UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                                  FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Fiscal Year Ended December 31, 1999

                         Commission File Number 0-17383

                          ML-LEE ACQUISITION FUND II, L.P.
      (Exact name of registrant as specified in its Governing Instruments)

           Delaware                                 04-3028398
(State or other jurisdiction            (IRS Employer Identification No.)
of incorporation or organization)

                             World Financial Center
                            South Tower - 14th Floor
                          New York, New York 10080-6114
              (Address of principal executive offices and zip code)

Registrant's telephone number, including area code:  (212) 236-6577

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

        Title of each Class        Name of each exchange on which registered
               None                               Not Applicable

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

                        Units of Limited Partnership Interest
                                (Title of class)

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 a 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]

Documents  Incorporated  by  Reference:   Portions  of  the  Prospectus  of  the
Registrant  dated  September  6, 1989,  filed with the  Securities  and Exchange
Commission pursuant to Rule 497(b), are incorporated by reference in Parts I, II
and III hereof.


<PAGE>


                                   Part I
Item l. Business

        Formation

     ML-Lee Acquisition Fund II, L.P. ("Fund II") (formerly T.H. Lee Acquisition
Fund II,  L.P.) was  formed  along  with  ML-Lee  Acquisition  Fund  (Retirement
Accounts)  II,  L.P.  the  ("Retirement  Fund"  collectively  referred to as the
"Funds")  and the  Certificates  of Limited  Partnership  were  filed  under the
Delaware  Revised  Uniform  Limited  Partnership Act on September 23, 1988. Fund
II's  operations  commenced on November 10, 1989 and were scheduled to terminate
on January  5,  2000.  However,  the  initial  ten year term of Fund II has been
extended for an additional two year period.  The Individual General Partners (as
defined  below)  have the right to extend the term of Fund II for an  additional
one year period if they determine that such extension is in the best interest of
Fund II.

     Mezzanine Investments II, L.P. (the "Managing General Partner"), subject to
the  supervision  of the  Individual  General  Partners  (as  defined  below and
hereinafter  with the Managing  General Partner as the "General  Partners"),  is
responsible  for overseeing and monitoring Fund II's  investments.  The Managing
General Partner is a Delaware limited  partnership in which ML Mezzanine II Inc.
is the general  partner and Thomas H. Lee  Advisors  II, L.P.  (the  "Investment
Adviser" to the Funds) is the limited partner.  The Individual  General Partners
are Vernon R. Alden,  Joseph L. Bower and Stanley H. Feldberg (the  "Independent
General  Partners")  and Thomas H. Lee. ML Fund  Administrators  Inc. (the "Fund
Administrator") is an indirect  wholly-owned  subsidiary of Merrill Lynch & Co.,
Inc. and is responsible for the day-to-day administrative services necessary for
the operations of Fund II.

     Fund II elected to operate  as a  business  development  company  under the
Investment Company Act of 1940, as amended ("Investment Company Act"). Fund II's
primary   investment   objective  is  to  provide  current  income  and  capital
appreciation potential by investing in privately structured,  friendly leveraged
buyouts and other  leveraged  transactions.  Fund II pursued  this  objective by
investing primarily in subordinated debt and related equity securities issued in
conjunction  with  the  "mezzanine   financing"  of  friendly  leveraged  buyout
transactions,  leveraged acquisitions and recapitalizations.  Fund II could also
invest in  "bridge  investments"  if it  believed  that such  investments  would
facilitate the  consummation  of a mezzanine  financing.  Fund II considers this
activity  to  constitute  a  single  industry  segment  of  mezzanine  financing
investing.

     Fund  II  invested  substantially  all of its  net  proceeds  in  Mezzanine
Investments  consisting of high-yield  subordinated  debt and/or preferred stock
linked with an equity  participation,  of middle market  companies in connection
with friendly  leveraged  acquisitions,  recapitalizations  and other  leveraged
financings.  Fund II's  Mezzanine  Investments  typically were issued in private
placement  transactions  which are generally subject to certain  restrictions on
sales  thereby  limiting  their  liquidity.  Fund II was  fully  invested  as of
December 20, 1992, which was within 36 months from the date of the final closing
(after including the reserve for follow-on  investments and exclusive of amounts
available for  reinvestment).  The  reinvestment  period for various  amounts of
capital proceeds  received during the last twelve months of Fund II's investment
period terminated at various times through December 21, 1993.

     The Funds  offered an aggregate of 1 million  units of limited  partnership
interest  ("Units")  at  $1,000  per  Unit  with  the  Securities  and  Exchange
Commission pursuant to a Registration Statement on Form N-2 (File No. 33-25816),
effective  September 6, 1989. The  information set forth under the heading "Risk
and  Other  Important   Factors",   "Estimated  Use  of  Proceeds",   "Mezzanine
Financing",  "Investment Objectives and Policies" and "Conflicts of Interest" in
the Prospectus  dated September 6, 1989,  filed with the Securities and Exchange
Commission  pursuant  to Rule  497(b)  under  the  Securities  Act of 1933  (the
"Prospectus"), is incorporated herein by reference.

     The offering of Units  commenced  on September 6, 1989.  On November 10 and
December 20, 1989 and January 5, 1990,  Fund II had its first,  second and third
closings,  respectively,  at which time the Managing  General  Partner  admitted
additional  Limited  Partners to Fund II  representing  221,745 Units of limited
partnership   interest.   The  additional   Limited   Partners'   total  capital
contributions were $205,114,126,  which excludes discounts allowed of $3,119,607
and is net of sales  commissions and advisory fees of $13,511,267.  The Managing
General  Partner's  aggregate  contribution  was $500,000.  Thomas H. Lee, as an
Individual General Partner,  contributed  $50,000. For their services as selling
agent, Fund II paid sales commissions to Merrill Lynch, Pierce, Fenner and Smith
Incorporated  ("MLPF&S") in the amount of $10,800,450 (exclusive of discounts of
$2,504,250). In addition, Fund II paid a financial advisory fee to MLPF&S in the
amount of $2,710,817 (exclusive of discounts of $615,357).
<PAGE>
     Mezzanine and Bridge Investments

     As of  December  31,  1999,  Fund II had  outstanding  a total (at cost) of
$19,441,000 invested in Mezzanine Investments  representing  $17,144,000 Managed
and $2,297,000  Non-Managed portfolio  investments.  At December 31, 1999, there
were no Bridge Investments outstanding for the Funds. The Funds co-invest in all
Mezzanine and Bridge  Investments,  allocating such investments in proportion to
their capital available for investment.

     Fund II's reinvestment period ended on December 21, 1993 and,  accordingly,
no new  investments  were  made  after  that  date  other  than the  funding  of
investments which were committed to prior to that date.

     REVIEW OF INVESTMENTS SOLD DURING 1999
     --------------------------------------

     Soretox (Stablex Canada, Inc.)
     ------------------------------

     On March 12, 1999,  the Funds  entered into a Note  Repurchase  and Warrant
Cancellation  Agreement (the "Agreement")  with Stablex Canada,  Inc. and Seaway
TLC Inc. to sell,  retire and cancel all of the Subordinated  Notes  outstanding
held by the Funds  (including  all  Deferred  Interest  Notes).  Pursuant to the
Agreement,  the Funds  also  relinquished  all  Warrants  held.  Total  proceeds
received by the Funds for retiring the Notes and  Warrants was  $12,000,000,  of
which  $5,605,000  was  allocated  to  Fund  II.  Fund II  recognized  a loss of
approximately  $1  million  from this  transaction.  The  Distributable  Capital
Proceeds  relating to this  transaction  was made in  connection  with the first
quarter cash distribution, to Partners of record as of March 12, 1999.

     In addition, under the Agreement, the Funds are entitled,  collectively, to
receive twenty percent (20%) of the net proceeds of any payment or consideration
or  distribution  (whether  received  in  cash,  property,   securities  or  any
combination thereof) arising out of transfer,  disposition,  recapitalization or
exchange of  substantially  all of the stock or other equity  interest in either
Stablex Canada Inc. or Seaway TLC Inc. if such transaction is consummated within
forty-two  (42)  months  from the closing of the  Agreement.  Any  Distributable
Capital  Proceeds  relating  to  future  receipts  by  Fund II  pursuant  to the
Agreement will be payable to Partners of record as of the date of the receipt of
such  proceeds.  Fund II  ascribes  no  value  to this  contingent  payment  for
financial reporting purposes.

     Fitz and Floyd, Inc.
     --------------------

     On August 27, 1999,  the Funds  completed  the sale of all of its shares of
the  capital  stock of Fitz and Floyd,  Inc.  (the  "Sale")  pursuant to a Stock
Purchase Agreement executed by the Funds, as selling shareholders,  on August 5,
1999. Fund II received net sales proceeds of $11,532,000, which included payment
in full of its 12% Fitz and Floyd, Inc. Subordinated Notes, including prepayment
premium,  and  partial  return of capital on its Fitz and  Floyd,  Inc.  Capital
Stock.  Fund II  recognized  a loss of  approximately  $3.5  million  from  this
transaction. The distribution of Distributable Capital Proceeds relating to this
transaction,  if any (see below),  will be made in accordance  with the terms of
the Partnership Agreement.

     On November 9, 1999, a special meeting of the General Partners of the Funds
was held to review Fund II's reserves prior to making any cash distributions. At
this  meeting,  the  General  Partners  were  briefed  on the  status of certain
litigation  commenced  by Hills  Stores  Company  ("Hills")  against  its former
directors,  including  Thomas H. Lee, who had been serving on the Hills Board of
Directors as a representative  of the Funds. The Hills litigation was brought in
connection with the July 1995 payment by Hills of  approximately  $32 million in
golden  parachute  payments to certain of its  officers in  connection  with the
change of control of Hills  associated  with the Dickstein  proxy  contest.  The
General  Partners  discussed  the  potential  liabilities  to  Thomas  H. Lee in
connection  with  this  litigation,  and  Fund  II's  potential  indemnification
obligations  to Thomas H. Lee, as well as the  liquidity of Fund II's  remaining
assets.  Following  discussion of the issues, the Individual General Partners of
Fund  II  determined   that,  to  the  extent  that  Fund  II  may  have  future
indemnification  obligations with respect to such litigation,  suitable reserves
should be maintained for such contingency.  Accordingly,  the Individual General
Partners  determined  that it would  not be  prudent  to make  distributions  to
Partners at such time. Thus, Fund II has reserved all the proceeds received from
the  sale of Fitz &  Floyd,  Inc.,  as well as the  third  quarter  income  from
operations.  This reserve will be reviewed each quarter by the General  Partners
of Fund II in light of the  status  of the  litigation.  On March 7,  2000,  the
General  Partners  reviewed the status of the Hills matter and again  determined
that it would not be prudent to make  distributions to Partners at such time. On
February 22, 2000,  the court granted  defendents  motion for summary  judgement
dismissing  claims  against Mr.  Lee.  Hills has the right to appeal that ruling
after trial of the remaining claims against certain other  defendents,  which is
currently scheduled to commence in May 2000.
<PAGE>

     REVIEW OF INVESTMENTS IN MANAGED COMPANIES
     ------------------------------------------

     The following is a brief  description of the companies in Fund II's Managed
Company portfolio as of December 31, 1999:

     Big V Supermarkets, Inc. ("Big V")
     ----------------------------------

     Big V is a regional  supermarket retailer in the Northeastern United States
doing  business  under the  ShopRite  name.  Big V  currently  operates  several
supermarkets  principally  in the Hudson  Valley  region of New York State.  The
investment in Big V is valued at cost as of December 31, 1999.

     Cole National Corporation ("Cole")
     ----------------------------------

     Cole was founded in 1944 as a provider of key duplication  services.  Since
then,  Cole  has  grown  as  a  retailer  and  operates  three  separate  retail
subsidiaries:  Cole Vision,  Things  Remembered and Cole Key. Fund II has valued
its remaining investment in Cole at zero.


     REVIEW OF INVESTMENTS IN NON-MANAGED COMPANIES
     ----------------------------------------------

     The  following  is a  brief  description  of the  companies  in  Fund  II's
Non-Managed Company portfolio as of December 31, 1999:

     BioLease, Inc. ("Biolease")
     ---------------------------

     BioLease provides built-to-suit  wet-laboratory space in the Boston area to
a  consortium  of emerging  growth  bio-technology  companies  sponsored  by the
venture capital funds managed by Health Care Investment  Corporation.  Fund II's
investment  in  BioLease  Common  Stock  was  written  down  to  zero,  and  the
Subordinated  Notes were written down to  approximately  50% of par value during
the year ended December 31, 1997. As of December 31, 1999,  total net unrealized
depreciation was $412,000.

     FLA. Orthopedics, Inc.
     ---------------------

     FLA. Orthopedics,  Inc., headquartered in Miami, manufactures,  markets and
distributes  production in two major lines of business:  ergonomically  designed
safety  products and  orthopedic  soft goods.  Fund II has valued its  remaining
investment  in FLA.  Orthopedics,  Inc.  at zero,  which  resulted  in total net
unrealized depreciation of $1,513,000 as of December 31, 1999.

     Competition

     Fund II has completed its investment  period and its  reinvestment  program
and,  therefore,  will no longer have to compete for investments.  A majority of
the portfolio companies are participating in extremely competitive businesses.

     Employees

     Fund  II  has  no  employees.   The  Investment  Adviser,  subject  to  the
supervision of the Managing General Partner and the Individual General Partners,
manages and controls  Fund II's  investments.  The Managing  General  Partner is
responsible  for  managing  the  Temporary  Investments  of Fund  II.  The  Fund
Administrator   performs   administrative   services   for  Fund  II.  The  Fund
Administrator is a subsidiary of Merrill Lynch & Co, Inc., the parent of MLPF&S.

Item 2. Properties

        Fund II does not own or lease any physical properties.

Item 3. Legal Proceedings

        None.

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

        No matters were  submitted to a vote of the Limited  Partners of Fund II
during the fourth quarter ended December 31, 1999.
<PAGE>

                                   Part II

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

     There is no  established  trading  market  for the Units.  The  Partnership
Agreement contains  restrictions that are intended to prevent the development of
a public market.  Accordingly,  accurate  information as to the market values of
Units at any given date is not available.

     The  approximate  number of Unit  holders as of  January 1, 2000,  the last
effective  date of transfer  (as  described  below),  was 10,070.  The  Managing
General  Partner and Thomas H. Lee as an  Individual  General  Partner also hold
general partnership interests in Fund II.

     MLPF&S reports  estimated  values of limited  partnerships and other direct
investments  on client  account  statements  and no longer  reports  the general
partner's  estimate  of limited  partnership  net asset  value to Unit  holders.
Pursuant  to  MLPF&S  guidelines,   estimated  values  for  limited  partnership
interests  originally  sold by MLPF&S  (such as Fund II's Units) are provided by
independent  valuation  services.   MLPF&S  clients  may  contact  their  MLPF&S
Financial Consultants to obtain a general description of the methodology used by
the independent  valuation  services to determine their estimates of value.  The
estimated values provided by the independent services and the Fund's current net
asset value as estimated by the general  partner 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 Fund II's current net asset value upon the liquidation of the
Fund's assets over its remaining life.

     Fund II distributes  Distributable  Cash from Investments and Distributable
Capital Proceeds in accordance with the terms of the Partnership Agreement.

     Pursuant to the Partnership Agreement, transfers of Units are recognized on
the first day of the fiscal quarter after which the Managing General Partner has
been duly notified of a transfer pursuant to the Partnership Agreement.  Until a
transfer is recognized, the limited partner of record (i.e. the transferor) will
continue  to receive  all of the  benefits  and  burdens of  ownership  of Units
(including allocations of profit and loss and distributions), and any transferee
will have no rights to  distributions  of sale  proceeds  generated  at any time
prior to the recognition of the transfer and assignment.

     Accordingly,   Distributable  Cash  from  Investments  for  a  quarter  and
Distributable Capital Proceeds from sales after transfer or assignment have been
entered  into,  but before such  transfer and  assignment  is  recognized by the
Managing  General  Partner,  will  be  payable  to the  transferor  and  not the
transferee.

     Cash Distributions

     Generally,   Fund  II  has  made  quarterly  distributions  including  both
Distributable Cash from Investments and Distributable Capital Proceeds. However,
Fund II's ability to make future cash  distributions  is restricted.  See Item 7
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  - Liquidity  and Capital  Resources  - the  information  in which is
incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
Item 6.  Selected Financial Data
Supplemental Information Schedule
<S>                                     <C>               <C>                <C>                  <C>              <C>


                                                                      For the Years Ended December 31,
TOTAL FUND INFORMATION:                         1999          1998               1997              1996               1995
                                            -----------    -----------       -----------        ------------       -----------

Net Investment Income                       $ 1,096,665    $ 2,822,809       $ 8,426,190        $ 11,023,166       $ 4,146,846

Net Realized Gain (Loss) on Sales of
    Investments                              (4,532,421)   (26,634,967)           92,648           5,894,176         8,372,906

Net Change in Unrealized Appreciation
    (Depreciation) on Investments            13,635,980     33,816,479        (6,129,993)        (15,723,691)      (30,559,313)

Cash Distributions to Partners                8,350,808     25,810,638       26,672,357          49,261,781        29,490,761

Net Assets                                   32,875,097     31,025,683        46,832,011          71,115,538       119,183,669

Cost of Mezzanine Investments                19,440,708     41,110,511        91,989,046         103,597,216       135,797,397

Total Assets                                 33,034,443     31,176,545        47,105,834          71,678,160       120,346,488


PER UNIT OF LIMITED PARTNERSHIP INTEREST:

Investment Income                           $      7.58    $     17.84       $     36.43        $      50.33       $     32.05

Expenses                                          (4.13)         (6.81)            (7.79)             (15.11)           (19.71)
                                            -----------    -----------       -----------        ------------       -----------
Net Investment Income                       $      3.45    $     11.03       $     28.64        $      35.22       $     12.34
                                            ===========    ===========       ===========        ============       ===========

Net Realized Gain (Loss) on Sales of
  Investments                               $    (20.61)   $   (124.73)      $       .42        $      14.47       $     34.23

Net Change in Unrealized Appreciation
  (Depreciation) on Investments                   61.34         152.12            (27.58)             (70.73)          (137.47)

Cash Distributions                                34.92         109.19            106.00              192.87            112.31

Cumulative Cash Distributions                  1,302.98       1,267.87          1,158.68            1,052.68            859.81

Net Asset Value                                  146.74         137.49            209.93              314.44            528.63


See cash distributions schedule for additional information.
</TABLE>

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

Liquidity & Capital Resources

     At  the  regular  quarterly  meeting  of the  General  Partners  of  ML-Lee
Acquisition Fund II, L.P. ("Fund II"), held on December 14, 1999, the Individual
General  Partners  determined  to extend the  initial  ten year term of Fund II,
which was due to terminate  January 5, 2000,  for an additional two year period,
in  order  to  better  allow  Fund II to deal  with  its  assets  pending  their
liquidation.  Pursuant  to  the  terms  set  forth  under  Section  2.4  of  the
Partnership  Agreement,  the term of Fund II will now expire on January 5, 2002.
The Individual General Partners have the right to extend the term of Fund II for
an additional  one year period if they  determine  that such extension is in the
best interest of Fund II.

     On August 6, 1991, the Independent  General Partners approved a reserve for
follow-on investments of approximately  $24,900,000 for Fund II. As of March 30,
2000,  this  remaining  reserve  balance  was  approximately  $3,100,000  due to
follow-on  investments  in Petco Animal  Supplies,  Fitz and Floyd,  Inc.,  Fine
Clothing, Inc., Hills Stores, Ghirardelli Holdings and Anchor Advanced Products.
Additionally,  approximately  $8,300,000 of the reserve has been returned to the
partners.  The level of the  reserve  was based upon an  analysis  of  potential
follow-on  investments in specific portfolio companies that may become necessary
to protect or enhance Fund II's existing investment.

     On March 12, 1999,  Fund II and the Retirement  Fund (together the "Funds")
entered  into  a  Note  Repurchase  and  Warrant  Cancellation   Agreement  (the
"Agreement")  with Stablex Canada,  Inc. and Seaway TLC Inc. to sell, retire and
cancel all of the  Subordinated  Notes  outstanding held by the Funds (including
all  Deferred  Interest  Notes).  Pursuant  to the  Agreement,  the  Funds  also
relinquished  all  Warrants  held.  Total  proceeds  received  by the  Funds for
retiring  the  Notes and  Warrants  was  $12,000,000,  of which  $5,605,000  was
allocated to Fund II. Fund II recognized a loss of approximately $1 million from
this  transaction.   The   Distributable   Capital  Proceeds  relating  to  this
transaction was made in connection with the first quarter cash distribution,  to
Partners of record as of March 12, 1999.

     In addition, under the Agreement, the Funds are entitled,  collectively, to
receive twenty percent (20%) of the net proceeds of any payment or consideration
or  distribution  (whether  received  in  cash,  property,   securities  or  any
combination thereof) arising out of transfer,  disposition,  recapitalization or
exchange of  substantially  all of the stock or other equity  interest in either
Stablex  Canada,  Inc. or Seaway TLC Inc.  if such  transaction  is  consummated
within   forty-two  (42)  months  from  the  closing  of  the   Agreement.   Any
Distributable  Capital Proceeds  relating to future receipts by Fund II pursuant
to the  Agreement  will be payable to  Partners  of record as of the date of the
receipt of such proceeds.  Fund II ascribes no value to this contingent  payment
for financial reporting purposes.

     On August 27, 1999,  the Funds  completed  the sale of all of its shares of
the  capital  stock of Fitz and Floyd,  Inc.  (the  "Sale")  pursuant to a Stock
Purchase Agreement executed by the Funds, as selling shareholders,  on August 5,
1999. Fund II received net sales proceeds of $11,532,000, which included payment
in full of its 12% Fitz and Floyd, Inc. Subordinated Notes, including prepayment
premium,  and  partial  return of capital on its Fitz and  Floyd,  Inc.  Capital
Stock.  Fund II  recognized  a loss of  approximately  $3.5  million  from  this
transaction. The distribution of Distributable Capital Proceeds relating to this
transaction,  if any (see below),  will be made in accordance  with the terms of
the Partnership Agreement.

     On November 9, 1999, a special meeting of the General Partners of the Funds
was held to review Fund II's reserves prior to making any cash distributions. At
this  meeting,  the  General  Partners  were  briefed  on the  status of certain
litigation  commenced  by Hills  Stores  Company  ("Hills")  against  its former
directors,  including  Thomas H. Lee, who had been serving on the Hills Board of
Directors as a representative  of the Funds. The Hills litigation was brought in
connection with the July 1995 payment by Hills of  approximately  $32 million in
golden  parachute  payments to certain of its  officers in  connection  with the
change of control of Hills  associated  with the Dickstein  proxy  contest.  The
General  Partners  discussed  the  potential  liabilities  to  Thomas  H. Lee in
connection  with  this  litigation,  and  Fund  II's  potential  indemnification
obligations  to Thomas H. Lee, as well as the  liquidity of Fund II's  remaining
assets.  Following  discussion of the issues, the Individual General Partners of
Fund  II  determined   that,  to  the  extent  that  Fund  II  may  have  future
indemnification  obligations with respect to such litigation,  suitable reserves
should be maintained for such contingency.  Accordingly,  the Individual General
Partners  determined  that it would  not be  prudent  to make  distributions  to
Partners at such time. Thus, Fund II has reserved all the proceeds received from
the  sale of Fitz &  Floyd,  Inc.,  as well as the  third  quarter  income  from
operations.  This reserve will be reviewed each quarter by the General  Partners
of Fund II in light of the  status  of the  litigation.  On March 7,  2000,  the
General  Partners  reviewed the status of the Hills matter and again  determined
that it would not be prudent to make  distributions to Partners at such time. On
February 22, 2000,  the court granted  defendents  motion for summary  judgement
dismissing  claims  against Mr.  Lee.  Hills has the right to appeal that ruling
after trial of the remaining claims against certain other  defendents,  which is
currently scheduled to commence in May 2000.

     At  December  31,  1999,  Fund II had  outstanding  a total  (at  cost) of
$19,441,000 invested in Mezzanine Investments  representing  $17,144,000 Managed
and $2,297,000  Non-Managed portfolio  investments.  The remaining proceeds were
invested in Temporary  Investments  primarily comprised of commercial paper with
maturities of less than 60 days.

     As provided by the Partnership  Agreement,  the Managing General Partner of
Fund II is entitled to receive an incentive  distribution after Limited Partners
have received their Priority Return of 10% per annum ("MGP Distributions").  The
Managing  General Partner is required to defer a portion of any MGP Distribution
earned  from the sale of  portfolio  investments  in excess  of 20% of  realized
capital  gains,  net realized  capital losses and  unrealized  depreciation,  in
accordance with the Partnership Agreement (the "Deferred  Distribution Amount").
Any Deferred  Distribution  Amount is distributable to the Partners  pro-rata in
accordance with their capital contributions, and certain amounts otherwise later
payable to Limited Partners from  distributable cash from operations are instead
payable to the Managing General Partner until the Deferred  Distribution  Amount
is paid. As of December 31, 1999 there is no outstanding  Deferred  Distribution
Amount.

     A number of Fund  II's debt  investments  have  been  repaid  and one is on
non-accrual  status.  These  situations  reduce  the amount of  interest  income
received by Fund II. As a result,  it is expected  that the amount of any future
cash  distributions,  in  aggregate,  paid to  Partners  will be derived  almost
entirely from recovered capital and gains from asset sales, which are subject to
market conditions and are inherently  unpredictable as to timing.  Therefore, in
the  absence  of cash  available  for  distribution  resulting  from the sale of
portfolio   holdings,   Fund  II  will  have   available  for  any  future  cash
distributions,  to the extent not reserved to pay  expenses  and  contingencies,
only small amounts of net  distributable  cash from operations,  estimated to be
less than one dollar per Unit each quarter.

Investment in High-Yield Securities

     Fund II  invested  primarily  in  subordinated  debt  and  preferred  stock
securities   ("High-Yield   Securities"),   generally   linked  with  an  equity
participation,  issued in conjunction with the mezzanine  financing of privately
structured,   friendly  leveraged  acquisitions,   recapitalizations  and  other
leveraged  financings.  High-Yield  Securities  are  debt and  preferred  equity
securities that are unrated or are rated by Standard & Poor's  Corporation as BB
or lower and by Moody's  Investor  Services,  Inc. as Ba or lower.  Risk of loss
upon default by the issuer is significantly  greater with High-Yield  Securities
than  with  investment  grade  securities  because  High-Yield   Securities  are
generally unsecured and are often subordinated to other creditors of the issuer.
Also,  these  issuers  usually  have high  levels of  indebtedness  and are more
sensitive  to adverse  economic  conditions,  such as  recession  or  increasing
interest rates,  than  investment  grade issuers.  Most of these  securities are
subject to resale  restrictions and generally there is no quoted market for such
securities.

     Although Fund II cannot eliminate the risks associated with its investments
in High-Yield Securities,  it has established risk management policies.  Fund II
subjected each prospective  investment to rigorous  analysis and made only those
investments  that were  recommended by the Investment  Advisor and that met Fund
II's  investment  guidelines or that had otherwise been approved by the Managing
General Partner and the Independent General Partners. Fund II's investments were
measured  against  specified Fund II investment and performance  guidelines.  To
limit the  exposure of Fund II's capital in any single  issuer,  Fund II limited
the  amount of its  investment  in a  particular  issuer.  Fund II's  Investment
Adviser also continually  monitors portfolio  companies in order to minimize the
risks associated with its investments in High-Yield Securities.

     The  Investment   Adviser  reviews  each  portfolio   company's   financial
statements quarterly.  In addition, the Investment Adviser routinely reviews and
discusses  financial and operating  results with the  company's  management  and
where  appropriate,   attends  board  of  director  meetings.   In  some  cases,
representatives  of the Investment  Adviser,  acting on behalf of the Funds (and
affiliated investors where applicable), serve as one or more of the directors on
the  boards  of  portfolio  companies.  Fund II may,  from  time to  time,  make
follow-on investments to the extent necessary to protect or enhance its existing
investments.

Forward Looking Information

     In  addition  to  historical   information  contained  or  incorporated  by
reference   in  this  report  on  Form  10-K,   Fund  II  may  make  or  publish
forward-looking statements about management expectations,  strategic objectives,
business  prospects,   anticipated  financial  performance,  and  other  similar
matters.  In  order  to  comply  with the  terms  of the  safe  harbor  for such
statements  provided by the Private  Securities  Litigation  Reform Act of 1995,
Fund II notes that a variety of factors,  many of which are beyond its  control,
affect its operations,  performance,  business  strategy,  and results and could
cause actual results and experience to differ  materially from the  expectations
expressed in these  statements.  These factors include,  but are not limited to,
the effect of changing  economic and market  conditions,  trends in business and
finance and in investor  sentiment,  the level of volatility of interest  rates,
the actions undertaken by both current and potential new competitors, the impact
of current,  pending,  and future  legislation and regulation both in the United
States and throughout the world, and the other risks and uncertainties  detailed
in this Form 10-K.  Fund II undertakes no  responsibility  to update publicly or
revise any forward-looking statements.
<PAGE>
Results of Operations

Net Investment Income

     For the year ended December 31, 1999, Fund II had net investment  income of
$1,097,000 as compared to $2,823,000 and $8,426,000 for the years ended 1998 and
1997,  respectively.  The  decrease  in net  investment  income  during  1999 as
compared to 1998 and 1998 as compared to 1997 is primarily  attributable  to the
sales of income  producing  companies  during 1999 and 1998 and other factors as
described below.

Investment Income and Expenses

     The total  investment  income from  operations for the years ended December
31, 1999,  1998 and 1997  consists  primarily  of interest  and discount  income
earned on the investment of proceeds from Partner's  contributions  in Mezzanine
Investments and short-term money market instruments. For the year ended December
31, 1999, Fund II had investment  income of $2,409,000 as compared to $4,336,000
and $10,157,000 for the years ended 1998 and 1997, respectively. The decrease in
investment  income  during 1999 as compared to 1998 and 1998 as compared to 1997
is directly  attributable to the sales of income producing companies during 1999
and 1998.

     Major  expenses  for the  years  ended  December  31,  1999,  1998 and 1997
consisted of Investment Advisory Fees and Administrative Expenses.

     The  Investment   Adviser  and  Fund   Administrator   both  receive  their
compensation on a quarterly basis.  The total  Investment  Advisory Fees paid by
Fund II to the Investment  Adviser for the years ended  December 31, 1999,  1998
and 1997 were $666,000, $654,000 and $759,000, respectively, and were calculated
at an annual rate of 1.0% of assets  under  management  (net  offering  proceeds
reduced by cumulative  capital  reductions and realized losses),  with a minimum
annual amount of $1,200,000 for the Funds on a combined  basis.  The decrease in
Investment Advisory Fees are a direct result of sales of investments, returns of
capital distributed to Partners and realized losses on investments.

     As compensation  for its services,  the Fund  Administrator  is entitled to
receive an annual  amount of $400,000  for the Funds on a combined  basis,  plus
100% of all reimbursable  expenses (as defined below) incurred by Fund II. Prior
to November 1997, the Fund Administration Fee was calculated at an annual amount
of the greater of $500,000 or 0.45% of the excess of net offering  proceeds less
50% of  capital  reductions  and  50% of  realized  losses  plus  a  portion  of
reimbursable expenses incurred.  For the years ended December 31, 1999, 1998 and
1997  Fund II  incurred  Fund  Administration  Fees of  $222,000,  $222,000  and
$570,000, respectively.

     Actual  out-of-pocket  expenses  ("Reimbursable  Administrative  Expenses")
primarily consist of printing, audit, tax preparation,  legal fees and expenses,
and custodian fees. For the years ended December 31, 1999, 1998 and 1997 Fund II
incurred  $276,000,  $295,000,  and  $140,000,   respectively,  in  Reimbursable
Administrative  Expenses.  Subsequent to November 1997, the Fund Adminstrator is
entitled to  reimbursement  for 100% of  Reimbursable  Administrative  Expenses,
while  prior  to  November  1997,  the  Fund   Administrator   was  entitled  to
reimbursement for only a portion of such expenses.

     Legal and professional fees for the years ended December 31, 1999, 1998 and
1997 were  $52,000,  $247,000 and  $152,000,  respectively.  These  expenses are
largely   attributable  to  legal  fees  incurred  and  advanced  on  behalf  of
indemnified  defendants  as  well  as  fees  incurred  directly  by  Fund  II in
connection  with  certain  litigation  proceedings.  The  decrease  in legal and
professional fees for the year ended December 31, 1999 as compared to year ended
December 31, 1998,  as well as the increase in legal and  professional  fees for
the year ended  December  31, 1998,  as compared to the year ended  December 31,
1997,  resulted  primarily from the increased  legal fees incurred by Fund II in
connection  with the  settlement  of the Seidel  litigation in the first half of
1998.

Net Assets

     Fund II's net assets increased by $1,849,000 during the year ended December
31,  1999,  due to net  investment  income of  $1,097,000  and  reversal  of net
unrealized  depreciation of $13,636,000,  partially offset by cash distributions
to partners of  $8,351,000  ($6,387,000  of which was return of capital from the
sales  of  Mezzanine  Investments)  and net  realized  loss  from  the  sales of
Mezzanine Investments of $4,533,000.

     Fund  II's net  assets  decreased  by  $15,807,000  during  the year  ended
December  31,1998,  due to the  payment of cash  distributions  to  partners  of
$25,811,000  ($15,389,000 of the cash  distributions  paid was return of capital
from the sales of Mezzanine  Investments) and a net realized loss of $26,635,000
from the sales of  Mezzanine  Investments, partially  offset  by net  investment
income of $2,823,000 and net unrealized appreciation of $33,816,000.

     Fund  II's net  assets  decreased  by  $24,282,000  during  the year  ended
December  31,  1997,  due to the  payment of cash  distributions  to partners of
$26,671,000 (approximately $18,400,000 of the cash distributions paid was return
of  capital  from  the  sales  of  Mezzanine  Investments)  and  net  unrealized
depreciation  of $6,130,000,  partially  offset by the net investment  income of
$8,426,000  and a net  realized  gain of  $93,000  from the  sales of  Mezzanine
Investments.
<PAGE>
Unrealized Appreciation and Depreciation on Investments

     For the year ended  December  31,  1999,  Fund II recorded  net  unrealized
appreciation  of  $13,636,000  all of which was  related to the  reversal of net
unrealized  depreciation in market value of publicly  traded  securities sold in
1999. This compares to net unrealized appreciation of $33,816,000,  all of which
was related to the reversal of net  unrealized  depreciation  in market value of
publicly  traded  securities sold in 1998. For the year ended December 31, 1997,
Fund II recorded net unrealized  depreciation of $6,130,000 of which  $3,342,000
was related to net unrealized  depreciation  in market value of publicly  traded
securities.  Fund II's cumulative net unrealized  depreciation on investments as
of December 31, 1999 totaled $1,924,000.

     The  Managing  General  Partner  and  the  Investment  Adviser  review  the
valuation  of  Fund  II's  portfolio  investments  that  do not  have a  readily
ascertainable  market value on a quarterly  basis with final  approval  from the
Individual General Partners.  Portfolio  investments are valued at original cost
plus  accreted  value in the case of original  issue  discount  or deferred  pay
securities. Such investments will be revalued if there is an objective basis for
doing so at a different price.  Investments will be written down in value if the
Managing   General  Partner  and  Investment   Adviser  believe  adverse  credit
developments  of a significant  nature require a write-down of such  securities.
Investments  will be written up in value only if there has been an  arms'-length
third party transaction to justify the increased valuation.

     Approximately  56.0% of Fund II's  investments  (at cost) are  invested  in
private placement securities for which there are no ascertainable market values.
Although  the Managing  General  Partner and  Investment  Adviser use their best
judgment in estimating the fair value of these  investments,  there are inherent
limitations in any estimation  technique.  Therefore,  the fair value  estimates
presented  herein are not  necessarily  indicative  of the amount  which Fund II
could  realize in a current  transaction.  As of December  31,  1999,  Fund II's
investment in Big V Supermarkets  Inc.  represents  approximately  52.2% of Fund
II's fair value.

     The  information   presented  herein  is  based  on  pertinent  information
available to the Managing General Partner and Investment  Adviser as of December
31, 1999.  Although the Managing General Partner and Investment  Adviser are not
aware of any factors not disclosed  herein that would  significantly  affect the
estimated  fair  value  amounts,  such  amounts  have not  been  comprehensively
revalued  since  that  time,  and the  current  estimated  fair  value  of these
investments may have changed significantly since that point in time.

     For  additional  information  please  refer  to  Supplemental  Schedule  of
Net Unrealized Appreciation and Depreciation - Schedule 2.

Net Realized Gains and Losses

     For the year ended December 31, 1999,  Fund II recorded a net realized loss
from investments of $4,533,000 as compared to a net realized loss of $26,635,000
for the year ended  December 31, 1998 and a net realized gain of $93,000 for the
year ended December 31, 1997. For additional  information related to the current
year, please refer to the Supplemental  Schedule of Net Realized Loss - Schedule
1.

Cash Distributions

     On May 10, 1999, the Individual General Partners approved the first quarter
1999 cash distribution  which represented net investment income of $323,000 from
Mezzanine  Investments and net  Distributable  Capital Proceeds from the sale of
Stablex of  $5,605,000  (all of which is return of  capital).  The total  amount
distributed  to Limited  Partners was  $5,814,000 or $26.22 per Unit,  which was
paid on May 14, 1999. The Managing  General Partner  received a total of $13,000
with respect to its interest in Fund II and $98,000 in MGP Distributions. Thomas
H. Lee, as an Individual  General  Partner,  received $1,311 with respect to his
interest in Fund II.

     On August 3, 1999, the  Individual  General  Partner's  approved the second
quarter 1999 cash  distribution  which  represented  Net  Distributable  Cash of
$17,000 from Temporary Investments and $286,000 from Mezzanine Investments.  The
total  amount  distributed  to Limited  Partners  was $217,000 or $.98 per Unit,
which was paid on August 13, 1999. The Managing General Partner received a total
of  $491  with   respect  to  its  interest  in  Fund  II  and  $86,000  in  MGP
Distributions.  Thomas H. Lee, as an Individual  General  Partner,  received $49
with respect to his interest in Fund II.

     A number of Fund  II's debt  investments  have  been  repaid  and one is on
non-accrual  status.  These  situations  reduce  the amount of  interest  income
received by Fund II. As a result,  it is expected  that the amount of any future
distributions,  in aggregate,  paid to Partners will be derived almost  entirely
from recovered  capital and gains from asset sales,  which are subject to market
conditions  and are inherently  unpredictable  as to timing.  Therefore,  in the
absence of cash  available for  distributions  resulting from the future sale of
portfolio  holdings,  Fund II will have available for future cash distributions,
to the extent not reserved to pay expenses and contingencies  (see discussion of
Hills  matter  above),  only  small  amounts  of  net  distributable  cash  from
operations, estimated to be less than one dollar per Unit each quarter.
<PAGE>
     Should a Limited  Partner  decide to sell his Units,  any such sale will be
recorded  on the  books  and  records  of  Fund  II  quarterly,  only  upon  the
satisfactory  completion and acceptance of Fund II's transfer  documents.  There
can be no assurances  that such  transfer will be effected  before any specified
date. Additionally,  pursuant to the Partnership Agreement,  until a transfer is
recognized,  the Limited  Partner of record (i.e. the transferor) is entitled to
receive all the benefits and burdens of ownership of Units,  and any  transferee
has no rights to distributions  of sale proceeds  generated at any time prior to
the recognition of the transfer and assignment. Accordingly,  Distributable Cash
from  Investments for a quarter and  Distributable  Capital  Proceeds from sales
after  transfer or assignment  have been entered into,  but before such transfer
and  assignment is  recognized,  would be payable to the  transferor and not the
transferee.



<PAGE>
<TABLE>
<CAPTION>
Cash Distributions

     The following  table  represents  distributions  approved by the Individual General Partners of Fund II,
since inception (November 10, 1989):

                             Total        Limited                 Per Unit      Managing                  Individual
                          Distributed    Partners      Per        Return of     General      Incentive      General
                            Cash(a)       Amount       Unit        Capital       Partner       Fee(b)       Partner
                        ------------  ------------   --------    ----------   -----------    ----------   ----------
<S>                     <C>           <C>            <C>         <C>          <C>            <C>          <C>
Fourth Quarter 1989     $  1,224,768  $  1,221,692   $   6.27       $     -     $  2,796      $      -       $   280
First Quarter 1990         3,776,596     3,767,253      17.00             -        8,494             -           849
Second Quarter 1990        4,943,920     4,751,996      21.43             -       11,120       179,692         1,112
Third Quarter 1990         3,487,811     3,479,179      15.69             -        7,847             -           785
Fourth Quarter 1990        6,045,031     5,705,499      25.73             -       13,598       324,574         1,360
First Quarter 1991         2,889,835     2,882,685      13.00             -        6,500             -           650
Second Quarter 1991        4,216,058     4,205,629      19.56             -        9,481             -           948
Third Quarter 1991         2,936,520     2,929,252      13.21             -        6,607             -           661
Fourth Quarter 1991        3,438,901     3,430,395      15.47             -        7,733             -           773
First Quarter 1992         3,599,446     3,590,052      16.19             -        8,584             -           810
Second Quarter 1992        3,829,652     3,820,667      17.23             -        8,124             -           861
Third Quarter 1992         2,905,394     2,898,207      13.07             -        6,534             -           653
Fourth Quarter 1992        3,027,660     3,020,167      13.62             -        6,812             -           681
First Quarter 1993        21,642,642    21,589,093      97.36         85.75       48,681             -         4,868
Second Quarter 1993        1,442,695     1,439,125       6.49             -        3,245             -           325
Third Quarter 1993         5,074,991     5,062,438      22.83          2.45       11,412             -         1,141
Fourth Quarter 1993       11,803,865    11,774,660      53.10          1.33       26,550             -         2,655
First Quarter 1994        16,087,488    16,047,686      72.37         59.42       36,184             -         3,618
Second Quarter 1994        4,214,710     4,204,285      18.96         12.24        9,477             -           948
Third Quarter 1994         1,298,201     1,294,991       5.84          3.42        2,918             -           292
Snapple Distribution
 on 12/15/94              68,497,700    58,336,675     263.08          9.70      164,845     9,979,695        16,485
Fourth Quarter 1994          375,092       241,702       1.09             -          543       132,793            54
EquiCredit Distribution
 on 2/14/95                7,276,582     6,359,647      28.68          2.68       16,826       898,426         1,683
First Quarter 1995         6,731,899     5,505,928      24.83         23.77       12,418     1,212,311         1,242
Second Quarter 1995        3,477,482     2,084,403       9.40           .57        6,215     1,386,242           622
Third Quarter 1995         2,019,088     1,124,247       5.07          4.50        2,536       892,051           254
Sun Pharmaceuticals
 Distribution on 12/11/95  9,610,616     9,587,798      43.24         37.42       20,744             -         2,074
Fourth Quarter 1995          333,445       166,765        .75             -          752       165,853            75
CST Distribution
 on 5/03/96               25,825,311    21,023,644      94.81         63.04       47,165     4,749,785         4,717
First Quarter 1996         1,766,006     1,263,947       5.70             -        2,849       498,925           285
Ghirardelli Distribution
 on 5/03/96                9,409,746     9,386,466      42.33         32.57       21,164             -         2,116
Second Quarter 1996       11,494,950    10,745,763      48.46         20.09       24,229       722,535         2,423
Third Quarter 1996           432,323       181,831        .82             -          410       250,041            41
Fourth Quarter 1996        1,833,044     1,226,250       5.53          5.04        2,764       603,754           276
First Quarter 1997           696,267        79,828        .36           .01          180       616,241            18
Anchor Distribution
 on 5/15/97               19,963,239    18,158,698      81.89         66.06       40,946     1,759,500         4,095
Second Quarter 1997        3,203,136     2,818,379      12.71          7.43        6,353       377,769           635
Third Quarter 1997         1,304,854     1,221,815       5.51          4.49        2,757        80,006           276
Fourth Quarter 1997          525,375       412,445       1.86           .20          836       112,010            84
First Quarter 1998         2,169,871     2,044,489       9.22          6.47        4,610       120,311           461
First Alert Distribution
  on May 15, 1998         10,807,982    10,781,242      48.62         14.94       24,309             -         2,431
Second Quarter 1998        4,808,219     4,607,861      20.78         20.43       10,391       188,928         1,039
Third Quarter 1998           242,195        46,566        .21             -          106       195,512            11
Cinnabon Distribution on
  November 16, 1998        6,928,824     6,361,864      28.69         27.19       14,345       551,180         1,435
Fourth Quarter 1998        2,120,360     1,711,871       7.72          3.52        3,859       404,244           386
First Quarter 1999         5,926,743     5,814,154      26.22         25.21       13,113        98,165         1,311
Second Quarter 1999          303,705       217,310        .98             -          491        85,855            49
                       -------------  ------------  ---------      --------    ---------   -----------      --------
Totals (c)             $ 315,970,238  $288,626,539  $1,302.98      $ 539.94    $ 688,453   $26,586,398      $ 68,848
                       =============  ============  =========      ========    =========   ===========      ========

(a)  Distributions are paid no later than 45 days after the end of each quarter.

(b)  MGP Distributions to the Managing General Partner are the result of Limited Partners achieving cumulative
     Priority Returns on Mezzanine Investments, in accordance with the Partnership Agreement.

(c)  As more fully discussed in Item 1, Business, Review of Investments Sold During 1999, the Individual
     General Partners have determined that it would not be prudent to make distributions to Partners at this
     time.  Accordingly, Fund II has reserved all the proceeds received from the sale of Fitz and Floyd, Inc.,
     as well as the third and fourth quarter income from operations.
</TABLE>
<PAGE>
Item 7A.  Quantitative and Qualitative Disclosure About Market Risk

     As of  December  31,  1999,  Fund  II  maintains  a  portion  of  its  cash
equivalents in financial instruments with original maturities of three months or
less.  These  financial  instruments are subject to interest rate risk, and will
decline in value if interest rates increase.  A significant increase or decrease
in  interest  rates is not  expected  to have a  material  effect  on Fund  II's
financial position.

<PAGE>
Item 8.    Financial Statements and Supplemental Data


                        ML-LEE ACQUISITION FUND II, L.P.


                                TABLE OF CONTENTS


Report of Independent Accountants

Statements of Assets,  Liabilities and Partners' Capital
    As of December 31, 1999 and December 31, 1998

Statements of Operations
    For the Years Ended December 31, 1999, 1998, and 1997

Statements of Changes in Net Assets
    For the Years Ended December 31, 1999, 1998 and 1997

Statements of Cash Flows
    For the Years Ended December 31, 1999, 1998 and 1997

Statements of Changes in  Partners'  Capital
    For the Years Ended December 31, 1999, 1998 and 1997

Schedule of Portfolio Investments
    as of December 31, 1999

Notes to Financial Statements

Supplemental Schedule of Net Realized Loss - Schedule 1

Supplemental Schedule of Net Unrealized Appreciation and Depreciation
    - Schedule 2



<PAGE>

                       Report of Independent Accountants



To the General and Limited Partners of ML-Lee Acquisition Fund II, L.P.

     In our opinion,  the  accompanying  statements of assets,  liabilities  and
partners'  capital,  including  the schedule of portfolio  investments,  and the
related  statements of operations,  of changes in net assets, of cash flows, and
of changes in partners'  capital present fairly, in all material  respects,  the
financial  position of ML-Lee Acquisition Fund II, L.P. (the "Fund") at December
31,  1999 and 1998,  and the results of its  operations,  the changes in its net
assets, its cash flows, and the changes in its partners' capital for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles  generally accepted in the United States.  These financial statements
are the  responsibility  of the  Fund's  management;  our  responsibility  is to
express  an  opinion  on these  financial  statements  based on our  audits.  We
conducted our audits of these  financial  statements in accordance with auditing
standards  generally  accepted in the United States,  which 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,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe  that our  audits,  which  included  confirmation  of  securities  at
December 31, 1999 by  correspondence  with the  custodian,  provide a reasonable
basis for the opinion expressed above.

     The financial  statements  include  securities,  valued at $17.6 million at
December 31, 1999 (53.4% of net assets), whose values have been estimated by the
Managing  General  Partner and the Investment  Adviser (with the approval of the
Independent  General  Partners) in the absence of readily  ascertainable  market
values,  as  further  described  in Note 2.  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 to the financial
statements.

     Our  audits  were  conducted  for the  purpose of forming an opinion on the
basic financial  statements  taken as a whole. The schedule of net realized loss
(Schedule 1) and the schedule of net unrealized  appreciation  and  depreciation
(Schedule 2) are presented for the purpose of additional  analysis and are not a
required  part  of the  basic  financial  statements.  These  schedules  are the
responsibility of the Fund's  management.  Such schedules have been subjected to
the auditing procedures applied in our audits of the basic financial  statements
and, in our opinion,  are fairly stated in all material respects when considered
in relation to the basic financial statements taken as a whole.








/s/ PricewaterhouseCoopers LLP




New York, New York
March 27, 2000

<PAGE>
<TABLE>
<CAPTION>

                                       ML-LEE ACQUISITION FUND II, L.P.
                          STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
                                           (DOLLARS IN THOUSANDS)

<S>                                                                               <C>                        <C>
                                                                                    December 31,              December 31,
                                                                                       1999                      1998
                                                                                   ------------              ------------

Assets:

Investments - Notes 2, 4, 5
  Portfolio Investments at fair value
    Managed Companies (amortized cost $17,144
      at December 31, 1999 and at December 31, 1998)                                 $   17,144                $   17,144
    Non-Managed Companies (amortized cost $2,297
      at December 31, 1999 and $23,967 at December 31, 1998)                                406                     8,440
    Temporary Investments, at amortized cost (cost $15,255
      at December 31, 1999 and $3,401 at December 31, 1998)                              15,280                     3,408
Cash                                                                                         36                         5
Accrued Interest & Other Receivable - Note 2                                                163                     1,395
Receivable for Investment Sold                                                                -                       782
Prepaid Expenses                                                                              6                         3
                                                                                     ----------                ----------
Total Assets                                                                         $   33,035                $   31,177
                                                                                     ==========                ==========


Liabilities and Partners' Capital:

Liabilities
    Legal and Professional Fees Payable                                              $        5                 $      30
    Reimbursable Administrative Expenses Payable - Note 8                                   105                        22
    Independent General Partners' Fees Payable - Note 9                                       6                        18
    Deferred Interest Income - Note 2                                                        44                        81
                                                                                     ----------                ----------
Total Liabilities                                                                           160                       151
                                                                                     ----------                ----------

Partners' Capital - Note 2
    Individual General Partner                                                              13                        13
    Managing General Partner                                                               322                       525
    Limited Partners (221,745 Units)                                                    32,540                    30,488
                                                                                    ----------                ----------
Total Partners' Capital                                                                 32,875                    31,026
                                                                                    ----------                ----------
Total Liabilities and Partners' Capital                                             $   33,035                $   31,177
                                                                                    ==========                ==========

                              See the Accompanying Notes to Financial Statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                            ML-LEE ACQUISITION FUND II, L.P.
                                                STATEMENTS OF OPERATIONS
                                                  (DOLLARS IN THOUSANDS)
 <S>                                                                            <C>                <C>               <C>
                                                                                         For the Years Ended December 31,
                                                                                  --------------------------------------------
                                                                                   1999                1998              1997
                                                                                ------------       ------------      ------------
Investment Income - Notes 2,4,6
  Interest                                                                      $      2,062       $      3,933      $      4,354
  Discount and Other Income                                                              347                403             5,803
                                                                                ------------       ------------      ------------
    Total Investment Income                                                            2,409              4,336            10,157
                                                                                ------------       ------------      ------------
Expenses:
  Investment Advisory Fee - Note 7                                                       666                654               759
  Fund Administration Fee - Note 8                                                       222                222               570
  Reimbursable Administrative Expenses - Note 8                                          276                295               140
  Legal and Professional Fees                                                             52                247               152
  Independent General Partners' Fees and Expenses - Note 9                                91                 91               106
  Insurance Expense                                                                        5                  4                 4
                                                                                ------------       ------------      ------------
    Total Expenses                                                                     1,312              1,513             1,731
                                                                                ------------       ------------      ------------
Net Investment Income                                                                  1,097              2,823             8,426
                                                                                ------------       ------------      ------------
Net Realized Gain (Loss) on Sales of Investments - Note 4 and Schedule 1              (4,533)           (26,635)               93
                                                                                ------------       ------------      ------------
Net Change in Unrealized Appreciation (Depreciation)
  on Investments - Note 5 and Schedule 2
  Publicly Traded Securities                                                               -             33,816            (3,342)
  Nonpublic Securities                                                                13,636                  -            (2,788)
                                                                                ------------       ------------      ------------
  Subtotal                                                                            13,636             33,816            (6,130)
                                                                                ------------       ------------      ------------
Net Increase in Net Assets Resulting from Operations                                  10,200             10,004             2,389
Less:  Earned MGP Distributions to Managing General Partner                             (380)            (1,460)           (2,078)
                                                                                ------------       ------------      ------------
Net Increase Available For Pro-Rata Distribution
   to All Partners                                                              $      9,820       $      8,544      $        311
                                                                                ============       ============      ============


                                     See the Accompanying Notes to Financial Statements.

</TABLE>



<PAGE>
<TABLE>
<CAPTION>
                                             ML-LEE ACQUISITION FUND II, L.P.
                                            STATEMENTS OF CHANGES IN NET ASSETS
                                                  (DOLLARS IN THOUSANDS)

<S>                                                                         <C>                  <C>                <C>
                                                                                       For the Years Ended December 31,
                                                                                  ---------------------------------------------
                                                                                  1999                  1998               1997
                                                                              -------------       -------------       -------------

From Operations:
  Net Investment Income                                                       $       1,097       $       2,823       $       8,426
  Net Realized Gain (Loss) on Sales of Investments                                   (4,533)            (26,635)                 93
  Net Change in Unrealized Appreciation (Depreciation) on Investments                13,636              33,816              (6,130)
                                                                              -------------       -------------       -------------

  Net Increase in Net Assets Resulting from Operations                               10,200              10,004               2,389
  Cash Distributions to Partners                                                     (8,351)            (25,811)            (26,671)
                                                                              -------------       -------------       -------------

  Total Increase (Decrease)                                                           1,849             (15,807)            (24,282)
Net Assets:
  Beginning of Year                                                                  31,026              46,833              71,115
                                                                              -------------       -------------       -------------

  End of Year                                                                 $      32,875       $      31,026       $      46,833
                                                                              =============       =============       =============



                                        See the Accompanying Notes to Financial Statements.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                           ML-LEE ACQUISITION FUND II, L.P.
                                               STATEMENTS OF CASH FLOWS
                                               (DOLLARS IN THOUSANDS)

<S>                                                                        <C>             <C>               <C>
                                                                                       For the Years Ended December 31,
                                                                                 --------------------------------------------
                                                                                  1999               1998                1997
                                                                             -------------       -------------      -------------
Increase (Decrease) in Cash

Cash Flows From Operating Activities:
  Interest, Discount and Other Income                                        $       3,586       $       3,135      $      10,677
  Legal and Professional Fees                                                          (77)               (317)              (207)
  Investment Advisory Fee                                                             (666)               (654)              (759)
  Fund Administration Fee                                                             (222)               (222)              (570)
  Independent General Partners' Fees and Expenses                                     (103)                (84)              (128)
  Reimbursable Administrative Expenses                                                (193)               (284)              (174)
  (Purchase) Sale of Temporary Investments, Net                                    (11,854)                210              6,588
  Purchase of Portfolio Company Investments                                              -                   -             (2,420)
  Proceeds from Sales of Portfolio Company Investments                              17,919              23,462             14,117
  Insurance Expense                                                                     (8)                 (4)                (4)
                                                                             -------------       -------------      -------------
Net Cash Provided by Operating Activities                                            8,382              25,242             27,120
                                                                             -------------       -------------      -------------
Cash Flows from Financing Activities:
  Cash Distributions to Partners                                                    (8,351)            (25,482)           (27,000)
                                                                             -------------       -------------      -------------
Net Cash Used in Financing Activities                                               (8,351)            (25,482)           (27,000)
                                                                             -------------       -------------      -------------
  Net Increase (Decrease) in Cash                                                       31                (240)               120
  Cash at Beginning of Year                                                              5                 245                125
                                                                             -------------       -------------      -------------
Cash at End of Year                                                          $          36       $           5      $         245
                                                                             =============       =============      =============

Reconciliation of Net Investment Income
  to Net Cash Provided by Operating Activities

  Net Investment Income                                                      $       1,097      $        2,823      $       8,426
                                                                             -------------       -------------      -------------
Adjustments to Reconcile Net Investment Income
  to Net Cash Provided by Operating Activities
   Decrease in Investments at Cost                                                   9,816              51,089             18,195
  (Increase) Decrease in Receivable for Investments Sold                               782                (782)                 -
  (Increase) Decrease in Accrued Interest,
    Dividend and Discount Receivable                                                 1,177              (1,201)               520
  (Increase) Decrease in Prepaid Expenses                                               (3)                  1                  -
  Decrease in Legal and Professional Fees Payable                                      (25)                (70)               (59)
  Increase (Decrease) in Reimbursable Administrative Expenses Payable                   83                  11                (34)
  Increase (Decrease) in Independent General Partners' Fees Payable                    (12)                  6                (21)
  Net Realized Gain (Loss) on Sales of Investments                                  (4,533)            (26,635)                93
                                                                             -------------       -------------      -------------
Total Adjustments                                                                    7,285              22,419             18,694
                                                                             -------------       -------------      -------------
Net Cash Provided by Operating Activities                                    $       8,382       $      25,242      $      27,120
                                                                             =============       =============      =============


                                    See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                           ML-LEE ACQUISITION FUND II, L.P.
                                     STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                                               (DOLLARS IN THOUSANDS)

<S>                                                             <C>               <C>               <C>              <C>
                                                                  Individual         Managing
                                                                   General           General           Limited
                                                                   Partner           Partner          Partners            Total
                                                                -------------     -------------     -------------     ------------


Partners' Capital at January 1, 1997                            $          19     $       1,368     $      69,728     $     71,115
Allocation of Net Investment Income                                         2             2,073             6,351            8,426
Allocation of Net Realized Gain on Sales of Investments                     -                 -                93               93
Allocation of Net Change in Unrealized
  Depreciation on Investments                                              (1)              (14)           (6,115)          (6,130)
Cash Distributions to Partners                                             (5)           (3,161)          (23,505)         (26,671)
                                                                -------------     -------------     -------------     ------------
Partners' Capital at December 31, 1997                          $          15     $         266     $      46,552     $     46,833
                                                                -------------     -------------     -------------     ------------

Partners' Capital at January 1, 1998                            $          15     $         266     $      46,552     $     46,833
Allocation of Net Investment Income                                         1               376             2,446            2,823
Allocation of Net Realized Loss on Sales of Investments                    (6)            1,030           (27,659)         (26,635)
Allocation of Net Change in Unrealized
  Depreciation on Investments                                               8                76            33,732           33,816
Cash Distributions to Partners                                             (5)           (1,223)          (24,583)         (25,811)
                                                                -------------     -------------     -------------     ------------
Partners' Capital at December 31, 1998                          $          13     $         525     $      30,488     $     31,026
                                                                -------------     -------------     -------------     ------------

Partners' Capital at January 1, 1999                            $          13     $         525     $      30,488     $     31,026
Allocation of Net Investment Income                                         -               332               765            1,097
Allocation of Net Realized Loss on Sales of Investments                    (1)               40            (4,572)          (4,533)
Allocation of Net Change in Unrealized
  Depreciation on Investments                                               3                31            13,602           13,636
Cash Distributions to Partners                                             (2)             (606)           (7,743)          (8,351)
                                                                -------------     -------------     -------------     ------------
Partners' Capital at December 31, 1999                          $          13     $         322     $      32,540     $     32,875
                                                                =============     =============     =============     ============




                                       See the Accompanying Notes to Financial Statements.

</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                 ML-LEE ACQUISITION FUND II, L.P.
                                                SCHEDULE OF PORTFOLIO INVESTMENTS
                                                        DECEMBER 31, 1999
                                                     (DOLLARS IN THOUSANDS)


                                                                                                              Fair        % Of
 Principal                                                                          Investment  Investment    Value       Total
 Amount/Shares     Investment                                                          Date       Cost(f)    (Note 2)  Investments
 <S>               <C>                                                                <C>        <C>         <C>       <C>
                   MEZZANINE INVESTMENTS
                   MANAGED COMPANIES


                   BIG V SUPERMARKETS, INC. (a)
$13,037            Big V Supermarkets, Inc., Sr. Sub. Nt. 14.14% due 03/15/01(b)       12/27/90   $ 13,037   $ 13,037
117,333 Shares     Big V Holding Corp., Common Stock (c)                               12/27/90      4,107      4,107
                   (16.6% of fully diluted common equity) (e)                                    ---------------------------------
                                                                                                    17,144     17,144       52.22%
                                                                                                 ---------------------------------
                   COLE NATIONAL CORPORATION
13,161 Warrants    Cole National Corporation, Common Stock Purchase Warrants (c)        9/26/90          -          -
                     (0.0% of fully diluted common equity
                        assuming exercise of warrants)
                        $1,393 13% Sr. Secured Bridge Note
                        Purchased 9/25/90           $1,393
                        Repaid 11/15/90             $1,393                                        -------------------------------
                        Realized Gain               $    0                                               -          -        0.00%
                                                                                                  -------------------------------

                  TOTAL INVESTMENT IN MANAGED COMPANIES                                           $ 17,144   $ 17,144       52.22%
                                                                                                  ===============================


                  NON-MANAGED COMPANIES

                  BIOLEASE, INC.- Note 5
$784              BioLease, Inc., 13% Sub. Nt. due 06/06/04 (b)                        06/08/94   $    676   $    392
96.56 Shares      BioLease, Inc., Common Stock (c)                                     06/08/94         94          -
10,014 Warrants   Biotransplant, Inc., Common Stock Purchase Warrants(c)               06/08/94         14         14
                                                                                                  -------------------------------
                                                                                                       784        406        1.24%
                                                                                                  -------------------------------


                  FLA. ORTHOPEDICS, INC. - Notes 5,6
 19,366 Shares    FLA. Holdings, Inc. Series B Preferred Stock (a) (c) (d)             08/02/93      1,513          -
  3,822 Warrants  FLA. Holdings, Inc. Common Stock Purchase Warrants (a) (c) (d)       08/02/93          -          -
                   $4,842 12.5% Subordinated Note
                   Purchased 08/02/93                     $ 4,842
                   Surrendered 08/16/96                   $     0
                   Realized Loss                          $(4,842)
                   121,040 Common Stock
                   Purchased 08/02/93                     $ 1,513
                   Exchanged 08/02/96
                   19,366 Series B Preferred Stock        $ 1,513
                   Realized Gain                          $     0
                   Total Realized Loss                    $(4,842)
                                                                                                  -------------------------------
                                                                                                     1,513          -        0.00%
                                                                                                  -------------------------------
                    TOTAL INVESTMENT IN NON-MANAGED COMPANIES                                      $ 2,297    $    406       1.24%
                                                                                                  ===============================

                                    See the Accompanying Notes to Financial Statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                           ML-LEE ACQUISITION FUND II, L.P.
                                   SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
                                                 DECEMBER 31, 1999
                                              (DOLLARS IN THOUSANDS)


                                                                                                               Fair       % Of
 Principal                                                                            Investment  Investment   Value      Total
Amount/Shares      Investment                                                           Date       Cost(f)   (Note 2)  Investments
<S>                <C>                                                                  <C>        <C>         <C>       <C>




                   SUMMARY OF MEZZANINE INVESTMENTS

                   Subordinated Notes                                                 Various   $ 13,713    $ 13,429    40.91%
                   Preferred Stock, Common Stock, Warrants and Stock Rights           Various      5,728       4,121    12.55%
                                                                                                -----------------------------
                   TOTAL MEZZANINE INVESTMENTS                                                  $ 19,441    $ 17,550    53.46%
                                                                                                =============================

                  TEMPORARY INVESTMENTS

                  COMMERCIAL PAPER
$10,000           Prudential Funding, 5.92% due 1/14/00                              11/16/99   $ 10,000    $ 10,000
$ 3,300           Ford Motor Credit, 5.71% due 1/3/00                                11/16/99      3,275       3,298
$ 1,532           General Electric Capital Services, 5.90% due 1/18/00               11/16/99      1,532       1,532
$   450           American General Finance, 5.35% due 1/3/00                         12/2/99         448         450
                                                                                                -----------------------------
                  TOTAL INVESTMENT IN COMMERCIAL PAPER                                          $ 15,255    $ 15,280    46.54%
                                                                                                -----------------------------
                  TOTAL TEMPORARY INVESTMENTS                                                   $ 15,255    $ 15,280    46.54%
                                                                                                -----------------------------
                  TOTAL INVESTMENT PORTFOLIO                                                    $ 34,696    $ 32,830   100.00%
                                                                                                =============================



(a)     Represents investment in affiliates as defined in the Investment Company Act of 1940.
(b)     Restricted security.
(c)     Restricted non-income producing equity security.
(d)     Non-accrual investment status.
(e)     Percentages of Common Equity have not been audited by PricewaterhouseCoopers LLP.
(f)     Represents original cost and excludes accretion of discount of $33 for
        Mezzanine Investments and $25 for Temporary Investments.

See the Accompanying Notes to Financial Statements.
</TABLE>

<PAGE>
                         ML-LEE ACQUISITION FUND II, L.P.
                          NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1999

1.      Organization and Purpose

     ML-Lee Acquisition Fund II, L.P. ("Fund II") (formerly T.H. Lee Acquisition
Fund II,  L.P.) was  formed  along  with  ML-Lee  Acquisition  Fund  (Retirement
Accounts)  II, L.P.  (the  "Retirement  Fund";  collectively  referred to as the
"Funds")  and the  Certificates  of Limited  Partnership  were  filed  under the
Delaware  Revised  Uniform  Limited  Partnership  Act on September 23, 1988. The
Funds' operations commenced on November 10, 1989. Capital contributions from the
Limited   Partners  and  the  General   Partners  (as  defined   below)  totaled
$222,295,000  in the public offering of Fund II, the final closing for which was
held on January 5, 1990.

     Mezzanine Investments II, L.P. (the "Managing General Partner"), subject to
the  supervision  of the  Individual  General  Partners  (as  defined  below and
hereinafter  with the Managing  General Partner as the "General  Partners"),  is
responsible for overseeing and monitoring of Fund II's investments. The Managing
General Partner is a Delaware limited  partnership in which ML Mezzanine II Inc.
is the general  partner and Thomas H. Lee  Advisors  II,  L.P.,  the  Investment
Adviser to the Funds, is the limited  partner.  The Individual  General Partners
are Vernon R. Alden,  Joseph L. Bower and Stanley H. Feldberg (the  "Independent
General  Partners")  and Thomas H. Lee. ML Fund  Administrators  Inc. (the "Fund
Administrator") is an indirect  wholly-owned  subsidiary of Merrill Lynch & Co.,
Inc. and is responsible for the day to day administrative services necessary for
the operations of Fund II.

     Fund II elected to operate  as a  business  development  company  under the
Investment  Company Act of 1940.  Fund II's primary  investment  objective is to
provide  current  income and capital  appreciation  potential  by  investing  in
privately-structured,   friendly   leveraged   buyouts   and   other   leveraged
transactions.   Fund  II  pursues  this  objective  by  investing  primarily  in
subordinated  debt and related equity  securities issued in conjunction with the
"mezzanine  financing"  of friendly  leveraged  buyout  transactions,  leveraged
acquisitions  and  leveraged  recapitalizations.  Fund II could  also  invest in
"bridge  investments" if it believed that such investments  would facilitate the
consummation of a mezzanine financing. Fund II was fully invested as of December
20, 1992,  which was within 36 months from the date of the final closing  (after
including  the  reserve  for  follow-on  investments  and  exclusive  of amounts
available for  reinvestment).  The  reinvestment  period for various  amounts of
capital proceeds  received during the last twelve months of Fund II's investment
period terminated at various times through December 21, 1993.

     At the regular quarterly meeting of the General Partners of Fund II held on
December 14, 1999,  the  Individual  General  Partners  determined to extend the
initial ten year term of Fund II,  which was due to  terminate  January 5, 2000,
for an additional two year period, in order to better allow Fund II to deal with
its assets  pending  their  liquidation.  Pursuant  to the terms set forth under
Section 2.4 of the Partnership Agreement, the term of Fund II will now expire on
January 5, 2002.  The Individual  General  Partners have the right to extend the
term of Fund II for an additional  one year period if they  determine  that such
extension is in the best interest of Fund II.

2.      Significant Accounting Policies

Basis of Accounting

     For financial  reporting  purposes,  the records of Fund II are  maintained
using the  accrual  method of  accounting.  For  federal  income  tax  reporting
purposes,   the  results  of  operations  are  adjusted  to  reflect   statutory
requirements arising from book to tax differences.  The preparation of financial
statements in accordance with generally accepted accounting  principles requires
management  to make  estimates  and  assumptions  that  affect the  amounts  and
disclosures in the financial statements. Actual reported results could vary from
these estimates.

Valuation of Investments

     Securities for which market  quotations are readily available are valued by
reference to such market  quotation  using the last trade price (if reported) or
the  last  bid  price  for  the  period.   For  securities   without  a  readily
ascertainable  market value  (including  securities  restricted as to resale for
which a corresponding  publicly traded class exists),  fair value is determined,
on a quarterly  basis,  in good faith by the  Managing  General  Partner and the
Investment  Adviser with final approval from the Individual  General Partners of
Fund II. For privately issued securities in which Fund II typically invests, the
fair value of an investment is generally its original cost plus accrued value in
the case of original issue discount or deferred pay securities. Such investments
generally  will be  revalued  if there is an  objective  basis for doing so at a
different  price.  Investments  will be  written  down in value if the  Managing
General Partner and Investment Adviser believe adverse credit  developments of a
significant nature require a write-down of such securities.  Investments will be
written  up in  value  only if  there  has  been  an  arms'-length  third  party
transaction to justify the increased  valuation.  Although the Managing  General
Partner and  Investment  Adviser use their best judgment in estimating  the fair
value of these  investments,  there are inherent  limitations  in any estimation
technique.  Therefore,  the  fair  value  estimates  presented  herein  are  not
necessarily  indicative  of the amount which Fund II could  realize in a current
transaction.  Future  confirming  events will also affect the  estimates of fair
value and the effect of such  events on the  estimates  of fair  value  could be
material.

     Temporary  Investments  with  maturities of less than 60 days are stated at
amortized cost, which approximates market value.

     The  information   presented  herein  is  based  on  pertinent  information
available to the Managing General Partner and Investment  Adviser as of December
31, 1999.  Although the Managing General Partner and Investment  Adviser are not
aware of any factors not disclosed  herein that would  significantly  affect the
estimated  fair  value  amounts,  such  amounts  have not  been  comprehensively
revalued since that time.

Interest Receivable on Investments

     Investments  generally will be placed on non-accrual status in the event of
a default  (after the  applicable  grace  period  expires) or if the  Investment
Adviser and the Managing  General Partner  determine that there is no reasonable
assurance of collecting interest.

Payment-In-Kind Securities

     All  payment-in-kind  securities received in lieu of cash interest payments
by Fund II's portfolio  companies are recorded at face value (which approximates
accrued  interest),  unless the  Investment  Adviser  and the  Managing  General
Partner  determine that there is no reasonable  assurance of collecting the full
principal amounts of such securities.  As of December 31, 1999, Fund II does not
have any  payment-in-kind  securities.  As of  December  31,  1998,  Fund II had
$442,000 of payment-in-kind  notes, which excluded  approximately  $1,800,000 of
payment-in-kind notes received from notes placed on non-accrual status.

Investment Transactions

     Fund II recorded Mezzanine Investment  transactions on the date on which it
obtained an  enforceable  right to demand the  securities or payment  therefore.
Fund II records Temporary Investment transactions on the trade date.

     Net realized gains and losses on investments are determined on the basis of
specific identification for accounting and tax purposes.

Deferred Interest Income

     All fees  received  by Fund II upon the  funding  of  Mezzanine  or  Bridge
Investments  are  treated as deferred  interest  income and  amortized  over the
maturity of such investments.

Partners' Capital

     Partners' Capital  represents Fund II's equity divided in proportion to the
Partners'  Capital  Contributions  and does not represent the Partners'  Capital
Accounts.  Profits and losses,  as defined in the  Partnership  Agreement,  when
realized,  are allocated in accordance  with the  provisions of the  Partnership
Agreement summarized in Note 3.

3.      Allocations of Profits and Losses

     Pursuant  to  the  Partnership   Agreement,   all  profits  from  Temporary
Investments generally will be allocated 99.75% to the Limited Partners, 0.23% to
the  Managing  General  Partner  and 0.02% to the  Individual  General  Partner.
Profits from Mezzanine Investments will, in general, be allocated as follows:

    first, if the capital  accounts of any partners have negative  balances,  to
    such  partners in  proportion  to the  negative  balances  in their  capital
    accounts until the balances of all such capital accounts equal zero;

    second,  99.75%  to the  Limited  Partners,  0.23% to the  Managing  General
    Partner and 0.02% to the Individual  General Partner until the sum allocated
    to the Limited Partners equals any previous losses allocated together with a
    cumulative  Priority  Return of 10% on the average daily amount in Mezzanine
    Investments, and any outstanding Compensatory Payments;

    third,  69.75% to the  Limited  Partners,  30.225% to the  Managing  General
    Partner and 0.025% to the  Individual  General  Partner  until the  Managing
    General Partner has received 20.281% of the total profits allocated; and

    thereafter,  79.75% to the Limited Partners, 20.225% to the Managing General
    Partner and 0.025% to the Individual General Partner.

4.   Investment Transactions

     On March 12, 1999,  the Funds  entered into a Note  Repurchase  and Warrant
Cancellation  Agreement (the "Agreement")  with Stablex Canada,  Inc. and Seaway
TLC Inc. to sell,  retire and cancel all of the Subordinated  Notes  outstanding
held by the Funds  (including  all  Deferred  Interest  Notes).  Pursuant to the
Agreement,  the Funds  also  relinquished  all  Warrants  held.  Total  proceeds
received by the Funds for retiring the Notes and  Warrants was  $12,000,000,  of
which  $5,605,000  was  allocated  to  Fund  II.  Fund II  recognized  a loss of
approximately  $1  million  from this  transaction.  The  Distributable  Capital
Proceeds  relating to this  transaction  was made in  connection  with the first
quarter cash distribution, to Partners of record as of March 12, 1999.

     In addition, under the Agreement, the Funds are entitled,  collectively, to
receive twenty percent (20%) of the net proceeds of any payment or consideration
or  distribution  (whether  received  in  cash,  property,   securities  or  any
combination thereof) arising out of transfer,  disposition,  recapitalization or
exchange of  substantially  all of the stock or other equity  interest in either
Stablex  Canada,  Inc. or Seaway TLC Inc.  if such  transaction  is  consummated
within   forty-two  (42)  months  from  the  closing  of  the   Agreement.   Any
Distributable  Capital Proceeds  relating to future receipts by Fund II pursuant
to the  Agreement  will be payable to  Partners  of record as of the date of the
receipt of such proceeds.  Fund II ascribes no value to this contingent  payment
for financial reporting purposes.

     On August 27, 1999,  the Funds  completed  the sale of all of its shares of
the  capital  stock of Fitz and Floyd,  Inc.  (the  "Sale")  pursuant to a Stock
Purchase Agreement executed by the Funds, as selling shareholders,  on August 5,
1999. Fund II received net sales proceeds of $11,532,000, which included payment
in full of its 12% Fitz and Floyd, Inc. Subordinated Notes, including prepayment
premium,  and  partial  return of capital on its Fitz and  Floyd,  Inc.  Capital
Stock.  Fund II  recognized  a loss of  approximately  $3.5  million  from  this
transaction. The distribution of Distributable Capital Proceeds relating to this
transaction,  if any (see below),  will be made in accordance  with the terms of
the Partnership Agreement.

     On November 9, 1999, a special meeting of the General Partners of the Funds
was held to review Fund II's reserves prior to making any cash distributions. At
this  meeting,  the  General  Partners  were  briefed  on the  status of certain
litigation  commenced  by Hills  Stores  Company  ("Hills")  against  its former
directors,  including  Thomas H. Lee, who had been serving on the Hills Board of
Directors as a representative  of the Funds. The Hills litigation was brought in
connection with the July 1995 payment by Hills of  approximately  $32 million in
golden  parachute  payments to certain of its  officers in  connection  with the
change of control of Hills  associated  with the Dickstein  proxy  contest.  The
General  Partners  discussed  the  potential  liabilities  to  Thomas  H. Lee in
connection  with  this  litigation,  and  Fund  II's  potential  indemnification
obligations  to Thomas H. Lee, as well as the  liquidity of Fund II's  remaining
assets.  Following  discussion of the issues, the Individual General Partners of
Fund  II  determined   that,  to  the  extent  that  Fund  II  may  have  future
indemnification  obligations with respect to such litigation,  suitable reserves
should be maintained for such contingency.  Accordingly,  the Individual General
Partners  determined  that it would  not be  prudent  to make  distributions  to
Partners at such time. Thus, Fund II has reserved all the proceeds received from
the  sale of Fitz &  Floyd,  Inc.,  as well as the  third  quarter  income  from
operations.  This reserve will be reviewed each quarter by the General  Partners
of Fund II in light of the  status  of the  litigation.  On March 7,  2000,  the
General  Partners  reviewed the status of the Hills matter and again  determined
that it would not be prudent to make  distributions to Partners at such time. On
February 22, 2000,  the court granted  defendents  motion for summary  judgement
dismissing  claims  against Mr.  Lee.  Hills has the right to appeal that ruling
after trial of the remaining claims against certain other  defendents,  which is
currently scheduled to commence in May 2000.

     Because  Fund  II  primarily   invests  in  high-yield   private  placement
securities,  the risk of loss upon  default  by an issuer is  greater  than with
investment  grade  securities  because   high-yield   securities  are  generally
unsecured and are often  subordinated  to other  creditors of the issuer.  Also,
high-yield  issuers  usually  have higher  levels of  indebtedness  and are more
sensitive to adverse economic conditions.

     Although Fund II cannot eliminate the risks associated with its investments
in high-yield securities,  it has procedures in place to continually monitor the
risks associated with its investments under a variety of market conditions.  Any
potential  Fund II loss would  generally  be limited  to its  investment  in the
portfolio company as reflected in the portfolio of investments.

     Should bankruptcy proceedings commence,  either voluntarily or by action of
the court against a portfolio  company,  the ability of Fund II to liquidate the
position or collect proceeds from the action may be delayed or limited.

5.   Net Unrealized Appreciation and Depreciation of Investments

     For  information,   please  refer  to  the  Supplemental  Schedule  of  Net
Unrealized Appreciation and Depreciation - Schedule 2.

6.   Non-Accrual of Investments

     In accordance with Fund II's Accounting  Policy, the following security has
been on non-accrual status since the date indicated:

    - Florida Orthopedics, Inc., January 1, 1995.

7.    Investment Advisory Fee

     The  Investment  Adviser  provides  the   identification,   management  and
liquidation of portfolio investments for the Funds. As compensation for services
rendered to the Funds,  the Investment  Adviser  receives a quarterly fee at the
annual rate of 1% of assets under  management (net offering  proceeds reduced by
cumulative capital reductions and realized losses), with a minimum annual fee of
$1,200,000  for  Fund  II and  the  Retirement  Fund on a  combined  basis.  The
Investment  Advisory  Fee is  calculated  and paid  quarterly,  in  advance.  In
addition,  the  Investment  Adviser  receives  95% of  the  benefit  of any  MGP
Distributions paid to the Managing General Partner (see Note 10).
<PAGE>
8.   Fund Administration Fees and Expenses

     As compensation for its services,  the Fund Administrator,  an affiliate of
the Managing General Partner,  is entitled to receive a Fund Administration Fee.
The Fund  Administration  Fee is an annual amount of $400,000 for the Funds on a
combined basis. The Fund Administration Fee is calculated and paid quarterly, in
advance,  by each Fund. Prior to November 1997, the Fund  Administration Fee was
calculated at an annual amount of the greater of $500,000 or 0.45% of the excess
of net  offering  proceeds  less 50% of capital  reductions  and 50% of realized
losses plus a portion of reimbursable expenses incurred by Fund II.

     In addition, the Fund Administrator is entitled to reimbursement of 100% of
all out-of-pocket  expenses incurred by the Fund  Administrator on behalf of the
Funds ("Reimbursable Administrative Expenses"). Prior to November 1997, the Fund
Administrator   was  entitled  to  reimbursement  for  only  a  portion  of  the
Reimbursable  Administrative  Expenses.   Reimbursable  Administrative  Expenses
primarily  consist  of  printing,  audit  and tax  preparation,  legal  fees and
expenses, and custodian fees.

     In addition,  ML Mezzanine II Inc., an affiliate of the Fund  Administrator
and  Merrill  Lynch  & Co., Inc.,   receives  5%  of  the  benefit  of  any  MGP
Distributions paid to the Managing General Partner (see Note 10).

9.   Independent  General  Partners' Fees and Expenses

     As compensation for their services,  each Independent  General Partner will
receive a combined annual fee of $40,000  (payable  quarterly) from the Funds in
addition to a $1,000 fee for each meeting attended ($500 if a meeting is held on
the same day as a committee meeting of the General Partners) plus  reimbursement
for any out-of-pocket expenses incurred. Fees and expenses are allocated between
the Funds in proportion to the number of units issued by each fund. Compensation
for each of the Individual General Partners is reviewed annually.

10.     Related Party Transactions

     Fund  II's  investments  generally  were  made as  co-investments  with the
Retirement  Fund. In addition,  certain of the Mezzanine  Investments and Bridge
Investments  which were made by Fund II involved  co-investments  with  entities
affiliated  with the  Investment  Adviser.  Such  co-investments  are  generally
prohibited  absent exemptive relief from the Securities and Exchange  Commission
(the "Commission").  As a result of these affiliations and Fund II's expectation
of engaging in such  co-investments,  the Funds together with ML-Lee Acquisition
Fund,  L.P.,  sought  an  exemptive  order  from the  Commission  allowing  such
co-investments,   which  was   received  on   September   1,  1989.   Fund  II's
co-investments in Managed Companies,  and in certain cases its co-investments in
Non-Managed Companies, typically involve the entry by the Funds and other equity
security  holders into  stockholders'  agreements.  While the provisions of such
stockholders'  agreements  vary,  such  agreements may include  provisions as to
corporate  governance,  registration  rights,  rights  of  first  offer or first
refusal,  rights to participate in sales of securities to third parties,  rights
of majority stockholders to compel minority stockholders to participate in sales
of securities to third parties, transfer restrictions, and preemptive rights.

     Thomas H. Lee  Company,  a sole  proprietorship  owned by Thomas H. Lee, an
Individual  General  Partner  of the  Retirement  Fund and an  affiliate  of the
Investment  Adviser,  typically performs certain management services for Managed
Companies and receives management fees in connection therewith, usually pursuant
to written agreements with such companies. In addition, certain of the portfolio
companies  have  contractual  or other  relationships  pursuant to which they do
business with one another.

     The  Investment  Adviser,  pursuant to an investment  management  agreement
among  the  Investment  Adviser,  the  Thomas H. Lee  Company  and Fund II dated
November  10,  1989,  is  responsible  for the  identification,  management  and
liquidation of Mezzanine  Investments  and Bridge  Investments  for Fund II. The
Investment Adviser received an Investment Advisory Fee as compensation for these
services as outlined in Note 7 to the Financial Statements.

     Merrill  Lynch,  Pierce,  Fenner  &  Smith  Incorporated  ("MLPF&S")  is an
affiliate of the Managing General Partner. MLPF&S and certain of its affiliates,
in the ordinary course of their business, perform various financial services for
various portfolio  companies of the Funds,  which may include investment banking
services,  broker/dealer  services  and  economic  forecasting,  and  receive in
consideration   therewith   various  fees,   commissions   and   reimbursements.
Furthermore,  MLPF&S  and its  affiliates  or  investment  companies  advised by
affiliates of MLPF&S may, from time to time,  purchase or sell securities issued
by portfolio  companies of the Funds in connection with its ordinary  investment
operations.

     As provided by the Partnership  Agreement,  the Managing General Partner of
Fund II is entitled to receive an incentive  distribution after Limited Partners
have received their Priority Return of 10% per annum ("MGP Distributions").  The
Managing  General Partner is required to defer a portion of any MGP Distribution
earned  from the sale of  portfolio  investments  in excess  of 20% of  realized
capital  gains,  net realized  capital losses and  unrealized  depreciation,  in
accordance with the Partnership Agreement (the "Deferred  Distribution Amount").
This Deferred  Distribution  Amount is distributable to the Partners pro-rata in
accordance with their capital contributions, and certain amounts otherwise later
payable to Limited Partners from  distributable cash from operations are instead
payable to the Managing General Partner until any Deferred  Distribution  Amount
is paid in full.

     During 1999,  Fund II paid the  Individual  General  Partner  distributions
totaling $1,746 and Managing  General Partner  distributions  totaling  $606,000
(which includes  $588,000 of MGP Distributions as defined above). As of December
31, 1999, the Managing  General Partner has earned a total of $26,586,000 in MGP
Distributions,  none of which is  deferred  in payment to the  Managing  General
Partner as a Deferred  Distribution  Amount at this time, in accordance with the
Partnership  Agreement.  To the  extent  not  payable  to the  Managing  General
Partner,  any  Deferred  Distribution  Amount  is  distributed  to the  Partners
pro-rata in accordance  with their capital  contributions,  and certain  amounts
otherwise  later payable to Partners  from  distributable  cash from  operations
would  instead be  payable  solely to the  Managing  General  Partner  until the
Deferred Distribution Amount is paid in full.

     An officer of the Investment Adviser also serves as a Director/Trustee of a
managed company.

11.  Income Taxes

     No  provision  for income taxes has been made because all income and losses
are  allocated to Fund II's  partners  for  inclusion  in their  respective  tax
returns.

     Pursuant  to the  Statement  of  Financial  Accounting  Standards  No.  109
Accounting  for Income Taxes,  Fund II is required to disclose any difference in
the tax basis of Fund II's assets and liabilities versus the amounts reported in
the financial  statements.  As of December 31, 1999,  the tax basis of Fund II's
assets are greater  than the amounts  reported in the  financial  statements  by
approximately  $1,900,000.  This  difference  is primarily  attributable  to net
unrealized  depreciation  on investments  which has not been  recognized for tax
purposes.


<PAGE>
<TABLE>
<CAPTION>
                                                            SCHEDULE 1
                                                   ML-LEE ACQUISITION FUND II, L.P.
                                             SUPPLEMENTAL SCHEDULE OF NET REALIZED LOSS
                                                 FOR THE YEAR ENDED DECEMBER 31, 1999
                                                      (DOLLARS IN THOUSANDS)



<S>                                                      <C>           <C>                     <C>           <C>          <C>
                                                                                                                            Net
                                                         Investment       Par Value/           Investment      Net        Realized
Security                                                   Date        Number of Shares          Cost       Proceeds        Loss
-----------------------------                            ----------    ----------------        ----------    --------     --------

Soretox (Stablex Canada, Inc.)                             Various        Various              $    6,631    $  5,605     $ (1,026)

Fitz and Floyd, Inc.                                       Various        Various                  15,039      11,532       (3,507)
                                                                                               ----------    --------     --------

Total at December 31, 1999                                                                     $   21,670    $ 17,137     $ (4,533)
                                                                                               ==========    ========     ========

See Accompanying Notes to Financial Statements.


</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                             SCHEDULE 2
                                                  ML-LEE ACQUISITION FUND II, L.P.
                                SUPPLEMENTAL SCHEDULE OF NET UNREALIZED APPRECIATION AND DEPRECIATION
                                                FOR THE YEAR ENDED DECEMBER 31, 1999
                                                       (DOLLARS IN THOUSANDS)

<S>                                        <C>        <C>      <C>              <C>   <C>        <C>       <C>     <C>       <C>

                                                                    Total
                                                               Net Unrealized
                                                                Appreciation/         Unrealized Appreciation (Depreciation) for
                                                               (Depreciation)
                                           Investment   Fair   at December 31,                                               1994 &
Security                                     Cost      Value        1999       1999    1998     1997      1996      1995     Prior
--------                                   ----------  -----   ------------- -------  -------  -------  --------  --------  -------
Non Public Securities
Biolease, Inc.
  Common Stock*                               $   94   $   -    $    (94)    $     -  $     -  $   (94) $      -  $      -  $     -
  Subordinated Notes*(a)                         676     392        (317)          -        -     (317)        -         -        -
FLA. Orthopedics, Inc.
  Preferred  Stock*                            1,513       -      (1,513)          -        -        -         -         -   (1,513)
  Subordinated Note *                              -       -           -           -        -        -     4,842    (4,842)       -
                                                                --------     -------  -------  -------  --------  --------  -------
Total Unrealized Depreciation
  from Non Public Securities                                    $ (1,924)    $     -  $     -  $  (411) $  4,842  $ (4,842) $(1,513)
                                                                --------     -------  -------  -------  --------  --------  -------
Reversal of Unrealized Appreciation
  (Depreciation) from Securities Sold in 1999
Soretox
  Subordinated Notes*                                           $      -     $ 4,041  $     -  $(2,439) $      -  $      -  $(1,602)
Fitz and Floyd, Inc.
  Preferred Stock *                                                    -       9,595        -       63    (6,614)   (3,025)     (19)
                                                                --------     -------  -------  -------  --------  --------  -------
Total Reversal of Unrealized Appreciation
  (Depreciation) from Securities Sold in 1999                   $      -     $13,636  $     -  $(2,376) $ (6,614) $ (3,025) $(1,621)
                                                                --------     -------  -------  -------  --------  --------  -------
Reversal of Unrealized Appreciation (Depreciation)
  from Securities Sold Prior to 1999                            $      -     $     -  $33,816  $(3,342) $(13,952) $(22,693) $ 6,171
                                                                --------     -------  -------  -------  --------  --------  -------
Total Unrealized Appreciation (Depreciation)
  from Securities Sold                                          $      -     $13,636  $33,816  $(5,718) $(20,566) $(25,718) $ 4,550
                                                                --------     -------  -------  -------  --------  --------  -------

Net Unrealized Appreciation (Depreciation)                      $ (1,924)    $13,636  $33,816  $(6,129) $(15,724) $(30,560) $ 3,037
                                                                ========     =======  =======  =======  ========  ========  =======

*  Restricted Security
(a) Investment cost excludes accretion of discount of $33


                                        See Accompanying Notes to Financial Statements.
</TABLE>


<PAGE>


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

        None.

                                    PART III

Item 10.     Directors and Executive Officers of the Registrant

     The five General Partners of Fund II are responsible for the management and
administration of Fund II and have the same positions and responsibilities  with
respect  to the  Retirement  Fund.  The  General  Partners  of  Fund  II and the
Retirement Fund consist of four Individual  General  Partners:  Vernon R. Alden,
Joseph L. Bower,  Stanley H. Feldberg (the "Independent  General  Partners") and
Thomas H. Lee; and Mezzanine Investments II, L.P., the Managing General Partner.
Pursuant to exemptive  orders issued by the Securities and Exchange  Commission,
each  Independent  General  Partner is not an "interested  person" of Fund II as
such term is defined in the Investment Company Act of 1940.

Individual General Partners

     The Individual  General  Partners  provide overall guidance and supervision
with respect to the operations of Fund II and perform the various duties imposed
on the directors of business development companies by the Investment Company Act
of 1940. The Individual  General Partners supervise the Managing General Partner
and must, with respect to any Mezzanine Investment transactions,  either certify
that it meets Fund II  investment  guidelines  or  specifically  approve it as a
non-Guideline  Investment  or  Bridge  Investment.   Fund  II's  investment  and
reinvestment  period  expired in December,  1993, and the only  investments  now
permitted  are  follow  on  investments  in  existing  portfolio  companies.  In
addition,  if a  Portfolio  Company's  performance  is in  default of a material
provision  of a  lending  agreement  or has a ratio of  operating  cash  flow to
current cash fixed charges for its four most recent fiscal quarters of less than
or equal to 1.1 to 1, the Independent  General  Partners are required to approve
any changes in the terms of or sale of such Portfolio Company.

     Messrs.  Alden,  Bower,  Feldberg and Lee have served as Individual General
Partners of Fund II and the Retirement Fund since 1989. Each Individual  General
Partner  shall hold  office  until his  removal or  withdrawal  pursuant  to the
provisions of Fund II's Partnership Agreement.

     Mr. Alden,  76,  Individual  General  Partner of Fund II and the Retirement
Fund (used  together with Fund II as the "Funds") and ML-Lee  Acquisition  Fund,
L.P. ("Lee I"). Director of Sonesta  International Hotels Corporation.  Chairman
of the  Japan  Society  of  Boston,  Trustee  Emeritus  of the  Boston  Symphony
Orchestra  and the Boston Museum of Science and Honorary  Consul  General of the
Royal Kingdom of Thailand.

     Mr. Bower,  61,  Individual  General Partner of the Funds and Lee I. Donald
Kirk David  Professor  of  Business  Administration,  Harvard  Business  School.
Faculty member since 1963. Director of Anika Therapeutics, Inc., Brown Shoe Co.,
New America High Income Fund, Sonesta International Hotels Corporation,  and The
Lincoln  Foundation.  Trustee of the DeCordova & Dana Museum and Sculpture  Park
and the New England Conservatory of Music.

     Mr.  Feldberg,  75,  Individual  General  Partner  of the  Funds and Lee I.
Chairman  of the Board of Storm Eye  Institute  at Medical  University  of South
Carolina.  Past  Director of TJX  Companies,  Inc.,  and Waban  Inc.,  Trustee -
Emeritus  of Brandeis  University,  Honorary  Trustee of Beth  Israel  Deaconess
Medical Center.

     Mr. Lee, 55, Individual General Partner of the Funds and Lee I. Chairman of
the  Investment  Adviser of Lee I since  1987;  Chairman  of the  Administrative
General Partner of the Investment  Adviser to the Funds since 1989;  Chairman of
the  Administrative  General Partner of Thomas H. Lee Equity Partners L.P. since
1989.  Chairman of the  Administrative  General  Partner of Thomas H. Lee Equity
Fund III,  L.P.  since  1996.  Founder  of the Thomas H. Lee  Company  (the "Lee
Company") and its President  since 1974.  Director of Finlay  Enterprises  Inc.,
Metris Companies,  Inc., Big Flower Holdings,  Inc., Miller Import  Corporation,
Safelite Glass Corporation,  The Smith and Wollensky Restaurant Group, Inc., and
Vail Resorts,  Inc. Trustee of Brandeis  University  (Vice Chairman),  Museum of
Fine Arts  (Boston),  the Wang  Center  for the  Performing  Arts,  Beth  Israel
Deaconess Medical Center (overseas), Mount Sinai - NYU Medical Center and Health
System  (Trustee)  and the Whitney  Museum of American  Art.  Overseer of Boston
Symphony Orchestra and New England  Conservatory of Music,  Member of the Dean's
Council,   Harvard  University:   Committee  on  University  Resources  (Member,
Executive Committee),  Visiting Committee to Harvard College, Boston Major Gifts
Steering Committee (Co-Chair Capital Campaign) and Financial Aid Council. Member
of the Corporation of Belmont Hill School.
<PAGE>
The Investment Adviser

     The  Investment  Adviser,  pursuant to an investment  management  agreement
among  the  Investment  Adviser,  the  Thomas H. Lee  Company  and Fund II dated
November  10,  1989,  is  responsible  for the  identification,  management  and
liquidation of Mezzanine  Investments  and Bridge  Investments  for Fund II. The
Investment Adviser received an Investment Advisory Fee in compensation for these
services outlined in Note 7 to the Financial Statements.

     Certain  officers  of the Thomas H. Lee  Company  have been  designated  as
trustees and executive  officers of T. H. Lee  Mezzanine II, the  administrative
general partner of the Investment Adviser.

                              Served in
                               Present
     Name                   Capacity Since              Title
   ---------                --------------             -------
   Thomas H. Lee               11/10/89           Chairman, Trustee

   Thomas R. Shepherd          11/10/89           Executive Vice President

   David V. Harkins            11/10/89           Senior Vice President, Trustee

   C. Hunter Boll              11/10/89           Vice President, Trustee

   Scott A. Schoen             11/10/89           Vice President

   Wendy L. Masler             11/10/89           Treasurer, Clerk

   Information concerning Mr. Lee is set forth above.


     Mr. Shepherd,  70, is Chairman of the Shepherd Group,  LLC. Mr. Shepherd is
also currently a director of  Andover.Net,  Community  Resource  Systems,  Inc.,
Rayovac Corporation and Vermont Teddy Bear Co. He is Executive Vice President of
Thomas H. Lee Advisors I.

     Mr. Harkins,  58, has been a Managing Director of the Thomas H. Lee Company
since 1986 and the  Chairman  of National  Dentex  Corporation  since 1983.  Mr.
Harkins is a Senior Vice  President  and Trustee of Thomas H. Lee Advisors I. He
also  is  a  director  of  National  Dentex  Corporation,  Conseco,  Inc.,  Cott
Corporation,   Fisher  Scientific   International,   Inc.,   Freedom  Securities
Corporation,  Metris  Companies,  Inc.,  Stanley  Furniture Company and Syratech
Corporation.

     Mr.  Boll,  44,  has  served as a  Managing  Director  of the Thomas H. Lee
Company  since  1991.  From 1986 to 1991 he served  as a Vice  President  of the
Thomas H. Lee Company. Mr. Boll is a Vice President of Thomas H. Lee Advisors I.
Mr. Boll is a Director of Big V Supermarkets  Inc.,  Cott  Corporation,  Freedom
Securities  Corporation,   Metris  Companies,  Inc.,  The  Smith  and  Wollensky
Restaurant  Group,  Inc.,  Transwestern  Publishing,  L.P. and United Industries
Corporation.

     Mr.  Schoen,  41, has served as a  Managing  Director  of the Thomas H. Lee
Company  since  1991.  From 1986 to 1990 he served  as a Vice  President  of the
Thomas H. Lee Company.  Mr. Schoen is a Vice President of Thomas H. Lee Advisors
I. Mr.  Schoen is also a Director of Rayovac  Corporation,  ARC  Holdings,  LLC,
Syratech   Corporation,   Transwestern   Publishing  L.P.,   United   Industries
Corporation and Wyndham International Inc.

     Ms. Masler, 46, has been Treasurer of the Thomas H. Lee Company since 1984.
Ms. Masler is also Treasurer and Clerk of Thomas H. Lee Advisors I.
<PAGE>
The Managing General Partner

        The  Managing  General  Partner  is a  limited  partnership  in which ML
Mezzanine II Inc. is the sole general partner and the Investment  Adviser is the
limited partner. The Managing General Partner is responsible for the supervision
of the Fund II's investments.

        The executive officers of ML Mezzanine II Inc. are as follows:

                           Served in
                            Present
   Name                Capacity Since (1)             Title
 ---------             ------------------             -------
 Kevin K. Albert           7/31/89           Chairman, President and Director

 James V. Caruso           1/28/93           Executive Vice President
                           1/27/93           Director

 Rosalie Y. Goldberg       7/31/89           Vice President, Director

 Diane T. Herte            11/5/99           Vice President
                           11/8/99           Director

 Kevin T. Seltzer          11/5/99           Vice President, Treasurer

(1) Directors hold office until their successors are elected and qualified.  All
executive officers serve at the pleasure of the Board of Directors.

(2) Robert J. Remick held the postion of Treasurer through November 4, 1999.

     Kevin K.  Albert,  47, a  Managing  Director  of Merrill  Lynch  Investment
Banking  Group  ("ML   Investment   Banking")  and  of  the  Private  Sales  and
Divestitures  Group of Business Financial Services joined Merrill Lynch in 1981.
Mr.  Albert's  work  in the  Equity  Private  Placement  Group  is  involved  in
structuring  and  placing  a  diversified  array  of  private  equity  financing
including common stock, preferred stock, limited partnership interests and other
equity-related  securities. His work in the Private Sales and Divestitures Group
involves managing a team of investment bankers executing middle-market exclusive
sales  transactions.  Mr. Albert is also a director of ML Media  Management Inc.
("ML  Media"),  an affiliate of ML Mezzanine II Inc. ("ML  Mezzanine  II") and a
joint venturer of Media  Management  Partners,  the general  partner of ML Media
Partners,  L.P.; a director of ML Opportunity Management Inc. ("ML Opportunity")
an  affiliate  of ML  Mezzanine  II and a joint  Venturer  of Media  Opportunity
Management  Partners,  the general  partner of ML  Opportunity,  Media Partners,
L.P.;  a director of ML  Mezzanine  Inc.  ("ML  Mezzanine"),  an affiliate of ML
Mezzanine II and sole general partner of the managing  general partner of ML-Lee
Acquisition  Fund,  L.P. ("Lee I"); a director of Merrill Lynch Venture  Capital
Inc. ("ML Venture"),  an affiliate of ML Mezzanine II and the general partner of
the Managing General Partner of ML Venture Partners II, L.P.  ("Venture II") and
ML Oklahoma Venture Partners Limited Partnership ("Oklahoma"); and a director of
Merrill Lynch R&D  Management  Inc. ("ML R&D"),  an affiliate of ML Mezzanine II
and the general partner of the General Partner of ML Technology Ventures,  L.P.;
Mr. Albert also serves as an independent general partner of Venture II.

     James V. Caruso,  48, a Director of ML Investment  Banking,  joined Merrill
Lynch  in  1975.  Mr.  Caruso  is the  Director  of  Technology  for the  Global
Investment  Banking  Group.  He is  responsible  for ensuring  that the business
requirements of Investment  Banking are supported by managing the development of
new  technologies  and enhancing  existing  systems.  He is also responsible for
certain  merchant  banking  business  related  activities.  Mr.  Caruso  is also
director of ML Mezzanine, ML Media, ML Venture, ML R&D, ML Media, ML Opportunity
and MLH Property  Managers  Inc, an affiliate of ML Mezzanine II and the general
partner of MLH Income Realty Partnership VI.

     Rosalie Y.  Goldberg,  62, a First Vice  President  and Senior  Director of
Merrill Lynch's Private Client Group and the Director of its Special Investments
Group,  joined  Merrill  Lynch  in 1975.  Ms.  Goldberg  has  held a  number  of
management  positions in the Special Investments area, including the position of
Manager for Product  Development and Origination from 1983 to 1989. Ms. Goldberg
is also a Director of ML Mezzanine, ML Media and ML Opportunity.

     Diane T. Herte,  39, a Vice  President of ML Investment  Banking 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, financial management and administrative
functions  for  partnerships  for which  subsidiaries  of Merrill  Lynch are the
general  partner or manager.  Ms. Herte is also a director of ML  Mezzanine.

     Kevin T. Seltzer,  33, a Vice  President of ML Investment  Banking,  joined
Merrill  Lynch  in 1995.  Mr.  Seltzer  manages  certain  accounting,  financial
reporting  and  administrative  functions  for  certain  partnerships  for which
subsidiaries of Merrill Lynch are the general  partner or manager.  From 1993 to
1995,  Mr.  Seltzer was  employed by Coopers & Lybrand  L.L.P.,  where he was an
association in their Real Estate Auditing Practice.

<PAGE>

The Fund Administrator

     ML Fund  Administrators  Inc., a Delaware  corporation  and a subsidiary of
Merrill Lynch & Co.,  Inc., is responsible  for the provision of  administrative
services  necessary  for the  operation  of the  Funds.  The Fund  Administrator
receives Fund Administration Fees as compensation for these services as outlined
in Note 8 to the Financial Statements.

     The Fund  Administrator  is responsible  for the day-to-day  administrative
affairs of the Funds and for the management of the accounts of Limited Partners.
The Fund  Administrator  also  provides the Funds,  at the Fund  Administrator's
expense,  with office space,  facilities,  equipment and personnel  necessary to
carry out its obligations under the Administrative Services Agreement.

Item 11.   Executive Compensation

     The  information  with respect to  compensation  of the Individual  General
Partners set forth under the caption  "Management  Arrangements - the Individual
General  Partners" in the  Prospectus  pages 73 - 74 is  incorporated  herein by
reference.  Fund II paid Independent General Partners,  Mr. Alden, Mr. Bower and
Mr.  Feldberg  $83,863  collectively  for their services as Independent  General
Partners in 1999.

     The  information  with respect to the allocation and  distribution  of Fund
II's  profits  and losses to the  Managing  General  Partner set forth under the
caption  "Distributions  and Allocations - Allocations of Profits and Losses" in
the Prospectus pages 86 - 87 is incorporated  herein by reference.  The Managing
General Partner received  distributions  of $605,727 during 1999,  including MGP
Distributions  of  $588,264  that it  distributed,  $558,851  to the  Investment
Adviser and $29,413 to ML Mezzanine II Inc.

     The information with respect to the Investment  Advisory Fee payable to the
Investment  Adviser (and  distributions  from the Managing  General Partner) set
forth under the caption  "Management  Arrangements - Description of the Advisory
Agreement" in the Prospectus pages 74 - 75 is incorporated  herein by reference.
Pursuant  to the  Investment  Advisory  Agreement,  Fund II paid the  Investment
Adviser $666,000 with respect to 1999.

     The information with respect to the Fund  Administration  Fees and Expenses
payable  to the Fund  Administrator  set  forth  under the  caption  "Management
Arrangements  - The  Fund  Administrator"  in the  Prospectus  pages  72 - 73 is
incorporated  herein  by  reference.  Pursuant  to the  Administrative  Services
Agreement, Fund II paid the Fund Administrator a total of $416,406 in 1999.
<PAGE>
Item 12.   Security Ownership of Certain Beneficial Owners and Management

     Fund II is aware of the following persons who are beneficial owners of more
than five  percent  of its Units of  limited  partnership  interest,  based upon
Schedules 13D and 13G filed with the  Securities  and Exchange  Commission and a
review of Fund II's records.

                                    Amount of         Percent of Units of the
 Name and Address                   Benificial        Fund Beneficially Owned
of Beneficial Owner                 Ownership            at January 1, 2000
-------------------                 ----------        ------------------------

Yale University                       20,954                      9.4%
Investment Office
230 Prospect Street
New Haven, CT  06511

Farallon Capital Partners, L.P.       21,341(1)                  10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111

Tinicum Partners, L.P.                21,341(1)                  10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111

Thomas F. Steyer                      21,341(1)                  10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111

Fleur E. Fairman                      21,341(1)                  10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111

David I. Cohen                        21,341(1)                  10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111

Joseph F. Downes                      21,341(1)                  10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111

Jason M. Fish                         21,341(1)                  10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111

William F. Mellin                     21,341(1)                  10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111

Meridee A. Moore                      21,341(1)                  10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111

Eric M. Ruttenberg                    21,341(1)                  10.0%
Farallon Capital Management, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
<PAGE>
(1)  By reason of Rule  13d-5  under the  Securities  Exchange  Act of 1934,  as
     amended (the "Exchange Act"), Farallon Capital Partners, L.P., a California
     limited partnership ("FCP"), and Tinicum Partners, L.P., a New York limited
     partnership ("Tinicum"),  each may be deemed to own 21,341 Units of limited
     partnership  interest  beneficially owned at January 1, 2000 as a result of
     the  direct  ownership  by FCP of 16,722  such Units and as a result of the
     direct ownership by Tinicum of 4,619 such Units.  FCP and Tinicum, however,
     consider their beneficial interest to be limited to their direct ownership.
     In addition,  by reason of Rule 13d-3 under the Exchange  Act,  each of the
     general partners of FCP and  Tinicum,  Thomas F.  Steyer, Fleur E. Fairman,
     David I.  Cohen,,  Joseph F.  Downes,  Jason M. Fish,  William  F.  Mellin,
     Meridee A. Moore and Eric M. Ruttenberg,  may be deemed to own beneficially
     the Units of limited partnership interest by FCP and Tinicum.

     Ownership  of Fund II's Units by the General  Partners  and Officers of the
     Investment Adviser and Mezzanine II are as follows:

    Name of                    Amount of            Percent of Units
Beneficial Owner         Beneficial Ownership           of Class
---------------------------------------------------------------------

Vernon R. Alden                50 Units                    *
Joseph L. Bower                  None                   0.00%
Stanley H. Feldberg            25 Units                    *
Thomas H. Lee                11,011 Units               4.97%

General Partners and
Officers as a Group          13,458 Units               6.07%

* Less than one percent.

     For  more  information  regarding  Beneficial  Ownership,  see Item 3 Legal
Proceedings.

     There exists no arrangement known to Fund II, the execution of which may at
a subsequent date, result in a change of control of Fund II.

Item 13.   Certain Relationships and Related Transactions

     Fund  II's  investments  generally  are  made as  co-investments  with  the
Retirement  Fund. In addition,  certain of the Mezzanine  Investments and Bridge
Investments which were made by Fund II may involve  co-investments with entities
affiliated  with the  Investment  Adviser.  Such  co-investments  are  generally
prohibited  absent exemptive relief from the Securities and Exchange  Commission
(the "Commission").  As a result of these affiliations and Fund II's expectation
of engaging in such  co-investments,  Fund II together with the Retirement  Fund
and  Lee I,  sought  an  exemptive  order  from  the  Commission  allowing  such
co-investments,   which  was   received  on   September   1,  1989.   Fund  II's
co-investments in Managed Companies,  and in certain cases its co-investments in
Non-Managed Companies, typically involve the entry by the Funds and other equity
security  holders into  stockholders'  agreements.  While the provisions of such
stockholders'  agreements  vary,  such  agreements may include  provisions as to
corporate  governance,  registration  rights,  rights  of  first  offer or first
refusal,  rights to participate in sales of securities to third parties,  rights
of majority stockholders to compel minority stockholders to participate in sales
of securities to third parties, transfer restrictions, and preemptive rights.

     Thomas H. Lee  Company,  a sole  proprietorship  owned by Thomas H. Lee, an
Individual  General  Partner  of  Fund  II and an  affiliate  of the  Investment
Adviser,  typically performs certain  management  services for Managed Companies
and receives management fees in connection therewith usually pursuant to written
agreements  with such  companies.  The Funds have one  Managed  Company in their
portfolios  at December 31, 1999,  which paid  management  fees to Thomas H. Lee
Company of $150,000 for the fiscal year ended December 31, 1999.

     Merrill  Lynch,  Pierce,  Fenner  &  Smith  Incorporated  ("MLPF&S")  is an
affiliate of the Managing General Partner. MLPF&S and certain of its affiliates,
in the ordinary course of their business, perform various financial services for
various portfolio  companies of the Funds,  which may include investment banking
services,  broker/dealer  services  and economic  forecasting,  and pension plan
services and receives in consideration  therewith various fees,  commissions and
reimbursements.  The  aggregate  revenue  received by MLPF&S and its  affiliates
during 1999 for providing such services to Managed  Companies in which the Funds
have a material interest was not in excess of $100,000.  Furthermore, MLPF&S and
its affiliates or investment companies advised by affiliates of MLPF&S may, from
time to time,  purchase or sell securities issued by portfolio  companies of the
Funds in connection with their ordinary investment operations.

     During 1999, Fund II paid Managing General Partner  distributions  totaling
$605,727 (which included  $588,264 of MGP Distributions and $17,463 with respect
to its interest in Fund II). Of this MGP  Distribution  amount,  95% or $558,851
was paid to the  Investment  Adviser and the remaining 5% totalling  $29,413 was
paid to ML Mezzanine II Inc. The Managing  General Partner has earned a total of
$26,586,398  in MGP  Distributions  none of which was deferred in payment to the
Managing General Partner at December 31, 1999, as a Deferred Distribution Amount
in accordance with the Partnership  Agreement.  Any Deferred Distribution Amount
is  distributable  to the Partners  pro-rata in  accordance  with their  capital
contributions,  and certain amounts  otherwise later payable to Limited Partners
from  distributable cash from operations will instead be payable to the Managing
General Partner until the Deferred Distribution Amount is paid in full.
<PAGE>

                                     PART IV

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

          (a) Financial Statements, Financial Statement Schedules and Exhibits.

             (1)  Financial  Statements.

                  See Item  8. "Financial  Statments and Supplemental Data."

             (2) Financial Statement Schedules.

                 No Financial Statement Schedules  are  included  because of the
                 absence  of  conditions   which   require  their  inclusion  or
                 because the required  information is  included in the financial
                 statements or set forth herein the Notes thereto.

             (3) Exhibits.

 3.1         Amended and Restated Certificate     Incorporated by reference
             of Limited Partnership, dated as     to Exhibit 3.1 to
             of August 25, 1989                   registrant's Registration
                                                  Statement on Form N-2
                                                  number 33-25816.

 3.2         Amended and Restated Agreement of    Incorporated by reference
             Limited Partnership, dated           to Exhibit 3.2. to
             November 10, 1989 Amendment No. 1,   registrant's Annual Report
             dated January 30, 1990.              of Form 10-K for the year
                                                  ending December 31, 1989.

10.1         Investment Advisory Agreement,       Incorporated by reference
             dated November 10, 1989 by and       to Exhibit 10.1 to
             between Registrant, Thomas H. Lee    registrant's Annual Report
             Advisors II, L.P. and Thomas H.      of Form 10-K for the year
             Lee Company.                         ended December 31, 1991.

10.2         Custodian Agreement, dated           Incorporated by reference
             November 10, 1989, by and between    to Exhibit 10.2 to
             Registrant and State Street Bank     registrant's Annual Report
             and Trust Company.                   of Form 10-K for the year
                                                  ended December 31, 1991.

10.3         Administrative Services Agreement,   Incorporated by reference
             dated November 10, 1989 by and       to Exhibit 10.3 to
             between Registrant and ML Fund       registrant's Annual Report
             Administrators Inc.                  of Form 10-K for the year
                                                  ended December 31, 1991.

27           Financial Data Schedule for the      Filed Herewith.
             year ended December 31, 1999

28           Pages  21-91  of  the  Prospectus Incorporated  by reference  dated
             September 6, 1989, filed to Exhibit 28 to  pursuant  to Rule 497(b)
             under the  registrant's  Annual  Report  Securities Act of 1933. of
             Form 10-K for the year ended December 31, 1991.


         (b) Reports on Form 8-K.

             The following Report on Form 8-K  ("Reports") was  filed during the
             last quarter of the fiscal period covered by this annual report.

            (1) A Current  Report on Form 8-K was filed on  December  28,  1999
            to disclose that the term of Fund II was extended for an  additional
            two year period.

         (c) Exhibits.

             See (a)(3) above.

         (d) Financial Statement Schedules.

             See (a)(2) above.




<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 30th day of March,
2000.


                                   ML-LEE ACQUISITION FUND II, L.P.

                             By:   Mezzanine Investments II, L.P.
                                   Managing General Partner

                             By:   ML Mezzanine II Inc.,
                                   its General Partner



                                   /s/ Kevin K. Albert
Dated:  March 30, 2000             Kevin K. Albert
                                   President, ML Mezzanine II Inc.,
                                   General Partner of Mezzanine
                                   Investments II, L.P., the Managing
                                   General Partner




<PAGE>


      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 in the capacities indicated on the 30th day of March, 2000.


Signature                    Title


/s/ Kevin K. Albert          ML Mezzanine II Inc.
Kevin K. Albert              President and Director
                             (Principal Executive Officer of Registrant)

/s/ Vernon R. Alden          Individual General Partner
Vernon R. Alden              ML-Lee Acquisition Fund II, L.P.


/s/  Joseph L. Bower         Individual General Partner
Joseph L. Bower              ML-Lee Acquisition Fund II, L.P.


/s/ Stanley H. Feldberg      Individual General Partner
Stanley H. Feldberg          ML-Lee Acquisition Fund II, L.P.


/s/ Thomas H. Lee            Individual General Partner
Thomas H. Lee                ML-Lee Acquisition Fund II, L.P.


/s/ Kevin T. Seltzer         ML Mezzanine II Inc.
Kevin T. Seltzer             Vice President and Treasurer
                             (Principal Financial Officer of Registrant)