATION - OTHER INVESTMENT SALES
On September 12, 1996, the Partnership sold its two high yield debt
investments and two equity investments for proceeds totaling approximately
$2,066,000 plus accrued interest, as applicable. Such investments had market
values aggregating approximately $2,083,000 at June 30, 1996. The Partnership's
last remaining asset, other than short-term US Government Securities and cash,
is its interest in an escrow account established in connection with the sale of
its interest in Vista/Narragansett Cable, L.P. The escrow account, originally
scheduled to be liquidated in December 1996, was paid in October 1996 in the
amount of $350,970. It is anticipated that the Partnership will make a final
liquidating cash distribution to partners composed of the proceeds generated by
the above mentioned sales of investments and the undistributed cash reserves,
net of related expenses, on or about December 31, 1996.
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7. LITIGATION
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including Mezzanine Capital Corp., an affiliate of
PaineWebber and the Administrative General Partner in the Partnership
("Administrative General Partner").
The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in the Partnership, PaineWebber
and the Administrative General Partners (1) failed to provide adequate
disclosure of the risks involved with each partnership; (2) made false and
misleading representations about the safety of the investments and the
partnership's anticipated performance; and (3) marketed the partnerships to
investors for whom such investments were not suitable. The plaintiffs also
alleged that following the sale of the partnership investments PaineWebber and
the Administrative General Partner misrepresented financial information about
the partnership's value and performance. The amended complaint alleged that
PaineWebber and the Administrative General Partner violated the Racketeer
Influenced and Corrupt Organizations Act ("RICO") and the federal securities
laws. The plaintiffs sought unspecified damages, including reimbursement for all
sums invested by them in the partnerships, as well as disgorgement of all fees
and other income derived by PaineWebber from the limited partnerships. In
addition, the plaintiffs also sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action treatment of
the plaintiffs' claims in the class action entitled, In re: PaineWebber Limited
Partnerships Litigation.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the class action outlining the terms under which the parties have
agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York ("District Court") to be used to resolve the litigation. On July 17, 1996,
the District Court granted preliminary approval of the proposed settlement of
the class action litigation. As part of the class action settlement, PaineWebber
agreed to pay $125 million and additional consideration to class members. A
final hearing on the proposed settlement is scheduled to continue in November
1996.
In February 1996, approximately 230 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the
13
<PAGE> 14
plaintiffs and by overstating the benefits, understating the risks and failing
to state material facts concerning the investments. The complaint seeks
compensatory damages of $15 million plus punitive damages. In September 1996,
the Court dismissed many of the plaintiff's claims as barred by the applicable
statutes of limitation.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber and its affiliates, including the
Administrative General Partner, could be entitled to indemnification from the
Partnership for expenses and liabilities in connection with the Abbate
litigation. The General Partners are unable to determine the impact of these
actions on the Partnership's financial statements, taken as a whole.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Partnership had sold all of its investments.
Sales of the Partnership's five remaining investments were completed during the
quarter ended September 30, 1996 and are discussed below. Other than cash and
short-term US Government Securities, the Partnership's only other asset was its
interest in an escrow account established in connection with the sale of its
interest in Vista/Narragansett Cable L.P. which was liquidated in October 1996.
It is anticipated that the Partnership will wind down its business affairs and
be liquidated by the end of 1996.
At September 30, 1996, the Partnership's cash of $6,664,272 was primarily
invested in short-term US Government Securities.
The Partnership will not make any additional investments other than
temporary investments of its working capital in short-term US Government
Securities.
The Partnership held a senior-participation instrument from Tele-Media
Company of Mid-America, L.P. ("TM-MA") that was in the form of a participating
debt investment and consists of $6 million in principal amount of senior
subordinated debt of TM-MA due September 30, 2001. The debt, which was subject
to certain prepayment provisions, bore current interest at a rate of 14% and
contingent interest to be computed under a specified formula.
As of December 31, 1993, TM-MA was in default under its senior debt
instruments. As a result of this default, the senior lenders to TM-MA blocked
payment to the Partnership of the interest due on the Partnership's
participating debt investment at December 31, 1993. Consequently, the
Partnership stopped accruing interest on the notes, effective October 1, 1993. A
balance of $210,000 remained outstanding at such date.
In the fourth quarter of 1995, an agreement for the sale of the assets of
TM-MA to an unaffiliated joint venture was completed in principle and
subsequently amended in February
14
<PAGE> 15
1996 ("TM-MA Sale Agreement"). During 1995, the Partnership recorded unrealized
depreciation of its investment in TM-MA of $641,754, which represented the
difference between the sum of the prior carrying value of the investment
($4,045,000), adjusted for amortization and the estimated value of the
Partnership's interest based upon the TM-MA Sale Agreement ($3,400,000). In
addition, the Partnership realized a loss of $210,000 to recognize the write-off
of the interest receivable previously accrued.
The TM-MA Sale Agreement was consummated August 30, 1996 and the
Partnership received $3,409,091 for its senior participation instrument, which
is significantly less than the principal amount of such instrument, but which
approximates its recent carrying value. The senior participating investment in
TM-MA was the Partnership's largest remaining investment.
On September 12, 1996, the Partnership sold its two high yield debt
investments and two equity investments for proceeds totaling approximately
$2,066,000 plus accrued interest, as applicable. Such investments had market
values aggregating approximately $2,083,000 at June 30, 1996.
The Partnership's last remaining asset, other than short-term US Government
Securities and cash, was its interest in an escrow account established in
connection with the sale of its interest in Vista/Narragansett Cable, L.P. The
escrow account, originally scheduled to be liquidated in December 1996, was paid
in October 1996 in the amount of $350,970. It is anticipated that the
Partnership will make a final liquidating cash distribution to partners composed
of the proceeds generated by the above mentioned sales of investments and the
undistributed cash reserves, net of related expenses, on or about December 31,
1996.
RESULTS OF OPERATIONS
Investment Income and Expenses
During 1996, the Partnership's investment income consists primarily of
interest income earned from the various debt investments which are held by the
Partnership. Because the debt investments have been sold with the proceeds
reinvested in US Government Securities, substantially all of the Partnership
investment income will be derived from such investments until the Partnership is
liquidated. Major expenses consist of professional fees, the amortization of the
deferred organization expenses (which is a non-cash expense), the investment
advisory fee and Independent General Partners' fees. Professional fees consist
of custodial, legal and audit fees.
15
<PAGE> 16
1996 Compared to 1995
The Partnership's net investment (loss)was ($20,511) and ($79,519) for the
quarter and nine months ended September 30, 1996 (the "1996 Quarter" and 1996
Period) as compared to net investment (loss) income of ($27,628) and $109,519
for the quarter and nine months ended September 30, 1995 (the "1995 Quarter" and
1995 Period). Interest income was $68,326 and $218,683 in the 1996 Quarter and
1996 Period as compared to $62,965 and $401,499 in the 1995 Quarter and 1995
Period. The principal reason for the decrease in interest income and net
investment income in 1996 as compared to 1995 was the accretion of interest
income relating to the Vista/Narragansett investment in the 1995 Period. The
investment was liquidated in December 1995 and there was no accretion recognized
in the 1996 Quarter and 1996 Period or the 1995 Quarter. The increase in
interest income in the 1996 Quarter as compared to the 1995 quarter was due to
the increase in short-term interest bearing investments during the 1996 Quarter
as a result of the sale of investments during the 1996 Quarter.
Net Unrealized Appreciation of Investments
The Kagan Executive Committee valued the Partnership's investments on a
quarterly basis utilizing a variety of methods. Securities that are publicly
traded and for which market quotations are readily available, are valued based
on the highest bid price for such securities as of the last trading day of the
fiscal quarter.
In accordance with portfolio valuation guidelines ("Guidelines") adopted by
the General Partners, investments for which market quotations are not readily
available are valued at cost (the "Cost Method") unless the Kagan Executive
Committee determines that significant events have occurred with respect to such
investments which necessitate the use of an alternate valuation methodology. The
Managing General Partner is responsible for applying the Guidelines and
performing the due diligence necessary to determine whether such significant
events have occurred and for presenting to the Kagan Executive Committee its
conclusion as to whether the use of the Cost Method is appropriate with respect
to any particular investment. The Kagan Executive Committee then determines
whether to continue to use the Cost Method for each investment or whether to use
an alternate valuation methodology. If the Kagan Executive Committee determines
that the use of the Cost Method is not appropriate for a particular investment,
then the Managing General Partner is required to propose an alternate valuation
methodology and, based upon its analysis, is required to determine the market
value of the investment. The Managing General Partner is required to present to
the General Partners its conclusions as to the fair market value for the
investment in question and the General Partners are then responsible for
determining the fair market value for that investment in good faith.
As of December 31, 1995, the Partnership had recorded net unrealized
depreciation of $2,578,888. During the six months ended June 30, 1996, the
Partnership recorded net additional unrealized depreciation of $49,744. During
the 1996 Quarter, the balance of the Partnership's portfolio investments were
sold and net losses were recognized. Additionally at September 30, 1996, the
Partnership recorded aggregate net unrealized appreciation of
16
<PAGE> 17
investments of $350,970 with respect to the value of the escrow account
established in connection with the Vista/Narragansett transaction.
The unrealized appreciation/depreciation of investments during the quarter
and nine months ended September 30, 1996 and the realized gains/losses on
disposition of investments at September 30, 1996, consisted of the following
components:
<TABLE>
<CAPTION>
Unrealized Appreciation / (Depreciation) Recorded
- ------------------------------------------------------------------------------------------------------
DURING NINE REALIZED UNREALIZED
BALANCE AT MONTH ENDED GAIN APPRECIATION AT
DECEMBER 31, SEPTEMBER 30, OR SEPTEMBER 30,
INVESTMENT 1995 1996 (LOSS) 1996
---------- ----------- ----------- ----------- --------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tele-Media Mid-America Notes $(2,630,073) $ 10,884 $(2,619,189) $ --
Comcast debentures 76,415 (27,171) 49,244 --
Century Communications
debentures (46,980) (1,346) (48,326) --
Tele-Communications, Inc. stock 13,267 (39,400) (26,133) --
Tele-Communication, Inc., New
Liberty Media
Group Series A common stock 8,483 400 8,883 --
Escrow - Vista/ Narragansett -- 350,970 -- 350,970
----------- ----------- ----------- --------
$(2,578,888) $ 294,337 $(2,635,521) $350,970
=========== =========== =========== ========
</TABLE>
17
<PAGE> 18
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In November 1994, a series of purported class actions (the "New
York Limited Partnership Actions") were filed in the United States
District Court for the Southern District of New York concerning
PaineWebber Incorporated sale and sponsorship of various limited
partnership investments, including those offered by the Partnership.
The lawsuits were brought against PaineWebber Incorporated and Paine
Webber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the
actions were consolidated under the title In re: PaineWebber Limited
Partnerships Litigation, the plaintiffs amended their complaint to
assert claims against a variety of other defendants, including
Mezzanine Capital Corp., an affiliate of PaineWebber and the
Administrative General Partner in the Partnership ("Administrative
General Partner").
The amended complaint in the New York Limited Partnership Actions
alleged that, in connection with the sale of interests in the
Partnership, PaineWebber and the Administrative General Partners (1)
failed to provide adequate disclosure of the risks involved with each
partnership; (2) made false and misleading representations about the
safety of the investments and the partnership's anticipated
performance; and (3) marketed the partnerships to investors for whom
such investments were not suitable. The plaintiffs also alleged that
following the sale of the partnership investments PaineWebber and the
Administrative General Partner misrepresented financial information
about the partnership's value and performance. The amended complaint
alleged that PaineWebber and the Administrative General Partner
violated the Racketeer Influenced and Corrupt Organizations Act
("RICO") and the federal securities laws. The plaintiffs sought
unspecified damages, including reimbursement for all sums invested by
them in the partnerships, as well as disgorgement of all fees and
other income derived by PaineWebber from the limited partnerships. In
addition, the plaintiffs also sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action
treatment of the plaintiffs' claims in the class action entitled, In
re: PaineWebber Limited Partnerships Litigation.
In January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under
which the parties have agreed to settle the case. Pursuant to that
memorandum of understanding, PaineWebber irrevocably deposited $125
million into an escrow fund under the supervision of the United States
District Court for the Southern District of New York ("District
Court") to be used to resolve the litigation. On July 17, 1996, the
District Court granted preliminary approval of the proposed settlement
of the class action litigation. As part of the class action
settlement, PaineWebber agreed to pay $125 million and additional
consideration to class members. A final hearing on the proposed
settlement is scheduled to continue in November 1996.
In February 1996, approximately 230 plaintiffs filed an action
entitled Abbate v. PaineWebber Inc. in Sacramento, California Superior
Court against PaineWebber Incorporated and various affiliated entities
concerning the plaintiff's purchases of various limited partnership
interests. The complaint alleges, among other things, that PaineWebber
and its related entities
18
<PAGE> 19
committed fraud and misrepresentation and breached fiduciary duties
allegedly owed to the plaintiffs by selling or promoting limited
partnership investments that were unsuitable for the plaintiffs and by
overstating the benefits, understating the risks and failing to state
material facts concerning the investments. The complaint seeks
compensatory damages of $15 million plus punitive damages. In
September 1996, the Court dismissed many of the plaintiffs claims as
barred by the applicable statutes of limitation.
Under certain limited circumstances, pursuant to the Partnership
Agreement and other contractual obligations, PaineWebber and its
affiliates, including the Administrative General Partner, could be
entitled to indemnification from the Partnership for expenses and
liabilities in connection with the Abbate litigation. The General
Partners are unable to determine the impact of these actions on the
Partnership's financial statements, taken as a whole.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Reports to be filed:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
11.1 Statement of Computation of Net Investment Income
Per Limited Partnership Unit.
20.1 Report Furnished to Securities Holders.
</TABLE>
19
<PAGE> 20
SIGNATURE
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.
Kagan Media Partners, L.P.
(Registrant)
By: Mezzanine Capital Corporation
A General Partner
Dated: November 12, 1996 By: /s/ Joseph P. Ciavarella
------------------------
Joseph P. Ciavarella
Vice President, Secretary
and Chief Financial and
Accounting Officer
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
11.1 Statement of Computation of Net Investment Income Per Limited
Partnership Unit.
20.1 Report Furnished to Securities Holders.
</TABLE>
21
<PAGE> 1
EXHIBIT NO. 11.1
STATEMENT OF COMPUTATION
OF NET INVESTMENT (LOSS) INCOME
PER LIMITED PARTNERSHIP UNIT
22
<PAGE> 2
KAGAN MEDIA PARTNERS, L.P.
STATEMENT OF COMPUTATION OF NET INVESTMENT
(LOSS) INCOME PER LIMITED PARTNERSHIP UNIT
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Investment (Loss) Income $ (20,511) $ (27,628) $ (79,519) $ 109,518
Percentage Allocable to Limited Partners 99% 99% 99% 99%
----------- ----------- ----------- -----------
Net Investment (Loss) Income Allocable to Limited
Partners $ (20,306) $ (27,352) $ (78,724) $ 108,423
----------- ----------- ----------- -----------
Weighted Average Number of Limited Partnership
Units Outstanding 1,388,473 1,388,473 1,388,473 1,388,473
----------- ----------- ----------- -----------
Net Investment (Loss) Income Per Limited
Partnership Unit $ (.01) $ (.02) $ (.05) $ .08
----------- ----------- ----------- -----------
</TABLE>
23
<PAGE> 1
Exhibit No. 20.1
Report Furnished to Securities Holders
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form
10-Q for the quarter and nine months ended September 30, 1996 for Kagan
Media Partners, L.P. and is qualified in its entirety by reference to such
Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,664,272
<SECURITIES> 0
<RECEIVABLES> 374,059
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,091,775
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,091,775
<CURRENT-LIABILITIES> 100,197
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,991,578<F2>
<TOTAL-LIABILITY-AND-EQUITY> 7,091,775
<SALES> 0
<TOTAL-REVENUES> 218,683
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 298,202
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 214,818<F3>
<INCOME-TAX> 0
<INCOME-CONTINUING> 214,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214,818
<EPS-PRIMARY> .15
<EPS-DILUTED> 0
<FN>
<F1> Reflects increase in net asset value per limited partner uit outstanding
for the nine months ended September 30, 1996.
<F2> Reflects partners contributed capital plus accumulated earnings and
distributions to partners.
<F3> Includes realized and unrealized gains/losses on investment portfolio.
</FN>
</TABLE>
