-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MYRPc0glk9zTFPlG6YttQuZDGLcaYxn8P83Itbwj8CIkK+hefblh8u5EwYQSw6S/ etZdlbfuNqztWA8ju/KFmw== 0000789538-97-000002.txt : 19970520 0000789538-97-000002.hdr.sgml : 19970520 ACCESSION NUMBER: 0000789538-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ML VENTURE PARTNERS II LP CENTRAL INDEX KEY: 0000789538 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133324232 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 814-00043 FILM NUMBER: 97608697 BUSINESS ADDRESS: STREET 1: WORLD FINANCIAL CTR N TOWER STREET 2: 25TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10281-1330 BUSINESS PHONE: 2124491000 10-Q 1 FORM 10-Q 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. =============================================================================== (Exact name of registrant as specified in its charter) Delaware 13-3324232 =============================================================================== (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) World Financial Center, North Tower New York, New York 10281-1326 =============================================================================== (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 449-1000 Not applicable =============================================================================== 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 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. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. ML VENTURE PARTNERS II, L.P. BALANCE SHEETS March 31, 1997 December 31, (UNAUDITED) 1996 ASSETS Portfolio investments at fair value (cost $22,293,793 as of 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 ================ =================
See notes to financial statements. ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) March 31, 1997 Active Portfolio Investments: Initial Investment Company / Position Date Cost Fair Value Biocircuits Corporation*(A)(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 - -------------------------------------------------------------------------------------------------------------------------------
ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED), continued March 31, 1997 Initial Investment Company / Position Date Cost Fair Value IDEC Pharmaceuticals Corporation(A)(B)(F) 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 =========================================================
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. ML VENTURE PARTNERS II, L.P. STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended March 31, 1997 1996 ---------------- --------- INVESTMENT INCOME AND EXPENSES 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 ================ =================
See notes to financial statements. ML VENTURE PARTNERS II, L.P. STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, 1997 1996 ---------------- --------- CASH FLOWS PROVIDED FROM (USED FOR) OPERATING ACTIVITIES 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 ================ ===============
See notes to financial statements. ML VENTURE PARTNERS II, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED) For the Three Months Ended March 31, 1997 Unallocated Net Unrealized Managing Individual Appreciation General General Limited (Depreciation) Partner Partners Partners of Investments Total 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 ============= ======== ============== ============== ================
(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. 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. 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. 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: Realized Company Shares Sold Cost Gain (Loss) Return - -------------------------------------------------------------------------------------------------------------------------- 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 ============== ============== ===============
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: % of Type of Investments Cost Fair Value Net Assets* - ------------------- -------------- --------------- ----------- 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% ============== =============== ======
* Percentage of net assets is based on fair value. 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. 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 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. (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. 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 EX-27 2 EXHIBIT 27
6 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. 3-MOS DEC-31-1997 JAN-1-1997 MAR-31-1997 22,293,793 22,135,985 5,201,067 0 3,715,701 45,933,833 0 0 534,633 534,633 0 0 120,000 120,000 0 0 0 0 (157,808) 45,399,200 37,754 149,804 0 282,331 (94,773) 13,609,133 (10,038,196) 3,476,164 0 0 0 0 0 0 0 3,655,602 0 0 0 0 0 0 0 43,661,118 323 (1) 23 0 0 0 345 0 0 0
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