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, 1995

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]

At March 15, 1996, 119,866 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.

Portions  of the  Registrant's  Form 10-Q for the  quarter  ended March 31, 1995
filed  with  the  Securities  and  Exchange  Commission  on  May  12,  1995  are
incorporated by reference in Part I hereof.

Portions of the Registrant's Form 10-Q for the quarter ended June 30, 1995 filed
with the Securities and Exchange  Commission on August 14, 1995 are incorporated
by reference in Part I hereof.

Portions of the Registrant's  Form 10-Q for the quarter ended September 30, 1995
filed with the  Securities  and  Exchange  Commission  on November  14, 1995 are
incorporated by reference in Part I 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   ("MLPF&S").   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,  dated May 23,
1991,  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  MLPF&S,  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

During the year ended December 31, 1995, the Partnership  invested $2.74 million
in seven existing portfolio companies.  As of December 31, 1995, the Partnership
had invested  $115.85 million in 58 portfolio  companies.  At December 31, 1995,
the Partnership's investment portfolio consisted of 20 active investments with a
cost of $38  million  and a fair  value of  $73.1  million.  From its  inception
through  December 31, 1995, the  Partnership  has fully or partially  liquidated
investments  with an aggregate cost basis of $77.85  million.  These  liquidated
investments  returned  a total  of  $128.81  million  to the  Partnership  for a
realized gain of $50.96  million.  The  Partnership  also realized  interest and
dividend income from its venture capital investments  totaling $3.6 million from
inception to December 31, 1995.

During 1995, the  Partnership  made follow-on  investments in certain  portfolio
companies as follows:

The description of the Partnership's  follow-on  investments in Neocrin Company,
United  States  Paging  Corporation  (which   subsequently  merged  into  Mobile
Telecommunications  Technologies  Corporation),  Raytel Medical  Corporation and
Clarus Medical Systems, Inc. set forth in Item 5 of Part II of the Partnership's
quarterly  report  on  Form  10-Q  for  the  quarter  ended  March  31,  1995 is
incorporated herein by reference.

The descriptions of the  Partnership's  follow-on  investments in Clarus Medical
Systems, Inc., Diatech, Inc. and Biocircuits  Corporation set forth in Item 5 of
Part II of the Partnership's quarterly report on Form 10-Q for the quarter ended
June 30, 1995 are incorporated herein by reference.

The  description of the  Partnership's  follow-on  investments in Clarus Medical
Systems, Inc. and Ligand Pharmaceuticals, Inc. set forth in Item 5 of Part II of
the Partnership's  quarterly report on Form 10-Q for the quarter ended September
30, 1995 are incorporated herein by reference.

In December  1995,  in  connection  with the initial  public  offering of Raytel
Medical  Corporation,  the  Partnership  received  70,753 shares of common stock
representing the payment of accrued dividends on its preferred stock through the
date of the company's initial public offering.

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 has frequently been a co-investor
with other professional venture capital groups and these relationships generally
have expanded the Partnership's access to investment opportunities.

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  performs,  or  arranges  for  others to  perform,  the
management  and  administrative  services  necessary  for the  operation  of the
Partnership  and  is  responsible  for  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 and investments of
the Partnership in unaffiliated venture capital funds.


<PAGE>


Item 2.       Properties.

The Partnership does not own or lease physical properties.

Item 3.       Legal Proceedings.

The  Partnership  has been named as a  defendant  in an action  relating  to its
ownership of securities of In-Store Advertising,  Inc. ("In-Store Advertising").
On or about July 16, 1993, a Second Amended  Consolidated Class Action Complaint
(the "Amended  Complaint") was filed in the United States District Court for the
Southern  District  of New  York in the In Re  In-Store  Advertising  Securities
Litigation.  The action is a purported  class action suit wherein the plaintiffs
(the  "Plaintiffs")  are  persons  who  allegedly  purchased  shares of In-Store
Advertising  common  stock in the July 19, 1990  initial  public  offering  (the
"Offering")  and through  November 8, 1990. The defendants  named in the Amended
Complaint  include  former   individual   officers  and  directors  of  In-Store
Advertising,  the  underwriters  involved in the  Offering,  and  certain  other
defendants, including the Partnership, who owned In-Store Advertising securities
prior to the Offering (the "Venture Capital Defendants"). Prior to the filing of
the Amended Complaint,  In-Store  Advertising filed a "prepackaged" plan in U.S.
Bankruptcy  Court pursuant to Chapter XI of the U.S.  Bankruptcy  Code. In their
answers  to  the  Amended  Complaint,  defendants  (including  the  Partnership)
asserted cross-claims for contribution against their then co-defendant KPMG Peat
Marwick (In-Store Advertising's auditors).  Plaintiffs' claims against KPMG Peat
Marwick were dismissed as barred by the statute of limitations.

The Amended Complaint alleges  violations under Sections 11, 12(2) and 15 of the
Securities Act of 1933, as amended (the "1933 Act"), Section 10(b) and 20 of the
Securities  Exchange  Act of 1934,  as amended  (the "1934  Act") and Rule 10b-5
promulgated  thereunder,  and common law claims of negligent  misrepresentation,
fraud and deceit in connection with the sale of securities.  The Plaintiffs seek
rescission of the purchases of In-Store Advertising's common stock to the extent
the  members of the  alleged  classes  still hold their  shares,  together  with
damages and certain costs and expenses.

The Amended  Complaint  alleges that the Venture  Capital  Defendants are liable
under  Section  10(b) of the 1934 Act and Rule  10b-5,  and are also  liable  as
controlling persons of In-Store  Advertising within the meaning of Section 15 of
the 1933 Act and Section 20(a) of the 1934 Act. The Venture  Capital  Defendants
are also being sued as alleged  knowing and  substantial  aiders and abettors of
the other defendants' wrongful conduct and under common law fraud and negligence
theories. An individual director of In-Store  Advertising,  named as a defendant
in the action,  was a Vice President of Merrill Lynch Venture  Capital Inc., the
General  Partner  of  the  Managing  General  Partner  of the  Partnership.  The
Partnership  believes  it has  meritorious  defenses to the  allegations  in the
Amended  Complaint and that the cost of resolution  of the  litigation  will not
have a material impact on the financial condition of the Partnership (see Note 8
of Notes to Financial Statements).

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.


<PAGE>


                                     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.  There is no  established  public trading
market for the Units as of March 15, 1996. The approximate  number of holders of
Units as of March 15,  1996 is 13,500.  The  Managing  General  Partner  and the
Individual  General  Partners  of the  Partnership  also hold  interests  in the
Partnership.

Effective November 9, 1992,  Registrant was advised that Merrill Lynch,  Pierce,
Fenner  &  Smith  Incorporated   ("Merrill  Lynch")  introduced  a  new  limited
partnership  secondary  service available to its clients through Merrill Lynch's
Limited Partnership Secondary Transaction Department.

Beginning  with the  December  1994 client  account  statements,  Merrill  Lynch
implemented   new   guidelines  for  providing   estimated   values  of  limited
partnerships and other direct investments reported on client account statements.
As a result,  Merrill  Lynch no longer  reports  general  partner  estimates  of
limited partnership net asset value on its client account  statements,  although
the  Registrant  may continue to provide its estimate of net asset value to Unit
holders.  Pursuant to the guidelines,  estimated values for limited  partnership
interests  originally sold by Merrill Lynch (such as Registrant's Units) will be
provided two times per year to Merrill Lynch by independent  valuation services.
The estimated values will be based on financial and other information  available
to the  independent  services on the prior August 15th for reporting on December
year-end client account statements, and on information available to the services
on March 31st for  reporting on June  month-end  Merrill  Lynch  client  account
statements.

The Managing General Partner's  estimate of net asset value at December 31, 1995
is $596 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 fiscal  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 August 15th.  Merrill  Lynch clients may
contact  their  Merrill  Lynch  Financial  Consultants  or telephone  the number
provided to them on their account statements to obtain a general  description of
the methodology  used by the independent  valuation  services to determine their
estimates of value.  The estimated  values provided by the independent  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. In addition,  Unit holders may not realize the independent estimated value
or the  Registrant's  current  net  asset  value  upon  the  liquidation  of the
Registrant over its remaining life.



<PAGE>


Cash distributions to Partners,  paid or accrued, during 1995, 1994 and 1993 and
cumulative cash  distributions to Partners from the inception of the Partnership
through December 31, 1995 are listed below:

<TABLE>
                                                              General                      Limited              Per $1,000
Distribution Date                                            Partners                     Partners                 Unit
-----------------                                         ---------------            ----------------         ---------
<S>                   <C> <C>                             <C>                        <C>                          <C>   
Inception to December 31, 1992                            $             0            $     27,000,000             $  225
May 26, 1993                                                            0                  15,600,000                130
May 26, 1994                                                            0                  16,200,000                135
September 1, 1994                                               1,400,000                           0                  0
April 11, 1995                                                  2,234,189                   9,000,000                 75
October 5, 1995                                                 5,001,136                  27,000,000                225
January 12, 1996 (approved on 11/3/95)                          2,336,506                  12,000,000                100
                                                          ---------------            ----------------             ------
Cumulative totals at December 31, 1995                    $    10,971,831            $    106,800,000             $  890
                                                          ===============            ================             ======
</TABLE>

Additionally,  on  February  29,  1996,  the  General  Partners  approved a cash
distribution to Partners totaling $21.4 million;  $18 million, or $150 per unit,
to  the  Limited  Partners  and  $3.4  million  to  the  General  Partners.  The
distribution  will be paid in April 1996 to Limited  Partners of record on March
31, 1996 and will bring cumulative cash  distributions  paid to Limited Partners
to $124.8 million, or $1,040 per $1,000 Unit. Cumulative cash distributions paid
to the General Partners will total $14.3 million.


<PAGE>


Item 6.       Selected Financial Data.

($ In Thousands, Except For Per Unit Information)

<TABLE>
                                                                           Years Ended December 31,
                                                           1995           1994            1993           1992           1991
                                                       -----------     -----------    -----------    -----------    --------
<S>                                                    <C>             <C>            <C>            <C>            <C>        
Net Realized Gain (Loss) on Investments                $    41,368     $    18,593    $    10,605    $    (5,677)   $     1,968

Net Change in Unrealized Appreciation
of Investments                                              12,661         (29,444)         9,430         11,657         14,361

Net Increase (Decrease) in Net Assets
Resulting from Operations                                   54,512         (11,668)        18,581          4,809         15,954

Cash Distributions to Partners*                             57,572          17,600         15,600          9,000          6,000

Cumulative Cash Distributions to Partners*                 117,772          60,200         42,600         27,000         18,000

Net Assets                                                  80,343          83,402        112,671        109,690        113,881

Net Unrealized Appreciation of Investments                  35,125          22,464         51,908         42,478         30,821

Purchase of Portfolio Investments                            2,741           2,428          8,050         13,781          9,845

Cumulative Cost of Portfolio Investments                   115,851         113,110        110,682        102,633         88,852

PER UNIT OF LIMITED
PARTNERSHIP INTEREST:

Net Realized Gain (Loss) on Investments                     $  273         $   135        $    87          $ (47)      $     16

Net Increase (Decrease) in Net Assets
Resulting from Operations                                      358             (79)           120             29            104

Cash Distributions*                                            400             135            130             75             50

Cumulative Cash Distributions*                                 890             490            355            225            150

Net Unrealized Appreciation of Investments                     232             148            355            310            225

Net Asset Value, Including Net Unrealized
Appreciation of Investments                                    596             638            852            862            908
</TABLE>

* Includes cash  distribution to Partners  accrued at December 31, 1995 and paid
  on January 12, 1996.


<PAGE>


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

Liquidity and Capital Resources

At  December  31,  1995,  the  Partnership  held  $17.4  million  in  short-term
securities   with   maturities  of  less  than  one  year  and  $686,000  in  an
interest-bearing  cash account.  Funds needed to cover the Partnership's  future
operating  expenses  and  follow-on  investments  will be  obtained  from  these
existing cash reserves,  from interest and other investment  income received and
from proceeds received from the sale of portfolio  investments.  The Partnership
will not make  any new  portfolio  investments.  Therefore,  generally  all cash
received from the sale of portfolio  investments  is  distributed to Partners as
soon as  practicable  after  receipt,  after an adequate  reserve for  operating
expenses and follow-on investments in existing portfolio companies.

Subsequent  to year end,  on  January  12,  1996,  the  Partnership  made a cash
distribution  to Partners  totaling  $14.3  million.  As a result of  additional
portfolio  liquidations  completed in January and February  1996 (see note 12 of
Notes to Financial Statements), the General Partners approved an additional cash
distribution  to  Partners  totaling  $21.4  million to be paid in April 1996 to
Limited Partners of record on March 31, 1996.  Cumulative cash  distributions to
Partners,   including  the  distribution  paid  on  January  12,  1996  and  the
distribution  approved in  February  1996,  will total  $139.1  million;  $124.8
million, or $1,040 per $1,000 Unit, to the Limited Partners and $14.3 million to
the General Partners.

Results of Operations

For the years ended December 31, 1995,  1994 and 1993, the Partnership had a net
realized gain from operations of $41.9 million,  $17.8 million and $9.2 million,
respectively.  Net realized gain or loss from  operations is comprised of 1) net
realized gains or losses 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, 1995,  the  Partnership  had a $41.4 million net realized gain from
portfolio  investments.  During the year, the Partnership  sold shares of common
stock  in the  public  market  of 15  portfolio  companies  for  $56.8  million,
realizing a gain of $43.3  million (see Note 9 of Notes to Financial  Statements
for a summary of sales by  company).  On  December  31,  1995,  the  Partnership
wrote-off its $1.8 million investment in Home Express, Inc. due to financial and
operating   difficulties  at  the  company.   Additionally,   during  1995,  the
Partnership  realized a $148,750  loss on its remaining  $395,000  investment in
Target Vision, Inc. which was sold in 1995 for $246,250 plus interest.

For the year ended December 31, 1994, the  Partnership  had an $18.6 million net
realized gain from portfolio  investments.  During 1994, the Partnership  sold a
portion of its common stock  holdings in eight of its publicly held  investments
for $20.2  million,  realizing  a gain of $17.5  million.  The  number of common
shares  sold  of each  portfolio  company  were as  follows:  55,336  shares  of
Borg-Warner Automotive,  Inc., 79,232 shares of Corporate Express, Inc., 382,000
shares of CellPro,  Incorporated,  140,000 shares of Regeneron  Pharmaceuticals,
Inc.,  78,271  shares  of Ringer  Corporation,  106,666  shares of Micro  Linear
Corporation,  90,000  shares of  Komag,  Incorporated  and  2,400  shares of MTI
Technology  Corporation.  Additionally,  in two private  transactions  completed
during 1994, the Partnership  sold its 94,435  preferred  shares of The Business
Depot Ltd. for $2.8 million,  realizing a gain of $1.5 million,  and sold 26,570
preferred shares of OccuSystems, Inc. for $173,000, realizing a gain of $40,000.
Also during 1994, the Partnership  wrote-off its $100,000 investment in Research
Applications,  Inc. and sold its investment in Shared Resource  Exchange,  Inc.,
realizing a loss of $250,000.  The  Partnership  also  wrote-off the cost of its
warrant to purchase 380,000 common shares of IDEC  Pharmaceuticals  Corporation,
which expired in February 1995,  realizing a loss of $217,000.  The  Partnership
also realized  gains in 1994  totaling  $54,000 from the receipt of final escrow
payments relating to the 1992 sale of its investment in R-Byte, Inc.

For the year ended  December 31, 1993, the  Partnership  had a $10.6 million net
realized gain from  portfolio  investments.  During 1993, the  Partnership  sold
525,000  common  shares  of  Regeneron  Pharmaceuticals  in the  public  market,
realizing a gain of $7.6  million.  The  Partnership  also sold  187,912  common
shares of Ringer  Corporation in the public market,  realizing a gain of $4,000.
In January 1993, the Partnership  sold its investment in Pyxis  Corporation in a
private  transaction,  realizing  a gain  of $7.2  million.  Also  during  1993,
In-Store Advertising,  Inc. ("ISA") filed for protection under Chapter 11 of the
federal  Bankruptcy  Code  resulting  in  the  write-off  of  the  Partnership's
remaining $1.1 million investment in the company.  The Partnership also received
a final liquidation  payment from InteLock  Corporation  resulting in a $123,000
realized loss,  wrote-off its $2 million investment in Ogle Resources,  Inc. and
wrote-off  the   remaining   $900,000  of  its   investment  in   Communications
International,  Inc. ("CII").  Several smaller portfolio  transactions completed
during the year resulted in an additional $46,000 net realized loss for 1993.

Investment  Income and  Expenses - For the year ended  December  31,  1995,  the
Partnership had net investment income of $482,000.  For the years ended December
31, 1994 and 1993, the  Partnership  had a net  investment  loss of $817,000 and
$1.5 million, respectively.

The $1.3 million increase in net investment  income for the 1995 period compared
to the 1994  period  was the result of a $1.1  million  increase  in  investment
income and a $219,000 decrease in operating  expenses during 1995 as compared to
1994.  The  increase  in  investment  income was due to a $690,000  increase  in
interest earned from short-term  investments and a $390,000 increase in interest
and dividend income from portfolio investments.  The increase in interest income
from  short-term  investments is due to an increase in amounts  invested in such
securities during 1995, resulting from proceeds received from the liquidation of
portfolio  investments  during 1995.  Such  proceeds are invested in  short-term
securities until  distributions  are made to Partners.  In 1995, the Partnership
received $56.2 million from the liquidation of portfolio investments compared to
$23.5  million  received in 1994.  The increase in interest and dividend  income
from portfolio  investments  for 1995 compared to 1994 was  attributable  to the
receipt of dividends  totaling $566,025 from Raytel Medical  Corporation  during
1995.  Such  dividend  income,  received in the form of 70,753  shares of common
stock of Raytel,  was offset by a $152,000  decrease in interest  earned  during
1995 on a promissory  note due from SDL,  Inc., due to the maturity of such note
in March 1995. The Partnership's  operating  expenses declined for 1995 compared
to 1994, primarily due to a $195,000 decrease in the management fee for 1995, as
discussed below, and a non-recurring interest expense charge of $42,000 incurred
during 1994, which is also discussed below.

The decrease in net  investment  loss for 1994  compared to 1993,  primarily was
attributable to a $682,000  increase in interest and other income from portfolio
investments for 1994. This increase primarily was a result of dividends received
from Borg-Warner Automotive, Inc., which began during 1994. Additionally,  other
income from portfolio investments for 1993 included the write-off of $406,000 of
accrued interest  receivable related to promissory notes due from Ogle Resources
that were written-off in 1993.  Operating  expenses  increased  $56,000 for 1994
compared to 1993,  primarily  resulting from a $142,000 increase in professional
fees for 1994, primarily relating to legal fees incurred from the ISA litigation
(see Note 8 of Notes to Financial  Statements).  The  Partnership  also incurred
$42,000 of interest  expense  during  1994 in  connection  with its  purchase of
97,273 shares of Corporate Express, Inc. from the Management Company (see Note 4
of Notes to Financial  Statements).  The $142,000  increase in professional fees
was offset by a $112,000  decrease in the  management fee for 1994, as discussed
below.

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, 1995,
1994 and 1993,  was $1.1 million,  $1.3 million and $1.4 million,  respectively.
The   management  fee  will  continue  to  decline  in  future  periods  as  the
Partnership's  investment  portfolio  continues to mature and  distributions are
paid to Partners.  The management fee and other operating expenses are paid with
funds provided from  operations.  Funds provided from operations for the 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  or
Depreciation  of Portfolio  Investments - For the year ended  December 31, 1995,
the  Partnership  had a $37.9  million net  unrealized  gain from its  portfolio
investments, primarily resulting from the net upward revaluation of its publicly
traded securities.  Additionally  during 1995, a net $25.2 million of unrealized
gain was transferred to realized gain relating to portfolio investments sold and
written-off  during 1995, as discussed above. The $37.9 million  unrealized gain
offset by the $25.2  million  transfer  from  unrealized  gain to realized  gain
resulted  in  a  $12.7  million  increase  to  net  unrealized  appreciation  of
investments for 1995.

For the year ended  December 31, 1994, the  Partnership  had a $14.4 million net
unrealized loss from its portfolio investments, primarily resulting from the net
downward  revaluation of its publicly  traded  securities.  Additionally  during
1994, a net $15 million was  transferred  from  unrealized gain to realized gain
relating to portfolio investments sold and written-off during 1994, as discussed
above.  The $15 million  transfer from unrealized gain to realized gain combined
with the $14.4 million unrealized loss, resulted in a $29.4 million reduction to
the Partnership's net unrealized appreciation of investments for 1994.

For the year ended  December  31,  1993,  the  Partnership  had a $20.8  million
unrealized  gain  resulting  from the net upward  revaluation  of its  portfolio
investments.  Additionally during 1993, a net $11.4 million was transferred from
unrealized  gain to realized  gain  relating to portfolio  investments  sold and
written-off  during 1993, as discussed above. The $20.8 million  unrealized gain
offset by the $11.4 million net transfer from  unrealized  gain to realized gain
resulted  in a  $9.4  million  increase  to  the  Partnership's  net  unrealized
appreciation of investments for 1993.

Net Assets - Changes to net assets  resulting from operations is comprised of 1)
net realized  gains and losses from  operations and 2) changes to net unrealized
appreciation or depreciation of portfolio investments.

For the year ended  December 31, 1995, the  Partnership  had a $54.5 million net
increase in net assets resulting from operations, comprised of the $41.9 million
net realized gain from  operations and the $12.7 million  increase in unrealized
appreciation  of investments  for 1995. At December 31, 1995, the  Partnership's
net assets were $80.3 million,  down $3.1 million from $83.4 million at December
31, 1994.  This $3.1 million  decrease  resulted  from the $57.6 million of cash
distributions  paid or  accrued  to  Partners  during  1995  offset by the $54.5
million net increase in net assets resulting from operations for 1995.

For the year ended December 31, 1994, the  Partnership  had an $11.7 million net
decrease in net assets resulting from operations  comprised of the $29.4 million
decline in unrealized appreciation offset by the $17.8 million net realized gain
from  operations  for 1994. At December 31, 1994, the  Partnership's  net assets
were $83.4 million, down $29.3 million from $112.7 million at December 31, 1993.
This decrease  resulted from the $11.7 million  decrease in net assets resulting
from  operations  for 1994  and the  $17.6  million  cash  distribution  paid to
Partners in 1994.

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  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 at December
31, 1995, 1994 and 1993, was $596, $638 and $852, respectively.



<PAGE>


Item 8.       Financial Statements and Supplementary Data.


                          ML VENTURE PARTNERS II, L.P.
                                      INDEX

Independent Auditors' Report

Balance Sheets as of December 31, 1995 and 1994

Schedule of Portfolio  Investments as of December 31, 1995 Schedule of Portfolio
Investments as of December 31, 1994

Statements of Operations for the years ended December 31, 1995, 1994 and 1993

Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993

Statements  of Changes in  Partners'  Capital for the years ended  December  31,
1993, 1994 and 1995

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, 1995 and 1994,  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,  1995.   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, 1995 and 1994 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. at December 31,
1995 and 1994, 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, 1995 in conformity with generally accepted accounting principles.

As explained in Note 2, the financial  statements  include  securities valued at
$73,125,660  and  $70,024,107  at  December  31,  1995 and  1994,  respectively,
representing  91% and 84% 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 18,  1996,  except for Notes 7 and 12, as to which the date is March 8,
1996



<PAGE>


ML VENTURE PARTNERS II, L.P.
BALANCE SHEETS
December 31,


<TABLE>
                                                                                                1995                 1994
                                                                                          ----------------     ----------
ASSETS

Investments - Note 2
   Portfolio investments, at fair value
     (cost $38,000,476 at December 31, 1995
<S>      <C>                     <C> <C>                                                  <C>                  <C>             
     and $52,936,366 at December 31, 1994)                                                $     73,125,660     $     75,400,208
   Short-term investments, at amortized cost - Note 11                                          17,369,428            6,935,099
Cash and cash equivalents                                                                          685,917              638,868
Accrued interest receivable                                                                        870,177              563,815
Note receivable                                                                                          -              250,656
Deposit in escrow                                                                                  184,502                    -
Receivable from securities sold                                                                  2,809,725                7,655
                                                                                          ----------------     ----------------

TOTAL ASSETS                                                                              $     95,045,409     $     83,796,301
                                                                                          ================     ================

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
Cash distribution payable - Note 7                                                        $     14,336,506     $              -
Accounts payable                                                                                   118,288               43,472
Due to Management Company - Note 4                                                                 224,683              325,000
Due to Independent General Partners - Note 5                                                        23,400               25,350
                                                                                          ----------------     ----------------
   Total liabilities                                                                            14,702,877              393,822
                                                                                          ----------------     ----------------

Partners' Capital:
Managing General Partner                                                                         1,471,685            2,191,479
Individual General Partners                                                                          1,457                3,917
Limited Partners (120,000 Units)                                                                43,744,206           58,743,241
Unallocated net unrealized appreciation of investments - Note 2                                 35,125,184           22,463,842
                                                                                          ----------------     ----------------
   Total partners' capital                                                                      80,342,532           83,402,479
                                                                                          ----------------     ----------------

TOTAL LIABILITIES AND PARTNERS' CAPITAL                                                   $     95,045,409     $     83,796,301
                                                                                          ================     ================
</TABLE>


See notes to financial statements.


<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995

Active Portfolio Investments:

<TABLE>
                                                                       Initial Investment
Company / Position                                                            Date                 Cost              Fair Value
Biocircuits Corporation*(A)(C)
<C>                                                                           <C>             <C>               <C>            
128,817 shares of Common Stock                                            May 1991            $    1,422,501    $       678,223
2,000,000 shares of Preferred Stock                                                                1,000,000          1,000,000
Warrants to purchase 594,000 shares of Preferred Stock at
   $.60 per share, expiring on 12/18/96                                                                    0                  0
-------------------------------------------------------------------------------------------------------------------------------
Borg-Warner Automotive, Inc.*(A)
444,664 shares of Common Stock                                            Sept. 1988               2,223,320         10,505,187
-------------------------------------------------------------------------------------------------------------------------------
Borg-Warner Security Corporation*(A)
500,000 shares of Common Stock                                            Sept. 1988               2,500,000          4,668,750
-------------------------------------------------------------------------------------------------------------------------------
CellPro, Incorporated(A)(B)
50,166 shares of Common Stock                                             Mar. 1989                   93,241            648,145
-------------------------------------------------------------------------------------------------------------------------------
Clarus Medical Systems, Inc.*(D)
179,028 shares of Preferred Stock                                         Jan. 1991                2,389,168            895,152
Warrants to purchase 4,048 shares of Common Stock
   at $18.75 per share, expiring on 7/31/97                                                                0                  0
Warrants to purchase 14,048 shares of Common Stock
   at $.05 per share, expiring between 3/7/00 and 7/3/00                                                   0                  0
Warrants to purchase 2,826 shares of Preferred Stock
   at $5.00 per share, expiring on 3/7/00                                                                  0                  0
-------------------------------------------------------------------------------------------------------------------------------
Corporate Express, Inc.(A)(B)(E)
559,503 shares of Common Stock                                            May 1992                 1,064,481         12,588,818
-------------------------------------------------------------------------------------------------------------------------------
Diatech, Inc.*
1,349,508 shares of Preferred Stock                                       Dec. 1991                2,986,023          4,454,528
-------------------------------------------------------------------------------------------------------------------------------
Elantec, Inc.(A)(B)(F)
243,245 shares of Common Stock                                            Aug. 1988                  886,574          1,334,503
-------------------------------------------------------------------------------------------------------------------------------
Horizon Cellular Telephone Company, L.P.:
   HCTC Investment, L.P.
   10% Promissory Note due 3/26/98                                        May 1992                 2,587,500          2,587,500
   SPTHOR Corporation
   10% Promissory Note due 3/26/98                                        May 1992                   646,875            646,875
   34.5 shares of Common Stock                                                                       215,625            215,625
-------------------------------------------------------------------------------------------------------------------------------
I.D.E. Corporation
493,391 shares of Preferred Stock                                         Mar. 1988                1,110,909                  0
-------------------------------------------------------------------------------------------------------------------------------
IDEC Pharmaceuticals Corporation(A)(G):
   ML/MS Associates, L.P.*
   34.4% Limited Partnership interest                                     June 1989                3,960,000          5,995,956
   MLMS Cancer Research, Inc.*
   400,000 shares of Common Stock                                         July 1989                   46,957             60,566
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>


<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1995

<TABLE>
                                                                       Initial Investment
Company / Position                                                            Date                 Cost              Fair Value
Inference Corporation(A)(B)(H)
<C>                                                                            <C>            <C>               <C>            
189,424 shares of Common Stock                                            Apr. 1993           $      804,690    $     2,293,214
   Brightware, Inc.
   140,485 shares of Common Stock                                         Apr. 1993                   39,252            100,000
   Warrants to purchase 38,737 shares of Common Stock
     at $.40 per share, expiring on 4/19/99                                                            1,138                  0
   Warrants to purchase 4,846 shares of Common Stock
     at $.40 per share, expiring on 12/16/97                                                             327                  0
   Warrants to purchase 59,166 shares of Common Stock
     at $.80 per share, expiring on 6/10/98                                                            3,986                  0
-------------------------------------------------------------------------------------------------------------------------------
Ligand Pharmaceuticals Inc.(A)(B)(I)
219,775 shares of Common Stock                                            Apr. 1989                  539,686          1,877,893
Warrants to purchase 3,167 shares of Common Stock at
   $7.22 per share to $9.60 per share, expiring between
   5/31/97 and 7/31/97                                                                                     0                  0
-------------------------------------------------------------------------------------------------------------------------------
Neocrin Company*(J)
447,418 shares of Preferred Stock                                         June 1991                4,019,306            559,305
Warrants to purchase 13,005 shares of Preferred Stock
   at $5.00 per share, expiring on 1/20/96                                                               130                  0
-------------------------------------------------------------------------------------------------------------------------------
OccuSystems, Inc.(A)(B)(K)
403,864 shares of Common Stock                                            June 1993                2,019,320          6,292,201
-------------------------------------------------------------------------------------------------------------------------------
Photon Dynamics, Inc.*(A)(L)
425,235 shares of Common Stock                                            Sept. 1988               2,452,226          1,711,571
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)(M)
695,753 shares of Common Stock                                            Feb. 1990                2,049,303          2,988,374
Options to purchase 27,969 shares of Common Stock
   at $1.42 per share, expiring on 10/31/01                                                                0             81,600
-------------------------------------------------------------------------------------------------------------------------------
Sanderling Biomedical, L.P.*(B)(N)
80% Limited Partnership interest                                          May 1988                 1,786,643          3,352,688
-------------------------------------------------------------------------------------------------------------------------------
SDL, Inc.*(A)(B)(O)
379,155 shares of Common Stock                                            July 1992                  999,015          7,112,948
-------------------------------------------------------------------------------------------------------------------------------
Viasoft, Inc.(A)(B)(P)
47,795 shares of Common Stock                                             Dec. 1987                  152,280            476,038
-------------------------------------------------------------------------------------------------------------------------------

Totals from Active Portfolio Investments                                                      $   38,000,476    $    73,125,660
                                                                                              ---------------------------------
</TABLE>



<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1995


Supplemental Information: Liquidated Portfolio Investments(R)

<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
Borg-Warner Automotive, Inc.                          1994                    276,680              928,538            1,205,218
Business Depot, Ltd.                                  1994                  1,214,184            1,539,475            2,753,659
CellPro, Incorporated                                 1994-1995             1,467,703           15,255,290           16,722,993
Children's Discovery Centers of America, Inc.(B)      1995                  2,000,259             (236,187)           1,764,072
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.                               1994-1995             1,935,430            9,794,410           11,729,840
Data Recording Systems, Inc.                          1988                  1,615,129           (1,499,999)             115,130
Eckerd Corporation(B)                                 1995                    857,004            2,019,272            2,876,276
Elantec, Inc.                                         1993/1995               525,544              327,110              852,654
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
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
IDEC Pharmaceuticals Corporation                      1994                    217,391             (217,391)                   0
-------------------------------------------------------------------------------------------------------------------------------
Inference Corporation                                 1995                     44,672              431,882              476,554
-------------------------------------------------------------------------------------------------------------------------------
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(B)                                1991/1995             2,365,237            4,477,843            6,843,080
Ligand Pharmaceuticals Inc.                           1992/1995               874,749            2,226,089            3,100,838
-------------------------------------------------------------------------------------------------------------------------------
Magnesys                                              1989                  1,440,997           (1,412,049)              28,948
Meteor Message Corporation                            1990                  1,501,048           (1,501,047)                   1
-------------------------------------------------------------------------------------------------------------------------------
Micro Linear Corporation(B)                           1994-1995             1,120,300            2,897,886            4,018,186
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>


<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1995


<TABLE>
                                                      Liquidation                              Realized
Company                                                  Date               Cost              Gain (Loss)                Return
-------------------------------------------------------------------------------------------------------------------------------
Mobile Telecommunications
<S>                                                   <C>             <C>                   <C>                 <C>            
   Technologies Corporation(B)(Q)                     1995            $     1,558,155       $    3,439,923      $     4,998,078
-------------------------------------------------------------------------------------------------------------------------------
OccuSystems, Inc.                                     1994-1995               637,680            1,645,344            2,283,024
-------------------------------------------------------------------------------------------------------------------------------
Ogle Resources, Inc.                                  1993                  1,974,286           (1,974,186)                 100
-------------------------------------------------------------------------------------------------------------------------------
Pandora Industries, Inc.                              1990                  2,060,139           (2,060,138)                   1
-------------------------------------------------------------------------------------------------------------------------------
Pyxis Corporation                                     1993                    634,598            7,169,424            7,804,022
-------------------------------------------------------------------------------------------------------------------------------
R-Byte Inc.                                           1992-1994             1,991,098             (443,566)           1,547,532
Regeneron Pharmaceuticals, Inc.(B)                    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                                      1991/1992             1,600,150           (1,555,149)              45,001
Sanderling Biomedical, L.P.                           1995                    213,357            1,036,811            1,250,168
Saxpy Computer Corporation                            1988                  2,000,000           (2,000,000)                   0
SDL, Inc.                                             1993/1995             3,758,250            1,382,012            5,140,262
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                    763,068            2,200,940            2,964,008
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<S>                                                                   <C>                   <C>                <C>             
Totals from Liquidated Portfolio Investments                          $    77,851,153       $   50,960,557     $    128,811,710
                                                                      =========================================================

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

Totals from Active & Liquidated Portfolio Investments                 $   115,851,629       $   86,085,741     $    201,937,370
                                                                      =========================================================
</TABLE>



<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1995


(A)  Public company

(B)  During 1995, the Partnership  sold or wrote-off  equity  securities of such
     company.  See  Note 9 of  Notes  to  Financial  Statements  for  summarized
     information.

(C)  In June 1995, the Partnership  acquired 2,000,000 shares of preferred stock
     and  a  warrant  to  purchase   1,207,062  shares  of  preferred  stock  of
     Biocircuits  Corporation for $1,000,000.  Pursuant to certain conditions of
     the June 1995 purchase  agreement,  the  Partnership's  warrant to purchase
     1,207,062  preferred  shares was  subsequently  exchanged  for a warrant to
     purchase  594,000 shares of the company's  preferred stock. On December 31,
     1995, Biocircuits completed a four-for-one reverse split of its outstanding
     common stock.  As a result,  the  Partnership  exchanged its 515,269 common
     shares for 128,817 shares.

(D)  In  connection  with a  recapitalization  and  equity  financing  of Clarus
     Medical Systems,  Inc. completed in March 1995, the Partnership invested an
     additional  $70,202  and  converted  its 507,458  preferred  shares and its
     $136,623  promissory  note due from Clarus along with  accrued  interest of
     $4,649 into 754,748  preferred shares of the company.  The Partnership also
     received  warrants to purchase  23,401  common shares at $.01 per share and
     14,127  preferred  shares  at $1.00  per  share  in  connection  with  this
     transaction.  In May and July 1995, the Partnership purchased an additional
     140,404 preferred shares and 46,802 warrants for $140,404.  Additionally in
     November,  the  company  effected  a  five-for-one  reverse  split  of  its
     outstanding  stock.  As a result,  the  Partnership  exchanged  its 895,152
     shares of preferred stock and warrants to purchase 104,568 shares of common
     and preferred stock for 179,028  preferred  shares and warrants to purchase
     20,917 shares of common and preferred stock.

(E)  In June 1995, Corporate Express effected a 3-for-2 split of its outstanding
     stock. As a result,  the Partnership  received an additional 295,900 shares
     of the company's common stock.

(F)  On October 11, 1995, Elantec, Inc. completed its initial public offering at
     $7 per share. In connection with the offering and a 10-for-1  reverse split
     of its outstanding  common stock,  the Partnership  exchanged its 2,889,947
     preferred  shares and 852,273  common shares of Elantec for 374,221  common
     shares of the company.

(G)  In March 1995, the joint venture between IDEC  Pharmaceuticals  Corporation
     and  ML/MS  Associates,   L.P.  was  terminated.  In  connection  with  the
     termination  and  cancellation  of all future rights to royalties  from the
     sale of commercialized products, ML/MS Associates received 1,000,000 shares
     of  unregistered  IDEC  common  stock and  69,375  shares  of 10%  dividend
     accumulating preferred stock of IDEC.

(H)  Effective  in May 1995,  Inference  completed  a spin-off of certain of its
     assets and liabilities, in a tax free transaction, to Brightware, Inc., and
     all of the shares of Brightware were issued to the Inference  shareholders.
     The Partnership's  ownership of Brightware  coincided with its ownership of
     Inference  at the  time  of the  spin-off.  On  June  30,  1995,  Inference
     Corporation  completed its initial public offering.  In connection with the
     offering,  the  company  effected  a  one-for-five  reverse  split  of  its
     outstanding  stock.  As a result,  the  Partnership  exchanged  its 702,427
     shares of preferred stock and warrants to purchase 513,742 shares of common
     and  preferred  stock for 140,485  shares of common  stock and  warrants to
     purchase  102,747  shares  of common  stock.  Additionally,  in a  non-cash
     transaction  completed in September  1995,  the  Partnership  exchanged its
     warrants to purchase  102,747  shares of common stock for 73,939  shares of
     common stock.

(I)  In September  1995, the  Partnership  exercised  warrants to purchase 2,417
     shares of Ligand Pharmaceuticals, Inc. common stock for $10,719.



<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS - continued
December 31, 1995


(J)  In  January  1995,  the  Partnership  invested  $125 in cash and  converted
     promissory notes totaling $629,176 due from Neocrin Company plus $21,089 of
     accrued  interest  into 130,052  shares of preferred  stock of the company.
     Additionally,  the Partnership received a warrant to purchase 13,005 shares
     of  Neocrin  preferred  stock at $5.00  per  share in  connection  with the
     transaction.

(K)  On May 9 1995, OccuSystems,  Inc. completed its initial public offering. As
     a result,  the  Partnership  exchanged  its  504,830  preferred  shares for
     504,830 common shares of the company.

(L)  During 1995,  Photon  Dynamics  completed its initial public offering at $9
     per share.  In connection  with the offering and a 3-for-1 reverse split of
     its  outstanding  common  stock,  the  Partnership  exchanged its 1,222,828
     shares of preferred stock for 425,235 shares of common stock. Additionally,
     the Partnership received a warrant to purchase 6,062 shares of common stock
     at $5.40 per share  (adjusted  for the stock split) in  connection  with an
     earlier transaction.

(M)  In March 1995, the Partnership  purchased 250,000 shares of preferred stock
     of Raytel  Medical  Corporation  for  $483,278.  In December  1995,  Raytel
     completed its initial public  offering at $8 per share.  In connection with
     the  offering  and a  2-for-1  reverse  split  of  its  common  stock,  the
     Partnership  exchanged  its  1,250,000  preferred  shares and its option to
     purchase an additional  55,938 common shares for 625,000  common shares and
     an option to purchase an  additional  27,969  common shares of the company.
     Additionally  in connection  with the offering,  the  Partnership  received
     70,753 common shares,  representing the payment of accrued dividends on its
     preferred stock through the date of the initial public offering.

(N)  During  1995,  the   Partnership   received   67,747  shares  of  Regeneron
     Pharmaceuticals,  Inc. and 8,666 shares of Neopath,  Inc. common stock as a
     result of in-kind distributions made by Sanderling Biomedical, L.P.

(O)  In March 1995,  SDL, Inc.  completed its initial public offering at $16 per
     share.  In  connection  with  the  offering  and a  3.4-for-1  split of the
     company's common stock, the Partnership  exchanged its 97,011 common shares
     and 26,270 preferred shares for 419,155 common shares of SDL. Additionally,
     the Partnership's $2 million note was repaid with interest.

(P)  In March 1995,  Viasoft,  Inc.  completed its initial public offering at $8
     per share.  In connection  with the offering and a 1-for-3 reverse split of
     the company's common stock, the Partnership exchanged its 861,885 preferred
     shares of Viasoft for 287,295 common shares of the company.

(Q)  On February 14, 1995, the Partnership exercised warrants to purchase 42,217
     shares of United States  Paging  Corporation  common stock for $78,750.  On
     February  17,  1995,  Mobile  Telecommunications  Technologies  Corporation
     ("MTEL")  completed its merger with United States  Paging  Corporation.  In
     connection  with the merger,  the  Partnership  exchanged  its U.S.  Paging
     holdings for 204,291 shares of MTEL common stock.

(R)  Amounts  provided  for  "Supplemental  Information:   Liquidated  Portfolio
     Investments" are cumulative from inception through December 31, 1995.

* 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
December 31, 1994

Active Portfolio Investments:

<TABLE>
                                                                       Initial Investment
Company / Position                                                            Date                 Cost              Fair Value
Biocircuits Corporation*(A)
<C>                                                                           <C>              <C>              <C>            
515,269 shares of Common Stock                                            May 1991             $   1,422,501    $       230,428
-------------------------------------------------------------------------------------------------------------------------------
Borg-Warner Automotive, Inc.*(A)
444,664 shares of Common Stock                                            Sept. 1988               2,223,320          8,254,075
-------------------------------------------------------------------------------------------------------------------------------
Borg-Warner Security Corporation*(A)
500,000 shares of Common Stock                                            Sept. 1988               2,500,000          3,440,625
-------------------------------------------------------------------------------------------------------------------------------
CellPro, Incorporated(A)
411,333 shares of Common Stock                                            Mar. 1989                  764,525          4,641,379
-------------------------------------------------------------------------------------------------------------------------------
Children's Discovery Centers of America, Inc.(A)
115,267 shares of Common Stock                                            July 1988                2,000,259          1,163,240
-------------------------------------------------------------------------------------------------------------------------------
Clarus Medical Systems, Inc.*
507,458 shares of Preferred Stock                                         Jan. 1991                2,037,290            571,357
9% Promissory Note due 3/21/95                                                                       136,623            136,623
Warrants to purchase 20,238 shares of Common Stock
    at $3.75 per share, expiring on 7/31/97                                                                0                  0
-------------------------------------------------------------------------------------------------------------------------------
Corporate Express, Inc.*(A)
696,234 shares of Common Stock                                            May 1992                 2,964,258          9,263,998
-------------------------------------------------------------------------------------------------------------------------------
Diatech, Inc.*
1,258,006 shares of Preferred Stock                                       Dec. 1991                2,620,015          3,145,015
-------------------------------------------------------------------------------------------------------------------------------
Eckerd Corporation*(A)
92,843 shares of Common Stock                                             July 1992                  857,004          2,031,521
-------------------------------------------------------------------------------------------------------------------------------
Elantec, Inc.
2,889,947 shares of Preferred Stock                                       Aug. 1988                1,069,569          1,069,569
852,273 shares of Common Stock                                                                       340,909            340,909
-------------------------------------------------------------------------------------------------------------------------------
Home Express, Inc.*
486,067 shares of Preferred Stock                                         June 1992                1,822,751          2,303,957
-------------------------------------------------------------------------------------------------------------------------------
Horizon Cellular Telephone Company, L.P.:
    HCTC Investment, L.P.
    10% Promissory Note due 3/26/98                                       May 1992                 2,587,500          2,587,500
    SPTHOR Corporation
    10% Promissory Note due 3/26/98                                       May 1992                   646,875            646,875
    34.5 shares of Common Stock                                                                      215,625            215,625
-------------------------------------------------------------------------------------------------------------------------------
I.D.E. Corporation*
493,391 shares of Preferred Stock                                         Mar. 1988                1,110,909            555,455
-------------------------------------------------------------------------------------------------------------------------------
IDEC Pharmaceuticals Corporation(A):
    ML/MS Associates, L.P.*
    34.4% Limited Partnership interest                                    June 1989                3,960,000          3,960,000
    MLMS Cancer Research, Inc.
    400,000 shares of Common Stock                                        July 1989                   46,957             46,957
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>


<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1994

<TABLE>
                                                                       Initial Investment
Company / Position                                                            Date                 Cost              Fair Value
Inference Corporation
<C>                                                                            <C>             <C>              <C>            
702,427 shares of Preferred Stock                                         Apr. 1993            $     785,032    $       785,032
Warrants to purchase 193,682 shares of Preferred Stock
    at $1 per share, expiring on 4/19/99                                                              22,777             22,777
Warrants to purchase 24,233 shares of Preferred Stock
    at $1.05 per share, expiring on 12/16/97                                                           6,531              6,531
Warrants to purchase 295,827 shares of Common Stock
    at $1 per share, expiring on 6/10/98                                                              79,725             79,725
-------------------------------------------------------------------------------------------------------------------------------
Komag, Incorporated(A)
144,486 shares of Common Stock                                            Aug. 1988                1,331,561          3,731,351
-------------------------------------------------------------------------------------------------------------------------------
Ligand Pharmaceuticals Inc.*(A)
499,858 shares of Common Stock                                            Apr. 1989                1,216,466          2,615,507
Warrants to purchase 5,584 shares of Common Stock at
    $3.61 per share to $9.60 per share, expiring between
    1/18/96 and 7/31/97                                                                                    0              2,415
-------------------------------------------------------------------------------------------------------------------------------
Micro Linear Corporation(A)
213,419 shares of Common Stock                                            Aug. 1988                  746,969          1,033,482
-------------------------------------------------------------------------------------------------------------------------------
Neocrin Company*
317,366 shares of Preferred Stock                                         June 1991                3,369,046          1,586,830
9.25% Convertible Notes due 6/22/95                                                                  629,176            629,176
-------------------------------------------------------------------------------------------------------------------------------
OccuSystems, Inc.
504,830 shares of Preferred Stock                                         June 1993                2,524,150          3,155,188
-------------------------------------------------------------------------------------------------------------------------------
Photon Dynamics, Inc.*
1,222,828 shares of Preferred Stock                                       Sept. 1988               2,452,226          1,435,181
-------------------------------------------------------------------------------------------------------------------------------
Raytel Medical Corporation*
1,000,000 shares of Preferred Stock                                       Feb. 1990                1,000,000          2,000,000
Options to purchase 55,938 shares of Preferred Stock
    at $.71 per share, expiring 10/31/01                                                                   0             72,160
-------------------------------------------------------------------------------------------------------------------------------
Regeneron Pharmaceuticals, Inc.(A)
1,377,895 shares of Common Stock                                          Jan. 1988                1,616,740          3,883,919
-------------------------------------------------------------------------------------------------------------------------------
Sanderling Biomedical, L.P.*
80% Limited Partnership interest                                          May 1988                 2,000,000          1,790,799
-------------------------------------------------------------------------------------------------------------------------------
SDL, Inc.*
8% Subordinated Note due 7/17/97                                          July 1992                2,019,721          2,019,721
97,011 shares of Common Stock                                                                        169,769          1,361,064
26,270 shares of Preferred Stock                                                                     849,834            849,834
-------------------------------------------------------------------------------------------------------------------------------
Target Vision, Inc.*
395,000 shares of Preferred Stock                                         Apr. 1987                  395,000                  0
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>


<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1994

<TABLE>
                                                                       Initial Investment
Company / Position                                                            Date                 Cost              Fair Value
United States Paging Corporation*(A)
<C>                                                                            <C>            <C>               <C>            
450,053 shares of Common Stock                                            Apr. 1987           $    1,479,405    $     2,146,618
Warrants to purchase 16,887 shares of Common Stock at
    $3.33 per share, expiring between 2/27/95 and 4/28/95                                                  0             24,308
Warrants to purchase 25,330 shares of Common Stock at
    $.89 per share, expiring between 12/15/95 and 3/8/96                                                   0             98,277
-------------------------------------------------------------------------------------------------------------------------------
Viasoft, Inc.
861,885 shares of Preferred Stock                                         Dec. 1987                  915,348          1,465,205
-------------------------------------------------------------------------------------------------------------------------------

Totals from Active Portfolio Investments                                                      $   52,936,366    $    75,400,208
                                                                                              ---------------------------------
</TABLE>




Supplemental Information: Liquidated Portfolio Investments(B)


<TABLE>
                                                                              Cost           Realized Gain                Return

<S>                                                                    <C>                   <C>                <C>             
Totals from Liquidated Portfolio Investments                           $    60,174,014       $    9,592,110     $     69,766,124
                                                                       =========================================================


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

Totals from Active & Liquidated Portfolio Investments                  $   113,110,380       $   32,055,952     $    145,166,332
                                                                       =========================================================
</TABLE>


(A)  Public company

(B)  Amounts  provided  for  "Supplemental  Information:   Liquidated  Portfolio
     Investments" are cumulative from inception through December 31, 1994.

* 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
For the Years Ended December 31,


<TABLE>
                                                                               1995               1994               1993
                                                                         ---------------     ---------------    ---------

INVESTMENT INCOME AND EXPENSES
<S>                                                                      <C>                <C>                <C>             
   Interest from short-term investments                                  $     1,062,296    $        372,789   $        360,441
   Interest and other income from portfolio investments                          374,344             537,731            134,921
   Dividend income                                                               832,825             279,298                  -
                                                                         ---------------    ----------------   ----------------
   Total investment income                                                     2,269,465           1,189,818            495,362
                                                                         ---------------    ----------------   ----------------

   Expenses:

   Management fee - Note 4                                                     1,138,000           1,333,363          1,444,988
   Professional fees                                                             319,424             326,655            184,665
   Mailing and printing                                                          211,662             197,083            210,561
   Independent General Partners' fees - Note 5                                   103,049              92,584             93,841
   Custodial fees                                                                 14,602              14,097             14,979
   Miscellaneous                                                                     633               1,275              1,250
   Interest expense - Note 4                                                           -              41,687                  -
                                                                         ---------------    ----------------   ----------------
   Total expenses                                                              1,787,370           2,006,744          1,950,284
                                                                         ---------------    ----------------   ----------------

NET INVESTMENT INCOME (LOSS)                                                     482,095            (816,926)        (1,454,922)

Net realized gain from portfolio investments                                  41,368,447          18,592,821         10,605,019
                                                                         ---------------    ----------------   ----------------

NET REALIZED GAIN FROM OPERATIONS
   (allocable to Partners) - Note 3                                           41,850,542          17,775,895          9,150,097

Net change in unrealized appreciation of investments                          12,661,342         (29,444,350)         9,430,447
                                                                         ---------------    ----------------   ----------------

NET INCREASE (DECREASE) IN NET ASSETS
   RESULTING FROM OPERATIONS                                             $    54,511,884    $    (11,668,455)  $     18,580,544
                                                                         ===============    ================   ================
</TABLE>


See notes to financial statements.


<PAGE>


ML VENTURE PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,


<TABLE>
                                                                               1995               1994                1993
                                                                         ---------------     ---------------   -----------

CASH FLOWS PROVIDED FROM (USED FOR)
   OPERATING ACTIVITIES
<S>                                                                      <C>                 <C>               <C>              
Net investment income (loss)                                             $       482,095     $      (816,926)  $     (1,454,922)

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

(Increase) decrease in accrued interest and notes receivable                     (55,706)           (491,825)           186,164
(Increase) decrease in accrued interest on short-term
   investments                                                                    (8,190)            (14,089)            14,803
Decrease in payables                                                             (27,451)            (22,405)           (42,186)
                                                                         ---------------     ---------------   ----------------
Cash provided from (used for) operating activities                               390,748          (1,345,245)        (1,296,141)
                                                                         ---------------     ---------------   ----------------

CASH FLOWS PROVIDED FROM INVESTING
   ACTIVITIES

Net return (purchase) of short-term investments                              (10,426,139)         (2,929,313)         5,653,777
Cost of portfolio investments purchased                                       (2,741,249)         (2,427,981)        (8,049,501)
Deposits placed in escrow                                                       (184,502)                  -                  -
Net proceeds from the sale of portfolio investments                           54,223,795          23,528,525         16,334,397
Repayment of investments in notes                                              2,019,721                   -          2,064,011
                                                                         ---------------     ---------------   ----------------
Cash provided from investing activities                                       42,891,626          18,171,231         16,002,684
                                                                         ---------------     ---------------   ----------------

CASH FLOWS FOR FINANCING ACTIVITIES

Cash distributions to Partners                                               (43,235,325)        (17,600,000)       (15,600,000)
                                                                         ---------------     ---------------   ----------------

Increase (decrease) in cash and cash equivalents                                  47,049            (774,014)          (893,457)
Cash and cash equivalents at beginning of period                                 638,868           1,412,882          2,306,339
                                                                         ---------------     ---------------   ----------------

CASH AND CASH EQUIVALENTS AT END
   OF PERIOD                                                             $       685,917     $       638,868   $      1,412,882
                                                                         ===============     ===============   ================
</TABLE>


See notes to financial statements.


<PAGE>


ML VENTURE PARTNERS II, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1993, 1994 and 1995

<TABLE>
                                                                                              Unallocated
                                         Managing        Individual                         Net Unrealized
                                          General          General           Limited        Appreciation of
                                          Partner         Partners          Partners          Investments           Total
<S>                 <C> <C>            <C>                <C>           <C>                 <C>                <C>             
Balance at December 31, 1992           $     941,956      $ 3,108       $   66,267,581      $   42,477,745     $    109,690,390
Cash distribution, paid
May 26, 1993                                       -            -          (15,600,000)                  -          (15,600,000)
Net investment loss                          (14,549)         (48)          (1,440,325)                  -           (1,454,922)
Net realized gain on investments             106,050          350           10,498,619                   -           10,605,019
Net change in unrealized
appreciation of investments                        -            -                    -           9,430,447            9,430,447
                                       -------------      -------       --------------      --------------     ----------------
Balance at December 31, 1993               1,033,457        3,410           59,725,875(A)       51,908,192          112,670,934
Cash distributions, paid May 26,
1994 and September 1, 1994                (1,400,000)           -          (16,200,000)                  -          (17,600,000)
Net investment loss                          153,602          (32)            (970,496)                  -             (816,926)
Net realized gain on investments           2,404,420          539           16,187,862                   -           18,592,821
Net change in unrealized
appreciation of investments                        -            -                    -         (29,444,350)         (29,444,350)
                                       -------------      -------       --------------      --------------     ----------------
Balance at December 31, 1994               2,191,479        3,917           58,743,241(A)       22,463,842           83,402,479
Cash distributions, paid April 11,
1995 and October 5, 1995                  (7,232,165)      (3,160)         (36,000,000)                  -          (43,235,325)
Accrued cash distribution,
payable January 12, 1996                  (2,336,106)        (400)         (12,000,000)                  -          (14,336,506)
Net investment income                        243,840            7              238,248                   -              482,095
Net realized gain on investments           8,604,637        1,093           32,762,717                   -           41,368,447
Net change in unrealized
appreciation of investments                        -            -                    -          12,661,342           12,661,342
                                       -------------      -------       --------------      --------------     ----------------
Balance at December 31, 1995           $   1,471,685      $ 1,457       $   43,744,206(A)   $   35,125,184     $     80,342,532
                                       =============      =======       ==============      ==============     ================
</TABLE>

(A)  The net asset value per unit of limited partnership interest,  including an
     assumed allocation of net unrealized appreciation of investments, was $596,
     $638 and $852 at December 31, 1995, 1994 and 1993, respectively. Cumulative
     cash distributions  paid, or payable, to Limited Partners from inception to
     December 31,  1995,  1994 and 1993  totaled  $890,  $490 and $355 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.  The  Partnership  is  scheduled  to  terminate on
December  31,  1997.  However,   pursuant  to  the  Partnership  Agreement,  the
Individual  General  Partners  can  extend  the  termination  date for up to two
additional  two-year  periods if they determine that such extensions would be in
the best interest of the Partnership.

2.     Significant Accounting Policies

Valuation of Investments - Short-term  investments are carried at amortized cost
which approximates  market.  Portfolio  investments are carried at fair value as
determined  quarterly by the Sub-Manager under the supervision of the Individual
General  Partners  and  the  Managing   General  Partner.   The  fair  value  of
publicly-held  portfolio  securities is adjusted to the average  closing  public
market  price for the last five trading  days of each  quarter  discounted  by a
factor  of  0%  to  50%  for  sales  restrictions.  Factors  considered  in  the
determination of an appropriate  discount include,  underwriter  lock-up or Rule
144 trading  restrictions,  insider  status where the  Partnership  either has a
representative  serving on the company's Board of Directors or is greater than a
10%  shareholder,   and  other  liquidity  factors  such  as  the  size  of  the
Partnership's position in a given company compared to the trading history of the
public security.  Privately-held  portfolio securities are carried at cost until
significant  developments  affecting the portfolio  company  provide a basis for
change in  valuation.  The fair value of private  securities  is  adjusted 1) to
reflect  meaningful  third-party  transactions  in the  private  market or 2) to
reflect  significant  progress or slippage in the  development  of the company's
business  such that cost is no longer  reflective  of fair  value.  As a venture
capital investment fund, the Partnership's  portfolio investments involve a high
degree of business and financial risk that can result in substantial losses. The
Sub-Manager   considers  such  risks  in  determining  the  fair  value  of  the
Partnership's portfolio investments.


<PAGE>


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


Use of Estimates - The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period.  Actual results could differ from those estimates.  Investment
Transactions  -  Investment  transactions  are  recorded on the accrual  method.
Portfolio  investments  are recorded on the trade date, the date the Partnership
obtains an  enforceable  right to demand  the  securities  or payment  therefor.
Realized  gains and  losses  on  investments  sold are  computed  on a  specific
identification basis. Income Taxes - No provision for income taxes has been made
since all income and losses are allocable to the Partners for inclusion in their
respective tax returns.  The  Partnership's  net assets for financial  reporting
purposes   differ  from  its  net  assets  for  tax  purposes.   Net  unrealized
appreciation  of  investments  of $35.1 million at December 31, 1995,  which was
recorded for financial statement purposes,  was not recognized for tax purposes.
Additionally,  from inception to December 31, 1995, timing differences primarily
relating to realized  losses  totaling  $1.2 million  have been  deducted on the
Partnership's financial statements and syndication costs relating to the selling
of Units  totaling  $11.3  million  were  charged  to  partners'  capital on the
financial  statements.  These amounts have not been deducted or charged  against
partners'  capital for tax purposes.  Statements of Cash Flows - The Partnership
considers its interest-bearing cash account to be cash equivalents.

3.     Allocation of Partnership Profits and Losses

The  Partnership  Agreement  provides that the Managing  General Partner will be
allocated,  on a cumulative basis over the life of the  Partnership,  20% of the
Partnership's aggregate investment income and net realized gains and losses from
venture capital  investments,  provided that such amount is positive.  All other
gains and  losses  of the  Partnership  are  allocated  among  all the  Partners
(including  the Managing  General  Partner) in  proportion  to their  respective
capital  contributions  to the  Partnership.  From its inception to December 31,
1995,  the  Partnership  had a $54.6  million net gain from its venture  capital
investments, which includes interest and other income from portfolio investments
totaling $3.6 million.

4.     Related Party Transactions

The  Management  Company  performs,  or  arranges  for  others to  perform,  the
management  and  administrative  services  necessary  for the  operation  of the
Partnership  and  receives a  management  fee at the annual  rate of 2.5% of the
gross capital contributions to the Partnership,  reduced by selling commissions,
organizational   and  offering   expenses  paid  by  the  Partnership,   capital
distributed  and realized  capital losses with a minimum annual fee of $200,000.
Such fee is determined and payable quarterly.



<PAGE>


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


On November 9, 1994, the Securities and Exchange  Commission  (the "SEC") issued
an exemptive  order  permitting  the  Partnership  to acquire  97,273  shares of
Corporate  Express,  Inc.  common stock from the Management  Company  subject to
certain  conditions,  including  review and approval by the Independent  General
Partners.  On December  13,  1994,  the  Partnership  purchased  such shares for
$1,111,685,  representing  original cost of $1,069,998 plus interest  expense of
$41,687.

5.     Independent General Partners' Fees

As  compensation  for services  rendered to the  Partnership,  each of the three
Independent   General   Partners   receives   $20,000   annually  in   quarterly
installments,  $1,400 for each meeting of the General  Partners  attended or for
each other  meeting,  conference or engagement  in connection  with  Partnership
activities at which attendance by an Independent General Partner is required and
$1,200 for each audit  committee  meeting  attended ($500 if an audit  committee
meeting  is  held  on the  same  day as a  meeting  of the  Independent  General
Partners).

6.     Commitments

The Partnership has a $393,043 non-interest bearing obligation payable on demand
to MLMS Cancer Research, Inc., the general partner of ML/MS Associates, L.P.

7.     Cash Distributions

At a meeting  held on November 3, 1995,  the  General  Partners  approved a cash
distribution to Partners totaling $14,336,506;  $12,000,000, or $100 per unit to
the Limited  Partners and $2,336,506 to the General  Partners.  The distribution
was paid on January 12, 1996 to Limited Partners of record on December 31, 1995.

Cash  distributions  paid or accrued during the periods presented and cumulative
cash  distributions  to  Partners  from  inception  of the  Partnership  through
December 31, 1995 are listed below:

<TABLE>
                                                              General                      Limited              Per $1,000
Distribution Date                                            Partners                     Partners                 Unit
------------------------------------------------          ---------------            ----------------         ---------
<S>                   <C> <C>                             <C>                        <C>                          <C>   
Inception to December 31, 1992                            $             0            $     27,000,000             $  225
May 26, 1993                                                            0                  15,600,000                130
May 26, 1994                                                            0                  16,200,000                135
September 1, 1994                                               1,400,000                           0                  0
April 11, 1995                                                  2,234,189                   9,000,000                 75
October 5, 1995                                                 5,001,136                  27,000,000                225
January 12, 1996 (approved on 11/3/95)                          2,336,506                  12,000,000                100
                                                          ---------------            ----------------             ------
Cumulative totals at December 31, 1995                    $    10,971,831            $    106,800,000             $  890
                                                          ===============            ================             ======
</TABLE>


<PAGE>


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

Additionally,  on  February  29,  1996,  the  General  Partners  approved a cash
distribution to Partners totaling $21.4 million;  $18 million, or $150 per unit,
to  the  Limited  Partners  and  $3.4  million  to  the  General  Partners.  The
distribution  will be paid in April 1996 to Limited  Partners of record on March
31, 1996 and will bring cumulative cash  distributions  paid to Limited Partners
to $124.8 million, or $1,040 per $1,000 Unit. Cumulative cash distributions paid
to the General Partners will total $14.3 million.

8.     Pending Litigation

The  Partnership  has been named as a defendant,  along with other  entities and
individuals,  in an action involving  In-Store  Advertising,  Inc. ("ISA").  The
action is a purported  class action suit wherein the  plaintiffs,  who purchased
shares of ISA in its July 19, 1990 initial public offering  through  November 8,
1990,  allege  violations  under certain sections of the Securities Act of 1933,
the  Securities  Exchange  Act of 1934  and  common  law.  The  plaintiffs  seek
rescission  of their  purchases  of ISA common stock  together  with damages and
certain costs and expenses. The Partnership believes it has meritorious defenses
to the  allegations in the Amended  Complaint and that the cost of resolution of
the litigation will not have a material impact on the financial condition of the
Partnership.  As of December 31, 1995, the Partnership  has incurred  cumulative
legal expenses totaling $218,000 related to the litigation.

9.       Portfolio Investments

During  1995,  the  Partnership  sold  or  wrote-off  equity  securities  of the
following portfolio companies:

<TABLE>
Company                                                    Shares             Cost       Realized Gain (Loss)       Return
--------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>          <C>                 <C>                <C>            
CellPro, Incorporated                                      361,167      $      671,284      $    4,512,990     $     5,184,274
Children's Discovery Centers of America, Inc.              115,267           2,000,259            (236,187)          1,764,072
Corporate Express, Inc.                                    432,631           1,899,777           8,205,810          10,105,587
Eckerd Corporation                                          92,843             857,004           2,019,272           2,876,276
Elantec, Inc.                                              130,976             523,904             328,750             852,654
Home Express, Inc.(1)                                      487,067           1,822,751          (1,822,751)                  0
Inference Corporation                                       25,000              44,672             431,882             476,554
Komag, Incorporated                                        144,486           1,331,561           2,872,275           4,203,836
Ligand Pharmaceuticals, Inc.(2)                            282,500             687,499           2,226,089           2,913,588
Micro Linear Corporation                                   213,419             746,969           2,428,556           3,175,525
Mobile Telecommunications Technologies Corp.               204,291           1,558,155           3,439,923           4,998,078
Neopath, Inc.(3)                                             8,666              51,996             129,467             181,463
OccuSystems, Inc.                                          100,966             504,830           1,605,489           2,110,319
Regeneron Pharmaceuticals, Inc.                          1,377,895           1,616,740          10,885,336          12,502,076
Regeneron Pharmaceuticals, Inc.(3)                          67,747             161,361             907,344           1,068,705
SDL, Inc.                                                   40,000              20,588           1,382,012           1,402,600
Target Vision, Inc.                                            (4)             395,000            (148,750)            246,250
Viasoft, Inc.                                              239,500             763,068           2,200,940           2,964,008
                                                                        --------------      --------------     ---------------
Totals                                                                  $   15,657,418      $   41,368,447     $    57,025,865
                                                                        ==============      ==============     ===============
</TABLE>

(1)  Investment written-off on December 31, 1995.
(2)  Includes  $11,088 of  proceeds  and  realized  gain from the sale of 33,098
     rights received during 1995.
(3)  Received as an in-kind distribution from Sanderling Biomedical, L.P.
(4)  In a  private  transaction,  the  Partnership  sold its  395,000  shares of
     preferred  stock held at December 31, 1994 and  3,683,333  shares of common
     stock which were written-off in 1992.


<PAGE>


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


10.    Classification of Portfolio Investments

As of December 31, 1995, 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                                         $     17,513,922           $    53,633,656               66.76%
Limited Partnerships                                        5,746,643                 9,348,644               11.64%
Preferred Stock                                            11,505,536                 6,908,985                8.60%
Debt Securities                                             3,234,375                 3,234,375                4.02%
                                                     ----------------           ---------------             --------

Total                                                $     38,000,476           $    73,125,660               91.02%
                                                     ================           ===============             ========

Country/Geographic Region
Midwestern U.S.                                      $     10,196,289           $    34,950,108               43.50%
Western U.S.                                               20,257,255                30,271,024               37.68%
Eastern U.S.                                                7,546,932                 7,904,528                9.84%
                                                     ----------------           ---------------             --------

Total                                                $     38,000,476           $    73,125,660               91.02%
                                                     ================           ===============             ========

Industry
Business Services                                    $      5,583,801           $    23,549,769               29.31%
Biotechnology                                               9,319,309                15,741,631               19.59%
Automotive Parts                                            2,223,320                10,505,187               13.08%
Semiconductors/Electronics                                  4,337,815                10,159,022               12.65%
Medical Devices and Services                               10,973,649                 6,850,799                8.53%
Telecommunications                                          3,450,000                 3,450,000                4.29%
Computer Hardware/Software                                  2,112,582                 2,869,252                3.57%
                                                     ----------------           ---------------             --------

Total                                                $     38,000,476           $    73,125,660               91.02%
                                                     ================           ===============             ========
</TABLE>


* Percentage of net assets is based on fair value.


<PAGE>


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


11.    Short-Term Investments

At December 31, 1995 and 1994, the  Partnership  had  short-term  investments in
commercial paper as detailed below.

<TABLE>
                                                           Maturity          Purchase          Amortized            Value at
Issuer                                          Yield        Date              Price             Cost               Maturity

December 31, 1995:
<S>                                            <C>           <C> <C>    <C>                 <C>                <C>             
IES Utilities, Inc.                            5.75%         1/8/96     $    14,358,600     $    14,381,600    $     14,400,000

Golden Managers Acceptance
   Corporation                                 5.75%        1/24/96           2,480,434           2,490,417           2,500,000

BIF, Inc.                                      5.65%         2/2/96             496,626             497,411             500,000
                                                                        ---------------     ---------------    ----------------

Total                                                                   $    17,335,660     $    17,369,428    $     17,400,000
                                                                        ===============     ===============    ================


December 31, 1994:
Cooperative Association
   of Tractor Dealers                          5.50%        1/13/95     $     1,975,556     $     1,996,028    $      2,000,000

Cooperative Association
   of Tractor Dealers                          6.12%        3/10/95           2,466,850           2,470,675           2,500,000

MultiBanco Comermex, S.A.                      6.15%        3/15/95           2,467,115           2,468,396           2,500,000
                                                                        ---------------     ---------------    ----------------

Total                                                                   $     6,909,521     $     6,935,099    $      7,000,000
                                                                        ===============     ===============    ================
</TABLE>

12.    Subsequent Events

From January 1, 1996 to February 23, 1996,  the  Partnership  sold the following
equity securities in the public market:

<TABLE>
Company                                                    Shares             Cost           Realized Gain          Return
--------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>           <C>                <C>                <C>            
Ligand Pharmaceuticals Inc.                                217,358       $     528,967      $    1,979,901     $     2,508,868
CellPro, Incorporated                                       50,166              93,241             744,215             837,456
OccuSystems, Inc.                                          150,000             750,000           2,312,488           3,062,488
Viasoft, Inc.                                               47,795             152,280             600,489             752,769
SDL, Inc.                                                  379,155             999,015           9,120,519          10,119,534
Inference Corporation                                        5,000               8,874              81,122              89,996
                                                                         -------------      --------------     ---------------
Totals                                                                   $   2,532,377      $   14,838,734     $    17,371,111
                                                                         =============      ==============     ===============
</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 five General  Partners of the Partnership are responsible for the management
and  administration  of the  Partnership.  The General  Partners consist of four
Individual General Partners and the Managing General Partner. As required by the
Investment Company Act of 1940 (the "Investment Company Act"), a majority of the
General  Partners must be individuals  who are not  "interested  persons" of the
Partnership  as defined in the  Investment  Company 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
Investment  Company 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 Investment  Company 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 69
Individual General Partner since 1987
Units of the Partnership beneficially owned at March 15, 1996 - 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.

Jerome Jacobson (1)
4200 Massachusetts Avenue, N.W.
Washington, D.C. 20016
Age 74
Individual General Partner since 1987
Units of the Partnership beneficially owned at March 15, 1996 - None (3)
         President of Economic Studies Inc., an economic  consulting firm, since
         1984;  Vice Chairman and a director of the Burroughs  Corporation  from
         1980 to 1984; Director of Cerplex Group, Inc., Datawatch Inc. and Easel
         Corporation.

William M. Kelly (1)
40 Wall Street
New York, New York 10005
Age 52
Individual General Partner since 1991
Units of the Partnership beneficially owned at March 15, 1996 - None (3)
         Associate of William T. Golden,  Corporate Director and Trustee,  since
         1980;  Vice President of National  Aviation and Technology  Company,  a
         registered  investment company,  from 1977 to 1980;  Individual General
         Partner of ML Venture Partners I, L.P.

Kevin K. Albert (2)
World Financial Center
North Tower
New York, New York 10281-1326
Age 43
Individual General Partner since 1990
Units of the Partnership beneficially owned at March 15, 1996 - None (3)
         Director and President of the Management Company;  Managing Director of
         Merrill  Lynch  Investment   Banking  Division  ("MLIBK")  since  1988;
         Individual General Partner of ML Venture Partners I, L.P.

(1)  Member of Audit Committee of the Individual General Partners.
(2)  Interested  person,  as  defined  in the  Investment  Company  Act,  of the
     Partnership.
(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. Aufenanger,  Mr. Seitz and Ms.
Herte is South Tower, World Financial Center, New York, New York 10080.

Robert F. Aufenanger
Executive Vice President and Director
Age 42
Officer or Director since 1990
         Vice President of Merrill Lynch & Co.  Corporate Credit and Director of
         the  Partnership  Management  Group since 1991;  Director of MLIBK from
         1990 to 1991; Vice President of MLIBK from 1984 to 1990.

Michael E. Lurie
Vice President and Director
Age 52
Officer or Director since 1995
          First Vice  President  of  Merrill  Lynch & Co.  Corporate  Credit and
          Director of the Asset Recovery Management  Department,  joined Merrill
          Lynch in 1970.  Prior  to his  present  position,  Mr.  Lurie  was the
          Director of Debt and Equity Markets Credit  responsible for the global
          allocation  of credit  limits  and the  approval  and  structuring  of
          specific  transactions related to debt and equity products.  Mr. Lurie
          also served as Chairman of the Merrill Lynch International Bank Credit
          Committee.

Diane T. Herte
Vice President and Treasurer
Age 35
Officer or Director since 1995
         Assistant Vice President of Merrill Lynch & Co.  Corporate Credit since
         1992 and joined  Merrill Lynch in 1984.  Ms.  Herte's  responsibilities
         include  controllership and financial  management functions for certain
         partnerships for which  subsidiaries of ML Leasing  Equipment Corp., an
         affiliate of Merrill Lynch, are general partners.

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  nine
institutional  venture capital funds ("Sprout Funds") and several smaller funds,
with total  committed  capital of over $800 million.  Six of such  institutional
funds,  with capital  exceeding  $750  million,  are  currently  operating.  DLJ
Capital's  most  recent  limited  partnership  is Sprout  VII,  L.P.,  which was
established  in 1994 with an excess of 75  percent of its $250  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 Boston, Massachusetts.

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 53
Officer or Director since 1977
         Managing General Partner of Sprout Group, the venture capital affiliate
of DLJ since 1981.

Janet A. Hickey
Senior Vice President
Age 50
Officer or Director since 1985
          General Partner of Sprout Group since 1985; Vice President and Manager
          of Venture Capital Division of General Electric  Investment Corp. from
          1970 to 1985.

Keith B. Geeslin(1)
Senior Vice President
Age 42
Officer or Director since 1984
         General Partner of Sprout Group since 1986.

Dr. Robert E. Curry(1)
Vice President
Age 49
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 42
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 55
Officer or Director since 1989
         Director, Executive Vice President and Chief Financial Officer of DLJ.

Thomas E. Siegler
Secretary, Treasurer and Director
Age 61
Officer or Director since 1971
         Senior Vice President and Secretary of DLJ.

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


<PAGE>


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 pays each  Independent  General Partner an annual
fee of $20,000 in  quarterly  installments  plus $1,400 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.  Such annual fee was $19,000 plus $1,200
for  each  meeting  of the  Individual  General  Partners  attended  prior to an
increase   effected  on  April  1,  1995.  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 $1,200 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, 1995, the aggregate
fees and expenses paid by the  Partnership to the Independent  General  Partners
totaled $103,049.

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, 1995, the  Partnership had a net realized
gain of $41.4 million from  portfolio  investments  sold and  written-off.  On a
cumulative  basis, from inception to December 31, 1995, the Partnership was in a
net gain position of $54.6 million from its  investment  income and net realized
gains and losses from its venture capital portfolio investments. The Partnership
made two cash  distributions  totaling $36 million to limited partners of record
and two cash distributions  totaling $7.2 million to the General Partners during
the fiscal  year ended  December  31,  1995.  The  Partnership  also made a cash
distribution  totaling $12 million in January 1996 to limited partners of record
on December 31, 1995. The  Partnership  also made a cash  distribution  totaling
$2.3  million to the General  Partners.  The  Partnership  will also make a cash
distribution  totaling  $18  million to limited  partners of record on March 31,
1996 and a $3.4 million distribution to the General Partners.

Management Fee - Pursuant to the Management Agreement,  the Partnership pays the
Management  Company  a fee at the  annual  rate  of 2.5%  of the  amount  of the
partners' capital  contributions (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  on the  basis of the  amount  of the
partners' capital contributions,  adjusted 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  out  of  the
compensation   that  the  Management   Company  receives  under  the  Management
Agreement.  For the year ended December 31, 1995, the management fees payable by
the Partnership to the Management Company aggregated $1,138,000.

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, 1996, 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
104 Units of the Partnership.  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.  Robert F. Aufenanger,  a Director and
Executive Vice President of the Management  Company, a Vice President of Merrill
Lynch & Co.  Corporate  Credit  and a  Director  of the  Partnership  Management
Department,  joined  Merrill Lynch in 1980.  Messrs.  Albert and  Aufenanger are
involved  with certain  other  entities  affiliated  with  Merrill  Lynch or its
affiliates.  Michael E. Lurie,  a Director and Vice  President of the Management
Company,  a First Vice President of Merrill Lynch & Co. Corporate Credit and the
Director of the Asset Recovery  Management  Department,  joined Merrill Lynch in
1970.  Diane T. Herte, a Vice President and Treasurer of the Management  Company
and an Assistant Vice President of Merrill Lynch & Co. Corporate Credit,  joined
Merrill Lynch in 1984.


<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, 1995 and 1994

                    Schedule of  Portfolio  Investments  as of December 31, 1995
                    Schedule of Portfolio Investments as of December 31, 1994

<TABLE>
<S>             <C> <C>   <C>      <C> 
                    Statements of Operations for the years ended December 31, 1995, 1994 and 1993

                    Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993

                    Statements of Changes in Partners' Capital for the years ended December 31, 1993, 1994 and 1995

                    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)

                    (13)  (a)  Page 18 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.

                    (13)  (b)  Page 20 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.

                    (13)  (c)  Page 19 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.

                    (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.
</TABLE>



<TABLE>
<C>     <C>                               <C> <C>       
(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.
</TABLE>



<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 26th day of March
1996.


         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 26th day of March 1996.


<TABLE>
<S>     <C>    <C>                                                  <C>     <C>    <C>    <C>
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/   Diane T. Herte                                        By:     /s/   William M. Kelly
         Diane T. Herte                                                      William M. Kelly
         Vice President and Treasurer                                        Individual General Partner
         (Principal Financial and Accounting Officer)                        ML Venture Partners II, L.P.
</TABLE>