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 September 30, 1997
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 and Supplementary Data
Statements of Assets, Liabilities and Partners' Capital
as of September 30, 1997 and December 31, 1996
Statements of Operations - For the Three and Nine Months
Ended September 30, 1997 and 1996
Statements of Changes in Net Assets - For the Nine Months
Ended September 30, 1997 and 1996
Statements of Cash Flows - For the Nine Months Ended
September 30, 1997 and 1996
Statement of Changes in Partners' Capital - September 30, 1997
Schedule of Portfolio Investments - September 30, 1997
Notes to Financial Statements
Supplemental Schedule of Realized Gains and Losses - Schedule 1
Supplemental Schedule of Unrealized Appreciation and
Depreciation - Schedule 2
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<S> <C> <C>
(Unaudited)
September 30, 1997 December 31, 1996
--------------- ---------------
ASSETS:
Investments - Notes 2, 8, 9
Portfolio Investments at fair value
Managed Companies (amortized cost $83,885 at September 30,
1997 and $93,468 at December 31, 1996) $ 77,020 $ 86,067
Non-Managed Companies (amortized cost $9,597 at September 30,
1997 and at December 31, 1996) 8,716 6,183
Temporary Investments, at amortized cost (cost $8,834 at
September 30, 1997 and $4,040 at December 31, 1996) 8,841 4,047
Cash 1 10
Prepaid Loan Fees - Notes 2, 4 551 1,022
Prepaid Expenses and Other Receivables 300 307
Receivable for Investment Sold 75 --
--------------- ---------------
TOTAL ASSETS $ 95,504 $ 97,636
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities
Legal and Professional Fees Payable $ 170 $ 122
Reimbursable Administrative Expenses Payable 141 103
Independent General Partner Expenses Payable 45 23
--------------- ---------------
Total Liabilities 356 248
--------------- ---------------
Partners' Capital - Note 2
Managing General Partner 1,295 1,317
Limited Partners (487,489 Units) 93,853 96,071
--------------- ---------------
Total Partners' Capital 95,148 97,388
--------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 95,504 $ 97,636
=============== ===============
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
For the Three Months Ended For the Nine Months Ended
------------ ------------ ------------ ------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
INVESTMENT INCOME - Notes 2, 8, 10:
Interest $ 306 $ 487 $ 902 $ 1,143
Discount 141 72 234 1,316
Dividend & Other Income 6,000 -- 6,006 167
------------ ----------- ------------ -----------
TOTAL INCOME 6,447 559 7,142 2,626
------------ ----------- ------------ -----------
EXPENSES:
Investment Advisory Fee - Note 5 300 97 894 1,033
Fund Administration Fee - Note 6 75 75 225 224
Loan Fees - Notes 2, 4 175 176 524 524
Independent General Partners' Fees and Expenses - Note 7 42 55 213 155
Legal and Professional Fees 217 478 865 1,447
Reimbursable Administrative Expenses - Note 6 141 102 402 312
Insurance Expense 3 2 7 6
------------ ----------- ------------ -----------
TOTAL EXPENSES 953 985 3,130 3,701
------------ ----------- ------------ -----------
NET INVESTMENT INCOME 5,494 (426) 4,012 (1,075)
NET REALIZED GAIN (LOSS) ON INVESTMENTS -
NOTE 8 AND SCHEDULE 1 -- (773) 5,795 60,802
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
ON INVESTMENTS - NOTE 9 AND SCHEDULE 2
Publicly Traded Securities 5,797 15,006 3,070 (83,350)
Nonpublic Securities -- 879 -- 62,098
------------ ----------- ------------ -----------
Subtotal 5,797 15,885 3,070 (21,252)
------------ ----------- ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 11,291 $ 14,686 $ 12,877 $ 38,475
============ =========== ============ ============
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
For the Nine Months Ended
------------ ------------
September 30, September 30,
1997 1996
------------ ------------
FROM OPERATIONS:
Net Investment Income (Loss) $ 4,012 $ (1,075)
Net Realized Gain on Investments 5,795 60,802
Net Change in Unrealized Appreciation
(Depreciation) on Investments 3,070 (21,252)
------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 12,877 38,475
Cash Distributions to Partners (15,117) (178,362)
------------ ------------
Total Increase (Decrease) (2,240) (139,887)
NET ASSETS:
Beginning of Period 97,388 254,353
------------ ------------
End of Period $ 95,148 $ 114,466
============ ============
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
For the Nine Months Ended
--------------- ---------------
September 30, 1997 September 30, 1996
--------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest, Dividends and Discount Income $ 1,141 $ 2,167
Investment Advisory Fee (894) (1,033)
Fund Administration Fee (225) (224)
Legal and Professional Fees (815) (1,123)
Loan Fees and Expenses (53) (42)
Independent General Partners' Fees and Expenses (191) (144)
(Purchase) Sale of Temporary Investments, Net (4,793) 2,327
Reimbursable Administrative Expenses (365) (381)
Proceeds from Sale of Portfolio Company Investments 21,303 170,761
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,108 172,308
--------------- ---------------
CASH FLOWS APPLIED TO FINANCING ACTIVITIES:
Cash Distributions to Partners (15,117) (178,362)
--------------- ---------------
NET CASH APPLIED TO FINANCING ACTIVITIES (15,117) (178,362)
--------------- ---------------
Net Increase (Decrease) in Cash (9) (6,054)
Cash at Beginning of Period 10 6,054
--------------- ---------------
CASH AT END OF PERIOD $ 1 $ --
=============== ===============
RECONCILIATION OF NET INVESTMENT INCOME (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Investment Income (Loss) $ 4,012 $ (1,075)
--------------- ---------------
ADJUSTMENTS TO RECONCILE NET INVESTMENT INCOME (LOSS)
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
(Increase) Decrease in Investments 10,790 108,984
(Increase) Decrease in Receivable for Investments Sold (75) 3,302
(Increase) Decrease in Accrued Interest,
Dividend and Discount Receivables (6,000) (460)
(Increase) Decrease in Prepaid Expenses 478 588
Increase (Decrease) in Independent General Partner Fees Payable 22 11
Increase (Decrease) in Reimbursable Administrative Expenses Payable 38 (70)
Increase (Decrease) in Legal and Professional Fees Payable 48 226
Net Realized Gain on Investments 5,795 60,802
--------------- ---------------
TOTAL ADJUSTMENTS 11,096 173,383
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 15,108 $ 172,308
=============== ===============
</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)
(UNAUDITED)
<S> <C> <C> <C>
Managing
General Limited
Partner Partners Total
----------- --------- ----------
For the Nine Months Ended September 30, 1997
Partners' Capital at January 1, 1997 $ 1,317 $ 96,071 $ 97,388
Allocation of Net Investment Loss 40 3,972 4,012
Allocation of Net Realized Gain on Investments 58 5,737 5,795
Allocation of Net Change in Unrealized Appreciation 31 3,039 3,070
Cash Distributions to Partners (151) (14,966) (15,117)
--------- --------- ----------
Partners' Capital at September 30, 1997 $ 1,295 $ 93,853 $ 95,148
========= ========= ==========
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Principal Fair % Of
Amount Investment Investment Value Total
Shares/Warrants Investment Date Cost(f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
MEZZANINE INVESTMENTS
MANAGED COMPANIES
ALLIANCE INTERNATIONAL GROUP, INC. (a)(e) - Notes 11, 16
$10,810 Alliance International Group, Sub. Note 10% due 12/31/97(c)(h) 12/31/87 $ 10,810 $10,810
$267 Alliance International Group, Def. Int. Note 10% due 12/31/97(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 -(i) -(i)
62,700 Warrants Alliance International Group, Common Stock Purchase Warrants(d) 04/22/91 - -
657,614.21 Warrants Alliance International Group, Common Stock Purchase Warrants(d) 12/31/92 - -
50,000 Warrants Alliance International Group, Common Stock Purchase Warrants(d) various -(i) -(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 26.84
------------------------------
BEEFAMERICA, INC. (a) (e) - Notes 9,10
$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
Realized Loss $ (8,928)
5661.11 Shares Class A Pref. Stk
Purchased 04/10/91 $ 40,050
Value at restructuring 3/29/96 $ 0
Realized Loss $(40,050)
51,000 Shares Common Stk
Purchased various $ 2,000
Value at restructuring 3/29/96 $ 0
Realized Loss $ (2,000) ------------------------------
Total Net Realized Loss $(50,978) 24,000 10,000 10.57
------------------------------
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(CONTINUED)
Principal Fair % Of
Amount Investment Investment Value Total
Shares/Warrants Investment Date Cost(f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
CHADWICK-MILLER, INC. (a)(e) - Notes 9,10,14
15,406 Warrants CMI Holding Corp., Preferred Stock Purchase Warrants (d) 12/16/88 $ 12,916 $ -
39,487 Warrants CMI Holding Corp., Common Stock Purchase Warrants (d) Various 3,736 -
(7.5% 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 Senior Note
Purchased 12/16/88 $ 5,000
Sold 11/23/94 $ 5,000
Realized Gain $ 0
189,996 Shares Preferred Stock
192,933 Shares Common Stock
100,000 Common Stock Warrants
Purchased Various $ 16,652
Exchanged July 15, 1996
15,406 Preferred Stock Warrants
39,487 Common Stock Warrants $ 16,652
Realized Gain $ 0 ------------------------------
Total Realized Gain $ 0 16,652 - 0.00
-----------------------------
COLE NATIONAL CORPORATION
567 Warrants Cole National Corporation, Common Stock Purchase Warrants(d) 09/26/90 - -
(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 - - 0.00
------------------------------
PLAYTEX PRODUCTS, INC. (a) - Note 9
1,406,204 Shares Playtex Products, Inc., Common Stock(d)(k) 12/28/88 3,255 14,238
(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 14,238 15.05
------------------------------
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(CONTINUED)
Principal Fair % Of
Amount Investment Investment Value Total
Shares/Warrants Investment Date Cost(f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
SIGNATURE BRANDS USA, INC. (a) - Note 9
(formerly HEALTH O METER PRODUCTS, INC.
952,500 Shares Signature Brands USA, Inc., Common Stock (d)(k) 04/28/88 $ 1,270 $ 3,631
610,553 Shares Signature Brands USA, Inc., Common Stock (d)(k) 08/17/94 3,282 2,328
(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 5,959 6.30
------------------------------
STANLEY FURNITURE COMPANY, INC. (a)(e) - Notes 8, 9, 16
801,437 Shares Stanley Furniture Co., Inc., Common Stock(d)(h)(k) Various 10,041 21,438
(16% of fully diluted common equity)
$2,000 Loan participation
Purchased 03/12/92 $ 2,000
Repaid 04/05/93 $ 2,000
Realized Gain $ 0
Purchased Various $ 13,973
Sold 11/13/96 $ 14,664
Sold 12/13/96 $ 2,199
Realized Gain $ 2,890
Purchased Various $ 395
Sold 02/07/97 $ 756
Realized Gain $ 361
Purchased Various $ 9,113
Sold 06/30/97 $ 14,547
Realized Gain $ 5,434 ------------------------------
Total Net Realized Gain $ 8,685 10,041 21,438 22.67
------------------------------
------------------------------
TOTAL INVESTMENT IN MANAGED COMPANIES $ 83,885 $77,020 81.43
==============================
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(CONTINUED)
Principal Fair % Of
Amount Investment Investment Value Total
Shares/Warrants Investment Date Cost(f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
NON-MANAGED COMPANIES
SWO HOLDINGS CORPORATION - Note 9
250,000 Shares SWO Holdings Corp., Common Stock(d) 11/24/87 250 -
1,430 Shares Homeland Holding Corp., Common Stock(d) 08/10/90 440 -
1,506 Warrants Homeland Holding Corp., Common Stock
Purchase Warrants (d) 08/10/90 - -
$5,000 15.5% Subordinated Notes
Purchased 11/24/87 $ 5,000
Sold 09/15/88 $ 5,075
Realized Gain $ 75
------------------------------
690 - 0.00
------------------------------
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 0.03
------------------------------
WALTER INDUSTRIES, INC. - Note 9
435,569 Shares Walter Industries, Inc., Common Stock(b)(k) 01/07/88 8,877 8,684
326 Shares Walter Industries, Inc., Common Stock (b)(k) 09/13/95 - 6
$12,000 17% Note
Purchased 1/7/88 $ 12,000
Exchanged 12/1/95
for $490,000 cash and
435,569 Common Stock and
$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
Total Realized Gain $ 0 ------------------------------
8,877 8,690 9.19
------------------------------
MAGELLAN HEALTH SERVICES, INC. - Note 9
(formerly CHARTER MEDICAL CORPORATION)
40,000 Warrants Magellan Health Services, Inc., Common Stock Purchase Warrants(d) 09/01/88 4 -
$5,000 14% Subordinated Notes
Purchased 09/01/88 $ 5,000
Sold 12/05/88 $ 5,000 ------------------------------
Realized Gain $ 0 4 - 0.00
------------------------------
TOTAL INVESTMENT IN NON-MANAGED COMPANIES 9,597 8,716 9.22
==============================
SUMMARY OF MEZZANINE INVESTMENTS
Subordinated Notes $ 11,932 $11,932 12.62
Preferred Stock 35,502 21,502 22.73
Common Stock and Warrants 46,048 52,303 55.30
------------------------------
TOTAL MEZZANINE INVESTMENTS $ 93,482 $85,737 90.65
==============================
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(CONTINUED)
Principal Fair % Of
Amount Investment Investment Value Total
Shares/Warrants Investment Date Cost(f) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
TEMPORARY INVESTMENTS
COMMERCIAL PAPER
$ 2,835 Ford Motor Credit Corp., 5.57% due 10/01/97 09/25/97 $ 2,832 $ 2,835 3.00
$ 6,008 American General Corp., 5.62% due 10/03/97 09/26/97 6,002 6,006 6.35
------------------------------
TOTAL INVESTMENT IN COMMERCIAL PAPER 8,834 8,841 9.35
------------------------------
TOTAL TEMPORARY INVESTMENTS 8,834 8,841 9.35
------------------------------
TOTAL INVESTMENT PORTFOLIO $102,316 $94,578 100.00
==============================
(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 December 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 $7 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
SEPTEMBER 30, 1997
(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 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 such extension is in the best
interest of the Fund. Following such time periods the Fund will have five
additional years 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 September
30, 1997. 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 September 30, 1997, the current estimated fair value of these
investments may have changed significantly since that point in time.
<PAGE>
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 September 30, 1997 and December 31,
1996, the Fund had in its portfolio of investments $1.1 million of
payment-in-kind debt securities. As of September 30, 1997 and December 31, 1996,
the Fund had in its portfolio of investments $6.5 million 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 September
30, 1997 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 September 30, 1997 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 balance of 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.
<PAGE>
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. As a result of paydowns of the term loan the Fund's outstanding
balance was paid in full as of March 29, 1994. Additionally, the Credit
Facilities were reduced to $7.5 million, all of which is available at September
30, 1997. The Credit Facilities will mature on July 31, 1998. In connection with
the Credit Facilities, the Fund has pledged its remaining 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 nine months ended September 30, 1997 was
$476,819.
An annual Loan Administration Fee of $25,000 for the administration of the
credit facility. The amount expensed for the nine months ended September 30,
1997 was $18,631.
An Unused Commitment Fee of 1/2 of 1% per annum of the unused line of
credit. The amount expensed for the nine months ended September 30, 1997
was $28,229.
For the nine months ended September 30, 1997 and 1996, the Fund incurred
$523,679 and $524,347, 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 nine months
ended September 30, 1997 and 1996, the Fund paid $893,717 and $1,033,443,
respectively, in Investment Advisory Fees to Thomas H. Lee Advisors I. For the
three months ended September 30, 1997 and 1996, the Fund paid $300,000 and
$97,146, respectively, in Investment Advisory Fees.
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. Beginning October 19, 1995, the Fund
Administration Fee is calculated at 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 nine months ended
September 30, 1997 and 1996, the Fund paid $225,000 and $224,335, respectively,
in Fund Administration Fees. For the three months ended September 30, 1997 and
1996, the Fund paid $75,000 in Fund Administration Fees.
Beginning October 19, 1995, in accordance with the Partnership Agreement,
the Fund Administrator is being reimbursed by the Fund for 100% of
administrative expenses incurred. Actual out-of-pocket expenses ("reimbursable
expenses") primarily consist of printing, audits, tax preparation and custodian
fees. For the nine months ended September 30, 1997 and 1996, reimbursable
expenses totalled $402,544 and $311,430, respectively. For the three months
ended September 30, 1997, reimbursable expenses totalled $141,224.
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 nine months ended September 30, 1997 and 1996, the Fund incurred
$212,890 and $154,523, respectively, in Independent General Partners' Fees and
Expenses. For the three months ended September 30, 1997 and 1996, Independent
General Partners' Fees and Expenses totalled $42,292 and $54,502, respectively.
<PAGE>
8. Investment Transactions
During February 1997, the Fund sold 31,515 shares of Stanley Furniture for
$24 per share. The Fund received total proceeds of $756,335 and recognized a
gain of $361,480.
On June 27, 1997, the Fund along with affiliates of the Thomas H. Lee
Company entered into a Stock Purchase Agreement (the "Agreement") with Stanley
Furniture Company, Inc. ("Stanley"), a managed company in the Fund's portfolio.
Pursuant to the Agreement, Stanley purchased an aggregate 750,000 shares of
Stanley Common Stock from the Selling Stockholders for $20 per share. In
connection with the sale, the Fund sold 727,344 shares and received proceeds of
$14,546,880. The Fund recognized a gain of $5,433,911 on this transaction.
At September 30, 1997, the Fund had a total of $93.5 million invested in
Mezzanine Investments representing $83.9 million Managed and $9.6 million
Non-Managed portfolio investments.
For the nine months ended September 30, 1997, the proceeds from the sales
of investments resulted in net realized gains of $5,795,391. For additional
information, please refer to the Supplemental Schedule of Realized Gains and
Losses - Schedule 1.
Because the Fund primarily invested 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.
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 nine months ended September 30, 1997, the Fund recorded net
unrealized appreciation of $3,069,555. As of this date, the Fund's cumulative
net unrealized depreciation on investments totalled $7,744,911.
For the three months ended September 30, 1997, the Fund recorded net
unrealized appreciation of $5,797,187. 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 equity
securities have been on non-accrual status since the date indicated:
- BeefAmerica, Inc. on July 1, 1990
- Chadwick Miller on July 1, 1993
11. Commitments and Guarantees
On January 20, 1992, the Fund entered into a commitment to guarantee its
pro-rata portion, up to $150,480 to support an obligation of a subsidiary of
Alliance International Group, Inc. On October 3, 1997, the guarantee was
released. See Note 16 for more information.
<PAGE>
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
was denied. Thereafter, Deloitte & Touche filed a petition for a writ of
Certiorari with South Carolina Supreme Court, which was granted. On August 11,
1997, the South Carolina Supreme Court affirmed in part and reversed in part the
rulings by the Court of Appeals reversing summary judgement for Deloitte &
Touche. In order to avoid the expense and uncertainty of trial and not as an
admission of any liability to the Fund on Deloitte's part, Deloitte on September
26, 1997, paid the Fund $6 million under a Settlement Agreement. These Funds
approximately $12.18 per Unit, will be distributed to Limited Partners of record
as of September 26, 1997.
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 (the "Class"), against the Fund's Managing General
Partner, ("MGP"), 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 MGP with respect to that year and sought monetary damages in
the amount of $7,554,855, together with interest, and other relief. 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 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 MLPF&S because they
were not parties to the Partnership Agreement. On June 13, 1996, the Court
amended its decision, dismissing ML Mezzanine, Inc., the corporate general
partner of the Fund's MGP because it was not a party to the Partnership
Agreement. On July 25, 1996, judgment was entered against remaining Defendants
in the amount of $10,399,505. The remaining Defendants filed a Notice of Appeal
on October 4, 1996. The appeal was fully briefed, and submitted to the Court for
decision. Thereafter, the parties agreed to settle this action with certain of
the remaining defendents paying $8 million to the Class. On June 25, 1997, the
Court preliminarily approved the settlement, ordered notice to be mailed to the
Class, and scheduled a final hearing to approve the settlement and plantiffs'
council's application for attorney's fees, for September 15, 1997. On September
15, 1997, the Court held a final hearing, at which it approved the settlement
and signed a Final Order dismissing the action, which released the class' claims
against the defendents. 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
Legal and Professional Fees.
<PAGE>
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. In its Order and Opinion dated
December 30, 1996, the court granted in part and denied in part the defendants'
motion to dismiss the second amended complaint holding that a number of new
claims and theories asserted by plaintiffs are dismissed as time-barred.
Plaintiffs have moved for reconsideration of the Court's Order. On September 30,
1997, Plainfiff's motion was denied without prejudice. The plaintiff seeks an
accounting, rescission, rescissory or actual damages and punitive damages.
Plaintiffs have moved to certify 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. 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. In the opinion of legal counsel, the outcome of this case is not
determinable at this time. The Fund has incurred litigation expenses which are
recorded in Legal and Professional Fees.
On August 2, 1996, an action was commenced against General Nutrition
Companies, Inc. ("GNC"), its officers, directors and certain of its former
shareholders, including the Fund, in the United States District Court for the
Western District of Pennsylvania. Plaintiffs assert that GNC is liable for
violations of Sections 11 and 12(a)(2) of the Securities Act of 1933 and Section
1-501(a) of the Pennsylvania Securities Act, arising out of allegedly false and
misleading statements in the prospectus and registration statement for the
February 7, 1996 public offering of GNC common stock, and for violations of
Section 10 (b) of the Securities Exchange Act of 1934 and negligent
misrepresentation arising out of allegedly false and misleading public
statements during the period from the public offering through May 28, 1996.
Plaintiffs also allege that certain officers, directors and shareholders of GNC,
including the Fund, as well as the underwriters for the public offering, are
liable for certain of such violations of the federal and state securities laws
and/or control person liability in connection therewith, and negligent
misrepresentation. Plaintiffs seek certification of the action as a class action
purportedly on behalf of all persons, other than defendants, who purchased
shares of GNC common stock during the proposed class action period from February
7, 1996 through May 28, 1996. The defendants filed a motion to dismiss the
action in its entirety on December 2, 1996, which motion is still in its
briefing stages. The defendants in this action believe that the claims against
them are without merit. In the opinion of legal counsel, the outcome of this
case is not determinable at this time.
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.
<PAGE>
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 nine month period ending September 30, 1997 and 1996, the Managing
General Partner received cash distributions in the amount of $151,176 and
$1,783,628, respectively, representing its 1% interest in the Fund. For the
three months ended September 30, 1997 and 1996, the Managing General Partner
received cash distributions totalling $141,820 and $40,267, respectively.
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 September 30, 1997,
the reserve balance was reduced to approximately $2.7 million due to follow-on
investments in CMI Holding Corp., Diet Center Inc., Duro-Test Corporation,
Signature Brands and Petco. Additionally, $1.4 million of the reserve has been
returned to partners, $2.9 million was paid to First Chicago to pay down the
Fund's loan and approximately $295,000 has been used to fund quarterly expenses.
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. As of December 31, 1996, the tax basis of the
Fund's assets are greater than than the amounts reported in the financial
statements by $1.6 million. This difference is primarily attributable to
unrealized depreciation on investments which has not been recognized for tax
purposes.
<PAGE>
16. Subsequent Events
On August 27, 1997, ML-Lee Acquisition Fund, L.P. (the "Fund"), together
with certain other stockholders including affiliates of Thomas H. Lee Company
(the "Selling Stockholders"), entered into a Stock Purchase Agreement pursuant
to which the Selling Stockholders agreed to sell all of the issued and
outstanding Common Stock of Alliance International Group, Inc., a Georgia
corporation ("Alliance") and a Managed Company of the Fund , to an unrelated
third party for approximately $7.8 million or $7.78 per share (the
"Transaction"). In addition, immediately prior to the consummation of the
Transaction, Alliance redeemed all of the outstanding shares of the Company's
Preferred Stock, and payed accrued but unpaid dividends with respect thereto.
Also, Alliance's outstanding indebtedness was repaid in full, including accrued
and unpaid interest. The Transaction was completed on October 3, 1997.
As a result of these transactions, the Fund received proceeds of
approximately $30.9 million or $62.75 per Unit. These proceeds are comprised of
$11.9 million for repayment of indebtedness (including all accrued and unpaid
interest), and $18.9 million for the Common and Preferred Stock held by the Fund
(which includes approximately $5.5 million of preferred dividends). In addition,
the Fund's outstanding guarantee of Alliance debt, as discribed in Note 11, was
released. Net Distributable proceeds of $62.75 per Unit were distributed to
Limited Partners of record as of October 3, 1997.
On November 3, 1997, the Individual General Partners approved a fourth
quarter cash distribution, with respect to the capital transaction effected on
October 3, 1997, in connection with the Fund's investment in Alliance, as to Net
Distributable Capital Proceeds from the sale of Alliance of $30.9 million (of
which $21.4 million is return of capital) distributable cash from Mezzanine
Investments of $9.5 million, a cash distribution to Limited Partners of record
as of the effective date of such sale in the amount of $62.75 per Unit and a
cash distribution to the Managing General Partner of $308,980 in proportion to
its Capital Contribution, all such distributions will be paid on November 14,
1997.
On November 3, 1997, the Individual General Partners approved the third
quarter 1997 cash distribution totalling $5,997,616 which consists of a realized
gain pursuant to the Settlement Agreement with Deloitte and Touche. See Note 12
for more information. The total amount to be distributed to Limited Partners was
$5,937,616 or 12.18 per Unit. The Managing General Partner will receive $60,000,
in proportion to its capital contribution. This cash distribution will be paid
on November 14, 1997 to Limited Partners of record as of September 30, 1997.
On November 11, 1997, Stanley Furniture Company announced the repurchase of
a total of 413,201 shares of its Common Stock from the Fund and affiliates of
the Thomas H. Lee Company for $25 per share. As a result, the Fund is expected
to sell a total of 400,718 shares and receive proceeds of $10 million or $20.34
per Unit. The Fund will continue to hold 400,719 shares subsequent to this
repurchase. Net Distributable Proceeds from the sale will be distributed to
Limited Partners of record as of the closing date, which is expected to be in
November 1997.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
ML-LEE ACQUISITION FUND, L.P.
SUPPLEMENTAL SCHEDULE OF REALIZED GAINS (LOSSES)
FOR THE 3 AND 9 MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Number Of Original Net Realized
SECURITY Shares Cost Proceeds Gain
- -------------------------------------------------- ----------- ---------- ---------- --------
For the Three Months Ended March 31, 1997
Stanley Furniture Inc.
Common Stock 31,515 $ 395 $ 756 $ 361
- -------------------------------------------------- ---------- ---------- --------
Total For the Three Months Ended March 31, 1997 $ 395 $ 756 $ 361
- -------------------------------------------------- ---------- ---------- --------
For the Three Months Ended June 30, 1997
Stanley Furniture Inc.
Common Stock 727,344 $ 9,113 $ 14,547 $ 5,434
- -------------------------------------------------- ---------- ---------- --------
Total For the Three Months Ended June 30, 1997 $ 9,113 $ 14,547 $ 5,434
- -------------------------------------------------- ---------- ---------- --------
Total For the Nine Months Ended September 30, 1997 $ 9,508 $ 15,303 $ 5,795
================================================== ========== ========== ========
See the Accompanying Notes to 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 September 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Unrealized Unrealized
Appreciation Appreciation
(Depreciation) (Depreciation) Total Unrealized Total Unrealized
for the three for the Nine Appreciation/ Appreciation/
Investment Fair Months Ended Months Ended (Depreciation) at (Depreciation) at
SECURITY Cost Value September 30, 1997 September 30, 1997 December 31, 1996 September 30, 1997
- ---------------------------------- --------- -------- ------------------ ------------------ ----------------- ------------------
PUBLICLY TRADED SECURITIES:
Signature Brands USA
Common Stock* $ 4,552 $ 5,959 $ 390 $ (2,442) $ 3,849 $ 1,407
Playtex
Common Stock* 3,255 14,238 1,055 2,990 7,993 10,983
Stanley Furniture
Common Stock* 10,041 21,438 2,905 (65) 11,462 11,397
Walter Industries
Common Stock 8,877 8,691 1,390 2,533 (2,720) (186)
--------- ------------ ---------- ----------
TOTAL UNREALIZED APPRECIATION
(DEPRECIATION) FROM PUBLICLY
TRADED SECURITIES $ 5,740 $ 3,016 $ 20,584 $ 23,601
--------- ------------ ---------- ----------
NONPUBLIC SECURITIES:
BAOC
Jr. and Sr. Preferred Stock $24,000 $10,000 $ - $ - $ (14,000) $ (14,000)
Chadwick-Miller, Inc.
Common Stock* 3,736 - - - (3,736) (3,736)
Preferred Stock 12,916 - - - (12,916) (12,916)
Magellan Health Service
Common Stock Warrants* 4 - - - (4) (4)
SWO Holdings Corporation
Common Stock* 690 - - - (690) (690)
--------- ------------ ---------- -----------
TOTAL UNREALIZED APPRECIATION
(DEPRECIATION) FROM
NONPUBLIC SECURITIES
$ - $ - $ (31,346) $ (31,346)
--------- ------------ ---------- -----------
REVERSAL OF UNREALIZED DEPRECIATION
FROM SECURITIES SOLD
Celebrity
Common Stock* $ 57 $ 54 $ (54) $ -
--------- ------------ ---------- -----------
TOTAL NET UNREALIZED APPRECIATION
(DEPRECIATION) $ 5,797 $ 3,070 $ (10,816) $ (7,745)
========= ============ ========== ===========
* Restricted securities.
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity & Capital Resources
As of September 30, 1997, the Fund had a total of $93.5 million invested in
Mezzanine Investments. These investments were financed by net offering proceeds
and debt financing. This represents a $9.6 million decrease versus the total
invested in Mezzanine Investments at December 31, 1996 of $103.1 million. 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.
During the nine months ended September 30, 1997, the fund received no
additional debt securities in lieu of cash interest payments
("payment-in-kind"). As of September 30, 1997 and December 31, 1996, the Fund
had in its portfolio of investments $1.1 million of payment-in-kind debt
securities and $6.5 million 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 this facility.
On October 29, 1993, the Fund amended its Credit Facility Agreement
enabling the Fund to make prepayments of the term loan at any time and without
any corresponding reduction to the revolving credit line. As a result of
paydowns of the term loan, the Fund's outstanding term loan was paid in full as
of March 29, 1994. Additionally, the Fund's remaining credit line was further
amended to reduce the commitments thereunder to $7.5 million, all of which is
available to the Fund as of September 30, 1997.
The Fund is now in its eleventh year of operation. Because all of the
Fund's debt investments have been sold or redeemed, interest and other income
expected to be received by the Fund may not be sufficient to cover the Fund's
expenses. As a result, future cash distributions to Limited Partners will be
mostly derived from capital proceeds and gains, if any, 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 payment of obligations of the Fund, or for appropriate
reserves. To fund the anticipated cash flow shortfall in the near future and to
maintain adequate reserves for possible follow-on investments and expenses, the
Fund 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 in American Health Companies, Duro-Test Corp., Chadwick-Miller,
Health o meter and Petco. Approximately $1.4 million of the reserve has been
returned to partners of the Fund. In addition, $2.7 million was utilized from
the reserve to pay down a portion of the First Chicago loan on January 6, 1994
and approximately $295 has been used to fund quarterly expenses. The Fund's
reserve balance as of November 14, 1997 was approximately $2.7 million which has
been invested in temporary investments.
Investment in High-Yield Securities
The Fund invested 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 (Playtex, Stanley Furniture
and Signature Brand USA) have registered their equity securities in public
offerings. Although the equity securities of the same class presently held by
the Fund (except Stanley Furniture and Signiture Brands) 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
one year 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 two
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.
Results of Operations
Investment Income and Expenses
For the nine months ended September 30, 1997 and 1996, the Fund had net
investment income of $4,011,802 as compared to a net investment loss of
$1,075,273 for the same period in 1996. The total income earned for the nine
months ended September 30, 1997 was $7,141,490 of which $901,122 was earned from
Mezzanine Investments and $240,368 was earned from Temporary Investments.
Additionally, $6 million dollars was received in a settlement agreement as a
result of a lawsuit 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. For the
same period in 1996, total investment income earned on investments was
$2,626,135 of which $1,309,904 was earned from Mezzanine Investments and
$1,316,231 was earned from Temporary Investments.
Major expenses for the period ending September 30, 1997 consisted of
Investment Advisory Fees, Legal and Professional Fees, Loan Fees and
Reimbursable Expenses.
The Investment Advisor receives its compensation on a quarterly basis.
Total Investment Advisory Fees paid to the Investment Adviser for the nine
months ended September 30, 1997 was $893,717 compared with $1,033,443 for the
nine months ended September 30, 1996. 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 fees is a direct result of sales of investments, returns of capital
to partners and realized losses on investments. For the three months ended
September 30, 1997 and 1996, Investment Advisory Fees paid to the Investment
Adviser were $300,000 and $97,146, respectively.
Legal and Professional Fees paid by the Fund consist primarily of legal
fees incurred in conjunction with litigation. Legal and Professional Fees for
the nine months ended September 30, 1997 and 1996 were $864,566 and $1,446,985,
respectively. For the three months ended September 30, 1997 and 1996, Legal and
Professional Fees were $216,561 and $478,484, respectively. This decrease is
attributable to the decrease in legal expenses incurred and advanced by the Fund
in connection with the litigation described in Note 12 to the Financial
Statements.
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. For the nine months
ended September 30, 1997 and 1996, the Fund incurred $523,679 and $524,347,
respectively, in total loan fees. Loan fees for the three months ended September
30, 1997 and 1996 totalled $176,398 and $174,564, respectively.
Beginning October 19, 1995, in accordance with the Partnership Agreement,
the Fund Administrator is being reimbursed by the Fund for 100% of
administrative expenses incurred. For the nine months ended September 30, 1997
and 1996, reimbursable expenses totalled $402,544 and $311,430, respectively.
For the three months ended September 30, 1997 and 1996, reimbursable expenses
totalled $141,224 and $101,199, respectively.
<PAGE>
Net Assets
The Fund's net assets decreased by $2,240,339 during the nine months ended
September 30, 1997 due to net realized gains of $5,795,392, net investment
income of $4,011,802, net unrealized appreciation of $3,069,555 offset by cash
distributions of $15,117,088.
The Fund's valuation of the common stock of Signature Brands, Playtex,
Stanley Furniture and Walter Industries reflect their closing market price at
September 30, 1997.
The Signature Brand USA, Playtex and Stanley 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 Signature Brands and Stanley Furniture under the
Securities and Exchange Commission's Rule 144, and therefore, any resale of
Signature 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 Signature, Playtex and Stanley Furniture securities
held by the Fund do not necessarily represent the prices at which these
securities could currently be sold.
Unrealized Appreciation and Depreciation and Non-Accrual of Investments
For the nine months ended September 30, 1997, the Fund recorded net
unrealized appreciation of $3,069,555 as compared to a net unrealized
depreciation of $21,251,814 for the same period in 1996. As of September 30,
1997, the Fund's cumulative net unrealized depreciation on investments totalled
$7,744,911. The increase in unrealized appreciation during the nine months ended
September 30, 1997 is primarily the result of the increase in value of Playtex
and Walter common stock offset in part by a decrease in value of Signature
Brands common stock. For the three months ended September 30, 1997 and 1996, the
Fund recorded net unrealized appreciation of $5,797,187 as compared to net
unrealized appreciation of $15,886,767 for the same period in 1996.
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 September
30, 1997. 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 gains on investments for the nine months ended September
30, 1997 was $5,795,392 compared to net realized gains of $60,801,746 for the
same period in 1996. For the three months ended September 30, 1997, the Fund did
not realize any gains or losses. For the comparable period in 1996, the Fund
realized a loss of $773,295.
For additional information, please refer to the Supplemental Schedule of
Realized Gains and Losses - Schedule 1.
<PAGE>
Cash Distributions
On November 3, 1997, the Individual General Partners approved a fourth
quarter cash distribution, with respect to the capital transaction effected on
October 3, 1997, in connection with the Fund's investment in Alliance, as to Net
Distributable Capital Proceeds from the sale of Alliance of $30.9 million (of
which $21.4 million is return of capital) distributable cash from Mezzanine
Investments of $9.5 million, a cash distribution to Limited Partners of record
as of the effective date of such sale in the amount of $62.75 per Unit and a
cash distribution to the Managing General Partner of $308,980 in proportion to
its Capital Contribution, all such distributions will be paid on November 14,
1997.
On November 3, 1997, the Individual General Partners approved the third
quarter 1997 cash distribution totalling $5,997,616 which consists of a realized
gain pursuant to the Settlement Agreement with Deloitte and Touche. See Note 12
for more information. The total amount to be distributed to Limited Partners is
$5,937,616 or 12.18 per Unit. The Managing General Partner will receive $60,000,
in proportion to its capital contribution. This cash distribution will be paid
on November 14, 1997 to Limited Partners of record as of September 30, 1997.
Because all of the Fund's debt holdings were previously sold or redeemed,
remaining portfolio interest income expected to be received by the Fund may not
be sufficient to cover the Fund's expenses in the future. As a result, any
interest income received will be used to pay Fund expenses any may not be
available for distribution. The majority of future cash distributions to Limited
Partners will be derived from gains and recovered capital from asset sales,
which are dependent upon future market conditions and therefore are inherently
unpredictable. Cash distributions, therefore, are likely to vary significantly
in amount and may not be made in every quarter.
Should Limited Partner's decide to sell their Units, any such sale will be
recorded on the books and records of the Fund quarterly, only upon the
satisfactory completion and acceptance of the Fund's transfer documents. There
can be no assurances that such transfer will be effected before any specified
date. Additionally, pursuant to the Partnership Agreement, until a transfer is
recognized, the Limited Partner of record (i.e. the transferor) is entitled to
receive all the benefits and burdens of ownership of Units, and any transferee
has no rights to distributions of sale proceeds generated at any time prior to
the recognition of the transfer and assignment. Accordingly, Distributable Cash
from Investments for a quarter and Distributable capital Proceeds from sales
after transfer or assignment have been entered into, but before such transfer
and assignment is recognized, would be payable to the transferor and not the
transferee.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
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
was denied. Thereafter, Deloitte & Touche filed a petition for a writ of
Certiorari with South Carolina Supreme Court, which was granted. On August 11,
1997, the South Carolina Supreme Court affirmed in part and reversed in part the
rulings by the Court of Appeals reversing summary judgement for Deloitte &
Touche. In order to avoid the expense and uncertainty of trial and not as an
admission of any liability to the Fund on Deloitte's part, Deloitte on September
26, 1997, paid the Fund $6 million under a Settlement Agreement. These Funds
approximately $12.18 per Unit, will be distributed to Limited Partners of record
as of September 26, 1997.
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 quarter ended September 30,
1996.
(b) Registrant Filed Forms 8-K with respect to the following:
Deloitte Settlement Filed September 26, 1997
<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 13th day of
November, 1997.
ML-LEE ACQUISITION FUND, L.P.
By: Mezzanine Investments, L.P.,
Managing General Partner
By: ML Mezzanine Inc.,
its General Partner
Dated: November 13, 1997 /s/ Audrey Bommer
Audrey Bommer
Vice President and Treasurer
(Chief Financial Officer)
Dated: November 13, 1997 /s/ Roger F. Castoral, Jr.
Roger F. Castoral, Jr.
Vice President and 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 13th day of
November, 1997.
ML-LEE ACQUISITION FUND, L.P.
By: Mezzanine Investments, L.P.,
Managing General Partner
By: ML Mezzanine Inc.,
its General Partner
Dated: November 13, 1997 ____________________________
Audrey Bommer
Vice President and Treasurer
(Chief Financial Officer)
Dated: November 13, 1997 ____________________________
Roger F. Castoral, Jr.
Vice President and Assistant Treasurer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary information extracted from the third quarter
1997 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 102,314,749
<INVESTMENTS-AT-VALUE> 94,577,160
<RECEIVABLES> 375,114
<ASSETS-OTHER> 551,963
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95,504,237
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 356,738
<TOTAL-LIABILITIES> 356,738
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 487,489
<SHARES-COMMON-PRIOR> 487,489
<ACCUMULATED-NII-CURRENT> 0
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<NET-ASSETS> 95,147,499
<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 6,000,000
<EXPENSES-NET> 3,129,688
<NET-INVESTMENT-INCOME> 4,011,802
<REALIZED-GAINS-CURRENT> 5,795,392
<APPREC-INCREASE-CURRENT> 3,069,555
<NET-CHANGE-FROM-OPS> 12,876,749
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14,686,772)
<DISTRIBUTIONS-OF-GAINS> 126,899,427
<DISTRIBUTIONS-OTHER> 66,879,993
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
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<NET-CHANGE-IN-ASSETS> 2,240,339
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 3,129,688
<AVERAGE-NET-ASSETS> 96,267,668
<PER-SHARE-NAV-BEGIN> 197.07
<PER-SHARE-NII> 8.15
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
