Financial Statements
and Financial Highlights
Lernoult Investment Fund, Inc.
August 31, 1999
with Report of Independent Auditors
Report of Independent Auditors
Board of Directors and Stockholder
Lernoult Investment Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Lernoult Investment Fund, Inc. as of August 31, 1999, the related statement of
operations for the eight month period ended August 31, 1999, and the
statements of changes in net assets and the financial highlights for the eight
month period ended August 31, 1999 and for the period from March 24, 1998
(commencement of operations) to December 31, 1998. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights 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 and
financial highlights 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 and financial highlights referred to
above present fairly, in all material respects, the financial position of
Lernoult Investment Fund, Inc., at August 31, 1999, the results of its
operations for the eight month period ended August 31, 1999, and the changes
in its net assets and its financial highlights for the eight month period
ended August 31, 1999 and for the period from March 24, 1998 (commencement to
operations) to December 31, 1998, in conformity with generally accepted
accounting principles.
September 30, 1999
Lernoult Investment Fund, Inc.
Statement of Assets and Liabilities
August 31, 1999
Assets
Net asset value $0
See accompanying notes.
Lernoult Investment Fund, Inc.
Statement of Operations
For the eight month period ended August 31, 1999
Investment income:
Dividend income $380,509
Interest income 41,087
Total investment income 421,596
Expenses:
Administration fees (Note 2) 22,289
Investment management fee (Note 2) 6,300
Independent auditors 6,517
Interest expense 9,844
Directors fees and expenses 3,000
Legal fees 7,015
Other expenses 665
Total expenses 55,630
Net investment income 365,966
Net realized gain on investments 2,322,720
Net realized gain on in-kind transfer (Note 1) 69,003,469
Net decrease in unrealized appreciation (69,003,469)
Net increase in net assets resulting from operations $2,688,686
See accompanying notes.
Lernoult Investment Fund, Inc.
Statements of Changes in Net Assets
For the
For the eight period from
month period ended March 24, 1998 to
August 31, 1999 December 31, 1998
From operations:
Net investment income $365,966 $6,851,282
Net realized gain on investments 2,322,720 551,655
Net realized gain on in-kind transfer 69,003,469 0
Net change in unrealized appreciation
on investments (69,003,469) 69,003,469
Increase in net assets resulting from
operations 2,688,686 76,406,406
Dividends from net investment income:
Auction market preferred stock 0 (6,851,282)
Common stock (365,966) 0
(365,966) (6,851,282)
Distributions from net realized gains:
Auction market preferred stock 0 (547,316)
Common stock (2,322,720) (4,339)
In-kind transfer (69,003,469) 0
(71,326,189) (551,655)
Decrease in net assets resulting from
distributions to stockholder (71,692,155) (7,402,937)
Increase (decrease) from capital transactions:
Issuance of auction market preferred stock 0 250,000,000
Redemption of acution market preferred stock 0 (250,000,000)
Issuance of common stock 0 321,720
Redemption of common stock (321,720) 0
Additional paid-in-capital 0 573,402,693
Distribution of capital to common stockholders(573,402,693) 0
(573,724,413) 573,724,413
Total increase (decrease) in net assets (642,727,882) 642,727,882
Net assets:
Beginning of period 642,727,882 0
End of period $0 $642,727,882
See accompanying notes.
Lernoult Investment Fund, Inc.
Notes to Financial Statements
August 31, 1999
1. Organization and Significant Accounting Policies
On January 7, 1999 the Board of Directors approved a Plan of Liquidation and
Dissolution for the Lernoult Investment Fund, Inc. (the "Fund"). As of August
31, 1999 the Fund. was fully liquidated and all remaining capital had been
distributed to the common stockholder through an in-kind distribution. For
purposes of these financial statements, in accordance with generally accepted
accounting principles, the in-kind distribution was treated as a realized
gain. For tax purposes the distribution would not result in a realized gain
until the securities were actually sold.
The Fund was registered as a diversified, closed-end management investment
company under the Investment Company Act of 1940, as amended. The Fund
commenced operations on March 24, 1998. The Fund received notification from
the Securities Exchange Commission ("SEC") that it was de-registered effective
September 24, 1999.
On the date of commencement, the Fund issued $250 million of Auction Market
Preferred Stock ("AMPS") and received securities with an aggregate fair value
of $571,720,074 from a collective trust fund for employee benefit plans in
exchange for 32,172,007.45 shares of common stock and $250 million in cash.
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements.
Security Transactions
Security transactions were accounted for on a trade date plus one business day
basis which does not differ materially from a trade date basis. The cost of
securities sold was determined using the identified cost method. Dividend
income was recorded on ex-dividend date and interest income was recorded on
the accrual basis.
Federal Income Taxes
It was the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and distribute its
taxable income to shareholders. Therefore, no provision for Federal income tax
was required.
Distribution of Income and Gains
The Fund distributed substantially all of its taxable income in excess of the
dividends paid to the were declared and paid at least annually. Net capital
gains, if any, were generally distributed annually.
The character of income and gains to be distributed was determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Amounts distributed in excess of taxable
income and net realized gains, if any, were considered a return of capital.
Use of Estimates
Estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial
markets and any other parameters used in determining these estimates could
cause actual results to differ from these amounts.
2. Related Party Transactions
A collective trust fund for employee benefit plans was the sole common
stockholder of the Fund. Certain officers and directors of the Fund were
affiliated with the common stockholder. No fees or expenses were paid to the
affiliated officers and directors.
For the eight month period ended August 31, 1999 and the period from March 24,
1998 (commencement of operations) to December 31, 1998, dividend and capital
gain distributions to the common stockholder were $2,688,686 and $4,339,
respectively.
For the year ended December 31, 1998 the common stockholder made capital
contributions to the Fund in the amount of $573,402,693.
Comerica Bank served as both custodian and administrator for the Fund and
received a fee based on a percentage of net assets outstanding at the end of
the fiscal year. An affiliate of Comerica Bank served as investment advisor to
the Fund. The annual investment management fee was 0.01% of average equity
investments. The administration and management fees were calculated and
accrued on a monthly basis and generally were paid on a quarterly basis.
3. Investment Transactions
The aggregate cost of securities purchased and the aggregate proceeds of
securities sold, excluding short-term securities, for the eight month period
ended August 31, 1999 were $0 and $7,890,795, respectively.
Lernoult Investment Fund, Inc.
Financial Highlights
1999 (1) 1998(2)
For a share of common stock outstanding
throughout the period:
Net asset value, beginning of period $19.98 $0.00
Net investment income 0.01 0.21
Net realized and unrealized gains
on investments 0.07 2.16
Total from investment operations 0.08 2.37
Capital contribution 0.00 17.83
Less dividends from net investment income:
Common stock equivalent of dividends
paid to AMPS holders 0.00 (0.21)
Dividends paid to common stockholder (0.01) 0.00
Less distributions from net realized gains:
Common stock equivalent of distributions 0.00 (0.01)
paid to AMPS holders
Distributions paid to common stockholder (0.07) 0.00
Distributions from in-kind transfer paid to
common stockholder (2.15) 0.00
Less distributions from paid-in capital:
Return of capital to common stockholder (17.83) 0.00
Total distributions (20.06) (0.22)
Net asset value, end of period $0.00 $19.98
Total investment return (3) 0.42% 23.70%
Ratios/supplemental data:
Net assets at end of period (000s) 0 $642,728
Average net assets (000s) $71,471 $576,679
Ratio of expenses to average net assets
applicable to common stock (4) 0.08% 0.16%
Ratio of net investment income to average net
assets applicable to common stock (4) 0.51% 1.18%
Portfolio turnover 0.00% 0.03%
Asset coverage per AMPS share
end of period 0.0000 0.0000
AMPS shares outstanding 0 0
Asset coverage for notes payable,
end of period 0 136027%
Notes payable, end of period 0 $472,500
(1)For eight month period ended August 31, 1999.
(2)For the period from March 24, 1998 (commencement of operations) to D
(3)Total investment return for the period, not annualized.
(4)Ratios are calculated on the basis of income and expenses applicable
stock relative to the average net assets of the common stockholder.
dividend payments to AMPS holders.
See accompanying notes.
