SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

[ X ]    Annual Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934

For the Fiscal Year Ended December 31, 1999

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

Securities registered pursuant to Section 12(b) of the Act:

 Title of each class                  Name of each exchange on which registered
 -------------------                  -----------------------------------------
      None                                                None

Securities registered pursuant to Section 12(g) of the Act:

                      Units of Limited Partnership Interest

--------------------------------------------------------------------------------
                                (Title of class)


<PAGE>


     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 ------------------

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 15, 2000,  119,636 units of limited  partnership  interest ("Units")
were held by  non-affiliates of the registrant.  There is no established  public
trading market for such Units.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Prospectus  of the  Registrant  dated  February  10,  1987,  as
supplemented by a supplement  thereto dated April 21, 1987, are  incorporated by
reference in Part I and Part II hereof.


<PAGE>


                                     PART I

Item 1.       Business.
              --------

Formation

     ML Venture Partners II, L.P. (the  "Partnership" or the  "Registrant") is a
Delaware limited partnership organized on February 4, 1986. The General Partners
of  the  Partnership  consist  of  four  individuals  (the  "Individual  General
Partners") and MLVPII Co., L.P. (the  "Managing  General  Partner"),  a New York
limited partnership in which Merrill Lynch Venture Capital Inc. (the "Management
Company")  is  the  general  partner.  The  Management  Company  is an  indirect
subsidiary  of Merrill  Lynch & Co.,  Inc. and an  affiliate  of Merrill  Lynch,
Pierce,  Fenner & Smith Incorporated  ("Merrill Lynch").  DLJ Capital Management
Corporation (the "Sub-Manager"), an affiliate of Donaldson, Lufkin and Jenrette,
Inc.,  is the  sub-manager  pursuant  to a  sub-management  agreement  among the
Partnership,  the  Managing  General  Partner,  the  Management  Company and the
Sub-Manager.

The Partnership  operates as a business development company under the Investment
Company Act of 1940. The Partnership's investment objective is to seek long-term
capital  appreciation  from its portfolio of venture  capital  investments.  The
Partnership considers this activity to constitute the single industry segment of
venture capital investing.

Through Merrill Lynch, the Partnership publicly offered 120,000 units of limited
partnership interest (the "Units") at $1,000 per Unit. The Units were registered
under the Securities  Act of 1933 pursuant to a  Registration  Statement on Form
N-2 (File No.  33-3220)  which was declared  effective on February 10, 1987. The
Partnership  held its initial and final  closings on March 31, 1987 and June 10,
1987, respectively.  A total of 120,000 Units were accepted at such closings and
the additional  limited  partners (the "Limited  Partners") were admitted to the
Partnership.

The information set forth under the captions "Risk and Other Important  Factors"
(pages 8 through 11), "Investment Objective and Policies" (pages 14 through 16),
"Venture  Capital  Operations"  (pages 17 through 20) and "Portfolio  Valuation"
(pages 27 and 28) in the 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 and filed pursuant to Rule 424(c) under the Securities Act of 1933 (the
"Prospectus"), is incorporated herein by reference.

The Venture Capital Investments

The Partnership  has fully invested the net proceeds  received from the offering
of Units and will not make investments in any new portfolio companies.  However,
the  Partnership  may make  additional  follow-on  investments  in its remaining
portfolio companies. The Partnership made no new or follow-on investments during
the years ended December 31, 1999 and 1998.

As of December 31, 1999, the  Partnership's  investment  portfolio  consisted of
five  active  investments  with  a  cost  of  $2,964,006  and a  fair  value  of
$5,414,349.  During the year ended December 31, 1999, the Partnership liquidated
certain portfolio investments,  realizing a net return of $13,259,269, resulting
in a net realized gain of $6,025,590.  Portfolio investments sold or written-off
during 1999 are listed below:

Portfolio Liquidations for the

Year Ended December 31, 1999 (1):
<TABLE>

                                                           Shares                              Realized
Investment                                                  Sold              Cost            Gain (Loss)           Return
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                 <C>                <C>
Clarus Medical Systems, Inc. - write-off                       n/a      $    1,000,548      $   (1,000,548)    $             0
CoCensys, Inc. (Sanderling)                                 19,063 (2)         192,504            (173,433)             19,071
Corporate Express, Inc.                                     60,000              12,000             570,000             582,000
Diatide, Inc.                                              809,704           2,986,023           4,706,165           7,692,188
Horizon Cellular Telephone
   Company, L.P. - liquidation                                 n/a                   0             389,118             389,118
IDE Corporation - write-off                                    n/a             227,000            (227,000)                  0
MLMS Cancer Research, Inc. - liquidation                       n/a                   0               1,567               1,567
Neocrin Company - write-off                                    n/a             363,378            (363,378)                  0
Ogle Resources, Inc.                                           n/a                   0               8,304               8,304
Photon Dynamics, Inc.                                      428,879 (3)       2,452,226           2,114,795           4,567,021
                                                                        --------------    ----------------     ---------------
Total                                                                   $    7,233,679    $      6,025,590     $    13,259,269
                                                                        ==============    ================     ===============
</TABLE>

(1) See Schedule of Portfolio Investments, included in the December 31, 1999
    audited financial statements for the cumulative results of liquidations
    of these investments.
(2) Adjusted  for a 1-for-8  reverse  stock  split  effective  in April 1999.
(3) Includes 3,643 shares received in a non-cash exchange for the Partnership's
    warrant to purchase 6,062 shares.

Additionally,  in  March  1999,  in  a  non-cash  transaction,  the  Partnership
exchanged its warrant to purchase  38,737 common shares of  Brightware,  Inc. at
$.40 per share for 28,407 shares of Brightware common stock.

As of December 31,  1999,  the  Partnership  had  invested  $116,532,996  in its
portfolio of venture capital  investments.  From its inception  through December
31, 1999, the Partnership  had fully or partially sold or wrote-off  investments
with an  aggregate  cost basis of  $113,568,990.  These  liquidated  investments
returned  $230,873,385 to the  Partnership,  resulting in a net realized gain of
$117,304,395.  Additionally, the Partnership earned interest and dividend income
from its venture  capital  investments  totaling  $4,258,437  from  inception to
December 31, 1999.

Termination

In November 1999, the  Individual  General  Partners voted to extend the term of
the  Partnership  for an additional  two-year  period.  The  Partnership  is now
scheduled to terminate no later than  December 31, 2001.  However,  the Managing
General Partner continues to work toward liquidating the Partnership's remaining
assets and terminating  the Partnership as soon as practicable  with the goal of
maximizing returns to partners.

Competition

The  Partnership  encounters  competition  from other  entities  having  similar
investment objectives,  including other entities affiliated with Merrill Lynch &
Co., Inc.  Primary  competition  for venture  capital  investments has been from
venture capital partnerships, venture capital affiliates of large industrial and
financial   companies,   small   business   investment   companies  and  wealthy
individuals.  Competition  has also been from foreign  investors  and from large
industrial  and  financial  companies  investing  directly  rather than  through
venture capital  affiliates.  The Partnership was frequently a co-investor  with
other professional  venture capital investors and these relationships  generally
had expanded the Partnership's access to investment  opportunities.  However, as
discussed above, the Partnership will not make any new portfolio investments.

Employees

The Partnership has no employees.  The Partnership  Agreement  provides that the
Managing General Partner,  subject to the supervision of the Individual  General
Partners,  manages and controls the Partnership's  venture capital  investments.
The  Management  Company is responsible  for the  management and  administrative
services  necessary for the operation of the Partnership  including managing the
Partnership's   short-term   investments.   The  Sub-Manager,   subject  to  the
supervision of the Management Company and Individual General Partners,  provides
management  services  in  connection  with  the  Partnership's  venture  capital
investments.

Item 2.       Properties.
              ----------

The Partnership does not own or lease physical properties.

Item 3.       Legal Proceedings.
              -----------------

The Partnership is not a party to any material pending legal proceedings.

Item 4.       Submission of Matters to a Vote of Security Holders.
              ---------------------------------------------------

No matter was submitted  during the fourth quarter of the fiscal year covered by
this report to a vote of security holders.

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.
         ---------------------------------------------------------------------

The  information  with  respect to the market for the Units set forth  under the
subcaption  "Substituted  Limited Partners" on pages 30 and 31 of the Prospectus
is  incorporated   herein  by  reference.   An  established  public  market  for
Registrant's  Units does not now exist,  and it is not  anticipated  that such a
market will develop in the future.  Accordingly,  accurate information as to the
market  value of a Unit at any  given  date is not  available.  The  approximate
number of holders of Units as of March 15, 2000 was 12,434. The Managing General
Partner  and the  Individual  General  Partners  of the  Partnership  also  hold
interests in the Partnership.

Merrill Lynch has implemented  guidelines pursuant to which it reports estimated
values of limited partnership  interests  originally sold by Merrill Lynch (such
as  Registrant's  Units)  two times  per year.  Such  estimated  values  will be
provided to Merrill Lynch by independent  valuation  services based on financial
and other  information  available to the  independent  services on (i) the prior
August 15th for reporting on December  year-end and  subsequent  client  account
statements through the following May's month-end client account statements,  and
on (ii) the prior March 31st for  reporting  on June  month-end  and  subsequent
client  account   statements  through  the  November  month-end  client  account
statements of the same year.

The Managing General Partner's estimate of net asset value of the Partnership as
of December  31, 1999 is $43 per Unit,  including an assumed  allocation  of net
unrealized appreciation of investments.  The Managing General Partner's estimate
of net asset value as set forth above  reflects  the value of the  Partnership's
underlying  assets  remaining  at  year-end,  whereas the value  provided by the
independent  services  reflects the  estimated  value of the  Partnership  Units
themselves  based on information  that was available on the prior August 15th as
stated above. The estimated value provided by the independent valuation services
and the  Registrant's  current  net asset  value are not market  values and Unit
holders may not be able to sell their Units or realize either amount upon a sale
of their  Units.  In  addition,  Unit  holders may not  realize the  independent
estimated  value or the  Registrant's  current net asset  value  amount upon the
liquidation of Registrant.

Cash Distributions

Cash distributions paid or accrued during the periods covered by this report and
cumulative cash distributions paid to partners from inception of the Partnership
through December 31, 1999 are listed below:
<TABLE>

                                                            Managing          Individual                                Per
                                                             General            General              Limited        $1,000
Distribution Date                                            Partner           Partners              Partners          Unit
------------------------------------------------       -----------------    -------------      -----------------    -------
<S>                   <C> <C>                          <C>                    <C>              <C>                    <C>
Inception to December 31, 1996                         $      21,132,691      $    5,200       $     156,000,000      $   1,300
July 11, 1997                                                  2,590,089             640              19,200,000            160
October 16, 1997                                                 411,084             260               7,800,000             65
January 26, 1999                                                 314,632             140               4,200,000             35
October 7, 1999                                                  180,589             140               4,200,000             35
January 25, 2000 (accrued)                                     1,384,720             244               7,320,000             61
                                                       -----------------      ----------       -----------------      ---------

Cumulative totals as of December 31, 1999              $      26,013,805      $    6,624       $     198,720,000      $   1,656
                                                       =================      ==========       =================      =========

</TABLE>



<PAGE>


Item 6.       Selected Financial Data.
              -----------------------
<TABLE>

($ In Thousands, Except For Per Unit Information)

                                                                           Years Ended December 31,
                                                           1999           1998            1997           1996           1995
                                                       -----------     -----------    -----------    -----------    --------

<S>                                                    <C>             <C>            <C>            <C>            <C>
Net Realized Gain (Loss) on Investments                $     6,026     $    (2,166)   $    15,606    $    46,879    $    41,368

Net Change in Unrealized Appreciation

   of Investments                                           (2,322)            765         (5,873)       (25,245)        12,661

Net Increase (Decrease) in Net Assets

   Resulting from Operations                                 3,430          (1,554)         9,786         20,947         54,512

Cash Distributions paid or accrued to Partners              13,086           4,515         30,002         59,366         57,572

Cumulative Cash Distributions paid or accrued

    to Partners                                            224,741         211,655        207,140        177,138        117,772

Total Assets                                                14,946          20,359         21,919         42,268         95,045

Net Unrealized Appreciation of Investments                   2,450           4,773          4,008          9,880         35,125

PER UNIT OF LIMITED
PARTNERSHIP INTEREST:

Net Realized Gain (Loss) on Investments                      $  40         $  (14)        $  103        $    309        $   273

Net Increase (Decrease) in Net Assets

   Resulting from Operations                                    22             (10)            64            137            358

Cash Distributions                                              96              35            225            410            400

Cumulative Cash Distributions                                1,656           1,560          1,525          1,300            890

Net Unrealized Appreciation of Investments                      16              32             26             65            232

Net Asset Value, including Net Unrealized

   Appreciation of Investments                                  43             117            162            323            596

</TABLE>


<PAGE>


Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations.
        ------------------------------------------------------------------------


Liquidity and Capital Resources

As  of  December  31,  1999,  the  Partnership  held  $8,471,368  in  short-term
investments  with  maturities  of  less  than  one  year  and  $1,059,973  in an
interest-bearing  cash account.  For the years ended December 31, 1999, 1998 and
1997, the Partnership  earned interest from such investments  totaling $202,271,
$280,896  and  $638,556,  respectively.  Interest  earned in future  periods  is
subject to  fluctuations  in  short-term  interest  rates and changes in amounts
available  for  investment  in  such  securities.  Funds  needed  to  cover  the
Partnership's future operating expenses and follow-on investments,  if any, will
be obtained from the  Partnership's  existing cash reserves,  interest and other
investment income and proceeds received from the sale of portfolio investments.

In November 1999, the  Individual  General  Partners voted to extend the term of
the  Partnership  for an additional  two-year  period.  The  Partnership  is now
scheduled to terminate no later than  December 31, 2001.  However,  the Managing
General Partner continues to work toward liquidating the Partnership's remaining
assets and terminating  the Partnership as soon as practicable  with the goal of
maximizing returns to partners.

The  Partnership  will not make any new portfolio  investments.  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.

Subsequent to the end of the year, on January 25, 2000, the  Partnership  made a
cash distribution to partners totaling $8,704,964,  including $7,320,000, or $61
per Unit,  to Limited  Partners of record on December  31,  1999.  The  Managing
General Partner received $1,384,720 and the Individual General Partners received
$244.  Cumulative  cash  distributions  to  partners as of  December  31,  1999,
including the accrued  distribution  paid in January 2000,  total  $224,740,429,
including  $198,720,000  to the  Limited  Partners,  or $1,656 per $1,000  Unit,
$26,013,805 to the Managing General Partner and $6,624 to the Individual General
Partners.

Results of Operations

For the year ended  December 31, 1999, the  Partnership  had a net realized gain
from  operations of $5,752,709.  For the years ended December 31, 1998 and 1997,
the  Partnership had a net realized loss from operations of $2,319,244 and a net
realized gain from operations of $15,659,055, 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,  dividend and other
income less operating expenses).

Realized  Gains and  Losses  from  Portfolio  Investments  - For the year  ended
December 31, 1999, the  Partnership  had a $6,025,590 net realized gain from its
portfolio  investments.  During 1999,  the  Partnership  sold its 809,704 common
shares of Diatide,  Inc. in connection with a cash tender offer of the company's
outstanding shares for $7,692,188,  or $9.50 per share,  resulting in a realized
gain of  $4,706,165.  Also  during  1999,  the  Partnership  sold the  following
securities in the public market: 428,879 common shares of Photon Dynamics,  Inc.
for  $4,567,021,  realizing  a gain  of  $2,114,795;  19,063  common  shares  of
CoCensys,  Inc. for $19,071,  realizing a loss of  $173,433;  and 60,000  common
shares of Corporate  Express,  Inc. for $582,000,  realizing a gain of $570,000.
Also during 1999,  the  Partnership  realized a gain of $389,118  reflecting the
receipt  of the  final  liquidation  payment  from  Horizon  Cellular  Telephone
Company,  L.P. The Partnership  realized  additional gains during 1999 resulting
from the  receipt  of $8,304  from the sale of its  remaining  interest  in Ogle
Resources, Inc., an investment that had been previously written-off,  and $1,567
from a final liquidating  distribution  payment from MLMS Cancer Research,  Inc.
Finally during 1999, the Partnership realized losses of $1,000,548, $227,000 and
$363,378  resulting  from the write-off of its remaining  investments  in Clarus
Medical Systems, Inc., IDE Corporation and Neocrin Company, respectively, due to
continued business and financial difficulties at these companies.

For the year ended  December  31, 1998,  the  Partnership  had a $2,166,356  net
realized  loss  from  its  portfolio   investments.   During  1998,   Sanderling
Biomedical,   L.P.   completed  the  liquidation  of  its  remaining   portfolio
investments,  resulting in the  termination  of Sanderling in December 1998. The
Partnership,  which  had an 80%  limited  partnership  interest  in  Sanderling,
received   three  in-kind   liquidating   distributions   and  a  $325,567  cash
distribution  from Sanderling  during 1998. The in-kind  distributions  included
93,745 shares of Depotech Corp. Inc., a public company. The Partnership sold its
shares of Depotech in November 1998 for  $136,878,  resulting in a realized gain
of  $79,822.  The  Partnership  also  realized a loss of  $775,338  during  1998
resulting  from  the  write-off  of  the  unreturned   cost  of  its  Sanderling
investment. Also during 1998, the Partnership received $187,194 plus interest of
$13,069  from  Horizon  Cellular  Telephone  Company,  L.P.,   representing  the
liquidation  payments  relating to the sale of the  Partnership's  investment in
Horizon.  These payments and the corresponding  write-off of the unreturned cost
of the  Partnership's  investment in Horizon  resulted in a net realized loss of
$18,044 for 1998.  Finally,  during  1998,  the  Partnership  realized a loss of
$1,488,884  from  the  write-off  of its  remaining  investment  in  Biocircuits
Corporation, which ceased operations during the year.

For the year ended  December 31, 1997,  the  Partnership  had a $15,605,512  net
realized  gain from its  portfolio  investments.  During 1997,  the  Partnership
liquidated  portfolio  investments,   including  positions  in  several  of  its
publicly-traded  securities,  for $30,571,957,  realizing a gain of $22,400,099.
This gain was offset by a $6,794,587  realized loss,  resulting from the partial
write-off of the Partnership's  investments in Biocircuits  Corporation,  Clarus
Medical  Systems,  Inc.,  Neocrin Company,  Inc. and Horizon Cellular  Telephone
Company, L.P. during 1997.

Investment  Income and Expenses - For the years ended December 31, 1999 and 1998
the   Partnership   had  a  net  investment   loss  of  $272,881  and  $152,888,
respectively.  For the year ended  December 31, 1997,  the  Partnership  had net
investment income of $53,543.

The  unfavorable  change in net  investment  income  for 1999  compared  to 1998
resulted  from a decrease  in  investment  income of $91,022  and an increase in
operating  expenses of $28,971.  The decline in investment  income primarily was
due to a  $78,625  decrease  in  interest  income  from  short-term  investments
resulting from a decrease in funds  available for investment in such  securities
during 1999 compared to 1998. The small increase in operating  expenses reflects
increases in professional fees of $14,331,  fees paid to the Independent General
Partners  of $9,000  and small  increases  in  mailing  and  printing  and other
expenses.

The  unfavorable  change in net  investment  income  for 1998  compared  to 1997
resulted from a decrease in investment income of $409,615  partially offset by a
decrease of $203,184 in operating expenses. The decline in investment income was
due to a $357,660 decrease in interest income from short-term  investments and a
$51,955  decrease  in  interest,   dividend  and  other  income  from  portfolio
investments  for 1998  compared to 1997.  The  decline in  interest  income from
short-term investments primarily resulted from a decrease in funds available for
investment  in such  securities  during 1998  compared to 1997.  The decrease in
interest, dividend and other income from portfolio investments primarily was due
to the elimination of dividend income from Borg-Warner  Automotive,  Inc. during
1998. The Partnership sold its investment in Borg-Warner Automotive and received
a final  dividend  payment of  $37,754  during  the first  quarter of 1997.  The
decline in operating  expenses  primarily resulted from reduced management fees,
as  discussed  below,  and a  reduction  in  professional  fees and  mailing and
printing expenses incurred during the 1998 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 years ended December 31, 1999,
1998 and 1997, was $200,000, $200,000 and $282,686, respectively. The management
fee and other operating  expenses are paid with funds provided from  operations.
Funds  provided from  operations  for the periods  presented  were obtained from
interest  received 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 of Portfolio
Investments - During the year ended December 31, 1999, the  Partnership  reduced
the fair value of its  portfolio of  investments  on a net basis by  $2,723,316.
Additionally  during 1999, a net $5,045,561 was transferred from unrealized gain
to realized gain relating to portfolio  investments  liquidated and  written-off
during  1999,  as  discussed  above.  As a result,  unrealized  appreciation  of
investments decreased by $2,322,245 for 1999.

During the year ended December 31, 1998, the Partnership  reduced the fair value
of its  portfolio  of  investments  on a net basis by  $1,209,743.  Additionally
during 1998, a net $1,974,768 was  transferred  from unrealized loss to realized
loss relating to portfolio  investments  liquidated and written-off during 1998,
as  discussed  above.  As  a  result,  unrealized  appreciation  of  investments
increased by $765,025 for 1998.

During the year ended  December 31, 1997,  the  Partnership  increased  the fair
value of its portfolio of investments on a net basis by $1,200,665. Additionally
during 1997, a net $7,073,490 was  transferred  from unrealized gain to realized
gain  relating to portfolio  investments  sold and  written-off  during 1997, as
discussed above. As a result, unrealized appreciation of investments was reduced
by $5,872,825 for 1997.

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 year ended  December  31, 1999,  the  Partnership  had a $3,430,464  net
increase in net assets  resulting from  operations,  comprised of the $5,752,709
net  realized  gain  from  operations  offset  by  the  $2,322,245  decrease  in
unrealized  appreciation  of investments  for 1999. As of December 31, 1999, the
Partnership's  net assets were $5,982,973 down $9,655,229 from $15,638,202 as of
December  31,  1998.  This  decrease  is the result of the  $13,085,693  of cash
distributions  paid or accrued to partners  during 1999 exceeding the $3,430,464
increase in net assets from operations for 1999.

For the year ended  December  31, 1998,  the  Partnership  had a $1,554,219  net
decrease in net assets  resulting from  operations,  comprised of the $2,319,244
net realized loss from operations  partially offset by the $765,025  increase in
unrealized  appreciation  of investments  for the year. As of December 31, 1998,
the Partnership's net assets were $15,638,202,  down $6,068,991 from $21,707,193
as of December  31, 1997.  This  decrease is the result of the  $4,514,772  cash
distribution  to  partners,  which was accrued as of  December  31, 1998 and the
$1,554,219 decrease in net assets from operations for 1998.

For the year ended  December  31, 1997,  the  Partnership  had a $9,786,230  net
increase in net assets resulting from  operations,  comprised of the $15,659,055
net  realized  gain  from  operations  offset  by  the  $5,872,825  decrease  in
unrealized  appreciation  of investments  for the year. As of December 31, 1997,
the Partnership's net assets were $21,707,193, down $20,215,843 from $41,923,036
as of December 31, 1996.  This decrease is the result of the $30,002,073 of cash
distributions paid to partners during 1997 exceeding the $9,786,230  increase in
net assets from operations for 1997.

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 the 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 December  31,  1999,  1998 and 1997,  was $43,  $117 and $162,
respectively.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

The  Partnership  is subject to market risk arising from changes in the value of
its portfolio  investments,  short-term  investments and  interest-bearing  cash
equivalents,  which may result from  fluctuations  in interest  rates and equity
prices.  The  Partnership has calculated its market risk related to its holdings
of these  investments  based on changes  in  interest  rates and  equity  prices
utilizing  a  sensitivity  analysis.  The  sensitivity  analysis  estimates  the
hypothetical  change in fair values, cash flows and earnings based on an assumed
10% change  (increase  or  decrease)  in interest  rates and equity  prices.  To
perform the  sensitivity  analysis,  the assumed 10% change is applied to market
rates  and  prices  on  investments  held by the  Partnership  at the end of the
accounting period.

The  Partnership's   portfolio  investments  had  an  aggregate  fair  value  of
$5,414,349  as of December 31, 1999.  An assumed 10% decline from this  December
31, 1999 fair value,  including  an assumed 10% decline of the per share  market
prices  of the  Partnership's  publicly-traded  securities,  would  result  in a
reduction  to the  fair  value of such  investments  and an  unrealized  loss of
$541,435.

As of December 31, 1999, the Partnership held short-term  investments consisting
of  two  separate   discounted   commercial  paper  instruments  with  remaining
maturities of 20 days or less. These  short-term  investments were carried at an
aggregate  amortized  cost of $8,471,368 as of December 31, 1999. An assumed 10%
increase in the market interest rates of such short-term investments held by the
Partnership  as of December  31,  1999,  would result in a reduction to the fair
value of such  investments  and an  unrealized  loss which is  considered  to be
immaterial.

Market risk relating to the Partnership's interest-bearing cash equivalents held
as of December 31, 1999 is also considered to be immaterial.


<PAGE>



Item 8.       Financial Statements and Supplementary Data.
              -------------------------------------------


                       ML VENTURE PARTNERS II, L.P.
                                INDEX

Independent Auditors' Report

Balance Sheets as of December 31, 1999 and 1998

Schedule of Portfolio Investments as of December 31, 1999

Schedule of Portfolio Investments as of December 31, 1998

Statements of Operations for the years ended December 31, 1999, 1998 and 1997

Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997

Statements of Changes in Partners' Capital for the years ended
December 31, 1997, 1998 and 1999

Notes to Financial Statements

NOTE - All other  schedules  are omitted  because of the  absence of  conditions
under which they are required or because the required information is included in
the financial statements or the notes thereto.


<PAGE>


INDEPENDENT AUDITORS' REPORT

ML Venture Partners II, L.P.:

We have audited the accompanying  balance sheets of ML Venture Partners II, L.P.
(the  "Partnership"),  including the schedules of portfolio  investments,  as of
December  31, 1999 and 1998,  and the related  statements  of  operations,  cash
flows,  and  changes in  partners'  capital  for each of the three  years in the
period  ended   December  31,  1999.   These   financial   statements   are  the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1999 and 1998 by correspondence
with the custodian;  where  confirmation  was not possible,  we performed  other
audit  procedures.  An audit also includes  assessing the accounting  principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the financial position of ML Venture Partners II, L.P. as of December
31,  1999 and 1998,  and the results of its  operations,  its cash flows and the
changes in its partners' capital for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.

As explained in Note 2, the financial  statements  include  securities valued at
$5,414,349  and  $14,970,273  as of December  31,  1999 and 1998,  respectively,
representing  90% and 96% of net assets,  respectively,  whose  values have been
estimated by the  Sub-Manager  under the  supervision of the Individual  General
Partners   and  the  Managing   General   Partner  in  the  absence  of  readily
ascertainable  market  values.  We  have  reviewed  the  procedures  used by the
Sub-Manager  in arriving at its  estimate of value of such  securities  and have
inspected underlying  documentation,  and, in the circumstances,  we believe the
procedures are reasonable and the documentation appropriate. However, because of
the  inherent  uncertainty  of  valuation,  those  estimated  values  may differ
significantly  from the values that would have been used had a ready  market for
the securities existed, and the differences could be material.

Deloitte & Touche LLP

New York, New York
February 20, 2000


<PAGE>


ML VENTURE PARTNERS II, L.P.
BALANCE SHEETS
<TABLE>

As of December 31,

                                                                                                1999                 1998
                                                                                          ----------------     ----------
ASSETS

Portfolio investments, at fair value (cost $2,964,006 as of
<S>         <C> <C>      <C>                        <C> <C>                               <C>                  <C>
   December 31, 1999 and $10,197,685 as of December 31, 1998)                             $      5,414,349     $     14,970,273
Short-term investments, at amortized cost                                                        8,471,368            4,488,454
Cash and cash equivalents                                                                        1,059,973              423,675
Receivable from securities sold                                                                          -              475,435
Accrued interest receivable                                                                              -                1,291
                                                                                          ----------------     ----------------

TOTAL ASSETS                                                                              $     14,945,690     $     20,359,128
                                                                                          ================     ================

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
Cash distribution payable                                                                 $      8,704,964     $      4,514,772
Accounts payable and accrued expenses                                                               91,518               85,874
Due to Management Company                                                                          166,235              100,410
Due to Independent General Partners                                                                      -               19,870
                                                                                          ----------------     ----------------
   Total liabilities                                                                             8,962,717            4,720,926
                                                                                          ----------------     ----------------

Partners' Capital:
Managing General Partner                                                                           338,194              652,777
Individual General Partners                                                                            107                  341
Limited Partners (120,000 Units)                                                                 3,194,329           10,212,496
Unallocated net unrealized appreciation of investments                                           2,450,343            4,772,588
                                                                                          ----------------     ----------------
   Total partners' capital                                                                       5,982,973           15,638,202
                                                                                          ----------------     ----------------

TOTAL LIABILITIES AND PARTNERS' CAPITAL                                                   $     14,945,690     $     20,359,128
                                                                                          ================     ================

</TABLE>


See notes to financial statements.


<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
<TABLE>

As of December 31, 1999

<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                       Initial Investment
Company / Position                                                            Date                 Cost              Fair Value
-----------------------------------------------------------------------------------------------------------------------------------
Burns International Services Corporation* (A)
Protective services
500,000 shares of Common Stock                                            Sept. 1988          $    2,500,000    $     4,325,000
-------------------------------------------------------------------------------------------------------------------------------
Brightware, Inc.  (B)
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            153,125
Options to purchase 27,969 shares of Common Stock
   at $1.42 per share, expiring on 10/31/01                                                                0             28,808
-------------------------------------------------------------------------------------------------------------------------------
ReGen Biologics, Inc.
Joint and spine regeneration products
72,800 shares of Common Stock                                             Apr. 1991                      364            263,900
62,400 shares of Preferred Stock                                                                     114,400            226,200
-------------------------------------------------------------------------------------------------------------------------------
Stereotaxis, Inc.
Drug delivery and brain surgery systems
21,632 shares of Common Stock                                             Apr. 1990                      216             16,224
134,674 shares of Preferred Stock                                                                     62,684            101,006
-------------------------------------------------------------------------------------------------------------------------------
Total Portfolio Investments (C)                                                               $    2,964,006    $     5,414,349

                                                                                              ---------------------------------
</TABLE>


Supplemental Information: Liquidated Portfolio Investments(D)
<TABLE>

                                                      Liquidation                              Realized
Company                                                  Date               Cost              Gain (Loss)                Return
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>                   <C>                 <C>
Allez, Inc.                                           1992            $     1,781,320       $   (1,781,320)     $             0
Amdahl Corporation                                    1989                    729,742            1,837,787            2,567,529
Aqua Group, Inc.                                      1990                  2,000,000           (1,999,999)                   1
BBN Advanced Computer Partners, L.P.                  1990                    868,428             (864,028)               4,400
BBN Integrated Switch Partners, L.P.                  1990-1992             5,022,380           (4,822,797)             199,583
Biocircuits Corporation                               1997-1998             2,653,751           (2,653,751)                   0
Borg-Warner Automotive, Inc.                          1994-1997             2,500,000           14,628,202           17,128,202
Business Depot, Ltd.                                  1994                  1,214,184            1,539,476            2,753,660

</TABLE>


<PAGE>


ML VENTURE PARTNERS II, L.P.

SCHEDULE OF PORTFOLIO INVESTMENTS, continued
<TABLE>

As of December 31, 1999

Supplemental Information: Liquidated Portfolio Investments(D)

                                                      Liquidation                              Realized
Company                                                 Date                  Cost            Gain (Loss)              Return
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>  <C>        <C>                   <C>                 <C>
CellPro, Incorporated                                 1994-1996       $     1,560,944       $   15,999,505      $    17,560,449
Children's Discovery Centers of America, Inc.         1995                  2,000,259             (236,187)           1,764,072
Clarus Medical Systems, Inc. (C)                      1997-1999             2,389,168           (2,389,168)                   0
Communications International, Inc.                    1992-1994             1,819,332           (1,819,331)                   1
Computer-Aided Design Group                           1990-1991             1,131,070           (1,131,069)                   1
Corporate Express, Inc. (C)                           1994-1999             2,999,912           26,069,494           29,069,406
Data Recording Systems, Inc.                          1988                  1,615,129           (1,499,999)             115,130
Diatide, Inc.(C)                                      1999                  2,986,023            4,706,165            7,692,188
Eckerd Corporation                                    1995                    857,004            2,019,272            2,876,276
Elantec, Inc.                                         1993-1997             1,412,118            2,105,168            3,517,286
Everex Systems, Inc.                                  1991-1992               750,000              447,606            1,197,606
Hoffman & Company, L.P.                               1993                     40,000              (40,000)                   0
Home Express, Inc.                                    1995                  1,822,751           (1,822,751)                   0
Horizon Cellular Telephone Company, L.P.(C)           1996-1999             3,678,926            2,091,744            5,770,670
I.D.E Corporation (C)                                 1996-1999             1,110,909           (1,110,909)                   0
IDEC Pharmaceuticals Corporation                      1994-1997             4,261,036            8,378,635           12,639,671
Inference Corporation                                 1995-1996               849,362            3,280,433            4,129,795
In-Store Advertising, Inc.                            1992                  2,259,741           (2,259,741)                   0
InteLock Corporation                                  1992                  1,254,125           (1,251,274)               2,851
Komag, Incorporated                                   1991-1995             2,365,237            4,477,842            6,843,079
Ligand Pharmaceuticals Inc.                           1992-1996             1,414,435            4,227,245            5,641,680
Magnesys                                              1989                  1,440,997           (1,412,049)              28,948
Meteor Message Corporation                            1990                  1,501,048           (1,501,047)                   1
Micro Linear Corporation                              1994-1995             1,120,300            2,897,886            4,018,186
Mobile Telecommunications
   Technologies Corporation                           1995                  1,558,155            3,439,923            4,998,078
Neocrin Company (C)                                   1996-1999             4,203,938           (4,203,938)                   0


<PAGE>


ML VENTURE PARTNERS II, L.P.

SCHEDULE OF PORTFOLIO INVESTMENTS, continued

As of December 31, 1999

Supplemental Information: Liquidated Portfolio Investments(F)

                                                      Liquidation                              Realized
Company                                                 Date                  Cost             Gain (Loss)              Return
------------------------------------------------------------------------------------------------------------------------------------
OccuSystems, Inc.                                     1994-1996       $     2,657,000       $    9,353,722      $    12,010,722
Ogle Resources, Inc. (C)                              1993-1999             1,974,286           (1,965,882)               8,404
Pandora Industries, Inc.                              1990                  2,060,139           (2,060,138)                   1
Photon Dynamics, Inc. (C)                             1999                  2,452,226            2,114,795            4,567,021
Pyxis Corporation                                     1993                    634,598            7,169,424            7,804,022
Raytel Medical Corp.                                  1996-1997             1,807,664            4,370,155            6,177,819
R-Byte Inc.                                           1992-1994             1,991,098             (443,566)           1,547,532
Regeneron Pharmaceuticals, Inc.                       1991-1995             2,678,135           30,203,091           32,881,226
Research Applications, Inc.                           1994                    100,000             (100,000)                   0
Ringer Corporation                                    1991-1994             3,029,652           (2,208,012)             821,640
S & J Industries, Inc.                                1991-1992             1,600,150           (1,555,149)              45,001
Sanderling Biomedical, L.P. (C)                       1995-1999             1,822,336            1,075,112            2,897,448
Saxpy Computer Corporation                            1988                  2,000,000           (2,000,000)                   0
SDL, Inc.                                             1993-1996             4,757,265           10,502,531           15,259,796
SF2 Corporation                                       1991-1994             2,193,293           (1,856,570)             336,723
Shared Resource Exchange, Inc.                        1990-1994               999,999             (999,998)                   1
Special Situations, Inc.                              1988                    215,000             (187,175)              27,825
Storage Technology Corporation                        1990                  2,174,000            1,466,802            3,640,802
Target Vision, Inc.                                   1992-1995             1,500,000           (1,253,750)             246,250
TCOM Systems, Inc.                                    1990-1992             4,715,384           (4,711,536)               3,848
Telecom USA, Inc.                                     1989                  5,000,000            3,361,778            8,361,778
Touch Communications Incorporated                     1991                  1,119,693           (1,119,693)                   0
Viasoft, Inc.                                         1995-1996               915,348            2,801,429            3,716,777
----------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Net
                                                                            Cost            Realized Gain            Return

Totals from Liquidated Portfolio Investments                          $   113,568,990       $117,304,395          $ 230,873,385
                                                                      =========================================================

                                                                                            Combined Net               Combined
                                                                                           Unrealized and            Fair Value
                                                                            Cost            Realized Gain            and Return

Totals from Active and Liquidated Portfolio Investments               $   116,532,996       $  119,754,738     $    236,287,734
                                                                      =========================================================


<PAGE>


ML VENTURE PARTNERS II, L.P.

SCHEDULE OF PORTFOLIO INVESTMENTS, continued

As of December 31, 1999

(A)  Public company

(B)  In March 1999, in a non-cash  transaction,  the  Partnership  exchanged its
     warrant to purchase  38,737 common shares of  Brightware,  inc. at $.40 per
     share for 28,407 shares of Brightware common stock.

(C) See Note 5 of Notes to Financial  Statements for portfolio  investments sold
or written-off during 1999.

(D)  Amounts  provided  for  "Supplemental  Information:   Liquidated  Portfolio
     Investments" are cumulative from inception through December 31, 1999.

* May be deemed  an  affiliated  person of the  Partnership  as  defined  in the
Investment Company Act of 1940.

See notes to financial statements.


<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS

As of December 31, 1998

                                                                       Initial Investment

Company / Position                                                            Date                 Cost              Fair Value

Borg-Warner Security Corporation* (A)

500,000 shares of Common Stock                                            Sept. 1988          $    2,500,000    $     7,031,250
-------------------------------------------------------------------------------------------------------------------------------
Brightware, Inc.

   171,650 shares of Common Stock                                         May 1995                    43,565            257,475
   Warrants to purchase 38,737 shares of Common Stock
     at $.40 per share, expiring on 4/19/99                                                            1,138             42,611
-------------------------------------------------------------------------------------------------------------------------------
Clarus Medical Systems, Inc.*

179,028 shares of Preferred Stock                                         Jan. 1991                1,000,548            895,152
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
-------------------------------------------------------------------------------------------------------------------------------
CoCensys, Inc. (A)

152,507 shares of Common Stock                                            Feb. 1989                  192,504             30,978
-------------------------------------------------------------------------------------------------------------------------------
Corporate Express, Inc. (A)

60,000 shares of Common Stock                                             May 1992                    12,000            249,000
-------------------------------------------------------------------------------------------------------------------------------
Diatide, Inc.* (A)
809,704 shares of Common Stock                                            Dec. 1991                2,986,023          3,815,731
-------------------------------------------------------------------------------------------------------------------------------
I.D.E. Corporation
113,322 shares of Common Stock                                            Mar. 1988                  227,000                  0
-------------------------------------------------------------------------------------------------------------------------------
Neocrin Company
48,429 shares of Preferred Stock                                          June 1991                  363,378                  0
-------------------------------------------------------------------------------------------------------------------------------
Photon Dynamics, Inc.* (A)

425,236 shares of Common Stock                                            Sept. 1988               2,452,226          1,743,464
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)

62,500 shares of Common Stock                                             Feb. 1990                  241,639            232,813
Options to purchase 27,969 shares of Common Stock
   at $1.42 per share, expiring on 10/31/01                                                                0             64,469
-------------------------------------------------------------------------------------------------------------------------------
ReGen Biologics, Inc.

72,800 shares of Common Stock                                             Apr. 1991                      364            263,900
62,400 shares of Preferred Stock                                                                     114,400            226,200
-------------------------------------------------------------------------------------------------------------------------------
Stereotaxis, Inc.

21,632 shares of Common Stock                                             Apr. 1990                      216             16,224
134,674 shares of Preferred Stock                                                                     62,684            101,006
-------------------------------------------------------------------------------------------------------------------------------
Total Portfolio Investments                                                                   $   10,197,685    $    14,970,273
                                                                                              ---------------------------------
</TABLE>



<PAGE>


ML VENTURE PARTNERS II, L.P.

SCHEDULE OF PORTFOLIO INVESTMENTS, continued
<TABLE>

As of December 31, 1998

                                                                                                 Net

                                                                            Cost            Realized Gain            Return

<S>                                                   <C>                           <C>                  <C>
Totals from Liquidated Portfolio Investments (B)      $               106,335,311   $       111,278,805  $     217,614,116
                                                      ====================================================================

                                                                                            Combined Net               Combined
                                                                                           Unrealized and            Fair Value

                                                                            Cost            Realized Gain            and Return

Totals from Active & Liquidated Portfolio Investments                 $   116,532,996       $  116,051,393     $    232,584,389
                                                                      =========================================================
</TABLE>

(A)  Public company

(B)  Amounts  provided  for  "Supplemental  Information:   Liquidated  Portfolio
     Investments" are cumulative from inception through December 31, 1998.

* May be deemed  an  affiliated  person of the  Partnership  as  defined  in the
Investment Company Act of 1940.

See notes to financial statements.


<PAGE>


ML VENTURE PARTNERS II, L.P.

STATEMENTS OF OPERATIONS
<TABLE>

For the Years Ended December 31,

                                                                               1999               1998               1997
                                                                         ---------------     ---------------    ---------

INVESTMENT INCOME AND EXPENSES

   Income:
<S>                                                                      <C>                 <C>               <C>
   Interest from short-term investments                                  $       202,271     $       280,896   $        638,556
   Interest and other income from portfolio investments                              672              13,069             27,270
   Dividend income from portfolio investments                                          -                   -             37,754
                                                                         ---------------     ---------------   ----------------
   Total investment income                                                       202,943             293,965            703,580
                                                                         ---------------     ---------------   ----------------

   Expenses:
   Management fee                                                                200,000             200,000            282,686
   Professional fees                                                              92,921              78,590            140,089
   Mailing and printing                                                           80,953              77,897            126,589
   Independent General Partners' fees                                             91,500              82,500             91,800
   Custodial fees                                                                  2,222               2,198                373
   Other                                                                           8,228               5,668              8,500
                                                                         ---------------     ---------------   ----------------
   Total investment expenses                                                     475,824             446,853            650,037
                                                                         ---------------     ---------------   ----------------

NET INVESTMENT (LOSS) INCOME                                                    (272,881)           (152,888)            53,543

Net realized gain (loss) from portfolio investments                            6,025,590          (2,166,356)        15,605,512
                                                                         ---------------     ---------------   ----------------

NET REALIZED GAIN (LOSS) FROM OPERATIONS                                       5,752,709          (2,319,244)        15,659,055

Change in unrealized appreciation of investments                              (2,322,245)            765,025         (5,872,825)
                                                                         ---------------     ---------------   ----------------

NET INCREASE (DECREASE) IN NET ASSETS

   RESULTING FROM OPERATIONS                                             $     3,430,464     $    (1,554,219)  $      9,786,230
                                                                         ===============     ===============   ================

</TABLE>

See notes to financial statements.


<PAGE>


ML VENTURE PARTNERS II, L.P.

STATEMENTS OF CASH FLOWS
<TABLE>

Years Ended December 31,

                                                                               1999               1998                1997
                                                                         ---------------     ---------------   -----------

CASH FLOWS USED FOR OPERATING ACTIVITIES

<S>                                                                      <C>                 <C>               <C>
Net investment (loss) income                                             $      (272,881)    $      (152,888)  $         53,543

Adjustments to reconcile net investment (loss) income to cash used for operating
   activities:

(Increase) decrease in accrued interest from short-term
   investments                                                                   (13,201)             (8,895)            19,695
Decrease (increase) in accrued interest receivable                                 1,291              (1,291)            49,442
Increase (decrease) in payables, net                                              51,599              (5,783)          (133,258)
                                                                         ---------------     ---------------   ----------------
Cash used for operating activities                                              (233,192)           (168,857)           (10,578)
                                                                         ---------------     ---------------   ----------------

CASH FLOWS PROVIDED FROM (USED FOR)
   INVESTING ACTIVITIES

Net (purchase) return of short-term investments                               (3,969,713)         (1,500,007)         1,487,155
Cost of portfolio investments purchased                                                -                   -           (474,255)
Net proceeds from the sale of portfolio investments                           13,734,704             174,204         28,190,298
Repayment of investments in notes                                                      -                   -          2,381,659
                                                                         ---------------     ---------------   ----------------
Cash provided from (used for) investing activities                             9,764,991          (1,325,803)        31,584,857
                                                                         ---------------     ---------------   ----------------

CASH FLOWS USED FOR FINANCING ACTIVITIES

Cash distributions paid to Partners                                           (8,895,501)                  -        (30,002,073)
                                                                         ---------------     ---------------        -----------

Increase (decrease) in cash and cash equivalents                                 636,298          (1,494,660)         1,572,206
Cash and cash equivalents at beginning of year                                   423,675           1,918,335            346,129
                                                                         ---------------     ---------------   ----------------

CASH AND CASH EQUIVALENTS AT END

   OF YEAR                                                               $     1,059,973     $       423,675   $      1,918,335
                                                                         ===============     ===============   ================

</TABLE>

See notes to financial statements.


<PAGE>


ML VENTURE PARTNERS II, L.P.

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>

Years Ended December 31, 1997, 1998 and 1999

                                                                                              Unallocated

                                         Managing        Individual                         Net Unrealized
                                          General          General           Limited        Appreciation of

                                          Partner         Partners          Partners          Investments           Total
------------------------------------------------------------------------------------------------------------   ----------
<S>                    <C> <C>         <C>                <C>           <C>                 <C>                <C>
Balance as of December 31, 1996        $   1,158,769      $ 1,029       $   30,882,850      $    9,880,388     $     41,923,036
Cash distributions paid or accrued        (3,001,173)        (900)         (27,000,000)                  -          (30,002,073)
Net investment income                         13,410            2               40,131                   -               53,543
Net realized gain on investments           3,245,946          412           12,359,154                   -           15,605,512
Change in unrealized
   appreciation on investments                     -            -                    -          (5,872,825)          (5,872,825)
                                       -------------      -------       --------------      --------------     ----------------
Balance as of December 31, 1997            1,416,952          543           16,282,135(A)        4,007,563           21,707,193
Cash distributions - paid or accrued        (314,632)        (140)          (4,200,000)                  -           (4,514,772)
Net investment income (loss)                   1,059           (5)            (153,942)                  -             (152,888)
Net realized loss on investments            (450,602)         (57)          (1,715,697)                  -           (2,166,356)
Change in unrealized
   appreciation on investments                     -            -                    -             765,025              765,025
                                       -------------      -------       --------------      --------------     ----------------
Balance as of December 31, 1998              652,777          341           10,212,496(A)        4,772,588           15,638,202
Cash distributions - paid or accrued      (1,565,309)        (384)         (11,520,000)                  -          (13,085,693)
Net investment loss                           (2,597)          (9)            (270,275)                  -             (272,881)
Net realized gain on investments           1,253,323          159            4,772,108                   -            6,025,590
Change in unrealized
   appreciation on investments                     -            -                    -          (2,322,245)          (2,322,245)
                                       -------------      -------       --------------      --------------     ----------------
Balance as of December 31, 1999        $     338,194      $   107       $    3,194,329(A)   $    2,450,343     $      5,982,973
                                       =============      =======       ==============      ==============     ================

</TABLE>


(A)  The net asset  value per unit of  limited  partnership  interest  ("Unit"),
     including  an  assumed   allocation  of  net  unrealized   appreciation  of
     investments,  was $43,  $117,  and $162 as of December 31,  1999,  1998 and
     1997,  respectively.  Cumulative cash  distributions  paid, or payable,  to
     limited partners from inception to December 31, 1999, 1998 and 1997 totaled
     $1,656, $1,560 and $1,525 per Unit, respectively.

See notes to financial statements.


<PAGE>


 ML VENTURE PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS

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.  In November 1999, the Individual  General  Partners
voted to extend the term of the Partnership for an additional  two-year  period.
The  Partnership  is now scheduled to terminate no later than December 31, 2001.
However,  the  Managing  General  Partner  is  working  toward  liquidating  the
Partnership's  remaining  assets  and  terminating  the  Partnership  as soon as
practical with the goal of maximizing returns to partners.

2.     Significant Accounting Policies

Valuation of Investments - Short-term investments are carried at amortized cost,
which approximates market.  Portfolio  investments are carried at fair value, as
determined  quarterly by the Sub-Manager under the supervision of the Individual
General  Partners  and the Managing  General  Partner.  Publicly-held  portfolio
securities are valued at the closing public market price on the valuation  date,
discounted  by a factor of up to 50% for  sales  restrictions,  if any.  Factors
considered in the determination of an appropriate discount include,  underwriter
lock-up or Rule 144 trading  restrictions,  insider status where the Partnership
either has a  representative  serving on the company's  Board of Directors or is
greater than a 10% shareholder,  and other liquidity factors such as the size of
the Partnership's position in a given company compared to the trading history of
the public  security.  Privately-held  portfolio  securities are carried at cost
until significant  developments  affecting the portfolio company provide a basis
for change in  valuation.  The fair value of private  securities  is adjusted to
reflect 1)  meaningful  third-party  transactions  in the  private  market or 2)
significant  progress or slippage in the  development of the company's  business
such that cost is no  longer  reflective  of fair  value.  As a venture  capital
investment fund, the Partnership's  portfolio  investments involve a high degree
of  business  and  financial  risk that can result in  substantial  losses.  The
Sub-Manager   considers  such  risks  in  determining  the  fair  value  of  the
Partnership's portfolio investments.

Use of Estimates - The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles 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, continued

Investment  Transactions - Investment  transactions  are recorded on the accrual
method.  Portfolio  investments  are  recorded on the trade  date,  the date the
Partnership  obtains an  enforceable  right to demand the  securities or payment
therefor.  Realized  gains and  losses on  investments  sold are  computed  on a
specific identification basis.

Income Taxes - No provision  for income taxes has been made since all income and
losses are  allocable  to the partners for  inclusion  in their  respective  tax
returns.  The Partnership's net assets for financial  reporting  purposes differ
from its net assets for tax purposes. Net unrealized appreciation of investments
of  approximately  $2.5  million as of  December  31,  1999,  was  recorded  for
financial  statement  purposes,   but  was  not  recognized  for  tax  purposes.
Additionally,  from  inception  to December  31,  1999,  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 December 31, 1999, the
Partnership  had a $121.6  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.  Such fee is determined  and paid
quarterly.

Each of the three  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, continued

5.       Portfolio Investments
<TABLE>

Portfolio  investments  liquidated  during the years ended December 31, 1999 and
1998 are shown below:

                                                           Shares                              Realized
Investment                                                  Sold              Cost            Gain (Loss)           Return
--------------------------------------------------------------------------------------------------------------------------

Year Ended December 31, 1999 (1):

<S>                                                                     <C>                 <C>                <C>
Clarus Medical Systems, Inc. - write-off                       n/a      $    1,000,548      $   (1,000,548)    $             0
CoCensys, Inc. (Sanderling)                                 19,063 (2)         192,504            (173,433)             19,071
Corporate Express, Inc.                                     60,000              12,000             570,000             582,000
Diatide, Inc.                                              809,704           2,986,023           4,706,165           7,692,188
Horizon Cellular Telephone
   Company, L.P. - liquidation                                 n/a                   0             389,118             389,118
IDE Corporation - write-off                                    n/a             227,000            (227,000)                  0
MLMS Cancer Research, Inc. - liquidation                       n/a                   0               1,567               1,567
Neocrin Company - write-off                                    n/a             363,378            (363,378)                  0
Ogle Resources, Inc.                                           n/a                   0               8,304               8,304
Photon Dynamics, Inc.                                      428,879 (3)       2,452,226           2,114,795           4,567,021
                                                                        --------------    ----------------     ---------------
Total                                                                   $    7,233,679    $      6,025,590     $    13,259,269
                                                                        ==============    ================     ===============
</TABLE>

(1) See  Schedule  of  Portfolio  Investments  for  the  cumulative  results  of
liquidations  of these  investments.  (2) Adjusted for a 1-for-8  reverse  stock
split  effective in April 1999. (3) Includes 3,643 shares received in a non-cash
exchange for the Partnership's warrant to purchase 6,062 shares.

Year ended December 31, 1998:
<TABLE>

<S>                                                                     <C>               <C>                  <C>
Biocircuits Corporation - partial write-off                    n/a      $    1,488,884    $     (1,488,884)    $             0
Depotech Corp., Inc. (Sanderling)                           93,745              57,056              79,822             136,878
Horizon Cellular Telephone
   Company Investment, L.P. - sale of options                  n/a                   0             187,194             187,194
Horizon Cellular Telephone

    Company Investment, L.P. - partial write-off               n/a             169,150            (169,150)                  0
Sanderling Biomedical, L.P. - liquidation                      n/a           1,100,905            (775,338)            325,567
                                                                        --------------    ----------------     ---------------
Total                                                                   $    2,815,995    $     (2,166,356)    $       649,639
                                                                        ==============    ================     ===============
</TABLE>

6.       Cash Distributions

Cash  distributions  paid or accrued during the periods presented and cumulative
cash  distributions  to  partners  from  inception  of the  Partnership  through
December 31, 1999 are listed below:
<TABLE>

                                                           Managing           Individual                                 Per
                                                            General             General                  Limited          $1,000
Distribution Date                                           Partner            Partners             Partners            Unit
--------------------------------------                ----------------         --------       ------------------      ------
<S>                   <C> <C>                         <C>                    <C>              <C>                    <C>
Inception to December 31, 1996                        $     21,132,691       $    5,200       $      156,000,000     $    1,300
July 11, 1997                                                2,590,089              640               19,200,000            160
October 16, 1997                                               411,084              260                7,800,000             65
January 26, 1999                                               314,632              140                4,200,000             35
October 7, 1999                                                180,589              140                4,200,000             35
January 25, 2000 (accrued)                                   1,384,720              244                7,320,000             61
                                                      ----------------       ----------       ------------------     ----------

Cumulative totals as of December 31, 1999             $     26,013,805       $    6,624       $      198,720,000     $    1,656
                                                      ================       ==========       ==================     ==========
</TABLE>


<PAGE>


ML VENTURE PARTNERS II, L.P.

NOTES TO FINANCIAL STATEMENTS, continued

7.     Classification of Portfolio Investments

As of December 31, 1999, the  Partnership's  investments in portfolio  companies
were categorized as follows:
<TABLE>

                                                                                               % of

Type of Investments                                  Cost               Fair Value          Net Assets*
-------------------                             --------------        ---------------       -----------
<S>                                             <C>                   <C>                     <C>
Common Stock and Warrants                       $    2,786,922        $     5,087,143         85.03%
Preferred Stock                                        177,084                327,206          5.47%
                                                --------------        ---------------        -------
Total                                           $    2,964,006        $     5,414,349         90.50%
                                                ==============        ===============         ======

Country/Geographic Region

Midwestern U.S.                                 $    2,562,900        $     4,442,230         74.25%
Western U.S.                                           401,106                972,119         16.25%
                                                --------------        ---------------         ------
Total                                           $    2,964,006        $     5,414,349         90.50%
                                                ==============        ===============         ======

Industry

Business Services                               $    2,500,000        $     4,325,000         72.29%
Biotechnology                                          177,664                607,330         10.15%
Medical Devices and Services                           241,639                181,933          3.04%
Computer Hardware/Software                              44,703                300,086          5.02%
                                                --------------        ---------------         ------
Total                                           $    2,964,006        $     5,414,349         90.50%
                                                ==============        ===============         ======
</TABLE>

* Percentage of net assets is based on fair value.

As of December 31, 1998, the  Partnership's  investments in portfolio  companies
were categorized as follows:
<TABLE>

                                                                                               % of

Type of Investments                                  Cost               Fair Value          Net Assets*
-------------------                             --------------        ---------------       -----------
<S>                                             <C>                   <C>                     <C>
Common Stock and Warrants                       $    8,656,675        $    13,747,915         87.91%
Preferred Stock                                      1,541,010              1,222,358          7.82%
                                                --------------        ---------------        -------
Total                                           $   10,197,685        $    14,970,273         95.73%
                                                ==============        ===============         ======

Country/Geographic Region

Midwestern U.S.                                 $    3,575,448        $     8,292,632         53.03%
Western U.S.                                         3,409,214              2,861,910         18.30%
Eastern U.S.                                         3,213,023              3,815,731         24.40%
                                                --------------        ---------------         ------
Total                                           $   10,197,685        $    14,970,273         95.73%
                                                ==============        ===============         ======

Industry

Business Services                               $    2,512,000        $     7,280,250         46.55%
Biotechnology                                        3,356,191              4,454,039         28.48%
Semiconductors/Electronics                           2,452,226              1,743,464         11.15%
Medical Devices and Services                         1,605,565              1,192,434          7.63%
Computer Hardware/Software                             271,703                300,086          1.92%
                                                --------------        ---------------        -------
Total                                           $   10,197,685        $    14,970,273         95.73%
                                                ==============        ===============         ======
</TABLE>

* Percentage of net assets is based on fair value.


<PAGE>


ML VENTURE PARTNERS II, L.P.

NOTES TO FINANCIAL STATEMENTS, continued
<TABLE>

8.     Short-Term Investments

As of December 31, 1999 and 1998, the Partnership had short-term investments in commercial paper as detailed below.
                                                           Maturity          Purchase          Amortized            Value at
Issuer                                          Yield        Date              Price             Cost               Maturity
----------------------------------------------------------------------------------------------------------------------------

December 31, 1999:

<S>                                            <C>          <C>  <C>    <C>                 <C>                <C>
Lexington Parker Capital Corp.                 6.10%        1/20/00     $       492,884     $       498,306    $        500,000

Golden Crown Managers                          6.38%        1/19/00           7,931,947           7,973,062           8,000,000
                                                                        ---------------     ---------------    ----------------
Total as of December 31, 1999                                           $     8,424,831     $     8,471,368    $      8,500,000
                                                                        ===============     ===============    ================

December 31, 1998:

Amoco Managers Acceptance Corp.                5.58%        1/12/99     $     1,485,818     $     1,497,211    $      1,500,000

Star Marketers Acceptance Corp.                5.45%        1/19/99           1,487,510           1,495,685           1,500,000

Park Avenue Receivables Corp.                  5.33%        1/20/99           1,481,789           1,495,558           1,500,000
                                                                        ---------------     ---------------    ----------------
Total as of December 31, 1998                                           $     4,455,117     $     4,488,454    $      4,500,000
                                                                        ===============     ===============    ================

</TABLE>





<PAGE>


Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosures.
         ----------------------------------------------------------------

None

                                    PART III

Item 10.      Directors and Executive Officers of the Registrant.
              --------------------------------------------------

The Partnership

GENERAL PARTNERS

The General Partners of the Partnership  consist of the four Individual  General
Partners  and the  Managing  General  Partner.  The five  General  Partners  are
responsible  for  the  management  and  administration  of the  Partnership.  As
required by the  Investment  Company Act of 1940 (the "1940 Act"), a majority of
the General  Partners are individuals  who are not  "interested  persons" of the
Partnership  as defined in the 1940 Act. In 1987,  the  Securities  and Exchange
Commission  (the "SEC")  issued an order  declaring  that the three  Independent
General Partners of the Partnership (the "Independent General Partners") are not
"interested  persons"  of the  Partnership  as defined in the 1940 Act solely by
reason of their being general partners of the Partnership.

The Individual  General  Partners have full authority over the management of the
Partnership  and provide overall  guidance and  supervision  with respect to the
operations  of the  Partnership  and perform the various  duties  imposed on the
directors  of  business  development  companies  by the 1940 Act. In addition to
general fiduciary duties, the Individual  General Partners,  among other things,
supervise the management arrangements of the Partnership.

     The Managing General Partner,  subject to the supervision of the Individual
General  Partners,  has  authority to provide,  or arrange for the provision of,
management  services in connection with the venture  capital  investments of the
Partnership.  The general  partner of the  Managing  General  Partner is Merrill
Lynch Venture Capital Inc. (the "Management Company"). The Management Company is
an indirect subsidiary of Merrill Lynch & Co., Inc. ("ML & Co.").

Individual General Partners
---------------------------
Dr. Steward S. Flaschen (1)
592 Weed Street
New Canaan, Connecticut 06840
Age 73
Individual General Partner since 1987
Units of the Partnership beneficially owned as of March 15, 2000 - None (3)
         President of Flaschen & Davies,  a management  consulting  firm,  since
         1986;  Corporate  Senior Vice  President  and member of the  Management
         Policy Board of ITT Corporation from 1982 to 1986 and General Technical
         Director from 1969 to 1986; Chairman of Telco Systems Inc. from 1990 to
         1998;  Chairman of TranSwitch  Corp. from 1989 to present;  Director of
         Sipex Corp. from 1996 to present.

Jerome Jacobson (1)
4200 Massachusetts Avenue, N.W.
Washington, D.C. 20016
Age 78
Individual General Partner since 1987
Units    of the Partnership  beneficially  owned as of March 15, 2000 - None (3)
         President of Economic Studies Inc., an economic  consulting firm, since
         1984.

William M. Kelly (1)
500 Fifth Ave, 50th  Floor
New York, New York 10110
Age 56
Individual General Partner since 1991
Units of the Partnership beneficially owned as of March 15, 2000 - None (3)
         Managing Associate of Lingold Associates, since 1980; Vice President of
         National  Aviation and  Technology  Company,  a  registered  investment
         company,  from 1977 to 1980;  Director  of First  Eagle Fund of America
         since 1998, First Eagle International Fund from 1994 to present,  First
         Eagle Sogen Funds from 1999 to present.

Kevin K. Albert (2)
World Financial Center
North Tower, 26th Floor
New York, New York 10281-1326
Age 47
Individual General Partner since 1990
Units of the Partnership beneficially owned as of March 15, 2000 - None (3)
         Director and President of the Management Company;  Managing Director of
         Merrill Lynch Investment Banking Division ("MLIBK") since 1988.

(1)  Independent General Partner and member of the Audit Committee.
(2)  Interested person of the Partnership as defined by the 1940 Act.
(3) Messrs.  Flaschen  and  Jacobson  have each  contributed  $1,000 to the
capital of the Partnership.  Messrs.  Kelly and Albert succeeded to the interest
of prior Individual  General Partners who each contributed $1,000 to the capital
of the Partnership.
The Management Company

Merrill Lynch  Venture  Capital Inc. (the  "Management  Company")  serves as the
Partnership's  management company and performs,  or arranges for the performance
of, the management and  administrative  services necessary for the operations of
the  Partnership  pursuant  to a  management  agreement  dated May 23, 1991 (the
"Management  Agreement").  The  Management  Company has served as the management
company for the Partnership since the Partnership commenced operations in 1987.

The  Management  Company is a  wholly-owned  subsidiary of ML Leasing  Equipment
Corp.,  which  is an  indirect  subsidiary  of  Merrill  Lynch & Co.,  Inc.  The
Management  Company,  which was  incorporated  under Delaware law on January 25,
1982, maintains its principal office at North Tower, World Financial Center, New
York, New York 10281-1326.

On  May  23,  1991,  the  limited   partners  of  the  Partnership   approved  a
sub-management  agreement among the  Partnership,  the Management  Company,  the
Managing   General  Partner  and  DLJ  Capital   Management   Corporation   (the
"Sub-Manager").   Under  the  terms  of  such  sub-management   agreement,   the
Sub-Manager  agreed to  provide,  subject  to the  supervision  of the  Managing
General Partner,  the Management  Company and the Individual  General  Partners,
certain  of the  management  services  previously  provided  by  the  Management
Company.  Due  to  certain   transactions   involving  The  Equitable  Companies
Incorporated,  the indirect parent of the Sub-Manager,  a substantially  similar
sub-management  agreement (the  "Sub-Management  Agreement") was approved by the
limited partners of the Partnership at their 1992 annual meeting held on May 26,
1992.

     The Management Company has arranged for Palmeri Fund Administrators,  Inc.,
an  independent  administrative  services  company,  to  provide  administrative
services to the  Partnership.  Fees for such  services are paid  directly by the
Management Company.

     The following table sets forth information  concerning the directors of the
Management Company and the executive officers of the Management Company involved
with the  Partnership.  Information  concerning  Kevin K.  Albert,  Director and
President of the  Management  Company,  is set forth under  "General  Partners -
Individual  General  Partners".  The address of Mr.  Caruso,  Mr. Giobbe and Mr.
Bruno is South Tower, World Financial Center, New York, New York 10080.

James V. Caruso

Executive Vice President and Director
Age 48
Officer or Director since 1998
         Director of MLIBK,  joined Merrill Lynch in January 1975. Mr. Caruso is
         the director of Technology for the Global Investment  Banking Group. He
         is responsible for ensuring that the business requirements of MLIBK are
         supported by managing the development of new technologies and enhancing
         existing systems.

Michael Giobbe
Vice President and Director

Age 41
Officer or Director since 2000
         Vice President of MLIBK,  joined  Merrill Lynch in 1986.  Mr.  Giobbe's
         responsibilities  include the business  management function for certain
         partnerships and other entities for which subsidiaries of Merrill Lynch
         are the general partner.


<PAGE>


James V. Bruno
Vice President and Treasurer

Age 33
Officer or Director since 1998
         Vice  President of MLIBK,  joined  Merrill Lynch in 1997.  Mr.  Bruno's
         responsibilities   include   controllership  and  financial  management
         functions  for  certain  partnerships  and  other  entities  for  which
         subsidiaries of Merrill Lynch are the general partner or manager.

The directors of the Management  Company will serve as directors  until the next
annual  meeting of  stockholders  and until  their  successors  are  elected and
qualify.  The officers of the Management Company will hold office until the next
annual  meeting of the Board of  Directors of the  Management  Company and until
their successors are elected and qualify.

There are no family  relationships  among any of the Individual General Partners
of the Partnership and the officers and directors of the Management Company.

DLJ Capital Management Corporation - The Sub-Management Company

DLJ Capital Management Corporation (the "Sub-Manager"),  a Delaware corporation,
is an indirect  wholly-owned  subsidiary of Donaldson,  Lufkin & Jenrette,  Inc.
("DLJ"),  a holding  company  which  through  its  subsidiaries  engages  in the
following  activities:  investment  banking,  merchant banking,  public finance,
trading,  distribution  and research.  The  Sub-Manager  maintains its principal
office at 277 Park Avenue, New York, New York 10172.

The Sub-Manager is a wholly-owned  subsidiary of DLJ Capital  Corporation  ("DLJ
Capital").  DLJ  Capital,  which  was  founded  in  1969,  has  established  ten
institutional  venture capital funds ("Sprout Funds") and several smaller funds,
with total  committed  capital of over $1.6 billion.  Six of such  institutional
funds,  with capital  exceeding  $1.5 billion,  are currently  operating.  As of
December 31, 1999,  DLJ  Capital's  most recent  limited  partnership  is Sprout
Capital VIII,  L.P.,  which was established in 1998 with an excess of 72 percent
of its $750 million  capital  provided by  participants in earlier Sprout Funds.
DLJ Capital's principal office is located at 277 Park Avenue, New York, New York
10172,  and it  maintains  additional  offices  in Menlo  Park,  California  and
Deerfield, Illinois.

The following table sets forth information  concerning the directors,  principal
executive  officers  and other  officers of the  Sub-Manager.  Unless  otherwise
noted,  the address of each such person is 277 Park Avenue,  New York,  New York
10172.

Richard E. Kroon

President, Chief Executive Officer and Director
Age 57

Officer or Director since 1977
         Managing General Partner of Sprout Group, the venture capital affiliate
of DLJ, since 1981.

Dr. Robert E. Curry(1)
Vice President
Age 53
Officer or Director since 1991
         President  and  Director of the  Management  Company from 1989 to 1991;
         Managing  Director  of MLIBK  from 1990 to 1991;  President  of Merrill
         Lynch R&D Management  Inc. ("ML R&D") from 1990 to 1991, Vice President
         of ML R&D from 1984 to 1990 and  Director  of ML R&D from 1987 to 1991;
         General Partner of Sprout Group since 1991.

Robert Finzi(1)
Vice President

Age 46
Officer or Director since 1991
         Vice President of the Management  Company from 1985 to 1991;  Associate
         with Menlo Ventures from 1983 to 1984;  General Partner of Sprout Group
         since 1991.

Anthony F. Daddino
Vice President and Director

Age 59
Officer or Director since 1989
         Director, Executive Vice President and Chief Financial Officer of DLJ.

Marjorie S. White
Secretary, Treasurer and Director

Age 46
Officer  or Director since 1997 Vice President and Secretary of DLJ.

(1)   The address of these officers is 3000 Sand Hill Road, Menlo Park,
      California 94025.

The Managing General Partner

MLVPII Co.,  L.P.  (the  "Managing  General  Partner") is a limited  partnership
organized  on  February  4, 1986  under  the laws of the State of New York.  The
Managing General Partner  maintains its principal  office at North Tower,  World
Financial  Center,  New York, New York 10281-1326.  The Managing General Partner
has  acted  as the  managing  general  partner  of  the  Partnership  since  the
Partnership commenced operations.  The Managing General Partner is engaged in no
other activities at the date hereof.

     The  general  partner of the  Managing  General  Partner is the  Management
Company.  The  limited  partners of the  Managing  General  Partner  include DLJ
Capital Management  Corporation  ("DLJ"),  Dr. Robert E. Curry and Robert Finzi.
Messrs.  Curry and  Finzi  are  currently  officers  of DLJ and were  previously
officers of the Management Company.

The Partnership  Agreement  obligates the Managing General Partner to contribute
cash to the capital of the  Partnership so that the Managing  General  Partner's
capital  contribution  at all  times  will be equal to one  percent  (1%) of the
aggregate capital contributions of all partners of the Partnership. The Managing
General Partner has contributed $1,212,162 to the capital of the Partnership.

Item 11.      Executive Compensation.
              ----------------------

Compensation - The Partnership  currently pays each Independent  General Partner
an annual fee of $20,000 in quarterly  installments plus $1,500 for each meeting
of  the  Individual  General  Partners  attended  or  for  each  other  meeting,
conference  or engagement in  connection  with  Partnership  activities at which
attendance by the Individual  General Partner is required.  The Partnership pays
all actual  out-of-pocket  expenses incurred by the Independent General Partners
relating to  attendance  at such  meetings.  The  Independent  General  Partners
receive  $1,500 for each  meeting of the Audit  Committee  attended  unless such
committee meeting is held on the same day as a meeting of the Individual General
Partners.  In such case, the Independent  General Partners receive $500 for each
meeting of the Audit Committee  attended.  For the year ended December 31, 1999,
the aggregate fees paid by the Partnership to the Independent  General  Partners
totaled $91,500.

Allocations  and  Distributions  - Profits  and  losses of the  Partnership  are
determined and allocated as of the end of and within sixty days after the end of
each calendar year. If the aggregate of the  investment  income and net realized
capital  gains  and  losses  from  venture  capital   investments  is  positive,
calculated on a cumulative  basis over the life of the Partnership  through such
year,  the  Managing  General  Partner is  allocated  investment  income and net
realized capital gains or losses from venture capital  investments for such year
so that,  together with all  investment  income and gains and losses  previously
allocated to the Managing General Partner,  it has received 20% of the aggregate
of such income and gains  calculated on a cumulative  basis over the life of the
Partnership  through  such year.  Such  allocation  is referred to herein as the
"Managing General Partner's Allocation" and is applicable only to the investment
income and net realized  capital gains and losses resulting from venture capital
investments.  The Partnership's investment income and net realized capital gains
and losses in excess of the Managing General Partner's  Allocation and all other
profits and losses,  including interest or other income on funds not invested in
venture capital investments, are allocated among all the Partners (including the
Managing General Partner) in proportion to their capital contributions.  Cash or
other assets  otherwise  distributable  to the Managing  General Partner are not
distributed to the Managing  General Partner to the extent that the net realized
gains allocated to the Managing General Partner are offset by an amount equal to
20% of the net unrealized losses of the Partnership.

For its fiscal year ended December 31, 1999, the  Partnership had a net realized
gain of $6,025,590 from the liquidation of certain portfolio  investments.  On a
cumulative  basis,  from  inception to December 31, 1999,  the  Partnership  had
$121,562,832  of net realized gains and investment  income from its portfolio of
venture capital  investments.  On October 7, 1999, the  Partnership  made a cash
distribution  to  partners  totaling  $4,380,729.  Limited  Partners  of  record
received  $4,200,000  or $35 per Unit,  the Managing  General  Partner  received
$180,589  and the  Individual  General  Partners  received  $140.  Additionally,
subsequent to the end of the year, on January 25, 2000, the  Partnership  made a
cash distribution to partners totaling $8,704,964 including  $7,320,000,  or $61
per Unit,  to Limited  Partners of record on December  31,  1999.  The  Managing
General  Partners  received  $1,384,720  and  the  Individual  General  Partners
received $244.

Management Fee - Pursuant to the Management Agreement,  the Partnership pays the
Management  Company a  management  fee at the  annual  rate of 2.5% of the gross
capital  contributions  to the  Partnership  (net  of  selling  commissions  and
organizational  and  offering  expenses  paid by the  Partnership),  reduced  by
capital  distributed to the Partners and realized capital losses, with a minimum
annual fee of  $200,000.  Such fee is payable  quarterly  based on the  adjusted
capital contributions,  as described above, at the end of the preceding calendar
quarter.  As described  previously,  the  Management  Company has entered into a
Sub-Management  Agreement  with DLJ,  pursuant to which the  Management  Company
compensates DLJ for management  services  provided to the  Partnership.  For the
year ended December 31, 1999, management fees incurred by the Partnership to the
Management Company aggregated $200,000.

Item 12.      Security Ownership of Certain Beneficial Owners and Management.
              --------------------------------------------------------------

Reference  is  made  to  Item  10  "Individual   General  Partners"   concerning
information with respect to security ownership.

As of March 15, 2000, no person or group is known by the  Partnership  to be the
beneficial  owner of more than 5 percent  of the Units.  Mark Clein and  Stephen
Warner,  limited partners of the Managing  General Partner,  own an aggregate of
134  Units  of  the  Partnership  and  Merrill  Lynch  Pierce  Fenner  &  Smith,
Incorporated  owns 230 Units. The Individual  General Partners and the directors
and officers of the Management Company do not own any Units.

The Partnership is not aware of any arrangement which may, at a subsequent date,
result in a change of control of the Partnership.

Item 13.      Certain Relationships and Related Transactions.
              ----------------------------------------------

Kevin K.  Albert,  a Director  and  President  of the  Management  Company and a
Managing  Director of Merrill Lynch  Investment  Banking  Group ("ML  Investment
Banking"),  joined  Merrill  Lynch in 1981.  James V.  Caruso,  a  Director  and
Executive  Vice  President  of  the  Management  Company  and a  Director  of ML
Investment Banking,  joined Merrill Lynch in 1975. Michael Giobbe,  Director and
Vice President of the  Management  Company and a Vice President of ML Investment
Banking,  joined  Merrill Lynch in 1986.  James V. Bruno,  a Vice  President and
Treasurer  of the  Management  Company  and a Vice  President  of ML  Investment
Banking,  joined Merrill Lynch in 1997. Messrs. Albert, Caruso, Giobbe and Bruno
are involved with certain other  entities  affiliated  with Merrill Lynch or its
affiliates.


<PAGE>


                                     PART IV

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K.
              ---------------------------------------------------------------

(a)           1.    Financial Statements

                     Balance Sheets as of December 31, 1999 and 1998

                     Schedule of Portfolio Investments as of December 31, 1999

                     Schedule of Portfolio Investments as of December 31, 1998

                     Statements of Operations for the years ended
                     December 31, 1999, 1998 and 1997

                     Statements of Cash Flows for the years ended
                     December 31, 1999, 1998 and 1997

                    Statements of Changes in Partners' Capital for the years
                    ended December 31, 1997, 1998 and 1999

                    Notes to Financial Statements

              2.    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)  Form of  Sub-Management  Agreement 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  since the
                    beginning  of the last  quarter of the period 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.


<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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 on the 29th day of March
2000.

         ML VENTURE PARTNERS II, L.P.


         /s/   Kevin K. Albert

By:      Kevin K. Albert
         Individual General Partner

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities indicated on the 29th day of March 2000.




By:      MLVPII Co., L.P.                     By:     /s/   Steward S. Flaschen
                                                      -------------------------
         its Managing General Partner                        Steward S. Flaschen
                                                      Individual General Partner

By:      Merrill Lynch Venture Capital Inc.         ML Venture Partners II, L.P.
         its General Partner


By:      /s/   Kevin K. Albert                     By:     /s/   Jerome Jacobson
         ------------------------------                   ---------------------
         Kevin K. Albert                                        Jerome Jacobson
         President                                    Individual General Partner
         (Principal Executive Officer)              ML Venture Partners II, L.P.


By:      /s/   James V. Bruno                     By:     /s/   William M. Kelly
         -------------------------------------            ----------------------
         James V. Bruno                                         William M. Kelly
         Vice President and Treasurer                 Individual General Partner
         (Principal Financial and Accounting Office ML Venture Partners II, L.P.


By:      /s/ Michael Giobbe

         Michael Giobbe
         Vice President