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 June 30, 2000
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)
4 World Financial Center, 26th Floor
New York, New York 10080
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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 June 30, 2000 (Unaudited) and December 31, 1999
Schedule of Portfolio Investments as of June 30, 2000 (Unaudited)
Statements of Operations for the Three and Six Months Ended June 30, 2000 and
1999 (Unaudited)
Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999
(Unaudited)
Statement of Changes in Partners' Capital for the Six Months Ended June 30, 2000
(Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities and Use of Proceeds.
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>
<S> <C> <C> <C> <C> <C> <C>
June 30, 2000 December 31,
(Unaudited) 1999
------------------ ------------------
ASSETS
Portfolio investments, at fair value (cost $2,786,342 as of
June 30, 2000 and $2,964,006 as of December 31, 1999) $ 5,387,586 5,414,349
Short-term investments, at amortized cost - 8,471,368
Cash and cash equivalents 722,805 1,059,973
---------------- -----------------
TOTAL ASSETS $ 6,110,391 $ 14,945,690
================ =================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash distribution payable $ - $ 8,704,964
Accounts payable and accrued expenses 81,565 91,518
Due to Management Company 81,494 166,235
---------------- -----------------
Total liabilities 163,059 8,962,717
---------------- -----------------
Partners' Capital:
Managing General Partner 333,037 338,194
Individual General Partners 101 107
Limited Partners (120,000 Units) 3,012,950 3,194,329
Unallocated net unrealized appreciation of investments 2,601,244 2,450,343
---------------- -----------------
Total partners' capital 5,947,332 5,982,973
---------------- -----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 6,110,391 $ 14,945,690
================ =================
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited)
As of June 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Initial
Investment
Company / Position Date Cost Fair Value
-------------------------------------------------------------------------------------------------------------------------------
Burns International Services Corporation* (A) (B)
Protective services
500,000 shares of Common Stock Sept. 1988 $ 2,500,000 $ 5,000,000
-------------------------------------------------------------------------------------------------------------------------------
Brightware, Inc.
Client/server and internet software development tools
and services
200,057 shares of Common Stock May 1995 44,703 300,086
-------------------------------------------------------------------------------------------------------------------------------
Raytel Medical Corporation(A)
Pacemaker monitoring service and MRI centers
62,500 shares of Common Stock Feb. 1990 241,639 87,500
Options to purchase 27,969 shares of Common Stock
at $1.42 per share, expiring on 10/31/01 0 0
-------------------------------------------------------------------------------------------------------------------------------
Total Portfolio Investments $ 2,786,342 $ 5,387,586
---------------------------------
Supplemental Information: Liquidated Portfolio Investments (C)
Net
Cost Realized Gain Return
Totals from Liquidated Portfolio Investments (D) $ 113,746,654 $ 117,287,598 $ 231,034,252
=========================================================
Combined Net Combined
Unrealized and Fair Value
Cost Realized Gain and Return
Totals from Active and Liquidated Portfolio Investments $ 116,532,996 $ 119,888,842 $ 236,421,838
=========================================================
</TABLE>
(A) Public company
(B) Subsequent to June 30, 2000, the Partnership sold its 500,000 shares of
Burns International Services Corporation for net proceeds of $10.1 million.
See note 6 to Notes to Financial Statements.
(C) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through June 30, 2000.
(D) During the quarter ended June 30, 2000, the Partnership sold its holdings
of ReGen Biologics, Inc. and Stereotaxis, Inc. in a private transaction
for $160,867, realizing a net loss of $16,797.
* 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)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------- ------------- -------------
INVESTMENT INCOME AND EXPENSES
Income:
Interest from short-term investments $ 8,383 $ 26,081 $ 53,307 $ 49,053
Other income from portfolio
investments 49 71 169 601
------------ -------------- ----------- ------------
Total investment income 8,432 26,152 53,476 49,654
------------ -------------- ----------- ------------
Expenses:
Management fee 50,000 50,000 100,000 100,000
Professional fees 24,039 25,371 40,289 51,711
Mailing and printing 10,317 23,615 43,473 49,082
Independent General Partners' fees 13,000 24,000 37,000 48,000
Custodial fees 800 800 1,600 1,811
Miscellaneous 859 7,049 859 7,523
------------ -------------- ----------- ------------
Total investment expenses 99,015 130,835 223,221 258,127
------------ -------------- ----------- ------------
NET INVESTMENT LOSS (90,583) (104,683) (169,745) (208,473)
Net realized (loss) gain from portfolio investments (16,797) 856,191 (16,797) 492,813
------------ -------------- ----------- ------------
NET REALIZED (LOSS) GAIN FROM
OPERATIONS (107,380) 751,508 (186,542) 284,340
Change in unrealized appreciation of investments 271,377 1,490,399 150,901 698,017
------------ -------------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 163,997 $ 2,241,907 $ (35,641) $ 982,357
============ ============== =========== ============
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30,
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
2000 1999
---------------- -----------------
CASH FLOWS USED FOR OPERATING ACTIVITIES
Net investment loss $ (169,745) $ (208,473)
Adjustments to reconcile net investment loss to cash used for operating
activities:
Decrease in accrued interest from short-term investments 46,538 19,889
Decrease in accrued interest receivable - 994
Decrease in payables, net (94,694) (23,014)
---------------- ----------------
Cash used for operating activities (217,901) (210,604)
---------------- ----------------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Net return of short-term investments 8,424,830 1,738,736
Net proceeds from the sale of portfolio investments 160,867 2,954,742
---------------- ----------------
Cash provided from investing activities 8,585,697 4,693,478
---------------- ----------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distributions paid to partners (8,704,964) (4,514,772)
---------------- ----------------
Decrease in cash and cash equivalents (337,168) (31,898)
Cash and cash equivalents at beginning of period 1,059,973 423,675
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 722,805 $ 391,777
================ ================
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited)
For the Six Months Ended June 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Unallocated
Managing Individual Net Unrealized
General General Limited Appreciation
Partner Partners Partners of Investments Total
------------ ----------- -------------- ---------------- ----------------
Balance as of beginning of period $ 338,194 $ 107 $ 3,194,329 $ 2,450,343 $ 5,982,973
Net investment loss (1,664) (6) (168,075) - (169,745)
Net realized loss on
portfolio investments (3,493) - (13,304) - (16,797)
Change in unrealized
appreciation of investments - - - 150,901 150,901
------------- -------- -------------- -------------- ----------------
Balance as of end of period $ 333,037 $ 101 $ 3,012,950(A) $ 2,601,244 $ 5,947,332
============= ======== ============== ============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest ("Unit"),
including an assumed allocation of net unrealized appreciation of
investments, was $42 as of June 30, 2000. Cumulative cash distributions
paid to limited partners from inception to June 30, 2000 totaled $1,656 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 no later
than December 31, 2001. However, the Managing General Partner is working toward
liquidating the Partnership's remaining assets and terminating the Partnership
as soon as practical with the goal of maximizing returns to partners.
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. Publicly-held portfolio
securities are valued at the closing public market price on the valuation date,
discounted by a factor of up to 50% for sales restrictions, if any. 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 to
reflect 1) meaningful third-party transactions in the private market or 2)
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.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles in the United States of America
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.
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
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 approximately $2.6 million as of June 30, 2000, was recorded for financial
statement purposes, but was not recognized for tax purposes. Additionally, from
inception to June 30, 2000, timing differences of approximately $2.4 million
have been deducted on the Partnership's financial statements and syndication
costs relating to the offering of limited partnership interests 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 a cash equivalent.
3. Allocation of Partnership Profits and Losses
Pursuant to the Partnership Agreement, the Managing General Partner is
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 such amount is positive. All other gains
and losses of the Partnership are allocated among all partners (including the
Managing General Partner) in proportion to each partners' respective capital
contribution to the Partnership. From its inception to June 30, 2000, the
Partnership had a $121.5 million net realized gain from its venture capital
investments, including interest and other income from portfolio investments
totaling $4.3 million.
4. Related Party Transactions
The Management Company is responsible for 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.
Each of the two remaining Independent General Partners receives $20,000 annually
in quarterly installments, $1,500 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 $1,500 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).
<PAGE>
ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
5. Classification of Portfolio Investments
As of June 30, 2000, the Partnership's investments in portfolio companies were
categorized as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
% of
Type of Investments Cost Fair Value Net Assets*
------------------- -------------- --------------- -----------
Common Stock and Warrants $ 2,786,342 $ 5,387,586 90.59%
-------------- --------------- ------
Total $ 2,786,342 $ 5,387,586 90.59%
============== =============== ======
Country/Geographic Region
Midwestern U.S. $ 2,500,000 $ 5,000,000 84.07%
Western U.S. 286,342 387,586 6.52%
-------------- --------------- ------
Total $ 2,786,342 $ 5,387,586 90.59%
============== =============== ======
Industry
Protective Services $ 2,500,000 $ 5,000,000 84.07%
Computer Software 44,703 300,086 5.05 %
Medical Devices and Services 241,639 87,500 1.47%
-------------- --------------- ------
Total $ 2,786,342 $ 5,387,586 90.59%
============== =============== ======
</TABLE>
* Percentage of net assets is based on fair value.
6. Subsequent Events
Subsequent to June 30, 2000, the Partnership sold its 500,000 common shares of
Burns International Services Corporation for net proceeds of $10.1 million
compared to the $2.5 million cost of this investment. The sale will result in a
realized gain of $7.6 million for the quarter ending September 30, 2000.
In August 2000, the General Partners approved a cash distribution to Partners
totaling $10,267,496. The distribution will be paid in October 2000. Limited
partners of record on September 30, 2000 will receive $8,520,000, or $71 per
Unit. Additionally, the Individual General Partners will receive $284 and the
Managing General Partner will receive $1,747,212.
7. Interim Financial Statements
In the opinion of the Managing General Partner, the unaudited financial
statements as of June 30, 2000, and for the six-month period then ended, reflect
all adjustments necessary for the fair presentation of the results of the
interim period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
----------------------------------------------------------------
Liquidity and Capital Resources
The Partnership invests its idle cash balances in short-term securities with
maturities of less than one year and in an interest-bearing cash account. As of
June 30, 2000, the Partnership held $722,805 in its interest-bearing cash
account. Interest earned from the Partnership's idle cash investment totaled
$8,383 and $53,307 for the three and six months ended June 30, 2000,
respectively. 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, if any, will be obtained from existing cash
reserves, interest and other investment income and proceeds from the sale of
portfolio investments.
During the quarter ended June 30, 2000, the Partnership sold its holdings of
ReGen Biologics, Inc. and Stereotaxis, Inc. in a private transaction for
$160,867. Subsequent to June 30, 2000, the Partnership sold its 500,000 common
shares of Burns International Services Corporation for net proceeds of $10.1
million compared to the $2.5 million cost of this investment. The sale will
result in a realized gain of $7.6 million for the quarter ending September 30,
2000. With the completion of the sale of its investment in Burns International
Services, the Partnership has only two remaining portfolio investments,
Brightware, Inc. and Raytel Medical Corporation.
In August 2000, the General Partners approved a cash distribution to Partners
totaling $10,267,496. The distribution will be paid in October 2000. Limited
partners of record on September 30, 2000 will receive $8,520,000, or $71 per
Unit. Additionally, the Individual General Partners will receive $284 and the
Managing General Partner will receive $1,747,212.
The Partnership is scheduled to terminate no later than December 31, 2001.
However, the Managing General Partner is continuing to work toward liquidating
the Partnership's remaining assets and terminating the Partnership as soon as
practical, with the goal of maximizing returns to partners.
Generally, net proceeds received from the sale of portfolio investments are
distributed to partners as soon as practicable, after an adequate reserve for
operating expenses and follow-on investments in the remaining portfolio
companies.
Results of Operations
For the three and six months ended June 30, 2000, the Partnership had a net
realized loss from operations of $107,380 and $186,542, respectively. For the
three and six months ended June 30, 1999, the Partnership had a net realized
gain from operations of $751,508 and $284,340, 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 and six
months ended June 30, 2000, the Partnership had a $16,797 net realized loss from
its portfolio investments. During the quarter, the Partnership sold its
investment in Stereotaxis, Inc. and ReGen Biologics, Inc. in a private
transaction for $160,867, resulting in a net realized loss of $16,797.
For the three and six months ended June 30, 1999, the Partnership had a net
realized gain from its portfolio investments of $856,191 and $492,813,
respectively. In June 1999, the Partnership realized a loss of $1,000,548
resulting from the write-off of its remaining investment in Clarus Medical
Systems, Inc. due to continued business and financial difficulties at the
company. Also during the quarter ended June 30, 1999, the Partnership sold
393,500 shares of Photon Dynamics, Inc. in the public market, realizing a gain
of $1,855,172. The Partnership also received a $1,567 liquidating distribution
from MLMS Cancer Research, Inc. during the quarter, which was recorded as a
realized gain.
Investment Income and Expenses - For the three months ended June 30, 2000 and
1999, the Partnership had a net investment loss of $90,583 and $104,683,
respectively. The $14,100 favorable change in investment loss for the 2000
period compared to the same period in 1999 resulted from a $31,820 decrease in
operating expenses, partially offset by a $17,720 decrease in investment income.
The decline in investment income primarily was due to a decrease in interest
from short-term investments, resulting from a decrease in funds invested in such
securities during the three months ended June 30, 2000 compared to the same
period in 1999. The decline in operating expenses for the three months ended
June 30, 2000 compared to the 1999 period included an $11,000 decline in fees
paid to the Independent General Partners ("IGPs"), resulting from the change
from three to two IGPs beginning in the second quarter of 2000. The decline in
operating expenses also included a $13,298 reduction in mailing and printing
expenses and a $7,522 decline in other operating expenses. Approximately $13,000
of additional mailing and printing expense was incurred during the 1999 period
resulting from additional limited partner notifications mailed during the three
months ended June 30, 1999. The reduction in other operating expenses primarily
resulted from a one-time insurance expense of approximately $5,600 incurred
during the 1999 period.
For the six months ended June 30, 2000 and 1999 the Partnership had a net
investment loss of $169,745 and $208,473, respectively. The favorable change in
net investment loss for the 2000 period compared to the same period in 1999
primarily was attributable to a $3,822 increase in investment income and a
$34,906 decrease in operating expenses. The increase in investment income
primarily was due to an increase in interest from short-term investments,
reflecting an increase in funds invested in short-term securities during the
first half of 2000 compared to the same period in 1999. Proceeds received from
the sale of portfolio investments are invested in short-term investments until
distributions are made to partners. The decline in operating expenses includes
an $11,000 decline in fees paid to the IGPs, as discussed above, and declines in
professional fees, mailing and printing and other operating expenses. The
decline in professional fees is generally due to lower legal and outside
accounting fees, reflecting the decreased level of activity as the Partnership
proceeds with the liquidation of its remaining investments. The decline in
mailing and printing expenses reflects the costs incurred from additional
limited partner notifications mailed during 1999 and the decline in other
operating expenses primarily resulted from a one-time insurance expense of
approximately $5,600 incurred during the 1999 period, as discussed above.
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 June 30,
2000 and 1999 was $50,000 and the management fee for the six months ended June
30, 2000 and 1999 was $100,000. The management fee will remain at the minimum
annual fee of $200,000 for 2000 through the liquidation of the Partnership. The
management fee and other operating expenses are paid with funds provided from
operations and from existing cash reserves.
Unrealized Gains and Losses and Changes in Unrealized Appreciation or
Depreciation of Investments -For the six months ended June 30, 2000, the
Partnership had a $580,567 net unrealized gain from its portfolio investments,
resulting from the net upward revaluation of its remaining portfolio
investments. Offsetting this increase is the transfer of $429,666 of unrealized
gain to realized gain, relating to portfolio investments sold during the period,
as discussed above. As a result, the Partnership has a $150,901 favorable change
to net unrealized appreciation of investments for the six-month period ended
June 30, 2000.
For the six months ended June 30, 1999, the Partnership had a $786,941 net
unrealized gain, resulting from the net upward revaluation of its remaining
portfolio investments. Additionally, during the six month period, $88,924 of
unrealized gain was transferred to realized gain, relating to portfolio
investments sold or written off during the period, as discussed above. The
$786,941 unrealized gain and the $88,924 net transfer from unrealized gain to
realized gain, resulted in a $698,017 favorable change to unrealized
appreciation of investments for the six-month period ended June 30, 1999.
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.
As of June 30, 2000, the Partnership's net assets were $5,947,332, compared to
$5,982,973 as of December 31, 1999. This $35,641 decrease is comprised of the
$150,901 increase in unrealized appreciation of investments offset by the
$186,542 net realized loss from operations for the six-month period ended June
30, 2000.
As of June 30, 1999, the Partnership's net assets were $16,620,559, compared to
$15,638,202 as of December 31, 1998. This $982,357 increase was comprised of the
$698,017 increase in unrealized appreciation of investments and the $284,340 net
realized gain from operations for the six-month period ended June 30, 1999.
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 such net unrealized 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 as of June 30, 2000 and December 31, 1999 was $42 and $43,
respectively.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Partnership is subject to market risk arising from changes in the value of
its portfolio investments, short-term investments and interest-bearing cash
equivalents, which may result from fluctuations in interest rates and equity
prices. The Partnership has calculated its market risk related to its holdings
of these investments based on changes in interest rates and equity prices
utilizing a sensitivity analysis. The sensitivity analysis estimates the
hypothetical change in fair values, cash flows and earnings based on an assumed
10% change (increase or decrease) in interest rates and equity prices. To
perform the sensitivity analysis, the assumed 10% change is applied to market
rates and prices on investments held by the Partnership at the end of the
accounting period.
The Partnership's portfolio investments had an aggregate fair value of
$5,387,586 as of June 30, 2000. An assumed 10% decline from this fair value,
including an assumed 10% decline of the per share market prices of the
Partnership's publicly-traded securities, would result in a reduction to the
fair value of such investments and an unrealized loss of $538,759.
Market risk relating to the Partnership's interest-bearing cash equivalents held
as of June 30, 2000 is also considered to be immaterial.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Partnership is not a party to any material pending legal proceedings.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
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 covered
by this report.
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) The Registrant filed with the Commission a
current report on Form 8-K dated August 4, 2000.
This current report contained details with
respect to the sale of the Partnership's
investment in Burns International Services
Corporation.
<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: 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/ James V. Bruno
James V. Bruno
Vice President and Treasurer
(Principal Financial and Accounting Officer)
By: /s/ Diane T. Herte
Diane T. Herte
Vice President
Date: August 14, 2000
