10-Q 1 0001.txt FORM 10Q 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. ------------------------------------------------------------------------------- (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) 4 World Financial Center, 26th Floor New York, New York 10080 -------------------------------------------------------------------------------- (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 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. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. ML VENTURE PARTNERS II, L.P. BALANCE SHEETS 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 ================ =================
See notes to financial statements. ML VENTURE PARTNERS II, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited) As of September 30, 2000 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 =========================================================
(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. ML VENTURE PARTNERS II, L.P. STATEMENTS OF OPERATIONS (Unaudited) 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 ============== ============== ============== ===============
See notes to financial statements. ML VENTURE PARTNERS II, L.P. STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended September 30, 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 ================ ================
See notes to financial statements. ML VENTURE PARTNERS II, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited) For the Nine Months Ended September 30, 2000 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 ============= ======== ============== ============== ================
(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. 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. 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). 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: % 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% ============== =============== ======
* 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. 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. 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 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. (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: 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