ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. No-Action Letter

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ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P

March 4, 2003

Response of the Office of Chief Counsel Division of Investment Management Our Ref. No. 20021212855 File Nos. 0-17383 and 0-17382

Your letter dated February 26, 2003 requests our assurance that we would not recommend enforcement action to the Commission under Sections 13(a) and 15(d) of the Securities Exchange Act of 1934 (the "1934 Act") if ML-Lee Acquisition Fund II, L.P. ("Fund II") and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. ("Retirement Fund," and collectively, the "Funds") cease filing annual and quarterly reports under Sections 13(a) and 15(d) of the 1934 Act.

Facts

You state that each of the Funds is a limited partnership that elected to be regulated as a business development company, by filing on December 20, 1988, Form N-54A under the Investment Company Act of 1940 with the Commission. The Funds were formed in 1988 with the investment policy of making investments in "mezzanine" securities. Each Fund issued units of limited partnership interests (the "Units") in public offerings made pursuant to a registration statement on Form N-2 under the Securities Act of 1933 (the "1933 Act"). The Funds currently have approximately 26,000 record holders of Units ("Limited Partners"). You state that there is currently no public market for the Units and that you do not anticipate that a public market for the Units will develop. 1

You state that the Units are registered with the Commission under Section 12(g) of the 1934 Act. The Funds currently file separate quarterly reports on Form 10-Q, annual reports on Form 10-K, and current reports, when applicable, on Form 8-K. You state that each Fund is current in its filing obligations. 2

You state that the term of the Retirement Fund expired on December 20, 2002, and that the term of Fund II expired on January 5, 2003. You state that, as of these dates, the applicable Fund ceased its operations, other than in connection with the winding up of its affairs. 3 You state that each Fund is in the process of determining any remaining liabilities for which reserves must be established in connection with its winding up and final liquidation. You state that each Fund may have certain indemnification obligations in connection with the sale or disposal of certain investments, and that each Fund has obligations to indemnify its general partners (collectively, the "Indemnification Obligations").

You state that Fund II has retained approximately $17.7 million and that the Retirement Fund has retained approximately $12.5 million, which is invested on a temporary basis in short-term commercial paper, 4 in order to meet any contingent claim that might be asserted plus any expenses incurred in investigating or defending any such claim. You state that, as of the date of this letter, there have been no indemnity claims made against either of the Funds. You state that, but for the Indemnification Obligations, the Funds would, by December 31, 2002, have been able to make a final liquidating distribution of their remaining assets (less the actual expenses of liquidation), and the Funds thereby would have terminated.

Analysis

Section 15(d) of the 1934 Act requires every issuer that has filed a registration statement that becomes effective under the 1933 Act to make certain filings with the Commission as required by Section 13 of the 1934 Act. Section 13(a) of the 1934 Act requires every issuer of a security registered under Section 12 of the 1934 Act (a "Registered Issuer") to make certain filings with the Commission, in accordance with the rules and regulations prescribed by the Commission.

Specifically, Rule 13a-1 under the 1934 Act requires that Registered Issuers file annual reports on Form 10-K for each fiscal year. Rule 13a-11 under the 1934 Act requires that Registered Issuers file current reports on Form 8-K, unless substantially the same information as that required by Form 8-K has been reported previously by the Registered Issuer. Rule 13a-13 under the 1934 Act generally requires a Registered Issuer to file quarterly reports on Form 10-Q for each of the first three quarters of its fiscal year. You request relief to permit the Funds to cease filing annual and quarterly reports as required by the 1934 Act. 5

The Commission has indicated that it may be appropriate to modify particular issuers' reporting requirements under Sections 13 and 15 of the 1934 Act if: (1) such modification is not inconsistent with the protection of investors; and (2) full compliance with the reporting requirements would entail unreasonable effort or expense. 6 The Commission staff has granted no-action relief to several issuers that have ceased or severely curtailed their operations. 7

You believe that it is consistent with the protection of investors to permit the Funds to cease filing Forms 10-K and l0-Q. You assert that Forms 10-K and 10-Q are designed to provide investors with information about the continuing operations and financial status of an issuer, and to assist investors in determining whether or not to hold, buy, or sell a particular security. You argue that the Funds have no material information to impart to investors on a quarterly or annual basis because the Funds have ceased operations and have minimal assets. You also argue that there will not be any market for the Units.

You also believe that continued compliance with the quarterly and annual reporting requirements under the 1934 Act would constitute an unreasonable effort or expense of the Funds and their Limited Partners because the costs of preparing and filing the reports are disproportionate to the amount of assets held by the Funds. You state that the Funds are retaining assets sufficient to meet any contingent claims that might be asserted against the Funds in the unlikely event that an Indemnity Obligation should arise. You represent that each Fund will distribute the remaining amounts less actual expenses as soon as practicable following the expiration of the Indemnity Obligations, or, if a claim should arise thereunder, as soon as practicable after resolution of that claim. You argue that requiring the Funds to continue filing annual and quarterly reports would generate substantial expenses to the Funds and would consume a large percentage of the remaining assets that would otherwise be available for return to the partners, without providing any corresponding benefit.

On the basis of the facts and representations in your letter, we will not recommend enforcement action to the Commission under Sections 13(a) and 15(d) of the 1934 Act if the Funds cease filing annual and quarterly reports under Sections 13(a) and 15(d) of the 1934 Act. This conclusion is based in particular on your representations that each Fund will: (1) continue filing separate reports on Form 8-K to disclose any material events relating to the Fund, including its termination; (2) make a final liquidating distribution as soon as practicable following the expiration of the Indemnity Obligations, or, if a claim should arise thereunder, as soon as practicable after resolution of that claim; (3) resume reporting under the 1934 Act (or request and obtain further no-action relief) if the Fund is still in existence three years from the date of this letter; and (4) file a Form 15 upon termination of the Fund. Because our position is based on the facts and representations in your letter, you should note that any different facts or representations may require a different conclusion.

Sara P. Crovitz Senior Counsel

Endnotes

You state that, if the requested relief is granted, the Funds will not permit any transfers of the Units requested by Limited Partners after March 31, 2003 (which will be effective as of April 1, 2003) other than transfers for no consideration, pursuant to the laws of descent and distribution or as otherwise required by law.

You state that, prior to March 31, 2003, each Fund will file on Form 10-K for the fiscal year ended December 31, 2002, including audited financial statements.

You state that the Limited Partners were fully informed of the plans for dissolution, winding up, and liquidation of the applicable Fund in recent quarterly reports and in each Fund's Form 10-K for the year ended December 31, 2001. You also represent that, if the requested relief is granted, the Funds will file on Form 8-K, reporting that (among other things): (1) the Funds will cease filing annual and quarterly reports under Sections 13(a) and 15(d) of the 1934 Act; and (2) requests by Limited Partners for transfers of Units, other than transfers for no consideration, pursuant to the laws of descent and distribution or otherwise required by law, will be accepted only until March 31, 2003, and those requests will be effective as of April 1, 2003, pursuant to the terms of each Fund's Partnership Agreement.

You state that each of the Funds will file, no later than March 31, 2003, Form N-54C notifying the Commission of the Fund's voluntary withdrawal of its election under Section 54(a) of the Investment Company Act of 1940 (the "1940 Act"). You represent that, subsequent to filing the Form N-54C, neither of the Funds will be required to register as an investment company under the 1940 Act in reliance on the exception provided by Section 7 of the 1940 Act for "transactions which are merely incidental to the dissolution of an investment company." See I.C.H. Corporation (pub. avail. Feb. 26, 1997).

You state that each Fund will continue to report on Form 8-K any material developments that affect the Fund. You also state that each Fund will comply with the proxy filing requirements under the 1934 Act in the event that the Fund holds a meeting of Limited Partners.

See

Application of the Reporting Provisions of the Securities Exchange Act of 1934 to Issuers Which Have Ceased or Severely Curtailed Their Operations, Securities Exchange Act Release No. 9660 (June 30, 1972).

See , e.g. , ML-Lee Acquisition Fund, L.P. (pub. avail. Feb. 4, 2000); JMB Income Properties, Ltd.-XIII (pub. avail. May 13, 1999); PaineWebber R&D Partners, L.P. (pub. avail. July 31, 1998); Arvida/JMB Partners, L.P.-II (pub. avail. Apr. 20, 1998); JMB Income Properties, Ltd.-IX (pub. avail. Apr. 24, 1997); JMB Income Properties, Ltd.-VI (pub. avail. May 9, 1996); Chrysler Capital Income Partners, L.P. (pub. avail. Apr. 24, 1995).

Incoming Letter:

February 26, 2003

By Overnight Courier Securities and Exchange Commission Division of Investment Management Office of Chief Counsel 450 Fifth Street, N.W. Washington, D.C. 20549

Re: ML-Lee Acquisition Fund II, L.P.; File No. 0-17383

ML-Lee Acquisition Fund (Retirement Accounts) II, L.P.; File No. 0-17382 Ladies and Gentlemen:

We are writing on behalf of our clients, ML-Lee Acquisition Fund II, L.P., a Delaware limited partnership ("Fund II"), and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P., a Delaware limited partnership ("Retirement Fund;" and together with Fund II, the "Funds"), to request that the Division of Investment Management (the "Division") confirm that, in the circumstances described herein, it will not recommend any enforcement action to the Securities and Exchange Commission (the "Commission") if the Funds cease filing annual and quarterly reports under Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Please note that this letter supercedes and replaces our previous letters of December 4, 2002, February 6, 2003 and February 21, 2003.

I. Facts

a. Background

Each of the Funds is a limited partnership currently governed by the Revised Uniform Limited Partnership Act of the State of Delaware. Each Fund was formed in 1988 with an investment policy of making investments in "mezzanine" securities, consisting of subordinated debt and/or preferred stock linked with an equity participation, in connection with leveraged acquisitions and other recapitalizations. Due to the nature of its investors, and the potential for adverse tax consequences to such investors, Retirement Fund was not permitted to borrow to fund or refinance its portfolio investments. Other than this restriction, the investment objective, policies and restrictions for the Funds were identical.

On December 20, 1988, each of Fund II and Retirement Fund filed Form N-54A with the Commission, electing to be regulated as a business development company. The Funds raised approximately $387 million in equity (net of underwriting commissions and volume discounts) through the issuance of units of limited partnership interest ("Units") in a public offering made pursuant to a Registration Statement on Form N-2 under the Securities Act of 1933, as amended (Registration No. 33-25816), which was declared effective on September 6, 1989. The Funds held a final closing on or about January 5, 1990. The Units of limited partnership interest are registered with the Commission under Section 12(g) of the 1934 Act. The Funds currently have approximately 26,000 record holders of Units ("Limited Partners"). Each of the Funds has five general partners, four individuals (the "Individual General Partners") and one entity (itself a limited partnership) which acts as the managing general partner.

As of the date of this request, Fund II has outstanding 221,745 Units and Retirement Fund has outstanding 177,515 Units. There is currently no public market for the Units and it is not anticipated that a public market for the Units will develop.

Each of Fund II and Retirement Fund currently files separate quarterly reports on Form 10-Q, annual reports on Form 10-K, and current reports, when applicable, on Form 8-K. As of the date of this request, each is current in its filing obligations.

b. Dissolution

On January 5, 2003, the term of Fund II expired. On December 20, 2002, the term of Retirement Fund expired. Therefore, each Fund ceased doing business and dissolved in accordance with the terms of its Amended and Restated Agreement of Limited Partnership, as amended (the "Partnership Agreement"). As a result, each Fund ceased its operations other than in connection with winding up its affairs. Pursuant to the Partnership Agreement of each Fund, upon dissolution the Individual General Partners of each Fund are thereafter authorized to wind up its affairs. Section 9.2A of each Partnership Agreement provides that the Individual General Partners shall have a period of not more than five years from dissolution to effect the winding up of its affairs. As of December 31, 2002, Fund II's only remaining assets on its books consisted of approximately $17,689,000 in cash and temporary investments, and the only remaining assets of Retirement Fund on its books consisted of approximately $12,490,000 in cash and temporary investments.

In March 2002, each Fund filed its Form 10-K for the fiscal year ended December 31, 2001 which included such Fund's financial statements audited by PricewaterhouseCoopers LLP. Each Fund also sent to its Limited Partners, in April 2002, an Annual Report which contained the same audited financial statements. Each Fund filed its Form 10-Q in May 2002, August 2002 and November 2002 and provided similar information to its Limited Partners in its Interim Reports for the respective periods. Each Fund will file its Form 10-K for the fiscal year ended December 31, 2002, including audited financial statements, prior to March 31, 2003. As of December 31, 2002, each Fund's temporary investments consist of short term commercial paper. Each of the Funds will file, no later than March 31, 2003, Form N-54C notifying the Commission of such Fund's voluntary withdrawal of its election under Section 54(a) of the Investment Company Act of 1940, as amended (the "1940 Act"). Subsequent to filing the Form N-54C, neither of the Funds will be required to register under the 1940 Act in reliance on the exception in Section 7 of the 1940 Act for "transactions which are merely incidental to the dissolution," as expressed in the Commission's previous no-action letters, including I.C.H. Corporation (publicly available February 26, 1997).

Each Fund is in the process of determining any remaining liabilities for which reserves must be established in connection with its winding up and final liquidation. In this regard, each Fund may have certain indemnification obligations in connection with certain investments, which have been sold or otherwise disposed of. Furthermore, each Fund has other obligations to indemnify its general partners which remain applicable pursuant to the terms of the Partnership Agreement. As of the date of this letter, no such indemnity claims have been made against either Fund. However, it is unclear whether any such claim will be asserted. But for these contingent indemnification obligations, the Funds would have made, prior to December 31, 2002, a final liquidating distribution of their respective remaining assets (less the actual expenses of liquidation) and would thereby terminate. Each Fund has maintained a reserve, invested on a temporary basis in short term commercial paper, in order to meet any contingent claims that might be asserted plus any expenses incurred in investigating or defending any matters related to such claims. As of December 31, 2002, each Fund's only activities are holding cash reserves, analyzing potential claims and, if necessary, defending or otherwise protecting itself against claims. The Individual General Partners of each Fund have determined that it is in the best interests of such Fund to retain such reserve, which they believe will be sufficient in order to meet any contingent claim that might be asserted plus any expenses incurred in investigating or defending any such claim, until it becomes clear that such reserve is not needed. Each Fund will make a final liquidating distribution of its remaining assets (less actual expenses of liquidation) to its Partners as soon as practicable following the expiration of the indemnity obligations or, if a claim should arise thereunder, as soon as practicable after resolution of that claim.

II. Discussion

The Commission has stated that it may grant, and in several cases has granted, relief from the Section 13(a) and 15(d) reporting requirements to registrants who have ceased or substantially curtailed operations. PaineWebber R&D Partners, L.P. (publicly available July 31, 1998); JMB Income Properties, Ltd.-IX (publicly available April 24, 1997); JMB Income Properties, Ltd.-VI (publicly available May 9, 1996); Chrysler Capital Income Partners, L.P. (publicly available April 24, 1995). Registrants seeking such relief must demonstrate to the Commission's satisfaction that such relief is "not inconsistent with the protection of investors" and that full compliance with reporting requirements "would entail unreasonable effort or expense." Exchange Act Release No. 9660 (June 30, 1972).

Based upon our review of Exchange Act Release No. 9660 and the criteria specified in the related no-action letters published by the Commission Staff, we believe the Funds' circumstances justify modifications of the Funds' reporting obligations. Specifically, each Fund proposes to cease filing with the Commission quarterly reports on Form 10-Q and annual reports on Form 10-K. Each Fund will cause current reports on Form 8-K to be filed in the event that material developments occur during its winding up and liquidation or otherwise, including termination. In addition, each Fund will comply with the proxy filing requirements under the 1934 Act in the event that either Fund holds a meeting of Limited Partners. Limited Partners will also continue to receive from their respective Fund annual individual tax returns (on Schedule K-1) of their shares of partnership income and expense.

The relief requested herein is consistent with the protection of investors. Limited Partners have been fully informed of the plans for dissolution, winding up and liquidation in recent annual and quarterly reports and each Fund's Form 10-K for the year ended December 31, 2001, and subsequent quarterly filings on Form 10-Q. Investors have been advised that the Funds have substantially curtailed their operations and plan to distribute their remaining assets as soon as practicable. In addition, if the relief requested herein is granted, the Limited Partners will be advised of the changes contemplated by this letter in subsequent communications to Limited Partners. 1

Forms 10-K and 10-Q provide investors with information about the continuing operations and financial status of the issuer, and assist investors in determining whether or not to hold, buy or sell a particular security. Because the Funds have ceased operations (both Funds are in dissolution) and have minimal assets (consisting solely of cash and short term investments in commercial paper), the Funds have no material information to impart to investors on a quarterly or annual basis. Furthermore, the Funds do not believe there will be any market for Units and, if the relief requested herein is granted, the Funds will not permit any transfers of Units requested by Limited Partners after March 31, 2003 (which will be effective as of April 1, 2003 pursuant to the terms of each Fund's Partnership Agreement) other than transfers for no consideration, pursuant to the laws of descent and distribution or as otherwise required by law. Therefore, continued compliance with quarterly and annual reporting requirements of the 1934 Act is of no interest or benefit to the Limited Partners of either Fund.

Continued compliance with quarterly and annual reporting requirements would also constitute an unreasonable effort or expense on the Funds and, more importantly, their respective Limited Partners. The costs borne by the Funds (and ultimately, the partners) in connection with the preparation and filing of the reports required for the Funds to comply with its registration and reporting obligations under Sections 12(g) and 13 of the 1934 Act are disproportionate to the amount of funds being held by the Funds for ultimate distribution to the Limited Partners. The Funds are retaining funds sufficient to meet contingent claims that might be asserted against the Funds in the unlikely event that an indemnity obligation should arise and will distribute remaining amounts (less actual expenses) to its partners. Requiring the Funds to continue filing annual and quarterly reports would generate substantial expenses to the Funds and would consume a large percentage of the remaining assets which would otherwise be available for return to partners, without providing any corresponding benefit.

The Staff has granted relief similar to that requested herein in several other instances. In PaineWebber R&D Partners, L.P. (publicly available July 31, 1998), the Staff granted relief similar to that requested herein where a partnership could not be terminated until certain litigation was resolved. Similarly, in JMB Income Properties, Ltd.-IX (publicly available April 24, 1997), relief was granted where a partnership could not be terminated until certain indemnification claims were resolved, and where the partnership retained a small amount of cash in connection with such potential claims.

The Staff also granted relief in Chrysler Capital Income Partners, L.P. (publicly available April 24, 1995), which involved a partnership that had ceased all operations and distributed most of its assets prior to its final liquidation payment and dissolution. Chrysler Capital Income Partners, L.P. was not required to file annual and quarterly reports, but was required to file current reports on Form 8-K to disclose material events related to its liquidation and dissolution.

More relevantly, the Staff granted relief to ML-Lee Acquisition Fund, L.P. in February, 2000. ML-Lee Acquisition Fund, L.P. was an affiliated partnership to the Funds and was in a substantially similar situation.

Based on the circumstances discussed herein, we respectfully request that the Staff grant, pursuant to Section 12(h) of the 1934 Act, an order exempting each of the Funds from the periodic reporting requirements of Sections 13(a) and 15(d) of the 1934 Act, or, in the alternative, that the Staff advise us that it will not recommend enforcement action against the Funds if they cease to comply with the quarterly and annual reporting requirements set forth in Sections 13(a) and 15(d) of the 1934 Act or the rules relating thereto. Each Fund will continue to report on Form 8-K any material developments that affect such Fund, including its termination. In addition, as noted above, each of the Funds will file, no later than March 31, 2003, Form N-54C notifying the Commission of such Fund's voluntary withdrawal of its election under Section 54(a) of the 1940 Act. Finally, each Fund will file a Form 15 upon termination. If the Funds are still in existence three years from the date of the Division's response to this request, the Funds will either resume reporting under the 1934 Act or request and obtain further no-action relief from the Commission.

If you have any questions or wish to discuss this request further, please call Charles W. Robins at (617) 772-8302 or David P. Kreisler at (617) 772-8340, each of this office. In addition, if the Staff believes that it may not agree with the conclusions expressed in this letter, we request the opportunity to confer with the Staff prior to a written response to this letter.

Please acknowledge receipt of this letter by date stamping the enclosed copy and returning it to our office in the enclosed self-addressed, stamped envelope.

In accordance with Securities Act Release No. 6269, enclosed please find seven additional copies of this letter.

Very truly yours,

David P. Kreisler

Enclosures

bcc: Susan D. Lewis, Esq. John M. Loder, Esq. Charles W. Robins, Esq.

Endnote

Each Fund will file a Current Report on Form 8-K promptly following granting of the relief requested disclosing, among other things, that each Fund will cease filing with the Commission quarterly reports on Form 10-Q and annual reports on Form 10-K and that the Funds will not permit any transfers of Units requested by Limited Partners after March 31, 2003 (which will be effective as of April 1, 2003 pursuant to the terms of each Fund's Partnership Agreement) other than transfers for no consideration, pursuant to the laws of descent and distribution or as otherwise required by law.

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Modified: 03/17/2003