SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14217
ML VENTURE PARTNERS II, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3324232
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
World Financial Center, North Tower
New York, New York 10281-1327
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (212) 449-1000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered
None None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of class)
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At March 15, 1995, 119,866 units of limited partnership interest ("Units") were
held by non-affiliates of the registrant. There is no established public trading
market for such Units.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of the Registrant dated February 10, 1987, as
supplemented by a supplement thereto dated April 21, 1987, are incorporated by
reference in Part I and Part II hereof.
Portions of the definitive proxy statement relating to the 1995 Annual Meeting
of Limited Partners of the Registrant are incorporated by reference in Part III
hereof.
Portions of the Registrant's Form 10-Q for the quarter ended March 31, 1994
filed with the Securities and Exchange Commission on May 13, 1994 are
incorporated by reference in Part I hereof.
Portions of the Registrant's Form 10-Q for the quarter ended June 30, 1994 filed
with the Securities and Exchange Commission on August 12, 1994 are incorporated
by reference in Part I hereof.
Portions of the Registrant's Form 10-Q for the quarter ended September 30, 1994
filed with the Securities and Exchange Commission on November 11, 1994 are
incorporated by reference in Part I hereof.
<PAGE>
PART I
Item 1. Business.
Formation
ML Venture Partners II, L.P. (the "Partnership" or the "Registrant") is a
Delaware limited partnership organized on February 4, 1986. The General Partners
of the Partnership consist of four individuals (the "Individual General
Partners") and MLVPII Co., L.P. (the "Managing General Partner"), a New York
limited partnership in which Merrill Lynch Venture Capital Inc. (the "Management
Company") is the general partner. The Management Company is an indirect
subsidiary of Merrill Lynch & Co., Inc. and an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"). DLJ Capital Management
Corporation (the "Sub-Manager"), an affiliate of Donaldson, Lufkin and Jenrette,
Inc., is the sub-manager pursuant to a sub-management agreement, dated May 23,
1991, among the Partnership, the Managing General Partner, the Management
Company and the Sub-Manager.
The Partnership operates as a business development company under the Investment
Company Act of 1940. The Partnership's investment objective is to seek long-term
capital appreciation from its portfolio of venture capital investments. The
Partnership considers this activity to constitute the single industry segment of
venture capital investing.
Through MLPF&S, the Partnership publicly offered 120,000 Units at $1,000 per
Unit. The Units were registered under the Securities Act of 1933 pursuant to a
Registration Statement on Form N-2 (File No. 33-3220) which was declared
effective on February 10, 1987. The Partnership held its initial and final
closings on March 31, 1987 and June 10, 1987, respectively. A total of 120,000
Units were accepted at such closings and the additional limited partners (the
"Limited Partners") were admitted to the Partnership.
The information set forth under the captions "Risk and Other Important Factors"
(pages 8 through 11), "Investment Objective and Policies" (pages 14 through 16),
"Venture Capital Operations" (pages 17 through 20) and "Portfolio Valuation"
(pages 27 and 28) in the prospectus of the Partnership dated February 10, 1987,
filed with the Securities and Exchange Commission pursuant to Rule 424(b) under
the Securities Act of 1933, as supplemented by a supplement thereto dated April
21, 1987 and filed pursuant to Rule 424(c) under the Securities Act of 1933 (the
"Prospectus"), is incorporated herein by reference.
The Venture Capital Investments
During the year ended December 31, 1994, the Partnership invested $2.4 million
in six existing portfolio companies. As of December 31, 1994, the Partnership
had invested $113.1 million in 58 portfolio companies. At December 31, 1994, the
Partnership's investment portfolio consisted of 28 active investments with a
cost of $52.9 million and a fair value of $75.4 million. From its inception
through December 31, 1994, the Partnership has fully or partially liquidated
investments with an aggregate cost basis of $60.2 million. These liquidated
investments returned a total of $69.8 million to the Partnership for a realized
gain of $9.6 million. The Partnership also realized interest and dividend income
from its venture capital investments totaling $2.4 million from inception to
December 31, 1994.
The venture capital investments made by the Partnership during 1994 are as
follows:
The description of the Partnership's follow-on investment in Viasoft, Inc. set
forth in Item 5 of Part II of the Partnership's quarterly report on Form 10-Q
for the quarter ended March 31, 1994 is incorporated herein by reference.
The descriptions of the Partnership's follow-on investments in Photon Dynamics,
Inc. and Neocrin Company set forth in Item 5 of Part II of the Partnership's
quarterly report on Form 10-Q for the quarter ended June 30, 1994 are
incorporated herein by reference.
The description of the Partnership's follow-on investment in CellPro,
Incorporated set forth in Item 5 of Part II of the Partnership's quarterly
report on Form 10-Q for the quarter ended September 30, 1994 are incorporated
herein by reference.
On October 21, 1994, the Partnership purchased a 9% promissory note of Clarus
Medical Systems, Inc. for $136,623 which was equal to the face amount of the
note.
On December 1, 1994, the Partnership purchased a 9.25% promissory note from
Neocrin Company for $311,584 which was equal to the face amount of the note.
On December 13, 1994, the Partnership purchased 97,273 common shares of
Corporate Express, Inc. from the Management Company for $1.1 million plus
interest expense of $42,000. In connection with a transaction in which
affiliates of the Sub-Manager also participated, the Management Company had
purchased this investment in January 1994 on behalf of the Partnership and held
such investment while the Partnership awaited an exemptive order from the
Securities and Exchange Commission allowing it to purchase the investment from
the Management Company upon review and approval by the Independent General
Partners.
Competition
The Partnership encounters competition from other entities having similar
investment objectives, including other entities affiliated with Merrill Lynch &
Co., Inc. Primary competition for venture capital investments has been from
venture capital partnerships, venture capital affiliates of large industrial and
financial companies, small business investment companies and wealthy
individuals. Competition has also been from foreign investors and from large
industrial and financial companies investing directly rather than through
venture capital affiliates. The Partnership has frequently been a co-investor
with other professional venture capital groups and these relationships generally
have expanded the Partnership's access to investment opportunities.
<PAGE>
Employees
The Partnership has no employees. The Partnership Agreement provides that the
Managing General Partner, subject to the supervision of the Individual General
Partners, manages and controls the Partnership's venture capital investments.
The Management Company performs, or arranges for others to perform, the
management and administrative services necessary for the operation of the
Partnership and is responsible for managing the Partnership's short-term
investments. The Sub-Manager, subject to the supervision of the Management
Company and Individual General Partners, provides management services in
connection with the Partnership's venture capital investments and investments of
the Partnership in unaffiliated venture capital funds.
Item 2. Properties.
The Partnership does not own or lease physical properties.
Item 3. Legal Proceedings.
The Partnership has been named as a defendant in an action relating to its
ownership of securities of In-Store Advertising, Inc. ("In-Store Advertising").
On or about July 16, 1993, a Second Amended Consolidated Class Action Complaint
(the "Amended Complaint") was filed in the United States District Court for the
Southern District of New York in the In Re In-Store Advertising Securities
Litigation. The action is a purported class action suit wherein the plaintiffs
(the "Plaintiffs") are persons who allegedly purchased shares of In-Store
Advertising common stock in the July 19, 1990 initial public offering (the
"Offering") and through November 8, 1990. The defendants named in the Amended
Complaint include present and former individual officers and directors of
In-Store Advertising, the underwriters involved in the Offering, KPMG Peat
Marwick (In-Store Advertising's auditors) and certain other defendants,
including the Partnership, who owned In-Store Advertising securities prior to
the Offering (the "Venture Capital Defendants"). Prior to the filing of the
Amended Complaint, In-Store Advertising filed a "prepackaged" plan in U.S.
Bankruptcy Court pursuant to Chapter XI of the U.S. Bankruptcy Code.
The Amended Complaint alleges violations under Sections 11, 12(2) and 15 of the
Securities Act of 1933, as amended (the "1933 Act"), Section 10(b) and 20 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and Rule 10b-5
promulgated thereunder, and common law claims of negligent misrepresentation,
fraud and deceit in connection with the sale of securities. The Plaintiffs seek
rescission of the purchases of In-Store Advertising's common stock to the extent
the members of the alleged classes still hold their shares, together with
damages and certain costs and expenses.
The Amended Complaint alleges that the Venture Capital Defendants are liable
under Section 10(b) of the 1934 Act and Rule 10b-5, and are also liable as
controlling persons of In-Store Advertising within the meaning of Section 15 of
the 1933 Act and Section 20(a) of the 1934 Act. The Venture Capital Defendants
are also being sued as alleged knowing and substantial aiders and abettors of
the other defendants' wrongful conduct and under common law fraud and negligence
theories. An individual director of In-Store Advertising, named as a defendant
in the action, was a Vice President of Merrill Lynch Venture Capital Inc., the
General Partner of the Managing General Partner of the Partnership. The
Partnership believes that it has meritorious defenses to the allegations in the
Amended Complaint (see Note 8 of Notes to Financial Statements).
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders. The 1995 Annual Meeting of the
limited partners of the Partnership is scheduled to be held on May 2, 1995.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information with respect to the market for the Units set forth under the
subcaption "Substituted Limited Partners" on pages 30 and 31 of the Prospectus
is incorporated herein by reference. There is no established public trading
market for the Units as of March 15, 1995. The approximate number of holders of
Units as of March 15, 1995 is 13,500. The Managing General Partner and the
Individual General Partners of the Partnership also hold interests in the
Partnership.
Beginning with December 1994 client account statements, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S") implemented new guidelines for valuing
limited partnerships and other direct investments reported on client account
statements. As a result, MLPF&S no longer reports general partner estimates of
limited partnership net asset value on its client account statements, although
the Partnership's managing general partner may continue to provide its estimate
of net asset value in quarterly reports to unit holders. Pursuant to the new
guidelines, estimated values for limited partnership investments will be
provided annually to MLPF&S by independent valuation services. The estimated
values will be based on financial and other information available to the
independent services on the prior August 15th. MLPF&S clients may contact their
Merrill Lynch Financial Consultants or telephone the number provided to them on
their account statements to obtain a general description of the methodology used
by the independent valuation services to determine their estimates of value. The
estimated values provided by the independent services are not market values and
unit holders may not be able to sell their units or realize the amounts shown on
their MLPF&S statements upon a sale. In addition, unit holders may not realize
the amount shown on their account statements upon the liquidation of the
Registrant over its remaining life.
<PAGE>
Cash distributions paid to Partners during 1994, 1993 and 1992 and cumulative
cash distributions paid from the inception of the Partnership through December
31, 1994 are listed below:
<TABLE>
Managing
Distribution General Limited Per $1,000
Date Partner Partners Unit
---- ------- -------- ----
<S> <C> <C> <C>
April 30, 1992 $ 9,000,000 $ 75
May 26, 1993 $ 15,600,000 $ 130
May 26, 1994 $ 16,200,000 $ 135
September 1, 1994 $ 1,400,000
Cumulative totals $ 1,400,000 $ 58,800,000 $ 490
</TABLE>
Additionally, on March 1, 1995, the General Partners approved a cash
distribution to Partners totaling $11.2 million; $9 million, or $75 per unit, to
the Limited Partners and $2.2 million to the Managing General Partner. The
distribution will be paid in April 1995 to Limited Partners of record on March
31, 1995 and will bring cumulative cash distributions paid to Limited Partners
to $67.8 million, or $565 per $1,000 Unit. Cumulative cash distributions paid to
the Managing General Partner will total $3.6 million.
<PAGE>
Item 6. Selected Financial Data.
($ In Thousands, Except For Per Unit Information)
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Years Ended December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Realized Gain (Loss) on Investments $ 18,593 $ 10,605 $ (5,677) $ 1,968 $ (15,142)
Net Change in Unrealized Appreciation
of Investments (29,444) 9,430 11,657 14,361 4,525
Net Increase (Decrease) in Net Assets
Resulting from Operations (11,668) 18,581 4,809 15,954 (9,976)
Cash Distributions to Partners 17,600 15,600 9,000 6,000 -
Cumulative Cash Distributions to Partners 60,200 42,600 27,000 18,000 12,000
Net Assets 83,402 112,671 109,690 113,881 103,927
Net Unrealized Appreciation of Investments 22,464 51,908 42,478 30,821 16,460
Purchase of Portfolio Investments 2,428 8,050 13,781 9,845 7,790
Cumulative Cost of Portfolio Investments 113,110 110,682 102,633 88,852 79,006
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Net Realized Gain (Loss) on Investments $ 135 $ 87 $ (47) $ 16 $ (125)
Net Increase (Decrease) in Net Assets
Resulting from Operations (79) 120 29 104 (65)
Cash Distributions 135 130 75 50 -
Cumulative Cash Distributions 490 355 225 150 100
Net Unrealized Appreciation of Investments 148 355 310 225 133
Net Asset Value, Including Net Unrealized
Appreciation of Investments 638 852 862 908 854
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
During 1994, the Partnership made follow-on investments in six existing
portfolio companies totaling $2.4 million and used $1.3 million for operating
activities. Also during the year, the Partnership realized a net return of $23.5
million from the sale of certain portfolio investments. During 1994, the
Partnership paid cash distributions to Partners totaling $17.6 million.
At December 31, 1994, the Partnership held $7.6 million in cash and short-term
investments; $6.9 million in short-term securities with maturities of less than
one year and $639,000 in an interest-bearing cash account. Funds needed to cover
future operating expenses and follow-on investments will be obtained from the
Partnership's existing cash reserves, from interest and other investment income
and from proceeds received from the sale of portfolio investments.
The Partnership does not expect to make any new portfolio investments.
Therefore, generally, all cash received from the sale of portfolio investments,
after an adequate reserve for operating expenses and follow-on investments in
existing portfolio companies, is distributed to Partners as soon as practicable
after receipt.
Subsequent to the end of the year, the Partnership sold a portion of its common
stock holdings in two of its publicly held companies for $6.4 million. As a
result, in March 1995, the General Partners approved a cash distribution to
Partners of $11.2 million; $9 million, or $75 per unit, to the Limited Partners
and $2.2 million to the Managing General Partner. The distribution will be paid
in April 1995 to Limited Partners of record on March 31, 1995. After the April
1995 distribution, cumulative cash distributions to Partners will total $71.4
million; $67.8 million, or $565 per unit, to the Limited Partners and $3.6
million to the Managing General Partner.
Results of Operations
For the years ended December 31, 1994 and 1993, the Partnership had a net
realized gain from operations of $17.8 million and $9.2 million, respectively.
For the year ended December 31, 1992, the Partnership had a net realized loss
from operations of $6.8 million. Net realized gain or loss from operations is
comprised of 1) net realized gains or losses from portfolio investments and 2)
net investment income or loss (interest and dividend income less operating
expenses).
Realized Gains and Losses from Portfolio Investments - For the year ended
December 31, 1994, the Partnership had an $18.6 million net realized gain from
portfolio investments. During 1994, the Partnership sold a portion of its common
stock holdings in eight of its publicly held investments for $20.2 million,
realizing a gain of $17.5 million. The number of common shares sold of each
portfolio company were as follows: 55,336 shares of Borg-Warner Automotive,
Inc., 79,232 shares of Corporate Express, Inc., 382,000 shares of CellPro,
Incorporated, 140,000 shares of Regeneron Pharmaceuticals, Inc., 78,271 shares
of Ringer Corporation, 106,666 shares of Micro Linear Corporation, 90,000 shares
of Komag, Incorporated and 2,400 shares of MTI Technology Corporation.
Additionally, in two private transactions completed during 1994, the Partnership
sold its 94,435 preferred shares of The Business Depot Ltd. for $2.8 million,
realizing a gain of $1.5 million and sold 26,570 preferred shares of
OccuSystems, Inc. for $173,000, realizing a gain of $40,000. Also during 1994,
the Partnership wrote-off its $100,000 investment in Research Applications, Inc.
and sold its investment in Shared Resource Exchange, Inc., realizing a loss of
$250,000. The Partnership also wrote-off the cost of its warrant to purchase
380,000 common shares of IDEC Pharmaceuticals Corporation, which expired in
February 1995, realizing a loss of $217,000. The Partnership also realized gains
in 1994 totaling $54,000 from the receipt of final escrow payments relating to
the 1992 sale of its investment in R-Byte, Inc.
For the year ended December 31, 1993, the Partnership had a $10.6 million net
realized gain from portfolio investments. During 1993, the Partnership sold
525,000 common shares of Regeneron Pharmaceuticals in the public market,
realizing a gain of $7.6 million. The Partnership also sold 187,912 common
shares of Ringer in the public market, realizing a gain of $4,000. In January
1993, the Partnership sold its investment in Pyxis Corporation in a private
transaction, realizing a gain of $7.2 million. Also during 1993, In-Store
Advertising, Inc. ("ISA") filed for protection under Chapter 11 of the federal
Bankruptcy Code resulting in the write-off of the Partnership's remaining $1.1
million investment in the company. The Partnership also received a final
liquidation payment from InteLock Corporation resulting in a $123,000 realized
loss, wrote-off its $2 million investment in Ogle Resources, Inc. and wrote-off
the remaining $900,000 of its investment in Communications International, Inc.
("CII"). Several smaller portfolio transactions completed during the year
resulted in an additional $46,000 net realized loss for 1993.
For the year ended December 31, 1992, the Partnership had a $5.7 million net
realized loss from portfolio investments. During the year, the Partnership sold
its remaining 157,500 common shares of Everex Systems, Inc. in the public
market, realizing a gain of $371,000. The Partnership also sold 45,000 common
shares of Regeneron Pharmaceuticals in the public market, realizing a gain of
$575,000. In September 1992, the Partnership received 50,111 shares of Bolt
Beranek and Newman Inc. common stock in connection with the termination of BBN
Integrated Switch Partners, L.P. These shares were sold in the public market in
October and November 1992 for $200,000, resulting in a realized gain of $13,000.
In May 1992, Allez, Inc. filed for protection under Chapter 11 of the federal
Bankruptcy Code. As a result, the Partnership wrote-off its $1.8 million
investment in the company. In October 1992, the Partnership sold its investment
in R-Byte to Exabyte Corporation for $1.3 million, resulting in a realized loss
of $444,000. The Partnership also wrote-off the following investments; $1.1
million of its $1.3 million investment in InteLock, $1.1 million of its $2.3
million investment in ISA, $919,000 of its $1.8 million investment in CII, $1.1
million of its $1.5 million investment in Target Vision, Inc. and $102,000 of
its remaining investment in TCOM Systems, Inc. due to continued operational and
financial difficulties at these companies.
Investment Income and Expenses - For the years ended December 31, 1994, 1993 and
1992, the Partnership had a net investment loss of $817,000, $1.5 million and
$1.2 million, respectively. The decrease in net investment loss for the 1994
period compared to the 1993 period primarily is attributable to a $682,000
increase in interest and other income from portfolio investments for the 1994
period. This increase primarily was a result of dividends received from
Borg-Warner Automotive, Inc., which began during 1994. Additionally, other
income from portfolio investments for 1993 includes the write-off of $406,000 of
accrued interest receivable related to promissory notes due from Ogle Resources
that were written-off in 1993. Expenses increased $56,000 for 1994 compared to
1993, primarily resulting from a $142,000 increase in professional fees for the
1994 period primarily relating to legal fees incurred from the ISA litigation
(see Note 8 of Notes to Financial Statements). The Partnership also incurred
$42,000 of interest expense during 1994 in connection with its purchase of
97,273 shares of Corporate Express, Inc. from the Management Company (see Note 4
of Notes to Financial Statements). The $142,000 increase in professional fees
was offset by a $112,000 decrease in the management fee for the 1994 period, as
discussed below.
The increase in net investment loss for the 1993 period compared to the 1992
period is attributable to a reduction in investment income earned in 1993,
specifically interest income earned from the Partnership's short-term
investments and the write-off, during 1993, of $406,000 of accrued interest
receivable related to the Partnership's promissory note due from Ogle, as
previously discussed. The reduction in investment income was partially offset by
a decrease in the 1993 management fee, as discussed below. Interest earned from
short-term investments for the years ended December 31, 1993 and 1992 was
$360,000 and $805,000, respectively. The decrease for the 1993 period compared
to the 1992 period primarily is due to a reduction in funds invested in
short-term investments and declining interest rates during the 1993 period.
The Management Company performs, or arranges for others to perform, the
management and administrative services necessary for the operation of the
Partnership. The Management Company receives a management fee at an annual rate
of 2.5% of the gross capital contributions to the Partnership, reduced by
selling commissions, organizational and offering expenses paid by the
Partnership, return of capital and realized capital losses, with a minimum
annual fee of $200,000. Such fee is determined and payable quarterly. The
management fee for the years ended December 31, 1994, 1993 and 1992, was $1.3
million, $1.4 million and $1.7 million, respectively. The management fee will
continue to decline in future periods as the Partnership's investment portfolio
continues to mature and distributions are paid to Partners. The management fee
and other operating expenses are paid with funds provided from operations. Funds
provided from operations for the periods discussed were obtained from interest
received from short-term investments, interest and other income from portfolio
investments and proceeds from the sale of certain portfolio investments.
Unrealized Gains and Losses and Changes in Unrealized Appreciation or
Depreciation of Portfolio Investments - For the year ended December 31, 1994,
the Partnership had a $14.4 million net unrealized loss from its portfolio
investments, primarily resulting from the net downward revaluation of its
publicly traded securities. Additionally during 1994, a net $15 million was
transferred from unrealized gain to realized gain relating to portfolio
investments sold and written-off during 1994, as discussed above. The $15
million transfer from unrealized gain to realized gain combined with the $14.4
million unrealized loss, resulted in a $29.4 million reduction to the
Partnership's net unrealized appreciation of investments for 1994.
For the year ended December 31, 1993, the Partnership had a $20.8 million
unrealized gain resulting from the net upward revaluation of its portfolio
investments, primarily Regeneron, Corporate Express and CellPro. Additionally
during 1993, a net $11.4 million was transferred from unrealized gain to
realized gain relating to portfolio investments sold and written-off during
1993, as discussed above. The $20.8 million unrealized gain, offset by the $11.4
million net transfer from unrealized gain to realized gain, resulted in a $9.4
million increase to the Partnership's net unrealized appreciation of investments
for 1993.
For the year ended December 31, 1992, the Partnership had a $6.8 million
unrealized gain resulting from the net upward revaluation of certain portfolio
investments, primarily Pyxis and CellPro. Additionally during 1992, a net $4.9
million was transferred from unrealized loss to realized loss relating to
portfolio investments sold and written-off during 1992, as discussed above. The
$6.8 million unrealized gain combined with the $4.9 million transfer from
unrealized loss to realized loss resulted in an $11.7 million increase to the
Partnership's net unrealized appreciation of investments for 1992.
Net Assets - Changes to net assets resulting from operations is comprised of 1)
net realized gains and losses from operations and 2) changes to net unrealized
appreciation or depreciation of portfolio investments.
For the year ended December 31, 1994, the Partnership had an $11.7 million net
decrease in net assets resulting from operations comprised of the $29.4 million
decline in unrealized appreciation offset by the $17.8 million net realized gain
from operations for 1994. At December 31, 1994, the Partnership's net assets
were $83.4 million, down $29.3 million from $112.7 million at December 31, 1993.
This decrease resulted from the $11.7 million decrease in net assets from
operations for 1994 and the $17.6 million cash distribution paid to Partners in
1994.
For the year ended December 31, 1993, the Partnership had an $18.6 million net
increase in net assets resulting from operations comprised of the $9.2 million
net realized gain from operations and the $9.4 million increase in unrealized
appreciation for 1993. At December 31, 1993, the Partnership's net assets were
$112.7 million, up $3 million from $109.7 million at December 31, 1992. This
increase resulted from the $18.6 million net increase in net assets from
operations offset by the $15.6 million cash distribution to Limited Partners
paid during 1993.
For the year ended December 31, 1992, the Partnership had a net increase in net
assets resulting from operations of $4.8 million comprised of the $11.7 million
increase in unrealized appreciation offset by the $6.8 million net realized loss
from operations for 1992. At December 31, 1992, the Partnership's net assets
were $109.7 million, down $4.2 million from $113.9 million at December 31, 1991.
This decrease resulted from the $9 million cash distribution paid to Limited
Partners during 1992 offset by the $4.8 million increase in net assets from
operations for 1992.
Gains and losses from investments are allocated to Partners' capital accounts
when realized, in accordance with the Partnership Agreement (see Note 3 of Notes
to Financial Statements). However, for purposes of calculating the net asset
value per unit of limited partnership interest, net unrealized appreciation of
investments has been included as if the net appreciation had been realized and
allocated to the Limited Partners in accordance with the Partnership Agreement.
Pursuant to such calculation, the net asset value per $1,000 Unit at December
31, 1994, 1993 and 1992, was $638, $852 and $862, respectively.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
ML VENTURE PARTNERS II, L.P.
INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 1994 and 1993
Schedule of Portfolio Investments as of December 31, 1994 Schedule of Portfolio
Investments as of December 31, 1993
Statements of Operations for the years ended December 31, 1994, 1993 and 1992
Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992
Statements of Changes in Partners' Capital for the years ended December 31,
1994, 1993 and 1992
Notes to Financial Statements
NOTE - All other schedules are omitted because of the absence of conditions
under which they are required or because the required information is included in
the financial statements or the notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
ML Venture Partners II, L.P.:
We have audited the accompanying balance sheets of ML Venture Partners
II, L.P. (the "Partnership"), including the schedules of portfolio
investments, as of December 31, 1994 and 1993, and the related
statements of operations, cash flows, and changes in partners' capital
for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at December 31, 1994 and 1993 by correspondence with
the custodian; where confirmation was not possible, we performed other
audit procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of ML Venture Partners II,
L.P. at December 31, 1994 and 1993, and the results of its operations,
its cash flows and the changes in its partners' capital for each of the
three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
As explained in Note 2, the financial statements include securities
valued at $70,024,107 and $107,038,636 at December 31, 1994 and 1993,
respectively, representing 84% and 95% of net assets, respectively,
whose values have been estimated by the Managing General Partner in the
absence of readily ascertainable market values. We have reviewed the
procedures used by the Managing General Partner in arriving at its
estimate of value of such securities and have inspected underlying
documentation, and, in the circumstances, we believe the procedures are
reasonable and the documentation appropriate. However, because of the
inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready
market for the securities existed, and the differences could be
material.
<PAGE>
As discussed in Note 8 to the financial statements, the Partnership is
a defendant in litigation relating to the Partnership's ownership of
securities of In-Store Advertising, Inc. The ultimate outcome of the
litigation cannot presently be determined. Accordingly, no provision
for any loss that may result upon resolution of this matter has been
made in the accompanying financial statements.
Deloitte & Touche LLP
New York, New York
February 24, 1995, except for Note 7, as to which the date is
March 1, 1995
<PAGE>
ML VENTURE PARTNERS II, L.P.
BALANCE SHEETS
December 31,
<TABLE>
1994 1993
---- ----
<S> <C> <C>
ASSETS
Investments - Note 2
Portfolio investments, at fair value
(cost $52,936,366 at December 31, 1994
and $55,130,444 at December 31, 1993) $ 75,400,208 $ 107,038,636
Short-term investments, at amortized cost - Note 9 6,935,099 3,991,697
Cash and cash equivalents 638,868 1,412,882
Accrued interest receivable 563,815 220,067
Notes receivable 250,656 102,579
Receivable from securities sold 7,655 321,300
----- -------
TOTAL ASSETS $ 83,796,301 $ 113,087,161
= ========== = ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 43,472 $ 41,535
Due to Management Company - Note 4 325,000 353,242
Due to Independent General Partners - Note 5 25,350 21,450
------ ------
Total liabilities 393,822 416,227
------- -------
Partners' Capital:
Managing General Partner 2,191,479 1,033,457
Individual General Partners 3,917 3,410
Limited Partners (120,000 Units) 58,743,241 59,725,875
Unallocated net unrealized appreciation of investments - Note 2 22,463,842 51,908,192
---------- ----------
Total partners' capital 83,402,479 112,670,934
---------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 83,796,301 $ 113,087,161
= ========== = ===========
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1994
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
<S> <C> <C> <C>
Biocircuits Corporation*(A)
515,269 shares of Common Stock May 1991 $ 1,422,501 $ 230,428
- ------------------------------ -------- - --------- - -------
Borg-Warner Automotive, Inc.*(A)(B)
444,664 shares of Common Stock Sept. 1988 2,223,320 8,254,075
- ------------------------------ ---------- --------- ---------
Borg-Warner Security Corporation*(A)
500,000 shares of Common Stock Sept. 1988 2,500,000 3,440,625
- ------------------------------ ---------- --------- ---------
CellPro, Incorporated(A)(C)
411,333 shares of Common Stock Mar. 1989 764,525 4,641,379
- ------------------------------ --------- ------- ---------
Children's Discovery Centers of America, Inc.(A)
115,267 shares of Common Stock July 1988 2,000,259 1,163,240
- ------------------------------ --------- --------- ---------
Clarus Medical Systems, Inc.*
507,458 shares of Preferred Stock Jan. 1991 2,037,290 571,357
9% Promissory Note due 3/21/95 136,623 136,623
Warrants to purchase 20,238 shares of Common Stock
at $3.75 per share, expiring on 7/31/97 0 0
--------------------------------------- - -
Corporate Express, Inc.*(A)(D)
696,234 shares of Common Stock May 1992 2,964,258 9,263,998
- ------------------------------ -------- --------- ---------
Diatech, Inc.*
1,258,006 shares of Preferred Stock Dec. 1991 2,620,015 3,145,015
- ----------------------------------- --------- --------- ---------
Eckerd Corporation*(A)
92,843 shares of Common Stock July 1992 857,004 2,031,521
- ----------------------------- --------- ------- ---------
Elantec, Inc.
2,889,947 shares of Preferred Stock Aug. 1988 1,069,569 1,069,569
852,273 shares of Common Stock 340,909 340,909
- ------------------------------ ------- -------
Home Express, Inc.*
486,067 shares of Preferred Stock June 1992 1,822,751 2,303,957
- --------------------------------- --------- --------- ---------
Horizon Cellular Telephone Company, L.P.:
HCTC Investment, L.P.
10% Promissory Note due 3/26/98 May 1992 2,587,500 2,587,500
SPTHOR Corporation
10% Promissory Note due 3/26/98 May 1992 646,875 646,875
34.5 shares of Common Stock 215,625 215,625
--------------------------- ------- -------
I.D.E. Corporation*
493,391 shares of Preferred Stock Mar. 1988 1,110,909 555,455
- --------------------------------- --------- --------- -------
IDEC Pharmaceuticals Corporation(A)(E):
ML/MS Associates, L.P.*
34.4% Limited Partnership interest June 1989 3,960,000 3,960,000
MLMS Cancer Research, Inc.
400,000 shares of Common Stock July 1989 46,957 46,957
------------------------------ --------- ------ ------
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1994
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
<S> <C> <C> <C>
Inference Corporation
702,427 shares of Preferred Stock Apr. 1993 $ 785,032 $ 785,032
Warrants to purchase 193,682 shares of Preferred Stock
at $1 per share, expiring on 4/19/99 22,777 22,777
Warrants to purchase 24,233 shares of Preferred Stock
at $1.05 per share, expiring on 12/16/97 6,531 6,531
Warrants to purchase 295,827 shares of Common Stock
at $1 per share, expiring on 6/10/98 79,725 79,725
------------------------------------ ------ ------
Komag, Incorporated(A)(F)
144,486 shares of Common Stock Aug. 1988 1,331,561 3,731,351
- ------------------------------ --------- --------- ---------
Ligand Pharmaceuticals Inc.*(A)(G)
499,858 shares of Common Stock Apr. 1989 1,216,466 2,615,507
Warrants to purchase 5,584 shares of Common Stock at
$3.61 per share to $9.60 per share, expiring between
1/18/96 and 7/31/97 0 2,415
------------------- - -----
Micro Linear Corporation(A)(H)
213,419 shares of Common Stock Aug. 1988 746,969 1,033,482
- ------------------------------ --------- ------- ---------
Neocrin Company(I)
317,366 shares of Preferred Stock June 1991 3,369,046 1,586,830
9.25% Convertible Notes due 6/22/95 629,176 629,176
- ----------------------------------- ------- -------
OccuSystems, Inc.(J)
504,830 shares of Preferred Stock June 1993 2,524,150 3,155,188
- --------------------------------- --------- --------- ---------
Photon Dynamics, Inc.*
1,222,828 shares of Preferred Stock Sept. 1988 2,452,226 1,435,181
- ----------------------------------- ---------- --------- ---------
Raytel Medical Corporation*
1,000,000 shares of Preferred Stock Feb. 1990 1,000,000 2,000,000
Options to purchase 55,938 shares of Preferred Stock
at $.71 per share, expiring 10/31/01 0 72,160
------------------------------------ - ------
Regeneron Pharmaceuticals, Inc.(A)(K)
1,377,895 shares of Common Stock Jan. 1988 1,616,740 3,883,919
- -------------------------------- --------- --------- ---------
Sanderling Biomedical, L.P.*(L)
80% Limited Partnership interest May 1988 2,000,000 1,790,799
- -------------------------------- -------- --------- ---------
SDL, Inc.*(M)
8% Subordinated Note due 7/17/97 July 1992 2,019,721 2,019,721
97,011 shares of Common Stock 169,769 1,361,064
26,270 shares of Preferred Stock 849,834 849,834
- -------------------------------- ------- -------
Target Vision, Inc.*
395,000 shares of Preferred Stock Apr. 1987 395,000 0
- --------------------------------- --------- ------- -
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1994
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
<S> <C> <C> <C>
United States Paging Corporation*(A)(N)
450,053 shares of Common Stock Apr. 1987 $ 1,479,405 $ 2,146,618
Warrants to purchase 16,887 shares of Common Stock at
$3.33 per share, expiring between 2/27/95 and 4/28/95 0 24,308
Warrants to purchase 25,330 shares of Common Stock at
$.89 per share, expiring between 12/15/95 and 3/8/96 0 98,277
---------------------------------------------------- - ------
Viasoft, Inc.(O)
861,885 shares of Preferred Stock Dec. 1987 915,348 1,465,205
- --------------------------------- --------- ------- ---------
Totals from Active Portfolio Investments $ 52,936,366 $ 75,400,208
- ---------- - ----------
</TABLE>
Supplemental Information: Liquidated Portfolio Investments(Q)
<TABLE>
Liquidation Realized
Company Date Cost Gain (Loss) Return
<S> <C> <C> <C> <C>
Allez, Inc. 1992 $ 1,781,320 $ (1,781,320) $ 0
Amdahl Corporation 1989 729,742 1,837,787 2,567,529
Aqua Group, Inc. 1990 2,000,000 (1,999,999) 1
BBN Advanced Computer Partners, L.P. 1990 868,428 (864,028) 4,400
BBN Integrated Switch Partners, L.P. 1990/1992 5,022,380 (4,822,797) 199,583
Borg-Warner Automotive, Inc.(B) 1994 276,680 928,538 1,205,218
Business Depot, Ltd.(P) 1994 1,214,184 1,539,475 2,753,659
CellPro, Incorporated(C) 1994 796,419 10,742,300 11,538,719
Communications International, Inc. 1992-1994 1,819,332 (1,819,331) 1
Computer-Aided Design Group 1990/1991 1,131,070 (1,131,069) 1
Corporate Express, Inc.(D) 1994 35,653 1,588,600 1,624,253
Data Recording Systems, Inc. 1988 1,615,129 (1,499,999) 115,130
Elantec, Inc. 1993 1,640 (1,640) 0
Everex Systems, Inc. 1991/1992 750,000 447,606 1,197,606
Hoffman & Company, L.P. 1993 40,000 (40,000) 0
IDEC Pharmaceuticals Corporation(E) 1994 217,391 (217,391) 0
In-Store Advertising, Inc. 1992 2,259,741 (2,259,741) 0
InteLock Corporation 1992 1,254,125 (1,251,274) 2,851
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1994
<TABLE>
Liquidation Realized
Company Date Cost Gain (Loss) Return
<S> <C> <C> <C> <C>
Komag, Incorporated(F) 1991/1994 $ 1,033,676 $ 1,605,568 $ 2,639,244
Ligand Pharmaceuticals Inc. 1992 187,250 0 187,250
Magnesys 1989 1,440,997 (1,412,049) 28,948
Meteor Message Corporation 1990 1,501,048 (1,501,047) 1
Micro Linear Corporation(H) 1994 373,331 469,330 842,661
OccuSystems, Inc.(J) 1994 132,850 39,855 172,705
Ogle Resources, Inc. 1993 1,974,286 (1,974,186) 100
Pandora Industries, Inc. 1990 2,060,139 (2,060,138) 1
Pyxis Corporation 1993 634,598 7,169,424 7,804,022
R-Byte Inc. 1992-1994 1,991,098 (443,566) 1,547,532
Regeneron Pharmaceuticals, Inc.(K) 1991-1994 1,061,395 19,317,755 20,379,150
Research Applications, Inc.(P) 1994 100,000 (100,000) 0
Ringer Corporation(P) 1991-1994 3,029,652 (2,208,012) 821,640
S & J Industries 1991/1992 1,600,150 (1,555,149) 45,001
Saxpy Computer Corporation 1988 2,000,000 (2,000,000) 0
SDL, Inc. 1993 1,717,941 0 1,717,941
SF2 Corporation 1991-1994 2,193,293 (1,856,570) 336,723
Shared Resource Exchange, Inc.(P) 1990-1994 999,999 (999,998) 1
Special Situations, Inc. 1988 215,000 (187,175) 27,825
Storage Technology Corporation 1990 2,174,000 1,466,802 3,640,802
Target Vision, Inc. 1992 1,105,000 (1,105,000) 0
TCOM Systems, Inc. 1990/1992 4,715,384 (4,711,536) 3,848
Telecom USA, Inc. 1989 5,000,000 3,361,778 8,361,778
Touch Communications Incorporated 1991 1,119,693 (1,119,693) 0
Totals from Liquidated Portfolio Investments $ 60,174,014 $ 9,592,110 $ 69,766,124
= ========== = ========= = ==========
Combined Net Combined
Unrealized and Fair Value
Cost Realized Gain and Return
Totals from Active & Liquidated Portfolio Investments $ 113,110,380 $ 32,055,952 $ 145,166,332
= =========== = ========== = ===========
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1994
(A) Public company
(B) On October 6, 1994, Borg-Warner Automotive, Inc. completed a public
offering of its common stock. In connection with the offering, the
Partnership sold 55,336 shares of common stock for $1.2 million, realizing
a gain of $929,000.
(C) During 1994, the Partnership purchased 10,000 shares of CellPro,
Incorporated through the exercise of options received by the Partnership
during 1994. Additionally, during 1994, the Partnership sold 382,000 common
shares of CellPro for $11.5 million, realizing a gain of $10.7 million.
(D) On September 23, 1994, Corporate Express, Inc. completed its initial public
offering of common stock. In connection with the offering and a one-for-two
reverse split of the company's common stock, the Partnership exchanged its
914,250 preferred shares and 442,136 common shares for 678,193 common
shares of the company. In November 1994, the Partnership acquired an
additional 97,273 common shares of Corporate Express from the Management
Company. Finally, during November 1994, the Partnership sold 79,232 common
shares of Corporate Express for $1.62 million, realizing a gain of $1.59
million.
(E) On December 31, 1994, the Partnership wrote-off the cost of its warrants to
purchase 380,000 shares of IDEC Pharmaceuticals Corporation common stock at
$7.25 per share, realizing a loss of $217,000. Such warrants expired in
February 1995.
(F) During 1994, the Partnership sold 90,000 common shares of Komag
Incorporated for $2.4 million, realizing a gain of $1.6 million.
Additionally, in January 1995, the Partnership sold 104,486 shares of Komag
for $3.0 million, realizing a gain of $2.1 million.
(G) During November 1994, Ligand Pharmaceuticals Inc. converted its Class A
common stock and warrants into Class B common stock and warrants at a ratio
of 1.33 to 1. As a result, the Partnership exchanged its 115,440 Class A
common shares and 1,290 Class A common warrants for 153,535 Class B shares
and 1,716 Class B warrants.
(H) On October 13, 1994, Micro Linear Corporation completed its initial public
offering of common stock. In connection with the offering, the company
effected a 1-for-2.5 reverse split of its outstanding stock. As a result,
the Partnership exchanged its 800,214 common shares for 320,085 common
shares of the company. Additionally, the Partnership sold 106,666 shares in
the offering for $843,000, realizing a gain of $469,000.
(I) During 1994, Neocrin Company effected a one-for-five reverse split of its
common and preferred stock. As a result, the Partnership exchanged its
1,586,831 preferred shares for 317,366 preferred shares of the company.
(J) During June 1994, the Partnership sold 26,570 preferred shares of
OccuSystems, Inc. for $173,000, realizing a gain of $40,000.
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1994
(K) During January 1994, the Partnership sold 140,000 common shares of
Regeneron Pharmaceuticals, Inc. for $2.3 million, realizing a gain of $2.2
million. In January and February 1995, the Partnership sold 510,000 common
shares of Regeneron for $3.3 million, realizing a gain of $2.8 million.
(L) Indirectly, the Partnership has an additional investment in Regeneron
Pharmaceuticals, Inc. through its 80% limited partnership interest in
Sanderling Biomedical, L.P.
(M) In December 1994, SDL, Inc. filed a registration statement for an initial
public offering of its common stock at a range of $12 to $14 per share.
Adjusted for a proposed conversion of preferred stock into common stock and
a 3.4-for-1 split, the Partnership would own 419,155 shares of common stock
of SDL upon completion of the offering.
(N) On February 17, 1995, United States Paging Corporation merged with Mobile
Telecommunications Technologies Corporation ("MTEL"). In connection with
the merger, the Partnership exchanged its U.S. Paging holdings for 204,292
shares of MTEL common stock.
(O) In February 1995, Viasoft, Inc. filed a registration statement for an
initial public offering of its common stock at a range of $7 to $9 per
share. Adjusted for a proposed 1-for-3 reverse split, the Partnership would
own 287,295 shares of Viasoft common stock upon completion of the offering.
(P) In September 1994, the Partnership sold its $1.2 million investment in
preferred stock of The Business Depot Ltd. for $2.8 million, realizing a
gain of $1.5 million. Additionally, during 1994, the Partnership wrote-off
its $100,000 investment in Research Applications, Inc., sold its remaining
78,271 shares of Ringer Corporation common stock for $254,000, realizing a
gain of $20,000 and sold its investment in Shared Resource Exchange, Inc.,
realizing a loss of $250,000.
(Q) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1994.
* Company may be deemed an affiliated person of the Partnership as such term is
defined in the Investment Company Act of 1940.
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1993
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Biocircuits Corporation*(A)
<S> <C> <C> <C>
515,269 shares of Common Stock May 1991 $ 1,422,501 $ 1,356,446
- ------------------------------ -------- - --------- - ---------
Borg-Warner Automotive, Inc.*(A)
500,000 shares of Common Stock Sept. 1988 2,500,000 9,485,000
- ------------------------------ ---------- --------- ---------
Borg-Warner Security Corporation*(A)
500,000 shares of Common Stock Sept. 1988 2,500,000 7,584,375
- ------------------------------ ---------- --------- ---------
CellPro, Incorporated*(A)
783,333 shares of Common Stock Mar. 1989 1,455,944 19,417,868
- ------------------------------ --------- --------- ----------
Children's Discovery Centers of America, Inc.*(A)
115,267 shares of Common Stock July 1988 2,000,259 920,695
- ------------------------------ --------- --------- -------
Clarus Medical Systems, Inc.*
507,458 shares of Preferred Stock Jan. 1991 2,037,290 807,350
Warrants to purchase 20,238 shares of Common Stock
at $3.75 per share, expiring on 7/31/97 0 0
--------------------------------------- - -
Corporate Express, Inc.*
442,136 shares of Common Stock May 1992 99,478 2,431,748
914,250 shares of Preferred Stock 1,830,435 5,028,375
- --------------------------------- --------- ---------
Diatech, Inc.*
1,258,006 shares of Preferred Stock Dec. 1991 2,620,015 3,145,015
- ----------------------------------- --------- --------- ---------
Eckerd Corporation*(A)
92,843 shares of Common Stock July 1992 857,004 1,156,824
- ----------------------------- --------- ------- ---------
Elantec, Inc.
2,889,947 shares of Preferred Stock Aug. 1988 1,069,569 1,069,569
852,273 shares of Common Stock 340,909 340,909
- ------------------------------ ------- -------
Home Express, Inc.*
486,067 shares of Preferred Stock Jan. 1992 1,822,751 1,822,751
- --------------------------------- --------- --------- ---------
Horizon Cellular Telephone Company, L.P.:
HCTC Investment, L.P.
10% Promissory Note May 1992 2,587,500 2,587,500
SPTHOR Corporation
10% Promissory Note May 1992 646,875 646,875
34.5 shares of Common Stock 215,625 215,625
--------------------------- ------- -------
I.D.E. Corporation*
493,391 shares of Preferred Stock Mar. 1988 1,110,909 555,455
- --------------------------------- --------- --------- -------
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1993
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
<S> <C> <C> <C>
IDEC Pharmaceuticals Corporation(A):
ML/MS Associates, L.P.*
34.4% Limited Partnership interest June 1989 $ 3,960,000 $ 3,960,000
Warrants to purchase 380,000 shares of Common Stock
of IDEC Pharmaceuticals Corporation at $7.25 per
share, expiring on 2/17/95 217,391 0
MLMS Cancer Research, Inc.
400,000 shares of Common Stock July 1989 46,957 46,957
------------------------------ --------- ------ ------
Inference Corporation
702,427 shares of Preferred Stock Apr. 1993 785,032 785,032
Warrants to purchase 193,682 shares of Preferred Stock
at $1 per share, expiring on 4/19/99 22,777 22,777
Warrants to purchase 24,233 shares of Preferred Stock
at $1.05 per share, expiring on 12/16/97 6,531 6,531
Warrants to purchase 295,827 shares of Common Stock
at $1 per share, expiring on 6/10/98 79,725 79,725
------------------------------------ ------ ------
Komag, Incorporated(A)
234,486 shares of Common Stock Aug. 1988 2,160,987 3,724,810
- ------------------------------ --------- --------- ---------
Ligand Pharmaceuticals Inc.*(A)
115,440 shares of Class A Common Stock Apr. 1989 304,116 872,293
346,323 shares of Class B Common Stock 912,350 1,477,346
Warrants to purchase 5,158 shares of Common Stock at
$4.80 per share, expiring between 1/18/96 and 7/31/97 0 3,556
----------------------------------------------------- - -----
Micro Linear Corporation
800,214 shares of Common Stock Aug. 1988 1,120,300 960,257
- ------------------------------ --------- --------- -------
Neocrin Company
1,586,831 shares of Preferred Stock June 1991 3,369,046 2,102,381
- ----------------------------------- --------- --------- ---------
OccuSystems, Inc.
531,400 shares of Preferred Stock June 1993 2,657,000 2,657,000
- --------------------------------- --------- --------- ---------
Photon Dynamics, Inc.*
990,530 shares of Preferred Stock Sept. 1988 2,034,090 990,530
- --------------------------------- ---------- --------- -------
Raytel Medical Corporation*
1,000,000 shares of Preferred Stock Feb. 1990 1,000,000 1,000,000
- ----------------------------------- --------- --------- ---------
Regeneron Pharmaceuticals, Inc.*(A)
1,517,895 shares of Common Stock Jan. 1988 1,778,052 19,577,845
- -------------------------------- --------- --------- ----------
Research Applications, Inc.*
4,000 shares of Common Stock Apr. 1988 100,000 0
- ---------------------------- --------- ------- -
Ringer Corporation(A)
78,271 shares Common Stock Apr. 1987 234,813 254,381
- -------------------------- --------- ------- -------
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1993
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
<S> <C> <C> <C>
Sanderling Biomedical, L.P.*
80% Limited Partnership interest May 1988 $ 2,000,000 $ 2,833,665
- -------------------------------- -------- - --------- - ---------
Shared Resource Exchange, Inc.
2,777 shares of Common Stock Apr. 1987 250,000 0
- ---------------------------- --------- ------- -
SDL, Inc.*
8% Subordinated Note July 1992 2,019,721 2,019,721
97,011 shares of Common Stock 169,769 169,769
26,270 shares of Preferred Stock 849,834 849,834
- -------------------------------- ------- -------
Target Vision, Inc.*
395,000 shares of Preferred Stock Apr. 1987 395,000 0
- --------------------------------- --------- ------- -
The Business Depot Ltd.*
94,435 shares of Preferred Stock May 1992 1,214,184 1,214,184
- -------------------------------- -------- --------- ---------
United States Paging Corporation*(A)
450,053 shares of Common Stock Apr. 1987 1,479,405 1,446,290
Warrants to purchase 16,887 shares of Common Stock at
$3.33 per share, expiring between 2/27/95 and 4/28/95 0 0
Warrants to purchase 5,537 shares of Common Stock at
4.22 per share, expiring on 6/23/94 0 0
Warrants to purchase 25,330 shares of Common Stock at
$.89 per share, expiring between 12/15/95 and 3/8/96 0 40,072
---------------------------------------------------- - ------
Viasoft, Inc.
806,647 shares of Preferred Stock Dec. 1987 846,300 1,371,300
- --------------------------------- --------- ------- ---------
Totals From Active Portfolio Investments $ 55,130,444 $ 107,038,636
= ========== = ===========
Cost Realized Loss Return
Totals from Liquidated Portfolio Investments $ 55,551,955 $ (9,000,711) $ 46,551,244
= ========== = =========== = ==========
Combined Net Combined
Unrealized and Fair Value
Cost Realized Gain and Return
Totals from Active & Liquidated Portfolio Investments $ 110,682,399 $ 42,907,481 $ 153,589,880
= =========== = ========== = ===========
</TABLE>
(A) Public company
(B) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1993.
* Company may be deemed an affiliated person of the Partnership as such term is
defined in the Investment Company Act of 1940. See notes to financial
statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
<TABLE>
1994 1993 1992
---- ---- ----
INVESTMENT INCOME AND EXPENSES
<S> <C> <C> <C>
Interest from short-term investments $ 372,789 $ 360,441 $ 805,138
Interest and other income from portfolio investments 537,731 134,921 385,311
Dividend income 279,298 - -
------- ------- -------
Total investment income 1,189,818 495,362 1,190,449
--------- ------- ---------
Expenses:
Management fee - Note 4 1,333,363 1,444,988 1,680,176
Professional fees 326,655 184,665 233,288
Mailing and printing 197,083 210,561 145,708
Independent General Partners' fees - Note 5 92,584 93,841 102,901
Custodial fees 14,097 14,979 13,833
Consulting fees - - 2,357
Miscellaneous 1,275 1,250 450
Amortization of deferred organizational costs - - 1,509
Interest expense - Note 4 41,687 - 180,521
------ - -------
Total expenses 2,006,744 1,950,284 2,360,743
--------- --------- ---------
NET INVESTMENT LOSS (816,926) (1,454,922) (1,170,294)
Net realized gain (loss) from portfolio investments 18,592,821 10,605,019 (5,677,493)
---------- ---------- ----------
NET REALIZED GAIN (LOSS) FROM OPERATIONS
(allocable to Partners) - Note 3 17,775,895 9,150,097 (6,847,787)
Net change in unrealized appreciation of investments (29,444,350) 9,430,447 11,656,947
----------- --------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (11,668,455) $ 18,580,544 $ 4,809,160
= =========== = ========== = =========
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
1994 1993 1992
---- ---- ----
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C> <C>
Net investment loss $ (816,926) $ (1,454,922) $ (1,170,294)
Adjustments to reconcile net investment loss to cash used for operating
activities:
(Increase) decrease in receivables and other assets (491,825) 186,164 (201,294)
(Increase) decrease in accrued interest on short-term
investments (14,089) 14,803 259,633
Decrease in payables (22,405) (42,186) (96,487)
Amortization of deferred organizational costs - - 1,509
- - -----
Cash used for operating activities (1,345,245) (1,296,141) (1,206,933)
---------- ---------- ----------
CASH FLOWS PROVIDED FROM INVESTING
ACTIVITIES
Net return (purchase) of short-term investments (2,929,313) 5,653,777 20,793,496
Cost of portfolio investments purchased (2,427,981) (8,049,501) (13,781,370)
Net proceeds from the sale of portfolio investments 23,528,525 16,334,397 3,011,360
Repayment of investments in notes - 2,064,011 431,737
- --------- -------
Cash provided from investing activities 18,171,231 16,002,684 10,455,223
---------- ---------- ----------
CASH FLOWS FOR FINANCING ACTIVITIES
Cash distributions to Partners (17,600,000) (15,600,000) (9,000,000)
----------- ----------- ----------
Increase (decrease) in cash and cash equivalents (774,014) (893,457) 248,290
Cash and cash equivalents at beginning of period 1,412,882 2,306,339 2,058,049
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 638,868 $ 1,412,882 $ 2,306,339
= ======= = ========= = =========
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1992, 1993 and 1994
<TABLE>
Unallocated
Managing Individual Net Unrealized
General General Limited Appreciation of
Partner Partners Partners Investments Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991 $ 1,010,434 $ 3,334 $ 82,046,664 $ 30,820,798 $ 113,881,230
Cash distribution, paid
April 30, 1992 - - (9,000,000) - (9,000,000)
Net investment loss (11,703) (39) (1,158,552) - (1,170,294)
Net realized loss on investments (56,775) (187) (5,620,531) - (5,677,493)
Net change in unrealized
appreciation of investments - - - 11,656,947 11,656,947
- - - ---------- ----------
Balance at December 31, 1992 941,956 3,108 66,267,581(A) 42,477,745 109,690,390
Cash distribution, paid
May 26, 1993 - - (15,600,000) - (15,600,000)
Net investment loss (14,549) (48) (1,440,325) - (1,454,922)
Net realized gain on investments 106,050 350 10,498,619 - 10,605,019
Net change in unrealized appre-
ciation of investments - - - 9,430,447 9,430,447
- - - --------- ---------
Balance at December 31, 1993 1,033,457 3,410 59,725,875(A) 51,908,192 112,670,934
Cash distribution, paid
May 26, 1994 - - (16,200,000) - (16,200,000)
Cash distribution, paid
September 1, 1994 (1,400,000) - - - (1,400,000)
Net investment loss 153,602 (32) (970,496) - (816,926)
Net realized gain on investments 2,404,420 539 16,187,862 - 18,592,821
Net change in unrealized appre-
ciation of investments - - - (29,444,350) (29,444,350)
- - - ----------- -----------
Balance at December 31, 1994 $ 2,191,479 $ 3,917 $ 58,743,241(A) $ 22,463,842 $ 83,402,479
= ========= = ===== = ========== = ========== = ==========
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
assumed allocation of net unrealized appreciation of investments, was $862,
$852 and $638 at December 31, 1992, 1993 and 1994, respectively. Cumulative
cash distributions paid to Limited Partners from inception to December 31,
1992, 1993 and 1994 totaled $225, $355 and $490 per Unit, respectively.
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Purpose
ML Venture Partners II, L.P. (the "Partnership") is a Delaware limited
partnership formed on February 4, 1986. MLVPII Co., L.P., the managing general
partner of the Partnership (the "Managing General Partner") and four individuals
(the "Individual General Partners") are the general partners of the Partnership.
The general partner of MLVPII Co., L.P. is Merrill Lynch Venture Capital Inc.
(the "Management Company"), an indirect subsidiary of Merrill Lynch & Co., Inc.
The Partnership's objective is to achieve long-term capital appreciation from
its portfolio of venture capital investments in new and developing companies and
other special investment situations. The Partnership does not engage in any
other business or activity. The Partnership is scheduled to terminate on
December 31, 1997. However, pursuant to the Partnership Agreement, the
Individual General Partners can extend the termination date for up to two
additional two-year periods if they determine that such extensions would be in
the best interest of the Partnership.
2. Significant Accounting Policies
Valuation of Investments - Short-term investments are carried at amortized cost
which approximates market. Portfolio investments are carried at fair value as
determined quarterly by the Managing General Partner under the supervision of
the Individual General Partners. The fair value of publicly-held portfolio
securities is adjusted to the average closing public market price for the last
five trading days of each quarter discounted by a factor of 0% to 50% for sales
restrictions. Factors considered in the determination of an appropriate discount
include, underwriter lock-up or Rule 144 trading restrictions, insider status
where the Partnership either has a representative serving on the company's Board
of Directors or is greater than a 10% shareholder, and other liquidity factors
such as the size of the Partnership's position in a given company compared to
the trading history of the public security. Privately-held portfolio securities
are carried at cost until significant developments affecting the portfolio
company provide a basis for change in valuation. The fair value of private
securities is adjusted 1) to reflect meaningful third-party transactions in the
private market or 2) to reflect significant progress or slippage in the
development of the company's business such that cost is no longer reflective of
fair value. As a venture capital investment fund, the Partnership's portfolio
investments involve a high degree of business and financial risk that can result
in substantial losses. The Managing General Partner considers such risks in
determining the fair value of the Partnership's portfolio investments.
Investment Transactions - Investment transactions are recorded on the accrual
method. Portfolio investments are recorded on the trade date, the date the
Partnership obtains an enforceable right to demand the securities or payment
therefor. Realized gains and losses on investments sold are computed on a
specific identification basis.
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
Income Taxes - No provision for income taxes has been made since all income and
losses are allocable to the Partners for inclusion in their respective tax
returns. The Partnership's net assets for financial reporting purposes differ
from its net assets for tax purposes. Net unrealized appreciation of investments
of $22.5 million at December 31, 1994, which was recorded for financial
statement purposes, was not recognized for tax purposes. Additionally, from
inception to December 31, 1994, timing differences relating to realized losses
totaling $1.6 million have been deducted on the Partnership's financial
statements and syndication costs relating to the selling of Units totaling $11.3
million were charged to partners' capital on the financial statements. These
amounts have not been deducted or charged against partners' capital for tax
purposes.
Statements of Cash Flows - The Partnership considers its interest-bearing cash
account to be cash equivalents.
3. Allocation of Partnership Profits and Losses
The Partnership Agreement provides that the Managing General Partner will be
allocated, on a cumulative basis over the life of the Partnership, 20% of the
Partnership's aggregate investment income and net realized gains and losses from
venture capital investments, provided that such amount is positive. All other
gains and losses of the Partnership are allocated among all the Partners
(including the Managing General Partner) in proportion to their respective
capital contributions to the Partnership. From its inception to December 31,
1994, the Partnership had a $12.0 million net gain from its venture capital
investments, which includes interest and other income from portfolio investments
totaling $2.4 million.
4. Related Party Transactions
The Management Company performs, or arranges for others to perform, the
management and administrative services necessary for the operation of the
Partnership and receives a management fee at the annual rate of 2.5% of the
gross capital contributions to the Partnership, reduced by selling commissions,
organizational and offering expenses paid by the Partnership, capital
distributed and realized capital losses with a minimum annual fee of $200,000.
Such fee is determined and payable quarterly.
On November 9, 1994, the Securities and Exchange Commission (the "SEC") issued
an exemptive order permitting the Partnership to acquire 97,273 shares of
Corporate Express, Inc. common stock from the Management Company subject to
certain conditions, including review and approval by the Independent General
Partners. On December 13, 1994, the Partnership purchased such shares for
$1,111,685, representing original cost of $1,069,998 plus interest expense of
$41,687.
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
During 1992, the Partnership purchased five portfolio investments from the
Management Company after the receipt of the appropriate SEC exemptive orders and
subsequent review and approval by the Independent General Partners. The
Partnership purchased such investments from the Management Company for
$3,404,586 representing reimbursement of the original cost of such investments
totaling $3,224,065 plus $180,521 of interest expense.
5. Independent General Partners' Fees
As compensation for services rendered to the Partnership, each of the three
Independent General Partners receives $19,000 annually in quarterly
installments, $1,200 for each meeting of the General Partners attended or for
each other meeting, conference or engagement in connection with Partnership
activities at which attendance by an Independent General Partner is required and
$1,200 for each committee meeting attended ($500 if a committee meeting is held
on the same day as a meeting of the General Partners).
6. Commitments
The Partnership has a $393,043 non-interest bearing obligation payable on demand
to MLMS Cancer Research, Inc.
7. Cash Distributions
Cash distributions paid to Partners during 1994, 1993 and 1992 and cumulative
cash distributions paid from inception of the Partnership through December 31,
1994 are listed below:
<TABLE>
Managing
Distribution General Limited Per $1,000
Date Partner Partners Unit
---- ------- -------- ----
<S> <C> <C> <C>
April 30, 1992 $ 9,000,000 $ 75
May 26, 1993 $ 15,600,000 $ 130
May 26, 1994 $ 16,200,000 $ 135
September 1, 1994 $ 1,400,000
Cumulative totals $ 1,400,000 $ 58,800,000 $ 490
</TABLE>
Additionally, on March 1, 1995, the General Partners approved a cash
distribution to Partners totaling $11.2 million; $9 million, or $75 per unit, to
the Limited Partners and $2.2 million to the Managing General Partner. The
distribution will be paid in April 1995 to Limited Partners of record on March
31, 1995 and will bring cumulative cash distributions paid to Limited Partners
to $67.8 million, or $565 per $1,000 Unit. Cumulative cash distributions paid to
the Managing General Partner will total $3.6 million.
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
8. Pending Litigation
The Partnership has been named as a defendant, along with other entities and
individuals, in an action involving In-Store Advertising, Inc. ("ISA"). The
action is a purported class action suit wherein the plaintiffs, who purchased
shares of ISA in its July 19, 1990 initial public offering through November 8,
1990, allege violations under certain sections of the Securities Act of 1933,
the Securities Exchange Act of 1934 and common law. The plaintiffs seek
rescission of their purchases of ISA common stock together with damages and
certain costs and expenses. The Partnership believes it has meritorious defenses
to the allegations and that the cost of resolution of the litigation will not
have a material impact on the financial condition and results of operations of
the Partnership. During 1994, the Partnership incurred legal expenses totaling
$148,000 related to the litigation. No additional expenses relating to the
litigation were incurred in prior periods.
9. Short-Term Investments
At December 31, 1994 and 1993, the Partnership had investments in short-term
securities as detailed below.
<TABLE>
Maturity Purchase Amortized
Issuer Yield Date Price Cost Face Value
<S> <C> <C> <C> <C> <C>
Investments in Commercial Paper at December 31, 1994:
Cooperative Association
of Tractor Dealers 5.50% 1/13/95 $ 1,975,556 $ 1,996,028 $ 2,000,000
Cooperative Association
of Tractor Dealers 6.12% 3/10/95 2,466,850 2,470,675 2,500,000
MultiBanco Comermex, S.A. 6.15% 3/15/95 2,467,115 2,468,396 2,500,000
--------- --------- ---------
Total $ 6,909,521 $ 6,935,099 $ 7,000,000
= ========= = ========= = =========
Investments in Commercial Paper at December 31, 1993:
Golden Managers Acceptance
Corporation 3.35% 1/19/94 $ 1,988,275 $ 1,996,464 $ 2,000,000
Golden Managers Acceptance
Corporation 3.30% 1/26/94 1,991,933 1,995,233 2,000,000
--------- --------- ---------
Total $ 3,980,208 $ 3,991,697 $ 4,000,000
= ========= = ========= = =========
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
10. Subsequent events
Subsequent to the end of 1994, the Partnership sold 104,486 shares of Komag
Incorporated common stock for $3 million and 510,000 shares of Regeneron
Pharmaceuticals, Inc. for $3.3 million. These shares were valued at $4.3 million
at December 31, 1994 reflecting the Partnership's standard valuation policy for
publicly traded securities. Proceeds received in 1995 from the sale of these
securities totaled $6.4 million. Had these securities been valued at their final
liquidation values, the Partnership's net assets would have increased $2
million, or $13 per $1,000 unit, at December 31, 1994.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership
The information set forth under the caption "Election of General Partners" in
the Partnership's proxy statement in connection with the 1995 Annual Meeting of
Limited Partners to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the "Proxy
Statement") is incorporated herein by reference.
The Management Company
The Management Company performs, or arranges for others to perform, the
management and administrative services necessary for the operation of the
Partnership pursuant to a Management Agreement, dated as of May 23, 1991,
between the Partnership and the Management Company. At March 15, 1995, the
directors of the Management Company and the officers of the Management Company
involved in the administrative support of the Partnership are:
<TABLE>
Served in Present
Name and Age Position Held Capacity Since
<S> <C> <C>
Kevin K. Albert (42) Director April 2, 1990
President July 5, 1991
Robert F. Aufenanger (41) Director April 2, 1990
Executive Vice President February 2, 1993
Robert W. Seitz (48) Director February 1, 1993
Vice President February 2, 1993
Joseph W. Sullivan (37) Treasurer February 2, 1993
</TABLE>
The directors of the Management Company will serve as directors until the next
annual meeting of stockholders and until their successors are elected and
qualify. The officers of the Management Company will hold office until the next
annual meeting of the Board of Directors of the Management Company and until
their successors are elected and qualify.
Information with respect to Messrs. Aufenanger, Seitz and Sullivan is set forth
under Item 13 "Certain Relationships and Related Transactions". The information
with respect to Mr. Albert set forth under the subcaption "Individual General
Partners" in the Proxy Statement is incorporated herein by reference.
There are no family relationships among any of the Individual General Partners
of the Partnership and the officers and directors of the Management Company.
Item 11. Executive Compensation.
The information with respect to the compensation of the Individual General
Partners set forth under the subcaption "Individual General Partners -
Compensation" in the Proxy Statement is incorporated herein by reference.
The information with respect to the allocation and distribution of the
Partnership's profits and losses to the Managing General Partner set forth under
the subcaption "Managing General Partner - Allocations and Distributions" in the
Proxy Statement is incorporated herein by reference.
The information with respect to the management fee payable to the Management
Company set forth under the subcaption "Terms of Contracts - Management Fee" in
the Proxy Statement is incorporated herein by reference.
The information with respect to the sub-management fee payable to the
Sub-Manager set forth under the subcaption "Terms of Contracts - Sub-Management
Agreement" in the Proxy Statement is incorporated herein by reference.
The Management Company has arranged for Palmeri Fund Administrators, Inc., an
independent administrative services company, to provide administrative services
to the Partnership. Fees for such services are paid directly by the Management
Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information concerning the security ownership of the Individual General
Partners set forth under the subcaption "Individual General Partners" in the
Partnership's Proxy Statement is incorporated herein by reference.
As of March 15, 1995, no person or group is known by the Partnership to be the
beneficial owner of more than 5 percent of the Units. Mark Clein and Stephen
Warner, limited partners of the Managing General Partner, own 134 Units of the
Partnership. The Individual General Partners and the directors and officers of
the Management Company do not own any Units.
The Partnership is not aware of any arrangement which may, at a subsequent date,
result in a change of control of the Partnership.
Item 13. Certain Relationships and Related Transactions.
Kevin K. Albert, a Director and President of the Management Company and a
Managing Director of Merrill Lynch Investment Banking Group ("ML Investment
Banking"), joined Merrill Lynch in 1981. Robert F. Aufenanger, a Director and
Executive Vice President of the Management Company, a Vice President of Merrill
Lynch & Co. Corporate Strategy, Credit and Research and a Director of the
Partnership Management Department, joined Merrill Lynch in 1980. Messrs. Albert
and Aufenanger are involved with certain other entities affiliated with Merrill
Lynch or its affiliates. Robert W. Seitz, a Director and Vice President of the
Management Company, a First Vice President of Merrill Lynch & Co. Corporate
Strategy, Credit and Research and a Managing Director within the Corporate
Credit Division of Merrill Lynch, joined Merrill Lynch in 1981. Joseph W.
Sullivan, a Treasurer of the Management Company and a Vice President of ML
Investment Banking, joined Merrill Lynch in 1990. From 1988 to 1990, Mr.
Sullivan was an Assistant Vice President with Standard & Poor's Debt Rating
Group.
<PAGE>
PART IV
<TABLE>
<S> <C> <C>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements
Balance Sheets as of December 31, 1994 and 1993
Schedule of Portfolio Investments as of December 31, 1994
Schedule of Portfolio Investments as of December 31, 1993
Statements of Operations for the years ended December 31, 1994, 1993 and 1992
Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992
Statements of Changes in Partners' Capital for the years ended December 31, 1992, 1993 and 1994
Notes to Financial Statements
2. Exhibits
(3) (a) Amended and Restated Certificate of Limited Partnership of the Partnership, dated as of January
12, 1987. (1)
(3) (b) Amended and Restated Certificate of Limited Partnership of the Partnership, dated July 27, 1990.(2)
(3) (c) Amended and Restated Certificate of Limited Partnership of the Partnership, dated March 25,
1991. (3)
(3) (d) Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of May 4,
1987. (4)
(3) (e) Amendment No. 1 dated February 14, 1989 to Amended and Restated Agreement of Limited Partnership
of the Partnership. (5)
(3) (f) Amendment No. 2 dated July 27, 1990 to Amended and Restated Agreement of Limited Partnership of
the Partnership. (2)
(3) (g) Amendment No. 3 dated March 25, 1991 to Amended and Restated Agreement of Limited Partnership of
the Partnership. (3)
(3) (h) Amendment No. 4 dated May 23, 1991 to Amended and Restated Agreement of Limited Partnership of
the Partnership. (6)
(10) (a) Management Agreement dated as of May 23, 1991 among the Partnership, Management Company and the
Managing General Partner. (6)
(10) (b) Form of Sub-Management Agreement among the Partnership, Management Company, the Managing General
Partner and the Sub-Manager. (8)
(13) (a) Page 15 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
(13) (b) Page 15 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
(13) (c) Page 18 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.
(27) Financial Data Schedule.
(28) Prospectus of the Partnership dated February 10,
1987 filed with the Securities and Exchange
Commission pursuant to Rule 424(b) under the
Securities Act of 1933, as supplemented by a
supplement thereto dated April 21, 1987 filed
pursuant to Rule 424(c) under the Securities Act
of 1933. (7)
(b) No reports on Form 8-K have been filed since the beginning of the last quarter of the period for which this
report is filed.
(1) Incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1988 filed
with the Securities and Exchange Commission on March 27, 1989.
(2) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended December 31, 1990
filed with the Securities and Exchange Commission on November 14, 1990.
(3) Incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990 filed
with the Securities and Exchange Commission on March 28, 1991.
(4) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1987 filed
with the Securities and Exchange Commission on August 14, 1987.
(5) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31, 1989 filed
with the Securities and Exchange Commission on May 15, 1989.
(6) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991 filed
with the Securities and Exchange Commission on August 14, 1991.
(7) Incorporated by reference to the Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31, 1987 filed
with the Securities and Exchange Commission on May 15, 1987.
(8) Incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1992 filed
with the Securities and Exchange Commission on March 26, 1993.
</TABLE>
<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 the 27th day of March
1995.
ML VENTURE PARTNERS II, L.P.
/s/ Kevin K. Albert
By: Kevin K. Albert
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the 27th day of March 1995.
<TABLE>
<S> <C> <C> <C>
By: MLVPII Co., L.P. By: /s/ Steward S. Flaschen
its Managing General Partner Steward S. Flaschen
Individual General Partner
By: Merrill Lynch Venture Capital Inc. ML Venture Partners II, L.P.
its General Partner
By: /s/ Kevin K. Albert By: /s/ Jerome Jacobson
----------------------- -----------------------
Kevin K. Albert Jerome Jacobson
President Individual General Partner
(Principal Executive Officer) ML Venture Partners II, L.P.
By: /s/ Joseph W. Sullivan By: /s/ William M. Kelly
Joseph W. Sullivan William M. Kelly
Treasurer Individual General Partner
(Principal Financial and Accounting Officer) ML Venture Partners II, L.P.
</TABLE>
Exhibit 13(a)
On February 1, 1994, the Partnership purchased 55,238 shares of preferred stock
of Viasoft, Inc. for $69,048. This investment is in addition to the 806,647
shares of preferred stock previously owned by the Partnership.
Exhibit 13(b)
On May 23, 1994, the Partnership purchased 232,298 shares of preferred stock of
Photon Dynamics, Inc. for $418,136. This investment is in addition to the
990,530 shares of preferred stock previously owned by the Partnership.
On June 21, 1994, the Partnership purchased a 9.25% convertible note of Neocrin
Corporation for $317,592. This investment is in addition to the 1,586,831 shares
of preferred stock previously owned by the Partnership.
Exhibit 13(c)
During the quarter, the Partnership purchased 10,000 shares of CellPro,
Incorporated for $105,000. This investment is in addition to the 413,333 shares
of common stock previously owned by the Partnership.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ML VENTURE
PARTNERS II, L.P.'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED DECEMBER 31,
1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 52,936,366
<INVESTMENTS-AT-VALUE> 75,400,208
<RECEIVABLES> 822,126
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 7,573,967
<TOTAL-ASSETS> 83,796,301
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 393,822
<TOTAL-LIABILITIES> 393,822
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22,463,842
<NET-ASSETS> 83,402,479
<DIVIDEND-INCOME> 279,298
<INTEREST-INCOME> 910,520
<OTHER-INCOME> 0
<EXPENSES-NET> 2,006,744
<NET-INVESTMENT-INCOME> (816,926)
<REALIZED-GAINS-CURRENT> 18,592,821
<APPREC-INCREASE-CURRENT> (29,444,350)
<NET-CHANGE-FROM-OPS> (11,668,455)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 17,600,000
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (29,290,860)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 41,687
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 852
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 135
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 638
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
