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, 1998

                         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) 236-6562

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]

     Aggregate  market value of voting  securities held by  non-affiliates:  Not
Applicable.

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. The
Funds' operations commenced on November 10, 1989.

     Mezzanine Investments II, L.P. (the "Managing General Partner"), subject to
the  supervision  of  the  Individual  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 may also
invest in "bridge  investments"  if it is 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 18, 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  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

     At December 31, 1998,  Fund II had  outstanding  a total (at cost) of $41.1
million invested in Mezzanine Investments representing $17.1 million Managed and
$24.0 million  Non-Managed  portfolio  investments.  At December 31, 1998, 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 1998
     --------------------------------------

Stanley Furniture Company

     On January 6, 1998,  Fund II sold its  holdings of Common  Stock in Stanley
Furniture  Company  ("Stanley")  for $27 per share. In connection with the sale,
Fund II sold its remaining 3,461 shares of Stanley Common Stock and received net
proceeds of $93,447.  These proceeds were  distributed on May 15, 1998.  Fund II
recognized a gain of $49,867 from this sale.

Anchor Advanced Products

     On March 19, 1998 Fund II and  affiliates of the Thomas H. Lee Company sold
their remaining holdings in Anchor.  Pursuant to this transaction,  Fund II sold
410,677  shares of  Anchor  Common  Stock for  approximately  $1.6  million  and
recognized a gain of  $247,192.  Net  distributable  proceeds  were  distributed
during the second quarter to Limited Partners of record as of March 19, 1998.

First Alert

     On April 2,  1998,  Sunbeam  Corporation  ("Sunbeam")  acquired  all of the
outstanding  shares of First  Alert  Common  Stock for $175  million  ($5.25 per
share) by means of a tender  offer (the 'Tender  Offer'),  and assume all of the
debt of First Alert.  Pursuant to the Tender Offer,  Fund II tendered all of its
shares of First Alert Common Stock. and received proceeds of approximately $10.8
million and  recognized a gain of $7.5 million.  Net  distributable  proceeds of
$48.62 per Unit were  distributed on May 15, 1998 to Limited  Partners of record
as of April 2, 1998.

Playtex Products Inc.

     On May 27, 1998,  Playtex Products Inc.  completed a public offering in the
international markets of approximately 4 million shares of Common Stock at a net
price of $13.215 per share (the  "Playtex  Offering').  Of the 4 million  shares
offered,  approximately  3.3 million  shares were offered by  affiliates  of the
Thomas H. Lee company including Fund II. As part of the Playtex  Offering,  Fund
II sold its  remaining  investment in Playtex,  consisting of 343,726  shares of
Common  Stock.  Proceeds to Fund II from the sale totaled $4.5 million or $20.43
per Unit and were included in the distribution  made on August 14, 1998. Fund II
recognized a loss of $756,348 from the Playtex Offering.

Cinnabon International, Inc.

     On October 16, 1998, Cinnabon International,  Inc. ("Cinnabon") completed a
Plan of Merger with AFC Enterprises,  Inc. ("AFC") whereby AFC acquired Cinnabon
by merger ("Merger").  Pursuant to the Merger, Fund II received proceeds of $6.9
million (which includes $551,180 of deferred interest)for its entire interest in
Cinnabon.  Net  Distributable  Proceeds  from the Merger of $28.69 per Unit were
distributed  on November 16, 1998,  to Limited  Partners of record as of October
16, 1998,  the closing date of this  transaction.  Fund II  recognized a gain of
$332,200 from the Merger.

Hills Stores Company

     On November 13,  1998,  Ames  Department  Stores,  Inc.  ("Ames") and Hills
Stores Company ("Hills") jointly announced the signing of a definitive agreement
in which Ames would  acquire  Hills.  Pursuant to the terms of the  transaction,
Ames, through a wholly-owned subsidiary, on November 18, 1998 commenced a tender
offer for all the  outstanding  shares of Common Stock and Series A  Convertible
Preferred  Stock of Hills,  at a price of $1.50 per share.  Ames will also share
with Hills'  stockholders  25% of a  potential  recovery in the form of deferred
contingent  cash rights with regard to  litigation  initiated  by Hills  against
certain  of  Hills'  former  directors.  Pursuant  to the  offer,  the  deferred
contingent  cash right is not  transferrable.  On  December  16,  1998,  Fund II
tendered all 521,048 of the Funds  shares and received  proceeds of $781,572 and
recognized a loss of approximately $34 million.  These proceeds were distributed
on February 16, 1999.

<PAGE>

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

     The following is a brief  description of the companies in Fund II's Managed
Company portfolio at December 31, 1998:

     Big V Supermarkets, Inc.
     -------------------------

     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 at December 31, 1998.


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

     The  following  is a  brief  description  of the  companies  in  Fund  II's
Non-Managed Company portfolio during the year ended December 31, 1998:

     BioLease, Inc.
     ---------------

     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, 1998 total net  unrealized
depreciation was $412,000.

     Fitz and Floyd Corporation
     --------------------------

     Fitz & Floyd is the maker of fine china  dinnerware  and  ceramic  giftware
whose products are retailed through leading  specialty and department stores and
catalogs  throughout the U.S. and Canada.  The fair value of this  investment at
December 31, 1998 was $5.4 million which relects total  unrealized  depreciation
of $9.6 million.

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

     As of December 31, 1998,  Fund II has valued its  remaining  investment  in
FLA.  Orthopedics,  Inc.  at  zero,  which  resulted  in  cumulative  unrealized
depreciation of $1.5 million.

     Soretox
     -------

     Soretox,  through its  wholly-owned  subsidiary  Stablex Canada Inc., is an
inorganic hazardous waste management company operating in Eastern Canada and the
Northeastern   United   States.   On  December  31,  1998,   the  Fund  received
approximately   $1.1  million  from  Stablex   Canada  Inc.  of  which  $124,000
represented  fourth quarter 1998 interest and $934,000  represented prior period
unpaid interest.  Fund II is currently not accruing  interest on this investment
and wrote down its  investment  in the  Stablex  Jr.  Subordinated  Note to zero
during the year ended  December 31, 1997.  Fund II's  valuation  reflects  total
unrealized depreciation of approximately $4.0 million through December 31, 1998.
<PAGE>
     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

     On April 10, 1998,  Fund II and the Retirement Fund and (together with Fund
II,  "the  Funds")  the parties to Fund II and the  Retirement  Fund  Securities
Litigation  No.  92-60(JJF)  Seidel,  et al v. Thomas H. Lee, et al, No.  94-422
(JJF) and Seidel,  et al v. Thomas H. Lee, et al, No. 95-724 (JJF),  three class
actions  brought on behalf of limited  partners of the Funds,  filed with United
States District Court for the District of Delaware,  a Stipulation of Settlement
settling these actions.

     The  settlement,  which was  approved by the Court at a hearing on July 16,
1998,  dismissed  with  prejudice  all  claims  against  the  Funds,  the Funds'
Investment  Adviser and certain of its affiliates,  the Funds' Managing  General
Partner  and  certain  of its  affiliates,  the  Funds'  counsel  and the Funds'
Independent General Partners. Defendants, other than the Funds, provided cash of
$16 million and certain other  considerations  to members of the class to settle
the claims  asserted in these  actions.  In  addition,  Thomas H. Lee, a General
Partner of the Funds, and certain  affiliates have purchased  approximately $2.9
million of the Funds' limited  partnership  units from certain limited  partners
pursuant to a liquidity option offered to eligible class members. The settlement
became effective on August 24, 1998.  Defendants  continue to deny all liability
in this action.

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, 1998.
<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, 1999,  the last
effective  date of transfer  (as  described  below),  was 10,095.  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

     Fund II has made quarterly  distributions including both Distributable Cash
from Investments and  Distributable  Capital  Proceeds.  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>

Selected Financial Data
                                                                      For the Years Ended December 31,
TOTAL FUND INFORMATION:                       1998             1997                1996               1995               1994
                                          -------------   -------------     --------------    ----------------    ---------------

Net Investment Income                      $  2,822,809     $ 8,426,190     $  11,023,166       $ 4,146,846       $  7,816,305

Net Realized Gain (Loss) on Sales of
    Investments                              (26,634,967)         92,648         5,894,176         8,372,906         63,853,148

Net Change in (Depreciation) Appreciation
    on Investments                            33,816,479     (6,129,993)      (15,723,691)      (30,559,313)      (100,354,280)

Cash Distributions to Partners   (a)          25,810,649     26,672,357        49,261,781        29,490,761        101,901,964

Net Assets                                    31,025,683     46,832,011        71,115,538       119,183,669        166,713,991

Cost of Mezzanine Investments                 41,110,511     91,989,046       103,597,216       135,797,397        144,603,700

Total Assets                                  31,176,545     47,105,834        71,678,160       120,346,488        167,805,653


PER UNIT OF LIMITED PARTNERSHIP INTEREST:

Investment Income                            $     17.84    $     36.43       $     50.33       $     32.05       $      49.88

Expenses                                           (6.81)         (7.79)           (15.11)           (19.71)            (19.70)
                                             -----------    -----------       -----------       -----------       ------------
Net Investment Income                        $     11.03    $     28.64       $     35.22       $     12.34       $      30.18
                                             ===========    ===========       ===========       ===========       ============

Net Realized Gain (Loss) on Sales of
  Investments                                $   (124.73)   $       .42       $     14.47       $     34.23       $     225.61

Net Change in (Depreciation) Appreciation
  on Investments                                  152.12         (27.58)           (70.73)          (137.47)           (451.45)

Cash Distributions                                109.19  (a)    106.00            192.87            112.31             413.35

Cumulative Cash Distributions                   1,267.87       1,158.68          1,052.68            859.81             747.50

Net Asset Value                                   137.49        209.93            314.44            528.63             730.09


(a)  Includes  $15,388,897 million or $69.40 per Limited Partnership Unit return
     of Capital from the sale of Portfolio Investments during 1998.

</TABLE>

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

Liquidity & Capital Resources

     Capital  contributions  from the Limited  Partners and the General Partners
totaled  $222,295,000 in the public offering of ML-Lee Acquisition Fund II, L.P.
("Fund II"), the final closing for which was held on December 20, 1989.

     At December 31, 1998,  Fund II had  outstanding  a total (at cost) of $41.1
million invested in Mezzanine Investments representing $17.1 million Managed and
$24.0 million  Non-Managed  portfolio  investments.  The remaining proceeds were
invested in Temporary  Investments  primarily comprised of commercial paper with
maturities of less than one month.

     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 18, 1993.

     As provided by the Partnership  Agreement,  the Managing General Partner of
Fund II is entitled to receive an incentive  distribution ("MGP  Distributions")
after Limited Partners have received their Priority Return of 10% per annum. 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, 1998 there is no outstanding  Deferred  Distribution
Amount.

     On August 6, 1991, the Independent  General Partners approved a reserve for
follow-on  investments  of $24.9 million for Fund II. As of March 23, 1999,  the
remaining reserve balance was $3.1 million due to follow-on investments in Petco
Animal Supplies, Fitz and Floyd, Fine Clothing, Inc., Hills Stores,  Ghirardelli
Holdings  and  Anchor  Advanced  Products.  Additionally,  $8.29  million 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.

     All net proceeds from the sale of Mezzanine Investments received by Fund II
in the future will be distributed to its partners unless applied to or set aside
for expenses.

     The  proportion  of  distributions  provided by net  investment  income has
decreased from prior years due primarily to increased  sales and  redemptions of
Mezzanine  Investments and the resulting  decrease in investment income as those
holdings cease to generate  interest income. It is expected that the majority of
future cash  distributions  to Limited  Partners will almost entirely be derived
from recovered capital and gains, from asset sales, if any, which are subject to
market conditions and are inherently  unpredictable as to timing. Assuming there
are no asset sales in a  particular  quarter,  Limited  Partners are expected to
receive only small amounts of net distributable  cash, which are estimated to be
less than one dollar per Limited  Partnership  Unit each quarter.  Distributions
therefore  are expected to vary  significantly  in amount and may not be made in
every quarter.
<PAGE>
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.

Results of Operations

Investment Income and Expenses

     The investment  income from  operations for the year consists  primarily of
interest and discount  income earned on the investment of Mezzanine  Investments
and short-term money market instruments.

     For the year ended December 31, 1998, Fund II had investment income of $4.3
million, as compared to $10.2 million and $14.4 million for the comparable years
ended 1997 and 1996,  respectively.  The decrease in 1998  investment  income as
compared  to 1997 and 1996 was due to the  sale of  income  producing  portfolio
companies in 1998.

     Major  expenses for the period  consisted of  Investment  Advisory Fees and
Fund Administration Fees.

     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, 1998,  1997
and  1996  were  $653,956,  $759,160,  and  $988,882,   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 $1.2 million for Fund II and the  Retirement  Fund 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.

     Beginning in November of 1997,  the Fund  Administration  Fee changed to an
annual  amount of  $400,000  for Fund II and the  Retirement  Fund on a combined
basis,  plus 100% of all  reimbursable  expenses (as defined below)  incurred by
Fund II.  Actual  out-of-pocket  expenses  ("reimbursable  expenses")  primarily
consist of printing,  audit,  tax  preparation and custodian fees. For the years
ended December 31, 1998, 1997 and 1996, Fund II incurred $294,846,  $140,157 and
$139,158, respectively, in reimbursable expenses.

     The Fund  Administration  Fees paid to the Fund Administrator for the years
ended  December 31, 1997 and 1996 were  calculated at an annual rate of 0.45% of
the excess of net offering  proceeds,  less 50% of capital reductions and 50% of
realized losses. The decrease in Fund  Administration  Fees were a direct result
of sales of investments, returns of capital distributed to partners and realized
losses on  investments.  For the years ended  December 31, 1998,  1997 and 1996,
Fund Administration Fees were $222,000, $569,224, and $675,250, respectively.
<PAGE>
     Pursuant to the  administrative  services agreement between Fund II and the
Fund  Administrator,  for the period ending  November 10, 1997, a portion of the
actual out-of-pocket  expenses incurred in connection with the administration of
Fund II was reimbursable to the Fund Administrator.

     Legal and Professional Fees were incurred in connection with the litigation
proceedings  as described in Note 11 to the Financial  Statements.  Professional
fees for the  years  ended  December  31,  1998,  1997 and  1996  were  $247,270
$152,000,  and $1.3 million,  respectively.  These expenses are  attributable to
legal fees incurred and advanced on behalf of indemnified  defendants as well as
fees  incurred  directly  by  Fund  II in  connection  with  the  aforementioned
litigation proceedings.

     For the year ended December 31, 1998, Fund II had net investment  income of
$2.8  million as  compared  to $8.4  million for the same period in 1997 and $11
million for the same period in 1996. The decrease in 1998 net investment  income
as compared to 1997 and 1996 was due to the sale of income  producing  portfolio
companies in 1998.

Net Assets

     Fund II's net  assets  decreased  by $15.8  million  during  the year ended
December 31, 1998, due to the payment of cash distributions to partners of $25.8
million ($15.4 million of the cash distributions paid was return of capital from
the sales of portfolio  investments)  and net unrealized  appreciation  of $33.8
million,  partially offset by net investment income of $2.8 million and realized
losses of $26.6 from the sales of Mezzanine Investments.

Unrealized Appreciation and Depreciation on Investments

     For the year ended  December  31,  1998,  Fund II recorded  net  unrealized
appreciation  of $33.8  million all of which was related to the  reversal of net
unrealized  depreciation in market value of publicly  traded  securities sold in
1998.  This  compares to the  reversal of net  unrealized  depreciation  of $6.1
million for 1997 of which $3.3 million was related to net depreciation in market
value of  publicly  traded  securities.  Fund  II's  cumulative  net  unrealized
depreciation on investments as of December 31, 1998 totaled $15.6 million.

     For the year ended  December  31,  1998,  Fund II recorded  net  unrealized
depreciation  of $15.7  million  of  which  $12.5  million  was  related  to net
unrealized depreciation in market value of publicly traded securities.

     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  accrued  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  92.4% 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,  1998,  Fund II's
investment in Big V Supermarkets Inc. represents  approximately 60% 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, 1998.  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
Unrealized Appreciation and Depreciation - Schedule 2.
<PAGE>
Realized Gains and Losses

     For the year ended December 31, 1998, Fund II recorded realized losses from
investments  of $26.6  million as compared  to $92,648 and $5.9  million for the
years  ended   December  31,  1997  and  1996,   respectively.   For  additional
information,  please refer to the  Supplemental  Schedule of Realized  Gains and
Losses - Schedule 1.

Cash Distributions

     On February 4, 1999, the Individual  General  Partners  approved the fourth
quarter  1998  cash  distribution  which  represents  net  investment  income of
$1,325,586  from Mezzanine  Investments,  net investment  income of $11,942 from
Temporary  Investments and Net  Distributable  Capital proceeds from the sale of
Hills of $781,572 (which is all return of capital). The total amount distributed
to Limited Partners was $1,711,478 or $7.72 per Unit, which was paid on February
16, 1999. The Managing  General Partner  received a total of $3,859 with respect
to its interest in Fund II and $404,244 in MGP Distributions.  Thomas H. Lee, as
an  Individual  General  Partner,  received $386 with respect to his interest in
Fund II.

     Because most of Fund II's debt holdings were  previously  sold or redeemed,
remaining  portfolio  interest income expected to be received by Fund II may not
be  sufficient  to cover Fund II's  expenses  in the  future.  As a result,  any
interest  income  received  will be used to pay Fund II expenses  and may not be
available for distribution. The majority of future cash distributions to Limited
Partners will be derived from recovered  capital and gains, from asset sales, if
any,  which are  dependent  upon future  market  conditions  and  therefore  are
inherently  unpredictable.  Cash  distributions,  therefore,  are likely to vary
significantly in amount and may not be made in every quarter.

     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.

Year 2000 Compliance Initiative

     The year 2000  ("Y2K")  problem is the result of a  widespread  programming
technique that causes computer  systems to identify a date based on the last two
numbers of a year,  with the  assumption  that the first two numbers of the year
are "19". As a result,  the year 2000 would be stored as "00", causing computers
to incorrectly interpret the year as 1900. Left uncorrected, the Y2K problem may
cause   information   technology   systems   (e.g.,   computer   databases)  and
non-information  technology systems (e.g.,  elevators) to produce incorrect data
or cease operating completely.

     Overall, Fund II believes that it has identified and evaluated its internal
Y2K  problem  and  that  it  is  devoting  sufficient  resources  to  renovating
technology systems that are not already Y2K compliant.  Fund II has been working
with third-party  software vendors to ensure that computer  programs utilized by
Fund II are Y2K compliant.  In addition,  Fund II has contacted third parties to
ascertain  whether these  entities are addressing the Y2K issue within their own
operation.

     Mezzanine  Investment II L.P.,  through ML Mezzanine II Inc. is responsible
for providing  administrative and accounting  services necessary to support Fund
II's operations,  including maintenance of the books and records, maintenance of
the partner  database,  issuance of  financial  reports and tax  information  to
partners and  processing  distribution  payments to partners.  In 1995,  Merrill
Lynch   established   the  Year  2000   Compliance   Initiative,   which  is  an
enterprisewide  effort (of which ML  Mezzanine II Inc. is a part) to address the
risks  associated  with  the  Y2K  problem,  both  internal  and  external.  The
integration  testing phase,  which will occur throughout 1999,  validates that a
system can  successfully  interface  with both  internal and  external  systems.
Merrill Lynch continues to survey and communicate  with third parties whose Year
2000 readiness is important to the company.  Based on the nature of the response
and the importance of the product or service involved,  Merrill Lynch determines
if additional testing is needed.

     Merrill Lynch will participate in further  industrywide  testing  currently
scheduled  for March and April 1999,  which will  involve an expanded  number of
firms, transactions, and conditions.

     Although Fund II has not finally  determined the cost  associated  with its
Year 2000  readiness  efforts,  Fund II does not  anticipate the cost of the Y2K
problem  to be  material  to its  business,  financial  condition  or results of
operations  in any  given  year.  However,  there can be no  guarantee  that the
systems  of other  companies  on which  Fund  II's  systems  rely will be timely
converted,  or that a failure to convert by another company or a conversion that
is incompatible  with Fund II's systems would not have a material adverse effect
on Fund II's business, financial condition or results of operations.

Item 7A.  Quantitative and Qualitative Disclosure About Market
                  Risk

     As of  December  31,  1998,  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  would not have a  material  effect  on Fund II's  financial
position.


<PAGE>

Cash Distributions

     The following  table  represents  distributions  approved by the Individual
General Partners of ML-Lee  Acquisition Fund II, L.P. since inception  (November
10, 1989):
<TABLE>
<CAPTION>
<S>                     <C>             <C>             <C>      <C>        <C>                <C>
                             Total        Limited                 Per Unit      Managing                  Individual
                          Distributed    Partners      Per        Return of     General      Incentive      General
                            Cash(a)       Amount       Unit        Capital       Partner       Fee(b)       Partner
                        ------------  ------------   --------    ----------   -----------    ----------   ----------

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               19,963,238    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          483,244       370,314       1.67           .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       0.21             -          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
                       -------------  ------------  ---------      --------    ---------   -----------      --------
Totals                 $ 309,697,658  $282,552,944  $1,275.59      $ 514.73    $ 674,849   $26,402,378      $ 67,488
                       =============  ============  =========      ========    =========   ===========      ========

(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.

</TABLE>
<PAGE>
Item 8.    Financial Statements and Supplementary 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, 1998 and December 31, 1997

Statements of Operations
    For the Years Ended December 31, 1998, 1997, and 1996

Statements of Changes in Net Assets
    For the Years Ended December 31, 1998, 1997 and 1996

Statements of Cash Flows
    For the Years Ended December 31, 1998, 1997 and 1996

Statements of Changes in  Partners'  Capital
    For the Years Ended December 31, 1998, 1997 and 1996

Schedule of Portfolio Investments - December 31, 1998

Notes to Financial Statements

Supplementary Schedule of Realized Gains and Losses - Schedule 1

Supplementary Schedule of 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,  1998 and 1997,  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, 1998, in conformity  with generally
accepted   accounting   principles.   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  generally  accepted
auditing  standards  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, 1998 by
correspondence  with the  custodian, provide a reasonable  basis for the opinion
expressed above.

     The financial  statements  include  securities,  valued at $25.6 million at
December 31, 1998 (82.5% 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.

     As  discussed  in Note 1, the Fund is  scheduled  to dissolve on January 5,
2000. The Individual  General  Partners have the right to extend the term of the
Fund.

        Our audits were  conducted  for the purpose of forming an opinion on the
basic financial  statements taken as a whole. The schedule of realized gains and
losses (Schedule 1) and the schedule of 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 23, 1999

<PAGE>
<TABLE>
<CAPTION>

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

<S>                                                                  <C>            <C>
                                                                     Year Ended       Year Ended
                                                                     December 31,    December 31,
                                                                        1998             1997
                                                                    -------------   -------------

Assets:

Investments - Notes 2,4,5
  Portfolio Investments at fair value
    Managed Companies (amortized cost $17,144
      at December 31, 1998 and $68,023 at December 31, 1997)        $      17,144   $      34,206
    Non-Managed Companies (amortized cost $23,967
      at December 31, 1998 and at December 31, 1997)                        8,440           8,440
    Temporary Investments, at amortized cost (cost $3,401
      at December 31, 1998 and $3,612 at December 31, 1997)                 3,408           3,627
Cash                                                                            5             245
Accrued Interest & Other Receivable - Note 2                                1,395             257
Receivable for Investment Sold                                                782            --
Due from Affiliate                                                           --               328
Prepaid Expenses                                                                3               4
                                                                    -------------   -------------
Total Assets                                                        $      31,177   $      47,107
                                                                    =============   =============

Liabilities and Partners' Capital:

Liabilities
    Legal and Professional Fees Payable                             $          30   $         100
    Reimbursable Administrative Expenses Payable Note 8                        22              11
    Independent General Partners' Fees Payable - Note 9                        18              12
    Deferred Interest Income - Note 2                                          81             151
                                                                    -------------   -------------
Total Liabilities                                                             151             274
                                                                    -------------   -------------

Partners' Capital - Note 2
    Individual General Partner                                                 13              15
    Managing General Partner                                                  525             266
    Limited Partners (221,745 Units)                                       30,488          46,552
                                                                    -------------   -------------
Total Partners' Capital                                                    31,026          46,833
                                                                    -------------   -------------
Total Liabilities and Partners' Capital                             $      31,177   $      47,107
                                                                    =============   =============



                   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>
                                                                     Year Ended       Year Ended       Year Ended
                                                                    December 31,      December 31,    December 31,
                                                                        1998              1997            1996
                                                                    -------------    -------------    -------------
Investment Income - Notes 2,4,6:
  Interest                                                          $       3,933    $       4,354    $      13,462
  Discount, Dividend & Other Income                                           403            5,803              920
                                                                    -------------    -------------    -------------
    Total Income                                                            4,336           10,157           14,382
                                                                    -------------    -------------    -------------
Expenses:
  Investment Advisory Fee - Note 7                                            654              759              989
  Fund Administration Fee - Note 8                                            222              570              675
  Reimbursable Administrative Expenses - Note 8                               295              140              139
  Legal and Professional Fees                                                 247              152            1,345
  Independent General Partners' Fees and Expenses - Note 9                     91              106              207
  Insurance Expense                                                             4                4                4
                                                                    -------------    -------------    -------------
    Total Expenses                                                          1,513            1,731            3,359
                                                                    -------------    -------------    -------------
Net Investment Income                                                       2,823            8,426           11,023
                                                                    -------------    -------------    -------------
Net Realized Gain (Loss) on Investments - Note 4 and Schedule 1           (26,635)              93            5,895
                                                                    -------------    -------------    -------------
Net Change in Unrealized Appreciation (Depreciation)
  on Investments: Note 5 and Schedule 2
  Publicly Traded Securities                                               33,816           (3,342)         (13,952)
  Nonpublic Securities                                                       --             (2,788)          (1,772)
                                                                    -------------    -------------    -------------
  Subtotal                                                                 33,816           (6,130)         (15,724)
                                                                    -------------    -------------    -------------
Net Increase (Decrease) in Net Assets
   Resulting from Operations                                               10,004            2,389            1,194
                                                                    -------------    -------------    -------------
Less:  Earned MGP Distributions to Managing General Partner                (1,460)          (2,078)          (5,366)
                                                                    -------------    -------------    -------------
Net Increase (Decrease) Available For Pro-Rata
  Distribution to All Partners                                      $       8,544    $         311    $      (4,172)
                                                                    =============    =============    =============

               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>
                                                                                Year Ended          Year Ended          Year Ended
                                                                               December 31,        December 31,        December 31,
                                                                                  1998                  1997               1996
                                                                              -------------       -------------       -------------

From Operations:
Net Investment Income                                                         $       2,823       $       8,426       $      11,023
Net Realized Gain (Loss) on Investments                                             (26,635)                 93               5,895
Net Change in Unrealized Appreciation
  (Depreciation) from Investments                                                    33,816              (6,130)            (15,724)
                                                                              -------------       -------------       -------------
Net Increase (Decrease) in Net Assets
  Resulting from Operations                                                          10,004               2,389               1,194
Cash Distributions to Partners                                                      (25,811)            (26,671)            (49,262)
                                                                              -------------       -------------       -------------
Total Decrease                                                                      (15,807)            (24,282)            (48,068)
Net Assets:
Beginning of Year                                                                    46,833              71,115             119,183
                                                                              -------------       -------------       -------------
End of Year                                                                   $      31,026       $      46,833       $      71,115
                                                                              =============       =============       =============

               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>
                                                                            Year Ended      Year Ended        Year Ended
                                                                           December 31,    December 31,      December 31,
                                                                               1998            1997              1996
                                                                          -------------    -------------    -------------
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows From Operating Activities:
  Interest, Dividends, Discount and Other Income                          $       3,135    $      10,677    $      15,268
  Legal and Professional Fees                                                      (317)            (207)          (1,549)
  Investment Advisory Fee                                                          (654)            (759)            (989)
  Fund Administration Fee                                                          (222)            (570)            (675)
  Independent General Partners' Fees and Expenses                                   (84)            (128)            (240)
  Reimbursable Administrative Expenses                                             (284)            (174)            (151)
  (Purchase) Sale of Temporary Investments, Net                                     210            6,588             (175)
  Purchase of Portfolio Companies                                                  --             (2,420)               -
  Proceeds from Sales of Portfolio Company Investments                           23,462           14,117           37,901
  Insurance Expense                                                                  (4)              (4)              (4)
                                                                          -------------    -------------    -------------
Net Cash Provided by Operating Activities                                        25,242           27,120           49,386
                                                                          -------------    -------------    -------------
Cash Flows from Financing Activities:
  Cash Distributions to Partners                                                (25,482)         (27,000)          49,262
                                                                          -------------    -------------    -------------
Net Cash Applied to Financing Activities                                        (25,482)         (27,000)          49,262
                                                                          -------------    -------------    -------------
  Net Increase (Decrease) in Cash                                                  (240)             120              124
  Cash at Beginning of Year                                                         245              125                1
                                                                          -------------    -------------    -------------
Cash at End of Period                                                     $           5    $         245    $         125
                                                                          =============    =============    =============

Reconciliation of Net Investment Income
  to Net Cash Provided by Operating Activities
  Net Investment Income                                                   $       2,823    $       8,426    $      11,023
                                                                          -------------    -------------    -------------
Adjustments to Reconcile Net Investment Income
  to Net Cash Provided by Operating Activities
  Decrease in Investments                                                        51,089           18,195           32,015
  (Increase) in Receivable for Investments Sold                                    (782)             --               --
  (Increase) Decrease in Accrued Interest,
    Dividend and Discount Receivable                                             (1,201)             520              702
   Decrease in Prepaid Expenses                                                       1              --               --
  Decrease in Legal and Professional Fees Payable                                   (70)             (59)            (204)
  Increase (Decrease) in Reimbursable Administrative Expenses Payable                11              (34)             (12)
  Increase (Decrease) in Independent General Partners' Fees Payable                   6              (21)             (33)
  Net Realized Gain (Loss) on Sales of Investments                              (26,635)              93            5,895
                                                                          -------------    -------------    -------------
Total Adjustments                                                                22,419           18,694           38,363
                                                                          -------------    -------------    -------------
Net Cash Provided by Operating Activities                                 $      25,242    $      27,120    $      49,386
                                                                          =============    =============    =============


               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, 1996                 $          29    $       1,932    $     117,222    $     119,183
Allocation of Net Investment Income                              2            3,211            7,810           11,023
Allocation of Net Realized Gain on Investments                   1            2,684            3,210            5,895
Allocation of Net Change in Unrealized
  Depreciation From Investments                                 (3)             (35)         (15,686)         (15,724)
Cash Distributions to Partners                                 (10)          (6,424)         (42,828)         (49,262)
                                                     -------------    -------------    -------------    -------------
Partners' Capital at December 31, 1996               $          19    $       1,368    $      69,728    $      71,115
                                                     -------------    -------------    -------------    -------------

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 (Loss) on Investments           --               --               93               93
Allocation of Net Change in Unrealized
  Depreciation From 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 Gain (Loss) on Investments           (6)           1,030          (27,659)         (26,635)
Allocation of Net Change in Unrealized
  Depreciation From 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
                                                     =============    =============    =============    =============



                       See the Accompanying Notes to Financial Statements.

</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                        ML-LEE ACQUISITION FUND II, L.P.
                        SCHEDULE OF PORTFOLIO INVESTMENTS
                               DECEMBER 31, 1998
                             (DOLLARS IN THOUSANDS)


 Principal                                                                                                   Fair      % Of
   Amount/                                                                            Investment Investment  Value      Total
   Shares         Investment                                                            Date       Cost(g)  (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) (f)                                    --------------------------------
                                                                                                   17,144     17,144        59.13
                                                                                                 --------------------------------
                   COLE NATIONAL CORPORATION
13,161 Warrants    Cole National Corporation, Common Stock Purchase Warants (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        59.13
                                                                                                  -------------------------------


                  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         1.40
                                                                                                  -------------------------------

                  FITZ AND FLOYD -Note 5
$2,420            Fitz and Floyd, 12% Sub. Nt. due 04/15/04 (b)                        04/11/97     2,420      2,420
 8,470 Shares     Fitz and Floyd, Series A Preferred Stock (c)                         04/11/97    12,619      3,024
                   1,324,508 Shares Common Stock
                   Purchased various                      $    20
                   Surrendered May 1996                   $     -
                   Realized Loss                          $   (20)
                   $10,281  Sr. Sub. Note
                   $2,419  Sr. Sub. Note
                   Purchased various                      $12,619
                   Exchanged 04/14/97
                   8,470 Sh Series A Preferred Stock and
                   51,245 Shares Common Stock             $12,619
                   Realized Gain                          $     0
                   Total Realized Loss                    $   (20)                                -------------------------------
                                                                                                   15,039      5,444        18.78
                                                                                                  -------------------------------

                  FLA. ORTHOPEDICS, INC. - Notes 5,6
 19,366 Shares    FLA. Holdings, Inc. Series B Preferred Stock (a) (c) (e)             08/02/93     1,513          -
  3,822 Warrants  FLA. Holdings, Inc. Common Stock Purchase Warrants (a) (c) (e)       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
                                                                                                  -------------------------------

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


<PAGE>
<TABLE>
<CAPTION>
                        ML-LEE ACQUISITION FUND II, L.P.
                        SCHEDULE OF PORTFOLIO INVESTMENTS
                              DECEMBER 31, 1998
                           (DOLLARS IN THOUSANDS)


 Principal                                                                                                  Fair      % Of
   Amount/                                                                            Investment Investment  Value      Total
   Shares         Investment                                                            Date       Cost(g)  (Note 2)  Investments
<S>                <C>                                                                  <C>        <C>         <C>       <C>
                  SORETOX - Notes 5,6,13
$3,503            Stablex Canada, Inc., Sub. Nt. 10% due 06/30/07(b)(d)(e)            06/29/95  $  3,503     $ 2,590
$3,128            Stablex Canada, Inc., Jr. Sub. Nt. 11% due 06/30/09(b)(d)(e)        06/29/95     3,128           0
2,004 Warrants    Seaway TLC, Inc. Common Stock Purchase Warrants(c)                  12/06/91         0           0
                                                                                                -----------------------------
                                                                                                   6,631       2,590     8.93
                                                                                                -----------------------------
                   TOTAL INVESTMENT IN NON-MANAGED COMPANIES                                    $ 23,967     $ 8,440    29.11
                                                                                                =============================

                   SUMMARY OF MEZZANINE INVESTMENTS
                   Subordinated Notes                                                 Various     22,764      18,439    63.60
                   Preferred Stock, Common Stock, Warrants and Stock Rights           Various     18,347       7,145    24.64
                                                                                                -----------------------------
                   TOTAL MEZZANINE INVESTMENTS                                                  $ 41,111     $25,584    88.24
                                                                                                =============================

                  TEMPORARY INVESTMENTS

                  COMMERCIAL PAPER
$3,410            Ford Motor Credit, 5.53% due 1/4/99                                 12/18/98     3,401       3,408
                                                                                                -----------------------------
                  TOTAL INVESTMENT IN COMMERCIAL PAPER                                             3,401       3,408    11.76
                                                                                                -----------------------------
                  TOTAL TEMPORARY INVESTMENTS                                                   $  3,401    $  3,408    11.76
                                                                                                -----------------------------
                  TOTAL INVESTMENT PORTFOLIO                                                    $ 44,512    $ 28,992   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)     Inclusive of receipt of payment-in-kind securities.
(e)     Non-accrual investment status.
(f)     Percentages of Common Equity have not been audited by PricewaterhouseCoopers LLP.
(g)     Represents orignal cost and excludes accretion of discount of $33 for
        Mezzanine Investments and $7 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, 1998

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.

     Mezzanine Investments II, L.P. (the "Managing General Partner"), subject to
the  supervision  of  the  Individual  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.

     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 may also invest in "bridge
investments"  if it is  believed  that such  investments  would  facilitate  the
consummation of a mezzanine financing.

     As  described  in the  Prospectus,  Fund II will  terminate  no later  than
January 5, 2000,  subject to the right of the  Individual  General  Partners  to
extend the term for up to one  additional  two-year  period  and one  additional
one-year period if it is in the best interest of Fund II. Fund II will then have
five additional years to liquidate its remaining investments.

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.
<PAGE>
     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, 1998.  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 because the portfolio  investments  of companies
whose  equity is publicly  traded are valued at the last price at  December  31,
1998,  the current  estimated fair value of these  investments  may have changed
significantly since that point in 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, 1998 and December 31,
1997,  Fund II had in its portfolio of investments  $441,900 of  payment-in-kind
notes which excludes $1.8 million of  payment-in-kind  notes received from notes
placed on non-accrual status.

Investment Transactions

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

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

Sales and Marketing Expenses, Offering Expenses and Sales Commissions

     Sales  commissions  and selling  discounts  were  allocated to the specific
partners' accounts in which they were applied.  Sales and marketing expenses and
offering  expenses were allocated  between the Funds in proportion to the number
of Units issued by each fund and to the partners in  proportion to their capital
contributions.

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,

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

<PAGE>
4.      Investment Transactions

     On January 6, 1998, Fund II sold its remaining  holdings of common stock in
Stanley Furniture Company, Inc. The common stock was sold pursuant to a Form S-3
Registration  Statement,  which was  declared  effective by the  Securities  and
Exchange  Commission on December 23, 1997. In connection  with the sale, Fund II
sold its  remaining  3,461  shares of common  stock and received net proceeds of
$93,447 or $27 per share.  Fund II recognized a gain of $49,867 from this sale.

     On March 19, 1998, Fund II and affiliates of the Thomas H. Lee Company sold
their  remaining  holdings  in  Anchor  Advanced  Products.   Pursuant  to  this
transaction,   Fund  II  sold  410,677   shares  of  Anchor   Common  Stock  for
approximately $1.6 Million ($4.00 per share) and recognized a gain of $247,192.

     On April 2,  1998,  Sunbeam  Corporation  ("Sunbeam")  acquired  all of the
outstanding  shares of First  Alert  Common  Stock for $175  million  ($5.25 per
share) by means of a tender  offer (the 'Tender  Offer'),  and assume all of the
debt of First Alert.  Pursuant to the Tender Offer,  Fund II tendered all of its
shares of First Alert Common Stock. and received proceeds of approximately $10.8
million and  recognized a gain of $7.5 million.  Net  distributable  proceeds of
$48.62 per Unit were  distributed on May 15, 1998 to Limited  Partners of record
as of April 2, 1998.

     On May 27, 1998,  Playtex  Products Inc.,  ("Playtex"),  completed a public
offering  in the  international  markets of  approximately  4 million  shares of
Common Stock at a net price of $13.215 per share (the  "Playtex  Offering").  Of
the 4 million shares offered,  approximately  3.3 million shares were offered by
affiliates  of the  Thomas  H. Lee  Company,  including  Fund II. As part of the
Playtex Offering,  Fund II sold its remaining investment in Playtex,  consisting
of approximately  343,726 shares of Common Stock.  Fund II received  proceeds of
$4.5 million and recognized a loss on the sale of  approximately  $756,000.  Net
Distributable  Proceeds were distributed to Limited Partners of record as of May
27, 1998.

     On October 16, 1998, Cinnabon International,  Inc. ("Cinnabon") completed a
Plan of Merger with AFC Enterprises,  Inc. ("AFC") whereby AFC acquired Cinnabon
by merger ("Merger").  Pursuant to the Merger, Fund II received proceeds of $6.9
million (which includes 551,180 of deferred interest) for its entire interest in
Cinnabon.  Net  Distributable  Proceeds  from the Merger of $28.69 per Unit were
distributed  on November 16, 1998,  to Limited  Partners of record as of October
16, 1998,  the closing date of this  transaction.  Fund II  recognized a gain of
$332,200 from the Merger.

     On November 13,  1998,  Ames  Department  Stores,  Inc.  ("Ames") and Hills
Stores Company ("Hills") jointly announced the signing of a definitive agreement
in which Ames would  acquire  Hills.  Pursuant to the terms of the  transaction,
Ames, through a wholly-owned subsidiary, on November 18, 1998 commenced a tender
offer for all the  outstanding  shares of Common Stock and Series A  Convertible
Preferred  Stock of Hills,  at a price of $1.50 per share.  Ames will also share
with Hills'  stockholders  25% of a  potential  recovery in the form of deferred
contingent  cash rights with regard to  litigation  initiated  by Hills  against
certain  of  Hills'  former  directors.  Pursuant  to the  offer,  the  deferred
contingent  cash right is not  transferrable.  On  December  16,  1998,  Fund II
tendered all 521,048 of the Funds  shares and received  proceeds of $781,572 and
recognized a loss of approximately $34 million.  These proceeds were distributed
on February 16, 1999.

     On December 31, 1998,  the Fund  received  approximately  $1.1 million from
Stablex Canada Inc., of which $124,000  represented fourth quarter 1998 interest
and $934,000  represented  prior period's unpaid interest.  Fund II is currently
not accruing interest on this investment.

     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.
<PAGE>
5.   Unrealized Appreciation and Depreciation of Investments

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

6.   Non-Accrual of Investments

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

    - Florida Orthopedics, Inc., January 1, 1995.
    - Stablex Canada, Inc., June 29, 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
$1.2  million  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). For the years
ended December 31, 1998,  1997 and 1996,  Fund II paid $653,956,  $759,160,  and
$988,882,  respectively,  in Investment  Advisory Fees to Thomas H. Lee Advisors
II, L.P.

8.   Fund Administration Fees and Expenses

     As compensation for its services,  ML Fund  Administrators  Inc. (the "Fund
Administrator";  an affiliate of the  Managing  General  Partner) is entitled to
receive  from the Funds an  Administration  Fee and  reimbursement  for  certain
out-of-pocket expenses incurred by the Fund Administrator on behalf of the Funds
("reimbursable  expenses").  The Fund  Administration Fee is calculated and paid
quarterly, in advance, by each Fund. For the years ended December 31, 1998, 1997
and 1996, Fund II paid $222,000, $569,224, and $675,250,  respectively,  in Fund
Administration Fees.

     Beginning in November of 1997,  the Fund  Administration  Fee changed to an
annual  amount of  $400,000  for Fund II and the  Retirement  Fund on a combined
basis,   plus  100%  of  all  reimbursable   expenses  incurred  by  the  Funds.
Reimbursable expenses primarily consist of printing,  audit, tax preparation and
custodian  fees. For the years ended December 31, 1998,  1997 and 1996,  Fund II
incurred  $294,846,  $140,157,  and  $139,158,   respectively,  in  reimbursable
expenses.

     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,  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.  For the years
ended December 31, 1998, 1997 and 1996,  Independent  General Partners' Fees and
Expenses were $90,929, $106,069, and $207,269, respectively.
<PAGE>
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  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,  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.

     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 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 ("MGP  Distributions")
after Limited Partners have received their Priority Return of 10% per annum. 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.

     During 1998,  Fund II paid the  Individual  General  Partner  distributions
totaling $5,461 and Managing General Partner  distributions  totaling $1,222,538
(which  includes  $1,167,940  of MGP  Distributions  as  defined  above).  As of
December 31,  1998,  the  Managing  General  Partner has earned a total of $26.4
million  in MGP  Distributions,  none of which is  deferred  in  payment  to the
Managing  General  Partner  as a Deferred  Distribution  amount  (the  "Deferred
Distribution")  at this time, in accordance with the Partnership  Agreement.  To
the  extent  not  payable  to  the  Managing  General   Partner,   any  Deferred
Distribution  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.

     As a result of the settlement of three class action lawsuits (see Note 11 -
Litigation),  Thomas  H. Lee  purchased  11,011  units  of Fund II from  certain
limited partners.

     An officer of the Investment Advisor also serves as a Director/Trustee of a
managed company.
<PAGE>
11.     Litigation

     On April 10, 1998,  Fund II and the Retirement Fund and (together with Fund
II,  "the  Funds")  the parties to Fund II and the  Retirement  Fund  Securities
Litigation  No.  92-60(JJF)  Seidel,  et al v. Thomas H. Lee, et al, No.  94-422
(JJF) and Seidel,  et al v. Thomas H. Lee, et al, No. 95-724 (JJF),  three class
actions  brought on behalf of limited  partners of the Funds,  filed with United
States District Court for the District of Delaware,  a Stipulation of Settlement
preliminarily settling these actions.

     The  settlement,  which was  approved by the Court at a hearing on July 16,
1998,  dismissed  with  prejudice  all  claims  against  the  Funds,  the Funds'
Investment  Adviser and certain of its affiliates,  the Funds' Managing  General
Partner  and  certain  of its  affiliates,  the  Funds'  counsel  and the Funds'
Independent General Partners.  Defendants,  other than the Funds, have agreed to
provide cash of $16 million and certain other  considerations  to members of the
class to settle the claims  asserted in these  actions.  In addition,  Thomas H.
Lee, a General Partner of the Funds, and certain  affiliates have purchased $2.9
million of the Funds' limited  partnership  units from certain limited  partners
pursuant to a liquidity option offered to eligible class members. The settlement
became effective on August 24, 1998.  Defendants  continue to deny all liability
in this action.

     The Funds have reimbursed legal expenses incurred by certain defendants and
has  included  such  expenses in Legal and  Professional  Fees in the  Financial
Statements.

12.  Income Taxes (Statement of Financial Accounting Standards  No. 109)

     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, 1998,  the tax basis of Fund II's
assets are greater  than the amounts  reported in the  financial  statements  by
$15.6 million. This difference is attributable to net unrealized depreciation on
investments which has not been recognized for tax purposes.

13.     Subsequent Events

     On February 4, 1999, the Individual  General  Partners  approved the fourth
quarter  1998  cash  distribution  which  represents  net  investment  income of
$1,326,846  from Mezzanine  Investments,  net investment  income of $11,942 from
Temporary  Investments and Net  Distributable  Capital proceeds from the sale of
Hills of $781,572 (which is all return of capital). The total amount distributed
to Limited Partners was $1,711,871 or $7.72 per Unit, which was paid on February
16, 1999. The Managing  General Partner  received a total of $3,859 with respect
to its interest in Fund II and $404,244 in MGP Distributions.  Thomas H. Lee, as
an  Individual  General  Partner,  received $386 with respect to his interest in
Fund II.

     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 purchase,  retire
and  cancel  all of the  Subordinated  Notes  outstanding  and 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  $5,605,200  was
allocated to Fund II. Fund II will recognize a loss of  approximately $1 million
from this transaction. The distribution of any Capital Proceeds relating to this
transaction will be made in connection with the first quarter cash  distribution
to Limited 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 Limited  Partners of record as of the date of such
receipt.

<PAGE>
<TABLE>
<CAPTION>

                                                         SCHEDULE 1
                                               ML-LEE ACQUISITION FUND II, L.P.
                                    SUPPLEMENTARY SCHEDULE OF REALIZED GAINS AND LOSSES
                                             FOR THE YEAR ENDED DECEMBER 31, 1998
                                                   (DOLLARS IN THOUSANDS)

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


                                                               Number of Shares/   Investment         Net         Realized
Security                                                       Principal Amount       Cost         Proceeds      Gain (Loss)
                                                               ----------------  ------------    ------------   -------------

Stanley Furniture Company Inc.                  Common Stock            3,461   $          44    $          94   $          50

Anchor Advanced Products, Inc.                  Common Stock          410,677           1,396            1,643             247

First Alert, Inc.                               Common Stock        2,058,474           3,320           10,807           7,487

Playtex Products, Inc.                          Common Stock          343,726           5,298            4,542            (756)

Cinnabon International, Inc.                    Notes           $       6,044           6,044            6,376             332

Hills Store Company                             Common Stock          521,048          34,776              781         (33,995)
                                                                -------------   -------------    -------------   -------------
Total at December 31, 1998                                                      $      50,878    $      24,243   $     (26,635)
                                                                                =============    =============   =============
</TABLE>



<PAGE>
<TABLE>
<CAPTION>
                                                                   SCHEDULE 2
                                       SUPPLEMENTARY SCHEDULE OF UNREALIZED APPRECIATION AND DEPRECIATION
                                                           ML-LEE ACQUISITION II, L.P.
                                                   FOR THE PERIOD ENDED DECEMBER 31, 1998
                                                              (DOLLARS IN THOUSANDS)
<S>                                         <C>       <C>           <C>       <C>   <C>        <C>        <C>      <C>          <C>
                                                              Total
                                                            Unrealized
                                                           Appreciation/          Unrealized Appreciation (Depreciation) for
                                                           (Depreciation)
                                      Investment    Fair  at December 31,                                                     1993
Security                                    Cost   Value       1998        1998    1997       1996       1995       1994     & Prior
--------------------------------------  --------  ------   ------------  ------  ------   --------    -------     ------    --------
Non Public Securities:
Fitz and Floyd
  Preferred Stock *                       12,619   3,024     (9,596)       --        63     (6,614)    (3,025)       (20)        --
Biolease
  Common Stock*                               94      --        (94)       --       (94)        --         --         --         --
  Subordinated Notes* (a)                    676     392       (318)       --      (318)        --         --         --         --
FLA. Orthopedics, Inc.
  Preferred  Stock*                        1,513      --     (1,513)       --        --         --         --     (1,513)        --
Subordinated Note                             --      --         --        --        --      4,842     (4,842)        --         --
Soretox
  Subordinated Notes*                      6,631   2,590     (4,041)       --    (2,439)        --         --     (1,602)        --
                                                          ---------  --------   -------  ---------  ---------  ---------  ---------

Total Unrealized Depreciation
  from Non Public Securities                                (15,562)       --    (2,788)    (1,772)    (7,867)    (3,135)        --

Reversal of Unrealized Appreciation
  (Depreciation) from Securities Sold
  in 1998
First Alert, Inc.
  Common Stock                                                   --    (1,054)   (2,573)   (10,807)   (12,351)    26,785         --
Playtex Products, Inc.
  Common Stock                                                   --     1,776       773        172        129     (2,522)      (328)
Stanley
  Common Stock                                                   --       (54)      (44)       204        (46)       (78)        18
Hills Stores Company
  Common Stock                                                   --    33,148    (1,498)    (2,019)    (5,722)       189    (24,098)
                                                          ---------  --------   -------  ---------  ---------  ---------  ---------
Total Reversal of Unrealized Appreciation
(Depreciation) from Securities Sold in 1998                      --    33,816    (3,342)   (12,450)   (17,990)    24,374    (24,408)

                                                          ---------  --------   -------  ---------  ---------  ---------  ---------
Reversal of Unrealized Appreciation
  (Depreciation) from Securities Sold
  Prior to 1998                                                  --        --        --     (1,502)    (4,703)  (121,593)   127,798

                                                          ---------  --------   -------  ---------  ---------  ---------  ---------
Total Unrealized Appreciation
  (Depreciation) from Securities Sold                            --    33,816    (3,342)   (13,952)   (22,693)   (97,219)   103,390

                                                          ---------  --------   -------  ---------  ---------  ---------  ---------
Net Unrealized Appreciation (Depreciation)                $ (15,562) $ 33,816   $(6,130) $ (15,724) $ (30,560) $(100,354) $ 103,390
                                                          =========  ========   =======  =========  =========  =========  =========

</TABLE>


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

<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"),
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,  age  76,  Individual   General  Partner  of  Fund  II,  ML-Lee
Acquisition  Fund, L.P. ("Lee I") and the Retirement Fund; and together with the
Fund II, the "New Funds";  and together  with Lee I, the  "Funds").  Director of
Digital Equipment  Corporation,  Intermet Corporation and 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,  age 60,  Individual  General Partner of the Funds.  Donald Kirk
David Professor of Business  Administration.  Harvard University Graduate School
of  Business  Administration.  Faculty  member  since  1963.  Director  of Anika
Research,  Inc.,  Brown  Group,  Inc.,  New America  High Income  Fund,  Sonesta
International  Hotels  Corporation  and The Lincoln  Foundation.  Trustee of the
DeCordova & Dana Museum and Park and the New England Conservatory of Music.

     Mr. Feldberg,  age 74, Individual General Partner of the Funds. Director of
Waban Inc. Trustee of Brandeis University.
<PAGE>
     Mr. Lee, age 54, Individual  General Partner of the Funds.  Chairman of the
Investment  Adviser of the Funds  since  1987;  Chairman  of the  Administrative
General Partner of the Investment Adviser to the new 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.,
First Security Services  Corporation,  Livent,  Inc., Miller Import Corporation,
Safelite Glass  Corporation,  Sondik Supply  Corporation and Vail Resorts,  Inc.
Trustee of Brandeis  University (Vice  Chairman),  Museum of Fine Arts (Boston),
the  Wang  Center  for  the  Performing  Arts,  Boston's  Beth  Israel  Hospital
(Treasurer), NYU Medical Center and the Whitney Museum of American Art. Overseer
of Boston Symphony  Orchestra and New England  Conservatory of Music,  Member of
the Dean's  Council,  Faculty of Arts and Sciences  and an  Executive  Committee
Member of the Committee on University and an Executive  Committee  Member of the
Committee  on  University  Resources  at  Harvard  University;   Member  of  the
Corporation of Belmont Hill School.

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

                                    Title

         Thomas H. Lee              Chairman, Trustee

         Thomas R. Shepherd         Executive Vice President

         David V. Harkins           Senior Vice President, Trustee

         C. Hunter Boll             Vice President, Trustee

         Scott A. Schoen            Vice President

         Wendy L. Masler            Treasurer, Clerk

        Information concerning Mr. Lee is set forth above.


     Mr. Shepherd,  age 69, is a Managing  Director of the Thomas H. Lee Company
since 1986. Mr. Shepherd is currently a director of General Nutrition Companies,
Inc. and Rayovac  Corporation.  He is Executive  Vice President of Thomas H. Lee
Advisors I and T.H. Lee Mezzanine II.

     Mr. Harkins,  age 57, has been a Managing Director of the Lee Company since
1986 and the Chairman of National Dentex  Corporation since 1983. Mr. Harkins is
a Senior  Vice  President  and  Trustee of  Advisors I. He also is a director of
National Dentex  Corporation,  Cott  Corporation,  First Security Services Inc.,
Fisher Scientific  International,  Inc., Freedom Securities Corporation,  Metris
Companies, Inc. (pending), Stanley Furniture Company and Syratech Corporation.

     Mr.  Boll,  age 43, has served as a Managing  Director  of the Lee  Company
since 1991.  From 1986 to 1991 he served as a Vice President of the Lee Company.
Mr. Boll is a Director of Big V Supermarkets  Inc.,  Cott  Corporation,  Freedom
Securities Corporation,  Metris Companies,  Inc. (pending),  New York Restaurant
Group, Transwestern Publishing, L.P. and United Industries Corporation.

     Mr.  Schoen,  age 40, has served as a Managing  Director of the Lee Company
since 1991.  From 1986 to 1990 he served as a Vice President of the Lee Company.
Mr.  Schoen is a Vice  President of Advisors I. Mr. Schoen is also a Director of
Rayovac  Corporation,  ARC Holdings,  LLC,  Syratech  Corporation,  Transwestern
Publishing L.P. and United Industries Corporation.

     Ms.  Masler,  age 45, has been Treasurer of the Lee Company since 1984. Ms.
Masler is also Treasurer and Clerk of 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 Retirement Fund's investments.

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

                                    Title

         Kevin K. Albert            Chairman and President

         James V. Caruso            Executive Vice President, Director

         Rosalie Y. Goldberg        Vice President, Director

         Robert J. Remick           Vice President, Treasurer

         Sharon McKenzie            Vice President, Assistant Treasurer

     Kevin K.  Albert,  46, a  Managing  Director  of Merrill  Lynch  Investment
Banking Group ("ML  Investment  Banking"),  joined  Merrill  Lynch in 1981.  Mr.
Albert  works  in  the  Equity  Private  Placement  Group  and  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. Mr. Albert is also a director of ML Media Management
Inc. ("ML Media"),  an affiliate of ML Mezzanine II Inc. 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.; a director of Merrill  Lynch  Venture  Capital  Inc.  ("ML  Venture"),  an
affiliate  of ML  Mezzanine  II Inc.  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 Inc. 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,  47, a Director of ML Investment  Banking,  joined Merrill
Lynch in 1975.  Mr.  Caruso  manages  the  Investment  Banking  Group  Corporate
Accounting,  Master Lease and off Balance Sheet accounting  functions as well as
the Controller's area of the Partnership  Analysis and Finance Group. Mr. Caruso
is also a director of ML  Opportunity,  ML Venture,  ML R&D,  ML  Mezzanine,  ML
Mezzanine  II and MLH  Property  Managers  Inc.,  an  affiliate  of MLOM and the
general partner of MLH Income Realty Partnership VI.

     Rosalie Y.  Goldberg,  61 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  is also a Director of ML
Mezzanine, ML Mezzanine II, and ML Media.

    Robert  J.  Remick,  age 28,  serves  as  Assistant  Vice  President  in ML
Investment  Banking of ML & Co.  and joined the firm in 1994.  He serves as Vice
President  and  Treasurer of and ML Mezzanine  II. Mr.  Remick  manages  certain
accounting,  financial  reporting  and  administrative  functions in the Merrill
Lynch Partnership  Analysis and Finance  Department and serves as Vice President
and Treasurer of ML Mezzanine II.

     Sharon McKenzie, age 40, joined ML Investment Banking in 1996 and serves as
Vice President, Assistant Treasurer and controller to the funds. Ms. McKenzie is
responsible  for financial  reporting  and fund  accounting in the Merrill Lynch
Partnership  Analysis and Finance  Department  and serves as Vice  President and
Assistant Treasurer of ML Mezzanine II.
<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  $84,262  collectively  for their services as Independent  General
Partners in 1998.

     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 $1,222,538 during 1998, including MGP
Distributions  of $1,167,940 that it  distributed,  $1,109,543 to the Investment
Adviser and $58,397 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 $653,956 with respect to 1998.

     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 $516,846 in 1998.
<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, 1999
-------------------                 ----------        ------------------------

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 Managment, Inc.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111

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

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

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

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

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

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

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

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

Eric M. Ruttenberg                    21,341(1)                  10.0%
Farallon Capital Managment, 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, 1999 as a result of
     the  direct  ownership  by FCP of 16,722  such Units and as a result of the
     direct ownerhip 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 RTinicum,  Thomas F. ASteyer, 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 beneficailly
     the Units of limited partnship interst 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                    *
Jospeh L. Bower                  None                      *
Stanley H. Feldberg            25 Units                    *
Thomas H. Lee                11,011 Units               4.97%

General Partners and 
Officers as a Group          12,584 Units                5.7% 

* 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's. 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 Fund 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, 1998,  which paid  management  fees to Thomas H. Lee
Company of $150,000 for the fiscal year ended December 31, 1998.

     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 1998 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 1998, Fund II paid Managing General Partner  distributions  totaling
$1,222,538  (which  included  $1,167,940 of MGP  Distributions  and $54,598 with
respect to its  interest in Fund II). Of this MGP  Distribution  amount,  95% or
$1,109,543  was paid to the  Investment  Adviser and the  remaining 5% totalling
$588,397  was paid to ML Mezzanine  II Inc.  The  Managing  General  Partner has
earned a total of $26.4 million in MGP Distributions  none of which was deferred
in payment to the Managing  General  Partner at December 31, 1998, 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>

Stanley Furniture Company

     On January 6, 1998,  Fund II sold its  holdings of Common  Stock in Stanley
Furniture  Company  ("Stanley")  for $27 per share. In connection with the sale,
Fund II sold its remaining 3,461 shares of Stanley Common Stock and received net
proceeds of $93,447. These proceeds were distributed on May 15, 1998.

Anchor Advanced Products

     On March 19, 1998 Fund II and  affiliates of the Thomas H. Lee Company sold
their remaining holdings in Anchor.  Pursuant to this transaction,  Fund II sold
410,677  shares of  Anchor  Common  Stock for  approximately  $1.6  million  and
recognized a gain of  $247,192.  Net  distributable  proceeds  were  distributed
during the second quarter to Limited Partners of record as of March 19, 1998.

First Alert

     On April 2,  1998,  Sunbeam  Corporation  ("Sunbeam")  acquired  all of the
outstanding  shares of First  Alert  Common  Stock for $175  million  ($5.25 per
share) by means of a tender  offer (the 'Tender  Offer'),  and assume all of the
debt of First Alert.  Pursuant to the Tender Offer,  Fund II tendered all of its
shares of First Alert Common Stock. and received proceeds of approximately $10.8
million and  recognized a gain of $7.5 million.  Net  distributable  proceeds of
$48.62 per Unit were  distributed on May 15, 1998 to Limited  Partners of record
as of April 2, 1998.

     David V.  Harkins,  Scott A. Schoen and Anthony J. DiNovi,  officers of the
Investment Adviser to the Funds, served as directors of First Alert.

Playtex Products Inc.

     On May 27, 1998,  Playtex Products Inc.  completed a public offering in the
international markets of approximately 4 million shares of Common Stock at a net
price of $13.215 per share (the  "Playtex  Offering').  Of the 4 million  shares
offered,  approximately  3.3 million  shares were offered by  affiliates  of the
Thomas H. Lee company including Fund II. As part of the Playtex  Offering,  Fund
II sold its  remaining  investment in Playtex,  consisting of 343,726  shares of
Common  Stock.  Proceeds to Fund II from the sale totaled $4.5 million or $20.43
per Unit and were included in the distribution  made on August 14, 1998. Fund II
recognized a loss of $756,348 from the Playtex Offering.

     Thomas H. Lee,  who is an  Individual  General  Partner of the Funds and an
officer of the Investment Adviser, served as a director of Playtex.

Cinnabon International, Inc.

     On October 16, 1998, Cinnabon International,  Inc. ("Cinnabon") completed a
Plan of Merger with AFC Enterprises,  Inc. ("AFC") whereby AFC acquired Cinnabon
by merger ("Merger").  Pursuant to the Merger, Fund II received proceeds of $6.9
million (which includes  $551,180 of deferred  interest) for its entire interest
in Cinnabon.  Net Distributable Proceeds from the Merger of $28.69 per Unit were
distributed  on November 16, 1998,  to Limited  Partners of record as of October
16, 1998,  the closing date of this  transaction.  Fund II  recognized a gain of
$332,200 from the Merger.

Hills Stores Company

     On November 13,  1998,  Ames  Department  Stores,  Inc.  ("Ames") and Hills
Stores Company ("Hills") jointly announced the signing of a definitive agreement
in which Ames would  acquire  Hills.  Pursuant to the terms of the  transaction,
Ames, through a wholly-owned subsidiary, on November 18, 1998 commenced a tender
offer for all the  outstanding  shares of Common Stock and Series A  Convertible
Preferred  Stock of Hills,  at a price of $1.50 per share.  Ames will also share
with Hills'  stockholders  25% of a  potential  recovery in the form of deferred
contingent  cash rights with regard to  litigation  initiated  by Hills  against
certain  of  Hills'  former  directors.  Pursuant  to the  offer,  the  deferred
contingent  cash right is not  transferrable.  On  December  16,  1998,  Fund II
tendered all 521,048 of the Funds  shares and received  proceeds of $781,572 and
recognized a loss of approximately $34 million.  These proceeds were distributed
on February 16, 1999.
<PAGE>

                                     PART IV

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

         (a)  Financial Statements, Financial Statement Schedules and Exhibits

         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, 1996

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) Forms 8-K None.



<PAGE>



                                   SIGNATURES



Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the  undersigned,  thereunto duly authorized on the 31st day of March,
1999.


                                   ML-LEE ACQUISITION FUND
                                   (RETIREMENT ACCOUNTS) 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 31, 1999             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 31st day of March, 1999.


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
                                (Retirement Accounts) II, L.P.

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

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

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

/s/ Robert J. Remick         ML Mezzanine II Inc.
Robert J. Remick             Vice President and Treasurer
                             (Principal Financial Officer of Registrant)


/s/ Sharon McKenzie          ML Mezzanine II Inc.
Sharon McKenzie              Vice President and Assistant Treasurer
                             (Principal Accounting Officer of Registrant)




<PAGE>