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 September 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 September 30, 2000 (Unaudited) and December 31, 1999
Schedule of Portfolio Investments as of September 30, 2000 (Unaudited)
Statements of Operations for the Three and Nine Months Ended September 30, 2000
and 1999 (Unaudited)
Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Statement of Changes in Partners' Capital for the Nine Months Ended
September 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>
September 30,
2000 December 31,
(Unaudited) 1999
ASSETS
Portfolio investments, at fair value (cost $286,342 as of
September 30, 2000 and $2,964,006 as of December 31, 1999) $ 362,586 $ 5,414,349
Short-term investments, at amortized cost 10,492,394 8,471,368
Cash and cash equivalents 489,135 1,059,973
---------------- -----------------
TOTAL ASSETS $ 11,344,115 $ 14,945,690
================ =================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash distribution payable $ 10,267,496 $ 8,704,964
Accounts payable and accrued expenses 79,426 91,518
Due to Management Company 131,494 166,235
---------------- -----------------
Total liabilities 10,478,416 8,962,717
---------------- -----------------
Partners' Capital:
Managing General Partner 187,545 338,194
Individual General Partners 21 107
Limited Partners (120,000 Units) 601,889 3,194,329
Unallocated net unrealized appreciation of investments 76,244 2,450,343
---------------- -----------------
Total partners' capital 865,699 5,982,973
---------------- -----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 11,344,115 $ 14,945,690
================ =================
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited)
As of September 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Initial
Investment
Company / Position Date Cost Fair Value
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 62,500
Options to purchase 27,969 shares of Common Stock
at $1.42 per share, expiring on 10/31/01 0 0
-------------------------------------------------------------------------------------------------------------------------------
Total Portfolio Investments $ 286,342 $ 362,586
---------------------------------
Supplemental Information: Liquidated Portfolio Investments (B)
Net
Cost Realized Gain Return
Totals from Liquidated Portfolio Investments (C) $ 116,246,654 $ 124,987,590 $ 241,234,244
=========================================================
Combined Net Combined
Unrealized and Fair Value
Cost Realized Gain and Return
Totals from Active and Liquidated Portfolio Investments $ 116,532,996 $ 125,063,834 $ 241,596,830
=========================================================
</TABLE>
(A) Public company
(B) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through September 30, 2000.
(C) During the quarter ended September 30, 2000, the Partnership sold its
holdings of Burns International Services Corporation for net proceeds
totaling $10,119,992, realizing a net gain of $7,619,992. Also during the
quarter, the Partnership received $80,000 from Research Applications, Inc.,
a portfolio investment which had been previously written off, resulting in
a realized gain for the entire amount.
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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------- --------------- -------------- --------------
INVESTMENT INCOME AND EXPENSES
Income:
Interest from short-term investments $ 110,595 $ 48,422 $ 163,902 $ 97,475
Other income from portfolio investments 65 71 234 672
-------------- -------------- -------------- ---------------
Total investment income 110,660 48,493 164,136 98,147
-------------- -------------- -------------- ---------------
Expenses:
Management fee 50,000 50,000 150,000 150,000
Professional fees 17,750 21,617 58,039 73,328
Mailing and printing 15,576 20,520 59,049 69,602
Independent General Partners' fees 16,000 19,500 53,000 67,500
Custodial fees 463 244 2,063 2,055
Miscellaneous - 663 859 8,186
-------------- -------------- -------------- ---------------
Total investment expenses 99,789 112,544 323,010 370,671
-------------- -------------- -------------- ---------------
NET INVESTMENT INCOME (LOSS) 10,871 (64,051) (158,874) (272,524)
Net realized gain from portfolio investments 7,699,992 17,720 7,683,195 510,533
-------------- -------------- -------------- ---------------
NET REALIZED GAIN (LOSS) FROM
OPERATIONS 7,710,863 (46,331) 7,524,321 238,009
Change in unrealized appreciation of investments (2,525,000) 3,632,959 (2,374,099) 4,330,976
-------------- -------------- -------------- ---------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 5,185,863 $ 3,586,628 $ 5,150,222 $ 4,568,985
============== ============== ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended September 30,
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
2000 1999
---------------- ----------------
CASH FLOWS USED FOR OPERATING ACTIVITIES
Net investment loss $ (158,874) $ (272,524)
Adjustments to reconcile net investment loss to cash used for operating
activities:
Decrease in accrued interest receivable - 1,291
(Increase) decrease in accrued interest from short-term investments (52,349) 33,337
(Decrease) increase in payables, net (46,833) 34,930
---------------- ----------------
Cash used for operating activities (258,056) (202,966)
---------------- ----------------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Net (purchase) return of short-term investments (1,968,677) 4,455,117
Net proceeds from the sale of portfolio investments 10,360,859 4,994,624
---------------- ----------------
Cash provided from investing activities 8,392,182 9,449,741
---------------- ----------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distributions paid to Partners (8,704,964) (4,514,772)
---------------- ----------------
(Decrease) increase in cash and cash equivalents (570,838) 4,732,003
Cash and cash equivalents at beginning of period 1,059,973 423,675
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 489,135 $ 5,155,678
================ ================
</TABLE>
See notes to financial statements.
<PAGE>
ML VENTURE PARTNERS II, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited)
For the Nine Months Ended September 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 (1,542) (5) (157,327) - (158,874)
Net realized gain on
portfolio investments 1,598,105 203 6,084,887 - 7,683,195
Cash distribution, accrued (1,747,212) (284) (8,520,000) - (10,267,496)
Change in unrealized
appreciation of investments - - - (2,374,099) (2,374,099)
------------- -------- -------------- -------------- ----------------
Balance as of end of period $ 187,545 $ 21 $ 601,889 (A) $ 76,244 $ 865,699
============= ======== ============== ============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest ("Unit"),
including an assumed allocation of net unrealized appreciation of
investments, was $6 as of September 30, 2000. Cumulative cash distributions
paid or accrued to limited partners from inception to September 30, 2000
totaled $1,727 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
accounting principles generally accepted 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 $76,244 as of September 30, 2000, was recorded for financial statement
purposes, but was not recognized for tax purposes. Additionally, from inception
to September 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 September 30, 2000, the
Partnership had a $129.2 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), concluded
5. Classification of Portfolio Investments
As of September 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 $ 286,342 $ 362,586 41.88%
============== =============== ======
Country/Geographic Region
Western U.S. $ 286,342 $ 362,586 41.88%
============== =============== ======
Industry
Computer Software $ 44,703 $ 300,086 34.66%
Medical Devices and Services 241,639 62,500 7.22%
-------------- --------------- -------
Total $ 286,342 $ 362,586 41.88%
============== =============== ======
</TABLE>
* Percentage of net assets is based on fair value.
6. Subsequent Events
On October 5, 2000, the Partnership made a cash distribution to partners
totaling $10,267,496. Limited partners of record on September 30, 2000 received
$8,520,000, or $71 per Unit, the Individual General Partners received $284 and
the Managing General Partner received $1,747,212.
7. Interim Financial Statements
In the opinion of the Managing General Partner, the unaudited financial
statements as of September 30, 2000, and for the nine-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's idle cash balances are held in an interest-bearing cash
account or invested in short-term securities with maturities of less than one
year. As of September 30, 2000, the Partnership held $489,135 in its
interest-bearing cash account. Interest earned from the Partnership's idle cash
balances totaled $110,595 and $163,902 for the three and nine months ended
September 30, 2000, respectively. Interest earned in future periods is subject
to fluctuations in short-term interest rates and changes in idle cash balances.
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 nine months ended September 30, 2000, the Partnership sold
certain portfolio investments for net proceeds totaling $10.4 million. As a
result of these liquidations, the Partnership has only two remaining portfolio
investments: Brightware, Inc. and Raytel Medical Corporation.
On October 5, 2000, the Partnership made a cash distribution to partners
totaling $10,267,496. Limited partners of record on September 30, 2000 received
$8,520,000, or $71 per Unit, the Individual General Partners received $284 and
the Managing General Partner received $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 nine months ended September 30, 2000, the Partnership had a
net realized gain from operations of $7,710,863 and $7,524,321, respectively.
The Partnership had a net realized loss from operations of $46,331 for the three
months ended September 30, 1999 and had a net realized gain from operations of
$238,009 for the nine months ended September 30, 1999. 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 nine
months ended September 30, 2000, the Partnership had a net realized gain from
its portfolio investments of $7,699,992 and $7,683,195, respectively. During the
three months ended September 30, 2000, the Partnership sold its 500,000 common
shares of Burns International Services Corporation for net proceeds totaling
$10,119,992 compared to a cost of $2,500,000, for a realized gain of $7,619,992.
Additionally, during the quarter ended September 30, 2000, the Partnership
received $80,000 from Research Applications, Inc., a portfolio investment that
had been previously written off, resulting in a realized gain for the entire
amount. During the six months ended June 30, 2000, 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 nine months ended September 30, 1999, the Partnership had a
net realized gain from its portfolio investments of $17,720 and $510,533,
respectively. During the three months ended September 30, 1999, the Partnership
sold its remaining 19,063 shares of CoCensys, Inc. common stock for $19,071,
realizing a loss of $173,433, and 31,736 shares of Photon Dynamics, Inc. common
stock for $365,648, realizing a gain of $182,849. Additionally, during the three
month period, the Partnership sold its remaining interest in Ogle Resources,
Inc., an investment that had been previously written-off, for $8,304, realizing
a gain for the entire amount. During the six months ended June 30, 1999, the
Partnership realized losses of $1,000,548 and $363,378 resulting from the
write-off of its remaining investments in Clarus Medical Systems, Inc. and
Neocrin Company, respectively, due to continued business and financial
difficulties at these companies. Also during the six month period, the
Partnership sold 393,500 common shares of Photon Dynamics, Inc. for $4,124,599,
realizing a gain of $1,855,172. Finally, during the six month period, the
Partnership received a $1,567 liquidating distribution from MLMS Cancer
Research, Inc., realizing a gain for the entire amount.
Investment Income and Expenses - For the three months ended September 30, 2000
and 1999, the Partnership had net investment income of $10,871 and a net
investment loss of $64,051, respectively. The $74,922 favorable change in
investment income for the 2000 period compared to the same period in 1999
resulted from a $62,167 increase in investment income and a $12,755 decrease in
operating expenses. The increase in investment income primarily was due to a
$62,173 increase in interest from short-term investments for the three months
ended September 30, 2000 compared to the same period in 1999. The increase in
short-term interest income resulted from an increase in funds invested in such
securities during the 2000 period due to the receipt of proceeds from the sale
of Burns International, which were held in short-term securities until such
proceeds were distributed in October 2000. The decline in operating expenses for
the three months ended September 30, 2000 compared to the 1999 period included a
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 reductions in professional fees
and mailing and printing expenses, reflecting the reduced activity of the
Partnership as it proceeds with the liquidation of its remaining assets.
For the nine months ended September 30, 2000 and 1999 the Partnership had a net
investment loss of $158,874 and $272,524, respectively. The $113,650 favorable
change in net investment loss for the 2000 period compared to the same period in
1999 primarily was attributable to a $65,989 increase in investment income and a
$47,661 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
2000 period compared to the same period in 1999. As discussed above, proceeds
received from the sale of portfolio investments are invested in short-term
securities until distributions are made to partners. The decline in operating
expenses includes an $14,500 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 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.
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 September
30, 2000 and 1999 was $50,000 and the management fee for the nine months ended
September 30, 2000 and 1999 was $150,000. 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 nine months ended September 30, 2000, the
Partnership increased the fair value of its remaining portfolio investments by
$555,567, due to the net upward revaluation of its publicly held securities
during the period. Offsetting this increase was the transfer of $2,929,666 of
unrealized gain to realized gain, relating to portfolio investments sold during
the period, as discussed above. As a result, the Partnership has a $2,374,099
unfavorable change to net unrealized appreciation of investments for the nine
month period ended September 30, 2000.
For the nine months ended September 30, 1999, the Partnership increased the fair
value of its remaining portfolio investments by $4,420,313, due to the net
upward revaluation of its publicly held securities during the period. Offsetting
this increase was the transfer of $89,337 of net unrealized gain to realized
gain, relating to portfolio investments sold or written off during the period,
as discussed above. As a result, the Partnership had a $4,330,976 favorable
change to the net unrealized appreciation of investments for the nine month
period ended September 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 September 30, 2000, the Partnership's net assets were $865,699 compared to
$5,982,973 as of December 31, 1999. The reduced net assets reflects the
$10,267,496 cash distribution paid to partners in October 2000 (and accrued as
of September 30, 2000) exceeding the $5,150,222 net increase in net assets from
operations for the nine months ended September 30, 2000. The net increase in net
assets from operations for the period was comprised of the $7,524,321 net
realized gain from operations partially offset by the $2,374,099 unfavorable
change in unrealized appreciation of investments for the nine month period ended
September 30, 2000.
As of September 30, 1999, the Partnership's net assets were $15,826,458, an
increase of $188,256 from net assets of $15,638,202 as of December 31, 1998.
This increase was comprised of the $4,568,985 increase in net assets from
operations exceeding the $4,380,729 cash distribution to partners accrued during
the nine month period ended September 30, 1999 and paid in October 1999. The
increase in net assets from operations was comprised of the $4,330,976 increase
in unrealized appreciation of investments and the $238,009 net realized gain
from operations for the nine-month period ended September 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 September 30, 2000 and December 31, 1999 was $6 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 $362,586
as of September 30, 2000. An assumed 10% decline from this fair value would
result in a reduction to the fair value of such investments and an unrealized
loss of $36,259.
Market risk relating to the Partnership's interest-bearing cash equivalents held
as of September 30, 2000 is 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: November 14, 2000
