UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1995
Commission File Number 0-15669
ML-LEE ACQUISITION FUND, L.P.
(Exact name of registrant as specified in its Governing
Instruments)
Delaware 13-3426817
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
World Financial Center
South Tower - 23rd Floor
New York, New York 10080-6123
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:(212) 236-7303
Securities registered pursuant to Section 12(b) of the Act: None
Name of each exchange on which registered: Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___.
Aggregate market value of voting securities held by non-
affiliates: Not Applicable.
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ML-LEE ACQUISITION FUND, L.P.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Statements of Assets, Liabilities and Partners'
Capital as of March 31, 1995 and December 31, 1994 3
Statements of Operations - For the Quarters Ended
March 31, 1995 and March 31, 1994 4
Statements of Changes in Net Assets - For the
Quarters Ended March 31, 1995 and March 31, 1994 5
Statements of Cash Flows - For the Quarters Ended
March 31, 1995 and March 31, 1994 6
Statement of Changes in Partner's Capital - For the
Quarters Ended March 31, 1995 and March 31, 1994 7
Schedule of Portfolio Investments - March 31, 1995 8
Notes to Financial Statements 17
Supplemental Schedule of Realized Gains and Losses
- - (Schedule 1) 32
Supplemental Schedule of Unrealized Appreciation
and Depreciation - (Schedule 2) 33
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 35
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 43
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
March 31,
1995 December
(Unaudited) 31, 1994
ASSETS:
<S> <C> <C>
Investments - Notes 2,8,9
Portfolio Investments, at fair value
Managed Companies (amortized cost
$298,610 at March 31, 1995 and
$313,930 at December 31, 1994) $ 297,825 $ 326,672
Non-Managed Companies (amortized cost
$17,600 at March 31, 1995 and $22,703
at December 31, 1994) 7,653 12,542
Temporary Investments, at amortized cost
(cost $49,365 at March 31, 1995 and
$31,143 at December 31, 1994) 49,401 10,511
Cash (of which $3,441,997 is restricted
at March 31, 1995) - Note 8 3,446 3,442
Accrued Interest Receivable - Note 2 367 1,077
Prepaid Loan Fees - Notes 2,4 2,135 2,299
Prepaid Expenses and Other Receivables 5 7
Receivable for Investments Sold - 1,227
TOTAL ASSETS $ 360,832 $ 357,777
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities
Accounts Payable and Accrued Expenses $ 311 $ 305
Deferred Interest Income - Note 2 369 773
Total Liabilities 680 1,078
Partners' Capital - Note 2
Managing General Partner 1,942 1,908
Limited Partners (487,489 Units) 358,210 354,791
Total Partners' Capital 360,152 356,699
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 360,832 $ 357,777
</TABLE>
See the Accompanying Notes to Financial Statements.
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
For the Quarters Ended
March 31, March 31,
1995 1994
<S> <C> <C>
INVESTMENT INCOME - NOTE 2,8,10:
Interest $ 2,331 $ 10,850
Discount 157 216
Dividends - 2,868
TOTAL INCOME 2,488 13,934
EXPENSES:
Professional Fees 1,200 200
Investment Advisory Fee - Note 5 741 925
Fund Administration Fee - Note 6 422 462
Loan Fees - Notes 2,4 182 199
Independent General Partners' Fees and
Expenses - Note 7 99 121
Insurance Expense 2 2
Interest Expense - Note 4 - 58
TOTAL EXPENSES 2,646 1,967
NET INVESTMENT INCOME (LOSS) (158) 11,967
NET REALIZED GAIN ON INVESTMENTS - NOTE 8 24,527 6,805
AND SCHEDULE 1
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS - NOTE 9
AND SCHEDULE 2
Publicly Traded Securities (445) (35,398)
Non Public Securities (12,868) 14
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 11,056 $ (16,612)
</TABLE>
See the Accompanying Notes to Financial Statements.
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
For the Quarters Ended
March 31, March 31,
1995 1994
FROM OPERATIONS:
<S> <C> <C>
Net Investment Income (Loss) $ (158) $ 11,967
Net Realized Gain on Investments -
Note 8 and Schedule 1 24,527 6,805
Net Change in Unrealized Depreciation
on Investments - Note 9 and
Schedule 2 (13,313) (35,384)
Net Increase (Decrease) In Net
Assets Resulting From Operations 11,056 (16,612)
Cash Distributions to Partners (7,603) (29,052)
Total Increase (Decrease) 3,453 (45,664)
NET ASSETS:
Beginning of Period 356,699 418,892
End of Period $ 360,152 $ 373,228
</TABLE>
See the Accompanying Notes to Financial Statements.
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
For the Quarters Ended
March 31, March 31,
1995 1994
<S> <C> <C>
Increase in Cash and Cash Equivalents
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest, Dividends and Discount Income $ 2,771 $ 5,190
Investment Advisory Fee (741) (925)
Interest Expense - (58)
Fund Administration Fee (422) (462)
Administration and Other Expenses (1,193) (259)
Loan Fees and Expenses (34) (16)
Independent General Partners' Fees and Expenses (84) (104)
(Purchase) Sale of Temporary Investments, Net (38,867) 13,730
Proceeds from Sale of Portfolio Company
Investments 46,177 22,867
Net Cash Provided by Operating Activities 7,607 39,963
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of Borrowings, Net - (9,594)
Cash Distributions to Partners (7,603) (29,052)
Net Cash Applied to Financing Activities (7,603) (38,646)
Net Increase in Cash 4 1,317
Cash at Beginning of Period 3,442 -
Cash at End of Period $ 3,446 $ 1,317
RECONCILIATION OF NET INVESTMENT INCOME (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Investment Income (Loss) $ (158) $ 11,967
Adjustments to Reconcile Net Investment Income
to Net Cash Provided by Operating Activities:
(Increase) Decrease in Investments (18,444) 16,840
Decrease in Receivable for Investments Sold 1,227 15,008
(Increase) Decrease in Accrued Interest,
Dividend and Discount Receivables 283 (8,744)
Decrease in Prepaid Expenses 166 184
Decrease in Option Payable - (2,057)
Increase (Decrease) in Administration and Other
Expenses Payable 6 (40)
Net Realized Gain on Investments 24,527 6,805
Total Adjustments 7,765 27,996
Net Cash Provided by Operating Activities $ 7,607 $ 39,963
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
Managing
General Limited
Partner Partners Total
For the Quarter Ended March 31, 1995
<S> <C> <C> <C>
Partners' Capital at January 1, 1995 $1,908 $354,791 $356,699
Allocation of Net Investment Loss -
Note 3 (2) (156) (158)
Allocation of Net Realized Gain on
Investments - Note 8 245 24,282 24,527
Allocation of Net Change in Unrealized
Depreciation - Note 9 (133) (13,180) (13,313)
Cash Distributions to Partners (76) (7,527) (7,603)
Partners' Capital at March 31, 1995 $1,942 $358,210 $360,152
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
MARCH 31, 1995
(DOLLARS IN THOUSANDS)
Principal Fair
Amount/ Investmen Investme Value % Of Total
Shares Investment t nt (Note 2) Investment
Date Cost (f) s
<S> <C> <C> <C> <C> <C>
ALLIANCE INTERNATIONAL GROUP, INC. (a)(e) -
Note 11
$10,810 Alliance International Group, Sub. Note 10% due 12/31/87 $ 10,810 $ 10,810
12/31/97(c)
$267 Alliance International Group, Def. Int. Note 03/31/93 267 267
10% due 03/30/97(c)(h)
$276 Alliance International Group, Def. Int. Note 06/30/93 276 276
10% due 12/31/97(c)(h)
$286 Alliance International Group, Def. Int. Note 09/30/93 286 286
10% due 12/31/97(c)(h)
$293 Alliance International Group, Def. Int. Note 12/31/93 293 293
10% due 12/31/97(c)(h)
5,016 Shares Alliance International Group, Cumulative 04/22/91 502 502
Redeemable Preferred Stock(d)
110,000 Alliance International Group, Cumulative 12/31/92 11,000 11,000
Shares Preferred Stock(d)(h)
250,800 Alliance International Group, Common Stock(d) 12/31/87 1,951 1,951 (i)
Shares
15,228.43 Alliance International Group, Common Stock 03/28/89 0 0
Warrants Purchase Warrants(d)
62,700 Alliance International Group, Common Stock 04/22/91 0 0
Warrants Purchase Warrants(d)
657,614.21 Alliance International Group, Common Stock 12/31/92 0 0
Warrants Purchase Warrants(d)
50,000 Alliance International Group, Common Stock various 0 0 (i)
Warrants Purchase Warrants(d)
(52.5% of fully diluted common equity assuming
exercise of warrants)
19,200 Shares Common Stock
Purchased 12/31/87 $149
Sold 01/30/89-9,600 Shares $107
Sold 01/02/90-9,600 Shares $147
Realized Gain $105 25,385 25,385 7.16
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
MARCH 31, 1995
(DOLLARS IN THOUSANDS)
Principal Fair
Amount/ Investmen Investmen Value % Of
Shares Investment t t (Note 2) Total
Date Cost (f) Investmen
ts
<S> <C> <C> <C> <C> <C>
BEEFAMERICA, INC. (a) (e) - Notes 4,9,10,11
$41,997 BeefAmerica, Inc., Sr. Sub. Interim Note 15.5% 09/09/88 $ 20,000 $ 10,000
due 09/30/98 (c)(g)(h)
$80,951 BeefAmerica, Inc., Sub. Note 15% due 09/09/88 38,928 0
09/30/98 (c)(g)(h)
5,661.11 BeefAmerica, Inc., Class A Redeemable Preferred 04/10/91 40,050 0
Shares Stock(d)
51,000 Shares BeefAmerica, Inc., Common Stock (d) various 2,000 0
1 Warrant BeefAmerica, Inc., Common Stock Purchase 09/09/88 0 0 (i)
Warrant(d)
(59% of fully diluted common equity assuming
exercise of warrants)
$1,072 15% Sub. Nt.
Purchased 09/9/88 $1,072
Redeemed 02/20/92 $1,072
Realized Gain $ 0
Preferred Stock
Purchased 09/9/88 $2,700
Redeemed 02/20/92 $2,700
Realized Gain. $ 0
Total Realized Gain $ 0
100,978 10,000 2.82
CELEBRITY, INC. - Note 9
17,308 Shares Celebrity, Inc. Common Stock(b)(k) 06/16/95 225 113
(0.3% of fully diluted common equity)
5,769 Shares of Common Stock
Purchased 06/16/92 $75
Sold 09/29/93 $75
Realized Gain $ 0(i)
5,769 Shares of Common Stock
Purchased 06/16/92 $75
Sold 09/19/94 $75
Realized Gain $ 0(i)
Total Realized Gain $ 0 225 113 0.03
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
MARCH 31, 1995
(DOLLARS IN THOUSANDS)
Principal Fair
Amount/ Investmen Investmen Value % Of
Shares Investment t t (Note 2) Total
Date Cost (f) Investmen
ts
<S> <C> <C> <C> <C> <C>
CHADWICK-MILLER, INC. (a)(e) - Notes 9,10,14
189,996 CMI Holding Corp., Preferred Stock[A] (d) 12/16/88 $12,916 $12,916
Shares
192,933 CMI Holding Corp., Common Stock (d) Various 3,736 1,929
Shares
100,000 CMI Holding Corp., Common Stock Warrants (d) Various 0 0
Warrants
(63.6% of fully diluted common equity)
35,161 Shares Common Stock
Purchased 06/30/93 $ 352
Sold 09/03/93 $ 352
Realized Gain $ 0
$5,000,000 Senior Note
Purchased 12/16/88 $5,000
Sold 11/23/94 $5,000
Realized Gain $ 0
Total Realized Gain $ 0 16,652 14,845 4.18
COLE NATIONAL CORPORATION
567 Warrants Cole National Corporation, Common Stock 09/26/90 0 0
Purchase Warrants(d)
(0.0% of fully diluted common equity assuming
exercise of warrants)
$589 Senior Bridge Note
Purchased 09/25/90 $589
Sold 11/15/90 $589
Realized Gain $ 0 0 0 0.00
DURO-TEST CORPORATION (a)(e) - Notes 9,14
26,178.05 Duro-Test Corp., Preferred Stock Series A 05/12/94 2,618 2,618
Shares (d)(h)
6,153,420 Duro-Test Holding Corp., Common Stock (d) Various 36,045 5,582
Shares
(61.5% of fully diluted common equity)
38,663 8,200 2.31
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
MARCH 31, 1995
(DOLLARS IN THOUSANDS)
Principal Fair % Of
Amount/ Investmen Investmen Value Total
Shares Investment t t (Note 2) Investmen
Date Cost (f) ts
<S> <C> <C> <C> <C> <C>
GENERAL NUTRITION COMPANIES, INC. (a) Note 9
$30,000 General Nutrition Cos., Inc., Jr.Convertible 08/21/89 $ 30,000 $85,297
Sub Nt. 7.5% due 08/15/01 (c) (j)
(convertible into 3,073,770.50 shares of
General Nutrition Cos. Common Stock)
$10,000 General Nutrition Cos.,Inc., Jr. Convertible 11/21/91 10,000 28,432
Sub Nt. 7.5% due 08/15/01 (c) (j)
(convertible into 1,024,590.16 shares of
General Nutrition Cos. Common Stock)
1,373,734 General Nutrition Cos., Inc., Common Stock (d) Various 3,236 38,121
Shares (k)
423,454 General Nutrition Cos., Inc., Common Stock Various 0 9,634
Warrants Purchase Warrants (d) (j)
(13% of fully diluted common equity assuming
exercise of warrants)
469,306 Shares Common Stock
Purchased various $ 1,900
Sold 469,306 Shares various 1993 $17,154
Realized Gain $15,254
433,424 Shares Common Stock
Purchased various $ 1,626
Sold 433,424 Shares various 1994 $12,272
Realized Gain $10,646
Total Realized Gain $25,900 43,236 161,484 45.50
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
MARCH 31, 1995
(DOLLARS IN THOUSANDS)
Principal Fair
Amount/ Investmen Investmen Value % Of
Shares Investment t t (Note 2) Total
Date Cost (f) Investmen
ts
<S> <C> <C> <C> <C> <C>
HEALTH O METER PRODUCTS, INC. (a) Notes 9,14
952,500 Health o meter Products, Inc., Common Stock (d) 04/28/88 $1,270 $3,453
Shares (k)
610,553 Health o meter Products, Inc., Common Stock (b) 08/17/94 3,282 2,213
Shares (k)
(15.4% of fully diluted common equity)
$16,000 14.50% Subordinated Note
Purchased 04/28/88 $16,000
Sold 03/24/92 $16,000
Realized Gain $ 0
187,500 Shares of Common Stock
Purchased 04/28/88 $ 250
Sold 03/30/92 $ 2,441
Realized Gain $ 2,191
Total Realized Gain $ 2,191 4,552 5,666 1.60
PETCO ANIMAL SUPPLIES, INC. (a)(e) - Notes
9,14,16
1,991,386 Petco Animal Supplies, Inc. Common Stock(d)(k) Various 32,142 41,819
Shares
(32.8% fully diluted common equity)
$269 14% Sr. Bridge Note
Purchased 11/19/90 $ 269
Repaid 04/19/91 $ 269
Realized Gain $ 0
$98 14% Sr. Bridge Note
Purchased 11/28/90 $ 98
Repaid 04/19/91 $ 98
Realized Gain $ 0
$2,397 12.65% Sr. Sub. Note
Purchased various $2,397
Repaid 03/27/94 $2,397
Realized Gain $ 0
Total Realized Gain $ 0 32,142 41,819 11.79
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
MARCH 31, 1995
(DOLLARS IN THOUSANDS)
Principal Fair
Amount/ Investmen Investmen Value % Of
Shares Investment t t (Note 2) Total
Date Cost (f) Investmen
ts
<S> <C> <C> <C> <C> <C>
PLAYTEX PRODUCTS, INC. (d) (k) - Notes 8,9
1,406,204 Playtex Products, Inc., Common Stock(d)(k) 12/28/88 $3,255 $11,250
Shares
(4.6% of fully diluted common equity)
$19,285 15% Subordinated Notes
Purchased 12/28/88 $19,285
Sold 06/30/89 $19,285
Realized Gain $ 0
3,214,000 Shares Preferred Stock
Purchased 12/28/88 $ 3,214
Sold 06/30/89 $ 3,214
Realized Gain $ 0
2,571,314 Shares Common Stock
Purchased 12/28/88 $ 1,286
Sold 06/30/89 $ 1,286
Realized Gain $ 0
$11,250 15% Subordinated Note
Purchased 12/28/88 $11,250
Sold 09/28/90 $11,275
Realized Gain $ 25
2,571,314 Shares Common Stock
Purchased 12/28/88 $ 1,286
Sold 09/28/90 $10,512
Realized Gain $ 9,226
347,209 Shares Common Stock
Purchased 12/28/88 $ 174
Sold 12/20/91 $ 1,343
Realized Gain $ 1,169
$71,251 15% Subordinated Notes
Purchased 12/28/88 $71,251
Sold 02/01/93 $71,181
Realized Loss $ (70)
Total Net Realized Gain $10,350 3,255 11,250 3.16
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
MARCH 31, 1995
(DOLLARS IN THOUSANDS)
Principal Fair
Amount/ Investmen Investmen Value % Of
Shares Investment t t (Note 2) Total
Date Cost (f) Investmen
ts
<S> <C> <C> <C> <C> <C>
STANLEY FURNITURE COMPANY, INC. (a)(e) - Note 9
2,675,552 Stanley Furniture Co., Inc., Common Various $ 33,522 $ 19,063
Shares Stock(b)(h)(k)
(50.2% of fully diluted common equity)
$2,000 Loan participation
Purchased 03/12/92 $2,000
Repaid 04/05/93 $2,000
Realized Gain $ 0 33,522 19,063 5.37
TOTAL INVESTMENT IN MANAGED COMPANIES $298,610 $297,825 83.92
NON-MANAGED COMPANIES
SFX BROADCASTING, INC. - Note 9
26,000 Shares SFX Broadcasting Co. Common Stock(b)(k) 12/16/88 $4,880 $592
8,667 Option SFX Broadcasting Co. Common Stock Option(b)(j) 12/16/88 0 0
Shares
4,880 592 0.17
SWO HOLDINGS CORPORATION - Note 9
250,000 SWO Holdings Corp., Common Stock(d) 11/24/87 250 595
Shares
185,048 Homeland Holding Corp., Common Stock(d) 08/10/90 440 440
Shares
$5,000 15.5% Subordinated Notes
Purchased 11/24/87 $5,000
Sold 09/15/88 $5,075
Realized Gain $ 75 690 1,035 0.29
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
MARCH 31, 1995
(DOLLARS IN THOUSANDS)
Principal Fair
Amount/ Investmen Investmen Value % Of
Shares Investment t t (Note 2) Total
Date Cost (f) Investmen
ts
<S> <C> <C> <C> <C> <C>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
25,500 Shares TLC Beatrice Int'l Holdings., Inc., Common 11/30/87 $ 26 $ 26
Stock(d)
$8,500 13% Subordinated Notes
Purchased 11/30/87 $8,500
Sold 08/18/88 $8,500
Realized Gain $ 0 26 26 0.01
WALTER INDUSTRIES, INC. - Notes 8,9
547,200 Walter Industries, Inc., Common Stock(d) 01/07/88 12,000 6,000
Shares
(formerly Hillsborough Holdings Corporation)
12,000 6,000 1.69
NON-MANAGED COMPANIES WITH ZERO VALUE
CHARTER MEDICAL CORPORATION - Note 9
40,000 Charter Medical Corp. Common Stock Purchase 09/01/88 4 0
Warrants Warrants(d)
$5,000 14% Subordinated Notes
Purchased 09/01/88 $5,000
Sold 12/05/88 $5,000
Realized Gain $ 0 4 0 0.00
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $ 17,600 $ 7,653 2.16
SUMMARY OF MEZZANINE INVESTMENTS
Subordinated Notes $110,860 $135,661 38.23
Preferred Stock 67,086 27,036 7.62
Common Stock and Warrants 138,264 142,781 40.23
TOTAL MEZZANINE INVESTMENTS $316,210 $305,478 86.08
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
MARCH 31, 1995
(DOLLARS IN THOUSANDS)
Principal Fair
Amount/ Investmen Investmen Value % Of
Shares Investment t t (Note 2) Total
Date Cost (f) Investmen
ts
<S> <C> <C> <C> <C> <C>
TEMPORARY INVESTMENTS
COMMERCIAL PAPER
$6,817 Ford Motor Credit Corp., 5.94% due 04/03/95 03/01/95 $ 6,780 $ 6,814
$850 BMW U.S. Capital Corp., 5.95% due 04/03/95 03/15/95 847 849
$300 General Electric Capital Service Inc., 5.96% 03/21/95 299 299
due 04/18/95
$15,000 BMW U.S. Capital Corp., 6.02% due 05/15/95 03/31/95 14,887 14,887
$15,000 Golden Managers Acceptance Corp., 6.05% due 03/31/95 14,917 14,917
05/03/95
$11,700 Supplier Managers Acceptance Corp., 6.05% due 03/31/95 11,635 11,635
05/03/95
TOTAL INVESTMENT IN COMMERCIAL PAPER 49,365 49,401 13.92
TOTAL TEMPORARY INVESTMENTS 49,365 49,401 13.92
TOTAL INVESTMENT PORTFOLIO $365,575 $354,879 100%
(a) Represents investments in Affiliates as defined in the Investment Company Act of 1940.
(b) Non-income producing security.
(c) Restricted security.
(d) Restricted non-income producing security.
(e) Issuers of which the Fund, as of March 31, 1995, owned more than 25% of the voting securities
and which therefore were presumed to be controlled by the Fund under the Investment Company Act
of 1940 as of such date.
(f) Represents original cost and excludes accretion of discount of $0 for Mezzanine Investments and
$36 for Temporary Investments.
(g) Non-accrual investment status.
(h) Inclusive of receipt of payment-in-kind securities.
(i) Represents an amount of less than one thousand dollars.
(j) Publicly traded underlying class of securities.
(k) Publicly traded class of securities.
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
ML-LEE ACQUISITION FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
1. Organization and Purpose
ML-Lee Acquisition Fund, L.P. (the "Fund") was formed and the
Certificate of Limited Partnership was filed under the Delaware
Revised Uniform Limited Partnership Act on April 1, 1987. The
Fund's operations commenced on October 19, 1987.
The Managing General Partner, subject to the supervision of
the Individual General Partners, is responsible for overseeing
and monitoring the Fund's investments. Mezzanine Investments,
L.P. (the "Managing General Partner"), is a limited partnership
in which ML Mezzanine Inc., an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc., is the general partner, and Thomas
H. Lee Advisors I (the "Investment Adviser"), an affiliate of
Thomas H. Lee, is the limited partner. The Individual General
Partners are Vernon R. Alden, Joseph L. Bower and Stanley H.
Feldberg (the "Independent General Partners") and Thomas H. Lee.
The Fund has elected to operate as a business development
company under the Investment Company Act of 1940. Its primary
investment objective is to provide current income and long-term
capital appreciation by investing in "Mezzanine" securities
consisting primarily of Subordinated Debt and Preferred Stock
combined with an equity participation issued in connection with
leveraged acquisitions or other leveraged transactions which
management of the Fund believes offer significant possibilities
for return.
As stated in the Prospectus, the Fund will terminate upon the
liquidation of all Fund investments but no later than June 15,
1998, subject to the right of the Individual General Partners to
extend the term for up to one additional two-year period and one
additional one-year period if it is in the best interest of the
Fund. The Fund has five years more to liquidate its remaining
investments.
2. Significant Accounting Policies
Basis of Accounting
For financial reporting purposes, the records of the Fund are
maintained using the accrual method of accounting. For Federal
income tax reporting purposes, the results of operations are
adjusted to reflect statutory requirements arising from book to
tax differences.
Valuation of Investments
Securities for which market quotations are readily available
are valued by reference to such market quotation, using the last
trade price (if reported) or the last bid price for the period.
For securities without a readily ascertainable market value
(including securities restricted as to resale for which a
corresponding publicly traded class exists), fair value is
determined, on a quarterly basis, in good faith by the Managing
General Partner and the Investment Adviser with final approval
from the Individual General Partners of the Fund. For privately
issued securities in which the Fund typically invests, the fair
value of an investment is its original cost plus accrued value in
the case of original issue discount or deferred pay securities.
Such investments will be revalued if there is an objective basis
for doing so at a different price. Investments will be written
down in value if the Managing General Partner and Investment
Adviser believe adverse credit developments of a significant
nature require a write-down of such securities. Investments will
be written up in value only if there has been an arms'-length
third party transaction to justify the increased valuation.
Although the Managing General Partner and Investment Adviser use
their best judgment in estimating the fair value of these
investments, there are inherent limitations in any estimation
technique. Therefore, the fair value estimates presented herein
are not necessarily indicative of the amount which the Fund could
realize in a current transaction.
Temporary Investments with maturities of less than 60 days
are stated at amortized cost, which approximates market.
The information presented herein is based on pertinent
information available to the Managing General Partner and
Investment Adviser as of March 31, 1995. Although the Managing
General Partner and Investment Adviser are not aware of any
factors not disclosed herein that would significantly affect the
estimated fair value amounts, such amounts have not been
comprehensively revalued since that time and especially in light
of the fact that the portfolio investments of companies whose
equity is publicly traded are valued at the trading price at
March 31, 1995, the current estimated fair value of these
investments may have changed significantly since that point in
time.
Interest Receivable on Investments
Investments generally will be placed on non-accrual status in
the event of a default (after applicable grace period expires) or
if the Investment Adviser and the Managing General Partner
determine that there is no reasonable assurance of collecting
interest.
Payment-In-Kind Securities
All payment-in-kind securities received in lieu of cash
interest payments by the Fund's portfolio companies are recorded
at face value (which approximates accrued interest), unless the
Investment Adviser and the Managing General Partner determine
that there is no reasonable assurance of collecting the full
principal amounts of such securities. As of March 31, 1995 and
December 31, 1994, the Fund had in its portfolio of investments
$4,098,017 of payment-in-kind notes, which excludes $81,267,344
of payment-in-kind securities received from notes placed on non-
accrual status. As of March 31, 1995 and December 31, 1994, the
Fund had in its portfolio of investments $16,608,872 of payment-
in-kind equity (primarily from Alliance, Duro-Test, Stanley
Furniture and Petco Animal Supplies).
Investment Transactions
The Fund records investment transactions on the date on which
it obtains an enforceable right to demand the securities or
payment therefor. The Fund records Temporary Investment
transactions on the trade date.
Realized gains and losses on investments are determined on
the basis of specific identification for accounting and tax
purposes.
Deferred Interest Income
All fees received by the Fund upon the funding of Mezzanine
or Bridge Investments are treated as deferred interest income and
amortized over the maturity of such investments.
Loan Facility and Advisory Fees
Loan Facility and Advisory Fees are being amortized over the
life (7 years) of the Facility commencing in August, 1991.
Partners' Capital
Partners' Capital represents the Fund's equity divided in
proportion to the Partners' Capital Contributions and does not
represent the Partners' Capital Accounts. Profits and losses,
when realized, are allocated in accordance with the provisions of
the Partnership Agreement summarized in Note 3.
Interim Financial Statements
The financial information included in this interim report as
of March 31, 1995 and for the period then ended has been prepared
by management without an audit by independent certified public
accountants. The results for the period ended March 31, 1995 are
not necessarily indicative of the results of the operations
expected for the year and reflect adjustments, all of a normal
and recurring nature, necessary for the fair presentation of the
results of the interim period. In the opinion of Mezzanine
Investments, L.P., the Managing General Partner of the Fund, all
necessary adjustments have been made to the aforementioned
financial information for a fair presentation in accordance with
generally accepted accounting principles.
3. Allocation of Profits and Losses
Pursuant to the Partnership Agreement, all profits from
Temporary Investments generally are allocated 99% to the Limited
Partners and 1% to the Managing General Partner. Profits from
Mezzanine Investments are, in general, allocated as follows:
first, if the capital accounts of any partners have negative
balances, to such partners in proportion to the negative
balances in their capital accounts until the balances of all
such capital accounts equal zero,
second, 99% to the Limited Partners and 1% to the Managing
General Partner until the sum allocated to the Limited
Partners equals any previous losses allocated together with a
cumulative Priority Return of 10% on the average daily
investments in mezzanine securities, and any outstanding
Compensatory Payments,
third, 69% to the Limited Partners and 31% to the Managing
General Partner until the Managing General Partner has
received 21% of the total profits allocated,
thereafter, 79% to the Limited Partners and 21% to the
Managing General Partner.
Losses will be allocated in reverse order of profits
previously allocated and thereafter 99% to the Limited Partners
and 1% to the Managing General Partner.
4. Leverage
The Fund entered into a credit agreement, dated as of August
13, 1991 (the "Credit Facilities"), with a maximum credit
facility of $140 million with a lending group led by the First
National Bank of Chicago ("First Chicago"). The Credit
Facilities consisted of a $100 million secured term loan and a
$40 million secured revolving credit line. As of March 31, 1995,
the maximum availability under the Credit Facilities was reduced
to $19,894,240 due to the sales of pledged securities. The
Credit Facilities has been further reduced by a $4 million letter
of credit attributable to the investment in BeefAmerica, Inc.
The Credit Facilities will mature on July 31, 1998. Loan
advances bear interest at a floating rate equal to the greater of
prime plus 1% or the federal funds rate plus 1.5%. For the three
months ended March 31, 1995 and 1994, the Fund incurred $0 and
$57,756, respectively, in interest expense. In connection with
the Credit Facilities, the Fund has pledged its debt and equity
portfolio securities to its lenders.
In connection with the Credit Facilities, the Fund incurred
the following loan fees:
Nonrecurring fees of $4,421,309 paid to First Chicago in 1991
in connection with the creation of the credit facility, which
are being charged to expense over the life of the credit
facility. The amount expensed for the quarter ended March
31, 1995 was $157,194.
An annual Loan Administration Fee of $25,000 for the
administration of the credit facility. The amount expensed
for the quarter ended March 31, 1995 was $6,164.
An Unused Commitment Fee of 1/2 of 1% per annum of the unused
line of credit. The amount expensed for the quarter ended
March 31, 1995 was $18,428.
For the three months ended March 31, 1995 and 1994, the Fund
has incurred $182,223 and $198,609, respectively, in total loan
fees.
For additional information relating to leverage see Note 11.
5. Investment Advisory Fee
The Investment Adviser provides for the identification,
management and liquidation of investments for the Fund. As
compensation for services rendered to the Fund, the Investment
Adviser receives a quarterly fee at the annual rate of 1% of
assets under management (net offering proceeds, reduced by
cumulative capital reductions, plus outstanding bank borrowing as
specified in the Fund's Partnership Agreement), with a minimum
annual fee of $1,200,000. The Investment Advisory Fee is
calculated and paid quarterly, in advance. For the three months
ended March 31, 1995 and 1994, the Fund paid $741,411 and
$925,131, respectively, in Investment Advisory Fees to Thomas H.
Lee Advisors I.
6. Fund Administration Fee
ML Fund Administrators Inc. (an affiliate of the Managing
General Partner) performs the operational and administrative
services necessary for the management of the Fund. As
compensation for its services, the Fund Administrator is entitled
to receive from the Fund an annual amount equal to the greater of
$400,000 or 0.45% of the Net Proceeds Available for Investments
subject to certain reductions as specified in the Fund's
Partnership Agreement. The Fund Administration Fee is calculated
and paid quarterly, in advance. For the three months ended March
31, 1995 and 1994, the Fund paid $421,846 and $461,761,
respectively, in Fund Administration Fees.
All of the Fund's expenses for accounting, audits, printing,
tax preparation and other administrative services (excluding the
costs of bonding and extraordinary legal expenses) are paid by
the Fund Administrator from its fees.
7. Independent General Partners' Fees
As compensation for services rendered to the Fund, each of
the three Independent General Partners receives $40,000 annually
in quarterly installments, $1,000 for each meeting of the General
Partners attended and $1,000 for each committee meeting attended
($500 if a committee meeting is held on the same day as a meeting
of the General Partners) plus reimbursement for any legal and out-
of-pocket expenses. Also, on March 6, 1995, the Fund paid to
each Independent General Partner $5,497 as a non-recurring,
additional compensation with respect to 1994.
For the three months ended March 31, 1995 and 1994, the Fund
incurred $98,748 and $121,135, respectively, in Independent
General Partners' Fees and Expenses.
8. Investment Transactions
For the quarter ended March 31, 1995, there were no purchases
of investment securities other than Temporary Investments.
On January 26, 1995, the Fund sold its 14.25% C/D
Acquisition, Inc. Senior Subordinated Note plus accrued interest
for $5,390,850 which resulted in a realized loss of $49,981 to
the Fund.
On February 16, 1995, the Fund sold all of its 20,568 shares
of Hillsborough Holdings, Inc. ("Hillsborough") common stock at
$.85 per share, realizing a loss of $85,357.
On March 2, 1995, the bankruptcy court judge confirmed the
reorganization plan for Hillsborough, which emerged from
bankruptcy on March 17, 1995 as Walter Industries, Inc. The Fund
will receive 547,200 shares of Common Stock in Walter Industries,
Inc. in exchange for its $12 million of Subordinated Debt in
Hillsborough. Limited trading of the stock has occurred on a
when-issued basis. The March 31, 1995 closing price for the
stock was $11 1/4.
On March 21, 1995, Playtex Products, Inc., formerly Playtex FP
Group Incorporated, ("Playtex"), announced that it will sell an
approximate 40% stake in Playtex for $180 million, or $9.00 per
share, to an investment group led by Haas Wheat & Harrison. The
proceeds from the Haas Investment will be used to retire a
portion of the company's long-term debt. In addition, Playtex
renegotiated its senior debt facility, led by Chemical Bank,
which will reduce the rate of the company's senior borrowings.
These changes in Playtex's capital structure will reduce
Playtex's annual interest costs by approximately $20 million.
Furthermore, the Haas Investment is expected to allow Playtex
more freedom to pursue new growth opportunities. None of the
existing shareholders, including the Fund, will sell stock in
connection with the Haas Investment. The Fund continues to hold
1,406,204 shares of Playtex stock.
On March 31, 1995, Omega Wire, Inc. ("Omega") redeemed $15
million of its 15% Senior Subordinated Notes which the Fund
owned. Omega also paid a $900,000 prepayment penalty which
resulted in a realized gain for the Fund. The Fund also sold
80,000 shares of common stock of THL-Omega Holding Corporation to
a third party at a price of approximately $301 per share. This
sale of common stock resulted in a realized gain of $23,762,641
for the Fund.
For the quarter ended March 31, 1995, the proceeds and costs
from the sales of investments other than Temporary Investments
aggregated $44,950,142 and $20,422,840, respectively. This
resulted in a net realized gain of $24,527,302 from investments
during the quarter ended March 31, 1995. For additional
information, please refer to the Supplemental Schedule of
Realized Gains and Losses (Schedule 1) on page 32.
At March 31, 1995, the Fund had a total of $316,209,435
invested in Mezzanine Investments (including $20,706,889 of
payment-in-kind securities, which excludes $81,267,344 of payment-
in-kind securities received from notes placed on non-accrual
status), representing $298,609,393 Managed and $17,600,042 Non-
Managed portfolio investments.
Because the Fund primarily invests in high-yield private
placement securities, the risk of loss upon default by an issuer
is greater than with investment grade securities because high-
yield securities are generally unsecured and are often
subordinated to other creditors of the issuer. Also, high-yield
issuers usually have higher levels of indebtedness and are more
sensitive to adverse economic conditions.
Although the Fund cannot eliminate its risks associated with
its investments in high-yield securities, it has procedures in
place to continually monitor its risks associated with its
investments under a variety of market conditions. Any potential
Fund loss would generally be limited to its investment in the
portfolio company reflected in the portfolio of investments. See
Note 11 for information concerning commitments and guarantees.
Should bankruptcy proceedings commence, either voluntarily or
by action of the court against a portfolio company, the ability
of the Fund to liquidate the position or collect proceeds from
the action may be delayed or limited.
9. Unrealized Appreciation and Depreciation of Investments
For the quarter ended March 31, 1995, the Fund recorded net
unrealized depreciation of $13,315,018 and as of this date, the
Fund's cumulative net unrealized depreciation on investments
totalled $10,732,350.
For the quarter ended March 31, 1994, the Fund recorded net
unrealized depreciation of $35,383,844.
For additional information, please refer to the Supplemental
Schedule of Unrealized Appreciation and Depreciation (Schedule 2)
on pages 33 - 34.
10. Non-Accrual of Investments
In accordance with the Fund's Accounting Policy, the
following notes have been on non-accrual status since the date
indicated:
- - BeefAmerica Incorporated on July 1, 1990.
- - Chadwick-Miller, Inc. on January 1, 1993.
11. Commitments and Guarantees
On October 12, 1989, the Fund established a $4 million
standby letter of credit issued to Citibank as security for part
of its loan to BeefAmerica, Inc. On January 31, 1993, the Fund
established an additional $4 million as security, which increased
the amount of the standby letters of credit for BeefAmerica's
Senior Bank Group to $8 million. On January 12, 1995, the $4
million letter of credit issued in 1993 was cancelled leaving
only a $4 million standby letter of credit issued by the Fund.
On January 20, 1992, the Fund entered into a commitment to
guarantee up to $150,480 to support an obligation of a subsidiary
of Alliance International Group, Inc. The amount of such
guarantee represents the Fund's pro-rata portion of a $600,000
aggregate additional advance provided by the senior lender of
Alliance.
On April 13, 1994, the Fund and the Lee Affiliates agreed to
severally guarantee ultimate payment to Diet Center's legal
counsel for all past and ongoing legal services rendered in
connection with the Diet Center franchise litigation (see Note 13
to the financial statements). The Fund guaranteed 85.71% and the
Lee Affiliates guaranteed 14.29% of such fees. On December 8,
1994, Diet Center's Senior Bank Lender foreclosed on Diet
Center's assets, terminating the Fund's guarantee. In addition,
from June 28 to December 8, 1994, the Fund guaranteed the payment
of certain other expenses in connection with such litigation and
the Lee Affiliates entered into similar agreements in proportion
to their equity. During 1994, the Fund paid legal and expert
witness fees in connection with the Diet Center litigation
totalling $1,046,681.
12. Litigation
On March 9, 1989, a number of franchisees of Diet Center,
Inc. initiated a suit in San Francisco Superior Court challenging
Diet Center's 50 cent increase in the Continuing License Fee
which is paid by all franchisees on a per dieter, per day basis.
Plaintiffs alleged that all defendants (including the Fund, its
Investment Adviser and Thomas H. Lee) conspired to finance the
leveraged buy-out of Diet Center's corporate parent, American
Health Companies Inc., by wrongfully increasing the License Fee.
Plaintiffs subsequently filed an amended fraudulent conveyance
count. On January 27, 1995 Judge Baxter of the San Francisco
Supreme Court issued a written opinion after trial in which she
ruled in favor of all defendants (including, the Fund, its
Investment Adviser and Thomas H. Lee) on plaintiffs' allegation
that the leveraged buy-out of American Health Companies, Inc. was
a constructively fraudulent conveyance. The Court had previously
granted summary judgment to the Fund, the Thomas H. Lee Company
and Thomas H. Lee on plaintiffs' other allegations against those
defendants. The time period for plaintiffs' to file an appeal
has not yet expired.
On September 7, 1991, the Fund brought suit in the Court of
Common Pleas for the County of Greenville, South Carolina against
Deloitte & Touche in connection with Deloitte & Touche's audit
opinions on the financial statements of Emb-Tex Corporation,
formerly an operating subsidiary of a portfolio company of the
Fund. The Fund contends that the value of Emb-Tex Corporation's
inventory and operating income were substantially overstated in
its financial statements. The Fund seeks actual and punitive
damages in connection with the loss of its aggregate $18 million
investment. Deloitte & Touche has obtained a summary judgment in
its favor and the Fund is pursuing an appeal in the appellate
courts of South Carolina.
On October 18, 1991, one Limited Partner of the Fund
commenced a class action in the Supreme Court of the State of New
York in the County of New York, on behalf of a class of all
Limited Partners of record during 1990 or their successors in
interest, against the Fund's Managing General Partner, Individual
General Partners, Investment Adviser and certain of their
affiliates. The complaint alleges that the defendants breached
the Fund's Partnership Agreement in 1990 by causing the Fund to
pay $7,554,855 in incentive compensation to the Managing General
Partner with respect to that year. The complaint seeks monetary
damages in the amount of $7,554,855, together with interest, and
other relief. The defendants believe that the claim is without
merit and sought to have it dismissed. The court denied the
defendants' motion for summary judgment, and the defendants filed
an interlocutory appeal to the New York Supreme Court, Appellate
Division, which was denied. Thereafter, defendants moved to
decertify the class and that motion was denied. A trial was held
in late January, 1995. Whether or not the plaintiff prevails,
the Fund may be obligated to indemnify and advance litigation
expenses to one or more of the defendants under the terms and
conditions of various indemnity provisions of the Fund's
Partnership Agreement and separate indemnification agreements.
The Fund has advanced litigation expenses to the indemnified
parties based upon amounts which are deemed reimbursable in
accordance with the indemnification provisions and has included
these amounts in professional fees. The final outcome of this
case is not determinable at this time.
On October 14, 1993, a Limited Partner commenced a putative
class action in the U.S. District Court for the District of
Delaware, purportedly on behalf of all persons who purchased
limited partnership interests in the Fund between August 12, 1987
and the date of filing of the complaint, against the Fund, the
Managing General Partner, the Individual General Partners, the
Investment Adviser to the Fund and certain named affiliates of
such persons. As amended, the complaint alleges that the
defendants operated the Fund, and caused it to make certain
investments, for the benefit of some or all of the defendants at
the expense of the Fund's Limited Partners in breach of
defendants' fiduciary and contractual duties to the Limited
Partners, thereby violating federal securities laws applicable to
the Fund and its affiliates under the Investment Company Act of
1940, as amended, as well as Delaware state law. The plaintiff
seeks an accounting, rescission, rescissory or actual damages and
punitive damages. The defendants in this action believe that the
claims are without merit and have moved to dismiss them. By
Order dated September 30, 1994 and Opinion dated October 14,
1994, the court granted in part and denied in part defendants'
motion to dismiss the amended complaint, dismissing plaintiffs'
claims with respect to several investments as time-barred and
dismissing all claims for aiding and abetting liability under the
Investment Company Act of 1940. Whether or not the plaintiff
prevails on any remaining claims, the Fund may be obligated to
indemnify and advance litigation expenses to certain of the
defendants under the terms and conditions of various indemnity
provisions in the Fund's Partnership Agreement and separate
indemnification agreements, and the amounts of such
indemnification and expenses could be material. The outcome of
this case is not determinable at this time. The Fund has
incurred litigation expenses which are recorded in professional
fees.
13. Related Party Transactions
Certain of the Mezzanine Investments and Bridge Investments
which were made by the Fund involve co-investments with entities
affiliated with the Investment Adviser. Such co-investments are
generally prohibited absent exemptive relief from the Securities
and Exchange Commission (the "Commission"). As a result of these
affiliations and the Fund's expectation of engaging in such co-
investments, the Fund sought an exemptive order from the
Commission allowing such co-investment, which was received on
September 23, 1987. An additional exemptive order allowing co-
investment with ML-Lee Acquisition Fund II, L.P. ("Fund II") and
ML-Lee Acquisition Fund (Retirement Accounts) II, L.P.
("Retirement Fund") was received from the Commission on September
1, 1989. The Fund's investments in Managed Companies, and in
certain cases its investments in Non-Managed Companies, typically
involve the entry by the Fund and other equity security holders
into stockholders' agreements. While the provisions of such
stockholders' agreements vary, such agreements may include
provisions as to corporate governance, registration rights,
rights of first offer or first refusal, rights to participate in
sales of securities to third parties, rights of majority
stockholders to compel minority stockholders to participate in
sales of securities to third parties, transfer restrictions and
preemptive rights.
Thomas H. Lee Company, a sole proprietorship owned by Thomas
H. Lee, an Individual General Partner of the Fund and an
affiliate of the Investment Adviser, typically performs certain
management services for Managed Companies and receives management
fees in connection therewith, usually pursuant to written
agreements with such companies. In addition, certain of the
Portfolio Companies have contractual or other relationships
pursuant to which they do business with one another.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S")
is an affiliate of the Managing General Partner. MLPF&S and
certain of its affiliates, in the ordinary course of their
business, perform various financial services for various
portfolio companies of the Fund, which may include investment
banking services, broker/dealer services and economic
forecasting, and receive in consideration therewith various fees,
commissions and reimbursements. Furthermore, MLPF&S and its
affiliates or investment companies advised by affiliates of
MLPF&S may, from time to time, purchase or sell securities issued
by portfolio companies of the Fund in connection with their
ordinary investment operations.
During the quarter ended March 31, 1995, the Managing General
Partner received a fourth quarter 1994 cash distribution in the
amount of $76,024.69, representing its 1% interest in the Fund.
This cash distribution was paid on February 14, 1995.
14. Reserves
In February 1993, the Fund established a $15 million reserve
to provide funds for follow-on investments and to pay expenses.
As of December 31, 1994, the reserve balance was reduced to
approximately $3.1 million due to follow-on investments in CMI
Holding Corp., Diet Center Inc., Duro-Test Corporation, Health o
meter and Petco of $2.25 million, $444,861, $2.6 million, $3.28
million and $529, respectively, along with a distribution to
partners in the second quarter of 1993 of $424,264 and a payment
of $2.9 million to First Chicago to pay down the Fund's loan.
15. Income Taxes (Statement of Financial Accounting Standards
No. 109)
No provision for income taxes has been made since all income
and losses are allocated to the Fund's partners for inclusion in
their respective tax returns.
Pursuant to Statement of Financial Accounting Standards No.
109 - Accounting for Income Taxes, the Fund is required to
disclose any difference in the tax bases of the Fund's assets and
liabilities versus the amounts reported in the financial
statements. Generally, the tax bases of the Fund's assets
approximate the amortized cost amounts reported in the financial
statements. This amount is computed annually and as of December
31, 1994, the tax bases of the Fund's assets are greater than the
amounts reported in the financial statements by $21,040,094.
This difference is primarily attributable to unrealized
depreciation on investments which has not been recognized for tax
purposes.
16. Subsequent Events
On March 31, 1995 Petco Animal Supplies, Inc. announced a
public offering of 3 million shares of common stock, of which
approximately 2 million would be sold by Petco and 1 million
would be sold by Petco's shareholders, including the Fund. The
offering was effected on April 27, 1995 and the Fund sold 921,661
shares of common stock at a net price per share of $19.7125. The
Fund received proceeds of $18,168,242, realizing a gain of
$3,292,291. The underwriter has an overallotment option which
allows it to sell up to 138,250 additional shares of the Fund's
Petco common stock at any time until May 27, 1995, the
overallotment option's expiration date.
On May 8, 1995, the Individual General Partners approved the
first quarter 1995 cash distribution totalling $44,671,712, which
consists of $24,662,641 from capital gains from sales of
securities, $20,287,502 from return of capital and $32,507 from
net investment income from Temporary Investments partially offset
by a net investment loss of $310,938 from Mezzanine Investments
during the first quarter. The total amount distributed to
Limited Partners was $44,225,008 or $90.72 per unit. The
Managing General Partner will receive $446,710, representing its
1% interest in the Fund. This cash distribution will be paid on
May 15, 1995.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
ML-LEE ACQUISITION FUND, L.P.
SUPPLEMENTAL SCHEDULE OF REALIZED GAINS (LOSSES)
FOR THE QUARTER ENDED MARCH 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NUMBER REALIZED
OF ORIGINAL NET GAIN/
SECURITY SHARES/ COST PROCEEDS (LOSS)
PRINCIPAL
<S> <C> <C> <C> <C>
Chiat/Day, Inc. Advertising
Sr. Subordinated Note $ 5,000 $ 5,000 $ 4,950 $ (50)
Hillsborough Holdings
Corporation
Common Stock 20,658 103 17 (86)
Omega Wire, Inc.
Sr. Subordinated Note $15,000 15,000 15,900 900
Common Stock 80,000 320 24,083 23,763
TOTAL $20,423 $44,950 $24,527
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2
ML-LEE ACQUISITION FUND, L.P.
SUPPLEMENTAL SCHEDULE OF UNREALIZED APPRECIATION AND DEPRECIATION
FOR THE PERIOD ENDED MARCH 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Unrealized
Appreciation Total Total
/ Unrealized Unrealized
Investm Fair (Depreciatio Appreciation/ Appreciation
SECURITY ent Value n) for the (Depreciation /
Cost Quarter ) (Depreciatio
Ended March at December n)
31, 1995 31, 1994 at March 31,
1995
<S> <C> <C> <C> <C> <C>
PUBLICLY TRADED/UNDERLYING
SECURITY PUBLICLY TRADED:
Celebrity, Inc.
Common Stock* $ 225 $ 113 $ 37 $ (149) $ (112)
General Nutrition
Companies, Inc.
Convertible Subordinated 40,000 113,729 (5,123) 78,852 73,729
Notes*
Common Stock 3,236 38,121 (1,717) 36,602 34,885
Warrants - 9,634 (529) 10,163 9,634
Health o meter
Common Stock* 4,552 5,666 293 821 1,114
Petco Animal Supplies
Common Stock(a) 32,142 41,819 12,944 (3,267) 9,677
Playtex Family Products
Corporation
Common Stock 3,255 11,250 1,231 6,764 7,995
SFX Broadcasting, Inc.
Common Stock 4,880 592 111 (4,399) (4,288)
Stanley Furniture Company
Common Stock 33,522 19,063 (7,692) (6,767) (14,459)
TOTAL UNREALIZED
APPRECIATION
(DEPRECIATION) FROM
PUBLICLY
TRADED/UNDERLYING
SECURITIES
PUBLICLY TRADED $ (445) $ 118,620 $ 118,175
* Underlying security
publicly traded.
(a) Restricted security.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2
ML-LEE ACQUISITION FUND, L.P.
SUPPLEMENTAL SCHEDULE OF UNREALIZED APPRECIATION AND DEPRECIATION
FOR THE PERIOD ENDED MARCH 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Unrealized
Appreciation Total Total
/ Unrealized Unrealized
Investm Fair (Depreciatio Appreciation/ Appreciation
SECURITY ent Value n) for the (Depreciation /
Cost Quarter ) (Depreciatio
Ended March at December n)
31, 1995 31, 1994 at March 31,
1995
<S> <C> <C> <C> <C> <C>
NONPUBLIC SECURITIES:
BeefAmerica Incorporated
Senior Subordinated Note $20,000 $10,000 $ - $(10,000) $(10,000)
Subordinated Notes 38,928 - - (38,928) (38,928)
Preferred Stock 40,050 - - (40,050) (40,050)
Common Stock 2,000 - - (2,000) (2,000)
Chadwick-Miller, Inc.
Common Stock 3,736 1,929 - (1,807) (1,807)
Charter Medical Corporation
Common Stock Warrants 4 - - (4) (4)
Duro-Test Corporation
Preferred Stock 2,618 2,618 - - -
Common Stock 36,045 5,582 - (30,463) (30,463)
Hillsborough Holdings
Corporation
Subordinated Note - - 6,000 (6,000) -
Common Stock - - 103 (103) -
Omega Wire, Inc.
Common Stock - - (12,971) 12,971 -
SWO Holdings Corporation
Common Stock 250 595 - 345 345
Walter Industries, Inc.
Common Stock 12,000 6,000 (6,000) - (6,000)
TOTAL UNREALIZED
DEPRECIATION
FROM NONPUBLIC SECURITIES (12,868) (116,039) (128,907)
NET UNREALIZED APPRECIATION
(DEPRECIATION) $(13,313) $ 2,581 $ (10,732)
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity & Capital Resources
As of March 31, 1995, the Fund had a total of $316,209,435
(including $4,098,017 of payment-in-kind notes and $16,608,872 of
payment-in-kind equity, which excludes $81,267,344 of payment-in-
kind securities received from notes placed on non-accrual status)
invested in Mezzanine Investments, representing $298,609,393
Managed and $17,600,042 Non-Managed portfolio investments. These
investments were financed by net offering proceeds and debt
financing. This represents a $20,422,837 decrease versus the
total at December 31, 1994 of $336,632,272. The decrease in
gross assets is due primarily to the sales and redemptions of
Portfolio Investments. The Fund's Mezzanine Investments consist
of high-yield subordinated debt and/or preferred stock linked
with an equity participation in middle market companies typically
issued in private placement transactions and are usually subject
to restrictions on the transfer or sale of the security, thereby
limiting their liquidity.
Excluding subordinated notes placed on non-accrual status,
the Fund during the three months ended March 31, 1995, received
no additional debt securities in lieu of cash interest payments
("payment-in-kind") as provided in certain of its subordinated
note investments. As of March 31, 1995, the Fund has in its
portfolio investments $20,706,889 of payment-in-kind securities
which excludes $81,267,344 of payment-in-kind securities received
from notes placed on non-accrual status.
On August 13, 1991, the Fund completed a refinancing of its
credit agreement with a lending group led by The First National
Bank of Chicago ("First Chicago"). The new agreement provided
the Fund with a maximum credit facility of $140 million,
consisting of a $100 million term loan and a $40 million
revolving credit line, both maturing on July 31, 1998. The Fund
has pledged substantially all of its securities to secure
repayment of this facility. The agreement generally provided for
mandatory prepayments, and a permanent reduction in the credit
facility, equal to the lesser of cost or cash proceeds in the
event of the sale or other cash disposition of Mezzanine
Investments.
On October 29, 1993, the Fund entered into an amendment to
its credit agreement enabling the Fund to make prepayments of the
term loan at any time and without any corresponding reduction to
the revolving credit line. On January 6, 1994, the Fund paid
down its term loan by $6.2 million ($3.3 million of this amount
was set aside from fourth quarter 1993 gains and $2.9 million was
utilized from the Fund's reserve). In addition, due to sales of
securities, the Fund made a series of mandatory loan paydowns in
the first quarter of 1994, aggregating to $3,394,004. As of
March 29, 1994, the outstanding term loan was paid in full. As
of March 31, 1995, the Fund's maximum credit facility had been
reduced to $19,894,240 due to loan paydowns from the sales of
Mezzanine Investments. Of this amount the Fund had utilized $4
million to support a letter of credit established by the Fund,
leaving an unused revolving line of credit of $15,894,240.
The Fund is now in its ninth year of operation. Since a
number of investments have already been repaid or sold and a
number of other portfolio companies are unable to pay current
interest to the Fund, cash dividends, interest and other income
expected to be received by the Fund in the near future might not
cover the Fund's expenses. Distribution from operations in the
future, if any, will therefore be minimal. Future cash
distributions to Limited Partners will be mostly derived from
capital proceeds and gains resulting from sales of securities.
The amount and timing of asset sales are dependent on future
market conditions and therefore are inherently unpredictable.
Generally, the proceeds generated from the sale of the Fund's
investments will be distributed to partners only after
application of the original cost of the investments, and in some
cases an additional amount, to repay the Funds' outstanding loan
if any, or to replenish the Fund's reserve. To fund the
anticipated cash flow shortfall in the near future and to
maintain adequate reserves for possible follow-on investments,
the Fund had reserved $15 million of the proceeds received from
the Playtex notes sale in February, 1993. A portion of the
reserve was used to make follow-on investments of $444,861, $2.6
million, $2.25 million, $3.28 million and $529 in Diet Center,
Duro-Test Corp., Chadwick-Miller, Health o meter and Petco,
respectively, along with a distribution to partners in the second
quarter of 1993 of $424,264. In addition, $2.9 million was
utilized from the reserve to paydown a portion of the First
Chicago loan on January 6, 1994. The Fund's reserve balance as
of March 31, 1995 was reduced to approximately $3.1 million. The
Fund has invested its remaining $3.1 million reserve in Temporary
Investments. As of March 1, 1995, the Independent General
Partners have approved retention of the reserve at its current
level.
On March 31, 1995 Petco Animal Supplies, Inc. announced a
public offering of 3 million shares of common stock, of which
approximately 2 million would be sold by Petco and 1 million
would be sold by Petco's shareholders, including the Fund. The
offering was effected on April 27, 1995 and the Fund sold 921,661
shares of common stock at a net price per share of $19.7125. The
Fund received proceeds of $18,168,242, or $36.89 per limited
partnership $1,000 unit, realizing a gain of $3,292,291. The
proceeds from the sale will be distributed with the second
quarter cash distribution on or about August 14, 1995. The
underwriter has an overallotment option which allows it to sell
up to 138,250 additional shares of the Fund's Petco common stock
at any time until May 27, 1995, the overallotment option's
expiration date.
Investment in High-Yield Securities
The Fund invests primarily in subordinated debt and preferred
stock securities ("High-Yield Securities"), generally linked with
an equity participation, issued in conjunction with the mezzanine
financing of privately structured, friendly leveraged
acquisitions, recapitalizations and other leveraged financings.
High-Yield Securities are debt and preferred equity securities
that are unrated or are rated by Standard & Poor's Corporation as
BB or lower and by Moody's Investor Services, Inc. as Ba or
lower. Risk of loss upon default by the issuer is significantly
greater with High-Yield Securities than with investment grade
securities because High-Yield Securities are generally unsecured
and are often subordinated to other creditors of the issuer.
Also, these issuers usually have high levels of indebtedness and
are more sensitive to adverse economic conditions, such as
recession or increasing interest rates, than investment grade
issuers. Most of these securities are subject to resale
restrictions and have no quoted market price.
Although the Fund cannot eliminate the risks associated with
its investments in High-Yield Securities, it has established risk
management policies. The Fund subjected each prospective
investment to rigorous analysis and made only those investments
that were recommended by the Investment Adviser and that met the
Fund's investment guidelines or that had otherwise been approved
by the Managing General Partner and the Independent General
Partners. Fund investments were measured against specified Fund
investment and performance guidelines. To limit the exposure of
the Fund's capital in any single issuer, the Fund limits the
amount of its investment in a particular issuer. However, due to
the substantial increase in the fair value of the Fund's
investment securities of General Nutrition Companies, Inc., over
44% of the Fund's total assets (on a fair value basis) is now
invested in this issuer. Future results will be significantly
affected by changes in the market value of General Nutrition
Companies, Inc. Common Stock. The Fund's Investment Adviser also
continually monitors portfolio companies in order to minimize the
risks associated with its investments in High-Yield Securities.
Certain issuers of securities held by the Fund (Celebrity,
General Nutrition Companies, Healthtrust, Petco, Playtex, SFX
Broadcasting Inc., Stanley Furniture and in part, Health o meter)
have registered their equity securities in public offerings.
Although the equity securities of the same class presently held
by the Fund (except Celebrity, Stanley Furniture and in part,
Health o meter) were not registered in these offerings, the Fund
has the ability under Rule 144 under the Securities Act of 1933
to sell publicly traded equity securities held by it for at least
two years on the open market, subject to the volume restrictions
set forth in that rule. The Rule 144 volume restrictions
generally are not applicable to equity securities of non-
affiliated companies held by the Fund for at least three years
(currently, SFX Broadcasting). The Fund in certain cases has
agreed not to make any sales of equity securities for a specified
hold-back period following a public offering.
The Investment Adviser reviews each portfolio company's
financial statements quarterly. In addition, the Investment
Adviser routinely reviews and discusses financial and operating
results with the company's management and, where appropriate,
attends board of director meetings. In some cases,
representatives of the Investment Adviser, acting on behalf of
the Fund (and affiliated investors where applicable), serve as
one or more of the directors on the boards of portfolio
companies. The Fund may, from time to time, make follow-on
investments to the extent necessary to protect or enhance its
existing investments.
Results of Operations
Investment Income and Expenses
For the three months ended March 31, 1995, the Fund had a net
investment loss from operations of $158,386, as compared to net
investment income of $11,966,753 for the same period in 1994.
The total investment income earned on investments for the three
months ended March 31, 1995 was $2,488,281 of which $2,329,819
was earned from Mezzanine Investments and $158,462 was earned
from Temporary Investments. For the same period in 1994, total
investment income earned on investments was $13,934,260 of which
$13,717,657 was earned from Mezzanine Investments and $216,603
was earned from Temporary Investments.
The decrease in the 1995 net investment income versus the
comparative period in 1994 reflects the 1994 recognition of prior
year's income of Petco Animal Supplies. In addition, this
decrease was partially due to higher professional and Independent
General Partners' legal fees and offset by a lower Investment
Advisory Fee, Fund Administration Fee and interest expense. The
gradual economic recovery and the higher level of consumer and
business confidence has improved the sales and profit levels of
some of the Fund's portfolio companies. As long as these
business and economic conditions improve, they should continue to
improve the Fund's performance.
Major expenses for the period consisted of professional fees,
the Investment Advisory Fee, the Fund Administration Fee and loan
fees.
Professional fees paid by the Fund consist primarily of legal
fees incurred in conjunction with litigation. Professional fees
for the three months ended March 31, 1995 and 1994 were
$1,200,095 and $200,526, respectively. This increase is
attributable to litigation expenses incurred by the Fund and
legal fees required to be advanced by the Fund in connection with
the litigation described in Note 12 to the Financial Statements.
The Investment Adviser and Fund Administrator receive their
compensation on a quarterly basis. The total Investment Advisory
Fee paid to the Investment Adviser for the three months ended
March 31, 1995 was $741,411 compared with $925,131 for the three
months ended March 31, 1994. The fee is calculated at an annual
rate of 1% of assets under management, subject to certain
reductions as specified in the Fund's Partnership Agreement with
a minimum annual payment of $1,200,000. The decrease in 1995 as
compared to 1994 Investment Advisory Fee is a direct result of
the reductions in outstanding borrowings, sales of investments,
returns of capital to partners and realized losses on
investments.
The total Fund Administration Fee paid to the Fund
Administrator for the three months ended March 31, 1995 was
$421,846 and was calculated at an annual rate of 0.45% of net
offering proceeds reduced by one-half of the realized loss and
distributions of capital. For the three months ended March 31,
1994, the Fund Administration Fee was $461,761.
All fund expenses for accounting, audits, printing, tax
preparation and other administrative services (excluding the
costs of bonding and extraordinary legal expenses) are paid by
the Fund Administrator from its fees.
On October 19, 1995, the calculation of the Fund
Administration Fee will change to an annual rate of the sum of
$300,000 per year and all actual out-of-pocket expenses incurred
on behalf of the Fund by the Fund Administrator (but not for
compensation of the executive officers of the Fund
Administrator), but in no event exceeding in aggregate the annual
amount of $2.0 million.
Loan fees consist of fees on the unused portion of the Fund's
facility, loan administration fees, amortization of the loan
advisory and facility fees and various miscellaneous fees
attributable to the facility. Loan fees for the three months
ended March 31, 1995 and 1994, totalled $182,223 and $198,609,
respectively. The decrease of $16,386 for the three months ended
March 31, 1995 versus the same period in 1994 is primarily due to
reductions of the Credit Facilities as described in Note 4 to the
Financial Statements.
Net Assets
The Fund's net assets increased by $3,451,044 during the
quarter ended March 31, 1995, primarily due to net realized gains
of $24,527,302, offset by additional net unrealized depreciation
of $13,315,018, cash distributions of $7,602,855 and a net
investment loss of $158,386.
The Fund's valuation of the Common Stock of Celebrity,
General Nutrition Companies, Health o meter, Petco, Playtex, SFX
Broadcasting and Stanley Furniture reflect their closing market
price at March 31, 1995. General Nutrition Companies, Inc.
Warrants are valued at the common stock's closing market price
less the Fund's current warrant exercise price. The Fund's
General Nutrition Companies, Inc. convertible notes are valued at
the common stock closing market price as adjusted by the
conversion rate.
The General Nutrition Companies Inc., Health o meter (in
part), Petco and Playtex securities held by the Fund are
restricted securities under the Securities and Exchange
Commission's Rule 144 and can only be sold under that rule, in a
registered public offering, or pursuant to an exemption from the
registration requirement. In addition, resale in some cases is
restricted by lockup or other agreements. The Fund may be
considered an affiliate of Health o meter and Stanley Furniture
under the Securities and Exchange Commission's Rule 144, and
therefore, any resale of Health o meter or Stanley Furniture
securities under Rule 144 is limited by the volume limitations in
that rule. Accordingly, the values referred to in the financial
statements for the remaining General Nutrition Companies, Inc.,
Health o meter, Petco, Playtex and Stanley Furniture securities
held by the Fund do not necessarily represent the prices at which
these securities could currently be sold.
As overall economic, market and business conditions improve,
the sales and profit levels of some of the Fund's companies have
increased, resulting in higher valuations for some of the Fund's
equity investments, primarily General Nutrition Companies, Inc.
and to a lesser extent Petco Animal Supplies.
The Fund's net assets decreased by $45,664,865 during the
quarter ended March 31, 1994, primarily due to additional net
unrealized depreciation of $35,383,844 and cash distributions to
partners of $29,052,375 partially offset by net investment income
of $11,966,753 and realized gain of $6,804,601.
Unrealized Appreciation and Depreciation and Non-Accrual of
Investments
For the quarter ended March 31, 1995, the Fund recorded net
unrealized depreciation of $13,315,018 and on this date, the
Fund's cumulative net unrealized depreciation on investments
totalled $10,732,350.
For the quarter ended March 31, 1994, the Fund recorded net
unrealized appreciation of $35,383,844.
The Managing General Partner and Investment Adviser review
the valuation of the Fund's portfolio investments that do not
have a readily ascertainable market value on a quarterly basis
with final approval from the Individual General Partners.
Portfolio Investments are valued at original cost plus accrued
value in the case of original issue discount or deferred pay
securities. Such investments will be revalued if there is an
objective basis for doing so at a different price. Investments
will be written down in value if the Managing General Partner and
Investment Adviser believe adverse credit developments of a
significant nature require a write-down of such securities.
Investments will be written up in value only if there has been an
arms length third party transaction to justify the increased
valuation.
A majority of the Fund's assets (at cost) are invested in
private placement securities for which there are no ascertainable
market values. Although the Managing General Partner and
Investment Adviser use their best judgment in estimating the fair
value of these investments, there are inherent limitations in any
estimation technique. Therefore, the fair value estimates
presented herein are not necessarily indicative of the amount
which the Fund could realize in a current transaction.
The information presented herein is based on pertinent
information available to the Managing General Partner and
Investment Adviser as of March 31, 1995. Although the Managing
General Partner and Investment Adviser are not aware of any
factors not disclosed herein that would significantly affect the
estimated fair value amounts, such amounts have not been
comprehensively revalued since that time, and the current
estimated fair value of these investments may have changed
significantly since that point in time.
The fair value of the Fund's investment in General Nutrition
Companies securities at March 31, 1995, totals over $161 million,
or over 44% of the Fund's total assets (at fair value). Due to
the high concentration of the Fund's assets in this one company,
future results will be significantly affected by changes in the
value of General Nutrition Companies Common Stock.
For additional information, please refer to the Supplemental
Schedule of Unrealized Appreciation and Depreciation (Schedule 2)
on pages 33 - 34.
Realized Gains and Losses
The net realized gain on investments for the quarter ended
March 31, 1995 was $24,527,302 compared to a net realized gain of
$6,804,601 for the same period in 1994.
For additional information, please refer to the Supplemental
Schedule of Realized Gains and Losses (Schedule 1) on page 32.
Cash Distributions
On May 8, 1995, the Individual General Partners approved the
first quarter 1995 cash distribution totalling $44,671,712, which
consists of $24,662,641 from capital gains from sales of
securities, $20,287,502 from return of capital and $32,507 from
net investment income from Temporary Investments partially offset
by a net investment loss of $310,938 from Mezzanine Investments
during the first quarter. The total amount distributed to
Limited Partners was $44,225,008 or $90.72 per unit. The
Managing General Partner will receive $446,710, representing its
1% interest in the Fund. This cash distribution will be paid on
May 15, 1995.
<PAGE>
Part II - Other Information
Items 1 - 5 are herewith omitted as the response to all items
is either none or not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27, Article 6 - Financial Data Schedule for the first
quarter ended March 31, 1995.
(b) Reports on Form 8-K:
A current report on Form 8-K was filed on March 22, 1995,
describing the sale of a portfolio company.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized on this 12th day of May, 1995.
ML-LEE ACQUISITION FUND, L.P.
By: Mezzanine Investments, L.P.,
Managing General Partner
By: ML Mezzanine Inc.,
its General Partner
Dated: May 12, 1995 /s/ Joseph W. Sullivan
Joseph W. Sullivan
Vice President and Treasurer
(Chief Financial Officer)
Dated: May 12, 1995 /s/ Audrey Bommer
Audrey Bommer
Vice President and Assistant
Treasurer (Chief Accounting Officer)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized on this 12th day of May, 1995.
ML-LEE ACQUISITION FUND, L.P.
By: Mezzanine Investments, L.P.,
Managing General Partner
By: ML Mezzanine Inc.,
its General Partner
Dated: May 12, 1995
Joseph W. Sullivan
Vice President and Treasurer
(Chief Financial Officer)
Dated: May 12, 1995
Audrey Bommer
Vice President and Assistant
Treasurer (Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary information extracted from the first quarter of
1995 Form 10-Q Balance Sheets and Statements of Operations and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 365,574,309
<INVESTMENTS-AT-VALUE> 354,878,447
<RECEIVABLES> 366,667
<ASSETS-OTHER> 2,140,001
<OTHER-ITEMS-ASSETS> 3,445,765
<TOTAL-ASSETS> 360,830,880
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 679,843
<TOTAL-LIABILITIES> 679,843
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 487,489
<SHARES-COMMON-PRIOR> 487,489
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (10,732,347)
<NET-ASSETS> 360,151,039
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,488,281
<OTHER-INCOME> 0
<EXPENSES-NET> 2,646,666
<NET-INVESTMENT-INCOME> (158,386)
<REALIZED-GAINS-CURRENT> 24,527,302
<APPREC-INCREASE-CURRENT> (13,315,018)
<NET-CHANGE-FROM-OPS> 11,053,898
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 5,118,720
<DISTRIBUTIONS-OTHER> 2,484,135
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,451,044
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 741,411
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,646,666
<AVERAGE-NET-ASSETS> 358,425,517
<PER-SHARE-NAV-BEGIN> 727.79
<PER-SHARE-NII> (0.32)
<PER-SHARE-GAIN-APPREC> 22.77
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 10.40
<RETURNS-OF-CAPITAL> 5.04
<PER-SHARE-NAV-END> 734.80
<EXPENSE-RATIO> 0.007
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
