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, 1997

OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
          EXCHANGE ACT OF 1934

For the transition period from                  to
                             Commission file number 0-14217


                          ML VENTURE PARTNERS II, L.P.
================================================================================
             (Exact name of registrant as specified in its charter)


Delaware                                                             13-3324232
===============================================================================
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

World Financial Center, North Tower
New York, New York                                                    10281-1326
==============================================================================
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code:  (212) 449-1000

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 16, 1998, 119,636 units of limited partnership  interest ("Units") were
held by non-affiliates of the registrant. There is no established public trading
market for such Units.





                       DOCUMENTS INCORPORATED BY REFERENCE


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



<PAGE>


                                     PART I

Item 1.       Business.

Formation

ML Venture  Partners  II, L.P.  (the  "Partnership"  or the  "Registrant")  is a
Delaware limited partnership organized on February 4, 1986. The General Partners
of  the  Partnership  consist  of  four  individuals  (the  "Individual  General
Partners") and MLVPII Co., L.P. (the  "Managing  General  Partner"),  a New York
limited partnership in which Merrill Lynch Venture Capital Inc. (the "Management
Company")  is  the  general  partner.  The  Management  Company  is an  indirect
subsidiary  of Merrill  Lynch & Co.,  Inc. and an  affiliate  of Merrill  Lynch,
Pierce,  Fenner & Smith Incorporated  ("Merrill Lynch").  DLJ Capital Management
Corporation (the "Sub-Manager"), an affiliate of Donaldson, Lufkin and Jenrette,
Inc., is the sub-manager pursuant to a sub-management  agreement,  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 Merrill Lynch, the Partnership publicly offered 120,000 units of limited
partnership interest (the "Units") at $1,000 per Unit. The Units were registered
under the Securities  Act of 1933 pursuant to a  Registration  Statement on Form
N-2 (File No.  33-3220)  which was declared  effective on February 10, 1987. The
Partnership  held its initial and final  closings on March 31, 1987 and June 10,
1987, respectively.  A total of 120,000 Units were accepted at such closings and
the additional  limited  partners (the "Limited  Partners") were admitted to the
Partnership.

The information set forth under the captions "Risk and Other Important  Factors"
(pages 8 through 11), "Investment Objective and Policies" (pages 14 through 16),
"Venture  Capital  Operations"  (pages 17 through 20) and "Portfolio  Valuation"
(pages 27 and 28) in the prospectus of the Partnership  dated February 10, 1987,
filed with the Securities and Exchange  Commission pursuant to Rule 424(b) under
the Securities Act of 1933, as supplemented by a supplement  thereto dated April
21, 1987 and filed pursuant to Rule 424(c) under the Securities Act of 1933 (the
"Prospectus"), is incorporated herein by reference.

The Venture Capital Investments

The Partnership  has fully invested the net proceeds  received from the offering
of Units and will not make investments in any new portfolio companies.  However,
the  Partnership  may make  additional  follow-on  investments  in its remaining
portfolio  companies.  During the year ended December 31, 1997, the  Partnership
invested  $474,255 in three  existing  portfolio  companies.  As of December 31,
1997, the  Partnership  had invested a total of $116,532,996 in its portfolio of
venture capital  investments.  During the first quarter of 1997, the Partnership
provided a $228,926  bridge loan to SPTHOR  Corporation,  in connection with the
Partnership's investment in Horizon Cellular Telephone Company, L.P. During 1997
the Partnership made two follow-on investments in Biocircuits  Corporation.  The
first investment,  made on April 14, 1997 for $106,250,  was for the purchase of
106,250 shares of the company's  common stock,  and the second,  on July 2, 1997
for $125,000,  was for the purchase of an additional 166,667 common shares and a
warrant to  purchase  166,667  common  shares for $.75 per  share,  expiring  on
January 2, 1999.  Also during  1997,  the  Partnership  satisfied  its  $370,434
non-interest  bearing  obligation  payable to MLMS Cancer  Research,  Inc.,  the
general partner of ML/MS Associates,  L.P., by making a final payment of $14,079
in November 1997.

As of December 31, 1997, the Partnership's  investment portfolio consisted of 13
active  investments  with a cost of $13,013,680 and a fair value of $17,021,243.
From its  inception  through  December 31, 1997,  the  Partnership  has fully or
partially liquidated or written-off  investments with an aggregate cost basis of
$103,519,316.  These liquidated  investments returned a total of $216,964,477 to
the  Partnership  for  a  realized  gain  of  $113,445,161.   Additionally,  the
Partnership  earned  interest  and  dividend  income  from its  venture  capital
investments totaling $4,244,696 from inception to December 31, 1997.

Termination

In July 1997, the Individual  General Partners voted to extend the Partnership's
originally  scheduled  termination  date of December 31, 1997 for an  additional
two-year period. As a result,  the Partnership's  scheduled  termination date is
December 31, 1999. Pursuant to the Partnership Agreement, the Individual General
Partners  can  extend the term of the  Partnership  for an  additional  two-year
period,  if such  extension  is  determined  to be in the best  interest  of the
Partnership.

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.

Item 2.       Properties.

The Partnership does not own or lease physical properties.

Item 3.       Legal Proceedings.

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

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

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

                                     PART II

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

The  information  with  respect to the market for the Units set forth  under the
subcaption  "Substituted  Limited Partners" on pages 30 and 31 of the Prospectus
is  incorporated   herein  by  reference.   An  established  public  market  for
Registrant's  Units does not now exist,  and it is not  anticipated  that such a
market will develop in the future.  Accordingly,  accurate information as to the
market  value of a Unit at any  given  date is not  available.  The  approximate
number of holders of Units as of March 16, 1998 is 12,898.  The Managing General
Partner  and the  Individual  General  Partners  of the  Partnership  also  hold
interests in the Partnership.

Beginning  with the  December  1994 client  account  statements,  Merrill  Lynch
implemented   new   guidelines  for  reporting   estimated   values  of  limited
partnerships  and other direct  investments 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 new  guidelines,  Merrill Lynch will report  estimated
values for limited partnership  interests originally sold by Merrill Lynch (such
as  Registrant's  Units)  two times per year.  These  estimated  values  will be
provided to Merrill Lynch by independent  valuation  services based on financial
and other  information  available to the  independent  services on (i) the prior
August 15th for reporting on December  year-end and  subsequent  client  account
statements through the following May's month-end client account statements,  and
on (ii) March 31st for reporting on June month-end and subsequent client account
statements  through the November month-end client account statements of the same
year.

The Managing General Partner's  estimate of net asset value at December 31, 1997
is $162 per Unit, including an assumed allocation of net unrealized appreciation
of investments.  The Managing General  Partner's  estimate of net asset value as
set forth  above  reflects  the  value of the  Partnership's  underlying  assets
remaining at year-end,  whereas the value provided by the  independent  services
reflects  the  estimated  value of the  Partnership  Units  themselves  based on
information  that was  available on August 15, 1997.  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  services to determine  the estimated
value.  The estimated value provided by the independent  valuation  services and
the Registrant's  current net asset value are not market values and Unit holders
may not be able to sell their  Units or  realize  either  amount  upon a sale of
their Units. In addition, Unit holders may not realize the independent estimated
value or the Registrant's current net asset value amount upon the liquidation of
Registrant's assets over its remaining life.

Cash Distributions

Cash  distributions  paid or accrued during the periods presented and cumulative
cash  distributions  to  Partners  from  inception  of the  Partnership  through
December 31, 1997 are listed below:

<TABLE>
                                                        Managing            Individual
                                                         General              General               Limited          Per $1,000
Distribution Date                                        Partner             Partners              Partners             Unit
------------------------------------------------    -----------------    ---------------      ----------------      --------
<S>                   <C> <C>                       <C>                   <C>                <C>                     <C>
Inception to December 31, 1994                      $       1,400,000     $          0       $      58,800,000       $       490
April 11, 1995                                              2,231,929            2,260               9,000,000                75
October 5, 1995                                             5,000,236              900              27,000,000               225
January 12, 1996                                            2,336,106              400              12,000,000               100
April 26, 1996                                              3,377,898              600              18,000,000               150
July 29, 1996                                               4,238,951              640              19,200,000               160
October 11, 1996                                            2,547,571              400              12,000,000               100
July 11, 1997                                               2,590,089              640              19,200,000               160
October 16, 1997                                              411,084              260               7,800,000                65
                                                    -----------------     ------------       -----------------       -----------
Cumulative totals at December 31, 1997              $      24,133,864     $      6,100       $     183,000,000       $     1,525
                                                    =================     ============       =================       ===========
</TABLE>


<PAGE>


Item 6.       Selected Financial Data.

($ In Thousands, Except For Per Unit Information)

<TABLE>
                                                                           Years Ended December 31,
                                                           1997           1996            1995           1994           1993
                                                       -----------     -----------    -----------    -----------    --------

<S>                                                    <C>             <C>            <C>            <C>            <C>
Net Realized Gain on Investments                       $    15,606     $    46,879    $    41,368    $    18,593    $    10,605

Net Change in Unrealized Appreciation
of Investments                                              (5,873)        (25,245)        12,661        (29,444)         9,430

Net Increase (Decrease) in Net Assets
Resulting from Operations                                    9,786          20,947         54,512        (11,668)        18,581

Cash Distributions to Partners                              30,002          59,366         57,572         17,600         15,600

Cumulative Cash Distributions to Partners                  207,140         177,138        117,772         60,200         42,600

Total Assets                                                21,919          42,268         95,045         83,796        113,087

Net Unrealized Appreciation of Investments                   4,008           9,880         35,125         22,464         51,908

Purchase of Portfolio Investments                              474             207          2,741          2,428          8,050

Cumulative Cost of Portfolio Investments                   116,533         116,059        115,851        113,110        110,682

PER UNIT OF LIMITED
PARTNERSHIP INTEREST:

Net Realized Gain on Investments                          $    103         $   309        $   273          $ 135       $     87

Net Increase (Decrease) in Net Assets
Resulting from Operations                                       64             137            358            (79)           120

Cash Distributions                                             225             410            400            135            130

Cumulative Cash Distributions                                1,525           1,300            890            490            355

Net Unrealized Appreciation of Investments                      26              65            232            148            355

Net Asset Value, Including Net Unrealized
Appreciation of Investments                                    162             323            596            638            852
</TABLE>



<PAGE>


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


Liquidity and Capital Resources

As  of  December  31,  1997,  the  Partnership  held  $2,979,552  in  short-term
investments  with  maturities  of  less  than  one  year  and  $1,918,335  in an
interest-bearing  cash account.  For the years ended December 31, 1997, 1996 and
1995, the Partnership  earned interest from such investments  totaling $638,556,
$979,803 and  $1,062,296,  respectively.  Interest  earned in future  periods is
subject to  fluctuations  in  short-term  interest  rates and changes in amounts
available  for  investment  in  such  securities.  Funds  needed  to  cover  the
Partnership's  future  operating  expenses  and  follow-on  investments  will be
obtained from these existing cash reserves,  from interest and other  investment
income 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,  and after an
adequate  reserve for operating  expenses and follow-on  investments in existing
portfolio companies.

During  1997,  the  Partnership  made cash  distributions  to Partners  totaling
$30,002,073,  including  $27,000,000,  or $225 per Unit, to the Limited Partners
and  $3,002,073  to the  General  Partners.  Cumulative  cash  distributions  to
Partners as of December 31, 1997 total $207,139,964,  including  $183,000,000 to
the Limited Partners,  or $1,525 per $1,000 Unit, and $24,139,964 to the General
Partners.

Results of Operations

For the years ended December 31, 1997,  1996 and 1995, the Partnership had a net
realized  gain from  operations of  $15,659,055,  $46,191,360  and  $41,850,542,
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, 1997, the  Partnership had a $15,605,512 net realized gain from its
portfolio  investments.   During  1997,  the  Partnership  liquidated  portfolio
investments,  including positions in several of its publicly-traded  securities,
for  $30,571,957,  realizing  a gain of  $22,400,099.  This gain was offset by a
$6,794,587   realized  loss,   resulting  from  the  partial  write-off  of  the
Partnership's  investments in Biocircuits  Corporation,  Clarus Medical Systems,
Inc., Neocrin Company,  Inc. and Horizon Cellular  Telephone  Company,  L.P. See
Note 7 of Notes  to  Financial  Statements  for a  summary  of  liquidations  by
investment completed during 1997.

For the year ended  December 31, 1996,  the  Partnership  had a $46,879,092  net
realized gain from its portfolio investments.  During 1996, the Partnership sold
positions  in  several  of  its  publicly-traded   securities  for  $56,853,362,
realizing a gain of  $47,763,001.  This gain was offset by an $883,909  realized
loss,  resulting  from the write-off of 80% of the  Partnership's  investment in
I.D.E. Corporation.

For the year ended  December 31, 1995,  the  Partnership  had a $41,368,447  net
realized gain from its portfolio investments.  During 1995, the Partnership sold
positions  in  several  of  its  publicly-traded   securities  for  $56,779,615,
realizing a gain of $43,339,948. On December 31, 1995, the Partnership wrote-off
its $1,822,751  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.

Investment  Income and  Expenses - For the year ended  December  31,  1997,  the
Partnership  had net investment  income of $53,543.  For the year ended December
31, 1996, the Partnership had a net investment loss of $687,732 and for the year
ended December 31, 1995, the Partnership had net investment  income of $482,095.
The increase in net  investment  income for 1997 compared to 1996 was the result
of a $1,560,580  reduction in operating expenses which was partially offset by a
$819,305  decrease in  investment  income for 1997.  The  decrease in  operating
expenses during 1997 primarily was  attributable to the $1.0 million  litigation
settlement expensed in 1996 relating to the Partnership's investment in In-Store
Advertising,  Inc.  The  additional  $560,580  decrease  in  operating  expenses
includes a decrease in the management fee, as discussed  below,  and a reduction
to  professional  fees and mailing and printing  expenses  incurred during 1997.
Such reduced  operating  expenses reflect the decreased level of activity as the
Partnership  proceeds to liquidate  its remaining  investments.  The decrease in
investment income for 1997 compared to 1996 was comprised of a $478,058 decrease
in interest  and  dividend  income  from  portfolio  investments  and a $341,247
decrease in interest from short-term investments. Interest income from portfolio
investments   decreased  by  $303,166  resulting  from  the  reduced  amount  of
interest-bearing debt securities held by the Partnership during 1997 compared to
the amount of such securities held during 1996. Dividend income also declined by
$174,892  primarily  due  to  the  sale  of  the  Partnership's   investment  in
Borg-Warner  Automotive,  Inc.,  which was  fully  liquidated  during  the first
quarter of 1997.  Interest  earned from short-term  investments  declined during
1997 primarily due to a decline in funds  available for investment in short-term
securities during 1997.

The increase in net investment  loss for 1996 compared to 1995 was the result of
a $746,580  decrease in investment  income and a $423,247  increase in operating
expenses  during 1996 compared to 1995.  The decrease in  investment  income was
comprised of a $664,087  decrease in interest and dividend income from portfolio
investments and an $82,493 decrease in interest from short-term investments. The
decrease in interest and dividend  income from  portfolio  investments  for 1996
compared to 1995 primarily was  attributable to a one-time  dividend from Raytel
Medical Corporation totaling $566,025 received in 1995. The decrease in interest
income  from  short-term  investments  primarily  was due to a decrease in funds
available  for  investment  in such  securities  during  1996.  The  increase in
operating  expenses  during 1996 compared to 1995 primarily was  attributable to
the $1.0 million litigation  settlement expense incurred in 1996 relating to the
Partnership's  investment  in In-Store  Advertising.  Partially  offsetting  the
increase in litigation expense was a $451,507 decrease in the management fee, as
discussed below, and a $143,990  decrease in professional  fees, which primarily
resulted  from reduced legal fees  incurred  during 1996 in connection  with the
In-Store Advertising litigation.

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, 1997,
1996 and 1995, was $282,686, $686,493 and $1,138,000,  respectively. The decline
in the management fee for the years presented primarily resulted from the return
of capital  included  in the cash  distributions  made to  Partners  during such
years. The management fee is expected to decline to its $200,000 minimum fee for
1998 and future years. The management fee and other operating  expenses are paid
with funds  provided from  operations.  Funds  provided from  operations for the
periods   presented  were  obtained  from  interest   received  from  short-term
investments,  interest and other income from portfolio  investments and proceeds
from the sale of certain portfolio investments.

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

During the year ended  December 31, 1996,  the  Partnership  increased  the fair
value of its portfolio of investments on a net basis by $4,876,621. Additionally
during 1996, a net  $30,121,417 of unrealized  gain was  transferred to realized
gain  relating to portfolio  investments  sold and  written-off  during 1996, as
discussed above. As a result, unrealized appreciation of investments was reduced
by $25,244,796 for 1996.

During the year ended  December 31, 1995,  the  Partnership  increased  the fair
value  of  its  portfolio  of  investments  on  a  net  basis  by   $37,867,207.
Additionally  during 1995, a net  $25,205,865 of unrealized gain was transferred
to realized gain relating to portfolio  investments sold and written-off  during
1995, as discussed  above. As a result,  unrealized  appreciation of investments
was increased by $12,661,342 for 1995.

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

For the year ended  December 31, 1996,  the  Partnership  had a $20,946,564  net
increase in net assets resulting from  operations,  comprised of the $46,191,360
net realized gain from operations  partially offset by the $25,244,796  decrease
in unrealized appreciation of investments for 1996. As of December 31, 1996, the
Partnership's net assets were $41,923,036,  down $38,419,496 from $80,342,532 as
of December  31, 1995.  This  decrease  resulted  from the  $59,366,060  of cash
distributions,   accrued  or  paid  to  Partners  during  1996,   exceeding  the
$20,946,564 net increase in net assets resulting from operations for 1996.

For the year ended  December 31, 1995,  the  Partnership  had a $54,511,884  net
increase in net assets resulting from  operations,  comprised of the $41,850,542
net realized gain from  operations  and the  $12,661,342  increase in unrealized
appreciation of investments for 1995. As of December 31, 1995, the Partnership's
net assets were $80,342,532, down $3,059,947 from $83,402,479 as of December 31,
1994.   This  $3,059,947   decrease   resulted  from  the  $57,571,831  of  cash
distributions,   accrued  or  paid  to  Partners  during  1995,   exceeding  the
$54,511,884 net increase in net assets resulting from operations for 1995.

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 as of December
31, 1997, 1996 and 1995, was $162, $323, and $596, 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, 1997 and 1996

Schedule of Portfolio Investments as of December 31, 1997

Schedule of Portfolio Investments as of December 31, 1996

Statements of Operations for the years ended December 31, 1997, 1996 and 1995

Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995

Statements of Changes in Partners' Capital for the years ended December 31,
1995, 1996 and 1997

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, 1997 and 1996,  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,  1997.   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, 1997 and 1996 by correspondence
with the custodian;  where  confirmation  was not possible,  we performed  other
audit  procedures.  An audit also includes  assessing the accounting  principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the financial position of ML Venture Partners II, L.P. as of December
31,  1997 and 1996,  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, 1997 in conformity with generally accepted accounting principles.

As explained in Note 2, the financial  statements  include  securities valued at
$16,497,000  and  $37,386,258  as of December  31, 1997 and 1996,  respectively,
representing  76% and 89% of net assets,  respectively,  whose  values have been
estimated by the  Sub-Manager  under the  supervision of the Individual  General
Partners   and  the  Managing   General   Partner  in  the  absence  of  readily
ascertainable  market  values.  We  have  reviewed  the  procedures  used by the
Sub-Manager  in arriving at its  estimate of value of such  securities  and have
inspected underlying  documentation,  and, in the circumstances,  we believe the
procedures are reasonable and the documentation appropriate. However, because of
the  inherent  uncertainty  of  valuation,  those  estimated  values  may differ
significantly  from the values that would have been used had a ready  market for
the securities existed, and the differences could be material.


Deloitte & Touche LLP

New York, New York
February 20, 1998


<PAGE>


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


<TABLE>
                                                                                                1997                 1996
                                                                                          ----------------     ----------
ASSETS

Portfolio investments, at fair value (cost $13,013,680 as of
<S>         <C> <C>      <C>                        <C> <C>                               <C>                  <C>
   December 31, 1997 and $27,505,870 as of December 31, 1996)                             $     17,021,243     $     37,386,258
Short-term investments, at amortized cost                                                        2,979,552            4,486,402
Cash and cash equivalents                                                                        1,918,335              346,129
Accrued interest receivable                                                                              -               49,442
                                                                                          ----------------     ----------------
TOTAL ASSETS                                                                              $     21,919,130     $     42,268,231
                                                                                          ================     ================

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
Accounts payable and accrued expenses                                                     $        144,890     $        183,406
Due to Management Company                                                                           41,349              138,389
Due to Independent General Partners                                                                 25,698               23,400
                                                                                          ----------------     ----------------
   Total liabilities                                                                               211,937              345,195
                                                                                          ----------------     ----------------

Partners' Capital:
Managing General Partner                                                                         1,416,952            1,158,769
Individual General Partners                                                                            543                1,029
Limited Partners (120,000 Units)                                                                16,282,135           30,882,850
Unallocated net unrealized appreciation of investments                                           4,007,563            9,880,388
                                                                                          ----------------     ----------------
   Total partners' capital                                                                      21,707,193           41,923,036
                                                                                          ----------------     ----------------

TOTAL LIABILITIES AND PARTNERS' CAPITAL                                                   $     21,919,130     $     42,268,231
                                                                                          ================     ================
</TABLE>

See notes to financial statements.


<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1997

<TABLE>
                                                                       Initial Investment
Company / Position                                                            Date                 Cost              Fair Value
Biocircuits Corporation*(A)(B)(C)
   401,734 shares of Common Stock                                         May 1991            $      468,051    $       175,759
   2,000,000 shares of Preferred Stock                                                             1,000,000            218,750
   Warrants to purchase 166,667 shares of Common Stock
     at $.75 per share, expiring 1/2/99                                                               20,833                  0
-------------------------------------------------------------------------------------------------------------------------------
Borg-Warner Security Corporation*(A)
<S><C>                                                                             <C>                <C>                <C>
500,000 shares of Common Stock                                            Sept. 1988               2,500,000          6,609,375
-------------------------------------------------------------------------------------------------------------------------------
Brightware, Inc. (D)
   144,039 shares of Common Stock                                         May 1995                    39,579            216,059
   Warrants to purchase 38,737 shares of Common Stock
     at $.40 per share, expiring on 4/19/99                                                            1,138             42,611
   Warrants to purchase 59,166 shares of Common Stock
     at $.80 per share, expiring on 6/10/98                                                            3,986             41,416
-------------------------------------------------------------------------------------------------------------------------------
Clarus Medical Systems, Inc.*(B)(E)
179,028 shares of Preferred Stock                                         Jan. 1991                1,000,548            895,152
Warrants to purchase 14,043 shares of Common Stock
   at $.05 per share, expiring between 3/7/00 and 7/3/00                                                   0                  0
Warrants to purchase 2,826 shares of Preferred Stock
   at $5.00 per share, expiring on 3/7/00                                                                  0                  0
-------------------------------------------------------------------------------------------------------------------------------
CoCensys, Inc.(A)(I)
152,507 shares of Common Stock                                            Feb. 1989                  192,504            524,243
-------------------------------------------------------------------------------------------------------------------------------
Corporate Express, Inc.(A)(B)(F)
60,000 shares of Common Stock                                             May 1992                    12,000            618,000
-------------------------------------------------------------------------------------------------------------------------------
Diatide, Inc.*(A)
809,704 shares of Common Stock                                            Dec. 1991                2,986,023          4,802,557
-------------------------------------------------------------------------------------------------------------------------------
Horizon Cellular Telephone Company, L.P.:(B)(G)
   SPTHOR Corporation
   10% Promissory Note due 3/26/98                                        May 1992                     5,073              5,073
   5.67% Bridge Loan                                                                                   9,271              9,271
   34.5 shares of Common Stock                                                                       154,806            154,806
-------------------------------------------------------------------------------------------------------------------------------
I.D.E. Corporation
113,322 shares of Common Stock                                            Mar. 1988                  227,000                  0
-------------------------------------------------------------------------------------------------------------------------------
Neocrin Company*(B)(H)
48,429 shares of Preferred Stock                                          June 1991                  363,378                  0
-------------------------------------------------------------------------------------------------------------------------------
Photon Dynamics, Inc.*(A)
425,236 shares of Common Stock                                            Sept. 1988               2,452,226          1,148,135
Warrants to purchase 6,062 shares of Common Stock
   at $5.40 per share, expiring on 6/30/00                                                                 0                  0
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>



<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
December 31, 1997


<TABLE>
                                                                       Initial Investment
Company / Position                                                            Date                 Cost              Fair Value
Raytel Medical Corporation(A)(B)
<S><C>                                                                            <C>            <C>               <C>
62,500 shares of Common Stock                                             Feb. 1990           $      241,639    $       581,250
Options to purchase 27,969 shares of Common Stock
   at $1.42 per share, expiring on 10/31/01                                                                0            220,396
-------------------------------------------------------------------------------------------------------------------------------
Sanderling Biomedical, L.P.*(I)
80% Limited Partnership interest                                          May 1988                 1,335,625            758,390
-------------------------------------------------------------------------------------------------------------------------------
Total Portfolio Investments(J)                                                                $   13,013,680    $    17,021,243
                                                                                              ---------------------------------

Supplemental Information: Liquidated Portfolio Investments(K)

                                                      Liquidation                              Realized
Company                                                  Date               Cost              Gain (Loss)                Return
-------------------------------------------------------------------------------------------------------------------------------
Allez, Inc.                                           1992            $     1,781,320       $   (1,781,320)     $             0
Amdahl Corporation (Key Computer)                     1989                    729,742            1,837,787            2,567,529
Aqua Group, Inc.                                      1990                  2,000,000           (1,999,999)                   1
BBN Advanced Computer Partners, L.P.                  1990                    868,428             (864,028)               4,400
BBN Integrated Switch Partners, L.P.                  1990-1992             5,022,380           (4,822,797)             199,583
Biocircuits Corporation(B)                            1997                  1,164,867           (1,164,867)                   0
Borg-Warner Automotive, Inc.(B)                       1994-1997             2,500,000           14,628,202           17,128,202
Business Depot, Ltd.                                  1994                  1,214,184            1,539,475            2,753,659
CellPro, Incorporated                                 1994-1996             1,560,944           15,999,505           17,560,449
Children's Discovery Centers of America, Inc.         1995                  2,000,259             (236,187)           1,764,072
Clarus Medical Systems(B)                             1997                  1,388,620           (1,388,620)                   0
Communications International, Inc.                    1992-1994             1,819,332           (1,819,331)                   1
Computer-Aided Design Group                           1990-1991             1,131,070           (1,131,069)                   1
Corporate Express, Inc.(B)                            1994-1997             2,987,912           25,499,494           28,487,406
Data Recording Systems, Inc.                          1988                  1,615,129           (1,499,999)             115,130
Eckerd Corporation                                    1995                    857,004            2,019,272            2,876,276
Elantec, Inc.(B)                                      1993-1997             1,412,118            2,105,168            3,517,286
Everex Systems, Inc.                                  1991-1992               750,000              447,606            1,197,606
-------------------------------------------------------------------------------------------------------------------------------
Hoffman & Company, L.P.                               1993                     40,000              (40,000)                   0
-------------------------------------------------------------------------------------------------------------------------------



<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
December 31, 1997

                                                      Liquidation                              Realized
Company                                                  Date               Cost              Gain (Loss)                Return
-------------------------------------------------------------------------------------------------------------------------------
Home Express, Inc.                                    1995            $     1,822,751       $   (1,822,751)     $             0
-------------------------------------------------------------------------------------------------------------------------------
Horizon Cellular Telephone Company, L.P.(B)           1996-1997             3,509,776            1,684,582            5,194,358
IDE Corporation                                       1996                    883,909             (883,909)                   0
-------------------------------------------------------------------------------------------------------------------------------
IDEC Pharmaceuticals Corporation(B)                   1994-1997             4,261,036            8,377,068           12,638,104
-------------------------------------------------------------------------------------------------------------------------------
Inference Corporation                                 1995-1996               849,362            3,280,433            4,129,795
-------------------------------------------------------------------------------------------------------------------------------
In-Store Advertising, Inc.                            1992                  2,259,741           (2,259,741)                   0
-------------------------------------------------------------------------------------------------------------------------------
InteLock Corporation                                  1992                  1,254,125           (1,251,274)               2,851
Komag, Incorporated                                   1991-1995             2,365,237            4,477,842            6,843,079
-------------------------------------------------------------------------------------------------------------------------------
Ligand Pharmaceuticals Inc.                           1992-1996             1,414,435            4,227,245            5,641,680
-------------------------------------------------------------------------------------------------------------------------------
Magnesys                                              1989                  1,440,997           (1,412,049)              28,948
Meteor Message Corporation                            1990                  1,501,048           (1,501,047)                   1
-------------------------------------------------------------------------------------------------------------------------------
Micro Linear Corporation                              1994-1995             1,120,300            2,897,886            4,018,186
-------------------------------------------------------------------------------------------------------------------------------
Mobile Telecommunications
   Technologies Corporation                           1995                  1,558,155            3,439,923            4,998,078
-------------------------------------------------------------------------------------------------------------------------------
Neocrin Company(B)                                    1996-1997             3,840,560           (3,840,560)                   0
-------------------------------------------------------------------------------------------------------------------------------
OccuSystems, Inc.                                     1994-1996             2,657,000            9,353,722           12,010,722
-------------------------------------------------------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------------------------------------------------------
Raytel Medical Corp.(B)                               1996-1997             1,807,664            4,370,155            6,177,819
R-Byte Inc.                                           1992-1994             1,991,098             (443,566)           1,547,532
Regeneron Pharmaceuticals, Inc.                       1991-1995             2,678,135           30,203,091           32,881,226
Research Applications, Inc.                           1994                    100,000             (100,000)                   0
Ringer Corporation                                    1991-1994             3,029,652           (2,208,012)             821,640
S & J Industries                                      1991-1992             1,600,150           (1,555,149)              45,001
Sanderling Biomedical, L.P.(B)                        1995-1997               471,871            1,944,061            2,415,932
Saxpy Computer Corporation                            1988                  2,000,000           (2,000,000)                   0
SDL, Inc.                                             1993-1996             4,757,265           10,502,531           15,259,796
SF2 Corporation                                       1991-1994             2,193,293           (1,856,570)             336,723



<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
December 31, 1997

                                                      Liquidation                              Realized
Company                                                  Date               Cost              Gain (Loss)                Return
-------------------------------------------------------------------------------------------------------------------------------
Shared Resource Exchange, Inc.                        1990-1994       $       999,999       $     (999,998)     $             1
Special Situations, Inc.                              1988                    215,000             (187,175)              27,825
Storage Technology Corporation                        1990                  2,174,000            1,466,802            3,640,802
-------------------------------------------------------------------------------------------------------------------------------
Target Vision, Inc.                                   1992-1995             1,500,000           (1,253,750)             246,250
-------------------------------------------------------------------------------------------------------------------------------
TCOM Systems, Inc.                                    1990-1992             4,715,384           (4,711,536)               3,848
-------------------------------------------------------------------------------------------------------------------------------
Telecom USA, Inc.                                     1989                  5,000,000            3,361,778            8,361,778
-------------------------------------------------------------------------------------------------------------------------------
Touch Communications Incorporated                     1991                  1,119,693           (1,119,693)                   0
Viasoft, Inc.                                         1995-1996               915,348            2,801,429            3,716,777
-------------------------------------------------------------------------------------------------------------------------------

Totals from Liquidated Portfolio Investments                          $   103,519,316       $  113,445,161     $    216,964,477
                                                                      =========================================================

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

Totals from Active & Liquidated Portfolio Investments                 $   116,532,996       $  117,452,724     $    233,985,720
                                                                      =========================================================
</TABLE>

(A)  Public company

(B)  During 1997, the Partnership  sold or wrote-off  equity  securities of such
     company.  See  Note 7 of  Notes  to  Financial  Statements  for  summarized
     information.

(C)  The preferred shares of Biocircuits Corporation held by the Partnership are
     convertible  into  common  shares of the  company at a ratio of 4 shares of
     preferred  stock for 1 share of common stock.  During 1997, the Partnership
     made two follow-on investments in Biocircuits,  the first on April 14, 1997
     for  $106,250,  acquiring an  additional  106,250  shares of the  company's
     common  stock,  and the second on July 2, 1997 for  $125,000,  acquiring an
     additional  166,667  shares of the company's  common stock and a warrant to
     purchase  166,667  shares of common  stock for $.75 per share,  expiring on
     1/2/99.  Additionally,  on April 15,  1997,  the  Partnership's  warrant to
     purchase 594,000 shares of Biocircuits  preferred stock for $.60 per share,
     expired unexercised.

(D)  In December 1997, the  Partnership  exchanged its warrant to purchase 4,846
     common shares at $.40 per share for 3,554 common shares of Brightware.


<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
December 31, 1997

(E)  On July 31, 1997,  the  Partnership's  warrant to purchase  4,048 shares of
     Clarus Medical  Systems,  Inc.  common stock for $18.75 per share,  expired
     unexercised.

(F)  In  January  1997,  Corporate  Express,  Inc.  issued a 50% stock  dividend
     resulting in the receipt by the Partnership of an additional  60,252 shares
     of the company's common stock.  Additionally,  the Partnership sold 120,755
     shares of Corporate  Express  during 1997. See Note 7 of Notes to Financial
     Statements.

(G)  During the first quarter of 1997,  the  Partnership  received cash proceeds
     totaling $2,213,626 covering interest and principal on promissory notes due
     from  HCTC  Investment,  L.P.  and  SPTHOR  Corporation,   net  of  certain
     reclassifications  of  prior  payments.  Additionally,   during  1997,  the
     Partnership  received an  additional  $2,085,252,  plus interest of $14,873
     from the sale of options in connection with its investment in HCTC/SPTHOR.

(H)  In February  1997,  Neocrin  Company  effected a one-for-ten  reverse stock
     split of the company's common stock and preferred stock.  Additionally,  in
     connection with a financial restructuring of the company completed in 1997,
     the Partnership's warrants to purchase 92,205 common shares of Neocrin were
     canceled  and  the  Partnership  wrote-off  $3,840,430  of  its  $4,203,808
     investment in the company. See Note 7 of Notes to Financial Statements.

(I)  During 1997, the Partnership received three in-kind distributions of common
     stock from Sanderling Biomedical, L.P. The first was in July 1997 for 4,645
     shares of Graham  Fields  International,  the second in September  1997 for
     59,685  shares of Vical,  Inc.  and the third in October  1997 for  152,507
     shares  of  CoCensys,   Inc.  The  Graham  Fields  and  Vical  shares  were
     subsequently sold during 1997. See Note 7 of Notes to Financial Statements.

(J)  During 1997, the Partnership  received two in-kind  distributions of common
     shares of IDEC Pharmaceuticals  Corporation from ML/MS Associates, L.P. and
     MLMS Cancer Research,  Inc. as final liquidating  distributions.  The first
     was in March  1997 for  347,826  shares  and the second was in May 1997 for
     129,407 shares. All 477,233 were subsequently sold during 1997. Also during
     1997,  the  Partnership  completed the  liquidation  of its  investments in
     Borg-Warner  Automotive,  Inc.  and  Elantec,  Inc.  See Note 7 of Notes to
     Financial Statements.

(K)  Amounts  provided  for  "Supplemental  Information:   Liquidated  Portfolio
     Investments" are cumulative from inception through December 31, 1997.


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



See notes to financial statements.



<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1996

<TABLE>
Active Portfolio Investments:
                                                                       Initial Investment
Company / Position                                                            Date                 Cost              Fair Value
Biocircuits Corporation*(A)
<S><C>                                                                           <C>             <C>               <C>
128,817 shares of Common Stock                                            May 1991            $    1,422,501    $       187,171
2,000,000 shares of Preferred Stock                                                                1,000,000            726,500
Warrants to purchase 594,000 shares of Preferred Stock at
   $.60 per share, expiring on 4/15/97                                                                     0                  0
-------------------------------------------------------------------------------------------------------------------------------
Borg-Warner Automotive, Inc.*(A)
251,694 shares of Common Stock                                            Sept. 1988               1,258,470          7,267,664
-------------------------------------------------------------------------------------------------------------------------------
Borg-Warner Security Corporation*(A)
500,000 shares of Common Stock                                            Sept. 1988               2,500,000          4,031,250
-------------------------------------------------------------------------------------------------------------------------------
Brightware, Inc.
   140,485 shares of Common Stock                                         Apr. 1993                   39,252             84,291
   Warrants to purchase 38,737 shares of Common Stock
     at $.40 per share, expiring on 4/19/99                                                            1,138              7,748
   Warrants to purchase 4,846 shares of Common Stock
     at $.40 per share, expiring on 12/16/97                                                             327                969
   Warrants to purchase 59,166 shares of Common Stock
     at $.80 per share, expiring on 6/10/98                                                            3,986              3,986
-------------------------------------------------------------------------------------------------------------------------------
Clarus Medical Systems, Inc.*
179,028 shares of Preferred Stock                                         Jan. 1991                2,389,168            895,152
Warrants to purchase 4,048 shares of Common Stock
   at $18.75 per share, expiring on 7/31/97                                                                0                  0
Warrants to purchase 14,043 shares of Common Stock
   at $.05 per share, expiring between 3/7/00 and 7/3/00                                                   0                  0
Warrants to purchase 2,826 shares of Preferred Stock
   at $5.00 per share, expiring on 3/7/00                                                                  0                  0
-------------------------------------------------------------------------------------------------------------------------------
Corporate Express, Inc.(A)
120,503 shares of Common Stock                                            May 1992                    36,150          2,837,894
-------------------------------------------------------------------------------------------------------------------------------
Diatide, Inc.*(A)
809,704 shares of Common Stock                                            Dec. 1991                2,986,023          3,691,266
-------------------------------------------------------------------------------------------------------------------------------
Elantec, Inc.(A)
23,245 shares of Common Stock                                             Aug. 1988                   60,437             81,655
-------------------------------------------------------------------------------------------------------------------------------
Horizon Cellular Telephone Company, L.P:
   HCTC Investment, L.P.
   10% Promissory Note due 3/26/98                                        May 1992                 1,926,168          1,926,168
   SPTHOR Corporation
   10% Promissory Note due 3/26/98                                        May 1992                   580,760            580,760
   34.5 shares of Common Stock                                                                       215,625          2,188,625
-------------------------------------------------------------------------------------------------------------------------------
I.D.E. Corporation
113,322 shares of Common Stock                                            Mar. 1988                  227,000                  0
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>


<PAGE>


ML VENTURE PARTNERS II, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
December 31, 1996

<TABLE>
                                                                       Initial Investment
Company / Position                                                            Date                 Cost              Fair Value
IDEC Pharmaceuticals Corporation(A)
   ML/MS Associates, L.P.*
<S>                                                                            <C>            <C>               <C>
   34.4% Limited Partnership interest                                     June 1989           $    3,960,000    $     6,750,656
   MLMS Cancer Research, Inc.*
   400,000 shares of Common Stock                                         July 1989                   69,566             68,184
-------------------------------------------------------------------------------------------------------------------------------
Neocrin Company*
484,300 shares of Preferred Stock                                         June 1991                4,203,716            193,720
Warrants to purchase 922,050 shares of Common Stock
   at $.40 per share, expiring on 1/3/01                                                                  92                  0
-------------------------------------------------------------------------------------------------------------------------------
Photon Dynamics, Inc.*(A)
425,235 shares of Common Stock                                            Sept. 1988               2,452,226          2,593,934
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)
100,000 shares of Common Stock                                            Feb. 1990                  386,622            557,483
Options to purchase 27,969 shares of Common Stock
   at $1.42 per share, expiring on 10/31/01                                                                0            206,411
-------------------------------------------------------------------------------------------------------------------------------
Sanderling Biomedical, L.P.*
80% Limited Partnership interest                                          May 1988                 1,786,643          2,504,771
-------------------------------------------------------------------------------------------------------------------------------
Totals from Active Portfolio Investments                                                      $   27,505,870    $    37,386,258
                                                                                              ---------------------------------


Supplemental Information:  Liquidated Portfolio Investments

                                                                            Cost            Realized Gain             Return

Totals from Liquidated Portfolio Investments                          $    88,552,870       $   97,839,649     $    186,392,519
                                                                      =========================================================



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

Totals from Active & Liquidated Portfolio Investments                 $   116,058,740       $  107,720,037     $    223,778,777
                                                                      =========================================================
</TABLE>


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

(A)  Public company


<PAGE>


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


<TABLE>
                                                                               1997               1996               1995
                                                                         ---------------     ---------------    ---------

INVESTMENT INCOME AND EXPENSES

   Income:

<S>                                                                      <C>                <C>                <C>
   Interest from short-term investments                                  $       638,556    $        979,803   $      1,062,296
   Interest and other income from portfolio investments                           27,270             330,436            374,344
   Dividend income                                                                37,754             212,646            832,825
                                                                         ---------------    ----------------   ----------------
   Total investment income                                                       703,580           1,522,885          2,269,465
                                                                         ---------------    ----------------   ----------------

   Expenses:

   Management fee                                                                282,686             686,493          1,138,000
   Professional fees                                                             140,089             175,434            319,424
   Mailing and printing                                                          126,589             220,877            211,662
   Independent General Partners' fees                                             94,663             109,262            103,049
   Custodial fees                                                                    373              13,930             14,602
   Miscellaneous                                                                   5,637               4,621                633
   Litigation settlement                                                               -           1,000,000                  -
                                                                         ---------------    ----------------   ----------------
   Total investment expenses                                                     650,037           2,210,617          1,787,370
                                                                         ---------------    ----------------   ----------------

NET INVESTMENT INCOME (LOSS)                                                      53,543            (687,732)           482,095

Net realized gain from portfolio investments                                  15,605,512          46,879,092         41,368,447
                                                                         ---------------    ----------------   ----------------

NET REALIZED GAIN FROM OPERATIONS                                             15,659,055          46,191,360         41,850,542

Net change in unrealized appreciation of investments                          (5,872,825)        (25,244,796)        12,661,342
                                                                         ---------------    ----------------   ----------------

NET INCREASE IN NET ASSETS
   RESULTING FROM OPERATIONS                                             $     9,786,230    $     20,946,564   $     54,511,884
                                                                         ===============    ================   ================
</TABLE>


See notes to financial statements.


<PAGE>


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


<TABLE>
                                                                               1997               1996                1995
                                                                         ---------------     ---------------   -----------

CASH FLOWS PROVIDED FROM (USED FOR)
   OPERATING ACTIVITIES

<S>                                                                      <C>                 <C>               <C>
Net investment income (loss)                                             $        53,543     $      (687,732)  $        482,095

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

Decrease (increase) in accrued interest receivable                                49,442             820,735            (55,706)
Decrease (increase) in accrued interest on short-term
   investments                                                                    19,695             (10,369)            (8,190)
Decrease in payables                                                            (133,258)            (21,176)           (27,451)
                                                                         ---------------     ---------------   ----------------
Cash provided from (used for) operating activities                               (10,578)            101,458            390,748
                                                                         ---------------     ---------------   ----------------

CASH FLOWS PROVIDED FROM INVESTING
   ACTIVITIES

Net return (purchase) of short-term investments                                1,487,155          12,893,395        (10,426,139)
Cost of portfolio investments purchased                                         (474,255)           (207,111)        (2,741,249)
Deposits released from (placed in) escrow                                              -             184,502           (184,502)
Net proceeds from the sale of portfolio investments                           28,190,298          59,663,087         54,223,795
Repayment of investments in notes                                              2,381,659             727,447          2,019,721
                                                                         ---------------     ---------------   ----------------
Cash provided from investing activities                                       31,584,857          73,261,320         42,891,626
                                                                         ---------------     ---------------   ----------------

CASH FLOWS USED FOR FINANCING ACTIVITIES

Cash distributions to Partners                                               (30,002,073)        (73,702,566)       (43,235,325)
                                                                         ---------------     ---------------   ----------------

Increase (decrease) in cash and cash equivalents                               1,572,206            (339,788)            47,049
Cash and cash equivalents at beginning of year                                   346,129             685,917            638,868
                                                                         ---------------     ---------------   ----------------

CASH AND CASH EQUIVALENTS AT END
   OF YEAR                                                               $     1,918,335     $       346,129   $        685,917
                                                                         ===============     ===============   ================
</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, 1995, 1996 and 1997
<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 as of December 31, 1994        $   2,191,479      $ 3,917       $   58,743,241      $   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)
Cash distribution, paid
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 as of December 31, 1995            1,471,685        1,457           43,744,206(A)       35,125,184           80,342,532
Cash distributions, paid April 26,
1996, July 29, 1996 and
October 11, 1996                         (10,164,420)      (1,640)         (49,200,000)                  -          (59,366,060)
Net investment income (loss)                 100,653          (26)            (788,359)                  -             (687,732)
Net realized gain on investments           9,750,851        1,238           37,127,003                   -           46,879,092
Net change in unrealized
appreciation on investments                        -            -                    -         (25,244,796)         (25,244,796)
                                       -------------      -------       --------------      --------------     ----------------
Balance as of December 31, 1996            1,158,769        1,029           30,882,850(A)        9,880,388           41,923,036
Cash distribution, paid July 11, 1997     (2,590,089)        (640)         (19,200,000)                  -          (21,790,729)
Cash distribution, paid
October 16, 1997                            (411,084)        (260)          (7,800,000)                  -           (8,211,344)
Net investment income                         13,410            2               40,131                   -               53,543
Net realized gain on investments           3,245,946          412           12,359,154                   -           15,605,512
Net change in unrealized
appreciation on investments                        -            -                    -          (5,872,825)          (5,872,825)
                                       -------------      -------       --------------      --------------     ----------------
Balance as of December 31, 1997        $   1,416,952      $   543       $   16,282,135(A)   $    4,007,563     $     21,707,193
                                       =============      =======       ==============      ==============     ================
</TABLE>

(A)  The net asset value per unit of limited partnership interest,  including an
     assumed allocation of net unrealized appreciation of investments, was $162,
     $323  and $596 as of  December  31,  1997,  1996  and  1995,  respectively.
     Cumulative cash  distributions  paid, or payable,  to Limited Partners from
     inception to December 31, 1997,  1996 and 1995 totaled  $1,525,  $1,300 and
     $890 per Unit, respectively.

See notes to financial statements


<PAGE>


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

1.     Organization and Purpose

ML  Venture  Partners  II,  L.P.  (the  "Partnership")  is  a  Delaware  limited
partnership  formed on February 4, 1986.  MLVPII Co., L.P., the managing general
partner  of  the  Partnership  (the  "Managing  General   Partner"),   and  four
individuals (the "Individual  General Partners") are the general partners of the
Partnership.  The general  partner of MLVPII Co.,  L.P. is Merrill Lynch Venture
Capital Inc. (the "Management Company"), an indirect subsidiary of Merrill Lynch
& Co., Inc. DLJ Capital Management Corporation (the "Sub-Manager"),  an indirect
subsidiary of Donaldson,  Lufkin & Jenrette,  Inc.,  is the  sub-manager  of the
Partnership,  pursuant to a sub-management agreement among the Partnership,  the
Management Company, the Managing General Partner and the Sub-Manager.

The Partnership's  objective is to achieve  long-term capital  appreciation from
its portfolio of venture capital investments in new and developing companies and
other special  investment  situations.  The  Partnership  does not engage in any
other business or activity.  In July 1997, the Individual General Partners voted
to extend the term of the Partnership  for an additional  two-year  period.  The
Partnership is now scheduled to terminate on December 31, 1999. In addition, the
Individual General Partners have the right to extend the term of the Partnership
for an additional  two-year  period if they  determine that such extension is in
the best interest of the Partnership.

2.     Significant Accounting Policies

Valuation of Investments - Short-term  investments are carried at amortized cost
which approximates  market.  Portfolio  investments are carried at fair value as
determined  quarterly by the Sub-Manager under the supervision of the Individual
General  Partners  and  the  Managing   General  Partner.   The  fair  value  of
publicly-held  portfolio  securities  is adjusted to the closing  public  market
price for the last trading day of the accounting  period  discounted by a factor
of 0% to 50% for sales restrictions.  Factors considered in the determination of
an  appropriate  discount  include,  underwriter  lock-up  or Rule  144  trading
restrictions,  insider status where the Partnership  either has a representative
serving  on  the  company's  Board  of  Directors  or  is  greater  than  a  10%
shareholder,  and other liquidity  factors such as the size of the Partnership's
position  in a given  company  compared  to the  trading  history  of the public
security.   Privately-held  portfolio  securities  are  carried  at  cost  until
significant  developments  affecting the portfolio  company  provide a basis for
change in  valuation.  The fair value of private  securities  is  adjusted 1) to
reflect  meaningful  third-party  transactions  in the  private  market or 2) to
reflect  significant  progress or slippage in the  development  of the company's
business  such that cost is no longer  reflective  of fair  value.  As a venture
capital investment fund, the Partnership's  portfolio investments involve a high
degree of business and financial risk that can result in substantial losses. The
Sub-Manager   considers  such  risks  in  determining  the  fair  value  of  the
Partnership's  portfolio  investments.  Use of  Estimates - The  preparation  of
financial statements in conformity with generally accepted accounting principles
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.


<PAGE>


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

Investment  Transactions - Investment  transactions  are recorded on the accrual
method.  Portfolio  investments  are  recorded on the trade  date,  the date the
Partnership  obtains an  enforceable  right to demand the  securities or payment
therefor.  Realized  gains and  losses on  investments  sold are  computed  on a
specific  identification basis. Income Taxes - No provision for income taxes has
been made  since all  income  and  losses  are  allocable  to the  Partners  for
inclusion in their  respective  tax returns.  The  Partnership's  net assets for
financial  reporting  purposes differ from its net assets for tax purposes.  Net
unrealized  appreciation  of  investments of $4 million as of December 31, 1997,
which was recorded for financial statement purposes,  was not recognized for tax
purposes.  Additionally, from inception to December 31, 1997, timing differences
of approximately $6.8 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,
1997, the  Partnership  had a $117.7  million net gain from its venture  capital
investments, which includes interest and other income from portfolio investments
totaling $4.2 million.

4.     Related Party Transactions

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

5.     Independent General Partners' Fees

As  compensation  for services  rendered to the  Partnership,  each of the three
Independent   General   Partners   receives   $21,000   annually  in   quarterly
installments,  $1,500 for each meeting of the General  Partners  attended or for
each other  meeting,  conference or engagement  in connection  with  Partnership
activities at which attendance by an Independent General Partner is required and
$1,500 for each audit  committee  meeting  attended ($500 if an audit  committee
meeting  is  held  on the  same  day as a  meeting  of the  Independent  General
Partners).  Such  amounts  were  increased  beginning  on July 1,  1997 from the
previous amounts received by the Independent General Partners of $20,000 for the
annual fee and $1,400 for each meeting attended. The annual fee will revert back
to $20,000 effective on January 1, 1998.


<PAGE>


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

6.       Commitments

The Partnership  satisfied its $370,434  non-interest bearing obligation payable
to MLMS Cancer Research, Inc., the general partner of ML/MS Associates, L.P., by
making a final payment of $14,079 in November 1997.

7.       Portfolio Investments

During  1997  the  Partnership  fully  or  partially  liquidated  the  following
portfolio securities:
<TABLE>
                                                                                               Realized
Company                                                  Shares Sold          Cost            Gain (Loss)           Return

<S>                                                                     <C>                 <C>                <C>
Biocircuits Corporation - partial write-off                    n/a      $    1,164,867      $   (1,164,867)    $             0
Borg-Warner Automotive, Inc.                               251,694           1,258,470           8,381,410           9,639,880
Clarus Medical Systems, Inc. - partial write-off               n/a           1,388,620          (1,388,620)                  0
Corporate Express, Inc.                                    120,755              24,150           2,561,946           2,586,096
Elantec, Inc.                                               23,245              60,437              32,945              93,382
Graham Fields International (Sanderling)                     4,645             113,964             (50,960)             63,004
IDEC Pharmaceuticals Corporation                           477,233           4,043,645           8,594,459          12,638,104
HCTC Investment, L.P. - sale of options                        n/a                   0           2,085,252           2,085,252
HCTC / SPTHOR  - note repayment                                n/a           2,381,659                   0           2,381,659
HCTC Investment, L.P. - partial write-off                      n/a             400,670            (400,670)                  0
Neocrin Company - partial write-off                            n/a           3,840,430          (3,840,430)                  0
Raytel Medical Corporation                                  37,500             144,983                   0             144,983
Vical, Inc.  (Sanderling)                                   59,685             144,550             795,047             939,597
                                                                        --------------      --------------    ----------------
Total                                                                   $   14,966,445      $   15,605,512    $     30,571,957
                                                                        --------------      --------------    ----------------
</TABLE>

8.   Cash Distributions

Cash  distributions  paid or accrued during the periods presented and cumulative
cash  distributions  to  Partners  from  inception  of the  Partnership  through
December 31, 1997 are listed below:

<TABLE>
                                                      Managing          Individual
                                                       General            General               Limited             Per $1,000
Distribution Date                                      Partner           Partners              Partners                Unit
------------------------------------------------  ---------------     --------------        ----------------       --------
<S>                   <C> <C>                     <C>                  <C>                <C>                       <C>
Inception to December 31, 1994                    $     1,400,000      $           0      $       58,800,000        $       490
April 11, 1995                                          2,231,929              2,260               9,000,000                 75
October 5, 1995                                         5,000,236                900              27,000,000                225
January 12, 1996                                        2,336,106                400              12,000,000                100
April 26, 1996                                          3,377,898                600              18,000,000                150
July 29, 1996                                           4,238,951                640              19,200,000                160
October 11, 1996                                        2,547,571                400              12,000,000                100
July 11, 1997                                           2,590,089                640              19,200,000                160
October 16, 1997                                          411,084                260               7,800,000                 65
                                                  ---------------      -------------      ------------------        -----------
Cumulative totals at December 31, 1997            $    24,133,864      $       6,100      $      183,000,000        $     1,525
                                                  ===============      =============      ==================        ===========
</TABLE>


<PAGE>


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


9.     Litigation Settlement

During  1996,  the  Partnership  settled  an  action  in which it was named as a
defendant,  along  with  other  entities  and  individuals,  in  respect  of its
ownership of securities of In-Store Advertising,  Inc. ("ISA"). The action was 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,  alleged
violations  under certain sections of the Securities Act of 1933, the Securities
Exchange Act of 1934 and common law. The plaintiffs  sought  rescission of their
purchases  of ISA common  stock  together  with  damages and  certain  costs and
expenses.   In  connection  with  the  settlement,   the  Partnership  delivered
$1,000,000  into escrow on  September  20, 1996,  representing  its share of the
settlement agreement. On December 18, 1996, the court entered an order approving
the settlement and dismissing the action against the  Partnership  and the other
defendants involved in the settlement.  Additionally,  the Partnership  incurred
legal expenses totaling approximately $246,000 related to the litigation.

10.    Classification of Portfolio Investments

As of December 31, 1997, the  Partnership's  investments in portfolio  companies
were categorized as follows:

<TABLE>
                                                                                               % of
Type of Investments                                  Cost               Fair Value          Net Assets*
-------------------                             --------------        ---------------       -----------
<S>                                             <C>                   <C>                     <C>
Common Stock and Warrants                       $    9,299,785        $    15,134,607         69.72%
Limited Partnerships                                 1,335,625                758,390          3.49%
Preferred Stock                                      2,363,926              1,113,902          5.13%
Debt Securities                                         14,344                 14,344        .07%
                                                --------------        ---------------    --------
Total                                           $   13,013,680        $    17,021,243         78.41%
                                                ==============        ===============         ======

Country/Geographic Region
Midwestern U.S.                                 $    3,512,548        $     8,122,527         37.42%
Western U.S.                                         6,118,959              3,927,009         18.09%
Eastern U.S.                                         3,382,173              4,971,707         22.90%
                                                --------------        ---------------         ------
Total                                           $   13,013,680        $    17,021,243         78.41%
                                                ==============        ===============         ======

Industry
Business Services                               $    2,512,000        $     7,227,375         33.30%
Biotechnology                                        4,514,152              6,085,190         28.03%
Semiconductors/Electronics                           2,452,226              1,148,135          5.29%
Medical Devices and Services                         3,094,449              2,091,307          9.63%
Telecommunications                                     169,150                169,150           .78%
Computer Hardware/Software                             271,703                300,086          1.38%
                                                --------------        ---------------       --------
Total                                           $   13,013,680        $    17,021,243         78.41%
                                                ==============        ===============         ======
</TABLE>

* Percentage of net assets is based on fair value.


<PAGE>


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


11.    Short-Term Investments


As of December 31, 1997 and 1996, 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, 1997:
<S>                                            <C>          <C>  <C>    <C>                 <C>                <C>
International Lease Finance                    5.55%        1/15/98     $     1,480,344     $     1,496,532    $      1,500,000

National Rule                                  5.66%        3/13/98           1,474,766           1,483,020           1,500,000
                                                                        ---------------     ---------------    ----------------

Total as of December 31, 1997                                           $     2,955,110     $     2,979,552    $      3,000,000
                                                                        ===============     ===============    ================

December 31, 1996:
Korean Development Bank                        5.35%        1/17/97     $     2,960,767     $     2,992,421    $      3,000,000

Japan Leasing                                  5.35%        1/27/97           1,481,498           1,493,981           1,500,000
                                                                        ---------------     ---------------    ----------------

Total as of December 31, 1996                                           $     4,442,265     $     4,486,402    $      4,500,000
                                                                        ===============     ===============    ================
</TABLE>


<PAGE>


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

None
                                    PART III

Item 10.      Directors and Executive Officers of the Registrant.

The Partnership

GENERAL PARTNERS

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

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

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

Individual General Partners

Dr. Steward S. Flaschen (1)
592 Weed Street
New Canaan, Connecticut 06840
Age 71
Individual General Partner since 1987
Units of the Partnership beneficially owned at March 16, 1998 - None (3)
         President of Flaschen & Davies,  a management  consulting  firm,  since
         1986;  Corporate  Senior Vice  President  and member of the  Management
         Policy Board of ITT Corporation from 1982 to 1986 and General Technical
         Director from 1969 to 1986; Chairman of Telco Systems Inc. from 1990 to
         present; Chairman of TranSwitch Corp. from 1989 to present; Director of
         Sipex Corp. from 1996 to present.

Jerome Jacobson (1)
4200 Massachusetts Avenue, N.W.
Washington, D.C. 20016
Age 76
Individual General Partner since 1987
Units of the Partnership beneficially owned at March 16, 1998 - 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., and Datawatch Inc.

William M. Kelly (1)
40 Wall Street
New York, New York 10005
Age 54
Individual General Partner since 1991
Units of the Partnership beneficially owned at March 16, 1998 - None (3)
         Managing Associate of Lingold Associates, since 1980; Vice President of
         National  Aviation and  Technology  Company,  a  registered  investment
         company,  from 1977 to 1980;  Director  of First  Eagle Fund of America
         since 1998 and First Eagle International Fund from 1994 to present.

Kevin K. Albert (2)
World Financial Center
North Tower
New York, New York 10281-1326
Age 45
Individual General Partner since 1990
Units of the Partnership beneficially owned at March 16, 1998 - None (3)
         Director and President of the Management Company;  Managing Director of
         Merrill Lynch Investment Banking Division ("MLIBK") since 1988.

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

The Management Company

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

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

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

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

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

Robert F. Aufenanger
Executive Vice President and Director
Age 44
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 54
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.

<PAGE>


Diane T. Herte
Vice President and Treasurer
Age 37
Officer or Director since 1995
         Vice  President of Merrill Lynch & Co.  Investment  Banking Group since
         1996 and  previously an Assistant Vice President of Merrill Lynch & Co.
         Corporate  Credit Group since 1992,  joined  Merrill Lynch in 1984. Ms.
         Herte's   responsibilities   include   controllership   and   financial
         management  functions for certain  partnerships  and other entities for
         which subsidiaries of Merrill Lynch are the general partner.

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.  As of
December 31, 1997,  DLJ  Capital's  most recent  limited  partnership  is Sprout
Capital 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.
Sprout  Capital VIII,  L.P., a $750 million  fund,  was scheduled to close after
year end. 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 55
Officer or Director since 1977
         Managing General Partner of Sprout Group, the venture capital affiliate
of DLJ since 1981.


<PAGE>


Janet A. Hickey
Senior Vice President
Age 52
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 44
Officer or Director since 1984
         General Partner of Sprout Group since 1986.

Dr. Robert E. Curry(1)
Vice President
Age 51
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 Presid
ent
Age 44
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 57
Officer or Director since 1989
         Director, Executive Vice President and Chief Financial Officer of DLJ.

Marjorie S. White
Secretary, Treasurer and Director
Age 44
Officer  or Director since 1997 Vice President and Secretary of DLJ.

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


<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 - Beginning on July 1, 1997, the Partnership  paid each Independent
General Partner an annual fee of $21,000 in quarterly  installments  plus $1,500
for each meeting of the Individual  General Partners  attended or for each other
meeting,  conference or engagement in connection with Partnership  activities at
which attendance by the Individual General Partner is required.  The Partnership
pays all actual  out-of-pocket  expenses  incurred  by the  Independent  General
Partners  relating to  attendance  at such  meetings.  The  Independent  General
Partners receive $1,500 for each meeting of the Audit Committee  attended unless
such  committee  meeting is held on the same day as a meeting of the  Individual
General  Partners.  In such case, the Independent  General Partners receive $500
for  each  meeting  of the  Audit  Committee  attended.  The  fees  paid  to the
Independent  General Partners were increased on July 1, 1997 from the previously
paid amounts of $20,000 for the annual fee and $1,400 for each meeting attended.
Beginning  on January 1, 1998,  the annual fee will revert back to $20,000.  For
the year ended  December 31, 1997,  the aggregate  fees and expenses paid by the
Partnership to the Independent General Partners totaled $94,663.

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, 1997, the  Partnership had a net realized
gain of $15,605,512 from the liquidation of certain portfolio investments.  On a
cumulative  basis,  from  inception to December 31, 1997,  the  Partnership  had
$117,689,857  of net realized gains and investment  income from its portfolio of
venture capital investments.  The Partnership made two cash distributions during
1997  totaling  $27,000,000  to Limited  Partners and  $3,002,073 to the General
Partners.

Management Fee - Pursuant to the Management Agreement,  the Partnership pays the
Management  Company a  management  fee at the  annual  rate of 2.5% of the gross
capital  contributions  to the  Partnership  (net  of  selling  commissions  and
organizational  and  offering  expenses  paid by the  Partnership),  reduced  by
capital  distributed to the Partners and realized capital losses, with a minimum
annual fee of  $200,000.  Such fee is payable  quarterly  based on the  adjusted
capital contributions,  as described above, at the end of the preceding calendar
quarter.  As described  previously,  the  Management  Company has entered into a
Sub-Management  Agreement  with DLJ,  pursuant to which the  Management  Company
compensates DLJ for management  services.  For the year ended December 31, 1997,
management fees incurred by the Partnership to the Management Company aggregated
$282,686.

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 16, 1998, no person or group is known by the  Partnership  to be the
beneficial  owner of more than 5 percent  of the Units.  Mark Clein and  Stephen
Warner,  limited partners of the Managing  General Partner,  own an aggregate of
134  Units  of  the  Partnership  and  Merrill  Lynch  Pierce  Fenner  &  Smith,
Incorporated  owns 230 Units. The Individual  General Partners and the directors
and officers of the Management Company do not own any Units.

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

Item 13.      Certain Relationships and Related Transactions.

     Kevin K. Albert,  a Director and President of the Management  Company and a
Managing  Director of Merrill Lynch  Investment  Banking  Group ("ML  Investment
Banking"),  joined Merrill Lynch in 1981.  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. 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 a Vice President of Merrill Lynch & Co.
Investment  Banking  Group,  joined  Merrill  Lynch  in  1984.  Messrs.  Albert,
Aufenanger,  Lurie and Ms.  Herte  are  involved  with  certain  other  entities
affiliated with Merrill Lynch or its affiliates.

<PAGE>


                                     PART IV


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

(a)           1.    Financial Statements

                    Balance Sheets as of December 31, 1997 and 1996

                    Schedule of Portfolio Investments as of December 31, 1997

                    Schedule of Portfolio Investments as of December 31, 1996

                    Statements of Operations for the years ended December 31,
                    1997, 1996 and 1995

                    Statements of Cash Flows for the years ended December 31,
                    1997, 1996 and 1995

                    Statements of Changes in Partners' Capital for the years
                    ended December 31, 1995, 1996 and 1997

                    Notes to Financial Statements

              2.    Exhibits

                    (3)   (a)  Amended and Restated  Certificate of Limited
                            Partnership of the Partnership,  dated as of January
                               12, 1987. (1)

                    (3)  (b)  Amended  and  Restated   Certificate   of  Limited
Partnership of the Partnership, dated July 27, 1990.
                               (2)

                    (3)   (c)  Amended and  Restated  Certificate  of Limited
Partnership  of the  Partnership,  dated March 25, 1991. (3)

                    (3)   (d)  Amended and  Restated  Agreement of Limited
Partnership  of the  Partnership,  dated as of May 4, 1987. (4)

                    (3)   (e)  Amendment No. 1 dated February 14, 1989 to
Amended and Restated  Agreement of Limited  Partnership
                               of the Partnership. (5)

                    (3)   (f)  Amendment No. 2 dated July 27, 1990 to Amended
and Restated  Agreement of Limited  Partnership  of the Partnership. (2)

                    (3)   (g)  Amendment No. 3 dated March 25, 1991 to Amended
and Restated  Agreement of Limited  Partnership of
                               the Partnership. (3)
                    (3)   (h)  Amendment  No. 4 dated May 23, 1991 to Amended
and Restated  Agreement of Limited  Partnership  of
                               the Partnership. (6)

                    (10)  (a)  Management  Agreement dated as of May 23, 1991
among the Partnership,  Management  Company and the
                               Managing General Partner. (6)

                    (10)  (b)  Form of Sub-Management  Agreement among the
Partnership,  Management Company, the Managing General
                               Partner and the Sub-Manager. (8)

                    (27)       Financial Data Schedule.

                    (28)       Prospectus of the Partnership  dated February 10,
                               1987  filed  with  the  Securities  and  Exchange
                               Commission  pursuant  to Rule  424(b)  under  the
                               Securities  Act of  1933,  as  supplemented  by a
                               supplement  thereto  dated  April 21,  1987 filed
                               pursuant to Rule 424(c) under the  Securities Act
                               of 1933. (7)

(b)                 No reports on Form 8-K have been filed since the  beginning
of the last quarter of the period for which this report is filed.

(1)    Incorporated  by  reference to the  Partnership's  Annual  Report on Form
 10-K for the year ended  December 31, 1988 filed
       with the Securities and Exchange Commission on March 27, 1989.

(2)    Incorporated  by reference to the  Partnership's  Quarterly  Report on
Form 10-Q for the quarter ended  September 30, 1990
       filed with the Securities and Exchange Commission on November 14, 1990.

(3)    Incorporated  by  reference to the  Partnership's  Annual  Report on Form
 10-K for the year ended  December 31, 1990 filed
       with the Securities and Exchange Commission on March 28, 1991.

(4)    Incorporated  by reference to the  Partnership's  Quarterly  Report on
Form 10-Q for the quarter ended June 30, 1987 filed
       with the Securities and Exchange Commission on August 14, 1987.

(5)    Incorporated by reference to the  Partnership's  Quarterly  Report on
Form 10-Q for the quarter ended March 31, 1989 filed
       with the Securities and Exchange Commission on May 15, 1989.

(6)    Incorporated  by reference to the  Partnership's  Quarterly  Report on
Form 10-Q for the quarter ended June 30, 1991 filed
       with the Securities and Exchange Commission on August 14, 1991.

(7)    Incorporated by reference to the  Partnership's  Quarterly  Report on
Form 10-Q for the quarter ended March 31, 1987 filed
       with the Securities and Exchange Commission on May 15, 1987.

(8)    Incorporated  by  reference to the  Partnership's  Annual  Report on Form
 10-K for the year ended  December 31, 1992 filed
       with the Securities and Exchange Commission on March 26, 1993.


<PAGE>


                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the  undersigned,  thereunto duly  authorized on the 31st day of March
1998.


         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 31st day of March 1998.


<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>