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

                                    FORM 10-Q

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

                For the Quarterly Period Ended September 30, 1999

                         Commission File Number 0-17383

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

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

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

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

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

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

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

                      Units of Limited Partnership Interest
                                (Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No__ .




<PAGE>
                         PART I - FINANCIAL INFORMATION

                        ML-LEE ACQUISITION FUND II, L.P.

                                TABLE OF CONTENTS

Part I.  Financial Information

Item 1.  Financial Statements

Statements of Assets, Liabilities and Partners'
  Capital as of September 30, 1999 and December 31, 1998

Statements of Operations - For the Three and Nine Months
   Ended September 30, 1999 and 1998

Statements of Changes in Net Assets - For the Nine Months
   Ended September 30, 1999 and 1998

Statements of Cash Flows - For the Nine Months
  Ended September 30, 1999 and 1998

Statement of Changes in Partners' Capital - For the Nine Months
  Ended September 30, 1999

Schedule of Portfolio Investments as of September 30, 1999

Notes to Financial Statements

Supplemental Schedule of Realized Gains and Losses - Schedule 1

Supplemental Schedule of Unrealized Appreciation
 (Depreciation) - Schedule 2

Item 2.  Management's Discussion and Analysis of
  Financial Condition and Results of Operations

Item 3.   Quantative and Qualitative Disclosure About Market Risk

Part II.  Other Information

Item 6.   Exibits and Reports on 8-K



<PAGE>
<TABLE>
<CAPTION>

                                                   ML-LEE ACQUISITION FUND II, L.P.
                                        Statements of Assets, Liabilities and Partners' Capital
                                                       (Dollars in Thousands)
                                                            (Unaudited)
<S>                                                                                     <C>                     <C>
                                                                                        September 30, 1999      December 31, 1998
                                                                                        ------------------      -----------------

Assets:

Investments - Notes 2,4,5
  Portfolio Investments at fair value
    Managed Companies (amortized cost $17,144
      at September 30, 1999 and at December 31, 1998)                                         $     17,144            $    17,144
    Non-Managed Companies (amortized cost $2,330
      at September 30, 1999 and $23,967 at December 31, 1998)                                          407                  8,440
    Temporary Investments, at amortized cost (cost $14,903
      at September 30, 1999 and $3,401 at December 31, 1998)                                        14,984                  3,408
Cash                                                                                                    59                      5
Accrued Interest & Other Receivable - Note 2                                                           276                  1,395
Receivable for Investment Sold                                                                           -                    782
Prepaid Expenses                                                                                         -                      3
                                                                                              ------------            -----------
Total Assets                                                                                  $     32,870            $    31,177
                                                                                              ============            ===========

Liabilities and Partners' Capital:

Liabilities
    Legal and Professional Fees Payable                                                       $          2            $        30
    Reimbursable Administrative Expenses Payable Note 8                                                 46                     22
    Independent General Partners' Fees Payable - Note 9                                                  5                     18
    Deferred Interest Income - Note 2                                                                   53                     81
                                                                                              ------------            -----------
Total Liabilities                                                                                      106                    151
                                                                                              ------------            -----------
Partners' Capital - Note 2
    Individual General Partner                                                                          13                     13
    Managing General Partner                                                                           236                    525
    Limited Partners (221,745 Units)                                                                32,515                 30,488
                                                                                              ------------            -----------
Total Partners' Capital                                                                             32,764                 31,026
                                                                                              ------------            -----------
Total Liabilities and Partners' Capital                                                       $     32,870            $    31,177
                                                                                              ============            ===========

</TABLE>

See the Accompanying Notes to Financial Statements (Unaudited).


<PAGE>
<TABLE>
<CAPTION>

                                 ML-LEE ACQUISITION FUND II, L.P.
                                     Statements of Operations
                                      (Dollars in Thousands)
                                           (Unaudited)

 <S>                                                        <C>                 <C>                  <C>                <C>
                                                               For the Three Months Ended              For the Nine Months Ended
                                                            --------------------------------        -------------------------------
                                                            September 30,       September 30,       September 30,      September 30,
                                                                1999                1998                1999               1998
                                                            -------------       -------------       -------------      ------------
Investment Income - Notes 2,4,6
  Interest                                                      $     562           $     573           $   1,706         $   1,726
  Discount and Other Income                                            93                  76                 223               290
                                                                ---------           ---------           ---------         ---------
    Total Investment Income                                           655                 649               1,929             2,016
                                                                ---------           ---------           ---------         ---------
Expenses:
  Investment Advisory Fee - Note 7                                    167                 156                 500               508
  Fund Administration Fee - Note 8                                     56                  55                 167               167
  Reimbursable Administrative Expenses - Note 8                        48                  87                 173               273
  Legal and Professional Fees                                          37                  68                  37               255
  Independent General Partners' Fees and Expenses - Note 9             23                  20                  64                74
  Insurance Expense                                                     1                   1                   3                 3
                                                                ---------           ---------           ---------         ---------
    Total Expenses                                                    332                 387                 944             1,280
                                                                ---------           ---------           ---------         ---------
Net Investment Income                                                 323                 262                 985               736

Net Realized Gain (Loss) on Investments - Note 4 and Schedule 1    (3,507)                  -              (4,533)            7,028

Net Change in Unrealized Appreciation (Depreciation)
  on Investments - Note 5 and Schedule 2
  Publicly Traded Securities                                            -              (1,823)                  -               212
  Nonpublic Securities                                              9,596                   -              13,637                 -
                                                                ---------           ---------           ---------         ---------
  Subtotal                                                          9,596              (1,823)             13,637               212
                                                                ---------           ---------           ---------         ---------
Net Increase (Decrease) in Net Assets
   Resulting from Operations                                        6,412              (1,561)             10,089             7,976
Less:  Earned MGP Distributions to Managing General Partner          (109)                  -                (293)             (945)
                                                                ---------           ---------           ---------         ---------
Net Increase (Decrease) Available For Pro-Rata
  Distribution to All Partners                                  $   6,303           $  (1,561)          $   9,796         $   7,031
                                                                =========           =========           =========         =========

 </TABLE>

See the Accompanying Notes to Financial Statements (Unaudited).

<PAGE>
<TABLE>
<CAPTION>


                                    ML-LEE ACQUISITION FUND II, L.P.
                                  Statements of Changes in Net Assets
                                         (Dollars in Thousands)
                                               (Unaudited)



 <S>                                                                      <C>                       <C>
                                                                                    For the Nine Months Ended
                                                                          ------------------------------------------
                                                                          September 30, 1999      September 30, 1998
                                                                          ------------------      ------------------

From Operations:
  Net Investment Income                                                      $           985         $           736
  Net Realized Gain (Loss) on Investments                                             (4,533)                  7,028
  Net Change in Unrealized Appreciation from Investments                              13,637                     212
                                                                             ---------------         ---------------
  Net Increase in Net Assets Resulting from Operations                                10,089                   7,976

  Cash Distributions to Partners                                                      (8,351)                (18,597)
                                                                             ---------------         ---------------
  Total Increase (Decrease)                                                            1,738                 (10,621)

Net Assets:
  Beginning of Year                                                                   31,026                  46,833
                                                                             ---------------         ---------------
  End of Period                                                              $        32,764         $        36,212
                                                                             ===============         ===============

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


<PAGE>
<TABLE>
<CAPTION>
                                               ML-LEE ACQUISITION FUND II, L.P.
                                                   Statements of Cash Flows
                                                    (Dollars in Thousands)
                                                          (Unaudited)

  <S>                                                                     <C>                       <C>
                                                                                     For the Nine Months Ended
                                                                          --------------------------------------------
                                                                          September 30, 1999        September 30, 1998
                                                                          ------------------        ------------------
Increase (Decrease) in Cash

Cash Flows From Operating Activities:
  Interest, Discount and Other Income                                        $         2,946           $         1,960
  Legal and Professional Fees                                                            (65)                     (280)
  Investment Advisory Fee                                                               (500)                     (508)
  Fund Administration Fee                                                               (167)                     (167)
  Independent General Partners' Fees and Expenses                                        (77)                      (64)
  Reimbursable Administrative Expenses                                                  (149)                     (202)
  (Purchase) Sale of Temporary Investments, Net                                      (11,502)                      466
  Proceeds from Sales of Portfolio Company Investments                                17,919                    17,085
                                                                             ---------------            --------------
Net Cash Provided by Operating Activities                                              8,405                    18,290
                                                                             ---------------            --------------

Cash Flows from Financing Activities:
  Cash Distributions to Partners                                                      (8,351)                  (18,311)
                                                                             ---------------            --------------
Net Cash Used in Financing Activities                                                 (8,351)                  (18,311)
                                                                             ---------------            --------------
Net Increase (Decrease) in Cash                                                           54                       (21)
Cash at Beginning of Year                                                                  5                       245
                                                                             ---------------            --------------
Cash at End of Period                                                        $            59            $          224
                                                                             ===============            ==============

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

Net Investment Income                                                        $           985            $          736
                                                                             ---------------            --------------
Adjustments to Reconcile Net Investment Income
  to Net Cash Provided by Operating Activities

  Decrease in Investments                                                             10,168                    10,523
  Decrease in Receivable for Investments Sold                                            782                         -
  (Increase) Decrease in Accrued Interest,
    Dividend and Discount Receivable                                                   1,017                       (56)
  Decrease in Prepaid Expenses                                                             3                         3
  Decrease in Legal and Professional Fees Payable                                        (28)                      (25)
  Increase in Reimbursable Administrative Expenses Payable                                24                        71
  Increase (Decrease) in Independent General Partners' Fees Payable                      (13)                       10
  Net Realized Gain (Loss) on Sales of Investments                                    (4,533)                    7,028
                                                                             ---------------            --------------
Total Adjustments                                                                      7,420                    17,554
                                                                             ---------------            --------------
Net Cash Provided by Operating Activities                                    $         8,405            $       18,290
                                                                             ===============            ==============
</TABLE>

See the Accompanying Notes to Financial Statements (Unaudited).


<PAGE>
<TABLE>
<CAPTION>


                                              ML-LEE ACQUISITION FUND II, L.P.
                                        Statements of Changes in Partners' Capital
                                                  (Dollars in Thousands)
                                                       (Unaudited)

<S>                                                              <C>            <C>             <C>           <C>
                                                                Individual      Managing
                                                                 General        General        Limited
                                                                 Partner        Partner        Partners      Total
                                                                ----------     ----------     -----------   ---------
For the Nine Months Ended September 30, 1999

Partners' Capital at January 1, 1999                            $       13     $      525     $    30,488   $  31,026
Allocation of Net Investment Income                                      -            312             673         985
Allocation of Net Realized Loss on Investments                          (1)           (26)         (4,506)     (4,533)
Allocation of Net Change in Unrealized
  Appreciation From Investments                                          3             31          13,603      13,637
Cash Distributions to Partners                                          (2)          (606)         (7,743)     (8,351)
                                                                ----------     ----------     -----------   ---------
Partners' Capital at September 30, 1999                         $       13     $      236     $    32,515   $  32,764
                                                                ==========     ==========     ===========   =========
</TABLE>

See the Accompanying Notes to Financial Statements (Unaudited).














<PAGE>
<TABLE>
<CAPTION>
                        ML-LEE ACQUISITION FUND II, L.P.
                        Schedule of Portfolio Investments
                               September 30, 1999
                             (Dollars in Thousands)
                                   (Unaudited)
<S>               <C>                                                                <C>        <C>         <C>       <C>

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

                   MEZZANINE INVESTMENTS
                   MANAGED COMPANIES


                   BIG V SUPERMARKETS, INC. (a)
$13,037            Big V Supermarkets, Inc., Sr. Sub. Nt. 14.14% due 03/15/01(b)       12/27/90  $ 13,037   $ 13,037
117,333 Shares     Big V Holding Corp., Common Stock(c)                                12/27/90     4,107      4,107
                   (16.6% of fully diluted common equity) (e)                                    --------------------------------
                                                                                                   17,144     17,144        52.70%
                                                                                                 --------------------------------
                   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        52.70%
                                                                                                  ===============================


                  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         1.25%
                                                                                                  -------------------------------


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

                   TOTAL INVESTMENT IN NON-MANAGED COMPANIES                                      $ 2,297      $ 406         1.25%
                                                                                                 ================================
</TABLE>

See the Accompanying Notes to Financial Statements (Unaudited).
<PAGE>
<TABLE>
<CAPTION>
                        ML-LEE ACQUISITION FUND II, L.P.
                        Schedule of Portfolio Investments
                               September 30, 1999
                             (Dollars in Thousands)
                                   (Unaudited)
                                   (Continued)

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

                   SUMMARY OF MEZZANINE INVESTMENTS
                   Subordinated Notes                                                 Various   $ 13,713    $ 13,429    41.28%
                   Preferred Stock, Common Stock, Warrants and Stock Rights           Various      5,728       4,121    12.67%
                                                                                                -----------------------------
                   TOTAL MEZZANINE INVESTMENTS                                                  $ 19,441    $ 17,550    53.95%
                                                                                                =============================

                  TEMPORARY INVESTMENTS

                  COMMERCIAL PAPER
$10,000           Prudential Funding, 5.24% due 10/1/99                                 8/27/99    9,949      10,000
$ 3,300           Ford Motor Credit, 5.21% due 10/1/99                                  8/17/99    3,279       3,300
$ 1,675           State Street Corp., 5.23% due 10/1/99                                 8/27/99    1,675       1,684
                                                                                                -----------------------------
                  TOTAL INVESTMENT IN COMMERCIAL PAPER                                          $ 14,903    $ 14,984    46.05%
                                                                                                -----------------------------
                  TOTAL TEMPORARY INVESTMENTS                                                   $ 14,903    $ 14,984    46.05%
                                                                                                -----------------------------
                  TOTAL INVESTMENT PORTFOLIO                                                    $ 34,344    $ 32,534   100.00%
                                                                                                =============================



(a)     Represents investment in affiliates as defined in the Investment
        Company Act of 1940.
(b)     Restricted security.
(c)     Restricted non-income producing equity security.
(d)     Non-accrual investment status.
(e)     Percentages of Common Equity have not been audited by
        PricewaterhouseCoopers LLP.
(f)     Represents orignal cost and excludes accretion of discount of $33
        for Mezzanine Investments and $81 for Temporary Investments.


</TABLE>

See the Accompanying Notes to Financial Statements (Unaudited).

<PAGE>

                        ML-LEE ACQUISITION FUND II, L.P.
                          Notes to Financial Statements
                               September 30, 1999
                                   (Unaudited)

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 on 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.

     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 September
30, 1999.  Although the Managing General Partner and Investment  Adviser are not
aware of any factors not disclosed  herein that would  significantly  affect the
estimated  fair  value  amounts,  such  amounts  have not  been  comprehensively
revalued since that time.
<PAGE>
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 September 30, 1999, Fund II does not
have any  payment-in-kind  securities.  As of September  30,  1998,  Fund II had
$442,000 of  payment-in-kind  notes which excluded  approximately  $2,500,000 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.

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.

Interim Financial Statements

     The financial  information included in this report as of September 30, 1999
and for the period then ended has been prepared by  management  without an audit
by independent  cetified  public  accountants.  The results for the period ended
September  30,  1999  are  not  necessarily  indicative  of the  results  of the
operations  expected for the year and reflect  adjustments,  all of a normal and
recurring  nature,  necessary  for the fair  presentation  of the results of the
interim period.  In the opinion of the Managing  General Partner of Fund II, all
necessary adjustments have been made to the aforementioned financial information
for a  fair  presentation  in  accordance  with  generally  accepted  accounting
principles.

3.      Allocations of Profits and Losses

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

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

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

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

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


4.   Investment Transactions

     On March 12, 1999,  the Funds  entered into a Note  Repurchase  and Warrant
Cancellation Agreement (the "Agreement") with Stablex Canada Inc. and Seaway TLC
Inc. to sell,  retire and cancel all of the Subordinated  Notes  outstanding 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  $5,605,000  was  allocated  to Fund II. Fund II has  recognized a loss of
approximately $1 million from this transaction.  The distribution of any Capital
Proceeds  relating to this  transaction  was 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 the
receipt of such proceeds.

     On August 27, 1999,  the Funds  completed  the sale of all of its shares of
Fitz and Floyd,  Inc.  Capital Stock (the "Sale")  pursuant to a Stock  Purchase
Agreement  executed by the Funds,  as selling  shareholders,  on August 5, 1999.
Fund II received net sales proceeds of  $11,579,000,  which includes  payment in
full of its 12% Fitz and Floyd, Inc.  Subordinated Notes,  including  prepayment
premium,  and  partial  return of capital on its Fitz and  Floyd,  Inc.  Capital
Stock.  Fund II  recognized  a loss of  approximately  $3.5  million  from  this
transaction. The distribution of Distributable Capital Proceeds relating to this
transaction  will  be made in  accordance  with  the  terms  of the  Partnership
Agreement (See Note 12).

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

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

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

5.   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 security has
been on non-accrual status since the date indicated:

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

7.    Investment Advisory Fee

     The  Investment  Adviser  provides  the   identification,   management  and
liquidation of portfolio investments for the Funds. As compensation for services
rendered to the Funds,  the Investment  Adviser  receives a quarterly fee at the
annual rate of 1% of assets under  management (net offering  proceeds reduced by
cumulative capital reductions and realized losses), with a minimum annual fee of
$1,200,000 for the Funds 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).

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 a Fund  Administration  Fee.  The Fund  Administration  Fee is an annual
amount of $400,000 for the Funds on a combined  basis.  The Fund  Administration
Fee is calculated and paid quarterly, in advance, by each Fund.

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

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

9.   Independent  General  Partners' Fees and Expenses

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

10.     Related Party Transactions

     Fund  II's  investments  generally  were  made as  co-investments  with the
Retirement  Fund. In addition,  certain of the Mezzanine  Investments and Bridge
Investments  which were made by Fund II  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.

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

     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 such Deferred  Distribution Amount
is paid in full.

     During  the  nine  months  ended  September  30,  1999,  Fund II  paid  the
Individual  General Partner  distributions  totaling $2,000 and Managing General
Partner  distributions   totaling  $606,000  (which  includes  $588,000  of  MGP
Distributions as defined above).  As of September 30, 1999, the Managing General
Partner has earned a total of $26,690,000 in MGP Distributions, none of which is
deferred in payment to the Managing  General Partner as a Deferred  Distribution
Amount.

11.  Income Taxes

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

     Pursuant  to the  Statement  of  Financial  Accounting  Standards  No.  109
Accounting  for Income Taxes,  Fund II is required to disclose any difference in
the tax basis of Fund II's assets and liabilities versus the amounts reported in
the financial  statements.  As of December 31, 1998,  the tax basis of Fund II's
assets are greater  than the amounts  reported in the  financial  statements  by
approximately  $15,600,000.  This  difference is  attributable to net unrealized
depreciation on investments which has not been recognized for tax purposes.

12.  Subsequent Events

     On November 9, 1999, a special meeting of the General Partners of the Funds
was held to review Fund II's reserves prior to making any cash distributions. At
this  meeting,  the  General  Partners  were  briefed  on the  status of certain
litigation  commenced  by Hills  Stores  Company  ("Hills")  against  its former
directors,  including Thomas H. Lee (who was serving as a representative  of the
Funds),  in connection with the July 1995 payment by Hills of approximately  $32
million in golden  parachute  payments to certain of its officers in  connection
with the change of control  associated  with the Dickstein  proxy  contest.  The
General  Partners  discussed  the  potential  liabilities  to  Thomas  H. Lee in
connection with this litigation, Fund II's potential indemnification obligations
to Thomas H. Lee and the  liquidity  of Fund II's  remaining  assets.  Following
discussion of the issues,  the Individual General Partners of Fund II determined
that,  to the extent  that Fund II may have future  indemnification  obligations
with respect to such litigation, suitable reserves should be maintained for such
contingency.  Accordingly,  the Individual  General Partners  determined that it
would  not be  prudent  to make  distributions  to  Partners  at this  time  and
therefore,  Fund II has reserved all the proceeds received from the sale of Fitz
& Floyd, Inc. This reserve will be reviewed each quarter by the General Partners
of Fund II.

<PAGE>
<TABLE>
<CAPTION>
                                              SCHEDULE 1
                                     ML-LEE ACQUISITION FUND II, L.P.
                            Supplemental Scedule of Realized Gains and Losses
                               For the Nine Months Ended September 30, 1999
                                         (Dollars in Thousands)
                                              (Unaudited)


<S>                                                     <C>           <C>                      <C>            <C>        <C>
                                                                       Par Value or          Investment        Net       Realized
Security                                                Security      Number of Shares          Cost         Proceeds      Loss
--------                                                --------      ----------------       ----------      --------    --------
Soretox
  Stablex Canada, Inc.                                  Various          Various             $    6,631      $  5,605    $ (1,026)

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

                                                                                             ----------      --------    --------
Total Realized Loss for the Nine Months ended September 30, 1999                             $   21,670      $ 17,137    $ (4,533)
                                                                                             ==========      ========    ========
</TABLE>

See Accompanying Notes to Financial Statements (Unaudited).

<PAGE>
<TABLE>
<CAPTION>
                                                        SCHEDULE 2
                                             ML-LEE ACQUISITION FUND II, L.P.
                              Supplemental Scedule of Unrealized Appreciation (Depreciation)
                                     For the Nine Months Ended September 30, 1999
                                                 (Dollars in Thousands)
                                                      (Unaudited)

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

                                                                  Unrealized       Unrealized
                                                                 Appreciation     Appreciation
                                                                (Depreciation)   (Depreciation)  Total Unrealized   Total Unrealized
                                                                 for the Three    for the Nine      Appreciation      Appreciation
                                                                 Months Ended     Months Ended     (Depreciation)    (Depreciation)
                                         Investment     Fair     September 30,    September 30,   at December 31,   at September 30,
Security                                    Cost        Value        1999            1999              1998               1999
--------                                 ----------    -------   -------------   -------------   -----------------   --------------

Non Public Securities:

Biolease, Inc.
  Common Stock*                          $       94    $    -    $           -   $           -   $             (94)  $          (94)
  Subordinated Notes*(a)                        676       392                -               -                (318)            (318)
FLA. Orthopedics, Inc.
  Preferred  Stock*                           1,513         -                -               -              (1,513)          (1,513)

                                                                 -------------   -------------   -----------------   --------------
Total Unrealized Depreciation
  from Non Public Securities                                                 -               -              (1,925)          (1,925)
                                                                 -------------   -------------   -----------------   --------------
Reversal of Unrealized Appreciation
  (Depreciation) from Securities Sold
  in 1999
Soretox
  Subordinated Notes*                                                        -           4,041              (4,041)               -
Fitz and Floyd, Inc.
  Preferred Stock *                                                      9,596           9,596              (9,596)               -
                                                                --------------   -------------   -----------------    -------------
Total Reversal of Unrealized
 Appreciation(Depreciation)from
  Securities Sold in 1999                                                9,596          13,637             (13,637)               -
                                                                --------------   -------------   -----------------    -------------
Net Unrealized Appreciation (Depreciation)                      $        9,596   $      13,637   $         (15,562)   $      (1,925)
                                                                ==============   =============   =================    =============


</TABLE>
*  Restricted Security
(a) Investment cost excludes accretion of discount of $33.

See Accompanying Notes to Financial Statements (Unaudited).
<PAGE>



Item 2.   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.

     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.

     On August 6, 1991, the Independent  General Partners approved a reserve for
follow-on  investments of approximately  $24,900,000 for Fund II. As of November
15, 1999 this remaining  reserve  balance was  approximately  $3,100,000  due to
follow-on  investments in Petco Animal Supplies,  Fitz and Floyd, Fine Clothing,
Inc.,  Hills  Stores,   Ghirardelli   Holdings  and  Anchor  Advanced  Products.
Additionally,  approximately  $8,300,000 of the reserve has been returned to the
partners.  The level of the  reserve  was based upon an  analysis  of  potential
follow-on  investments in specific portfolio companies that may become necessary
to protect or enhance Fund II's existing investment.

     On March 12, 1999,  Fund II and the Retirement  Fund (together the "Funds")
entered  into  a  Note  Repurchase  and  Warrant  Cancellation   Agreement  (the
"Agreement")  with Stablex  Canada Inc. and Seaway TLC Inc. to sell,  retire and
cancel  all of  the  Subordinated  Notes  outstanding  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  $5,605,000  was
allocated to Fund II. Fund II has recognized a loss of  approximately $1 million
from this transaction. The distribution of any Capital Proceeds relating to this
transaction was 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 the
receipt of such proceeds.

     On August 27, 1999,  the Funds  completed  the sale of all of its shares of
Fitz and Floyd,  Inc.  Capital Stock (the "Sale")  pursuant to a Stock  Purchase
Agreement  executed by the Funds,  as selling  shareholders,  on August 5, 1999.
Fund II received net sales proceeds of  $11,579,000,  which includes  payment in
full of its 12% Fitz and Floyd, Inc.  Subordinated Notes,  including  prepayment
premium,  and  partial  return of capital on its Fitz and  Floyd,  Inc.  Capital
Stock.  Fund II  recognized  a loss of  approximately  $3.5  million  from  this
transaction. The distribution of Distributable Capital Proceeds relating to this
transaction  will  be made in  accordance  with  the  terms  of the  Partnership
Agreement.

     On November 9, 1999, a special meeting of the General Partners of the Funds
was held to review Fund II's reserves prior to making any cash distributions. At
this  meeting,  the  General  Partners  were  briefed  on the  status of certain
litigation  commenced  by Hills  Stores  Company  ("Hills")  against  its former
directors,  including Thomas H. Lee (who was serving as a representative  of the
Funds),  in connection with the July 1995 payment by Hills of approximately  $32
million in golden  parachute  payments to certain of its officers in  connection
with the change of control  associated  with the Dickstein  proxy  contest.  The
General  Partners  discussed  the  potential  liabilities  to  Thomas  H. Lee in
connection with this litigation, Fund II's potential indemnification obligations
to Thomas H. Lee and the  liquidity  of Fund II's  remaining  assets.  Following
discussion of the issues,  the Individual General Partners of Fund II determined
that,  to the extent  that Fund II may have future  indemnification  obligations
with respect to such litigation, suitable reserves should be maintained for such
contingency.  Accordingly,  the Individual  General Partners  determined that it
would  not be  prudent  to make  distributions  to  Partners  at this  time  and
therefore,  Fund II has reserved all the proceeds received from the sale of Fitz
& Floyd, Inc. This reserve will be reviewed each quarter by the General Partners
of Fund II.

     At  September  30,  1999,  Fund II had  outstanding  a total  (at  cost) of
$19,441,000 invested in Mezzanine Investments  representing  $17,144,000 Managed
and $2,297,000  Non-Managed portfolio  investments.  The remaining proceeds were
invested in Temporary  Investments  primarily comprised of commercial paper with
maturities of less than 60 days.

     As provided by the Partnership  Agreement,  the Managing General Partner of
Fund II is entitled to receive an incentive  distribution ("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 September 30, 1999 there is no outstanding Deferred  Distribution
Amount.

     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. As a result, it is expected that the
amount of any future cash distributions,  in aggregate, paid to Limited Partners
will almost  entirely be derived from  recovered  capital and gains,  from asset
sales,  which are subject to market conditions and are inherently  unpredictable
as to timing.  Therefore,  in the absence of cash  available  for  distributions
resulting  from  the  future  sale of  portfolio  holdings,  Fund  II will  have
available  only  small  amounts  of  Net  Distributable  Cash  from  Operations,
estimated  to be less than one  dollar  per Unit each  quarter,  for any  future
distributions.

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  Adviser and that met Fund
II's  investment  guidelines or that had otherwise been approved by the Managing
General Partner and the Independent General Partners. Fund II's investments were
measured  against  specified Fund II investment and performance  guidelines.  To
limit the  exposure of Fund II's capital in any single  issuer,  Fund II limited
the  amount of its  investment  in a  particular  issuer.  Fund II's  Investment
Adviser also continually  monitors portfolio  companies in order to minimize the
risks associated with its investments in High-Yield Securities.

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

Forward Looking Information

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

Results of Operations

Investment Income and Expenses

     For the nine months ended  September 30, 1999,  Fund II had net  investment
income of $985,000 as compared to $736,000 for the same period in 1998.  For the
three months ended  September  30, 1999,  Fund II had net  investment  income of
$323,000 as compared to $262,000  for the same period in 1998.  The  increase in
net investment income for 1999 as compared to 1998 is due to a decrease in legal
and professional fees and Reimbursable  Administrative Expenses partially offset
by a decrease in investment income during 1999 as further described below.

     The investment  income from  operations for the year consists  primarily of
interest and discount income earned on the investment of Proceeds from Partners'
Contributions in Mezzanine  Investments and short-term money market instruments.
For the nine months ended September 30, 1999,  Fund II had investment  income of
$1,929,000 as compared to $2,016,000  for the same period in 1998.  The decrease
in investment income for the nine months ended September 30, 1999 as compared to
the same period in 1998 is directly attributable to the sale of income producing
portfolio  companies  during 1998 and 1999. For the three months ended September
30, 1999, Fund II had investment  income of $655,000 as compared to $649,000 for
the same period in 1998.  The  increase in  investment  income  during the three
months ended September 30, 1999 as compared to the same period in 1998 is due to
the  increase  of  discount  income in 1999 which was  earned  from the Fitz and
Floyd, Inc. sale proceeds.

     Major expenses for the period  consisted of Investment  Advisory Fees, Fund
Administration Fees, and Reimbursable Administrative Expenses

     The  Investment   Adviser  and  Fund   Administrator   both  receive  their
compensation on a quarterly basis.  The total  Investment  Advisory Fees paid by
Fund II to the Investment  Adviser for the three and nine months ended September
30, 1999 and 1998 were $167,000, $500,000, $156,000 and $508,000,  respectively,
and were  calculated at an annual rate of 1.0% of assets under  management  (net
offering proceeds reduced by cumulative capital reductions and realized losses),
with a minimum annual amount of $1,200,000 for the Funds on a combined  basis.
The  decrease  in  Investment  Advisory  Fees  are a direct  result  of sales of
investments,  returns of capital  distributed to partners and realized losses on
investments.

     As compensation  for its services,  the Fund  Administrator  is entitled to
receive an annual  amount of $400,000  for the Funds on a combined  basis,  plus
100% of all  reimbursable  expenses (as defined below)  incurred by Fund II. For
the three and nine months ended  September 30, 1999, and 1998,  Fund II incurred
Fund   Administration   Fees  of  $56,000,   $167,000   $55,000  and   $167,000,
respectively.

     Actual  out-of-pocket  expenses  ("Reimbursable  Administrative  Expenses")
primarily consist of printing, audit, tax preparation,  legal fees and expenses,
and custodian  fees. For the three and nine months ended  September 30, 1999 and
1998, Fund II incurred $48,000, $173,000,  $87,000, and $273,000,  respectively,
in   Reimbursable   Administrative   Expenses.   The  decrease  in  reimbursable
administrative  expenses for the three and nine months ended  September 30, 1999
as  compared  to the same  periods  in 1998 is due to an  overall  reduction  in
auditing,   custodian,  printing  and  legal  administrative  fees  during  1999
resulting from fewer investments held by Fund II during 1999.

     Legal and  professional  fees for the three and nine months ended September
30, 1999 and 1998 were $37,000,  $68,000,  $37,000 and  $255,000,  respectively.
These expenses are largely  attributable  to legal fees incurred and advanced on
behalf of indemnified defendants as well as fees incurred directly by Fund II in
connection with the certain  litigation  proceedings.  The decrease in legal and
professional  fees for the nine months ended  September  30, 1999 as compared to
the same period in 1998 resulted from the increased costs incurred by Fund II in
connection  with the  settlement  of the Seidel  litigation in the first half of
1998.

Net Assets

     Fund II's net assets  increased by $1,738,000  during the nine months ended
September 30, 1999, due to net investment income of $985,000 and reversal of net
unrealized  depreciation of $13,637,000 offset by cash distributions to partners
of  $8,351,000  ($6,387,000  of which  was  return of  capital  from the sale of
portfolio   investments)   and  realized  losses  from  the  sale  of  Mezzanine
Investments  of  $4,533,000.  This  compares  to the  decrease  in net assets of
$10,621,000  for the nine months ended  September  30, 1998  resulting  from the
payment of cash distributions to partners of $18,597,000 partially offset by net
unrealized  depreciation of $456,000, a reversal of unrealized  appreciation of
$1,108,000, a reversal of unrealized depreciation of $1,776,000,  net investment
income of $736,000 and realized gains from the sale of portfolio  investments of
$7,028,000.

Unrealized Appreciation and Depreciation on Investments

     For the nine months ended September 30, 1999, Fund II recorded  reversal of
net  unrealized  depreciation  of  $13,637,000.  This compares to the unrealized
depreciation of $456,000, a reversal of unrealized appreciation of $1,108,000, a
reversal  of  unrealized  depreciation  of  $1,776,000,   for  1998.  Fund  II's
cumulative net unrealized  depreciation  on investments as of September 30, 1999
totaled $1,925,000.

     The  Managing  General  Partner  and  the  Investment  Adviser  review  the
valuation  of  Fund  II's  portfolio  investments  that  do not  have a  readily
ascertainable  market value on a quarterly  basis with final  approval  from the
Individual General Partners.  Portfolio  investments are valued at original cost
plus  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  56.6% 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 September  30, 1999,  Fund II's
investment in Big V Supermarkets  Inc.  represents  approximately  52.7% 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 September
30, 1999.  Although the Managing General Partner and Investment  Adviser are not
aware of any factors not disclosed  herein that would  significantly  affect the
estimated  fair  value  amounts,  such  amounts  have not  been  comprehensively
revalued  since  that  time,  and the  current  estimated  fair  value  of these
investments may have changed significantly since that point in time.

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

Net Realized Gains and Losses on Investments

     For the nine months ended September 30, 1999, Fund II recorded net realized
losses on investments of $4,533,000 million as compared to net realized gains of
$7,028,000  for the  nine  months  ended  September  30,  1998.  For  additional
information,  please refer to the  Supplemental  Schedule of Realized  Gains and
Losses - Schedule 1.

Cash Distributions

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

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

     A number of Fund  II's debt  investments  have  been  repaid  and one is on
non-accrual  status.  These  situations  reduce  the amount of  interest  income
received by Fund II. As a result,  It is expected  that the amount of any future
distributions,  in aggregate,  paid to Limited  Partners will be derived  almost
entirely from recovered capital and gains from asset sales, which are subject to
market conditions and are inherently  unpredictable as to timing.  Therefore, in
the absence of cash available for  distributions  resulting from the future sale
of portfolio  holdings,  Fund II will have  available  only small amounts of Net
Distributable  Cash from  Operations,  estimated  to be less than one dollar per
Unit each quarter, for any future distributions.

     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.

     ML Fund Administrators, Inc. an indirect wholly owned subsidiary of Merrill
Lynch  and  Co.,  Inc.   ("Merrill   Lynch"),   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 Fund  Administrators  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 participated in further industrywide testing during March and
April  1999,  sponsored  by the  Securities  Industry  Association.  These tests
involved an expanded number of firms, transactions, and conditions compared with
those previously  conducted.  Merrill Lynch has participated in and continues to
participate in numerous industry tests throughout the world.

     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 3.  Quantitative and Qualitative Disclosure About Market Risk

     As of  September  30,  1999,  Fund  II  maintains  a  portion  of its  cash
equivalents in financial instruments with original maturities of three months or
less.  These  financial  instruments are subject to interest rate risk, and will
decline in value if interest rates increase.  A significant increase or decrease
in  interest  rates  would not have a  material  effect  on Fund II's  financial
position.
<PAGE>

Part II - Other Information


     Item 1. Legal Proceedings.
             -----------------
             None

     Item 2. Changes in Securities and Use of Proceeds.
             -----------------------------------------
             None

     Item 3. Defaults Upon Senior Securites.
             ------------------------------
             None

     Item 4. Submission of Matters to a Vote of Security holders.
             ---------------------------------------------------
             None

     Item 5. Other Information.
             -----------------
             None


     Item 6. Exhibits and Reports on Form 8-K.
             --------------------------------
             (a) Exhibits:

                 Exhibit 27 - Financial  Data Schedule for the quarter  ended
                 September 30, 1999.

             (b) Reports on form 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 15th day of
November, 1999.


                                   ML-LEE ACQUISITION FUND
                                   II, L.P.

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

                             By:   ML Mezzanine II Inc.,
                                   its General Partner



                               /s/ Kevin T. Seltzer
                               ----------------------------------
Dated:  November 15, 1999          Kevin T. Seltzer
                                   ML Mezzanine II, Inc.
                                   Vice President and Treasurer
                                  (Principal Financial Officer of Registrant)