UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
Commission File Number 0-15669
ML-LEE ACQUISITION FUND, L.P.
(Exact name of registrant as specified in its Charter)
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) 236-7339
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.
<PAGE>
ML-LEE ACQUISITION FUND, L.P.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Assets, Liabilities and Partners' Capital
as of March 31, 1996 and December 31, 1995
Statements of Operations - For the Three Months Ended
March 31, 1996 and 1995
Statements of Changes in Net Assets - For the Three Months Ended
March 31, 1996 and 1995
Statements of Cash Flows - For the Three Months Ended
March 31, 1996 and 1995
Statement of Changes in Partners' Capital - March 31, 1996
Schedule of Portfolio Investments - March 31, 1996
Notes to Financial Statements
Supplemental Schedule of Realized Gains and Losses - (Schedule 1)
Supplemental Schedule of Unrealized Appreciation and
Depreciation - (Schedule 2)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<S> <C> <C>
(UNAUDITED)
March 31, 1996 December 31, 1995
----------------- ------------------
ASSETS:
Investments - Notes 2, 8, 9
Portfolio Investments at fair value
Managed Companies (amortized cost $123,362 at March 31,
1996 and $214,099 at December 31, 1995) $ 136,144 $ 229,416
Non-Managed Companies (amortized cost $9,597 at March 31,
1996 and at December 31, 1995) 7,054 6,782
Temporary Investments, at amortized cost (cost $5,611 at
March 31, 1996 and $7,357 at December 31, 1995) 5,613 7,370
Cash (of which $3,596 is restricted at March 31, 1996
and $6,049 is restricted at December 31, 1995) - Note 8 3,598 6,054
Prepaid Loan Fees - Notes 2, 4 1,496 1,661
Prepaid Expenses 5 116
Receivable for Investments Sold 26,000 3,377
========== ============
TOTAL ASSETS $ 179,910 $ 254,776
========== ============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities
Legal and Professional Fees Payable $ 102 $ 60
Reimbursable Administrative Expenses Payable 109 171
Independent General Partner Expenses Payable 27 28
Deferred Interest Income - Note 2 - 164
---------- ------------
Total Liabilities 238 423
---------- ------------
Partners' Capital - Note 2
Managing General Partner 137 884
Limited Partners (487,489 Units) 179,535 253,469
---------- ------------
Total Partners' Capital 179,672 254,353
---------- ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 179,910 $ 254,776
========== ============
</TABLE>
See the Accompanying Notes to Financial Statements.
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
For the 3 Months Ended
------------------------------
March 31, March 31,
1996 1995
-------------- --------------
INVESTMENT INCOME - Notes 2, 8, 10:
Interest $ 297 $ 2,331
Discount 752 157
Dividend & Other Income 167 -
------------ --------------
TOTAL INCOME 1,216 2,488
------------ --------------
EXPENSES:
Investment Advisory Fee - Note 5 480 741
Fund Administration Fee - Note 6 74 422
Loan Fees - Notes 2, 4 173 182
Independent General Partners' Fees and
Expenses - Note 7 67 99
Legal and Professional Fees 387 1,200
Insurance Expense 2 2
------------ --------------
TOTAL EXPENSES 1,183 2,646
------------ --------------
NET INVESTMENT INCOME (LOSS) 33 (158)
NET REALIZED GAIN ON INVESTMENTS -
NOTE 8 AND SCHEDULE 1 37,130 24,527
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS -
NOTE 9 AND SCHEDULE 2
Publicly Traded Securities (74,396) (445)
Nonpublic Securities 69,681 (12,868)
------------ -------------
Subtotal (4,715) (13,313)
------------ -------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 32,448 $ 11,056
============ =============
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
For the 3 Months Ended
------------------------------
March 31, March 31,
1996 1995
------------- ---------------
FROM OPERATIONS:
Net Investment Income (Loss) $ 33 $ (158)
Net Realized Gain on Investments 37,130 24,527
Net Change in Unrealized (Depreciation)
Appreciation on Investments (4,715) (13,313)
---------- -----------
Net Increase in Net Assets Resulting
from Operations 32,448 11,056
Cash Distributions to Partners (107,129) (7,603)
---------- -----------
Total Increase (Decrease) (74,681) 3,453
NET ASSETS:
Beginning of Period 254,353 356,699
---------- -----------
End of Period $ 179,672 $ 360,152
========== ===========
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
For the 3 Months Ended
-------------------------------
March 31, March 31,
Increase (Decrease) in Cash and Cash Equivalents 1996 1995
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest, Dividends and Discount Income $ 1,064 $ 2,771
Investment Advisory Fee (480) (741)
Fund Administration Fee (74) (422)
Legal and Professional Fees (235) (1,193)
Loan Fees and Expenses (8) (34)
Independent General Partners' Fees and Expenses (68) (84)
(Purchase) Sale of Temporary Investments, Net 1,746 (38,867)
Reimbursable Administrative Expenses (62) -
Proceeds from Sale of Portfolio Company Investments 102,790 46,177
----------- ---------
Net Cash Provided by Operating Activities 104,673 7,607
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to Partners (107,129) (7,603)
----------- ---------
Net Cash Applied to Financing Activities (107,129) (7,603)
----------- ---------
Net Increase (Decrease) in Cash (2,456) 4
----------- ---------
Cash at Beginning of Period 6,054 3,442
----------- ---------
Cash at End of Period $ 3,598 $ 3,446
=========== =========
RECONCILIATION OF NET INVESTMENT INCOME (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Investment Income (Loss) $ 33 $ (158)
----------- ---------
Adjustments to Reconcile Net Investment Income (Loss)
to Net Cash Provided by Operating Activities:
(Increase) Decrease in Investments 90,030 (18,444)
(Increase) Decrease in Receivable for Investments (22,624) 1,227
Sold
(Increase) Decrease in Accrued Interest,
Dividend and Discount Receivables (152) 283
Decrease in Prepaid Expenses 276 166
Increase (Decrease) in Independent General Partner
Fees Payable (1) 15
Increase (Decrease) in Reimbursable Administrative
Expenses Payable (62) -
Increase (Decrease) in Legal and Professional Fees
Payable 43 (9)
Net Realized Gain on Investments 37,130 24,527
----------- ---------
Total Adjustments 104,640 7,765
----------- ---------
Net Cash Provided by Operating Activities $ 104,673 $ 7,607
=========== =========
</TABLE>
See the Accompanying Notes to Financial Statements.
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Managing
General Limited
Partner Partners Total
------------ ------------ -------------
For the Three Months Ended March 31, 1996
Partners' Capital at January 1, 1996 $ 884 $ 253,469 $ 254,353
Allocation of Net Investment Income - 33 33
Allocation of Net Realized Gain on Investments 371 36,759 37,130
Allocation of Net Change in Unrealized Depreciation (47) (4,668) (4,715)
Cash Distributions to Partners (1,071) (106,058) (107,129)
--------- ---------- ----------
Partners' Capital at March 31, 1996 $ 137 $ 179,535 $ 179,672
========= ========== ==========
</TABLE>
See the Accompanying Notes to Financial Statements.
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost (f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
MEZZANINE INVESTMENTS
MANAGED COMPANIES
ALLIANCE INTERNATIONAL GROUP, INC. (a)(e) - Note 11
$10,810 Alliance International Group, Sub. Note 10% due 12/31/97(c) 12/31/87 $10,810 $10,810
$267 Alliance International Group, Def. Int. Note 10% due 03/30/97(c)(h) 03/31/93 267 267
$276 Alliance International Group, Def. Int. Note 10% due 12/31/97(c)(h) 06/30/93 276 276
$286 Alliance International Group, Def. Int. Note 10% due 12/31/97(c)(h) 09/30/93 286 286
$293 Alliance International Group, Def. Int. Note 10% due 12/31/97(c)(h) 12/31/93 293 293
5,016 Shares Alliance International Group, Cumulative Redeemable Preferred Stock(d) 04/22/91 502 502
110,000 Shares Alliance International Group, Cumulative Preferred Stock(d)(h) 12/31/92 11,000 11,000
250,800 Shares Alliance International Group, Common Stock(d) 12/31/87 1,951 1,951
15,228.43 Warrants Alliance International Group, Common Stock Purchase Warrants(d) 03/28/89 0 (i) 0(i)
62,700 Warrants Alliance International Group, Common Stock Purchase Warrants(d) 04/22/91 0 0
657,614.21 Warrants Alliance International Group, Common Stock Purchase Warrants(d) 12/31/92 0 0
50,000 Warrants Alliance International Group, Common Stock Purchase Warrants(d) various 0 (i) 0(i)
(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 17.06
------ ------
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost (f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
BEEFAMERICA, INC. (a) (e) - Notes 8,9
$14,000 BAOC Acquisition, Inc. Sr. Preferred Stock 10% due 04/01/01 (c)(g) 09/09/88 $14,000 $5,800
$10,000 BAOC Acquisition, Inc. Jr. Preferred Stock 4% due 04/01/01 (c)(g) 09/09/88 10,000 4,200
$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
$41,997 15.5% Sr.Sub Interim Nt
Purchased 09/9/88 $20,000
$80,951 15% Sub Nt
Purchased 09/9/88 $38,928
Exchanged 03/29/96 for
Cash Proceeds $26,000
10% Sr Pref Stk $14,000
4% Jr Pref Stk $10,000
Reailzed Loss $(8,928)
5661.11 Shares Class A Pref. Stk
Purchased 04/10/91 $40,050
Received 03/29/96 $ 0
Realized Loss $(40,050)
51,000 Shares Common Stk
Purchased various $ 2,000
Received 03/29/96 $ 0
Realized Loss $(2,000)
Total Net Realized Loss $(50,978) 24,000 10,000 6.72
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost (f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
CELEBRITY, INC. - Note 9
11,539 Shares Celebrity, Inc. Common Stock(b)(k) 06/16/92 $ 150 $ 53
(0.2% of fully diluted common equity)
5,769 Shares of Common Stock
Purchased 06/16/92 $75
Sold 09/29/93 $75
Realized Gain $ 0
5,769 Shares of Common Stock
Purchased 06/16/92 $75
Sold 09/19/94 $75
Realized Gain $ 0
5,769 Shares Common Stock
Purchased 06/16/92 $75
Sold 09/19/95 $75
Realized Gain $ 0
Total Realized Gain $ 0 150 53 0.04
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost (f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
CHADWICK-MILLER, INC. (a)(e) - Notes 8,9,10,14
189,996 Shares CMI Holding Corp., Preferred Stock (d)(g) 12/16/88 $ 12,916 $ 10,000
192,933 Shares CMI Holding Corp., Common Stock (d) Various 3,736 0
100,000 Warrants CMI Holding Corp., Common Stock Warrants (d) Various 0 0
(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 10,000 6.72
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost (f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
COLE NATIONAL CORPORATION
567 Warrants Cole National Corporation, Common Stock Purchase Warrants(d) 09/26/90 $ 0 $ 0
(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
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost (f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
HEALTH O METER PRODUCTS, INC. (a) Notes 9,14
952,500 Shares Health o meter Products, Inc., Common Stock (d)(k) 04/28/88 $ 1,270 $ 4,763
610,553 Shares Health o meter Products, Inc., Common Stock (d)(k) 08/17/94 3,282 3,053
(14.7% 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 7,816 5.25
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost (f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
PETCO ANIMAL SUPPLIES, INC. (a) - Notes 9,14,16
1,472,622 Shares Petco Animal Supplies, Inc. Common Stock(d)(h)(k) Various $15,846 $ 43,933
(11.0% of 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
1,009,638 Shares Common Stock
Purchased various $16,296
Sold 1,009,638 Shares various 1995 $19,902
Realized Gain $ 3,606
Total Realized Gain $ 3,606 15,846 43,933 29.52
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost (f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
PLAYTEX PRODUCTS, INC. (a) (k) - Note 9
1,406,204 Shares Playtex Products, Inc., Common Stock(d)(k) 12/28/88 $ 3,255 $ 10,195
(2.6% 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 10,195 6.85
See the Accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost (f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
STANLEY FURNITURE COMPANY, INC. (a)(e) - Note 9
2,675,552 Shares Stanley Furniture Co., Inc., Common Stock(d)(h)(k) Various $ 33,522 $ 28,762
(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 28,762 19.33
TOTAL INVESTMENT IN MANAGED COMPANIES $123,362 $136,144 91.49
NON-MANAGED COMPANIES
MAGELLAN HEALTH SERVICES, INC.
(formerly CHARTER MEDICAL CORPORATION) - Note 9
40,000 Warrants Charter Medical Corp. Common Stock Purchase Warrants(d) 09/01/88 4 0
$5,000 14% Subordinated Notes
Purchased 09/01/88 $5,000
Sold 12/05/88 $5,000
Realized Gain $ 0 4 0 0.00
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost (f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
SWO HOLDINGS CORPORATION - Note 9
250,000 Shares SWO Holdings Corp., Common Stock(d) 11/24/87 $ 250 $ 595
185,048 Shares Homeland Holding Corp., Common Stock(d) 08/10/90 440 440
$5,000 15.5% Subordinated Notes
Purchased 11/24/87 $5,000
Sold 09/15/88 $5,075
Realized Gain $ 75 690 1,035 0.70
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
25,500 Shares TLC Beatrice Int'l Holdings., Inc., Common Stock(d) 11/30/87 26 26
$8,500 13% Subordinated Notes
Purchased 11/30/87 $8,500
Sold 08/18/88 $8,500
Realized Gain $ 0 26 26 0.02
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost (f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
WALTER INDUSTRIES, INC. - Note 9
435,569 Shares Walter Industries, Inc., Common Stock(b)(k) 01/07/88 $ 8,877 $ 5,989
326 Shares Walter Industries, Inc., Common Stock (b)(k) 09/13/95 0 4
(formerly Hillsborough Holdings Corporation)
$12,000 17% Note
Purchased 1/7/88 $12,000
Exchanged 12/1/95 for
$490,000 cash
435,569 common stock
$2,527 12.19% Senior Note
Realized Gain $ 0
$2,527 12.19% Senior Note
Received 12/1/95 $ 2,527
Sold 12/15/95 $ 2,527
Realized Gain $ 0
8,877 5,993 4.03
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $ 9,597 $ 7,054 4.75
SUMMARY OF MEZZANINE INVESTMENTS
Subordinated Notes 35,933 21,932 14.74
Preferred Stock 24,418 21,502 14.45
Common Stock and Warrants 72,609 99,764 67.04
TOTAL MEZZANINE INVESTMENTS $132,960 $143,198 96.23
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Principal Fair % Of
Amount/ Investment Investment Value Total
Shares Investment Date Cost (f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
TEMPORARY INVESTMENTS
$5,611 State Street Repurchase Agreement, 4.875% due 04/01/96 03/29/96 $ 5,611 $ 5,613
TOTAL INVESTMENT IN COMMERCIAL PAPER 5,611 5,613 3.77
TOTAL TEMPORARY INVESTMENTS $ 5,611 $ 5,613 3.77
TOTAL INVESTMENT PORTFOLIO $138,571 $148,811 100.00%
(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, 1996, 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 $2 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.
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
ML-LEE ACQUISITION FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(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.
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.
<PAGE>
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,
1996. 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 last
price available at March 29, 1996, 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.
<PAGE>
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, 1996 and December 31,
1995, the Fund had in its portfolio of investments $1,122,216 of payment-in-kind
debt securities. As of March 31, 1996 and December 31, 1995, the Fund had in its
portfolio of investments $6,485,801 of payment-in-kind equity securities.
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,
1996 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, 1996 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.
<PAGE>
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 an amended credit agreement, dated as of August 13,
1991 (the "Credit Facilities"), with a lending group led by the First National
Bank of Chicago ("First Chicago"), which provided the Fund with a maximum credit
facility of $140 million. The Credit Facilities consisted of a $100 million term
loan and a $40 million secured revolving credit line. In October of 1993, the
Fund amended the credit agreement enabling it to make prepayments of the term
loan at any time and without any corresponding reduction to the revolving line
of credit. On December 1, 1995 the credit agreement was further amended to
reduce the Credit Facilities to $10 million, all of which is available at March
31, 1996. 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%. The Fund paid down the term loan during the first quarter
of 1994. 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 loan advisory and loan facility fees of $4,441,580 paid to
First Chicago in 1991 in connection with the creation of the credit
facility, which are being amortized over the life of the credit facility.
The amount expensed for the three months ended March 31, 1996 was $158,939.
<PAGE>
An annual Loan Administration Fee of $25,000 for the administration of the
credit facility. The amount expensed for the three months ended March 31,
1996 was $6,217.
An Unused Commitment Fee of 1/2 of 1% per annum of the unused line of
credit. The expense for the three months ended March 31, 1996 was $7,500.
For the three months ended March 31, 1996 and 1995, the Fund incurred
$172,656 and $182,223, respectively, in total loan fees.
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, 1996 and 1995, the Fund paid $480,252 and $741,411,
respectively, in Investment Advisory Fees to Thomas H. Lee Advisors I.
6. Fund Administration Fees & Expenses
ML Fund Administrators Inc. (the "Fund Administrator") (an affiliate of the
Managing General Partner) performs the operational and administrative services
necessary for the management of the Fund. For the period from October 19, 1991
to October 19, 1995, the Fund Administrator received 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. On October 19, 1995, the Fund Administration Fee changed
to an annual fee of $300,000 plus out-of-pocket expenses incurred by the Fund
Administrator as described below. The Fund Administration Fee is paid quarterly,
in advance. For the three months ended March 31, 1996 and 1995, the Fund paid
$74,335 and $421,846, respectively, in Fund Administration Fees.
For the period ending October 19, 1995, the Fund's expenses for accounting,
audits, printing, tax preparation and other administrative services
("out-of-pocket expenses") (excluding the costs of bonding and extraordinary
legal expenses) were paid by the Fund Administrator. For the period since
October 19, 1995, in accordance with the Partnership Agreement, the Fund
Administrator is being reimbursed by the Fund for 100% of the out-of-pocket
expenses incurred.
<PAGE>
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.
For the three months ended March 31, 1996 and 1995, the Fund incurred
$66,705 and $98,748, respectively, in Independent General Partners' Fees and
Expenses.
8. Investment Transactions
On November 23, 1994, in connection with the financial restructuring of
Chadwick-Miller, Inc. and its holding company, CMI Holding Corp., the Fund's
$5,000,000 14.75% Senior Note was redeemed. The net proceeds were $5 million, of
which $3.1 million of such proceeds were classified as restricted cash and held
in escrow until certain leasing consents are obtained from store landlords. As
of March 31, 1996, the Fund has reserved $1.6 million of the amounts held in
escrow to allow for potential claims against the escrow proceeds.
On November 1, 1995, pursuant to an Agreement and Plan of Merger, (the
"Agreement") Duro-Test Corporation effected a merger pursuant to which Duro-Test
was acquired by a third party for approximately $33 million. Net proceeds to the
Fund were $4.6 million of which $1.7 million was classified as restricted cash
and held in escrow. As of March 31, 1996 the Fund has reserved approximately
$880,000 of the escrow proceeds to allow for potential indemnification costs
covered in the Agreement.
On February 7, 1996, the Securities and Exchange Commission declared
effective a Registration Statement filed by GNC in connection with the sale of
17,994,176 shares of GNC Common Stock, which includes 1,635,834 shares which
were sold pursuant to the underwriters' over-allotment option. Of such shares,
16,358,342 were offered by certain selling shareholders of GNC, including the
Fund and the 1,635,834 subject to the underwriters' over-allotment option were
offered by GNC. The Fund sold its entire remaining investment in GNC for total
proceeds of $101.7 million or $20.7475 per share and realized a gain of $88
million. These proceeds were distributed to Limited Partners on March 29, 1996.
On February 22, 1996, the Fund sold its remaining investment in SFX
Broadcasting Inc., consisting of 8,667 shares of common stock purchase warrants,
to Sillerman Communications Management Corporation for net proceeds of $14.50
per share which resulted in a gain of $125,672 to the Fund.
<PAGE>
On March 29, 1996, BeefAmerica, Inc. ("BeefAmerica"), entered into an
agreement whereby BeefAmerica sold all of the capital stock of BeefAmerica
Operating Company, Inc.("Opco"), to BAOC Acquisition, Inc. ("BAOC"), a company
owned by the President of Opco and certain other investors. Opco was the sole
operating asset of BeefAmerica. As a result of such sale, the Fund, as chief
creditor of BeefAmerica, received cash proceeds of $26 million, $10 million in
Junior Preferred Stock of BAOC, and $14 million in Senior Preferred Stock of
BAOC, all of which was received on April 1, 1996. Although a realized loss of
$50.98 million was recorded, the Fund had reversed the unrealized depreciation
totaling $90.98 million on the investment that was recorded prior to this
transaction. Please refer to the Supplemental Schedule of Unrealized
Appreciation and Depreciation (Scheduele 2).
At March 31, 1996, the Fund had a total of $132,957,884 invested in
Mezzanine Investments representing $123,361,442 Managed and $9,596,442
Non-Managed portfolio investments.
For the three months ended March 31, 1996, the proceeds and costs from the
sales of investments resulted in net realized gains of $37,129,853. For
additional information, please refer to the Supplemental Schedule of Realized
Gains and Losses (Schedule 1).
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.
<PAGE>
9. Unrealized Appreciation and Depreciation of Investments
For the three months ended March 31, 1996, the Fund recorded net unrealized
depreciation of $4,715,698 and as of this date, the Fund's cumulative net
unrealized appreciation on investments totalled $7,787,739.
For additional information, please refer to the Supplemental Schedule of
Unrealized Appreciation and Depreciation (Schedule 2).
10. Non-Accrual of Investments
In accordance with the Fund's Accounting Policy, the following note has
been on non-accrual status since the date indicated:
- - Chadwick-Miller, Inc. on January 1, 1993.
11. Commitments and Guarantees
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.
12. Litigation
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 obtained a summary judgment
in its favor and the Fund pursued an appeal in the Appellate Courts of South
Carolina. On August 21, 1995, the South Carolina Court of Appeals reversed the
summary judgment ruling and remanded the case for trial. On September 11, 1995,
Deloitte & Touche filed a petition for rehearing with the Court of Appeals which
is pending.
<PAGE>
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 alleged 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 and sought 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. After trial, the Court found that the MGP
Distributions for the fourth quarter of 1989 through the fourth quarter of 1990
were paid in violation of the Partnership Agreement and as a result, held the
General Partners and ML Mezzanine Inc. liable for repayment to the plaintiff
class of $6,627,752 of excessive distributions, plus interest. The Court's
decision dismissed Merrill Lynch & Co., Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated because they were not parties to the Partnership Agreement.
On February 21, 1996, ML Mezzanine Inc. moved to amend the Court's decision to
dismiss it. Defendants are considering the impact of the Court's decision on the
administration of the Fund. Defendants time to appeal the decision has not yet
expired and defendants intend to appeal. The Fund filed a report on Form 8-K
March 4, 1996 with respect to the Court's decision. 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.
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. 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 plaintiff's 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. The plaintiff thereafter filed a second amended complaint
on November 3, 1995 raising additional allegations in connection with certain
transactions by the Fund, and alleging that defendants violated the Investment
Company Act of 1940 and Delaware state law. The plaintiff seeks an accounting,
rescission, rescissory or actual damages and punitive damages. Plaintiffs have
moved to certiify the case as a class action. Defendants have opposed that
motion which is currently pending before the Court. The defendants in this
action believe that the claims in the second amended complaint are without merit
and have moved to dismiss them. 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.
<PAGE>
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.
For the three months ended March 31, 1996 the Fund paid $62,377 to the Fund
Administrator for reimbursable out-of-pocket expenses. (Please refer to Note 6
for further information).
In the first quarter of 1996, the Managing General Partner received cash
distributions in the amount of $1,017,399, representing its 1% interest in the
Fund.
<PAGE>
14. Reserves
In February 1993, the Fund established a $15,055,806 reserve to provide
funds for follow-on investments and to pay expenses. As of March 31, 1996, the
reserve balance was reduced to approximately $3,139,606 due to follow-on
investments in CMI Holding Corp., Diet Center Inc., Duro-Test Corporation,
Health o meter and Petco of $2,250,000, $441,861, $2,617,805, $3,281,722 and
$529, respectively, along with a distribution to partners in the second quarter
of 1993 of $424,264 and a payment of $2,900,018 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 because 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
basis of the Fund's assets and liabilities versus the amounts reported in the
financial statements. Generally, the tax basis 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, 1995, the tax basis of the Fund's
assets are less than the amounts reported in the financial statements by
$4,799,251. This difference is primarily attributable to unrealized depreciation
on investments which has not been recognized for tax purposes.
16. Subsequent Events
On April 26, 1996, the Individual General Partners approved the first
quarter 1996 cash distribution totalling $26,915,297, which consists of
$26,125,672 as return of capital, $759,656 of net income from temporary
investments and $29,969 of net investment income from Mezzanine Investments
during the first quarter. The total amount to be distributed to Limited Partners
is $26,646,149 or $54.66 per Unit. The Managing General Partner will receive
$269,148, representing its 1% interest in the Fund. This cash distribution will
be paid on May 15, 1996.
In connection with the sale of Omega Wire in the first quarter of 1995,
$1,144,086 of proceeds to the Fund from the sale were held in escrow ("Omega
Escrow Proceeds"). On April 5, 1996 the Fund received Omega Escrow Proceeds,
plus accrued interest totalling $1,205,748. These net proceeds will be
distributed to the Limited Partners of record on April 5, 1996.
On March 20, 1996, Petco Animal Supplies announced a 3-for-2 stock split
effective April 15, 1996. On April 4, 1996 Petco filed a registration statement
with the Securities and Exchange Commission for an offering of 3,333,333 shares
of Common Stock, adjusted to 5 million shares as a result of the stock split. Of
the 5 million post-split shares offered, 2.6 million were offered by Petco and
the remaining shares were offered by certain current stockholders, including the
Fund. The offering was effected on April 30, 1996 and the Fund sold its entire
investment in Petco which consisted of 1,472,622 shares of Common Stock and
received net proceeds of $40,290,965 or $27.36 per share. The Fund realized a
gain of $24,445,187 on the sale.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
ML-LEE ACQUISITION FUND, L.P.
SUPPLEMENTAL SCHEDULE OF REALIZED GAINS (LOSSES)
FOR THE 3 MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Number Of Investment Realized
SECURITY Shares/Principal Cost Net Proceeds Gain/(Loss)
------------------ -------------- -------------- ------------
General Nutrition Companies, Inc.
Common Stock 4,903,766 $ 13,759 $ 101,741 $ 87,982
BeefAmerica, Inc.
Subordinated Notes (a) $ 122,948 58,928 50,000 (b) (8,928)
Preferred Stock 5,661.11 40,050 - (40,050)
Common Stock 51,000 2,000 - (2,000)
SFX Broadcasting, Inc.
Common Stock Options 8,667 - 126 126
--------- ---------- ---------
Total $ 114,737 $ 151,867 $ 37,130
========= ========== =========
(a) Includes all BeefAmerica Payment-in-kind Notes.
(b) Net proceeds include cash proceeds of $26 million and $24 million
face amount of Senior and Junior Preferred Stock in BAOC Acquisition, Inc.
(See Note 8 to the Financial Statements)
</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, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Unrealized
Appreciation
(Depreciation) Total Unrealized Total Unrealized
for the Appreciation/ Appreciation/
Investment Fair 3 Months Ended (Depreciation) at (Depreciation) at
SECURITY Cost Value March 31, 1996 December 31, 1995 March 31, 1996
- ---------------------------------- --------- --------- ----------------- ------------------------------------
PUBLICLY TRADED/UNDERLYING
SECURITY PUBLICLY TRADED:
Celebrity
Common Stock* $ 150 $ 53 $ (12) $ (84) $ (96)
Health o meter
Common Stock* 4,552 7,815 2,149 1,114 3,263
Petco
Common Stock* 15,846 43,933 15,217 12,870 28,087
Playtex
Common Stock* 3,255 10,195 (352) 7,292 6,940
Stanley
Common Stock* 33,522 28,762 7,358 (12,118) (4,760)
Walter
Common Stock 8,877 5,993 272 (3,156) (2,884)
------- ---------- ----------
TOTAL UNREALIZED APPRECIATION
(DEPRECIATION) FROM PUBLICLY
TRADED/UNDERLYING SECURITIES
PUBLICLY TRADED $ 24,632 $ 5,918 $ 30,550
--------- ---------- ----------
</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, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Unrealized
Appreciation
(Depreciation) Total Unrealized Total Unrealized
for the Appreciation/ Appreciation/
Investment Fair 3 Months Ended (Depreciation) at (Depreciation) at
SECURITY Cost Value March 31, 1996 December 31, 1995 March 31, 1996
- ---------------------------------- --------- --------- ----------------- ----------------- ------------------
NONPUBLIC SECURITIES:
BeefAmerica Inc.
Preferred Stock $24,000 $ 10,000 $ (14,000) $ - $ (14,000)
Senior Subordinated Note - - 10,000 (10,000) -
Subordinated Notes - - 38,928 (38,928) -
Preferred Stock - - 40,050 (40,050) -
Common Stock - - 2,000 (2,000) -
Chadwick-Miller, Inc.
Common Stock* 3,736 - (1,929) (1,807) (3,736)
Preferred Stock 12,916 10,000 (2,916) (2,916)
Magellan Health Service
Common Stock Warrants* 4 - - (4) (4)
SWO Holdings Corporation
Common Stock* 250 595 - 345 345
------------- --------- ----------
TOTAL UNREALIZED APPRECIATION
(DEPRECIATION) FROM
NONPUBLIC SECURITIES $ 72,133 $ (92,444) $ (20,311)
------------- --------- ----------
Unrealized Appreciation/(Depreciation)
for Investments Sold:
General Nutrition Companies, Inc.
Common Stock - - (99,028) 99,028 -
Duro-Test Corporation
Restricted Cash (a) 1,759 880 (879) - (879)
CMI Holding Corp
Restricted Cash (a) 3,146 1,573 (1,573) - (1,573)
Total Unrealized Appreciaiton/
(Depreciation) for Investments Sold: $ (101,480) $ 99,028 $ (2,452)
-------------- --------- --------
Net Unrealized Appreciation (Depreciation) $ (4,715) $ 12,502 $ 7,787
============== ========= ========
* Restricted securities.
(a) See Note 8 to the Financial Statements.
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity & Capital Resources
As of March 31, 1996, the Fund had a total of $132,957,884 invested in
Mezzanine Investments. These investments were financed by net offering proceeds
and debt financing. This represents a $90,736,662 decrease versus the total
invested in Mezzanine Investments at December 31, 1995 of $223,694,546. The
decrease in investments 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.
The Fund during the three months ended March 31, 1996, received no
additional debt securities in lieu of cash interest payments
("payment-in-kind"). As of March 31, 1996, the Fund had in its portfolio
$1,122,216 of payment-in-kind debt securities and $6,485,801 of payment-in-kind
equity securities.
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. In addition,
due to sales of securities, the Fund made a series of mandatory loan paydowns in
the first quarter of 1994, aggregating $3,394,004. As of March 31, 1996, the
Fund's maximum, available credit facility had been reduced to $10,000,000 due to
loan paydowns from the sales of Mezzanine Investments and further amendments to
the credit agreement.
<PAGE>
The Fund is now in its ninth year of operation. Because a number of
investments have already been repaid or sold and other portfolio companies are
unable to pay current interest to the Fund, cash dividends and interest 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 $15,055,806 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 $441,861, $2,617,805, $2,250,000, $3,281,722 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, $2,900,018 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, 1996 was reduced to approximately $3,139,606.
The Fund has invested its remaining $3,139,606 reserve in Temporary Investments.
As of March 6, 1996, the Independent General Partners have approved retention of
the reserve at its current level.
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.
<PAGE>
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. 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, Petco, Playtex,
Walter Industries, Inc., Stanley Furniture and 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 Health o meter) were not registered in these offerings, the Fund has the
ability under Rule 144 of 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. 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.
<PAGE>
Results of Operations
Investment Income and Expenses
For the three months ended March 31, 1996, the Fund had net investment
income of $33,236, as compared to a net investment loss of $158,386 for the same
period in 1995. The total investment income earned on investments for the three
months ended March 31, 1996 was $1,216,115 of which $296,675 was earned from
Mezzanine Investments and $752,627, was earned from Temporary Investments. For
the same period in 1995, total investment income earned on investments was
$2,488,281 of which $2,329,819 was earned from Mezzanine Investments and
$158,462 was earned from Temporary Investments.
The increase in the three months ending 1996 net investment income versus
the comparative period in 1995 reflects the lower Legal and Professional fees
incurred on behalf of the Fund. Additionally, lower Investment Advisory Fees and
Fund Administration Fees have also contributed to the increase in net investment
income. 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 ending March 31, 1996 consisted of Investment
Advisory Fees, Legal and Professional fees, and Fund Administration Fees.
Legal and Professional fees paid by the Fund consist primarily of legal fees
incurred in conjunction with litigation. Legal and Professional fees for the
three months ended March 31, 1996 and 1995 were $386,824 and $1,200,095,
respectively. This decrease is attributable to the decrease in litigation
expenses incurred and legal fees required to be advanced by the Fund in
connection with the litigation described in Note 12 to the Financial Statements.
<PAGE>
The Investment Adviser and Fund Administrator receive their compensation on
a quarterly basis. Total Investment Advisory Fees paid to the Investment Adviser
for the three months ended March 31, 1996 was $480,252 compared with $741,411
for the three months ended March 31, 1995. 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 1996 as compared to 1995 Investment Advisory Fee is
a direct result of sales of investments, returns of capital to partners and
realized losses on investments.
Beginning October 19, 1995, the calculation of the Fund Administration Fee
changed to the sum of $300,000 per year plus all actual out-of-pocket expenses
incurred on behalf of the Fund by the Fund Administrator (excluding compensation
for the executive officers of the Fund Administrator), but in no event
exceeding, in aggregate, the annual amount of $2.0 million. Out-of-pocket Fund
expenses consist of accounting, audits, printing, tax preparation and other
administrative services.
The total Fund Administration Fee paid to the Fund Administrator for the
three months ended March 31, 1996 and March 31, 1995 were $74,335 and $421,846,
respectively. For the three months ended March 31, 1995, the Fund Administration
Fee 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.
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, 1996 and 1995, totalled $172,656 and $182,223,
respectively. The decrease of $9,567 for the three months ended March 31, 1996
versus the same period in 1995 is primarily due to reductions of the Credit
Facilities as described in Note 4 to the Financial Statements.
<PAGE>
Net Assets
The Fund's net assets decreased by $74,682,024 during the three months
ended March 31, 1996, due to net realized gains of $37,129,853 and a net
investment income of $33,236 offset by net unrealized depreciation of $4,715,698
and cash distributions of $107,129,415.
The Fund's valuation of the Common Stock of Celebrity, Health o meter,
Petco, Playtex and Stanley Furniture and Walter Industries reflect their closing
market price at March 29, 1996.
The Health o meter, 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 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.
Unrealized Appreciation and Depreciation and Non-Accrual of Investments
For the three months ended March 31, 1996, the Fund recorded net unrealized
depreciation of $4,715,698 as compared to a net unrealized depreciation of
$13,315,018 for the same period in 1995. On March 31, 1996, the Fund's
cumulative net unrealized appreciation on investments totalled $7,787,739. The
decrease in unrealized depreciation during the three months ended March 31, 1996
is primarily the result of the reversal of unrealized depreciation from the
BeefAmerica transaction (described in Note 8 to Financial Statements) offset by
the reversal of unrealized appreciation from the sale of GNC.
<PAGE>
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, 1996.
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.
For additional information, please refer to the Supplemental Schedule of
Unrealized Appreciation and Depreciation (Schedule 2).
Realized Gains and Losses
The net realized gain on investments for the three months ended March 31,
1996 was $37,129,853 compared to a net realized gain of $24,527,302 for the same
period in 1995.
For additional information, please refer to the Supplemental Schedule of
Realized Gains and Losses (Schedule 1).
Cash Distributions
On March 21, 1996, the Individual General Partners approved a cash
distribution totaling $101,737,501 (including $13,758,714 as Return of Capital)
representing distributable capital proceeds from the sale of GNC on February 13,
1996. The total amount distributed to Limited Partners was $100,720,102 or
$206.61 per Unit. The Managing General Partner received $1,017,399 representing
its 1% interest in the Fund. This distribution was made on March 29, 1996.
On April 26, 1996, the Individual General Partners approved the first
quarter 1996 cash distribution totalling $26,915,297, which consists of
$26,125,672 as return of capital, $759,656 of net income from temporary
investments and $29,969 of net investment income from Mezzanine Investments
during the first quarter. The total amount distributed to Limited Partners was
$26,646,149 or $54.66 per Unit. The Managing General Partner received $269,148,
representing its 1% interest in the Fund. This cash distribution was paid on May
15, 1996.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
During the first quarter of 1996, the Supreme Court of the State of New
York rendered a decision with respect to Winston v. Mezzanine Investments, L.P.
Please refer to Note 12 to the Financial Statements and a report filed on Form
8-K filed with the Securities and Exchange Commission on March 6, 1996.
Items 2 - 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 - Financial Data Schedule for the first quarter ended
March 31, 1996.
(b) Registrant Filed Forms 8-K with respect to the following:
(1) Sale of Common Stock in General
Nutrition Company Filed February 15, 1996
(2) Courts' Decision in Winston v.
Mezzanine Investments, LP Filed March 6, 1996
(3) Sale/Restructuring of BeefAmerica Inc. Filed April 11, 1996
<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 15th day of
May, 1996.
ML-LEE ACQUISITION FUND, L.P.
By: Mezzanine Investments, L.P.,
Managing General Partner
By: ML Mezzanine Inc.,
its General Partner
Dated: May 15, 1996 /s/ Audrey Bommer
Audrey Bommer
Vice President and Treasurer
(Chief Financial Officer)
Dated: May 15, 1996 /s/ Roger F. Castoral, Jr.
Roger F. Castoral, Jr.
Assistant Treasurer
(Principal 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 15th day of
May, 1996.
ML-LEE ACQUISITION FUND, L.P.
By: Mezzanine Investments, L.P.,
Managing General Partner
By: ML Mezzanine Inc.,
its General Partner
Dated: May 15, 1996
Audrey Bommer
Vice President and Treasurer
(Chief Financial Officer)
Dated: May 15, 1996
Roger F. Castoral, Jr.
Assistant Treasurer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary information extracted from the first quarter of
1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 138,568,884
<INVESTMENTS-AT-VALUE> 148,810,494
<RECEIVABLES> 26,000,000
<ASSETS-OTHER> 5,099,205
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 179,909,699
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 238,305
<TOTAL-LIABILITIES> 238,305
<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> 7,787,739
<NET-ASSETS> 179,671,389
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,052,107
<OTHER-INCOME> 164,008
<EXPENSES-NET> 1,182,880
<NET-INVESTMENT-INCOME> 33,236
<REALIZED-GAINS-CURRENT> 37,129,853
<APPREC-INCREASE-CURRENT> (4,715,698)
<NET-CHANGE-FROM-OPS> 32,447,391
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,334,423)
<DISTRIBUTIONS-OF-GAINS> 87,982,130
<DISTRIBUTIONS-OTHER> 20,481,708
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (74,682,024)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 480,252
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,182,880
<AVERAGE-NET-ASSETS> 217,012,401
<PER-SHARE-NAV-BEGIN> 519.95
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> (9.58)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 217.56
<RETURNS-OF-CAPITAL> 41.59
<PER-SHARE-NAV-END> 368.28
<EXPENSE-RATIO> 0.005
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
