SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1997
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
Not applicable
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Former name, former address and former fiscal year, if changed since last report
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
<PAGE>
ML VENTURE PARTNERS II, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of March 31, 1997 (Unaudited) and December 31, 1996
Schedule of Portfolio Investments as of March 31, 1997 (Unaudited)
Statements of Operations for the Three Months Ended March 31, 1997 and 1996
(Unaudited)
Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996
(Unaudited)
Statement of Changes in Partners' Capital for the Three Months Ended March 31,
1997 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ML VENTURE PARTNERS II, L.P.
BALANCE SHEETS
<TABLE>
March 31, 1997 December 31,
(UNAUDITED) 1996
ASSETS
Portfolio investments at fair value (cost $22,293,793 as of
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1997 and $27,505,870 as of December 31, 1996) $ 22,135,985 $ 37,386,258
Short-term investments at amortized cost 14,881,080 4,486,402
Cash and cash equivalents 3,715,701 346,129
Accrued interest receivable 4,749 49,442
Receivable from securities sold 5,196,318 -
---------------- -----------------
TOTAL ASSETS $ 45,933,833 $ 42,268,231
================ =================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 234,455 $ 183,406
Due to Management Company 276,778 138,389
Due to Independent General Partners 23,400 23,400
---------------- -----------------
Total liabilities 534,633 345,195
---------------- -----------------
Partners' Capital:
Managing General Partner 3,999,252 1,158,769
Individual General Partners 1,384 1,029
Limited Partners (120,000 Units) 41,556,372 30,882,850
Unallocated net unrealized (depreciation) appreciation
of investments (157,808) 9,880,388
---------------- -----------------
Total partners' capital 45,399,200 41,923,036
---------------- -----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 45,933,833 $ 42,268,231
================ =================
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
March 31, 1997
<TABLE>
Active Portfolio Investments:
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 $ 80,511
2,000,000 shares of Preferred Stock 1,000,000 312,500
Warrants to purchase 594,000 shares of Preferred Stock at
$.60 per share, expiring on 4/15/97 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Borg-Warner Security Corporation*(A)
500,000 shares of Common Stock Sept. 1988 2,500,000 5,484,375
- -------------------------------------------------------------------------------------------------------------------------------
Brightware, Inc.
140,485 shares of Common Stock Apr. 1993 39,252 84,291
Warrants to purchase 38,737 shares of Common Stock
at $.40 per share, expiring on 4/19/99 1,138 7,748
Warrants to purchase 4,846 shares of Common Stock
at $.40 per share, expiring on 12/16/97 327 969
Warrants to purchase 59,166 shares of Common Stock
at $.80 per share, expiring on 6/10/98 3,986 3,986
- -------------------------------------------------------------------------------------------------------------------------------
Clarus Medical Systems, Inc.*
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 14,043 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)(D)
180,755 shares of Common Stock May 1992 36,150 1,482,191
- -------------------------------------------------------------------------------------------------------------------------------
Diatide, Inc.*(A)
809,704 shares of Common Stock Dec. 1991 2,986,023 3,237,953
- -------------------------------------------------------------------------------------------------------------------------------
Elantec, Inc.(A)
23,245 shares of Common Stock Aug. 1988 60,437 58,113
- -------------------------------------------------------------------------------------------------------------------------------
Horizon Cellular Telephone Company, L.P:(B)(E)
SPTHOR Corporation
10% Promissory Note due 3/26/98 May 1992 125,269 125,269
5.67% Bridge Loan 228,926 228,926
34.5 shares of Common Stock 215,625 228,668
- -------------------------------------------------------------------------------------------------------------------------------
I.D.E. Corporation
113,322 shares of Common Stock Mar. 1988 227,000 0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED), continued
March 31, 1997
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
IDEC Pharmaceuticals Corporation(A)(B)(F)
<C> <C> <C> <C>
150,264 shares of Common Stock June 1989 $ 1,281,018 $ 2,325,806
ML/MS Associates, L.P.*
34.4% Limited Partnership interest 1,073,804 1,982,964
MLMS Cancer Research, Inc.*
400,000 shares of Common Stock 18,853 20,013
- -------------------------------------------------------------------------------------------------------------------------------
Neocrin Company*
484,300 shares of Preferred Stock June 1991 4,203,716 193,720
Warrants to purchase 922,050 shares of Common Stock
at $.40 per share, expiring on 1/3/01 92 0
- -------------------------------------------------------------------------------------------------------------------------------
Photon Dynamics, Inc.*(A)
425,235 shares of Common Stock Sept. 1988 2,452,226 2,041,128
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)(B)
62,500 shares of Common Stock Feb. 1990 241,639 492,188
Options to purchase 27,969 shares of Common Stock
at $1.42 per share, expiring on 10/31/01 0 195,222
- -------------------------------------------------------------------------------------------------------------------------------
Sanderling Biomedical, L.P.*
80% Limited Partnership interest May 1988 1,786,643 2,654,292
- -------------------------------------------------------------------------------------------------------------------------------
Totals from Active Portfolio Investments $ 22,293,793 $ 22,135,985
---------------------------------
Supplemental Information: Liquidated Portfolio Investments(G)
Cost Realized Gain Return
Totals from Liquidated Portfolio Investments $ 93,993,873 $ 111,448,782 $ 205,442,655
=========================================================
Combined Net Combined
Unrealized and Fair Value
Cost Realized Gain and Return
Totals from Active & Liquidated Portfolio Investments $ 116,287,666 $ 111,290,974 $ 227,578,640
=========================================================
</TABLE>
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED), continued
March 31, 1997
(A) Public company
(B) During the quarter ended March 31, 1997, the Partnership sold equity
securities or received principal payments on notes due from such company.
(C) The preferred shares of Biocircuits Corporation are convertible into common
shares at a ratio of 4 shares of preferred stock for 1 share of common
stock.
(D) In January 1997, Corporate Express, Inc. issued a 50% stock dividend. The
Partnership received an additional 60,252 shares of the company's common
stock.
(E) During the first quarter of 1997, the Partnership received cash
distributions totaling $2,213,626 covering interest and principal on
promissory notes due from HCTC Investment, L.P. and SPTHOR Corporation, net
of certain reclassifications of prior payments. The Partnership received an
additional $1,687,296 from the sale of options attached to its investment
in HCTC/SPTHOR.
(F) On March 17, 1997, the Partnership received an in-kind distribution of
347,826 common shares of IDEC Pharmaceuticals Corporation from ML/MS
Associates, L.P. and MLMS Cancer Research, Inc. In March 1997, the
Partnership sold 197,562 of such shares for $5.2 million, realizing a gain
of $3.5 million. In May 1997, the Partnership received an additional
129,407 common shares of IDEC from the final liquidating distribution of
ML/MS Associates and MLMS Cancer Research.
(G) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through March 31, 1997.
* 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 (UNAUDITED)
For the Three Months Ended March 31,
<TABLE>
1997 1996
---------------- ---------
INVESTMENT INCOME AND EXPENSES
<S> <C> <C>
Interest from short-term investments $ 133,365 $ 210,732
Interest and other income from portfolio investments 16,439 81,309
Dividend income from portfolio investments 37,754 66,700
---------------- -----------------
Total investment income 187,558 358,741
---------------- -----------------
Expenses:
Management fee 138,389 205,188
Professional fees 43,975 33,071
Mailing and printing 72,699 108,126
Independent General Partners' fees 23,472 29,256
Custodial fees 3,500 3,618
Miscellaneous 296 650
---------------- -----------------
Total expenses 282,331 379,909
---------------- -----------------
NET INVESTMENT LOSS (94,773) (21,168)
Net realized gain from portfolio investments 13,609,133 27,824,851
---------------- -----------------
NET REALIZED GAIN FROM OPERATIONS
(allocable to Partners) 13,514,360 27,803,683
Net change in unrealized depreciation of investments (10,038,196) (15,311,178)
---------------- -----------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 3,476,164 $ 12,492,505
================ =================
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31,
<TABLE>
1997 1996
---------------- ---------
CASH FLOWS PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
<S> <C> <C>
Net investment loss $ (94,773) $ (21,168)
Adjustments to reconcile net investment loss to cash provided from (used for)
operating activities:
Decrease (increase) in accrued interest receivable 44,693 (79,874)
Increase in accrued interest on short-term investments (46,835) (108,180)
Increase in payables, net 189,438 51,070
---------------- ---------------
Cash provided from (used for) operating activities 92,523 (158,152)
---------------- ---------------
CASH FLOWS PROVIDED FROM
INVESTING ACTIVITIES
Net purchase of short-term investments (10,347,843) (17,428,112)
Cost of portfolio investments purchased (228,926) (207,111)
Net proceeds from the sale of portfolio investments 11,472,159 31,328,520
Deposit released from escrow - 184,502
Repayment of investments in notes 2,381,659 -
---------------- ---------------
Cash provided from investing activities 3,277,049 13,877,799
---------------- ---------------
CASH FLOWS FOR FINANCING ACTIVITIES
Cash distribution to Partners - (14,336,506)
---------------- ---------------
Increase (decrease) in cash and cash equivalents 3,369,572 (616,859)
Cash and cash equivalents at beginning of period 346,129 685,917
---------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 3,715,701 $ 69,058
================ ===============
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
For the Three Months Ended March 31, 1997
<TABLE>
Unallocated
Net Unrealized
Managing Individual Appreciation
General General Limited (Depreciation)
Partner Partners Partners of Investments Total
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 1,158,769 $ 1,029 $ 30,882,850 $ 9,880,388 $ 41,923,036
Net investment loss 9,783 (4) (104,552) - (94,773)
Net realized gain from portfolio
investments 2,830,700 359 10,778,074 - 13,609,133
Net change in unrealized
appreciation (depreciation)
of investments - - - (10,038,196) (10,038,196)
------------- -------- -------------- -------------- ----------------
Balance at end of period $ 3,999,252 $ 1,384 $ 41,556,372(A) $ (157,808) $ 45,399,200
============= ======== ============== ============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
assumed allocation of net unrealized appreciation of investments, was $345
at March 31, 1997. Cumulative cash distributions paid to Limited Partners
from inception to March 31, 1997 totaled $1,300 per Unit.
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 closing public market
price for the last trading day of the accounting period 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 (UNAUDITED) - continued
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
depreciation of investments of $158,000 at March 31, 1997, which was recorded
for financial statement purposes, was not recognized for tax purposes.
Additionally, from inception to March 31, 1997, timing differences of
approximately $400,000 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 March 31, 1997,
the Partnership had a $115.7 million net gain from its venture capital
investments, which includes interest and other income from portfolio investments
totaling $4.2 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 (UNAUDITED) - continued
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
$1,400 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 $370,434 non-interest bearing obligation payable on demand
to MLMS Cancer Research, Inc., the general partner of ML/MS Associates, L.P.
7. Portfolio Investments
During the three months ended March 31, 1997, the Partnership liquidated
securities of the following portfolio companies:
<TABLE>
Realized
Company Shares Sold Cost Gain (Loss) Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Borg-Warner Automotive, Inc. 251,694 $ 1,258,470 $ 8,381,410 $ 9,639,880
IDEC Pharmaceuticals Corporation 197,562 1,655,891 3,540,427 5,196,318
Raytel Medical Corporation 37,500 144,983 0 144,983
SPTHOR Corporation - sale of options n/a 0 1,687,296 1,687,296
SPTHOR Corporation - note repayment n/a 455,491 0 455,491
HCTC Investment, L.P. - note repayment n/a 1,926,168 0 1,926,168
-------------- -------------- ---------------
Totals $ 5,441,003 $ 13,609,133 $ 19,050,136
============== ============== ===============
</TABLE>
8. Interim Financial Statements
In the opinion of MLVPII Co., L.P., the managing general partner of the
Partnership, the unaudited financial statements as of March 31, 1997, and for
the three month period then ended, reflect all adjustments necessary for the
fair presentation of the results of the interim period.
9. Subsequent Events
On May 9, 1997, the General Partners approved a cash distribution to Partners
totaling $21,790,729; $19,200,000, or $160 per Unit, to the Limited Partners
and $2,590,729 to the General Partners. The distribution will be paid in
July 1997 to Limited Partners of record on June 30, 1997.
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
On May 1, 1997, ML/MS Associates, L.P. and ML/MS Cancer Research, Inc. made
final liquidating distributions of common shares of IDEC Pharmaceuticals
Corporation. As a result, the Partnership received an additional 129,407
common shares of IDEC Pharmaceuticals.
10. Classification of Portfolio Investments
As of March 31, 1997, 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 $ 12,559,979 $ 17,726,126 39.05%
Limited Partnerships 1,786,643 2,654,292 5.85%
Preferred Stock 7,592,976 1,401,372 3.09%
Debt Securities 354,195 354,195 .78%
-------------- --------------- --------
Total $ 22,293,793 $ 22,135,985 48.76%
============== =============== ======
Country/Geographic Region
Midwestern U.S. $ 4,925,318 $ 7,861,718 17.32%
Western U.S. 13,585,632 10,453,451 23.03%
Eastern U.S. 3,782,843 3,820,816 8.42%
-------------- --------------- -------
Total $ 22,293,793 $ 22,135,985 48.76%
============== =============== ======
Industry
Business Services $ 2,536,150 $ 6,966,566 15.35%
Biotechnology 7,146,341 10,221,029 22.52%
Semiconductors/Electronics 2,512,663 2,099,240 4.62%
Medical Devices and Services 9,257,116 2,169,293 4.78%
Telecommunications 569,820 582,863 1.28%
Computer Hardware/Software 271,703 96,994 .21%
-------------- --------------- --------
Total $ 22,293,793 $ 22,135,985 48.76%
============== =============== ======
</TABLE>
* Percentage of net assets is based on fair value.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
During the first quarter of 1997, the Partnership received $11.5 million of cash
proceeds from the sale of certain portfolio investments and $2.4 million from
the repayment of promissory notes due to the Partnership. As a result, as of
March 31, 1997, the Partnership held $18.6 million in cash and cash equivalents;
$14.9 million in short-term investments with maturities of less than one year
and $3.7 million in an interest bearing account. Interest earned from such
investments totaled $133,000 for the three months ended March 31, 1997. Interest
earned in future periods is subject to fluctuations in short-term interest rates
and changes in amounts available for investment in such securities. 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 an adequate reserve for
operating expenses and follow-on investments in the remaining portfolio
companies.
On May 9, 1997, the General Partners approved a cash distribution to Partners
totaling $21,790,729; $19,200,000, or $160 per Unit, to the Limited Partners and
$2,590,729 to the General Partners. The distribution will be paid in July 1997
to Limited Partners of record on June 30, 1997.
Results of Operations
For the three months ended March 31, 1997 and 1996, the Partnership had a net
realized gain from operations of $13.5 million and $27.8 million, respectively.
Net realized gain or loss from operations is comprised of 1) net realized gain
or loss from portfolio investments and 2) net investment income or loss
(interest and dividend income less operating expenses).
Realized Gains and Losses from Portfolio Investments - For the three months
ended March 31, 1997, the Partnership had a $13.6 million net realized gain from
the sale of certain portfolio investments. During the quarter, the Partnership
sold shares of common stock of three of its publicly-traded portfolio companies
and common stock options of one of its privately-held companies for $16.7
million, realizing a gain of $13.6 million. See Note 9 of Notes to Financial
Statements for a summary of sales by investment.
For the three months ended March 31, 1996, the Partnership had a $27.8 million
net realized gain from the sale of certain portfolio investments. During the
quarter, the Partnership sold shares of common stock of eight of its
publicly-traded portfolio companies for $32.4 million, realizing a gain of $27.8
million.
Investment Income and Expenses - For the three months ended March 31, 1997 and
1996, the Partnership had a net investment loss of $95,000 and $21,000,
respectively. The increase in net investment loss for the 1997 period compared
to the same period in 1996, primarily was attributable to a $171,000 decrease in
investment income partially offset by a $97,000 decrease in operating expenses.
The decline in investment income resulted from a $77,000 decrease in interest
from short-term investments, primarily due to a decrease in funds available for
investment in such securities during the first quarter 1997 compared to the same
period in 1996. Additionally, interest from portfolio investments decreased by
$65,000, primarily resulting from the reduced amount of interest-bearing debt
securities outstanding during the first quarter of 1997 compared to the same
period in 1996. Dividend income also decreased by $29,000, due to the sale of
the Partnership's investment in Borg-Warner Automotive, which was fully
liquidated during the first quarter of 1997. The decline in operating expenses
primarily resulted from decreased management fees, as discussed below, and
reduced mailing and printing expenses for the 1997 period.
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 three months ended March 31,
1997 and 1996, was $138,000 and $205,000, respectively. The decline in the
management fee for the 1997 period compared to the same period in 1996 is due to
return of capital distributions made to Partners since March 31, 1996. The
management fee will continue to decline in future periods as the Partnership's
investment portfolio continues to mature and cash 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 period were
obtained from interest earned 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 three months ended March 31,
1997, the Partnership had a $1.5 million net unrealized loss from its portfolio
investments, primarily resulting from the net downward revaluation of its
remaining publicly-traded securities. Unrealized appreciation was reduced by an
additional $8.5 million during the three month period due to the transfer to
realized gain of the unrealized appreciation recorded in prior periods on the
portfolio investments sold during the quarter, as discussed above. As a result,
the Partnership's net unrealized appreciation of investments declined by $10.0
million for the three month period.
For the three months ended March 31, 1996, the Partnership had a $2.7 million
net unrealized gain from its portfolio investments, primarily resulting from the
net upward revaluation of its remaining publicly-traded securities. However,
unrealized appreciation declined by $18.0 million due to the transfer to
realized gain of the unrealized appreciation recorded in prior periods on the
portfolio investments sold during the quarter, as discussed above. As a result,
the Partnership's net unrealized appreciation of investments declined by $15.3
million for the three month period.
Net Assets - Changes to net assets resulting from operations are comprised of
1) net realized gain or loss from operations and 2) changes to net unrealized
appreciation or depreciation of portfolio investments.
For the three months ended March 31, 1997, the Partnership had a $3.5 million
net increase in net assets resulting from operations, increasing its net assets
to $45.4 million as of March 31, 1997, from $41.9 million as of December 31,
1996. The $3.5 million increase is comprised of the $13.5 million net realized
gain from operations offset by the $10.0 million decrease in net unrealized
depreciation of investments for the three month period.
For the three months ended March 31, 1996, the Partnership had a $12.5 million
net increase in net assets resulting from operations, comprised of the $27.8
million net realized gain from operations offset by the $15.3 million decrease
in unrealized appreciation of investments for the three month period. As of
March 31, 1996, the Partnership's net assets were $71.4 million, down $8.9
million from $80.3 million as of December, 31 1995. This decrease resulted from
the $21.4 million accrued cash distribution paid to Partners in April 1996
offset by the $12.5 million increase in net assets from operations for the three
month period.
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 depreciation of
investments has been included as if the net depreciation 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 as of March
31, 1997 and December 31, 1996 was $345 and $323, respectively.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period in which
this report covers.
Item 5. Other Information.
Not applicable
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) 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) Sub-Management Agreement dated as of May 23,
1991 among the Partnership, Management Company, the
Managing General Partner and the Sub-Manager. (8)
(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 during the
quarter for which this report is filed.
<PAGE>
(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.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
ML VENTURE PARTNERS II, L.P.
By: /s/ Kevin K. Albert
Kevin K. Albert
General Partner
By: MLVPII Co., L.P.
its Managing General Partner
By: Merrill Lynch Venture Capital Inc.
its General Partner
By: /s/ Kevin K. Albert
Kevin K. Albert
President
(Principal Executive Officer)
By: /s/ Diane T. Herte
Diane T. Herte
Vice President and Treasurer
(Principal Financial and Accounting Officer)
Date: May 15, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ML VENTURE
PARTNERS II, L.P.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 22,293,793
<INVESTMENTS-AT-VALUE> 22,135,985
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<ASSETS-OTHER> 0
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