UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Period Ended March 31, 1996
Commission File Number 0-17382
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
(Exact name of registrant as specified in its Charter)
Delaware 04-3028397
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
World Financial Center
South Tower - 23rd Floor
New York, New York 10080-6123
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:(212) 236-7339
Securities registered pursuant to Section 12(b) of the Act: None
Name of each exchange onwhich registered: Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___.
Aggregate market value of voting securities held by non-affiliates: Not
Applicable.
<PAGE>
PART I - FINANCIAL INFORMATION
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Statements of Assets, Liabilities and Partners'
Capital as of March 31, 1996 and
December 31, 1995
Statements of Operations - For the Three Months
Ended March 31, 1996 and 1995
Statements of Changes in Net Assets - For the Three
Months Ended March 31, 1996 and 1995
Statements of Cash Flows - For the Three Months
Ended March 31, 1996 and 1995
Statement of Changes in Partners' Capital at
March 31, 1996
Schedule of Portfolio Investments - March 31, 1996
Notes to Financial Statements
Supplemental Schedule of Realized Gains and Losses -
(Schedule 1)
Supplemental Schedule of Unrealized Appreciation
and Depreciation - (Schedule 2)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unaudited
March 31, 1996 December 31, 1995
------------------ ------------------
ASSETS:
Investments - Notes 2,4,5
Portfolio Investments at fair value
Managed Companies (amortized cost $55,845
at March 31, 1996 and $63,435 at December 31, 1995) $ 52,499 $ 62,874
Non-Managed Companies (amortized cost $24,932
at March 31, 1996 and $24,931 at December 31, 1995) 12,633 16,970
Temporary Investments, at amortized cost (cost $22,750
at March 31, 1996 and $8,202 at December 31, 1995) 22,768 8,218
Cash 1 1
Accrued Interest Receivable - Note 2 826 1,237
Prepaid Expenses 3 4
========== ===========
TOTAL ASSETS $ 88,730 $ 89,304
========== ===========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities
Legal and Professional Fees Payable $ 125 $ 311
Reimbursable Administrative Expenses Payable 23 46
Independent General Partners' Fees Payable - Note 9 27 45
Deferred Interest Income - Note 2 318 426
---------- -----------
Total Liabilities 493 828
---------- -----------
Partners' Capital - Note 2
Individual General Partner 28 28
Managing General Partner 5,591 4,897
Limited Partners (177,515 Units) 82,618 83,551
---------- -----------
Total Partners' Capital 88,237 88,476
========== ===========
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 88,730 $ 89,304
========== ===========
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
For the 3 Months Ended
----------------------------------------
March 31, 1996 March 31, 1995
------------------ -------------------
INVESTMENT INCOME - Notes 2,4,6:
Interest $ 5,381 $ 1,774
Discount 123 6
Dividends 39 -
--------- ----------
TOTAL INCOME $ 5,543 $ 1,780
--------- ----------
EXPENSES:
Investment Advisory Fee - Note 7 230 272
Fund Administration Fee - Note 8 142 152
Legal and Professional Fees 463 115
Reimbursable Administrative Expenses-Note 8 5 -
Independent General Partners' Fees and Expenses - Note 9 77 40
Insurance Expense 1 1
--------- ----------
TOTAL EXPENSES 918 580
--------- ----------
NET INVESTMENT INCOME 4,625 1,200
Net Realized Gain on Investments - Note 4 and Schedule 1 2,278 7,623
Net Change in Unrealized Appreciation (Depreciation)
from Investments Note 5 and Schedule 2:
Publicly Traded Securities (2,784) (16,480)
Nonpublic Securities (4,338) (1,579)
--------- ----------
SUBTOTAL (7,122) (18,059)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (219) (9,236)
Less: Incentive Fees to Managing General Partner (695) (6,922)
--------- ----------
NET INCREASE (DECREASE) AVAILABLE FOR PRO-RATA
DISTRIBUTION TO ALL PARTNERS $ (914) $ (16,158)
========= ==========
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
For the 3 Months Ended
----------------------------------------
March 31, 1996 March 31, 1995
-------------------- -------------------
FROM OPERATIONS:
Net Investment Income $ 4,625 $ 1,200
Net Realized Gain on Investments 2,278 7,623
Net Change in Unrealized Depreciation
From Investments (7,122) (18,059)
------------ ----------
Net Decrease in Net Assets Resulting
from Operations (219) (9,236)
Cash Distributions to Partners (20) (8,582)
------------ ----------
Total Increase (Decrease) (239) (17,818)
NET ASSETS:
Beginning of Year 88,476 133,591
------------ ----------
End of Period $ 88,237 $ 115,773
============ ==========
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
For the 3 Months Ended
March 31, 1996 March 31, 1995
------------------ ------------------
Increase (Decrease) in Cash and Cash Equivalents
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest, Dividends and Discount Income $ 5,907 $ 1,267
Fund Administration Fee (142) (152)
Investment Advisory Fee (230) (272)
Independent General Partners' Fees and Expenses (94) (70)
(Purchase) Sale of Temporary Investments, Net (14,548) (339)
Proceeds from Sales of Portfolio Company Investments 9,804 8,303
Reimbursable Administrative Expense (28) (31)
Legal and Professional Fees (649) (122)
--------- ---------
Net Cash Provided by Operating Activities 20 8,584
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to Partners (20) (8,582)
--------- ---------
Net Cash Applied to Financing Activities (20) (8,582)
--------- ---------
Net Increase in Cash - 2
Cash at Beginning of Period 1 1
--------- ---------
Cash at End of Period $ 1 $ 3
========= =========
RECONCILIATION OF NET INVESTMENT INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Investment Income $ 4,625 $ 1,200
--------- ---------
Adjustments to Reconcile Net Investment Income to
Net Cash Provided by Operating Activities:
(Increase) Decrease in Investments (7,022) 341
(Increase) Decrease in Accrued Interest Receivables 364 (513)
Decrease in Prepaid Expenses 1 1
Decrease in Legal and Professional Fees Payable (186) (7)
Decrease in Reimburseable Administrative
Expenses Payable (23) (31)
Decrease in Independent General Partners' Fees Payable (17) (30)
Net Realized Gains on Sales of Investments 2,278 7,623
--------- ---------
Total Adjustments (4,605) 7,384
--------- ---------
Net Cash Provided by Operating Activities $ 20 $ 8,584
========= =========
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Individual Managing
General General Limited
Partner Partner Partners Total
------------ ------------------------- -------------
FOR THE 3 MONTHS ENDED MARCH 31, 1996
Partners' Capital at January 1, 1996 $ 28 $ 4,897 $ 83,551 $ 88,476
Allocation of Net Investment Income 1 708 3,916 4,625
Allocation of Net Realized Gain on Investments 1 6 2,271 2,278
Allocation of Net Change in Unrealized
Depreciation From Investments (2) (20) (7,100) (7,122)
Cash Distributions to Partners - - (20) (20)
========= ======== ========== ==========
PARTNERS' CAPITAL AT MARCH 31, 1996 $ 28 $ 5,591 $ 82,618 $ 88,237
========= ======== ========== ==========
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Value Total
Principal Investment Investment Fair % Of
Amount/Shares Investment Date Cost(e) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
MEZZANINE INVESTMENTS
MANAGED COMPANIES
ANCHOR ADVANCED PRODUCTS, INC. (b)
$3,133 Anchor Advanced Products, Inc., Sr. Sub. Nt. 11.67% due 04/30/00 (c) 04/30/90 $3,133 $3,133
$4,178 Anchor Advanced Products, Inc., Jr. Sub. Nt. 17.5% due 04/30/00 (c) 04/30/90 4,178 4,178
87,033 Shares Anchor Holdings, Inc., Common Stock (d) 04/30/90 827 827
132,290 Warrants Anchor Holdings, Inc., Common Stock Purchase Warrants(d) 04/30/90 0 0
(13.9% of fully diluted common equity assuming exercise
of warrants) 8,138 8,138 9.26
BIG V SUPERMARKETS, INC. (b)
$6,963 Big V Supermarkets, Inc., Sr. Sub. Nt. 14.14% due 03/15/01(c) 12/27/90 6,963 6,963
62,667 Shares Big V Holding Corp., Inc., Common Stock(d) 12/27/90 2,193 2,193
(8.8% of fully diluted common equity) 9,156 9,156 10.42
COLE NATIONAL CORPORATION
717 Warrants Cole National Corporation, Common Stock Purchase Warrants(d) 09/26/90 0 0
(0.0% of fully diluted common equity assuming exercise of
warrants)
$744 13% Sr. Secured Bridge Note
Purchased 09/25/90 $744
Repaid 11/15/90 $744
Realized Gain $ 0
0 0 0.00
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Fair % Of
Principal Investment Investment Value Total
Amount/Shares Investment Date Cost(e) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
FIRST ALERT, INC.(b) - Note 5
2,281,524 Shares First Alert, Inc., Common Stock(a)(d) 07/31/92 $3,680 $15,400
(8.9% of fully diluted common equity)
$11,302 12.5% Subordinated Note
Purchased 07/31/92 $11,302
Repaid 03/28/94 $11,302
Realized Gain $ 0
3,680 15,400 17.52
GHIRARDELLI HOLDINGS CORPORATION(b) - Note 14
$5,328 Ghirardelli Holdings Corporation, 13% Subordinated Note due 03/31/02(c) 03/31/92 5,328 5,328
532,800 Shares Ghirardelli Holdings Corporation, Common Stock(d) 03/31/92 1,066 1,066
84,039 Shares Ghirardelli Holdings Corporation, Common Stock(d) 05/12/95 266 266
15,984 Shares Ghirardelli Holdings Corporation, Series A Preferred Stock(d) 05/12/95 1,598 1,598
(10.6% of fully diluted common equity)
$7,992 Sr. Bridge Note
Purchased 03/31/92 $7,992
Repaid 06/11/92 $7,992
Realized Gain $ 0
8,258 8,258 9.39
HILLS STORES COMPANY - Note 5
244,818 Shares Hills Stores Company, Common Stock(a)(d) 04/03/90 16,153 2,877
33,427 Shares Hills Stores Company, Common Stock(a)(h) 08/21/95 2,418 393
(2.5% of fully diluted common equity) 18,571 3,270 3.72
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Fair % Of
Principal Investment Investment Value Total
Amount/Shares Investment Date Cost(e) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
PETCO ANIMAL SUPPLIES, INC. (b) - Notes 5,14
62,379 Shares Petco Animal Supplies, Common Stock(a)(d)(f) Various $1,023 $ 2,791
(.7% of fully diluted common equity)
$28 14% Sr. Sub. Bridge Notes
Purchased various $ 28
Repaid 04/19/91 $ 28
Realized Gain $ 0
$900 12.5% Sr. Sub. Notes
Purchased various $ 900
Repaid 03/28/94 $ 900
Realized Gain $ 0
64,151 Shares Common Stock
Purchased Various $1,052
Sold 04/26/95 $1,265
Total Realized Gain $ 213
1,023 2,791 3.17
PLAYTEX PRODUCTS, INC.(b) - Note 5
183,560 Shares Playtex Products, Inc., Common Stock(a)(d) 03/29/90 2,830 1,331
(0.3% of fully diluted common equity)
$3,916 15% Subordinated Note
Purchased 03/29/90 $3,916
Sold 09/28/90 $3,925
Realized Gain $ 9
45,323 Shares Common Stock
Purchased 03/29/90 $ 151
Sold 12/20/91 $ 175
Realized Gain $ 24
$3,916 15% Subordinated Note
Purchased 03/29/90 $3,916
Sold 02/01/93 $3,912
Realized Loss $ (4)
Total Net Realized Gain $ 29
2,830 1,331 1.51
See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Fair % Of
Principal Investment Investment Value Total
Amount/Shares Investment Date Cost(e) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
RESTAURANTS UNLIMITED
$3,956 Restaurants Unlimited, 11% Sub. Nt. due 06/30/02(c) 06/03/94 $ 3,956 $ 3,956
256,083 Warrants Restaurants Unlimited, Common Stock Warrants(d) 06/03/94 0 0
(1.4% of fully diluted common equity) 3,956 3,956 4.50
STANLEY FURNITURE COMPANY, INC. (b) - Note 5
18,511 Shares Stanley Furniture Company, Inc., Common Stock(a)(d) 06/30/91 233 199
(0.4% of fully diluted common equity) 233 199 0.23
TOTAL INVESTMENT IN MANAGED COMPANIES $55,845 $52,499 59.72
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Fair % Of
Principal Investment Investment Value Total
Amount/Shares Investment Date Cost(e) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
NON-MANAGED COMPANIES
BIOLEASE, INC.
$513 Biolease, Inc., 13% Sub. Nt. due 06/06/04(c) 06/08/94 $ 443 $ 455
63.20 Shares Biolease, Inc., Common Stock(d) 06/08/94 62 62
26,218 Warrants Biotransplant, Inc., Common Stock Purchase Warrants(d) 06/08/94 9 9
514 526 0.60
FITZ AND FLOYD/SILVESTRI (b) - Notes 5,6,14
$6,719 FFSC, Inc., Adjustable Rate Sr. Sub. Nt. due 03/31/03(c)(g) 03/31/93 6,709 1,600
$1,581 FFSC, Inc., Adjustable Rate Sr. Sub. Nt. due 03/31/03(c)(g) 07/30/93 1,578 376
988,144 Shares FF Holding Co., Common Stock(d) 03/31/93 10 0
336,364 Shares FF Holding Co., Common Stock(d) 07/30/93 3 0
337,155 Shares FF Holding Co., Common Stock(d) 12/22/94 0 0
8,300 1,976 2.25
FLA. ORTHOPEDICS, INC - Notes 5,6,12
$3,158 FLA. Acquisition Corp., 12.5% Sub, Nt. due 07/31/99(c)(g) 08/02/93 3,158 0
78,960 Shares FLA. Holdings, Inc. Common Stock (d) 08/02/93 987 0
47,376 Warrants FLA. Holdings, Inc. Common Stock Purchase Warrants(d) 08/02/93 0 0
4,145 0 0.00
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Fair % Of
Principal Investment Investment Value Total
Amount/Shares Investment Date Cost(e) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
NATIONAL TOBACCO COMPANY, L.P.
$3,997 National Tobacco Company, 13% Sub. Nt. due 10/15/98(c) 04/14/92 $ 3,997 $ 3,997
$131 National Tobacco Company, 16% Sub. Nt. due 10/15/98(c)(f) 06/30/93 131 131
$266 National Tobacco Company, Class A Partnership Int.(d) 04/14/92 266 266
4,394 4,394 5.00
SORETOX - Notes 5,6
$3,997 Stablex Canada, Inc., Sr. Sub. Nt. 10% due 06/30/07(c)(f)(g) 06/29/95 3,997 2,955
$3,568 Stablex Canada, Inc., Jr. Sub. Nt. 11% due 06/30/09(c)(f)(g) 06/29/95 3,568 2,782
2,286 Warrants Seaway TLC, Inc. Common Stock Purchase Warrants 06/29/95 0 0
7,565 5,737 6.53
TOTAL INVESTMENT IN NON-MANAGED COMPANIES $24,918 $12,633 14.38
SUMMARY OF MEZZANINE INVESTMENTS
Subordinated Notes Various 47,138 35,853 40.79
Partnership Interest 04/14/92 267 267 0.30
Preferred Stock, Common Stock, Warrants and Stock Rights Various 33,358 29,012 33.01
TOTAL MEZZANINE INVESTMENTS $80,763 $ 65,132 74.10
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS)
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Fair % Of
Principal Investment Investment Value Total
Amount/Shares Investment Date Cost(e) (Note 2) Investments
<S> <C> <C> <C> <C> <C>
TEMPORARY INVESTMENTS
CERTIFICATES OF DEPOSIT AND TIME DEPOSIT
$ 395 Banque National de Paris, 5.20% due 04/29/96 - Note 12 03/29/96 $ 395 $ 395
TOTAL INVESTMENT IN CERTIFICATES OF DEPOSITS 395 395 0.45
COMMERCIAL PAPER
$10,000 Ford Motor Credit, 5.37% due 04/09/96 03/25/96 9,978 9,988
$ 4,490 General Electriec Credit Corp., 5.37% due 04/09/96 03/25/96 4,480 4,484
$ 7,898 State Street Repo, 4.8750%, due 04/01/96 03/29/96 7,898 7,901
TOTAL INVESTMENT IN COMMERCIAL PAPER 22,356 22,373 25.45
TOTAL TEMPORARY INVESTMENTS $ 22,751 $ 22,768 25.90
TOTAL INVESTMENT PORTFOLIO $103,514 $ 87,900 100.00%
(a) Publicly traded class of securities.
(b) Represents investment in affiliates as defined in the Investment Company Act of 1940.
(c) Restricted security.
(d) Restricted non-income producing equity security.
(e) Represents original cost and excludes accretion of discount of $13 for Mezzanine Investments and $15 for
Temporary Investments.
(f) Inclusive of receipt of payment-in-kind securities.
(g) Non-accrual investment status.
(h) Non-income producing equity security.
</TABLE>
See the Accompanying Notes to Financial Statements.
<PAGE>
ML-LEE ACQUISITION FUND (RETIREMENT ACCOUNTS) II, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. Organization and Purpose
ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. (the "Retirement
Fund") (formerly T.H. Lee Acquisition Fund (Retirement Accounts) II, L.P.) was
formed along with ML-Lee Acquisition Fund II, L.P. ("Fund II"; collectively
referred to as the "Funds") and the Certificates of Limited Partnership were
filed under the Delaware Revised Uniform Limited Partnership Act on September
23, 1988. The Funds' operations commenced on November 10, 1989.
Mezzanine Investments II, L.P. (the "Managing General Partner"), subject to
the supervision of the Individual General Partners, is responsible for
overseeing and monitoring the Retirement Fund's investments. The Managing
General Partner is a Delaware limited partnership in which ML Mezzanine II Inc.
is the general partner and Thomas H. Lee Advisors II, L.P., the Investment
Adviser to the Funds, 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 Retirement Fund has elected to operate as a business development
company under the Investment Company Act of 1940. The Retirement Fund's primary
investment objective is to provide current income and capital appreciation
potential by investing in privately-structured, friendly leveraged buyouts and
other leveraged transactions. The Retirement Fund pursues this objective by
investing primarily in subordinated debt and related equity securities issued in
conjunction with the "mezzanine financing" of friendly leveraged buyout
transactions, leveraged acquisitions and leveraged recapitalizations. The
Retirement Fund may also invest in "bridge investments" if it is believed that
such investments would facilitate the consummation of a mezzanine financing.
The Retirement Fund will terminate no later than December 20, 1999,
subject to the right of the Individual General Partners to extend the term for
up to one additional two-year period and one additional one-year period if it is
in the best interest of the Retirement Fund. The Retirement Fund will then have
five additional years to liquidate its remaining investments.
2. Significant Accounting Policies
Basis of Accounting
For financial reporting purposes, the records of the Retirement 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. The preparation of financial
statements in accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts and
disclosures in the financial statements. Actual reported results could vary from
these estimates.
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 Retirement Fund. For privately issued securities in which the Retirement
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 Retirement Fund
could realize in a current transaction. Future confirming events will also
affect the estimates of fair value and the effect of such events on the
estimates of fair value could be material.
Temporary Investments with maturities of less than 60 days are stated at
amortized cost, which approximates market.
The information presented herein is based on pertinent information
available to the Managing General Partner and Investment Adviser as of March 31,
1996. Although the Managing General Partner and Investment Adviser are not aware
of any factors not disclosed herein that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued since that time, and because investments of companies whose equity is
publicly traded are valued at the last price at March 29, 1996, the current
estimated fair value of these investments may have changed significantly since
that point in time.
Interest Receivable on Investments
Investments generally will be placed on non-accrual status in the event
of a default (after the applicable grace period expires) or if the Investment
Adviser and the Managing General Partner determine that there is no reasonable
assurance of collecting interest.
<PAGE>
Payment-In-Kind Securities
All payment-in-kind securities received in lieu of cash interest payments
by the Retirement Fund's portfolio companies are recorded at face value (which
approximates accrued interest), unless the Investment Adviser and the Managing
General Partner determine that there is no reasonable assurance of collecting
the full principal amounts of such securities. As of March 31, 1996 and December
31, 1995, the Retirement Fund has in its portfolio of investments $635,488 and
$739,601, respectively, of payment-in-kind notes which excludes $410,328 and
$4,298,447, respectively, of payment-in-kind notes received from notes placed on
non-accrual status. As of March 31, 1996 and December 31, 1995, the Retirement
Fund has in its portfolio of investments $1,224,548 of payment-in-kind equity.
Investment Transactions
The Retirement Fund records investment transactions on the date on which
it obtains an enforceable right to demand the securities or payment therefor.
The Retirement 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.
Sales and Marketing Expenses, Offering Expenses and Sales Commissions
Sales commissions and selling discounts were allocated to the specific
Partners' accounts in which they were applied. Sales and marketing expenses and
offering expenses were allocated between the Funds in proportion to the number
of Units issued by each Fund and to the Partners in proportion to their capital
contributions.
Deferred Interest Income
All fees received by the Retirement Fund upon the funding of Mezzanine
or Bridge Investments are treated as deferred interest income and amortized over
the maturity of such investments.
Partners' Capital
Partners' Capital represents the Retirement Fund's equity divided in
proportion to the Partners' Capital Contributions and does not represent the
Partners' Capital Accounts. Profits and losses, when realized, are allocated in
accordance with the provisions of the Partnership Agreement summarized in Note
3.
Interim Financial Statements
The financial information included in this interim report as of March 31,
1996 and for the period then ended has been prepared by management without an
audit by independent certified public accountants. The results for the period
ended March 31, 1996 are not necessarily indicative of the results of the
operations expected for the year and reflect adjustments, all of a normal and
recurring nature, necessary for the fair presentation of the results of the
interim period. In the opinion of Mezzanine Investments II L.P., the Managing
General Partner of the Retirement Fund, all necessary adjustments have been made
to the aforementioned financial information for a fair presentation in
accordance with generally accepted accounting principles.
<PAGE>
3. Allocations of Profits and Losses
Pursuant to the Partnership Agreement, all profits from Temporary
Investments generally are allocated 99.69% to the Limited Partners, 0.28% to the
Managing General Partner and 0.03% to the Individual General Partner. Profits
from Mezzanine Investments will, in general, be 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, 99.69% to the Limited Partners, 0.28% to the Managing General
Partner and 0.03% to the Individual 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 amount in Mezzanine
Investments, and any outstanding Compensatory Payments,
third, 69.69% to the Limited Partners, 30.281% to the Managing General
Partner and .029% to the Individual General Partner until the Managing
General Partner has received 20.281% of the total profits allocated,
thereafter, 79.69% to the Limited Partners, 20.281% to the Managing General
Partner and 0.029% to the Individual General Partner.
Losses will be allocated in reverse order of profits previously allocated
and thereafter 99.69% to the Limited Partners, 0.28% to the Managing General
Partner and 0.03% to the Individual General Partner.
4. Investment Transactions
On March 22, 1996 by means of merger of Lee-CST Holding Corp. with an
unaffiliated third party, the Retirement Fund sold its entire investment in CST
Office Products ("CST") for total proceeds of $14.2 million. The Retirement Fund
received an aggregate of $11.3 million for the $3,395,000 principal amount 12%
senior subordinated note, the $3,395,000 principal amount 18% junior
subordinated note, approximately $4 million in principal amount of 15% payment
in kind subordinated notes issued with respect thereto, plus all outstanding
accrued interest on these notes. Additionally, the Retirement Fund received $1.4
million, or $16 per share, for its common stock and $1.5 million, or $15.99 per
share, for its common stock purchase warrants. The Retirement Fund realized a
gain of $2.3 million, and additional interest income of $3.9 million for the
payment in kind subordinated notes that were previously classified as
non-accrual.
On August 6, 1991, the Independent General Partners approved a reserve
for follow-on investments of $20.0 million for the Retirement Fund. As of March
31, 1996, the reserve balance was reduced to $8.2 million due to follow-on
investments of $153 in Petco Animal Supplies, $1.6 million in Fitz and Floyd,
Inc., $128,270 in Fine Clothing, Inc., $2.5 million in Hills Stores and $1.9
million in Ghirardelli Holdings. Additionally, $5.7 million of the reserve was
returned to the partners during 1995. The level of the reserve was based upon an
analysis of potential follow-on investments in specific portfolio companies that
may become necessary to protect or enhance the Retirement Fund's existing
investment. As of March 6, 1996, the Independent General Partners have approved
retention of the reserve at its current level.
Because the Retirement Fund primarily invests in high-yield private
placement securities, the risk of loss upon default by an issuer is greater than
with investment grade securities because high-yield securities are generally
unsecured and are often subordinated to other creditors of the issuer. Also,
high-yield issuers usually have higher levels of indebtedness and are more
sensitive to adverse economic conditions.
Although the Retirement Fund cannot eliminate the risks associated with
its investments in high-yield securities, it has procedures in place to
continually monitor the risks associated with its investments under a variety of
market conditions. Any potential Retirement Fund loss would generally be limited
to its investment in the portfolio company as reflected in the portfolio of
investments.
Should bankruptcy proceedings commence, either voluntarily or by action
of the court against a portfolio company, the ability of the Retirement Fund to
liquidate the position or collect proceeds from the action may be delayed or
limited.
5. Unrealized Appreciation and Depreciation of Investments
For the three months ended March 31, 1996, the Retirement Fund recorded net
unrealized depreciation of $7,122,032 (of which $2,784,259 is net unrealized
depreciation from publicly traded securities and $4,337,773 is net unrealized
depreciation from non-public securities) compared to net unrealized depreciation
of $18,059,157 for the same period in 1995. As of March 31, 1996, the Retirement
Fund's cumulative net unrealized depreciation on investments totaled
$15,644,464.
For additional information, please refer to the Supplemental Schedule of
Unrealized Appreciation and Depreciation (Schedule 2).
<PAGE>
6. Non-Accrual of Investments
In accordance with the Retirement Fund's Accounting Policy, the
following securities have been on non-accrual status since the date indicated:
- Fitz and Floyd/Silvestri Corporation, on January 1, 1994.
- FLA Orthopedics, Inc. on January 1, 1995.
- Stablex Canada, Inc. on June 29, 1995.
7. Investment Advisory Fee
The Investment Adviser provides the identification, management and
liquidation of portfolio investments for the Funds. As compensation for services
rendered to the Funds, the Investment Adviser receives a quarterly fee at the
annual rate of 1% of assets under management (net offering proceeds reduced by
cumulative capital reductions), with a minimum annual fee of $1.2 million for
the Retirement Fund and Fund II on a combined basis. The Investment Advisory Fee
is calculated and paid quarterly in advance. In addition, the Investment Adviser
receives 95% of the benefit of any MGP Distributions paid to the Managing
General Partner (see Note 10). For the quarters ended March 31, 1996 and 1995,
the Retirement Fund paid $229,858 and $272,229, respectively, in Investment
Advisory Fees to Thomas H. Lee Advisors II, L.P.
8. Fund Administration Fees and Expenses
As compensation for its services, ML Fund Administrators Inc. (the "Fund
Administrator"; an affiliate of the Managing General Partner), is entitled to
receive from the Funds an annual amount of the greater of $500,000 or 0.45% of
the excess of net offering proceeds less 50% of capital reductions. In addition,
ML Mezzanine II Inc., an affiliate of the Fund Administrator and of Merrill
Lynch & Co. Inc., receives 5% of the benefit of any MGP Distributions paid to
the Managing General Partner (see Note 10). The Fund Administration Fee is
calculated and paid quarterly, in advance, by each fund in proportion with the
net offering proceeds. For the three months ended March 31, 1996 and 1995, the
Retirement Fund paid $142,391 and $151,924, respectively, in Fund Administration
Fees.
Pursuant to the administrative services agreement between the Retirement
Fund and the Fund Administrator, effective November 10, 1993, a portion of the
actual out-of-pocket expenses incurred in connection with the administration of
the Retirement Fund is being reimbursed to the Fund Administrator. Actual
out-of-pocket expenses ("reimbursable expenses") primarily consist of printing,
audits, tax preparation and custodian fees. For the three months ended March 31,
1996 and 1995, the Retirement Fund incurred $5,122 and $484, respectively, in
reimbursable expenses.
9. Independent General Partners' Fees and Expenses
As compensation for their services, each Independent General Partner
will receive a combined annual fee of $40,000 (payable quarterly) from the Funds
in addition to a $1,000 fee for each meeting attended ($500 if a meeting is held
on the same day as a committee meeting of the General Partners) plus
reimbursement for any out-of-pocket expenses incurred. Fees and expenses are
allocated between the Funds in proportion to the number of Units issued by each
fund. Compensation for each of the Independent General Partners is reviewed
annually. For the three months ended March 31, 1996 and 1995, the Retirement
Fund incurred $76,876 and $40,068, respectively, in Independent General
Partners' Fees and Expenses.
10. Related Party Transactions
The Retirement Fund's investments generally are made as co-investments with
Fund II. In addition, certain of the Mezzanine Investments and Bridge
Investments which were made by the Retirement 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
Retirement Fund's expectation of engaging in such co-investments, the Funds
together with ML-Lee Acquisition Fund, L.P., sought an exemptive order from the
Commission allowing such co-investments, which was received on September 1,
1989. The Retirement Fund's co-investments in Managed Companies, and in certain
cases its co-investments in Non-Managed Companies, typically involve the entry
by the Funds 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 Retirement 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 Funds, 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 Funds in connection with its ordinary investment
operations.
For the three months ended March 31, 1996 and 1995, the Retirement Fund paid
$27,817 and $31,025 to the Fund Administrator for reimbursable out-of-pocket
expenses, respectively (please refer to Note 8 for further information).
<PAGE>
In the first quarter of 1996, the Retirement Fund paid Individual General
Partner distributions totaling $5 and Managing General Partner distributions
totaling $55. As of March 31, 1996, the Managing General Partner has earned a
total of $24,805,436 in MGP Incentive Fees of which $5,211,680 is deferred in
payment to the Managing General Partner as a Deferred Distribution amount (the
"Deferred Distribution") in accordance with the Partnership Agreement. To the
extent not payable to the Managing General Partner, this Deferred Distribution
is distributed to the Partners pro-rata in accordance with their capital
contributions, and certain amounts otherwise later payable to Partners from
distributable cash from operations would instead be payable solely to the
Managing General Partner until the Deferred Distribution amount is paid in full.
11. Litigation
On February 3, 1992 and February 5, 1992, respectively, one Limited Partner
from Fund II and one Limited Partner from the Retirement Fund each commenced
class actions in the US District Court for the District of Delaware, purportedly
on behalf of all persons who purchased limited partnership interests in the
Funds between November 10, 1989 and January 5, 1990, against the Funds, the
Managing General Partner, the Individual General Partners, the Investment
Adviser to the Funds and certain named affiliates of such persons. These
actions, alleging that the defendants in the action made material
misrepresentations or omitted material information in the offering materials for
the Funds concerning the investment purposes of the Funds, were consolidated by
the court on March 31, 1992, and a consolidated complaint was filed by the
plaintiffs on May 14, 1992. In April 1993, plaintiffs filed an amended
complaint, adding claims that certain transactions by the Funds were prohibited
by the federal securities laws applicable to the Funds and their affiliates
under the Investment Company Act of 1940, as amended. The amended complaint also
named the Funds' counsel as a defendant. Defendants moved to dismiss the amended
complaint, and, by Opinion and Order dated March 31, 1994, the court granted in
part and denied in part the motions to dismiss.
Additionally, by its March 31, 1994 Opinion and Order, the Court certified
the case as a class action, and ordered plaintiffs to replead by filing a new
complaint reflecting the Court's rulings. On April 15, 1994, plaintiffs served
and filed a new complaint, which defendants moved to strike for not conforming
to the Court's ruling. On August 3, 1994, the Court granted defendants' motion
to strike the new complaint. Plaintiffs thereafter filed a revised second
amended complaint dated September 26, 1994. Factual discovery in this litigation
has concluded, although plaintiffs' have made application to the Court for
permission to conduct additional fact discovery. The parties have conducted
expert discovery, the conclusion of which is subject to the Courts' decision on
a pending motion. The defendants in this action believe that the remaining
claims are without merit, although whether or not the plaintiffs prevail, the
Funds may be obligated to indemnify and advance litigation expenses to certain
of the defendants under the terms and conditions of various indemnity provisions
in the Funds' Partnership Agreements and separate indemnification agreements,
and the amount of such indemnification and expenses could be material. The
Retirement Fund has advanced amounts to the indemnified parties based upon
amounts which are deemed reimbursable in accordance with the indemnification
provisions and has included these amounts in professional fees. The outcome of
this case is not determinable at this time.
On August 9, 1994, the same two Limited Partners as noted in the preceding
paragraphs commenced another putative class action in the US District Court for
the District of Delaware, purportedly on behalf of all persons who owned limited
partnership interests in the Funds on November 4, 1993, against the Funds, the
Managing General Partners, the Individual General Partners, the Investment
Adviser to the Funds and certain named affiliates of such persons. Plaintiffs
allege that the defendants violated certain provisions of the Investment Company
Act of 1940 and the common law in connection with the sale by certain of the
defendants of shares of common stock of Snapple Beverage Corp. in a November
1993 secondary offering and seek actual and punitive damages and an accounting
in connection therewith. Defendants' motion to dismiss this complaint was denied
on December 29, 1995. On August 4, 1995, while defendants' motion to dismiss the
original complaint was pending, plaintiffs filed an amended complaint alleging
additional violations of the Investment Company Act of 1940 and common law
arising out of the secondary offering. The plaintiffs moved for summary judgment
on certain of these claims. On October 13, 1995, the defendants in this
litigation each filed briefs in opposition to plaintiffs' motion and moved to
dismiss the amended complaint. By an Opinion dated March 30, 1996, the
defendants Court denied plaintiffs' motion for partial summary judgment. By
order of the same date, and without opposition by defendants, the Court
certified the case as a class action. Defendants separate motions to dismiss,
which have now been fully briefed, are currently pending. Whether or not the
plaintiffs prevail, the Funds may be obligated to indemnify and advance
litigation expenses to certain of the defendants under the terms and conditions
of various indemnity provisions in the Funds' Partnership Agreements and
separate indemnification agreements. The outcome of this case is not
determinable at this time.
On November 2, 3 and 4, 1994, stockholders of Snapple Beverage Corp.
commenced approximately twenty putative class actions in the Delaware Chancery
Court, purportedly on behalf of all public stockholders of Snapple, against
Snapple, the Funds, Thomas H. Lee Equity Partners, L.P., and some or all of
Snapple's directors. Since then, the plaintiffs have filed a Consolidated
Amended Complaint against Snapple, the Funds, Thomas H. Lee Equity Partners,
L.P., some or all of Snapple's directors and Quaker Oats. The complaint alleges
that the sale of Snapple to Quaker Oats was at an unfair price and in violation
of the defendants' fiduciary duties to public stockholders. The plaintiffs
sought an injunction against the merger transaction, an accounting for any
damages suffered by the public stockholders, and attorneys' fees and related
expenses. The Court on November 15, 1994 denied plaintiffs application to take
expedited discovery and request to schedule a preliminary injunction hearing. In
April 1996, the parties filed a stipulation of Dismissal with the Court. The
Funds may be obligated to indemnify and advance litigation expenses to certain
of the defendants under the terms and conditions of various indemnity provisions
in the Funds' Partnership Agreements and separate indemnification agreements.
On November 27, 1995, one Limited Partner from Fund II and one Limited
Partner from the Retirement Fund filed a putative class action in the United
States District Court for the District of Delaware, purportedly on behalf of all
persons or entities who owned Units in the Funds between April 5, 1991 and
November 27, 1995, against the Funds, the Managing General Partner, the
Individual General Partners, the Investment Adviser to the Funds, and certain
named affiliates of such persons. The complaint contends that the Funds
improperly advanced legal fees and litigation costs to the defendants in
connection with three previously filed lawsuits. The plaintiffs are seeking an
accounting, rescissory or actual damages, punitive damages, plaintiffs'
litigation costs and attorneys fees, pre-judgment and post-judgment interest,
and an injunction barring the defendants from further indemnifying themselves.
The defendants in this action believe that the claims are without merit and have
moved to dismiss the case. Although the defendants believe the advancement of
legal fees and litigation costs was properly made pursuant to indemnification
agreements signed by the defendants, the outcome of this case is not
determinable at this time.
12. Commitments
On August 18, 1993, the Retirement Fund established a letter of credit from
Banque Nationale de Paris in favor of FLA. Orthopedics, a Non-Managed portfolio
company. The Retirement Fund posted as collateral a $394,800 Banque Nationale de
Paris certificate of deposit which pays an interest rate of 5.20%. If the
commitment is drawn upon, the Retirement Fund will receive additional
subordinated notes and equity of FLA. Orthopedics. The letter of credit expired
on May 1, 1996.
13. Income Taxes (Statement of Financial Accounting
Standards No. 109)
No provision for income taxes has been made because all income and
losses are allocated to the Retirement 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 Retirement Fund is required to disclose any
difference in the tax basis of the Retirement Fund's assets and liabilities
versus the amounts reported in the financial statements. Generally, the tax
basis of the Retirement Fund's assets approximate the amortized cost amounts
reported in the financial statements. This amount is computed annually and as of
December 31, 1995, the tax basis of the Retirement Fund's assets are less than
the amounts reported in the financial statements by $9,598,909. This difference
is primarily attributable to unrealized depreciation and appreciation on
investments which has not been recognized for tax purposes.
<PAGE>
14. Subsequent Events
On March 20, 1996, Petco Animal Supplies announced a 3-for-2 stock split
effective April 15, 1996. On April 4, 1996 Petco filed a registration statement
with the Securities and Exchange Commission for an offering of 3,333,333 shares
of Common Stock, which has been adjusted to 5 million shares as a result of the
stock split. Of the 5 million post-split shares offered, 2.6 million were
offered by Petco and the remaining shares were offered by certain current
stockholders, including the Retirement Fund. The offering was effected on April
30, 1996 and the Retirement Fund sold its entire investment in Petco, which
consisted of 93,568 shares of Common Stock and received net proceeds of
$2,560,021 or $27.36 per share. The Retirement Fund realized a gain of
$1,537,444 on the sale.
Operating performance at Fitz & Floyd/Silvestri, Corp., a Non-Managed
Company in the Retirement Fund's portfolio, while improving from 1994 has fallen
substantially below plan. On March 29, 1996, Fitz & Floyd filed a voluntary
petition for protection under Chapter 11 of the United States Bankruptcy Code,
and continued operating the business as debtor-in-possession. The Investment
Adviser, Fitz & Floyd management and the senior lender, CIT, are working to
restructure the company. As a result of such filing, the Retirement Fund has
agreed to guarantee its pro rata share of up to $4,000,000 of
debtor-in-possession financing for Fitz and Floyd.
On April 1, 1996, the Retirement Fund sold its entire investment in
Ghirardelli Holdings Corp. ("Ghirardelli")to an investor group comprised of the
Chief Executive Officer of Ghirardelli and certain other investors. The
Retirement Fund received net proceeds from the sale of $10,850,078, which
consisted of $5,624,296 as prepayment for the 13% Subordinated Note (including
$118,696 of accrued interest), $3,480,667 for the common stock and $1,745,115
for the preferred stock (including $30,192 of accrued dividends). The sale
resulted in a realized gain of $2,472,982 to the Retirement Fund.
On April 26, 1996, the Individual General Partners approved a special
second quarter 1996 cash distribution totaling $10,731,976 which represents net
distributable capital proceeds from the sale of Ghirardelli (the "Ghirardelli
Distribution") on April 1, 1996 (including return of capital of $8,258,654). The
total amount distributed to the Limited Partners of record as of April 1, 1996
was $10,698,829 or $60.27 per Unit, which was distributed on May 3, 1996. The
Managing General Partner received a total of $30,134 with respect to its
interest in the Retirement Fund. Thomas H. Lee, as an Individual General
Partner, received $3,013 with respect to his interest in the Retirement Fund.
On April 26, 1996, the Individual General Partners approved the first
quarter 1996 cash distribution totaling $14,561,742 which represents net
distributable capital proceeds of $9,803,825 from the sale of CST (which
includes return of capital of $7,485,854) net investment income of $4,680,936
from Mezzanine Investments and $76,981 income from Temporary Investments. The
total amount distributed to the Limited Partners was $9,850,307 or $55.49 per
Unit, which was distributed on May 3, 1996. The Managing General Partner
received a total of $27,746 with respect to its interest in the Retirement Fund
and $4,680,914 in performance incentive fees (all of which was a Deferred
Distribution payment as described in Note 10). Thomas H. Lee, as an Individual
General Partner, received $2,775 with respect to his interest in the Retirement
Fund. Subsequent to the payment of this distribution and the Ghiradelli
Distribution described above, the remaining Deferred Distribution was
$1,968,052.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
ML-LEE ACQUISITION (RETIREMENT ACCOUNTS) II, L.P.
SUPPLEMENTAL SCHEDULE OF REALIZED GAINS AND LOSSES
FOR THE 3 MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Investment Realized
SECURITY Number of Shares Cost Net Proceeds Gain
- ------------------------------------------ ------------------ ---------------- ------------------ --------------
CST Office Products, Inc.
Common Stock 87,051 $ 696 $ 1,393 $ 697
Subordinated Notes $ 6,790 6,790 6,857 67
Common Stock Purchase Warrants 94,668 - 1,514 1,514
----------- ----------- -----------
Total $ 7,486 $ 9,764 $ 2,278
=========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2
ML-LEE ACQUISITION (RETIREMENT ACCOUNTS) II, L.P.
SCHEDULE OF UNREALIZED APPRECIATION AND DEPRECIATION
FOR THE PERIOD ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total Unrealized
Appreciation/
(Depreciation) Total Unrealized Total Unrealized
for the three Appreciation/ Appreciation/
Investment Fair months ended (Depreciation) (Depreciation)
SECURITY Cost Value March 31, 1996 December 31, 1995 March 31, 1996
- ------------------------------------ --------- --------- --------------------- ---------------------------------------
PUBLICLY TRADED/UNDERLYING
SECURITY PUBLICLY TRADED:
First Alert
Common Stock * $ 3,680 $ 15,400 $ (4,278) $ 15,998 $ 11,720
Hills Stores
Common Stock * 18,571 3,269 522 (15,823) (15,301)
Petco
Common Stock * 1,023 2,791 967 802 1,769
Playtex
Common Stock * 2,830 1,331 (46) (1,453) (1,499)
Stanley
Common Stock * 233 199 51 (85) (34)
---------- ---------- -----------
TOTAL UNREALIZED APPRECIATION
(DEPRECIATION) FROM PUBLICLY
TRADED SECURITIES $ (2,784) $ (561) $ (3,345)
---------- ---------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2
ML-LEE ACQUISITION (RETIREMENT ACCOUNTS) II, L.P.
SCHEDULE OF UNREALIZED APPRECIATION AND DEPRECIATION
FOR THE PERIOD ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total Unrealized
Appreciation/
(Depreciation) Total Unrealized Total Unrealized
for the three Appreciation/ Appreciation/
Investment Fair months ended (Depreciation) (Depreciation)
SECURITY Cost Value March 31, 1996 December 31, 1995 March 31, 1996
- ------------------------------------ --------- --------- --------------------- ---------------------------------------
NON PUBLIC SECURITIES:
Fitz and Floyd/Silvestri
Common Stock * 13 - - (13) (13)
Adj. Rate Sr Subordinated Note * 8,287 1,976 (4,338) (1,975) (6,313)
FLA. Orthopedics, Inc.
Common Stock* 987 - - (987) (987)
Subordinated Note * 3,158 - - (3,158) (3,158)
Stablex Canada Inc.
Subordinated Note* 7,565 5,737 - (1,828) (1,828)
-------------- ----------- -----------
TOTAL UNREALIZED APPRECIATION
(DEPRECIATION) FROM NON PUBLIC
SECURITIES $ (4,338) $ (7,961) $ (12,299)
-------------- ----------- -----------
NET UNREALIZED APPRECIATION
(DEPRECIATION) $ (7,122) $ (8,522) $ (15,644)
============== =========== ===========
* Restricted securities.
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity & Capital Resources
As of March 31, 1996, capital contributions from the Limited Partners
and the General Partners totaled $178,065,000 in the public offering of ML-Lee
Acquisition Fund (Retirement Accounts) II, L.P. (the "Retirement Fund"), the
final closing for which was held on December 20, 1989. Net proceeds available
for investment by the Retirement Fund as of March 31, 1996 were $96,856,416,
after adjusting for returns of capital distributed to partners, volume
discounts, sales commissions and organizational, offering, sales and marketing
expenses.
At March 31, 1996, the Retirement Fund had outstanding a total of
$80,762,639 invested in Mezzanine Investments representing $55,844,102 Managed
and $24,918,537 Non-Managed portfolio investments. The remaining proceeds were
invested in Temporary Investments primarily comprised of commercial paper with
maturities of less than two months.
The Retirement Fund invested substantially all of its net proceeds in
Mezzanine Investments, consisting of high-yield subordinated debt and/or
preferred stock linked with an equity participation, of middle market companies
in connection with friendly leveraged acquisitions, recapitalizations and other
leveraged financings. The Retirement Fund's Mezzanine Investments typically were
issued in private placement transactions which are generally subject to certain
restrictions on sales thereby limiting their liquidity. The Retirement Fund was
fully invested as of December 20, 1992, which was within 36 months from the date
of the final closing (after including the reserve for follow-on investments and
exclusive of amounts available for reinvestment). The reinvestment period for
various amounts of capital proceeds received during the last twelve months of
the Retirement Fund's investment period terminated at various times through
December 18, 1993.
Upon the consummation of the sale of Snapple Common Stock in December
1994, the Retirement Fund received proceeds of approximately $78 million. As
provided by the Partnership Agreement, the Managing General Partner of the
Retirement Fund received incentive fees from this transaction to the extent
certain returns of capital and priority returns were achieved. The Managing
General Partner was entitled to an incentive MGP distribution of approximately
$21 million, approximately $6.7 million of which was deferred in payment (the
"Deferred Distribution Amount") to the Managing General Partner in accordance
with the Partnership Agreement. This Deferred Distribution Amount is distributed
to the Partners pro-rata in accordance with their capital contributions, and
certain amounts otherwise later payable to Limited Partners from distributable
cash from operations instead are payable to the Managing General Partner until
the Deferred Distribution Amount is paid in full. The Limited Partners received
approximately $63.8 million or $359.24 per Unit from the Snapple proceeds.
Following the distributions of proceeds from the sale of CST and Ghirardelli, as
described in Note 14, to the Financial Statements, as of May 15, 1996, the
Deferred Distribution Amount owed to the Managing General Partner was
$1,968,052.
On August 6, 1991, the Independent General Partners approved a reserve
for follow-on investments of $20.0 million for the Retirement Fund. As of March
31, 1996, the reserve balance was reduced to $8.2 million due to follow-on
investments of $153 in Petco Animal Supplies, $1.6 million in Fitz and
Floyd/Silvestri, Corporation, $128,270 in Fine Clothing, Inc., $2.5 million in
Hills and $1.9 million in Ghirardelli. Additionally, $5.7 million of the reserve
was returned to the partners during 1995. The level of the reserve was based
upon an analysis of potential Follow-On Investments in specific portfolio
companies that may become necessary to protect or enhance the Retirement Fund's
existing investment. As of March 6, 1996, the Independent General Partners have
approved retention of the reserve at its current level.
All net proceeds from the sale of Mezzanine Investments received by the
Retirement Fund in the future will be distributed to its partners unless applied
to or set aside for expenses or follow-on investments.
The proportion of distributions provided by net investment income has
dropped significantly from prior years due primarily to increased sales and
redemptions of Mezzanine Investments and the resulting decrease in investment
income as those holdings cease to generate interest income. Pursuant to the
terms of the Partnership Agreement, all net investment income from Mezzanine
Investments will be distributed to the Managing General Partner until the
Managing General Partner receives an amount equal to any outstanding Deferred
Distribution Amount. Given these circumstances, it is expected that the majority
of future cash distributions to Limited Partners will almost entirely be derived
from gains and recovered capital from asset sales, which are subject to market
conditions and are inherently unpredictable as to timing. Assuming there are no
asset sales in a particular quarter, Limited Partners are expected to receive
only small amounts of net distributable cash from Temporary Investments, which
are estimated to be less than one dollar per Limited Partnership Unit each
quarter. Distributions therefore are expected to vary significantly in amount
and may not be made in every quarter.
Investment in High-Yield Securities
The Retirement Fund invests primarily in subordinated debt and preferred
stock securities ("High-Yield Securities"), generally linked with an equity
participation, issued in conjunction with the mezzanine financing of privately
structured, friendly leveraged acquisitions, recapitalizations and other
leveraged financings. High-Yield Securities are debt and preferred equity
securities that are unrated or are rated by Standard & Poor's Corporation as BB
or lower and by Moody's Investor Services, Inc. as Ba or lower. Risk of loss
upon default by the issuer is significantly greater with High-Yield Securities
than with investment grade securities because High-Yield Securities are
generally unsecured and are often subordinated to other creditors of the issuer.
Also, these issuers usually have high levels of indebtedness and are more
sensitive to adverse economic conditions, such as recession or increasing
interest rates, than investment grade issuers. Most of these securities are
subject to resale restrictions and generally there is no quoted market for such
securities.
Although the Retirement Fund cannot eliminate the risks associated with
its investments in High-Yield Securities, it has established risk management
policies. The Retirement Fund subjected each prospective investment to rigorous
analysis and made only those investments that were recommended by the Investment
Adviser and that met the Retirement Fund's investment guidelines or that had
otherwise been approved by the Managing General Partner and the Independent
General Partners. The Retirement Fund's investments were measured against
specified Retirement Fund investment and performance guidelines. To limit the
exposure of the Retirement Fund's capital in any single issuer, the Retirement
Fund limited the amount of its investment in a particular issuer. The Retirement
Fund's Investment Adviser also continually monitors portfolio companies in order
to minimize the risks associated with its investments in High-Yield Securities.
Certain issuers of Securities held by the Retirement Fund (First Alert,
Hills, Petco, Playtex and Stanley Furniture) have registered their equity
securities in public offerings. Although the equity securities of the same class
presently held by the Retirement Fund (other than Hills and Stanley Furniture)
were not registered in these offerings, the Retirement Fund has the ability
under Rule 144 under the Securities Act of 1933 to sell publicly traded equity
securities held by it for at least two years on the open market, subject to the
volume restrictions set forth in that rule. The Rule 144 volume restrictions
generally are not applicable to equity securities of non-affiliated companies
held by the Retirement Fund for at least three years. In certain cases, the
Retirement Fund has agreed not to make any sales of equity securities for a
specified hold-back period following a public offering.
The Investment Adviser reviews each portfolio company's financial
statements quarterly. In addition, the Investment Adviser routinely reviews and
discusses financial and operating results with the company's management and
where appropriate, attends board of director meetings. In some cases,
representatives of the Investment Adviser, acting on behalf of the Funds (and
affiliated investors where applicable), serve as one or more of the directors on
the boards of portfolio companies. The Retirement Fund may, from time to time,
make follow-on investments to the extent necessary to protect or enhance its
existing investments.
Results of Operations
Investment Income and Expenses
The investment income from operations for the quarter consists primarily of
interest and discount income earned on the investment of proceeds from partners'
contributions in Mezzanine Investments and short-term money market instruments.
For the three months ended March 31, 1996, the Retirement Fund had
investment income of $5,542,908, as compared to $1,779,277 for the same period
in 1995. The increase of $3,763,631 in 1996 investment income as compared to
1995 is due to the recognition of interest income from PIK securities related to
the sale of CST Office Products, Inc.
Major expenses for the period consisted of Legal and Professional Fees,
Investment Advisory Fees, Fund Administration Fees and Administrative Expenses.
Legal and Professional Fees were primarily incurred in connection with
the litigation proceedings as described in Note 11 to the Financial Statements.
Legal and Professional fees for the three months ended March 31, 1996 and 1995
were $463,224 and $114,227, respectively. These expenses are attributable to
legal fees incurred and advanced on behalf of indemnified defendants as well as
fees incurred directly by the Retirement Fund in connection with the
aforementioned litigation proceedings.
The Investment Adviser and Fund Administrator both receive their
compensation on a quarterly basis. The Investment Advisory Fee paid to the
Investment Adviser for the quarter ended March 31, 1996 and 1995 was $229,858
and $272,229, respectively, and was calculated at an annual rate of 1.0% of
assets under management (net offering proceeds reduced by cumulative capital
reductions), with a minimum annual amount of $1,200,000 for the Retirement Fund
and Fund II on a combined basis.
The Fund Administration Fee paid to the Fund Administrator for the
quarter ended March 31, 1996 and 1995 was $142,391 and $151,924, respectively,
and was calculated at an annual rate of 0.45% of the excess of net offering
proceeds, less 50% of capital reductions.
Pursuant to the administrative services agreement between the Retirement
Fund and the Fund Administrator, effective November 10, 1993, a portion of the
actual out-of-pocket expenses incurred in connection with the administration of
the Retirement Fund is reimbursable to the Fund Administrator. Actual
out-of-pocket expenses ("reimbursable expenses") primarily consist of printing,
audits, tax preparation and custodian fees. For the quarter ended March 31, 1996
and 1995, the Retirement Fund had reimbursable expenses of $5,122 and $484,
respectively.
For the quarter ended March 31, 1996, the Retirement Fund had net
investment income of $4,624,382 as compared to $1,199,174 for the same period in
1995. The increase of $3,425,208 in 1996 net investment income as compared to
1995 is due to the recognition of interest income from PIK securities related to
the sale of CST Office Products, Inc., partially offset by higher Legal and
Professional Fees.
Net Assets
The Retirement Fund's net assets decreased by $239,188 during the three
months ended March 31, 1996, due to the payment of cash distributions to
partners of $19,587 and net unrealized depreciation of $7,122,032, partially
offset by realized gains from the sale of CST Office Products, Inc. of
$2,278,049 and net investment income of $4,624,382. This compares to the
decrease in net assets of $17,819,095 for the three months ended March 31, 1995
resulting from the payment of cash distributions to partners of $8,582,458
($679,869 of the cash distributions paid was return of capital from the sales of
portfolio investments) and net unrealized depreciation of $18,059,157, partially
offset by net investment income of $1,199,174 and realized gains from
investments of $7,623,346.
Unrealized Appreciation and Depreciation on Investments
For the three months ended March 31, 1996, the Retirement Fund recorded net
unrealized depreciation of $7,122,032 (of which $2,784,259 is net unrealized
depreciation from publicly traded securities and $4,337,773 is net unrealized
depreciation from non-public securities) compared to net unrealized depreciation
of $18,059,157 for the same period in 1995. As of March 31, 1996, the Retirement
Fund's cumulative net unrealized depreciation on investments totaled
$15,644,464.
The Retirement Fund's valuation of the Common Stock of First Alert, Hills,
Petco, Playtex and Stanley Furniture reflect their closing market prices at
March 29, 1996.
The Managing General Partner and the Investment Adviser review the
valuation of the Retirement Fund's portfolio investments that do not have a
readily ascertainable market value on a quarterly basis with final approval from
the Individual General Partners. Portfolio investments are valued at original
cost plus accrued value in the case of original issue discount or deferred pay
securities. Such investments will be revalued if there is an objective basis for
doing so at a different price. Investments will be written down in value if the
Managing General Partner and Investment Advisor believe adverse credit
developments of a significant nature require a write-down of such securities.
Investments will be written up in value only if there has been an arms'-length
third party transaction to justify the increased valuation.
A substantial number of the Retirement Fund's assets (at cost) are
invested in private placement securities for which there are no ascertainable
market values. Although the Managing General Partner and Investment Adviser use
their best judgment in estimating the fair value of these investments, there are
inherent limitations in any estimation technique. Therefore, the fair value
estimates presented herein are not necessarily indicative of the amount which
the Retirement Fund could realize in a current transaction.
The First Alert, Petco, Hills, Playtex and Stanley Furniture securities
held by the Retirement Fund are restricted securities under the SEC's Rule 144
and can only be sold under that rule, in a registered public offering, or
pursuant to an exemption from the registration requirement. In addition, resale
in some cases is restricted by lockup or other agreements. The Retirement Fund
may be considered an affiliate of First Alert and Stanley Furniture under the
SEC's Rule 144, and therefore any resale of securities of those companies, under
Rule 144, is limited by the volume limitations in that rule. Accordingly, the
values referred to in the financial statements for the remaining First Alert,
Hills, Petco, Playtex and Stanley Furniture securities held by the Retirement
Fund do not necessarily represent the prices at which these securities could
currently be sold.
The information presented herein is based on pertinent information
available to the Managing General Partner and Investment Adviser as of March 31,
1996. Although the Managing General Partner and Investment Adviser are not aware
of any factors not disclosed herein that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued since that time, and the current estimated fair value of these
investments may have changed significantly since that point in time.
For additional information, please refer to the Supplemental Schedule of
Unrealized Appreciation and Depreciation (Schedule 2).
Realized Gains and Losses
For the three months ended March 31, 1996, the Retirement Fund had net
realized gains from the sale of CST Office Products, Inc. of $2,278,049, as
compared to $7,623,346 for the same period in 1996.
For additional information, please refer to the Supplemental Schedule of
Realized Gains and Losses (Schedule 1).
Cash Distributions
On April 26, 1996, the Individual General Partners approved the first
quarter 1996 cash distribution totaling $14,561,742 which represents net
distributable capital proceeds of $9,803,825 from the sale of CST (which
includes return of capital of $7,485,854) net investment income of $4,680,936
from Mezzanine Investments and $76,981 income from Temporary Investments. The
total amount distributed to the Limited Partners was $9,850,307 or $55.49 per
Unit, which was distributed on May 3, 1996. The Managing General Partner
received a total of $27,746 with respect to its interest in the Retirement Fund
and $4,680,914 in performance incentive fees. Thomas H. Lee, as an Individual
General Partner, received $2,775 with respect to his interest in the Retirement
Fund.
On April 26, 1996, the Individual General Partners approved a special second
quarter 1996 cash distribution totaling $10,731,976 which represents net
distributable capital proceeds from the sale of Ghirardelli on April 1, 1996
(which includes return of capital of $8,258,654). The total amount distributed
to the Limited Partners of record as of April 1, 1996 was $10,698,829 or $60.27
per Unit, which was distributed on May 3, 1996. The Managing General Partner
received a total of $30,134 with respect to its interest in the Retirement Fund.
Thomas H. Lee, as an Individual General Partner, received $3,013 with respect to
his interest in the Retirement Fund.
<PAGE>
Part II - Other Information
Items 1 - 5 are herewith omitted as the response to all items is either
none or not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule for the quarter ending March 31,
1996.
(b) Reports on form 8-K: None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on this
15th day of May, 1996.
ML-LEE ACQUISITION FUND (RETIREMENT
ACCOUNTS) II, L.P.
By: Mezzanine Investments II, L.P.,
Managing General Partner
By: ML Mezzanine II Inc.,
its General Partner
Dated: May 15, 1996 /s/ Audrey Bommer
Audrey Bommer
Vice President and Treasurer
(Chief Financial Officer)
Dated: May 15, 1996 /s/ Roger F. Castoral, Jr.
Roger F. Castoral, Jr.
Assistant Treasurer
(Principal Accounting Officer)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on this
15th day of May, 1996.
ML-LEE ACQUISITION FUND (RETIREMENT
ACCOUNTS) II, L.P.
By: Mezzanine Investments II, L.P.,
Managing General Partner
By: ML Mezzanine II Inc.,
its General Partner
Dated: May 15, 1996
Audrey Bommer
Vice President and Treasurer
Chief Financial Officer)
Dated: May 15, 1996
Roger F. Castoral, Jr.
Assistant Treasurer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
1996 Form 10-Q Statements of Assets, Liabilities and Partners' Capital and
Statements of Operations and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 103,513,018
<INVESTMENTS-AT-VALUE> 87,901,719
<RECEIVABLES> 825,297
<ASSETS-OTHER> 3,286
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 88,730,302
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 493,460
<TOTAL-LIABILITIES> 493,460
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 177,515
<SHARES-COMMON-PRIOR> 177,515
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (15,644,464)
<NET-ASSETS> 88,236,842
<DIVIDEND-INCOME> 38,872
<INTEREST-INCOME> 5,396,366
<OTHER-INCOME> 107,670
<EXPENSES-NET> 918,526
<NET-INVESTMENT-INCOME> 4,624,382
<REALIZED-GAINS-CURRENT> 2,278,049
<APPREC-INCREASE-CURRENT> (7,122,032)
<NET-CHANGE-FROM-OPS> (219,600)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19,587
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (239,187)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 229,858
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 918,526
<AVERAGE-NET-ASSETS> 88,356,436
<PER-SHARE-NAV-BEGIN> 470.67
<PER-SHARE-NII> 22.05
<PER-SHARE-GAIN-APPREC> (40.00)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .11
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 465.41
<EXPENSE-RATIO> 0.010
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
