UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
Commission File Number 0-15669
ML-LEE ACQUISITION FUND, L.P.
(Exact name of registrant as specified in its Governing Instruments)
Delaware 13-3426817
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
World Financial Center
South Tower - 14th Floor
New York, New York 10080-6114
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (212) 236-6562
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 ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Documents Incorporated by Reference: Pages 15-33, 47-50 of the Prospectus
of the Registrant dated August 12, 1987, filed with the Securities and Exchange
Commission pursuant to Rule 424(b), as supplemented by supplements dated May 12,
1988, May 13, 1988 and May 25, 1988 filed with the Securities and Exchange
Commission pursuant to Rule 497(d), are incorporated by reference in Parts I and
II hereof.
<PAGE>
Part I
Item l. Business.
Formation
ML-Lee Acquisition Fund, L.P. (the "Fund" or the "Registrant") is a
Delaware limited partnership organized on April 1, 1987. Mezzanine Investments,
L.P. (the "Managing General Partner") and four individuals (the "Individual
General Partners") act as the General Partners of the Fund. The Managing General
Partner is a limited partnership organized under Delaware law by ML Mezzanine
Inc., as sole general partner, and Thomas H. Lee Advisors I (the "Investment
Adviser"), as sole limited partner. ML Mezzanine Inc. is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. and an affiliate of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"). The Investment Adviser is
a Massachusetts business trust controlled by Thomas H. Lee, one of the
Individual General Partners. The other Individual General Partners are Vernon R.
Alden, Joseph L. Bower and Stanley H. Feldberg (the "Independent General
Partners").
The Fund has elected to operate as a business development company under the
Investment Company Act of 1940. Its primary 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
recapitalizations. The Fund considers this activity to constitute a single
industry segment of mezzanine financing investing.
The Fund publicly offered, through MLPF&S, up to 1 million units of limited
partnership interest (the "Units") at $1,000 per Unit. The Units were registered
under the Securities Act of 1933 pursuant to a Registration Statement on Form
N-2 (File No. 33-13394) which was declared effective on August 12, 1987. The
information set forth under the headings "Risk and Other Important Factors",
"Mezzanine Financing" and "Investment Objective and Policies" on pages 15
through 33 and "Conflicts of Interest" on pages 47 through 50 in the prospectus
of the Fund dated August 12, 1987, filed with the Securities and Exchange
Commission pursuant to Rule 424(b) under the Securities Act of 1933, as
supplemented by supplements dated May 12, 1988, May 13, 1988 and May 25, 1988
filed with the Securities and Exchange Commission pursuant to Rule 497(d) (the
"Prospectus"), is incorporated herein by reference.
The term of the Fund expired on June 15, 1998 resulting in the dissolution
of the Fund. The Fund has five additional years to liquidate its remaining
investments. As of July 1, 1998, the Fund no longer pays the Investment Adviser
an Investment Advisory Fee.
Mezzanine and Bridge Investments
The Fund commenced operations on October 19, 1987 and completed its
Investment Period on June 15, 1991. As of December 31, 1998, the Fund had no
Mezzanine or Bridge Investments outstanding.
REVIEW OF INVESTMENTS SOLD DURING 1998
BeefAmerica, Inc. ("BeefAmerica")
--------------------------------
On March 3, 1998, the Fund sold its remaining investment in BeefAmerica,
consisting of 14,000 shares Sr. Preferred Stock and 10,000 shares Jr. Preferred
Stock (the "Securities"), for $1 million to Lajara II LLC, a limited Liability
Company owned by the Management of BeefAmerica Operating Company. The proceeds
consisted of a $1 million Promissory Note payable to the Fund. The Securities
have been pledged to secure the obligation of Lajara II, LLC under the
Promissory Note and the Fund recognized a loss of $23 million. The operating
performance at BeefAmerica continued to deteriorate and on October 8, 1998, the
company filed for bankruptcy protection under Chapter 11 of the United States
Bankruptcy Code. As a result, the Fund does not expect to collect any additional
proceeds and has fully reserved against the $1 million promissory note.
Chadwick-Miller, Inc. ("CMI")
----------------------------
On July 9, 1998, pursuant to a purchase and sale agreement, the Fund sold
its remaining Warrants to purchase Common and Preferred Stock of Chadwick
Miller, (which includes all payment-in-kind securities) and received proceeds of
$100. The Fund recognized a loss of $16.7 million on the transaction in the
third quarter 1998. The Fund had previously recorded $16.7 million in unrealized
depreciation on this investment, all of which was reversed at the time of this
sale.
Cole National Corporation ("Cole")
---------------------------------
The Fund sold 567 Cole National Common Stock Purchase Warrants in May 1998,
and received proceeds of $15,593, all of which was a realized gain.
<PAGE>
Playtex Products Inc. ("Playtex")
--------------------------------
On May 27, 1998, Playtex Products Inc. ("Playtex"), completed a public
offering in the international markets of approximately 4 million shares of
Common Stock at a net price of $13.215 per share (the "Playtex Offering"). Of
the 4 million shares offered, approximately 3.3 million shares were offered by
affiliates of the Thomas H. Lee Company, including the Fund, ML-Lee Acquisition
Fund II, L.P. and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. As part
of the Playtex Offering, the Fund sold its remaining investment in Playtex,
consisting of approximately 1.4 million shares of Common Stock. The Fund
received proceeds of $18.5 million and recognized a gain on the sale of
approximately $15.3 million. Net Distributable Proceeds of $37.74 per Unit were
distributed on July 21, 1998, to Limited Partners of record as of May 27, 1998.
Signature Brands USA (formerly Health o meter Products, Inc.)
------------------------------------------------------------
Signature Brands USA is a manufacturer of a comprehensive line of consumer,
medical, office and food service scales and equipment under the Signature Brands
USA and Pelouze brand names, as well as related measuring instruments and
personal care products. Mr. Coffee, a wholly-owned subsidiary of Signature
Brands USA and a manufacturer of automatic drip coffee makers and tea makers in
the United States, offers an extensive line of automatic drip coffee makers,
coffee filters, accessories and other kitchen counter-top appliances.
On April 2, 1998, Sunbeam Corporation ("Sunbeam") completed a tender offer
for all of the outstanding shares of Signature Brands USA Common Stock for
approximately $250 million ($8.25 per share) and assumed all the debt of
Signature Brands USA. Pursuant to the Tender Offer, the Fund tendered all its
shares of Signature Brands USA Common Stock and received proceeds of
approximately $13 million and recognized a gain of $8.3 million. Net
Distributable Capital Proceeds of $26.19 per Unit were distributed on April 23,
1998, to the Funds' Limited Partners of record as of April 2, 1998.
Stanley Furniture Company, Inc. ("Stanley")
------------------------------------------
On January 6, 1998 the Fund and affiliates of the Thomas H Lee Company
including ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P. (the "Lee Affiliates", and together with the
Fund, the "Selling Stockholders") sold their remaining holdings of common stock
in Stanley. The common stock of each of the Selling Stockholders was sold
pursuant to a Form S-3 Registration Statement, which was declared effective by
the Securities and Exchange Commission on December 23, 1997. In connection with
the sale, the Fund sold its remaining 400,719 shares of common stock and
received net proceeds of $10.8 million or $27 per share and recognized a gain of
$5.8 million. On February 12, 1998, the Independent General Partners established
a reserve of $1.65 million from these proceeds to pay future expenses of the
Fund. Net Distributable Capital Proceeds from the sale, as defined in the
Partnership Agreement, of $9.2 million or $18.63 per Unit were distributed to
Limited Partners of record as of January 6, 1998.
Magellan Health Services, Inc. (formerly Charter Medical Corporation)
--------------------------------------------------------------------
On May 4, 1998, the Fund sold 40,000 Common Stock Purchase Warrants of
Magellan Health Services for $5,168 and recognized a gain of $1,168.
SWO Holdings Corporation
------------------------
During May 1998, the Fund sold its investment in SWO Holdings, consisting
of 250,000 shares of SWO Holding Common Stock, 1,430 shares of Homeland Holdings
Common Stock, and 1,506 Homeland Holdings Common Purchase Warrants and received
aggregate proceeds of $11,102. The Fund recognized a loss of $679,312 from these
sales.
<PAGE>
TLC Beatrice International Holdings, Inc.
-----------------------------------------
On April 17, 1998, pursuant to Rule 144 of the Securities Act of 1933, the
Fund sold its investment of 25,500 shares of TLC Beatrice International Holdings
Common Stock for $1.3 million, or $51.25 per share. The Fund recognized a gain
of $1.29 million from the sale.
Competition
The Fund has completed its investment period and reinvestment period and no
longer has to compete for investments.
Employees
The Fund has no employees. The Investment Adviser, subject to the
supervision of the Managing General Partner and the Individual General Partners,
manages and controls the Fund's investments. ML Fund Administrators Inc. (the
"Fund Administrator") performs administrative services for the Fund. The Fund
Administrator is a subsidiary of Merrill Lynch & Co., Inc., the parent of
MLPF&S.
Item 2. Properties
The Fund does not own or lease any physical properties.
Item 3. Legal Proceedings
On April 10, 1998, the parties to Seidel v. Thomas H. Lee, et al, No.
93-494 (JJF), a putative class action brought on behalf of limited partners of
the Fund, filed with United States District Court for the District of Delaware,
a Stipulation of Settlement settling the action.
The settlement, which was approved by the Court at a hearing on July 16,
1998, dismissed with prejudice all claims against the Fund, the Fund's
Investment Adviser and certain of its affiliates, the Fund's Managing General
Partner and certain of its affiliates, and the Fund's Independent General
Partners. Defendants, other than the Fund, have provided cash of $2.5 million
and certain other considerations to settle the claims asserted in this action.
The settlement became effective on August 24, 1998. Defendants continue to deny
all liability in this action.
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 (the "Court"). 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. After the defendants filed a motion to dismiss the
action in its entirety, the plaintiffs filed an amended complaint. The
defendants thereafter filed a motion to dismiss the amended complaint in its
entirety, which motion has been fully briefed. 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. On March 30,
1998, the Court entered an order adopting the Report and Recommendation of the
Magistrate Judge granting defendants' motion to dismiss the amended complaint in
its entirety with prejudice. Plaintiffs thereafter filed an appeal, which has
been briefed and argued by both plaintiffs and defendants. The parties are
awaiting the Court's decision on the appeal.
Item 4. Submission of Matters to a Vote of Security-Holders
No matters were submitted to a vote of the Limited Partners of the Fund
during the fourth quarter ended December 31, 1998.
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
There is no established trading market for the Units. The Partnership
Agreement contains restrictions that are intended to prevent the development of
a public market. Accordingly, accurate information as to the market values of
Units at any given date is not available.
The approximate number of Unit holders as of January 1, 1999, the last
effective date of transfer (as described below), was 34,676. The Managing
General Partner also holds a general partner interest in the Fund.
MLPF&S reports estimated values of limited partnerships and other direct
investments on client account statements and no longer reports the general
partner's estimate of limited partnership net asset value to Unit holders.
Pursuant to MLPF&S guidelines, estimated values for limited partnership
interests originally sold by MLPF&S (such as the Fund's Units) are provided by
independent valuation services. MLPF&S clients may contact their MLPF&S
Financial Consultants to obtain a general description of the methodology used by
the independent valuation services to determine their estimates of value. The
estimated values provided by the independent services and the Fund's current net
asset value as estimated by the general partner are not market values and Unit
holders may not be able to sell their Units or realize either amount upon a sale
of their Units. In addition, Unit holders may not realize the independent
estimated value or the Fund's current net asset value upon the liquidation of
the Fund's assets over its remaining life.
The Fund distributes Distributable Cash from Investments and
Distributable Capital Proceeds in accordance with the terms of the Partnership
Agreement.
Pursuant to the Partnership Agreement, transfers of Units are
recognized on the first day of the fiscal quarter after which the Managing
General Partner has been duly notified of a transfer pursuant to the Partnership
Agreement. Until a transfer is recognized, the limited partner of record (i.e.
the transferor) will continue to receive all the benefits and burdens of
ownership of Units (including allocations of profit and loss and distributions),
and any transferee will have no rights to distributions on sale proceeds or
distributable cash from investments 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 by the
Managing General Partner, will be payable to the transferor and not the
transferee.
Cash Distributions
The Fund has made quarterly distributions, including both Distributable
Cash from Investments and Distributable Capital Proceeds. The Fund's ability to
make future distributions is restricted.
As set forth in Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources - the
information contained is incorporated herein by reference.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Item 6. Selected Financial Data
For the Years Ended
Supplemental Information December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995 December 31, 1994
Schedule
Selected Financial Data
TOTAL FUND INFORMATION:
Net Investment Income (Loss) $ (2,408,833) $ 9,323,884 $ (1,411,814) $ (1,155,421) $ 9,305,007
Net Realized Gains (Losses) on
Investments (9,556,977) 10,880,887 63,695,316 75,808,138 (37,008,074)
Net Change in Unrealized
Appreciation(Depreciation) on
Investments 18,947,186 (8,132,721) (23,317,903) 9,920,766 9,271,721
Cash Distributions to Partners (a) 60,813,036 52,013,619 195,931,182 186,920,065 43,760,745
Net Assets 3,614,610 57,446,269 97,387,831 254,353,413 356,699,995
Cost of Mezzanine Investments -- 54,199,296 103,063,947 223,694,546 336,632,272
Total Assets 3,763,092 57,695,443 97,635,860 254,776,082 357,777,636
PER UNIT OF LIMITED PARTNERSHIP
INTEREST:
Investment Income $ 1.22 $ 26.66 $ 6.21 $ 11.68 $ 37.10
Expenses (6.11) (7.72) (9.08) (14.03) (18.20)
-------------- ------------ ------------ ------------ ------------
Net Investment Income (Loss) (4.89) 18.94 (2.87) (2.35) 18.90
============== ============ ============ ============ ============
Net Realized Gains (Losses) on
Investments $ (19.41) $ 22.10 $ 129.35 $ 153.95 $ (75.16)
Net Change in Unrealized
Appreciation (Depreciation) 38.48 (16.52) (51.46) 20.15 18.83
Cash Distributions (a) 123.50 105.63 397.90 379.60 88.87
Cumulative Cash Distributions 1,578.54 1,455.04 1,349.41 951.51 571.91
Net Asset Value 6.64 115.96 197.07 519.95 727.79
</TABLE>
(a) Includes $26,452,077 or $54.26 per Limited Partnership Unit return of
capital from cash distributed during 1998.
See the Cash Distributions Schedule for further information.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity & Capital Resources
The term of the Fund expired on June 15, 1998 resulting in the dissolution
of the Fund. The Fund has five additional years to liquidate its remaining
investments. As of July 1, 1998, the Fund no longer pays the Investment Adviser
an Investment Advisory Fee.
The Fund no longer generates sufficient cash to pay current obligations;
however the Fund has available approximately $3.8 million of cash reserves to
cover future expenses including all expenses related to the winding up of the
Fund's affairs such as administrative and custodial expenses, and audit and tax
preparation fees. Any proceeds received from the Promissory Note related to the
Fund's investment in BeefAmerica Inc. (see Note 8) as well as any remaining cash
reserves in excess of amounts required to pay the Fund's obligations prior to
its termination will be distributed as soon as practicable as a final
liquidating distribution to Limited Partners.
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. The
agreement provided the Fund with a maximum of $140 million, consisting of a $100
million term loan and a $40 million revolving credit line. The Credit Facility
was due to expire on July 31, 1998, however, due to the expiration of the term
of the Fund on June 15, 1998, and in order to stop incurring Unused Committment
Fees the Credit agreement was amended to instead expire as of June 30, 1998.
Because all of the Fund's debt investments were previously sold or
redeemed, interest and other income expected to be received by the Fund will not
be sufficient to cover the Fund's expenses. 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, Signature Brands USA and Petco, along with
distributions to partners totalling $1.4 million. In addition, $2.9 million was
utilized from the reserve to pay down a portion of the First Chicago loan on
January 6, 1994. In February 1998, the Independent General Partners approved an
additional reserve of $1.65 million which has been reserved from the proceeds
received from the sale of Stanley Furniture in January 1998. This reserve was
established to fund anticipated cash shortfalls in the future. The Fund's
reserve balance as of March 19, 1999 was approximately $3.8 million, which is
made up of cash and temporary investments.
<PAGE>
Results of Operations
Investment Income and Expenses
The total investment income earned on investments for the year ended
December 31, 1998 was $601,351, all of which was earned from Temporary
Investments. The total investment income earned on investments for the year
ended December 31, 1997 was $13,127,105, of which $12,510,356 was earned from
Mezzanine Investments and $616,749 was earned from Temporary Investments.
For the same period in 1996, total investment income earned on investments
was $3,061,608, of which $1,611,001 was earned from Mezzanine Investments and
$1,450,607 was earned from Temporary Investments.
For the year ended December 31, 1998, the Fund had net investment loss from
operations of $2,408,833 as compared to a net investment income of $9,323,884
and a net investment loss of $1,411,814 for the same periods in 1997 and 1996,
respectively. The decrease in net investment income for the year ended December
31, 1998 compared to the year ended December 31, 1997 is the result of the sale
of income producing portfolio companies in 1998.
The increase in net investment income for the year ended December 31, 1997
versus the comparative period in 1996 is the result of an increase in dividend
income received in connection with the sale of Alliance. Additionally, $6
million of settlement proceeds were received in 1997 pursuant to an agreement
with Deloitte & Touche.
Major expenses for the period consisted of Investment Advisory Fees and
Legal and Professional Fees.
The Investment Adviser and Fund Administrator receive their compensation on
a quarterly basis. The total Investment Advisory Fee paid to the Investment
Adviser for the year ended December 31, 1998 was $600,000, compared with
$1,193,717 for the year ended December 31, 1997 and $1,282,991 for the year
ended December 31, 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 $1.2 million. This
decrease in 1998 as compared to 1997 and 1996 Investment Advisory Fees is due to
the expiration of the Fund's term on June 15, 1998, which caused the Management
Agreement between the Investment Adviser and the Fund to expire. As a result,
the Investment Adviser is no longer receiving compensation for services rendered
effective July 1, 1998, however, the Investment Adviser has agreed to provide
investment advisory services to the Fund as needed until final liquidation.
Legal and Professional Fees paid by the Fund consist primarily of legal
fees incurred in conjunction with the Fund's litigation. For the years ended
December 31, 1998, 1997 and 1996, legal and professional fees were $5,124,
$854,470 and $1,559,223, respectively. This decrease from 1997 to 1998 is
primarily attributable to the decrease in litigation expenses incurred by the
Fund and the settlement of the litigation.
Total Fund Administration Fees paid to the Fund Administrator for the years
ended December 31, 1998, 1997 and 1996 were $300,000, $300,000 and $299,335,
respectively. In accordance with Partnership Agreement, beginning October 19,
1995, the Fund Administration Fee changed to an annual fee of $300,000, plus
100% of actual out-of-pocket expenses incurred by the Fund Administrator. For
the period ending October 19, 1995, Fund Administration Fees were calculated at
an annual rate of 0.45% of net offering proceeds reduced by one-half of the sum
of returns of capital to partners and realized losses on investments, with a
minimum annual payment of $400,000. This decrease in Fund Administration Fees
reflects adjustments relating to a return of capital and realized losses
recorded in 1995 and the change in the Fund Administration fee to $300,000 per
annum.
Beginning October 19, 1995, the Fund Administrator is being reimbursed by
the Fund for 100% of the out-of-pocket expenses incurred. Total out-of-pocket
expenses incurred by the Fund for the years ended December 31, 1998, 1997 and
1996 were $542,747, $519,134 and $414,544, respectively.
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
years ended December 31, 1998, 1997 and 1996 totaled $402,933, $700,249 and
$701,021 , respectively. This decrease in 1998 as compared to the 1997 and 1996
loan fees is the result of reductions in the Credit Facility.
<PAGE>
Net Assets
The Fund's net assets decreased by $53,831,660 during the year ended
December 31, 1998 due to cash distributions of $60,813,036 (of which $26,451,153
was return of capital from the sales of portfolio investments) and reversal of
unrealized depreciation of $18,947,186 partially offset by net realized losses
of $9,556,977 and net investment loss of $2,408,833.
The Fund's net assets decreased by $39,941,569 during the year ended
December 31, 1997 due to additional net unrealized depreciation of $8,132,721,
net realized gains of $10,880,887 and net investment income of $9,323,884
partially offset by cash distributions to partners of $52,013,619 ($31,452,790
of the cash distributions distributed in 1997 was return of capital from the
sales of portfolio investments).
The Fund's net assets decreased by $156,965,582 during the year ended
December 31, 1996 due to net investment loss of $1,411,814 and cash
distributions to partners of $195,931,182 ($72,697,537 of cash distributions
distributed in 1996 was return of capital from the sales of portfolio
investments) and additional net unrealized depreciation of $23,317,903, offset
by net realized gains of $63,695,316.
Unrealized Appreciation and Depreciation on Investments
For the year ended December 31, 1998, the Fund recorded total net
unrealized appreciation of $18.9 million. Approximately $19.0 million was net
unrealized depreciation in the market value of publicly traded securities sold
by the Fund at December 31, 1998. This compares to a net unrealized depreciation
of $8.1 million of which $2.8 million was a reversal of net unrealized
depreciation for investments sold during 1997. For the year ended December 31,
1996, the Fund recorded net unrealized appreciation of $23.3 million of which
$27.5 million was net unrealized appreciation in market value of publicly traded
securities held by the Fund at December 31, 1996. The Fund's cumulative net
unrealized depreciation on investments at December 31, 1998 totaled zero.
For additional information, please refer to the Supplemental Schedule of
Unrealized Appreciation and Depreciation (Schedule 2).
Realized Gains and Losses
Net realized losses on investments for the year ended December 31, 1998
were $9,556,977 compared to a net realized gain of $10,880,887 in 1997 and a net
realized gain of $63,695,316 for 1996.
For additional information, please refer to the Supplemental Schedule
of Realized Gains and Losses (Schedule 1).
Cash Distributions
Because all of the Fund's debt holdings were previously sold or redeemed,
remaining portfolio interest income expected to be received by the Fund is not
sufficient to cover the Fund's expenses. As a result, any income received will
be used to pay Fund expenses and will not be available for distribution.
Should a Limited Partner decide to sell his 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.
Year 2000 Compliance Initiative
The year 2000 ("Y2K") problem is the result of a widespread programming
technique that causes computer systems to identify a date based on the last two
numbers of a year, with the assumption that the first two numbers of the year
are "19". As a result, the year 2000 would be stored as "00", causing computers
to incorrectly interpret the year as 1900. Left uncorrected, the Y2K problem may
cause information technology systems (e.g., computer databases) and
non-information technology systems (e.g., elevators) to produce incorrect data
or cease operating completely.
Overall, the Fund believes that it has identified and evaluated its
internal Y2K problem and that it is devoting sufficient resources to renovating
technology systems that are not already Y2K compliant. The Fund has been working
with third-party software vendors to ensure that computer programs utilized by
the Fund are Y2K compliant. In addition, the Fund has contacted third parties to
ascertain whether these entities are addressing the Y2K issue within their own
operation.
Mezzanine Investment L.P., through ML Mezzanine Inc. is responsible for
providing administrative and accounting services necessary to support the Fund's
operations, including maintenance of the books and records, maintenance of the
partner database, issuance of financial reports and tax information to partners
and processing distribution payments to partners. In 1995, Merrill Lynch
established the Year 2000 Compliance Initiative, which is an enterprisewide
effort (of which ML Mezzanine Inc. is a part) to address the risks associated
with the Y2K problem, both internal and external. The integration testing phase,
which will occur throughout 1999, validates that a system can successfully
interface with both internal and external systems. Merrill Lynch continues to
survey and communicate with third parties whose Year 2000 readiness is important
to the company. Based on the nature of the response and the importance of the
product or service involved, Merrill Lynch determines if additional testing is
needed.
Merrill Lynch will participate in further industrywide testing currently
scheduled for March and April 1999, which will involve an expanded number of
firms, transactions, and conditions.
Although the Fund has not finally determined the cost associated with its
Year 2000 readiness efforts, the Fund does not anticipate the cost of the Y2K
problem to be material to its business, financial condition or results of
operations in any given year. However, there can be no guarantee that the
systems of other companies on which the Fund's systems rely will be timely
converted, or that a failure to convert by another company or a conversion that
is incompatible with the Fund's systems would not have a material adverse effect
on the Fund's business, financial condition or results of operations.
Item 7A. Quantitative and Qualitative Disclosure About Market
Risk
As of December 31, 1998, the Fund maintains a portion of its cash
equivalents in financial instruments with original maturities of three months or
less. These financial instruments are subject to interest rate risk, and will
decline in value if interest rates increase. A significant increase or decrease
in interest rates would not have a material effect on the Fund's financial
position.
<PAGE>
<TABLE>
<CAPTION>
Cash Distributions
The following table represents distributions approved by the Individual
General Partners of ML-Lee Acquisition Fund, L.P. since inception (October 19,
1987):
<S> <C> <C> <C> <C> <C> <C>
Total Total Distributed to Per Unit Managing
Distributed Limited Partners Return of General Incentive
Cash Amount Per Unit* Capital** Partner Fee***
Fourth Quarter 1987 $ 2,577,304 $ 2,551,531 $ 6.14 $ - $ 25,773 $ -
First Quarter 1988 6,328,879 6,266,217 14.80 - 62,662 -
Second Quarter 1988 7,495,858 7,420,899 16.50 - 74,959 -
Third Quarter 1988 14,228,737 14,086,450 29.45 - 142,287 -
Fourth Quarter 1988 13,788,416 13,074,454 26.82 - 137,884 576,078
First Quarter 1989 16,291,215 15,034,161 30.84 - 162,929 1,094,125
Second Quarter 1989 15,374,977 13,771,564 28.25 - 153,740 1,449,673
Third Quarter 1989 36,416,661 28,292,735 58.64 - 364,164 7,759,762
Fourth Quarter 1989 19,252,214 13,284,076 27.25 - 192,558 5,775,580
First Quarter 1990 10,119,121 7,180,713 14.73 - 101,197 2,837,211
Second Quarter 1990 5,270,048 3,636,668 7.46 - 52,690 1,580,690
Third Quarter 1990 12,467,001 9,783,904 20.07 - 124,649 2,558,448
Fourth Quarter 1990 7,138,368 6,488,478 13.31 - 71,384 578,506
First Quarter 1991 1,496,932 1,481,967 3.04 - 14,965 -
Second Quarter 1991 5,298,352 5,245,382 10.76 - 52,970 -
Third Quarter 1991 5,539,662 5,484,251 11.25 - 55,411 -
Fourth Quarter 1991 6,829,769 6,761,472 13.87 - 68,297 -
First Quarter 1992 9,611,889 9,515,786 19.52 - 96,103 -
Second Quarter 1992 5,997,616 5,937,616 12.18 10.37 60,000 -
Third Quarter 1992 1,570,785 1,555,090 3.19 - 15,695 -
Fourth Quarter 1992 1,989,335 1,969,456 4.04 - 19,879 -
First Quarter 1993 18,170,064 17,988,344 36.90 36.15 181,720 -
Second Quarter 1993 5,086,627 5,035,761 10.33 .86 50,866 -
Third Quarter 1993 31,366,725 31,053,049 63.70 - 313,676 -
Fourth Quarter 1993 29,052,375 28,761,851 59.00 - 290,524 -
First Quarter 1994 8,001,724 7,921,696 16.25 6.52 80,028 -
Second Quarter 1994 1,083,292 1,072,476 2.20 1.22 10,816 -
Third Quarter 1994 5,623,355 5,567,124 11.42 .48 56,231 -
Fourth Quarter 1994 7,602,855 7,526,830 15.44 5.04 76,025 -
First Quarter 1995 44,671,712 44,225,002 90.72 41.20 446,710 -
Second Quarter 1995 19,863,955 19,665,306 40.34 17.13 198,649 -
Third Quarter 1995 114,781,543 113,633,686 233.10 60.61 1,147,857 -
Fourth Quarter 1995 5,391,914 5,338,005 10.95 (a) 13.66 53,909 -
First Quarter 1996 26,916,067 26,646,919 54.66 53.06 269,148 -
GNC Distribution on
March 29, 1996 101,737,501 100,720,102 206.61 27.94 1,017,399 -
Petco Distribution on
June 11, 1996 40,289,255 39,886,350 81.82 16.66 402,905 -
Second Quarter 1996 4,027,927 3,987,660 8.18 6.45 40,267 -
Third Quarter 1996 709,056 701,984 1.44 (a) 2.15 7,072 -
Stanley Distribution
on December 23, 1996 16,860,231 16,691,623 34.24 27.78 168,608 -
Fourth Quarter 1996 650,009 643,485 1.32 (a) 2.04 6,524 -
First Quarter 1997 285,576 282,744 .58 (a) .79 2,832 -
Second Quarter 1997 14,181,503 14,039,683 28.80 18.12 141,820 -
Third Quarter 1997 5,997,616 5,937,616 12.18 - 60,000 -
Fourth Quarter 1997 49,674,649 49,177,891 100.88 71.08 496,759 -
First Quarter 1998 9,173,668 9,081,920 18.63 10.20 91,748 -
Signature Distribution
on April 23, 1998 12,896,300 12,767,337 26.19 9.24 128,963 -
Second Quarter 1998 19,967,334 19,767,679 40.55 6.77 199,655 -
------------- ------------- --------- --------- ------------ -----------
Totals $ 799,145,971 $ 766,944,993 $1,578.54 $ 445.52 $ 7,990,906 $24,210,073
============= ============= ========= ========= ============ ===========
* For periods prior to Third Quarter 1988, the amounts shown are for the 1st
closing participants only. Subsequent closings' amounts as to such periods
will vary.
** The Per Unit Return of Capital figures are included in the total Per Unit
Distribution amount in the previous column.
*** Incentive distributions paid to the Managing General Partner for exceeding
the cumulative Priority Return on Mezzanine Investments to Limited
Partners.
(a) Return of Capital amounts received in such quarters were reduced by Fund
expenses .
</TABLE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
ML-LEE ACQUISITION FUND, L.P.
TABLE OF CONTENTS
Report of Independent Accountants
Statements of Assets, Liabilities and Partners' Capital As of
December 31, 1998 and December 31, 1997
Statements of Operations
For the Years Ended December 31, 1998, 1997 and 1996
Statements of Changes in Net Assets
For the Years Ended December 31, 1998, 1997 and 1996
Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
Statements of Changes in Partners' Capital
For the Years Ended December 31, 1998, 1997 and 1996
Schedule of Portfolio Investments - December 31, 1998
Notes to Financial Statements
Supplementary Schedule of Realized Gains and Losses (Schedule 1)
Supplementary Schedule of Unrealized Appreciation and Depreciation (Schedule 2)
PART III - OTHER INFORMATION
Item 10. Directors and Executive Officers of the Registrant
Item 14. Exhibits Financial Statement Schedules and Reports on Form 8-K.
<PAGE>
Report of Independent Accountants
To the General and Limited Partners of
ML-Lee Acquisition Fund L.P.
In our opinion, the accompanying statements of assets, liabilities and
partners' capital, including the schedule of portfolio investments, and the
related statements of operations, of changes in net assets, of cash flows, and
of changes in partners' capital present fairly, in all material respects, the
financial position of ML-Lee Acquisition Fund L.P. (the "Fund") at December 31,
1998 and 1997, and the results of its operations, the changes in its net assets,
its cash flows, and the changes in its partners' capital for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
As discussed in Note 1, the Fund dissolved on June 15, 1998 and has until
June 15, 2003 to liquidate its remaining assets.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule of realized gains and
losses (Schedule 1) and the schedule of unrealized appreciation and depreciation
(Schedule 2) are presented for the purpose of additional analysis and are not a
required part of the basic financial statements. These schedules are the
responsibility of the Fund's management. Such schedules have been subjected to
the auditing procedures applied in our audits of the basic financial statements
and, in our opinion, are fairly stated in all material respects when considered
in relation to the basic financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
March 23, 1999
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<S> <C> <C>
December 31, 1998 December 31, 1997
------------------- ------------------
Assets:
Investments - Notes 2, 8, 9
Portfolio Investments at fair value
Managed Companies (cost $0 at December 31, 1998 and
$53,480 at December 31, 1997) $ -- $35,227
Non-Managed Companies (cost $0 at December 31, 1998 and
$720 at December 31, 1997) -- 26
Temporary Investments, at amortized cost (cost $3,760 at
December 31, 1998 and $18,062 at December 31, 1997) 3,760 18,125
Cash 3 1
Prepaid Loan Fees - Notes 2, 4 -- 384
Prepaid Expenses -- 6
Note Receivable (Net of reserve of $1,000 at December 31, 1998) -- 3,926
------- --------
Total Assets $ 3,763 $57,695
======= ========
Liabilities and Partners' Capital:
Liabilities
Legal and Professional Fees Payable $ 1 $ 110
Reimbursable Administrative Expenses Payable 125 116
Independent General Partner Expenses Payable 23 23
------- -------
Total Liabilities 149 249
------- -------
Partners' Capital - Note 2
Managing General Partner 379 918
Limited Partners (487,489 Units) 3,235 56,528
------- -------
Total Partners' Capital 3,614 57,446
------- -------
Total Liabilities and Partners' Capital $ 3,763 $57,695
======= =======
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
For the Years Ended December 31,
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Investment Income - Notes 2, 8, 10:
Interest $ 16 912 1,444
Discount 585 601 1,451
Dividend & Other Income 1 11,614 167
--------- --------- ---------
Total Income 602 13,127 3,062
--------- --------- ---------
Expenses:
Investment Advisory Fee - Note 5 600 1,194 1,283
Fund Administration Fee - Note 6 300 300 299
Provision for Uncollectible Receivable - Note 8 1,000 -- 0
Loan Fees - Notes 2, 4 403 700 701
Independent General Partners' Fees and Expenses - Note 7 145 227 208
Legal and Professional Fees 5 855 1,559
Reimbursable Administrative Expenses - Note 6 543 519 415
Insurance Expense 15 8 8
--------- --------- ---------
Total Expenses 3,011 3,803 4,473
--------- --------- ---------
Net Investment Income (Loss) (2,409) 9,324 (1,411)
--------- --------- ---------
Net Realized Gain (Loss) on Investments -
Note 8 and Schedule 1 (9,557) 10,881 63,695
--------- --------- ---------
Net Change in Unrealized Appreciation (Depreciation)
on Investments - Note 9 and Schedule 2
Publicly Traded Securities (18,959) (1,133) (84,416)
Nonpublic Securities 37,906 (7,000) 61,098
--------- --------- ---------
Subtotal 18,947 (8,133) (23,318)
--------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting From Operations $ 6,981 $ 12,072 $ 38,966
========= ========= =========
</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)
For the Years Ended December 31,
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
From Operations:
Net Investment Income (Loss) $ (2,409) $ 9,324 $ (1,411)
Net Realized Gain (Loss) on Investments (9,557) 10,881 63,695
Net Change in Unrealized Appreciation (Depreciation) on Investments 18,947 (8,133) (23,318)
--------- --------- ---------
Net Increase in Net Assets Resulting from Operations 6,981 12,072 38,966
Cash Distributions to Partners (60,813) (52,014) (195,931)
--------- --------- ---------
Total Decrease (53,832) (39,942) (156,965)
Net Assets:
Beginning of Period 57,446 97,388 254,353
--------- --------- ---------
End of Period $ 3,614 $ 57,446 $ 97,388
========= ========= =========
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
For the Years Ended December 31,
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows From Operating Activities:
Interest, Dividends and Discount Income $ 665 $ 13,370 $ 2,598
Investment Advisory Fee (600) (1,194) (1,283)
Fund Administration Fee (300) (300) (299)
Legal and Professional Fees (101) (883) (1,393)
Loan Fees and Expenses (29) (53) (62)
Independent General Partners' Fees and Expenses (145) (227) (213)
(Purchase) Sale of Temporary Investments, Net 14,302 (14,021) 3,317
Reimbursable Administrative Expenses (545) (506) (483)
Proceeds from Sale of Portfolio Company Investments 47,568 55,819 187,705
--------- --------- ---------
Net Cash Provided by Operating Activities 60,815 52,005 189,887
--------- --------- ---------
Cash Flows From Financing Activities:
Cash Distributions to Partners (60,813) (52,014) (195,931)
--------- --------- ---------
Net Cash Applied to Financing Activities (60,813) (52,014) (195,931)
--------- --------- ---------
Net Increase (Decrease) in Cash 2 (9) (6,044)
Cash at Beginning of Year 1 10 6,054
--------- --------- ---------
Cash at End of Year $ 3 $ 1 $ 10
========= ========= =========
Reconciliation of Net Investment Income (Loss) to
Net Cash Provided by Operating Activities
Net Investment Income (Loss) $ (2,409) $ 9,324 $ (1,411)
--------- --------- ---------
Adustments to Reconcile Net Investment Income (Loss)
to Net Cash Provided by Operating Activities
Decrease in Investments 68,513 34,844 123,947
(Increase) Decrease in Receivable for Investments Sold
(Net of Allowance) 3,926 (3,926) 3,377
(Increase) Decrease in Accrued Interest,
Dividend and Discount Receivables 51 243 (458)
Decrease in Prepaid Expenses 391 638 748
Increase in Independent General Partner Fees Payable -- -- (5)
Increase (Decrease) in Reimbursable Administrative Expenses Payable 9 13 (68)
Increase (Decrease) in Legal and Professional Fees Payable (109) (12) 62
Net Realized Gain (Loss) on Investments (9,557) 10,881 63,695
--------- --------- ---------
Total Adjustments 63,224 42,681 191,298
--------- --------- ---------
Net Cash Provided by Operating Activities $ 60,815 $ 52,005 $ 189,887
========= ========== =========
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Managing
General Limited
Partner Partners Total
------------ ------------ ------------
For the Twelve Months Ended December 31, 1996
Partners' Capital at January 1, 1996 $ 884 $ 253,469 $ 254,353
Allocation of Net Investment Loss (14) (1,397) (1,411)
Allocation of Net Realized Gain on Investments 637 63,058 63,695
Allocation of Net Change in Unrealized Depreciation 1,769 (25,087) (23,318)
Cash Distributions to Partners (1,959) (193,972) (195,931)
------------ ------------ ------------
Partners' Capital at December 31, 1996 $ 1,317 $ 96,071 $ 97,388
============ ============ ============
For the Twelve Months Ended December 31, 1997
Partners' Capital at January 1, 1997 $ 1,317 $ 96,071 $ 97,388
Allocation of Net Investment Income 93 9,231 9,324
Allocation of Net Realized Gain on Investments 109 10,772 10,881
Allocation of Net Change in Unrealized Depreciation (81) (8,052) (8,133)
Cash Distributions to Partners (520) (51,494) (52,014)
------------ ------------ ------------
Partners' Capital at December 31, 1997 $ 918 $ 56,528 $ 57,446
============ ============ ============
For the Twelve Months Ended December 31, 1998
Partners' Capital at January 1, 1998 $ 918 $ 56,528 $ 57,446
Allocation of Net Investment Loss (24) (2,385) (2,409)
Allocation of Net Realized Loss on Investments (96) (9,461) (9,557)
Allocation of Net Change in Unrealized Depreciation 189 18,758 18,947
Cash Distributions to Partners (608) (60,205) (60,813)
------------ ------------ ------------
Partners' Capital at December 31, 1998 $ 379 $ 3,235 $ 3,614
============ ============ ============
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
(CONTINUED)
<S> <C> <C> <C> <C> <C>
Fair % Of
Investment Investment Value Total
Shares/Warrants Investment Date Cost (Note 2) Investments
TEMPORARY INVESTMENTS
TIME DEPOSITS
$3,760 State Street Bank Time Deposit, 3.75% due 1/4/99 12/31/98 3,760 3,760 100.00
------------------------------
TOTAL INVESTMENT IN TIME DEPOSITS 3,760 3,760 100.00
------------------------------
TOTAL TEMPORARY INVESTMENTS 3,760 3,760 100.00
------------------------------
TOTAL INVESTMENT PORTFOLIO $ 3,760 $ 3,760 100.00
==============================
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
ML-LEE ACQUISITION FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 Advisers 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 elected to operate as a business development company under the
Investment Company Act of 1940. Its primary investment objective was 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.
The term of the Fund expired on June 15, 1998 resulting in the dissolution
of the Fund. The Fund has an additional five years to liquidate its remaining
investments. As of December 31, 1998, the Fund has sold all of its remaining
investments in Portfolio Companies. The last portfolio-related asset held by the
Fund is a $1 million (principal amount) Promissory Note related to the sale of
the Fund's interest in BeefAmerica Inc. (see Note 8). The Promissory Note was
written-down to zero during 1998. The Fund no longer generates sufficient cash
to pay current obligations; however the Fund has available approximately $3.8
million of cash reserves to cover future expenses including all expenses related
to the winding up of the Fund's affairs such as administrative and custodial
expenses, and audit, tax and legal fees. Any remaining cash reserves in excess
of amounts required to pay the Fund's obligations prior to its termination (as
discussed in Note 12) will be distributed as soon as practicable as a final
liquidating distribution to Limited Partners.
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.
<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 December 31, 1998, the Fund had no
payment-in-kind 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.
Loan Facility and Advisory Fees
Loan Facility and Advisory Fees were amortized over the life (7 years) of
the Facility which commenced in August, 1991.
Partners' Capital
Partners' Capital represents the Fund's equity divided in proportion to the
Partners' Capital Contributions. Profits and losses, when realized, are
allocated in accordance with the provisions of the Partnership Agreement
summarized in Note 3.
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. The Credit Facility was due to
expire on July 31, 1998, however due to the expiration of the term of the Fund
on June 15, 1998, and in order to stop incurring Unused Commitment Fees, the
credit agreement was amended to expire as of June 30, 1998.
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 were amortized over the life of the credit facility. The
amount expensed for the year ended December 31, 1998 was $368,531. The
Credit Facility expired on June 30, 1998.
An annual Loan Administration Fee of $25,000 for the administration of the
credit facility. The amount expensed for the year ended December 31, 1998
was $15,548.
An Unused Commitment Fee of 1/2 of 1% per annum of the unused line of
credit. The amount expensed for the year ended December 31, 1998 was
$18,854.
For the years ended December 31, 1998, 1997 and 1996, the Fund incurred
$402,933, $700,249, and $701,021, respectively, in total loan fees.
5. Investment Advisory Fee
The expiration of the Fund's term on June 15, 1998, has caused the
Management Agreement between the Investment Adviser and the Fund to expire. As a
result, the Investment Adviser is no longer receiving compensation for services
rendered effective July 1, 1998, however the Investment Adviser has agreed to
provide investment advisory services to the Fund as needed until final
liquidation.
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 received 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 $1.2 million. The
Investment Advisory Fee was calculated and paid quarterly, in advance. For the
years ended December 31, 1998, 1997 and 1996, the Fund paid $600,000,
$1,193,717, and $1,282,991, respectively, in Investment Advisory Fees to Thomas
H. Lee Advisors I. As of July 1, 1998, the Fund no longer pays Investment
Advisory Fees to Thomas H. Lee Advisors I.
6. Fund Administration Fee and 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 years ended December
31, 1998, 1997, and 1996, the Fund paid $300,000, $300,000, and $299,335
respectively, 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. Total out-of-pocket expenses incurred by the Fund for the years ended
December 31, 1998, 1997 and 1996 were $542,747, $519,134, and $414,544,
respectively.
<PAGE>
7. Independent General Partners' Fees and Expenses
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. Compensation for the Independent General
Partners is reviewed annually by the Individual General Partners.
For the years ended December 31, 1998, 1997 and 1996, the Fund incurred
$144,670, $227,171, and $207,827, respectively, in Independent General Partners'
Fees and Expenses.
8. Investment Transactions
On January 6, 1998 the Fund and affiliates of the Thomas H. Lee Company
(the "Lee Affiliates", together with the Fund, the "Selling Stockholders") sold
their remaining holdings of common stock in Stanley Furniture Co. ("Stanley").
The common stock of each of the Selling Stockholders was sold pursuant to a Form
S-3 Registration Statement, which was declared effective by the Securities and
Exchange Commission on December 23, 1997. In connection with the sale, the Fund
sold its remaining 400,719 shares of common stock and received net proceeds of
$10.8 million or $27 per share. On February 12, 1998, the Independent General
Partners established a reserve of $1.65 million from these proceeds to pay
future expenses of the Fund. Net Distributable Capital Proceeds from the sale,
as defined in the Partnership Agreement, of $9.2 million or $18.63 per Unit were
distributed to Limited Partners of record as of January 6, 1998.
On April 2, 1998, Sunbeam Corporation ("Sunbeam") completed a tender offer
for all of the outstanding shares of Signature Brands USA Common Stock for
approximately $250 million ($8.25 per share) and assumed all the debt of
Signature Brands USA. Pursuant to the Tender Offer, the Fund tendered all its
shares of Signature Brands USA Common Stock and received proceeds of
approximately $13 million. Net Distributable Capital Proceeds of $26.19 per Unit
were distributed on April 23, 1998, to the Fund's Limited Partners of record as
of April 2, 1998.
On March 3, 1998, the Fund sold its remaining investment in BeefAmerica,
consisting of 14,000 shares Sr. Preferred Stock and 10,000 shares Jr. Preferred
Stock (the "Securities"), for $1 million to Lajara II LLC, a limited Liability
Company owned by the Management of BeefAmerica Operating Company. The proceeds
consisted of a $1 million Promissory Note payable to the Fund. The Securities
have been pledged to secure the obligation of Lajara II, LLC under the
Promissory Note and the Fund recognized a loss of $23 million. The operating
performance at BeefAmerica has continued to deteriorate and on October 8, 1998,
the company filed for bankruptcy protection under Chapter 11 of the United
States Bankruptcy Code (see Note 13). As a result, the Fund does not expect to
collect any additional proceeds and has fully reserved against the $1 million
Promissory Note.
On May 27, 1998, Playtex Products Inc. ("Playtex"), completed a public
offering in the international markets of approximately 4 million shares of
Common Stock at a net price of $13.215 per share (the "Playtex Offering"). Of
the 4 million shares offered, approximately 3.3 million shares were offered by
affiliates of the Thomas H. Lee Company, including the Fund, ML-Lee Acquisition
Fund II, L.P. and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. As part
of the Playtex Offering, the Fund sold its remaining investment in Playtex,
consisting of approximately 1.4 million shares of Common Stock. The Fund
received proceeds of $18.6 million and recognized a gain on the sale of
approximately $15.3 million. Net Distributable Proceeds of $37.74 per Unit were
distributed on July 21, 1998, to Limited Partners of record as of May 27, 1998.
<PAGE>
On April 7, 1998, pursuant to Rule 144 of the Securities Act of 1933, the
Fund sold its investment of 25,500 shares of TLC Beatrice International Holdings
Common Stock for $1.3 million or $51.25 per share. During May 1998, the Fund
sold its investment in SWO Holdings, consisting of 250,000 shares of SWO
Holdings Common Stock, 1,430 shares of Homeland Holdings Common Stock, and 1,506
Homeland Holdings Common Stock Purchase Warrants and received aggregate proceeds
of $11,102. The Fund also sold 567 Cole National Common Stock Purchase Warrants
during May 1998, and received proceeds of $15,593. Additionally, on May 4, 1998,
the Fund sold 2,067 Common Stock Purchase Warrants of Magellan Health Services
for $5,168. The sale of these Portfolio Company investments have generated total
proceeds to the Fund of $1.34 million and were distributed to Limited Partners
on July 21, 1998.
On July 9, 1998, pursuant to a purchase and sale agreement, the Fund sold
its remaining Warrants to purchase Common and Preferred Stock of Chadwick
Miller, (which includes all payment-in-kind securities) and received proceeds of
$100. The Fund recognized a loss of $16.7 million on the transaction in the
third quarter 1998. The Fund had previously recorded $16.7 million in unrealized
depreciation on this investment, all of which was reversed at the time of this
sale.
9. Unrealized Appreciation and Depreciation of Investments
For information please refer to the Supplemental Schedule of Unrealized
Appreciation and Depreciation (Schedule 2).
10. Litigation
On April 10, 1998, the parties to Seidel v. Thomas H. Lee, et al, No.
93-494 (JJF), a putative class action brought on behalf of limited partners of
the Fund, filed with United States District Court for the District of Delaware,
a Stipulation of Settlement settling the action.
The settlement, which was approved by the Court at a hearing on July 16,
1998, dismissed with prejudice all claims against the Fund, the Fund's
Investment Adviser and certain of its affiliates, the Fund's Managing General
Partner and certain of its affiliates, and the Fund's Independent General
Partners. Defendants, other than the Fund, have provided cash of $2.5 million
and certain other considerations to settle the claims asserted in this action.
The settlement became effective on August 24, 1998. Defendants continue to deny
all liability in this action.
The Fund had previously advanced legal expenses incurred by certain
defendants and has included such expenses in Legal and Professional Fees in the
Financial Statements.
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 (the "Court"). 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. After the defendants filed a motion to dismiss the
action in its entirety, the plaintiffs filed an amended complaint. The
defendants thereafter filed a motion to dismiss the amended complaint in its
entirety, which motion has been fully briefed. 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. On March 30,
1998, the Court entered an order adopting the Report and Recommendation of the
Magistrate Judge granting defendants' motion to dismiss the amended complaint in
its entirety with prejudice. Plaintiffs thereafter filed an appeal, which has
been briefed and argued by both plaintiffs and defendants. The parties are
awaiting the Court's decision on the appeal.
<PAGE>
12. Related Party Transactions
Certain of the Mezzanine Investments and Bridge Investments which were made
by the Fund involve co-investments with entities affiliated with the Investment
Adviser. Such co-investments are generally prohibited absent exemptive relief
from the Securities and Exchange Commission (the "Commission"). As a result of
these affiliations and the Fund's expectation of engaging in such
co-investments, the Fund sought an exemptive order from the Commission allowing
such co-investment, which was received on September 23, 1987. An additional
exemptive order allowing co-investment with ML-Lee Acquisition Fund II, L.P.
("Fund II") and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P.
("Retirement Fund") was received from the Commission on September 1, 1989. The
Fund's investments in Managed Companies, and in certain cases its investments in
Non-Managed Companies, typically involve the entry by the Fund and other equity
security holders into stockholders' agreements. While the provisions of such
stockholders' agreements vary, such agreements may include provisions as to
corporate governance, registration rights, rights of first offer or first
refusal, rights to participate in sales of securities to third parties, rights
of majority stockholders to compel minority stockholders to participate in sales
of securities to third parties, transfer restrictions and preemptive rights.
Thomas H. Lee Company, a sole proprietorship owned by Thomas H. Lee, an
Individual General Partner of the Fund and an affiliate of the Investment
Adviser, typically performs certain management services for Managed Companies
and receives management fees in connection therewith, usually pursuant to
written agreements with such companies. In addition, certain of the Portfolio
Companies have contractual or other relationships pursuant to which they do
business with one another.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") is an
affiliate of the Managing General Partner. MLPF&S and certain of its affiliates,
in the ordinary course of their business, perform various financial services for
various portfolio companies of the Fund, which may include investment banking
services, broker/dealer services and economic forecasting, and receive in
consideration therewith various fees, commissions and reimbursements.
Furthermore, MLPF&S and its affiliates or investment companies advised by
affiliates of MLPF&S may, from time to time, purchase or sell securities issued
by portfolio companies of the Fund in connection with their ordinary investment
operations.
During 1998, the Managing General Partner received cash distributions in
the amount of $608,144 representing its 1% interest in the Fund.
12. Reserves
In February 1993, the Fund established a $15 million reserve to provide
funds for follow-on investments and to pay expenses. On February 12, 1998, the
Independant General Partners approved an additional reserve of $1.65 million to
fund anticipated cash shortfalls. This reserve was established from the proceeds
received from the sale of Stanley Furniture Common Stock in January 1998.
Because the Fund no longer generates sufficient cash to pay current
obligations, the Fund has approximately $3.8 million available of these
remaining cash reserves to cover future expenses including all expenses related
to the winding up of the Fund's affairs such as administrative and custodial
expenses, and audit and tax preparation fees. Any remaining cash reserves in
excess of amounts required to pay the Fund's obligations prior to its
termination will be distributed as soon as practicable as a final liquidating
distribution to Limited Partners.
13. Income Taxes
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 the 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, 1998, the tax basis of the
Fund's assets are greater than the amounts reported in the financial statements
by $1 million. This difference is primarily attributable to the write-off of a
receivable which has not been recognized for tax purposes.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
ML-LEE ACQUISITION FUND, L.P.
SUPPLEMENTARY SCHEDULE OF REALIZED GAINS (LOSSES)
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, SHARES ARE ACTUAL)
<S> <C> <C> <C> <C> <C>
Number Of Investment
Security Shares/Principal Cost Net Proceeds Realized Gain
------------ ------------ ------------ ------------
Stanley Furniture Company Inc. Common Stock 400,719 $ 5,021 $ 10,819 $ 5,798
BeefAmerica Incorporated Jr. and Sr.
Other Securities Preferred Stock $ 24,000 24,000 1,000 (23,000)
Signature Brands USA Common Stock 1,563,053 4,552 12,895 8,343
Playtex Products Inc. Common Stock 1,406,204 3,255 18,583 15,328
TLC Beatrice Int'l Holdings Common Stock 25,500 25 1,313 1,288
Homeland Holdings Corp.
SWO Holdings Common Stock 250,000 250 -- (a) (250)
Homeland Holdings C/S Warrants 1,430 440 11 (429)
Homeland Holdings Common Stock
Purchase Warrants 1,506 -- -- (a) --
Magellan Health Services Inc. Warrants 40,000 4 5 1
Cole National Corp. Warrants 5,563 -- 16 16
Chadwick-Miller, Inc. C/S Purchase Wt 39,487 3,736 -- (a) (3,736)
P/S Purchase Wts 15,406 12,916 -- (a) (12,916)
---------- --------- ---------
Total Realized Gains 54,199 44,642 (9,557)
========== ========= =========
See the Accompanying Notes to Financial Statements.
(a) proceeds are less than $1,000
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2
ML-LEE ACQUISITION FUND, L.P.
SUPPLEMENTARY SCHEDULE OF UNREALIZED APPRECIATION AND DEPRECIATION
FOR THE PERIOD ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Unrealized
Appreciation
(Depreciation)
at
December 31, 1994
Security 1998 1998 1997 1996 1995 and Prior
- -------------------------------------------------- ------------ ---------- ---------- --------- -------- ---------
Reversal of Unrealized Appreciation
(Depreciation) for Investments Sold in 1998
Chadwick-Miller, Inc.
Common Stock (2) $ -- $ 3,736 $ -- $ (1,929) $ -- $ (1,807)
Preferred Stock (2) -- 12,916 -- (12,916) -- --
Stanley Furniture
Common Stock (1) -- (6,149) (5,315) 23,580 (5,351) (6,765)
BeefAmerica Inc.
Jr. and Sr.Preferred Stock (2) -- 21,000 (7,000) (14,000) -- --
Signature Brands USA
Common Stock (1) -- (2,091) (1,758) 2,735 293 821
Playtex Products
Common Stock (1) -- (11,159) 3,166 701 528 6,764
SWO Holdings Corporation
SWO Holdings Common Stock (2) -- 250 -- (440) -- 190
Homeland Holdings Common Stock (1) -- 440 -- (595) -- 155
Magellan Health Service
Common Stock Warrants (2) -- 4 -- -- -- (4)
---------- ---------- -------- ---------- --------- ---------
Total Reversal of Unrealized Appreciation
(Depreciation) for Investments Sold during 1998 -- 18,947 (10,907) (2,864) (4,530) (646)
---------- ---------- -------- ---------- -------- ---------
Reversal of Unrealized
Appreciation (Depreciation) for
Investments Sold prior to 1998 -- -- 2,774 (111,432) 14,451 94,207
---------- ---------- -------- ---------- -------- ---------
Total Unrealized Appreciation (Depreciation) $ -- $ 18,947 $ (8,133) $ (114,296) $ 9,921 $ 93,561
========== ========== ======== ========== ======== =========
(1) Publicly Traded Security
(2) Non-Public Security
See Notes to Financial Statements.
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The five General Partners of the Fund are responsible for the management
and administration of the Fund. The General Partners of the Fund consist of four
Individual General Partners: Vernon R. Alden, Joseph L. Bower, Stanley H.
Feldberg (the "Independent General Partners"), Thomas H. Lee and Mezzanine
Investments, L.P., the Managing General Partner. Pursuant to exemptive orders
issued by the Securities and Exchange Commission, each Independent General
Partner is not an "interested person" of the Fund as such term is defined in the
Investment Company Act of 1940.
Individual General Partners
The Individual General Partners provide overall guidance and supervision
with respect to the operations of the Fund and perform the various duties
imposed on the directors of business development companies by the Investment
Company Act of 1940. The Individual General Partners supervise the Managing
General Partner and must, with respect to any Mezzanine Investment transactions,
either certify that it meets the Fund investment guidelines or specifically
approve it as a non-Guideline Investment or Bridge Investment. The Fund's
investment and reinvestment period expired in 1992, and the only investments now
permitted are Follow On Investments in existing portfolio companies. In
addition, if a Portfolio Company is in default under a material provision of a
lending agreement or has a ratio of operating income to current fixed charges
that is less than or equal to 1.1 to 1, the Individual General Partners are
required to approve any changes in the terms of or sale of the Fund's investment
in such Portfolio Company.
Messrs. Alden, Bower, Feldberg and Lee have served as Individual General
Partners of the Fund since 1989. Each Individual General Partner shall hold
office until his removal or withdrawal pursuant to the provisions of the Fund's
Partnership Agreement.
Mr. Alden, age 76, Individual General Partner of the Fund, ML-Lee
Acquisition Fund II, L.P. ("Fund II") and ML-Lee Acquisition Fund (Retirement
Accounts) II, L. P.; and together with Fund II, the "New Funds"; and together
with the Fund, the "Funds"). Director of Sonesta International Hotels
Corporation. Chairman of the Japan Society of Boston, Trustee Emeritus of the
Boston Symphony Orchestra and the Boston Museum of Science and Honorary Consul
General of the Royal Kingdom of Thailand.
Mr. Bower, age 60, Individual General Partner of the Funds. Donald Kirk
David Professor of Business Administration, Harvard University Graduate School
of Business Administration; faculty member since 1963. Director of Anika
Research, Inc., Brown Group, Inc., New America High Income Fund, Sonesta
International Hotels Corporation and The Lincoln Foundation. Trustee of the
DeCordova & Dana Museum and Park and the New England Conservatory of Music.
Mr. Feldberg, age 74, Individual General Partner of the Funds. Past
Director of the TJX Companies, Inc. and Waban Inc., Trustee-Emeritus of Brandeis
University, Honorary Trustee of Besth Israel Deaconess Medical Center.
<PAGE>
Mr. Lee, age 54, Individual General Partner of the Funds. Chairman of the
Investment Adviser of the Funds since 1987; Chairman of the Administrative
General Partner of the Investment Adviser to the new Funds since 1989; Chairman
of the Administrative General Partner of Thomas H. Lee Equity Partners L.P.
since 1989. Chairman of the Administrative General Partner of Thomas H. Lee
Equity Fund III, L.P. since 1996. Founder of the Thomas H. Lee Company (the "Lee
Company") and its President since 1974. Director of Finlay Enterprises Inc.,
First Security Services Corporation, Livent, Inc., Miller Import Corporation,
Safelite Glass Corporation, Sondik Supply Corporation and Vail Resorts, Inc.
Trustee of Brandeis University (Vice Chairman), Museum of Fine Arts (Boston),
the Wang Center for the Performing Arts, Boston's Beth Israel Hospital
(Treasurer), NYU Medical Center and the Whitney Museum of American Art. Overseer
of Boston Symphony Orchestra and New England Conservatory of Music, Member of
the Dean's Council, Faculty of Arts and Sciences and an Executive Committee
Member of the Committee on University and an Executive Committee Member of the
Committee on University Resources at Harvard University; Member of the
Corporation of Belmont Hill School.
The Investment Adviser
The expiration of the Fund's term on June 15, 1998, has caused the
Management Agreement between the Investment Adviser and the Fund to expire. As a
result, the Investment Adviser is no longer receiving compensation for services
rendered effective July 1, 1998, however the Investment Adviser has agreed to
provide investment advisory services to the Fund as needed until final
liquidation.
The Investment Adviser, pursuant to an investment management agreement
among the Investment Adviser, the Thomas H. Lee Company and the Fund dated
September 14, 1987, as amended March 18, 1988 and as assumed by the Investment
Adviser December 29, 1988 was responsible for the identification, management and
liquidation of Mezzanine Investments and Bridge Investments for the Fund. The
Investment Adviser received an Investment Advisory Fee in compensation for these
services outlined in Note 5 to the Financial Statements.
Certain officers of the Lee Company have been designated as trustees and
executive officers of T. H. Lee Mezzanine II, the administrative general partner
of the Investment Adviser.
Title
Thomas H. Lee Chairman, Trustee
Thomas R. Shepherd Executive Vice President
David V. Harkins President, Trustee
C. Hunter Boll Vice President, Trustee
Scott A. Schoen Vice President
Wendy L. Masler Treasurer, Clerk
Information concerning Mr. Lee is set forth above.
Mr. Shepherd, age 69, is a Managing Director of the Thomas H. Lee Company
since 1986. Mr. Shepherd is currently a director of General Nutrition Companies,
Inc. and Rayovac Corporation. He is Executive Vice President of Thomas H. Lee
Advisors I and T.H. Lee Mezzanine II.
Mr. Harkins, age 57, has been a Managing Director of the Lee Company since
1986 and the Chairman of National Dentex Corporation since 1983. Mr. Harkins is
a Senior Vice President and Trustee of Advisors I. He also is a director of
National Dentex Corporation, Cott Corporation, First Security Services Inc.,
Fisher Scientific International, Inc., Freedom Securities Corporation, Metris
Companies, Inc. (pending), Stanley Furniture Company and Syratech Corporation.
Mr. Boll, age 43, has served as a Managing Director of the Lee Company
since 1991. From 1986 to 1991 he served as a Vice President of the Lee Company.
Mr. Boll is a Director of Big V Supermarkets Inc., Cott Corporation, Freedom
Securities Corporation, Metris Companies, Inc. (pending), New York Restaurant
Group, Transwestern Publishing, L.P. and United Industries Corporation.
Mr. Schoen, age 40, has served as a Managing Director of the Lee Company
since 1991. From 1986 to 1990 he served as a Vice President of the Lee Company.
Mr. Schoen is a Vice President of Advisors I. Mr. Schoen is also a Director of
Rayovac Corporation, ARC Holdings, LLC, Syratech Corporation, Transwestern
Publishing L.P. and United Industries Corporation.
Ms. Masler, age 45, has been Treasurer of the Lee Company since 1984. Ms.
Masler is also Treasurer and Clerk of Advisors I.
<PAGE>
The Managing General Partner
The Managing General Partner is a limited partnership in which ML
Mezzanine II Inc. is the sole general partner and the Investment Adviser is the
limited partner. The Managing General Partner is responsible for the supervision
of the Fund's investments.
The executive officers of ML Mezzanine Inc. ("ML Mezzanine") are as
follows:
Title
Kevin K. Albert Chairman and President
James V. Caruso Executive Vice President, Director
Rosalie Y. Goldberg Vice President, Director
Robert J. Remick Vice President, Treasurer
Sharon McKenzie Vice President, Assistant Treasurer
Kevin K. Albert, 46, a Managing Director of Merrill Lynch Investment
Banking Group ("ML Investment Banking"), joined Merrill Lynch in 1981. Mr.
Albert works in the Equity Private Placement Group and is involved in
structuring and placing a diversified array of private equity financing
including common stock, preferred stock, limited partnership interests and other
equity-related securities. Mr. Albert is also a director of ML Media Management
Inc. ("ML Media"), an affiliate of ML Mezzanine and a joint venturer of Media
Management Partners, the general partner of ML Media Partners, L.P.; a director
of ML Opportunity Management Inc. ("ML Opportunity") and a joint Venturer of
Media Opportunity Management Partners, the general partner of ML Opportunity,
Media Partners, L.P.;a director of ML Mezzanine II Inc. ("ML Mezzanine II"), an
affiliate of ML Mezzanine and sole general partner of the managing general
partner of ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P.; a director of Merrill Lynch Venture Capital Inc.
("ML Venture"), an affiliate of ML Mezzanine and the general partner of the
Managing General Partner of ML Venture Partners II, L.P. ("Venture II") and ML
Oklahoma Venture Partners Limited Partnership ("Oklahoma"); and a director of
Merrill Lynch R&D Management Inc. ("ML R&D"), an affiliate of ML Mezzanine and
the general partner of the General Partner of ML Technology Ventures, L.P.; Mr.
Albert also serves as an independent general partner of Venture II.
James V. Caruso, 47, a Director of ML Investment Banking, joined Merrill
Lynch in 1975. Mr. Caruso manages the Investment Banking Group Corporate
Accounting, Master Lease and off Balance Sheet accounting functions as well as
the Controller's area of the Partnership Analysis and Finance Group. Mr. Caruso
is also a director of ML Media, ML Opportunity, ML Venture, ML R&D, ML Mezzanine
II and MLH Property Managers Inc., an affiliate of ML Mezzanine and the general
partner of MLH Income Realty Partnership VI.
Rosalie Y. Goldberg, 61, a First Vice President and Senior Director of
Merrill Lynch's Private Client Group and the Director of its Special Investments
Group, joined Merrill Lynch in 1975. Ms. Goldberg is also a Director of ML
Mezzanine II, ML Media, and ML Opportunity.
Robert J. Remick, age 28, serves as Assistant Vice President in ML
Investment Banking of ML & Co. and joined the firm in 1994. He serves as Vice
President and Treasurer of and ML Mezzanine II. Mr. Remick manages certain
accounting, financial reporting and administrative functions in the Merrill
Lynch Partnership Analysis and Finance Department and serves as Vice President
and Treasurer of ML Mezzanine II.
Sharon McKenzie, age 40, joined ML Investment Banking in 1996 and serves as
Vice President, Assistant Treasurer and controller to the funds. Ms. McKenzie is
responsible for financial reporting and fund accounting in the Merrill Lynch
Partnership Analysis and Finance Department and serves as Vice President and
Assistant Treasurer of ML Mezzanine II.
<PAGE>
The Fund Administrator
ML Fund Administrators Inc., a Delaware corporation and a subsidiary of
Merrill Lynch & Co., Inc., is responsible for the provision of administrative
services necessary for the operation of the Funds. The Fund Administrator
receives Fund Administration Fees as compensation for these services as outlined
in Note 6 to the Financial Statements.
The Fund Administrator is responsible for the day-to-day administrative
affairs of the Funds and for the management of the accounts of Limited Partners.
The Fund Administrator also provides the Funds, at the Fund Administrator's
expense, with office space, facilities, equipment and personnel necessary to
carry out its obligations under the Administrative Services Agreement.
Item 11. Executive Compensation
The information with respect to compensation of the Individual General
Partners set forth under the caption "Management Arrangements - the Individual
General Partners" in the Prospectus pages 73 - 74 is incorporated herein by
reference. Fund II paid Independent General Partners, Mr. Alden, Mr. Bower and
Mr. Feldberg $144,670 collectively for their services as Independent General
Partners in 1998.
The information with respect to the allocation and distribution of Fund
II's profits and losses to the Managing General Partner set forth under the
caption "Distributions and Allocations - Allocations of Profits and Losses" in
the Prospectus pages 86 - 87 is incorporated herein by reference. The Managing
General Partner received distributions of $917,125 during 1998 all of which was
paid to ML Mezzanine Inc.
The information with respect to the Investment Advisory Fee payable to the
Investment Adviser (and distributions from the Managing General Partner) set
forth under the caption "Management Arrangements - Description of the Advisory
Agreement" in the Prospectus pages 74 - 75 is incorporated herein by reference.
Pursuant to the Investment Advisory Agreement, the Fund paid the Investment
Adviser $600,000 with respect to 1998.
The information with respect to the Fund Administration Fees and Expenses
payable to the Fund Administrator set forth under the caption "Management
Arrangements - The Fund Administrator" in the Prospectus pages 72 - 73 is
incorporated herein by reference. Pursuant to the Administrative Services
Agreement, the Fund paid the Fund Administrator a total of $300,000 in 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Fund is not aware of any persons who are beneficial owners of more than
five percent of its Units of limited partnership interest, based upon Schedules
13D and 13G filed with the Securities and Exchange Commission and a review of
the Fund's records.
There exists no arrangement known to the Fund, the operation of which
may at a subsequent date result in a change of control of the Fund.
Item 13. Certain Relationships and Related Transactions
On January 6, 1998 the Fund and affiliates of the Thomas H. Lee Company
(the "Lee Affiliates", together with the Fund, the "Selling Stockholders") sold
their remaining holdings of common stock in Stanley Furniture Co. ("Stanley").
The common stock of each of the Selling Stockholders was sold pursuant to a Form
S-3 Registration Statement, which was declared effective by the Securities and
Exchange Commission on December 23, 1997. In connection with the sale, the Fund
sold its remaining 400,719 shares of common stock and received net proceeds of
$10.8 million or $27 per share and recognized a gain of $5.8 million. On
February 12, 1998, the Independent General Partners established a reserve of
$1.65 million from these proceeds to pay future expenses of the Fund. Net
Distributable Capital Proceeds from the sale, as defined in the Partnership
Agreement, of $9.2 million or $18.63 per Unit were distributed to Limited
Partners of record as of January 6, 1998.
On April 2, 1998, Sunbeam Corporation ("Sunbeam") completed a tender offer
for all of the outstanding shares of Signature Brands USA Common Stock for
approximately $250 million ($8.25 per share) and assumed all the debt of
Signature Brands USA. Pursuant to the Tender Offer, the Fund tendered all its
shares of Signature Brands USA Common Stock and received proceeds of
approximately $13 million and recognized a gain of $8.3 million. Net
Distributable Capital Proceeds of $26.19 per Unit were distributed on April 23,
1998, to the Fund's Limited Partners of record as of April 2, 1998.
On May 27, 1998, Playtex Products Inc. ("Playtex"), completed a public
offering in the international markets of approximately 4 million shares of
Common Stock at a net price of $13.215 per share (the "Playtex Offering"). Of
the 4 million shares offered, approximately 3.3 million shares were offered by
affiliates of the Thomas H. Lee Company, including the Fund, ML-Lee Acquisition
Fund II, L.P. and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. As part
of the Playtex Offering, the Fund sold its remaining investment in Playtex,
consisting of approximately 1.4 million shares of Common Stock. The Fund
received proceeds of $18.5 million and recognized a gain on the sale of
approximately $15.3 million. Net Distributable Proceeds of $37.74 per Unit were
distributed on July 21, 1998, to Limited Partners of record as of May 27, 1998.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits
Financial Statements and Financial Statement Schedules
See Item 8. "Financial Statements and Supplementary Data-Table of Contents"
<TABLE>
Exhibits
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporated by reference to Exhibit
Limited Partnership, dated as of July 3.1 to Registrant's Annual Report on
8, 1987. Form 10-K for the year ended December
31, 1987.
3.2.1 Amended and Restated Agreement of Incorporated by reference to Exhibit
Limited Partnership, dated October 19, 3.2 to Registrant's Annual Report on
1987 as amended by Amendment No. 1, Form 10-K for the year ended December
dated as of November 23, 1987, 31, 1987.
Amendment
No. 2 dated as of December 2, 1987.
3.2.2 Amendment No. 3, dated May 12, 1988 Incorporated by reference to Exhibit
3.2.3 and Amendment No. 4, dated November 3.2.2 and Exhibit 3.2.3, respectively,
15, 1988 to Registrant's Annual Report on Form
10-K for the year ended December 31,
1988.
3.2.4 Amendment No. 5, dated May 5, 1989 and Incorporated by reference to Exhibit
Amendment No. 6, dated June 30, 1989. 3.2.4 to Registrant's Annual Report on
Form 10-K for the year ended
December 31, 1989.
10.1.1 Management Agreement, dated September Incorporated by reference to Exhibit
14, 1987 by and between Registrant, 10.1.1 to Registrant's Annual Report on
Thomas H. Lee Advisors, Inc. and Form 10-K for the year ended December
Thomas H. Lee 31, 1987.
10.1.2 Amendment to Management Agreement, Incorporated by reference to Exhibit
dated March 18, 1988. 10.1.2 to Registrant's Annual Report on
Form 10-K for the year ended
December 31, 1987.
10.1.3 Notification of Transfer of Limited Incorporated by reference to Exhibit
Partnership Interest, dated December 10.1.3 to Registrant's Annual Report on
29, 1988, given by Thomas H. Lee Form 10-K for the year ended December
Advisors, Inc., as Transferor and 31, 1988.
Thomas H. Lee Advisors I, as
Transferee, to Mezzanine Investments,
L.P.
10.1.4 Waiver, Acknowledgment and Consent, Incorporated by reference to Exhibit
dated December 29, 1988, of ML 10.1.4 to Registrant's Annual Report on
Mezzanine Inc. Form 10-K for the year ended December
31, 1988.
10.1.5 Instrument of Assignment and Incorporated by reference to Exhibit
Assumption of Management Agreement, 10.1.5 to Registrant's Annual Report on
dated as of December 29, 1988, among Form 10-K for the year ended December
Registrant, Thomas H. Lee Advisors I 31, 1988.
and Thomas H. Lee Company.
10.2 Demand Note, dated September 9, Incorporated by reference to Exhibit
1988, given by Registrant, 10.2 to Registrant's Current Report
as Borrower, to The First National on Form 8-K filed with the Commission
Bank of Chicago, as Payee. on September 27, 1988.
10.3.1 Third Amended Restated Pledge Incorporated by reference to Exhibit
Agreement, dated August 13, 1991, 10.3.1 to Registrant's Current Report
between the Registrant and the Form 8-K filed with the Commission
First National Bank of Chicago, on August 26, 1991.
as agent for the Lenders.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.3.2 Amended Restated Custodian Contract, Incorporated by reference to Exhibit
dated August 13, 1991, between the 10.3.2 to Registrant's current report
Registrant and State Street Bank. Form 8-K filed with the Commission
on August 26, 1991.
10.4.1 Amended and Restated Credit Agreement, Incorporated by reference to Exhibit
dated August 13, 1991, between the 10.4.1 to Registrant's on Form 8-K filed
Registrant, certain listed financial with the Commission on August 26, 1991.
instructions and the First National
Bank of Chicago, as Agent.
10.4.2 Amendment No. 1 to Credit Agreement, Incorporated by reference to Exhibit
dated February 8, 1993, among the 10.4.2 to Registrant's Annual Report on
Registrant, certain listed financial Form 10-K for the year ended December
institutions and the First National 31, 1992.
Bank of Chicago, as Agent.
10.4.3 Amendment No. 2 to Credit Agreement, Incorporated by reference to Exhibit
dated February 9, 1993, among the 10.4.3 to Registrant's Annual Report on
Registrant, certain listed financial Form 10-K for the year ended December
institutions and the First National 31, 1992.
Bank of Chicago, as Agent.
10.4.4 Amendment No. 3 to Credit Agreement, Incorporated by reference to Exhibit
dated May 21, 1993 among the 10.4.4 to Registrant's Annual Report on
Registrant, certain listed financial Form 10-K for the year ended December
institutions and the First National 31, 1993.
Bank of Chicago, as Agent.
10.4.5 Amendment No. 4 to Credit Agreement, Incorporated by reference to Exhibit
dated October 29, 1993 among the 10.4.5 to Registrant's Annual Report on
Registrant, certain listed financial Form 10-K for the year ended December
institutions and the First National 31, 1993.
Bank of Chicago, as Agent.
10.4.6 Amendment No. 5 to Credit Agreement, Incorporated by reference to Exhibit
dated February 14, 1994 among the 10.4.6 to Registrant's Annual Report on
Registrant certain listed financial Form 10-K for the year ended December
institutions and the First National 31, 1994.
Bank of Chicago, as Agent.
10.4.7 Fee Letter dated February 7, 1994 Incorporated by reference to Exhibit
among the Registrant and the First 10.4.7 to Registrant's Annual Report on
National Bank of Chicago, as Agent. Form 10-K for the year ended December
31, 1994.
10.4.8 Amendment No. 6 to Credit Agreement, Incorporated by reference to Exhibit
dated December 1, 1995 among the 10.4.8 to Registrant's Annual Report on
Registrant, and the First National Form 10-K for the year ended December
Bank of Chicago, as Agent. 31, 1995.
10.5 Administrative Services Agreement, Incorporated by reference to Exhibit
dated June 30, 1989, by and between 10.5 to Registrant's Annual Report on
Registrant and ML Fund Administrators Form 10-K for the year ended December 31, 1987.
Inc.
27 Financial Data Schedule for the year Filed Herewith.
ended December 31, 1998.
99 Pages 15 through 57 of Prospectus Incorporated by reference to Exhibit 99
dated August 12, 1987, filed pursuant to Registrant's
to Rule424(b) under the Securities Annual Report on Form 10-K
Act of 1933. year ended December 31, 1987.
(b) - Registrant Filed Forms 8-K with respect to the following:
NONE
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on this 31th day of March 1999.
ML-LEE ACQUISITION FUND, L.P.
By: Mezzanine Investments, L.P.
Managing General Partner
By: ML Mezzanine Inc.
its General Partner
/s/ Kevin K. Albert
--------------------------------
Dated: March 31, 1999 Kevin K. Albert
President, ML Mezzanine Inc.
General Partner of Mezzanine
Investments, L.P., the Managing
General Partner
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities indicated on the 31th day of March, 1999.
Signature Title
/s/ Kevin K. Albert ML Mezzanine Inc.
Kevin K. Albert President and Director
(Principal Executive Officer of Registrant)
/s/ Vernon R. Alden Individual General Partner
Vernon R. Alden ML-Lee Acquisition Fund, L.P.
/s/ Robert J. Remick ML Mezzanine Inc.
Robert J. Remick Vice President and Treasurer
(Principal Financial Officer of Registrant)
/s/ Joseph L. Bower Individual General Partner
Joseph L. Bower ML-Lee Acquisition Fund, L.P.
/s/ Sharon McKenzie ML Mezzanine Inc.
Sharon McKenzie Vice President and Assistant Treasurer
(Principal Accounting Officer of Registrant)
/s/ Stanley Feldberg Individual General Partner
Stanley H. Feldberg ML-Lee Acquisition Fund, L.P.
/s/ Thomas H. Lee Individual General Partner
Thomas H. Lee ML-Lee Acquisition Fund, L.P.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
the 1998 Form 10-K Balance Sheet and Statements of Operations and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,760
<INVESTMENTS-AT-VALUE> 3,760
<RECEIVABLES> 0
<ASSETS-OTHER> 27
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,763
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 148
<TOTAL-LIABILITIES> 148
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 487
<SHARES-COMMON-PRIOR> 487
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 3,615
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 601
<OTHER-INCOME> 0
<EXPENSES-NET> 3,010
<NET-INVESTMENT-INCOME> (2,409)
<REALIZED-GAINS-CURRENT> (9,557)
<APPREC-INCREASE-CURRENT> 18,947
<NET-CHANGE-FROM-OPS> 6,981
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (207)
<DISTRIBUTIONS-OF-GAINS> 34,568
<DISTRIBUTIONS-OTHER> 26,452
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (53,832)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 600
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,010
<AVERAGE-NET-ASSETS> 30,530
<PER-SHARE-NAV-BEGIN> 115.96
<PER-SHARE-NII> (4.89)
<PER-SHARE-GAIN-APPREC> 38.48
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 123.50
<RETURNS-OF-CAPITAL> 54.26
<PER-SHARE-NAV-END> 6.64
<EXPENSE-RATIO> 0.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>