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, 1995
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.
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(Exact name of registrant as specified in its charter)
Delaware 13-3324232
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
World Financial Center, North Tower
New York, New York 10281-1326
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 449-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(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, 1996, 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 Registrant's Form 10-Q for the quarter ended March 31, 1995
filed with the Securities and Exchange Commission on May 12, 1995 are
incorporated by reference in Part I hereof.
Portions of the Registrant's Form 10-Q for the quarter ended June 30, 1995 filed
with the Securities and Exchange Commission on August 14, 1995 are incorporated
by reference in Part I hereof.
Portions of the Registrant's Form 10-Q for the quarter ended September 30, 1995
filed with the Securities and Exchange Commission on November 14, 1995 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 of limited
partnership interest (the "Units") at $1,000 per Unit. The Units were registered
under the Securities Act of 1933 pursuant to a Registration Statement on Form
N-2 (File No. 33-3220) 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, 1995, the Partnership invested $2.74 million
in seven existing portfolio companies. As of December 31, 1995, the Partnership
had invested $115.85 million in 58 portfolio companies. At December 31, 1995,
the Partnership's investment portfolio consisted of 20 active investments with a
cost of $38 million and a fair value of $73.1 million. From its inception
through December 31, 1995, the Partnership has fully or partially liquidated
investments with an aggregate cost basis of $77.85 million. These liquidated
investments returned a total of $128.81 million to the Partnership for a
realized gain of $50.96 million. The Partnership also realized interest and
dividend income from its venture capital investments totaling $3.6 million from
inception to December 31, 1995.
During 1995, the Partnership made follow-on investments in certain portfolio
companies as follows:
The description of the Partnership's follow-on investments in Neocrin Company,
United States Paging Corporation (which subsequently merged into Mobile
Telecommunications Technologies Corporation), Raytel Medical Corporation and
Clarus Medical Systems, 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, 1995 is
incorporated herein by reference.
The descriptions of the Partnership's follow-on investments in Clarus Medical
Systems, Inc., Diatech, Inc. and Biocircuits Corporation set forth in Item 5 of
Part II of the Partnership's quarterly report on Form 10-Q for the quarter ended
June 30, 1995 are incorporated herein by reference.
The description of the Partnership's follow-on investments in Clarus Medical
Systems, Inc. and Ligand Pharmaceuticals, Inc. set forth in Item 5 of Part II of
the Partnership's quarterly report on Form 10-Q for the quarter ended September
30, 1995 are incorporated herein by reference.
In December 1995, in connection with the initial public offering of Raytel
Medical Corporation, the Partnership received 70,753 shares of common stock
representing the payment of accrued dividends on its preferred stock through the
date of the company's initial public offering.
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.
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.
<PAGE>
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 former individual officers and directors of In-Store
Advertising, the underwriters involved in the Offering, 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. In their
answers to the Amended Complaint, defendants (including the Partnership)
asserted cross-claims for contribution against their then co-defendant KPMG Peat
Marwick (In-Store Advertising's auditors). Plaintiffs' claims against KPMG Peat
Marwick were dismissed as barred by the statute of limitations.
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 it has meritorious defenses to the allegations in the
Amended Complaint and that the cost of resolution of the litigation will not
have a material impact on the financial condition of the Partnership (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.
<PAGE>
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, 1996. The approximate number of holders of
Units as of March 15, 1996 is 13,500. The Managing General Partner and the
Individual General Partners of the Partnership also hold interests in the
Partnership.
Effective November 9, 1992, Registrant was advised that Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") introduced a new limited
partnership secondary service available to its clients through Merrill Lynch's
Limited Partnership Secondary Transaction Department.
Beginning with the December 1994 client account statements, Merrill Lynch
implemented new guidelines for providing estimated values of limited
partnerships and other direct investments reported on client account statements.
As a result, Merrill Lynch no longer reports general partner estimates of
limited partnership net asset value on its client account statements, although
the Registrant may continue to provide its estimate of net asset value to Unit
holders. Pursuant to the guidelines, estimated values for limited partnership
interests originally sold by Merrill Lynch (such as Registrant's Units) will be
provided two times per year to Merrill Lynch 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 for reporting on December
year-end client account statements, and on information available to the services
on March 31st for reporting on June month-end Merrill Lynch client account
statements.
The Managing General Partner's estimate of net asset value at December 31, 1995
is $596 per Unit, including an assumed allocation of net unrealized appreciation
of investments. The Managing General Partner's estimate of net asset value as
set forth above reflects the value of the Partnership's underlying assets
remaining at fiscal year-end, whereas the value provided by the independent
services reflects the estimated value of the Partnership Units themselves based
on information that was available on August 15th. Merrill Lynch 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
and the Registrant's current net asset value are not market values and Unit
holders may not be able to sell their Units or realize either amount upon a
sale. In addition, Unit holders may not realize the independent estimated value
or the Registrant's current net asset value upon the liquidation of the
Registrant over its remaining life.
<PAGE>
Cash distributions to Partners, paid or accrued, during 1995, 1994 and 1993 and
cumulative cash distributions to Partners from the inception of the Partnership
through December 31, 1995 are listed below:
<TABLE>
General Limited Per $1,000
Distribution Date Partners Partners Unit
- ----------------- --------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Inception to December 31, 1992 $ 0 $ 27,000,000 $ 225
May 26, 1993 0 15,600,000 130
May 26, 1994 0 16,200,000 135
September 1, 1994 1,400,000 0 0
April 11, 1995 2,234,189 9,000,000 75
October 5, 1995 5,001,136 27,000,000 225
January 12, 1996 (approved on 11/3/95) 2,336,506 12,000,000 100
--------------- ---------------- ------
Cumulative totals at December 31, 1995 $ 10,971,831 $ 106,800,000 $ 890
=============== ================ ======
</TABLE>
Additionally, on February 29, 1996, the General Partners approved a cash
distribution to Partners totaling $21.4 million; $18 million, or $150 per unit,
to the Limited Partners and $3.4 million to the General Partners. The
distribution will be paid in April 1996 to Limited Partners of record on March
31, 1996 and will bring cumulative cash distributions paid to Limited Partners
to $124.8 million, or $1,040 per $1,000 Unit. Cumulative cash distributions paid
to the General Partners will total $14.3 million.
<PAGE>
Item 6. Selected Financial Data.
($ In Thousands, Except For Per Unit Information)
<TABLE>
Years Ended December 31,
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net Realized Gain (Loss) on Investments $ 41,368 $ 18,593 $ 10,605 $ (5,677) $ 1,968
Net Change in Unrealized Appreciation
of Investments 12,661 (29,444) 9,430 11,657 14,361
Net Increase (Decrease) in Net Assets
Resulting from Operations 54,512 (11,668) 18,581 4,809 15,954
Cash Distributions to Partners* 57,572 17,600 15,600 9,000 6,000
Cumulative Cash Distributions to Partners* 117,772 60,200 42,600 27,000 18,000
Net Assets 80,343 83,402 112,671 109,690 113,881
Net Unrealized Appreciation of Investments 35,125 22,464 51,908 42,478 30,821
Purchase of Portfolio Investments 2,741 2,428 8,050 13,781 9,845
Cumulative Cost of Portfolio Investments 115,851 113,110 110,682 102,633 88,852
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Net Realized Gain (Loss) on Investments $ 273 $ 135 $ 87 $ (47) $ 16
Net Increase (Decrease) in Net Assets
Resulting from Operations 358 (79) 120 29 104
Cash Distributions* 400 135 130 75 50
Cumulative Cash Distributions* 890 490 355 225 150
Net Unrealized Appreciation of Investments 232 148 355 310 225
Net Asset Value, Including Net Unrealized
Appreciation of Investments 596 638 852 862 908
</TABLE>
* Includes cash distribution to Partners accrued at December 31, 1995 and paid
on January 12, 1996.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
At December 31, 1995, the Partnership held $17.4 million in short-term
securities with maturities of less than one year and $686,000 in an
interest-bearing cash account. Funds needed to cover the Partnership's future
operating expenses and follow-on investments will be obtained from these
existing cash reserves, from interest and other investment income received and
from proceeds received from the sale of portfolio investments. The Partnership
will not make any new portfolio investments. Therefore, generally all cash
received from the sale of portfolio investments is distributed to Partners as
soon as practicable after receipt, after an adequate reserve for operating
expenses and follow-on investments in existing portfolio companies.
Subsequent to year end, on January 12, 1996, the Partnership made a cash
distribution to Partners totaling $14.3 million. As a result of additional
portfolio liquidations completed in January and February 1996 (see note 12 of
Notes to Financial Statements), the General Partners approved an additional cash
distribution to Partners totaling $21.4 million to be paid in April 1996 to
Limited Partners of record on March 31, 1996. Cumulative cash distributions to
Partners, including the distribution paid on January 12, 1996 and the
distribution approved in February 1996, will total $139.1 million; $124.8
million, or $1,040 per $1,000 Unit, to the Limited Partners and $14.3 million to
the General Partners.
Results of Operations
For the years ended December 31, 1995, 1994 and 1993, the Partnership had a net
realized gain from operations of $41.9 million, $17.8 million and $9.2 million,
respectively. 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, dividend and other income less operating expenses).
Realized Gains and Losses from Portfolio Investments - For the year ended
December 31, 1995, the Partnership had a $41.4 million net realized gain from
portfolio investments. During the year, the Partnership sold shares of common
stock in the public market of 15 portfolio companies for $56.8 million,
realizing a gain of $43.3 million (see Note 9 of Notes to Financial Statements
for a summary of sales by company). On December 31, 1995, the Partnership
wrote-off its $1.8 million investment in Home Express, Inc. due to financial and
operating difficulties at the company. Additionally, during 1995, the
Partnership realized a $148,750 loss on its remaining $395,000 investment in
Target Vision, Inc. which was sold in 1995 for $246,250 plus interest.
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 Corporation 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.
Investment Income and Expenses - For the year ended December 31, 1995, the
Partnership had net investment income of $482,000. For the years ended December
31, 1994 and 1993, the Partnership had a net investment loss of $817,000 and
$1.5 million, respectively.
The $1.3 million increase in net investment income for the 1995 period compared
to the 1994 period was the result of a $1.1 million increase in investment
income and a $219,000 decrease in operating expenses during 1995 as compared to
1994. The increase in investment income was due to a $690,000 increase in
interest earned from short-term investments and a $390,000 increase in interest
and dividend income from portfolio investments. The increase in interest income
from short-term investments is due to an increase in amounts invested in such
securities during 1995, resulting from proceeds received from the liquidation of
portfolio investments during 1995. Such proceeds are invested in short-term
securities until distributions are made to Partners. In 1995, the Partnership
received $56.2 million from the liquidation of portfolio investments compared to
$23.5 million received in 1994. The increase in interest and dividend income
from portfolio investments for 1995 compared to 1994 was attributable to the
receipt of dividends totaling $566,025 from Raytel Medical Corporation during
1995. Such dividend income, received in the form of 70,753 shares of common
stock of Raytel, was offset by a $152,000 decrease in interest earned during
1995 on a promissory note due from SDL, Inc., due to the maturity of such note
in March 1995. The Partnership's operating expenses declined for 1995 compared
to 1994, primarily due to a $195,000 decrease in the management fee for 1995, as
discussed below, and a non-recurring interest expense charge of $42,000 incurred
during 1994, which is also discussed below.
The decrease in net investment loss for 1994 compared to 1993, primarily was
attributable to a $682,000 increase in interest and other income from portfolio
investments for 1994. 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 included the write-off of $406,000 of
accrued interest receivable related to promissory notes due from Ogle Resources
that were written-off in 1993. Operating expenses increased $56,000 for 1994
compared to 1993, primarily resulting from a $142,000 increase in professional
fees for 1994, 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 1994, as discussed
below.
The Management Company is responsible for 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, 1995,
1994 and 1993, was $1.1 million, $1.3 million and $1.4 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
presented 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, 1995,
the Partnership had a $37.9 million net unrealized gain from its portfolio
investments, primarily resulting from the net upward revaluation of its publicly
traded securities. Additionally during 1995, a net $25.2 million of unrealized
gain was transferred to realized gain relating to portfolio investments sold and
written-off during 1995, as discussed above. The $37.9 million unrealized gain
offset by the $25.2 million transfer from unrealized gain to realized gain
resulted in a $12.7 million increase to net unrealized appreciation of
investments for 1995.
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. 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.
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, 1995, the Partnership had a $54.5 million net
increase in net assets resulting from operations, comprised of the $41.9 million
net realized gain from operations and the $12.7 million increase in unrealized
appreciation of investments for 1995. At December 31, 1995, the Partnership's
net assets were $80.3 million, down $3.1 million from $83.4 million at December
31, 1994. This $3.1 million decrease resulted from the $57.6 million of cash
distributions paid or accrued to Partners during 1995 offset by the $54.5
million net increase in net assets resulting from operations for 1995.
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 resulting
from operations for 1994 and the $17.6 million cash distribution paid to
Partners in 1994.
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, 1995, 1994 and 1993, was $596, $638 and $852, 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, 1995 and 1994
Schedule of Portfolio Investments as of December 31, 1995 Schedule of Portfolio
Investments as of December 31, 1994
Statements of Operations for the years ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
Statements of Changes in Partners' Capital for the years ended December 31,
1993, 1994 and 1995
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, 1995 and 1994, 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, 1995. 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, 1995 and 1994 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,
1995 and 1994, 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, 1995 in conformity with generally accepted accounting principles.
As explained in Note 2, the financial statements include securities valued at
$73,125,660 and $70,024,107 at December 31, 1995 and 1994, respectively,
representing 91% and 84% of net assets, respectively, whose values have been
estimated by the Sub-Manager under the supervision of the Individual General
Partners and the Managing General Partner in the absence of readily
ascertainable market values. We have reviewed the procedures used by the
Sub-Manager 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.
Deloitte & Touche LLP
New York, New York
February 18, 1996, except for Notes 7 and 12, as to which the date is March 8,
1996
<PAGE>
ML VENTURE PARTNERS II, L.P.
BALANCE SHEETS
December 31,
<TABLE>
1995 1994
---------------- ----------
ASSETS
Investments - Note 2
Portfolio investments, at fair value
(cost $38,000,476 at December 31, 1995
<S> <C> <C> <C> <C> <C>
and $52,936,366 at December 31, 1994) $ 73,125,660 $ 75,400,208
Short-term investments, at amortized cost - Note 11 17,369,428 6,935,099
Cash and cash equivalents 685,917 638,868
Accrued interest receivable 870,177 563,815
Note receivable - 250,656
Deposit in escrow 184,502 -
Receivable from securities sold 2,809,725 7,655
---------------- ----------------
TOTAL ASSETS $ 95,045,409 $ 83,796,301
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash distribution payable - Note 7 $ 14,336,506 $ -
Accounts payable 118,288 43,472
Due to Management Company - Note 4 224,683 325,000
Due to Independent General Partners - Note 5 23,400 25,350
---------------- ----------------
Total liabilities 14,702,877 393,822
---------------- ----------------
Partners' Capital:
Managing General Partner 1,471,685 2,191,479
Individual General Partners 1,457 3,917
Limited Partners (120,000 Units) 43,744,206 58,743,241
Unallocated net unrealized appreciation of investments - Note 2 35,125,184 22,463,842
---------------- ----------------
Total partners' capital 80,342,532 83,402,479
---------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 95,045,409 $ 83,796,301
================ ================
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Biocircuits Corporation*(A)(C)
<C> <C> <C> <C>
128,817 shares of Common Stock May 1991 $ 1,422,501 $ 678,223
2,000,000 shares of Preferred Stock 1,000,000 1,000,000
Warrants to purchase 594,000 shares of Preferred Stock at
$.60 per share, expiring on 12/18/96 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Borg-Warner Automotive, Inc.*(A)
444,664 shares of Common Stock Sept. 1988 2,223,320 10,505,187
- -------------------------------------------------------------------------------------------------------------------------------
Borg-Warner Security Corporation*(A)
500,000 shares of Common Stock Sept. 1988 2,500,000 4,668,750
- -------------------------------------------------------------------------------------------------------------------------------
CellPro, Incorporated(A)(B)
50,166 shares of Common Stock Mar. 1989 93,241 648,145
- -------------------------------------------------------------------------------------------------------------------------------
Clarus Medical Systems, Inc.*(D)
179,028 shares of Preferred Stock Jan. 1991 2,389,168 895,152
Warrants to purchase 4,048 shares of Common Stock
at $18.75 per share, expiring on 7/31/97 0 0
Warrants to purchase 14,048 shares of Common Stock
at $.05 per share, expiring between 3/7/00 and 7/3/00 0 0
Warrants to purchase 2,826 shares of Preferred Stock
at $5.00 per share, expiring on 3/7/00 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Corporate Express, Inc.(A)(B)(E)
559,503 shares of Common Stock May 1992 1,064,481 12,588,818
- -------------------------------------------------------------------------------------------------------------------------------
Diatech, Inc.*
1,349,508 shares of Preferred Stock Dec. 1991 2,986,023 4,454,528
- -------------------------------------------------------------------------------------------------------------------------------
Elantec, Inc.(A)(B)(F)
243,245 shares of Common Stock Aug. 1988 886,574 1,334,503
- -------------------------------------------------------------------------------------------------------------------------------
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 0
- -------------------------------------------------------------------------------------------------------------------------------
IDEC Pharmaceuticals Corporation(A)(G):
ML/MS Associates, L.P.*
34.4% Limited Partnership interest June 1989 3,960,000 5,995,956
MLMS Cancer Research, Inc.*
400,000 shares of Common Stock July 1989 46,957 60,566
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1995
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Inference Corporation(A)(B)(H)
<C> <C> <C> <C>
189,424 shares of Common Stock Apr. 1993 $ 804,690 $ 2,293,214
Brightware, Inc.
140,485 shares of Common Stock Apr. 1993 39,252 100,000
Warrants to purchase 38,737 shares of Common Stock
at $.40 per share, expiring on 4/19/99 1,138 0
Warrants to purchase 4,846 shares of Common Stock
at $.40 per share, expiring on 12/16/97 327 0
Warrants to purchase 59,166 shares of Common Stock
at $.80 per share, expiring on 6/10/98 3,986 0
- -------------------------------------------------------------------------------------------------------------------------------
Ligand Pharmaceuticals Inc.(A)(B)(I)
219,775 shares of Common Stock Apr. 1989 539,686 1,877,893
Warrants to purchase 3,167 shares of Common Stock at
$7.22 per share to $9.60 per share, expiring between
5/31/97 and 7/31/97 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Neocrin Company*(J)
447,418 shares of Preferred Stock June 1991 4,019,306 559,305
Warrants to purchase 13,005 shares of Preferred Stock
at $5.00 per share, expiring on 1/20/96 130 0
- -------------------------------------------------------------------------------------------------------------------------------
OccuSystems, Inc.(A)(B)(K)
403,864 shares of Common Stock June 1993 2,019,320 6,292,201
- -------------------------------------------------------------------------------------------------------------------------------
Photon Dynamics, Inc.*(A)(L)
425,235 shares of Common Stock Sept. 1988 2,452,226 1,711,571
Warrants to purchase 6,062 shares of Common Stock
at $5.40 per share, expiring on 6/30/00 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Raytel Medical Corporation*(A)(M)
695,753 shares of Common Stock Feb. 1990 2,049,303 2,988,374
Options to purchase 27,969 shares of Common Stock
at $1.42 per share, expiring on 10/31/01 0 81,600
- -------------------------------------------------------------------------------------------------------------------------------
Sanderling Biomedical, L.P.*(B)(N)
80% Limited Partnership interest May 1988 1,786,643 3,352,688
- -------------------------------------------------------------------------------------------------------------------------------
SDL, Inc.*(A)(B)(O)
379,155 shares of Common Stock July 1992 999,015 7,112,948
- -------------------------------------------------------------------------------------------------------------------------------
Viasoft, Inc.(A)(B)(P)
47,795 shares of Common Stock Dec. 1987 152,280 476,038
- -------------------------------------------------------------------------------------------------------------------------------
Totals from Active Portfolio Investments $ 38,000,476 $ 73,125,660
---------------------------------
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1995
Supplemental Information: Liquidated Portfolio Investments(R)
<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. 1994 276,680 928,538 1,205,218
Business Depot, Ltd. 1994 1,214,184 1,539,475 2,753,659
CellPro, Incorporated 1994-1995 1,467,703 15,255,290 16,722,993
Children's Discovery Centers of America, Inc.(B) 1995 2,000,259 (236,187) 1,764,072
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. 1994-1995 1,935,430 9,794,410 11,729,840
Data Recording Systems, Inc. 1988 1,615,129 (1,499,999) 115,130
Eckerd Corporation(B) 1995 857,004 2,019,272 2,876,276
Elantec, Inc. 1993/1995 525,544 327,110 852,654
Everex Systems, Inc. 1991/1992 750,000 447,606 1,197,606
- -------------------------------------------------------------------------------------------------------------------------------
Hoffman & Company, L.P. 1993 40,000 (40,000) 0
- -------------------------------------------------------------------------------------------------------------------------------
Home Express, Inc. 1995 1,822,751 (1,822,751) 0
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
IDEC Pharmaceuticals Corporation 1994 217,391 (217,391) 0
- -------------------------------------------------------------------------------------------------------------------------------
Inference Corporation 1995 44,672 431,882 476,554
- -------------------------------------------------------------------------------------------------------------------------------
In-Store Advertising, Inc. 1992 2,259,741 (2,259,741) 0
- -------------------------------------------------------------------------------------------------------------------------------
InteLock Corporation 1992 1,254,125 (1,251,274) 2,851
Komag, Incorporated(B) 1991/1995 2,365,237 4,477,843 6,843,080
Ligand Pharmaceuticals Inc. 1992/1995 874,749 2,226,089 3,100,838
- -------------------------------------------------------------------------------------------------------------------------------
Magnesys 1989 1,440,997 (1,412,049) 28,948
Meteor Message Corporation 1990 1,501,048 (1,501,047) 1
- -------------------------------------------------------------------------------------------------------------------------------
Micro Linear Corporation(B) 1994-1995 1,120,300 2,897,886 4,018,186
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1995
<TABLE>
Liquidation Realized
Company Date Cost Gain (Loss) Return
- -------------------------------------------------------------------------------------------------------------------------------
Mobile Telecommunications
<S> <C> <C> <C> <C>
Technologies Corporation(B)(Q) 1995 $ 1,558,155 $ 3,439,923 $ 4,998,078
- -------------------------------------------------------------------------------------------------------------------------------
OccuSystems, Inc. 1994-1995 637,680 1,645,344 2,283,024
- -------------------------------------------------------------------------------------------------------------------------------
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.(B) 1991-1995 2,678,135 30,203,091 32,881,226
Research Applications, Inc. 1994 100,000 (100,000) 0
Ringer Corporation 1991-1994 3,029,652 (2,208,012) 821,640
S & J Industries 1991/1992 1,600,150 (1,555,149) 45,001
Sanderling Biomedical, L.P. 1995 213,357 1,036,811 1,250,168
Saxpy Computer Corporation 1988 2,000,000 (2,000,000) 0
SDL, Inc. 1993/1995 3,758,250 1,382,012 5,140,262
SF2 Corporation 1991-1994 2,193,293 (1,856,570) 336,723
Shared Resource Exchange, Inc. 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. 1992/1995 1,500,000 (1,253,750) 246,250
- -------------------------------------------------------------------------------------------------------------------------------
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
Viasoft, Inc. 1995 763,068 2,200,940 2,964,008
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Totals from Liquidated Portfolio Investments $ 77,851,153 $ 50,960,557 $ 128,811,710
=========================================================
Combined Net Combined
Unrealized and Fair Value
Cost Realized Gain and Return
Totals from Active & Liquidated Portfolio Investments $ 115,851,629 $ 86,085,741 $ 201,937,370
=========================================================
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1995
(A) Public company
(B) During 1995, the Partnership sold or wrote-off equity securities of such
company. See Note 9 of Notes to Financial Statements for summarized
information.
(C) In June 1995, the Partnership acquired 2,000,000 shares of preferred stock
and a warrant to purchase 1,207,062 shares of preferred stock of
Biocircuits Corporation for $1,000,000. Pursuant to certain conditions of
the June 1995 purchase agreement, the Partnership's warrant to purchase
1,207,062 preferred shares was subsequently exchanged for a warrant to
purchase 594,000 shares of the company's preferred stock. On December 31,
1995, Biocircuits completed a four-for-one reverse split of its outstanding
common stock. As a result, the Partnership exchanged its 515,269 common
shares for 128,817 shares.
(D) In connection with a recapitalization and equity financing of Clarus
Medical Systems, Inc. completed in March 1995, the Partnership invested an
additional $70,202 and converted its 507,458 preferred shares and its
$136,623 promissory note due from Clarus along with accrued interest of
$4,649 into 754,748 preferred shares of the company. The Partnership also
received warrants to purchase 23,401 common shares at $.01 per share and
14,127 preferred shares at $1.00 per share in connection with this
transaction. In May and July 1995, the Partnership purchased an additional
140,404 preferred shares and 46,802 warrants for $140,404. Additionally in
November, the company effected a five-for-one reverse split of its
outstanding stock. As a result, the Partnership exchanged its 895,152
shares of preferred stock and warrants to purchase 104,568 shares of common
and preferred stock for 179,028 preferred shares and warrants to purchase
20,917 shares of common and preferred stock.
(E) In June 1995, Corporate Express effected a 3-for-2 split of its outstanding
stock. As a result, the Partnership received an additional 295,900 shares
of the company's common stock.
(F) On October 11, 1995, Elantec, Inc. completed its initial public offering at
$7 per share. In connection with the offering and a 10-for-1 reverse split
of its outstanding common stock, the Partnership exchanged its 2,889,947
preferred shares and 852,273 common shares of Elantec for 374,221 common
shares of the company.
(G) In March 1995, the joint venture between IDEC Pharmaceuticals Corporation
and ML/MS Associates, L.P. was terminated. In connection with the
termination and cancellation of all future rights to royalties from the
sale of commercialized products, ML/MS Associates received 1,000,000 shares
of unregistered IDEC common stock and 69,375 shares of 10% dividend
accumulating preferred stock of IDEC.
(H) Effective in May 1995, Inference completed a spin-off of certain of its
assets and liabilities, in a tax free transaction, to Brightware, Inc., and
all of the shares of Brightware were issued to the Inference shareholders.
The Partnership's ownership of Brightware coincided with its ownership of
Inference at the time of the spin-off. On June 30, 1995, Inference
Corporation completed its initial public offering. In connection with the
offering, the company effected a one-for-five reverse split of its
outstanding stock. As a result, the Partnership exchanged its 702,427
shares of preferred stock and warrants to purchase 513,742 shares of common
and preferred stock for 140,485 shares of common stock and warrants to
purchase 102,747 shares of common stock. Additionally, in a non-cash
transaction completed in September 1995, the Partnership exchanged its
warrants to purchase 102,747 shares of common stock for 73,939 shares of
common stock.
(I) In September 1995, the Partnership exercised warrants to purchase 2,417
shares of Ligand Pharmaceuticals, Inc. common stock for $10,719.
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1995
(J) In January 1995, the Partnership invested $125 in cash and converted
promissory notes totaling $629,176 due from Neocrin Company plus $21,089 of
accrued interest into 130,052 shares of preferred stock of the company.
Additionally, the Partnership received a warrant to purchase 13,005 shares
of Neocrin preferred stock at $5.00 per share in connection with the
transaction.
(K) On May 9 1995, OccuSystems, Inc. completed its initial public offering. As
a result, the Partnership exchanged its 504,830 preferred shares for
504,830 common shares of the company.
(L) During 1995, Photon Dynamics completed its initial public offering at $9
per share. In connection with the offering and a 3-for-1 reverse split of
its outstanding common stock, the Partnership exchanged its 1,222,828
shares of preferred stock for 425,235 shares of common stock. Additionally,
the Partnership received a warrant to purchase 6,062 shares of common stock
at $5.40 per share (adjusted for the stock split) in connection with an
earlier transaction.
(M) In March 1995, the Partnership purchased 250,000 shares of preferred stock
of Raytel Medical Corporation for $483,278. In December 1995, Raytel
completed its initial public offering at $8 per share. In connection with
the offering and a 2-for-1 reverse split of its common stock, the
Partnership exchanged its 1,250,000 preferred shares and its option to
purchase an additional 55,938 common shares for 625,000 common shares and
an option to purchase an additional 27,969 common shares of the company.
Additionally in connection with the offering, the Partnership received
70,753 common shares, representing the payment of accrued dividends on its
preferred stock through the date of the initial public offering.
(N) During 1995, the Partnership received 67,747 shares of Regeneron
Pharmaceuticals, Inc. and 8,666 shares of Neopath, Inc. common stock as a
result of in-kind distributions made by Sanderling Biomedical, L.P.
(O) In March 1995, SDL, Inc. completed its initial public offering at $16 per
share. In connection with the offering and a 3.4-for-1 split of the
company's common stock, the Partnership exchanged its 97,011 common shares
and 26,270 preferred shares for 419,155 common shares of SDL. Additionally,
the Partnership's $2 million note was repaid with interest.
(P) In March 1995, Viasoft, Inc. completed its initial public offering at $8
per share. In connection with the offering and a 1-for-3 reverse split of
the company's common stock, the Partnership exchanged its 861,885 preferred
shares of Viasoft for 287,295 common shares of the company.
(Q) On February 14, 1995, the Partnership exercised warrants to purchase 42,217
shares of United States Paging Corporation common stock for $78,750. On
February 17, 1995, Mobile Telecommunications Technologies Corporation
("MTEL") completed its merger with United States Paging Corporation. In
connection with the merger, the Partnership exchanged its U.S. Paging
holdings for 204,291 shares of MTEL common stock.
(R) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1995.
* May be deemed an affiliated person of the Partnership as 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, 1994
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Biocircuits Corporation*(A)
<C> <C> <C> <C>
515,269 shares of Common Stock May 1991 $ 1,422,501 $ 230,428
- -------------------------------------------------------------------------------------------------------------------------------
Borg-Warner Automotive, Inc.*(A)
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)
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)
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):
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
Inference Corporation
<C> <C> <C> <C>
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)
144,486 shares of Common Stock Aug. 1988 1,331,561 3,731,351
- -------------------------------------------------------------------------------------------------------------------------------
Ligand Pharmaceuticals Inc.*(A)
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)
213,419 shares of Common Stock Aug. 1988 746,969 1,033,482
- -------------------------------------------------------------------------------------------------------------------------------
Neocrin Company*
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.
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)
1,377,895 shares of Common Stock Jan. 1988 1,616,740 3,883,919
- -------------------------------------------------------------------------------------------------------------------------------
Sanderling Biomedical, L.P.*
80% Limited Partnership interest May 1988 2,000,000 1,790,799
- -------------------------------------------------------------------------------------------------------------------------------
SDL, Inc.*
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
United States Paging Corporation*(A)
<C> <C> <C> <C>
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.
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(B)
<TABLE>
Cost Realized Gain Return
<S> <C> <C> <C>
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>
(A) Public company
(B) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1994.
* May be deemed an affiliated person of the Partnership as 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>
1995 1994 1993
--------------- --------------- ---------
INVESTMENT INCOME AND EXPENSES
<S> <C> <C> <C>
Interest from short-term investments $ 1,062,296 $ 372,789 $ 360,441
Interest and other income from portfolio investments 374,344 537,731 134,921
Dividend income 832,825 279,298 -
--------------- ---------------- ----------------
Total investment income 2,269,465 1,189,818 495,362
--------------- ---------------- ----------------
Expenses:
Management fee - Note 4 1,138,000 1,333,363 1,444,988
Professional fees 319,424 326,655 184,665
Mailing and printing 211,662 197,083 210,561
Independent General Partners' fees - Note 5 103,049 92,584 93,841
Custodial fees 14,602 14,097 14,979
Miscellaneous 633 1,275 1,250
Interest expense - Note 4 - 41,687 -
--------------- ---------------- ----------------
Total expenses 1,787,370 2,006,744 1,950,284
--------------- ---------------- ----------------
NET INVESTMENT INCOME (LOSS) 482,095 (816,926) (1,454,922)
Net realized gain from portfolio investments 41,368,447 18,592,821 10,605,019
--------------- ---------------- ----------------
NET REALIZED GAIN FROM OPERATIONS
(allocable to Partners) - Note 3 41,850,542 17,775,895 9,150,097
Net change in unrealized appreciation of investments 12,661,342 (29,444,350) 9,430,447
--------------- ---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 54,511,884 $ (11,668,455) $ 18,580,544
=============== ================ ================
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
1995 1994 1993
--------------- --------------- -----------
CASH FLOWS PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net investment income (loss) $ 482,095 $ (816,926) $ (1,454,922)
Adjustments to reconcile net investment income (loss) to cash provided from
(used for) operating activities:
(Increase) decrease in accrued interest and notes receivable (55,706) (491,825) 186,164
(Increase) decrease in accrued interest on short-term
investments (8,190) (14,089) 14,803
Decrease in payables (27,451) (22,405) (42,186)
--------------- --------------- ----------------
Cash provided from (used for) operating activities 390,748 (1,345,245) (1,296,141)
--------------- --------------- ----------------
CASH FLOWS PROVIDED FROM INVESTING
ACTIVITIES
Net return (purchase) of short-term investments (10,426,139) (2,929,313) 5,653,777
Cost of portfolio investments purchased (2,741,249) (2,427,981) (8,049,501)
Deposits placed in escrow (184,502) - -
Net proceeds from the sale of portfolio investments 54,223,795 23,528,525 16,334,397
Repayment of investments in notes 2,019,721 - 2,064,011
--------------- --------------- ----------------
Cash provided from investing activities 42,891,626 18,171,231 16,002,684
--------------- --------------- ----------------
CASH FLOWS FOR FINANCING ACTIVITIES
Cash distributions to Partners (43,235,325) (17,600,000) (15,600,000)
--------------- --------------- ----------------
Increase (decrease) in cash and cash equivalents 47,049 (774,014) (893,457)
Cash and cash equivalents at beginning of period 638,868 1,412,882 2,306,339
--------------- --------------- ----------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 685,917 $ 638,868 $ 1,412,882
=============== =============== ================
</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, 1993, 1994 and 1995
<TABLE>
Unallocated
Managing Individual Net Unrealized
General General Limited Appreciation of
Partner Partners Partners Investments Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 941,956 $ 3,108 $ 66,267,581 $ 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
appreciation 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 distributions, paid May 26,
1994 and September 1, 1994 (1,400,000) - (16,200,000) - (17,600,000)
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
appreciation 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
Cash distributions, paid April 11,
1995 and October 5, 1995 (7,232,165) (3,160) (36,000,000) - (43,235,325)
Accrued cash distribution,
payable January 12, 1996 (2,336,106) (400) (12,000,000) - (14,336,506)
Net investment income 243,840 7 238,248 - 482,095
Net realized gain on investments 8,604,637 1,093 32,762,717 - 41,368,447
Net change in unrealized
appreciation of investments - - - 12,661,342 12,661,342
------------- ------- -------------- -------------- ----------------
Balance at December 31, 1995 $ 1,471,685 $ 1,457 $ 43,744,206(A) $ 35,125,184 $ 80,342,532
============= ======= ============== ============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
assumed allocation of net unrealized appreciation of investments, was $596,
$638 and $852 at December 31, 1995, 1994 and 1993, respectively. Cumulative
cash distributions paid, or payable, to Limited Partners from inception to
December 31, 1995, 1994 and 1993 totaled $890, $490 and $355 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.
DLJ Capital Management Corporation (the "Sub-Manager"), an indirect subsidiary
of Donaldson, Lufkin & Jenrette, Inc., is the sub-manager of the Partnership,
pursuant to a sub-management agreement among the Partnership, the Management
Company, the Managing General Partner and the Sub-Manager.
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 Sub-Manager under the supervision of the Individual
General Partners and the Managing General Partner. 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
Sub-Manager considers such risks in determining the fair value of the
Partnership's portfolio investments.
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. 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. 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 $35.1 million at December 31, 1995, which was
recorded for financial statement purposes, was not recognized for tax purposes.
Additionally, from inception to December 31, 1995, timing differences primarily
relating to realized losses totaling $1.2 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,
1995, the Partnership had a $54.6 million net gain from its venture capital
investments, which includes interest and other income from portfolio investments
totaling $3.6 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.
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
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.
5. Independent General Partners' Fees
As compensation for services rendered to the Partnership, each of the three
Independent General Partners receives $20,000 annually in quarterly
installments, $1,400 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 audit committee meeting attended ($500 if an audit committee
meeting is held on the same day as a meeting of the Independent General
Partners).
6. Commitments
The Partnership has a $393,043 non-interest bearing obligation payable on demand
to MLMS Cancer Research, Inc., the general partner of ML/MS Associates, L.P.
7. Cash Distributions
At a meeting held on November 3, 1995, the General Partners approved a cash
distribution to Partners totaling $14,336,506; $12,000,000, or $100 per unit to
the Limited Partners and $2,336,506 to the General Partners. The distribution
was paid on January 12, 1996 to Limited Partners of record on December 31, 1995.
Cash distributions paid or accrued during the periods presented and cumulative
cash distributions to Partners from inception of the Partnership through
December 31, 1995 are listed below:
<TABLE>
General Limited Per $1,000
Distribution Date Partners Partners Unit
- ------------------------------------------------ --------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Inception to December 31, 1992 $ 0 $ 27,000,000 $ 225
May 26, 1993 0 15,600,000 130
May 26, 1994 0 16,200,000 135
September 1, 1994 1,400,000 0 0
April 11, 1995 2,234,189 9,000,000 75
October 5, 1995 5,001,136 27,000,000 225
January 12, 1996 (approved on 11/3/95) 2,336,506 12,000,000 100
--------------- ---------------- ------
Cumulative totals at December 31, 1995 $ 10,971,831 $ 106,800,000 $ 890
=============== ================ ======
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
Additionally, on February 29, 1996, the General Partners approved a cash
distribution to Partners totaling $21.4 million; $18 million, or $150 per unit,
to the Limited Partners and $3.4 million to the General Partners. The
distribution will be paid in April 1996 to Limited Partners of record on March
31, 1996 and will bring cumulative cash distributions paid to Limited Partners
to $124.8 million, or $1,040 per $1,000 Unit. Cumulative cash distributions paid
to the General Partners will total $14.3 million.
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 in the Amended Complaint and that the cost of resolution of
the litigation will not have a material impact on the financial condition of the
Partnership. As of December 31, 1995, the Partnership has incurred cumulative
legal expenses totaling $218,000 related to the litigation.
9. Portfolio Investments
During 1995, the Partnership sold or wrote-off equity securities of the
following portfolio companies:
<TABLE>
Company Shares Cost Realized Gain (Loss) Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CellPro, Incorporated 361,167 $ 671,284 $ 4,512,990 $ 5,184,274
Children's Discovery Centers of America, Inc. 115,267 2,000,259 (236,187) 1,764,072
Corporate Express, Inc. 432,631 1,899,777 8,205,810 10,105,587
Eckerd Corporation 92,843 857,004 2,019,272 2,876,276
Elantec, Inc. 130,976 523,904 328,750 852,654
Home Express, Inc.(1) 487,067 1,822,751 (1,822,751) 0
Inference Corporation 25,000 44,672 431,882 476,554
Komag, Incorporated 144,486 1,331,561 2,872,275 4,203,836
Ligand Pharmaceuticals, Inc.(2) 282,500 687,499 2,226,089 2,913,588
Micro Linear Corporation 213,419 746,969 2,428,556 3,175,525
Mobile Telecommunications Technologies Corp. 204,291 1,558,155 3,439,923 4,998,078
Neopath, Inc.(3) 8,666 51,996 129,467 181,463
OccuSystems, Inc. 100,966 504,830 1,605,489 2,110,319
Regeneron Pharmaceuticals, Inc. 1,377,895 1,616,740 10,885,336 12,502,076
Regeneron Pharmaceuticals, Inc.(3) 67,747 161,361 907,344 1,068,705
SDL, Inc. 40,000 20,588 1,382,012 1,402,600
Target Vision, Inc. (4) 395,000 (148,750) 246,250
Viasoft, Inc. 239,500 763,068 2,200,940 2,964,008
-------------- -------------- ---------------
Totals $ 15,657,418 $ 41,368,447 $ 57,025,865
============== ============== ===============
</TABLE>
(1) Investment written-off on December 31, 1995.
(2) Includes $11,088 of proceeds and realized gain from the sale of 33,098
rights received during 1995.
(3) Received as an in-kind distribution from Sanderling Biomedical, L.P.
(4) In a private transaction, the Partnership sold its 395,000 shares of
preferred stock held at December 31, 1994 and 3,683,333 shares of common
stock which were written-off in 1992.
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
10. Classification of Portfolio Investments
As of December 31, 1995, the Partnership's investments in portfolio companies
were categorized as follows:
<TABLE>
% of
Type of Investments Cost Fair Value Net Assets*
- ------------------- ---------------- --------------- -----------
<S> <C> <C> <C>
Common Stock $ 17,513,922 $ 53,633,656 66.76%
Limited Partnerships 5,746,643 9,348,644 11.64%
Preferred Stock 11,505,536 6,908,985 8.60%
Debt Securities 3,234,375 3,234,375 4.02%
---------------- --------------- --------
Total $ 38,000,476 $ 73,125,660 91.02%
================ =============== ========
Country/Geographic Region
Midwestern U.S. $ 10,196,289 $ 34,950,108 43.50%
Western U.S. 20,257,255 30,271,024 37.68%
Eastern U.S. 7,546,932 7,904,528 9.84%
---------------- --------------- --------
Total $ 38,000,476 $ 73,125,660 91.02%
================ =============== ========
Industry
Business Services $ 5,583,801 $ 23,549,769 29.31%
Biotechnology 9,319,309 15,741,631 19.59%
Automotive Parts 2,223,320 10,505,187 13.08%
Semiconductors/Electronics 4,337,815 10,159,022 12.65%
Medical Devices and Services 10,973,649 6,850,799 8.53%
Telecommunications 3,450,000 3,450,000 4.29%
Computer Hardware/Software 2,112,582 2,869,252 3.57%
---------------- --------------- --------
Total $ 38,000,476 $ 73,125,660 91.02%
================ =============== ========
</TABLE>
* Percentage of net assets is based on fair value.
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
11. Short-Term Investments
At December 31, 1995 and 1994, the Partnership had short-term investments in
commercial paper as detailed below.
<TABLE>
Maturity Purchase Amortized Value at
Issuer Yield Date Price Cost Maturity
December 31, 1995:
<S> <C> <C> <C> <C> <C> <C>
IES Utilities, Inc. 5.75% 1/8/96 $ 14,358,600 $ 14,381,600 $ 14,400,000
Golden Managers Acceptance
Corporation 5.75% 1/24/96 2,480,434 2,490,417 2,500,000
BIF, Inc. 5.65% 2/2/96 496,626 497,411 500,000
--------------- --------------- ----------------
Total $ 17,335,660 $ 17,369,428 $ 17,400,000
=============== =============== ================
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
=============== =============== ================
</TABLE>
12. Subsequent Events
From January 1, 1996 to February 23, 1996, the Partnership sold the following
equity securities in the public market:
<TABLE>
Company Shares Cost Realized Gain Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ligand Pharmaceuticals Inc. 217,358 $ 528,967 $ 1,979,901 $ 2,508,868
CellPro, Incorporated 50,166 93,241 744,215 837,456
OccuSystems, Inc. 150,000 750,000 2,312,488 3,062,488
Viasoft, Inc. 47,795 152,280 600,489 752,769
SDL, Inc. 379,155 999,015 9,120,519 10,119,534
Inference Corporation 5,000 8,874 81,122 89,996
------------- -------------- ---------------
Totals $ 2,532,377 $ 14,838,734 $ 17,371,111
============= ============== ===============
</TABLE>
<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
GENERAL PARTNERS
The five General Partners of the Partnership are responsible for the management
and administration of the Partnership. The General Partners consist of four
Individual General Partners and the Managing General Partner. As required by the
Investment Company Act of 1940 (the "Investment Company Act"), a majority of the
General Partners must be individuals who are not "interested persons" of the
Partnership as defined in the Investment Company Act. In 1987, the Securities
and Exchange Commission (the "SEC") issued an order declaring that the three
Independent General Partners of the Partnership (the "Independent General
Partners") are not "interested persons" of the Partnership as defined in the
Investment Company Act solely by reason of their being general partners of the
Partnership.
The Individual General Partners have full authority over the management of the
Partnership and provide overall guidance and supervision with respect to the
operations of the Partnership and perform the various duties imposed on the
directors of business development companies by the Investment Company Act. In
addition to general fiduciary duties, the Individual General Partners, among
other things, supervise the management arrangements of the Partnership.
The Managing General Partner, subject to the supervision of the Individual
General Partners, has authority to provide, or arrange for the provision of,
management services in connection with the venture capital investments of the
Partnership. The general partner of the Managing General Partner is Merrill
Lynch Venture Capital Inc. (the "Management Company"). The Management Company is
an indirect subsidiary of Merrill Lynch & Co., Inc. ("ML & Co.").
Individual General Partners
Dr. Steward S. Flaschen (1)
592 Weed Street
New Canaan, Connecticut 06840
Age 69
Individual General Partner since 1987
Units of the Partnership beneficially owned at March 15, 1996 - None (3)
President of Flaschen & Davies, a management consulting firm, since
1986; Corporate Senior Vice President and member of the Management
Policy Board of ITT Corporation from 1982 to 1986 and General Technical
Director from 1969 to 1986; Chairman of Telco Systems Inc.
Jerome Jacobson (1)
4200 Massachusetts Avenue, N.W.
Washington, D.C. 20016
Age 74
Individual General Partner since 1987
Units of the Partnership beneficially owned at March 15, 1996 - None (3)
President of Economic Studies Inc., an economic consulting firm, since
1984; Vice Chairman and a director of the Burroughs Corporation from
1980 to 1984; Director of Cerplex Group, Inc., Datawatch Inc. and Easel
Corporation.
William M. Kelly (1)
40 Wall Street
New York, New York 10005
Age 52
Individual General Partner since 1991
Units of the Partnership beneficially owned at March 15, 1996 - None (3)
Associate of William T. Golden, Corporate Director and Trustee, since
1980; Vice President of National Aviation and Technology Company, a
registered investment company, from 1977 to 1980; Individual General
Partner of ML Venture Partners I, L.P.
Kevin K. Albert (2)
World Financial Center
North Tower
New York, New York 10281-1326
Age 43
Individual General Partner since 1990
Units of the Partnership beneficially owned at March 15, 1996 - None (3)
Director and President of the Management Company; Managing Director of
Merrill Lynch Investment Banking Division ("MLIBK") since 1988;
Individual General Partner of ML Venture Partners I, L.P.
(1) Member of Audit Committee of the Individual General Partners.
(2) Interested person, as defined in the Investment Company Act, of the
Partnership.
(3) Messrs. Flaschen and Jacobson have each contributed $1,000 to the capital
of the Partnership. Messrs. Kelly and Albert succeeded to the interest of
prior Individual General Partners who each contributed $1,000 to the
capital of the Partnership.
The Management Company
Merrill Lynch Venture Capital Inc. (the "Management Company") serves as the
Partnership's management company and performs, or arranges for the performance
of, the management and administrative services necessary for the operations of
the Partnership pursuant to a management agreement dated May 23, 1991 (the
"Management Agreement"). The Management Company has served as the management
company for the Partnership since the Partnership commenced operations in 1987.
The Management Company is a wholly-owned subsidiary of ML Leasing Equipment
Corp., which is an indirect subsidiary of Merrill Lynch & Co., Inc. The
Management Company, which was incorporated under Delaware law on January 25,
1982, maintains its principal office at North Tower, World Financial Center, New
York, New York 10281-1326.
On May 23, 1991, the limited partners of the Partnership approved a
sub-management agreement among the Partnership, the Management Company, the
Managing General Partner and DLJ Capital Management Corporation (the
"Sub-Manager"). Under the terms of such sub-management agreement, the
Sub-Manager agreed to provide, subject to the supervision of the Managing
General Partner, the Management Company and the Individual General Partners,
certain of the management services previously provided by the Management
Company. Due to certain transactions involving The Equitable Companies
Incorporated, the indirect parent of the Sub-Manager, a substantially similar
sub-management agreement (the "Sub-Management Agreement") was approved by the
limited partners of the Partnership at their 1992 annual meeting held on May 26,
1992.
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.
The following table sets forth information concerning the directors of the
Management Company and the executive officers of the Management Company involved
with the Partnership. Information concerning Kevin K. Albert, Director and
President of the Management Company, is set forth under "General Partners -
Individual General Partners". The address of Mr. Aufenanger, Mr. Seitz and Ms.
Herte is South Tower, World Financial Center, New York, New York 10080.
Robert F. Aufenanger
Executive Vice President and Director
Age 42
Officer or Director since 1990
Vice President of Merrill Lynch & Co. Corporate Credit and Director of
the Partnership Management Group since 1991; Director of MLIBK from
1990 to 1991; Vice President of MLIBK from 1984 to 1990.
Michael E. Lurie
Vice President and Director
Age 52
Officer or Director since 1995
First Vice President of Merrill Lynch & Co. Corporate Credit and
Director of the Asset Recovery Management Department, joined Merrill
Lynch in 1970. Prior to his present position, Mr. Lurie was the
Director of Debt and Equity Markets Credit responsible for the global
allocation of credit limits and the approval and structuring of
specific transactions related to debt and equity products. Mr. Lurie
also served as Chairman of the Merrill Lynch International Bank Credit
Committee.
Diane T. Herte
Vice President and Treasurer
Age 35
Officer or Director since 1995
Assistant Vice President of Merrill Lynch & Co. Corporate Credit since
1992 and joined Merrill Lynch in 1984. Ms. Herte's responsibilities
include controllership and financial management functions for certain
partnerships for which subsidiaries of ML Leasing Equipment Corp., an
affiliate of Merrill Lynch, are general partners.
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.
There are no family relationships among any of the Individual General Partners
of the Partnership and the officers and directors of the Management Company.
DLJ Capital Management Corporation - The Sub-Management Company
DLJ Capital Management Corporation (the "Sub-Manager"), a Delaware corporation,
is an indirect wholly-owned subsidiary of Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), a holding company which through its subsidiaries engages in the
following activities: investment banking, merchant banking, public finance,
trading, distribution and research. The Sub-Manager maintains its principal
office at 277 Park Avenue, New York, New York 10172.
The Sub-Manager is a wholly-owned subsidiary of DLJ Capital Corporation ("DLJ
Capital"). DLJ Capital, which was founded in 1969, has established nine
institutional venture capital funds ("Sprout Funds") and several smaller funds,
with total committed capital of over $800 million. Six of such institutional
funds, with capital exceeding $750 million, are currently operating. DLJ
Capital's most recent limited partnership is Sprout VII, L.P., which was
established in 1994 with an excess of 75 percent of its $250 million capital
provided by participants in earlier Sprout Funds. DLJ Capital's principal office
is located at 277 Park Avenue, New York, New York 10172, and it maintains
additional offices in Menlo Park, California and Boston, Massachusetts.
The following table sets forth information concerning the directors, principal
executive officers and other officers of the Sub-Manager. Unless otherwise
noted, the address of each such person is 277 Park Avenue, New York, New York
10172.
Richard E. Kroon
President, Chief Executive Officer and Director
Age 53
Officer or Director since 1977
Managing General Partner of Sprout Group, the venture capital affiliate
of DLJ since 1981.
Janet A. Hickey
Senior Vice President
Age 50
Officer or Director since 1985
General Partner of Sprout Group since 1985; Vice President and Manager
of Venture Capital Division of General Electric Investment Corp. from
1970 to 1985.
Keith B. Geeslin(1)
Senior Vice President
Age 42
Officer or Director since 1984
General Partner of Sprout Group since 1986.
Dr. Robert E. Curry(1)
Vice President
Age 49
Officer or Director since 1991
President and Director of the Management Company from 1989 to 1991;
Managing Director of MLIBK from 1990 to 1991; President of Merrill
Lynch R&D Management Inc. ("ML R&D") from 1990 to 1991, Vice President
of ML R&D from 1984 to 1990 and Director of ML R&D from 1987 to 1991;
General Partner of Sprout Group since 1991.
Robert Finzi(1)
Vice President
Age 42
Officer or Director since 1991
Vice President of the Management Company from 1985 to 1991; Associate
with Menlo Ventures from 1983 to 1984; General Partner of Sprout Group
since 1991.
Anthony F. Daddino
Vice President and Director
Age 55
Officer or Director since 1989
Director, Executive Vice President and Chief Financial Officer of DLJ.
Thomas E. Siegler
Secretary, Treasurer and Director
Age 61
Officer or Director since 1971
Senior Vice President and Secretary of DLJ.
(1) The address of these officers is 3000 Sand Hill Road, Menlo Park,
California 94025.
<PAGE>
The Managing General Partner
MLVPII Co., L.P. (the "Managing General Partner") is a limited partnership
organized on February 4, 1986 under the laws of the State of New York. The
Managing General Partner maintains its principal office at North Tower, World
Financial Center, New York, New York 10281-1326. The Managing General Partner
has acted as the managing general partner of the Partnership since the
Partnership commenced operations. The Managing General Partner is engaged in no
other activities at the date hereof.
The general partner of the Managing General Partner is the Management Company.
The limited partners of the Managing General Partner include DLJ Capital
Management Corporation ("DLJ"), Dr. Robert E. Curry and Robert Finzi. Messrs.
Curry and Finzi are currently officers of DLJ and were previously officers of
the Management Company.
The Partnership Agreement obligates the Managing General Partner to contribute
cash to the capital of the Partnership so that the Managing General Partner's
capital contribution at all times will be equal to one percent (1%) of the
aggregate capital contributions of all partners of the Partnership. The Managing
General Partner has contributed $1,212,162 to the capital of the Partnership.
Item 11. Executive Compensation.
Compensation - The Partnership pays each Independent General Partner an annual
fee of $20,000 in quarterly installments plus $1,400 for each meeting of the
Individual General Partners attended or for each other meeting, conference or
engagement in connection with Partnership activities at which attendance by the
Individual General Partner is required. Such annual fee was $19,000 plus $1,200
for each meeting of the Individual General Partners attended prior to an
increase effected on April 1, 1995. The Partnership pays all actual
out-of-pocket expenses incurred by the Independent General Partners relating to
attendance at such meetings. The Independent General Partners receive $1,200 for
each meeting of the Audit Committee attended unless such committee meeting is
held on the same day as a meeting of the Individual General Partners. In such
case, the Independent General Partners receive $500 for each meeting of the
Audit Committee attended. For the year ended December 31, 1995, the aggregate
fees and expenses paid by the Partnership to the Independent General Partners
totaled $103,049.
Allocations and Distributions - Profits and losses of the Partnership are
determined and allocated as of the end of and within sixty days after the end of
each calendar year. If the aggregate of the investment income and net realized
capital gains and losses from venture capital investments is positive,
calculated on a cumulative basis over the life of the Partnership through such
year, the Managing General Partner is allocated investment income and net
realized capital gains or losses from venture capital investments for such year
so that, together with all investment income and gains and losses previously
allocated to the Managing General Partner, it has received 20% of the aggregate
of such income and gains calculated on a cumulative basis over the life of the
Partnership through such year. Such allocation is referred to herein as the
"Managing General Partner's Allocation" and is applicable only to the investment
income and net realized capital gains and losses resulting from venture capital
investments. The Partnership's investment income and net realized capital gains
and losses in excess of the Managing General Partner's Allocation and all other
profits and losses, including interest or other income on funds not invested in
venture capital investments, are allocated among all the Partners (including the
Managing General Partner) in proportion to their capital contributions. Cash or
other assets otherwise distributable to the Managing General Partner are not
distributed to the Managing General Partner to the extent that the net realized
gains allocated to the Managing General Partner are offset by an amount equal to
20% of the net unrealized losses of the Partnership.
For its fiscal year ended December 31, 1995, the Partnership had a net realized
gain of $41.4 million from portfolio investments sold and written-off. On a
cumulative basis, from inception to December 31, 1995, the Partnership was in a
net gain position of $54.6 million from its investment income and net realized
gains and losses from its venture capital portfolio investments. The Partnership
made two cash distributions totaling $36 million to limited partners of record
and two cash distributions totaling $7.2 million to the General Partners during
the fiscal year ended December 31, 1995. The Partnership also made a cash
distribution totaling $12 million in January 1996 to limited partners of record
on December 31, 1995. The Partnership also made a cash distribution totaling
$2.3 million to the General Partners. The Partnership will also make a cash
distribution totaling $18 million to limited partners of record on March 31,
1996 and a $3.4 million distribution to the General Partners.
Management Fee - Pursuant to the Management Agreement, the Partnership pays the
Management Company a fee at the annual rate of 2.5% of the amount of the
partners' capital contributions (net of selling commissions and organizational
and offering expenses paid by the Partnership), reduced by capital distributed
to the Partners and realized capital losses, with a minimum annual fee of
$200,000. Such fee is payable quarterly on the basis of the amount of the
partners' capital contributions, adjusted as described above, at the end of the
preceding calendar quarter. As described previously, the Management Company has
entered into a Sub-Management Agreement with DLJ, pursuant to which the
Management Company compensates DLJ for management services out of the
compensation that the Management Company receives under the Management
Agreement. For the year ended December 31, 1995, the management fees payable by
the Partnership to the Management Company aggregated $1,138,000.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Reference is made to Item 10 "Individual General Partners" concerning
information with respect to security ownership.
As of March 15, 1996, 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 an aggregate of
104 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 Credit 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. Michael E. Lurie, a Director and Vice President of the Management
Company, a First Vice President of Merrill Lynch & Co. Corporate Credit and the
Director of the Asset Recovery Management Department, joined Merrill Lynch in
1970. Diane T. Herte, a Vice President and Treasurer of the Management Company
and an Assistant Vice President of Merrill Lynch & Co. Corporate Credit, joined
Merrill Lynch in 1984.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements
Balance Sheets as of December 31, 1995 and 1994
Schedule of Portfolio Investments as of December 31, 1995
Schedule of Portfolio Investments as of December 31, 1994
<TABLE>
<S> <C> <C> <C> <C>
Statements of Operations for the years ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
Statements of Changes in Partners' Capital for the years ended December 31, 1993, 1994 and 1995
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 18 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
(13) (b) Page 20 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
(13) (c) Page 19 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.
(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.
</TABLE>
<TABLE>
<C> <C> <C> <C>
(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 September 30, 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 26th day of March
1996.
ML VENTURE PARTNERS II, L.P.
/s/ Kevin K. Albert
By: Kevin K. Albert
Individual 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 26th day of March 1996.
<TABLE>
<S> <C> <C> <C> <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/ Diane T. Herte By: /s/ William M. Kelly
Diane T. Herte William M. Kelly
Vice President and Treasurer Individual General Partner
(Principal Financial and Accounting Officer) ML Venture Partners II, L.P.
</TABLE>
Exhibit 13(a)
In January 1995, the Partnership converted promissory notes totaling $629,176
due from Neocrin Company and $21,089 of accrued interest into 130,052 shares of
preferred stock of the company. Additionally, the Partnership received a warrant
to purchase 13,005 shares of Neocrin preferred stock at $5.00 per share in
connection with the conversion.
On February 14, 1995, the Partnership exercised warrants to purchase 42,217
common shares of United States Paging Corporation for $78,750. On February 17,
1995, Mobile Telecommunications Technologies Corporation ("MTEL") completed its
merger with United States Paging Corporation. In connection with the merger, the
Partnership exchanged its U.S. Paging holdings for 204,291 shares of MTEL common
stock.
On March 6, 1995, the Partnership purchased 250,000 shares of Raytel Corporation
preferred stock for $483,278.
In connection with a recapitalization and equity financing of Clarus Medical
Systems, Inc. completed in March 1995, the Partnership invested an additional
$70,202 and converted its 507,458 preferred shares and its $136,623 promissory
note due from Clarus along with accrued interest of $4,649 into 754,748
preferred shares of the company. The Partnership also received warrants to
purchase 23,401 common shares at $.01 per share and 14,127 preferred shares at
$1.00 per share in connection with this transaction.
Exhibit 13(b)
On May 3, 1995, the Partnership purchased 70,202 shares of Clarus Medical
Systems, Inc. preferred stock and a warrant to purchase 23,401 common shares of
Clarus for $70,202.
On May 15, 1995, the Partnership purchased 91,502 shares of Diatech, Inc.
preferred stock for $366,008.
On June 19, 1995, the Partnership purchased 2,000,000 shares of Biocircuits
Corporation preferred stock and a warrant to purchase 1,207,062 shares of
Biocircuits preferred stock for $1,000,000.
Exhibit 13(c)
On July 3, 1995, the Partnership purchased 70,202 shares of preferred stock of
Clarus Medical Systems, Inc. and a warrant to purchase 23,401 shares of Clarus
common stock at $0.01 per share for a total of $70,202.
In September 1995, the Partnership exercised warrants to purchase 2,417 shares
of Ligand Pharmaceuticals Inc. for $10,719.
<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,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 55,336,136
<INVESTMENTS-AT-VALUE> 90,495,088
<RECEIVABLES> 3,679,902
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 870,419
<TOTAL-ASSETS> 95,045,409
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,702,877
<TOTAL-LIABILITIES> 14,702,877
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 120,000
<SHARES-COMMON-PRIOR> 120,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35,125,184
<NET-ASSETS> 80,342,532
<DIVIDEND-INCOME> 832,825
<INTEREST-INCOME> 1,436,640
<OTHER-INCOME> 0
<EXPENSES-NET> 1,787,370
<NET-INVESTMENT-INCOME> 482,095
<REALIZED-GAINS-CURRENT> 41,368,447
<APPREC-INCREASE-CURRENT> 12,661,342
<NET-CHANGE-FROM-OPS> 54,511,884
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 57,571,831
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 11,249,108
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 81,872,506
<PER-SHARE-NAV-BEGIN> 638
<PER-SHARE-NII> 2
<PER-SHARE-GAIN-APPREC> 356
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 400
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 596
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
