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 Period Ended September 30, 1995

                 Commission File Number 0-17383

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

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

               World Financial Center
              South Tower - 23rd Floor
           New York, New York  10080-6123
  (Address of principal executive offices and zip code)

Registrant's telephone number, including area code:
(212) 236-7339.

Securities registered pursuant to Section 12(b) of the Act: None.

Name on each exchange on which registered:  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 .

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




<PAGE>
                 PART I - FINANCIAL INFORMATION

                ML-LEE ACQUISITION FUND II, L.P.

                        TABLE OF CONTENTS

Part I.  Financial Information
                                                     Page
Item 1.  Financial Statements


Statements of Assets, Liabilities and Partners'
  Capital as of September 30, 1995 and
   December 31, 1994                                   3

Statements of Operations - For the Three and Nine
  Months Ended September 30, 1995 and
  September 30, 1994                                   4

Statements of Changes in Net Assets -
 For the Nine Months Ended September 30, 1995
 and September 30, 1994                                5

Statements of Cash Flows - For the Nine Months
 Ended September 30, 1995 and September 30, 1994       6

Statement of Changes in Partners' Capital at
  September 30, 1995                                   7

Schedule of Portfolio Investments -
  September 30, 1995                                   8

Notes to Financial Statements                         15

Supplemental Schedule of Realized Gains and
 Losses -(Schedule 1)                                 27

Supplemental Schedule of Unrealized Appreciation
 and Depreciation - (Schedule 2 )                     28

Item 2.  Management's Discussion and Analysis of
  Financial Condition and Results of Operations       30

Part II.  Other Information                           37





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

                                                      September
                                                       30,1995         December
                                                     (Unaudited)       31, 1994
<S>                                                     <C>              <C>
ASSETS:
Investments - Notes 2,4,5
Portfolio Investments, at fair value
 Managed Companies
  (amortized cost $113,795 at
  September 30, 1995 and $114,726 at
  December 30, 1994)                                  $112,746        $120,895
 Non-Managed Companies
  (amortized cost $30,338 at September 30,
  1995 and $29,888 at December 31, 1994)                24,783          26,753
 Temporary Investments, at amortized
  cost (cost $11,614 at September 30, 1995
  and $18,345 at December 31, 1994)                     11,655          18,390
Cash                                                         1               1
Accrued Interest and Dividend Receivable - Note 2        1,320           1,763
Prepaid Expenses                                             1               4
TOTAL ASSETS                                          $150,506        $167,806

LIABILITIES AND PARTNERS' CAPITAL:

Liabilities
  Professional Fees Payable                           $    529        $    160
  Independent General Partners' Fees
    Payable - Note 11                                       25              46
  Deferred Interest Income - Note 2                        773             886
Total Liabilities                                        1,327           1,092

Partners' Capital - Note 2
  Individual General Partner                                37              40
  Managing General Partner                               2,890           4,780
  Limited Partners (221,745 Units)                     146,252         161,894
Total Partners' Capital                                149,179         166,714

TOTAL LIABILITIES AND PARTNERS' CAPITAL               $150,506        $167,806

       See the Accompanying Notes to Financial Statements.

</TABLE>


<PAGE>





  <TABLE>
  <CAPTION>
                                                    ML-LEE ACQUISITION FUND II, L.P.
                                                       STATEMENTS OF OPERATIONS
                                                             (UNAUDITED)
                                                        (DOLLARS IN THOUSANDS)


                                                                     For the Three Months Ended  For the Nine Months Ended
                                                                       September   September      September  September
                                                                       30, 1995    30, 1994       30, 1995   30, 1994
<S>                                                                      <C>        <C>           <C>         <C>
INVESTMENT INCOME - NOTES 2,6:
Interest                                                               $ 1,765      $  2,551      $ 5,097    $ 10,409
Discount                                                                   185           229          718       1,117
Dividends                                                                   30             -           47          84
TOTAL INCOME                                                             1,980         2,780        5,862      11,610

EXPENSES:
Investment Advisory Fee - Note 8                                           374           399        1,157       1,294
Fund Administration Fee - Note 9                                           197           203          600         631
Amortization of Deferred Organization Expenses - Note 2                      -            15            -          44
Professional Fees                                                          614           744        1,003       1,739
Reimbursable Administrative Expenses - Note 10                              10            31           90         194
Independent General Partners' Fees and Expenses - Note 11                   42            53          122          80
Insurance Expense                                                            1             1            4           4
TOTAL EXPENSES                                                           1,238         1,446        2,976       3,986

NET INVESTMENT INCOME                                                      742         1,334        2,886       7,624

Net Realized Gain on Investments - Note 4 and Schedule 1                     -             -        7,081         503

Net Change in Unrealized Appreciation (Depreciation) on Investments - Note 5 and
  Schedule 2:
  Publicly Traded Securities                                            (4,668)      (17,917)      (7,220)    (26,144)
  Non-Public Securities                                                      -        (1,910)      (2,421)     (5,756)
                                                                        (4,668)      (19,827)      (9,641)    (31,900)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS         (3,926)      (18,493)         326     (23,773)

Less:  Incentive Fee to Managing General Partner - Note 12                (892)            -       (2,938)          -

NET DECREASE AVAILABLE FOR PRO-RATA
  DISTRIBUTION TO ALL PARTNERS                                        $ (4,818)    $ (18,493)    $ (2,612)  $ (23,773)


                   See the Accompanying Notes to Financial Statements.

</TABLE>


<PAGE>





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

                                          For the Nine Months Ended
                                        September 30,    September 30,
                                            1995             1994
<S>                                          <C>             <C>

FROM OPERATIONS:

Net Investment Income                    $  2,886         $  7,624

Net Realized Gain on Investments            7,081              503

Net Change in Unrealized
 Depreciation on Investments               (9,641)         (31,900)

Net Increase (Decrease) in Net
 Assets Resulting From Operations             326          (23,773)

Cash Distributions to Partners            (17,861)         (32,106)

Total Decrease                            (17,535)         (55,879)

NET ASSETS:

Beginning of Year                         166,714          297,301

End of Period                            $149,179         $241,422

           See the Accompanying Notes to Financial Statements.

</TABLE>





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


                                                       For the Nine Months Ended
                                                       September 30,   September 30,
                                                           1995           1994
<S>                                                         <C>            <C>
INCREASE IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest, Discount and Dividends                        $  5,746       $ 11,150
Closing Fee Received                                           -             60
Professional Fees                                           (570)        (1,289)
Investment Advisory Fee                                   (1,157)        (1,294)
Fund Administration Fee                                     (600)          (631)
Independent General Partners' Fees and Expenses             (144)          (149)
Reimbursable Administrative Expenses                        (156)          (114)
Sale of Temporary Investments, Net                         6,731         23,943
Purchase of Portfolio Company Investments                 (1,635)        (9,868)
Proceeds from Sales of Portfolio Company Investments       9,646         11,865
  Net Cash Provided by Operating Activities               17,861         33,673
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to Partners                           (17,861)       (32,106)
Net Cash Applied to Financing Activities                 (17,861)       (32,106)
Net Increase in Cash                                           -          1,567
Cash at Beginning of Year                                      1              1
Cash at End of Year                                     $      1       $  1,568

               RECONCILIATION OF NET INVESTMENT INCOME
             TO NET CASH PROVIDED BY OPERATING ACTIVITIES

Net Investment Income                                   $  2,886       $  7,624
Adjustments to Reconcile Net Investment
  Income to Net Cash Provided by Operating
  Activities:
Decrease in Investments                                    7,659         25,926
(Increase) in Accrued Interest Receivables                  (116)          (460)
Decrease in Prepaid Expenses                                   3             18
Amortization of Deferred Organization Expenses                 -             43
Increase in Professional Fees Payable                        369            525
Decrease in Independent General Partners' Fees Payable       (21)           (64)
Increase in Closing Fee Payable                                -             61
Decrease in Option Payable                                     -           (503)
Net Realized Gain on Investments                           7,081            503
Total Adjustments                                         14,975         26,049
Net Cash Provided by Operating Activities               $ 17,861       $ 33,673

           See the Accompanying Notes to Financial Statements.

</TABLE>





<PAGE>
<TABLE>
<CAPTION>
                               ML-LEE ACQUISITION FUND II, L.P.
                           STATEMENT OF CHANGES IN PARTNERS' CAPITAL
                                          (UNAUDITED)
                                    (DOLLARS IN THOUSANDS)


                                                     Individual  Managing
                                                      General    General   Limited
                                                      Partner    Partner   Partner   Total
<S>                                                    <C>        <C>       <C>      <C>
For the Nine Months Ended
  September 30, 1995 - Notes 2,3,4,5

Partners' Capital at January 1, 1995                $ 40    $ 4,780   $161,894   $166,714
Allocation of Net Investment Income                    1      1,019      1,866      2,886
Allocation of Net Realized Gain on Investments         1        779      6,301      7,081
Allocation of Net Change in Unrealized
  Depreciation on Investments                         (2)       (22)    (9,617)    (9,641)
Cash Distributions to Partners                        (3)    (3,666)   (14,192)   (17,861)

Partners' Capital at September 30, 1995             $ 37    $ 2,890   $146,252   $149,179


             See the Accompanying Notes to Financial Statements.

</TABLE>






<PAGE>

<TABLE>
<CAPTION>
                                              ML-LEE ACQUISITION FUND II, L.P.
                                      SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
                                                    SEPTEMBER 30, 1995
                                                  (DOLLARS IN THOUSANDS)


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

                   ANCHOR ADVANCED PRODUCTS, INC. (b)
$5,867             Anchor Advanced Products, Inc., Sr. Sub. Nt.11.67% due 04/30/00(c)  04/30/90   $5,867     $5,867
$7,822             Anchor Advanced Products, Inc., Jr. Sub. Nt.17.5% due 04/30/00(c)   04/30/90    7,822      7,822
162,967 Shares     Anchor Holdings Inc., Common Stock (d)                              04/30/90    1,548      1,548
247,710 Warrants   Anchor Holdings Inc., Common Stock Purchase Warrants(d)             04/30/90        0          0
                     (26.5% of fully diluted common equity assuming exercise
                       of warrants)                                                               15,237     15,237      10.21

                   BIG V SUPERMARKETS, INC. (b)
$13,037            Big V Supermarkets, Inc., Sr. Sub. Nt. 14.14% due 03/15/01(c)       12/27/90   13,037     13,037
117,333 Shares     Big V Holding Corp., Common Stock(d)                                12/27/90    4,107      4,107
                     (16.6% of fully diluted common equity)                                       17,144     17,144      11.49

                   COLE NATIONAL CORPORATION
1,341 Warrants     Cole National Corporation, Common Stock Purchase Warrants(d)        09/26/90        0          0
                     (0.0% of fully diluted common equity assuming exercise
                       of warrants)
                     $1,393 13% Sr. Secured Bridge Note
                     Purchased 09/25/90                     $1,393
                     Repaid 11/15/90                        $1,393
                     Realized Gain                          $    0
                                                                                                       0          0       0.00

                             See the Accompanying Notes to the Financial Statements.

</TABLE>





<PAGE>
<TABLE>
<CAPTION>
                                              ML-LEE ACQUISITION FUND II, L.P.
                                      SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
                                                    SEPTEMBER 30, 1995
                                                  (DOLLARS IN THOUSANDS)


  Principal                                                                                                   Fair      % Of
   Amount/                                                                            Investment Investment  Value      Total
   Shares         Investment                                                            Date       Cost     (Note 2)  Investments
    <S>              <C>                                                                <C>        <C>         <C>       <C>
                   CST OFFICE PRODUCTS, INC.(b) - Note 6
$6,355             Lee-CST Acquisition Corp., Sr. Sub. Nt. 12% due 03/31/00(c)(h)       03/30/90  $ 6,355    $ 6,355
$6,355             Lee-CST Acquisition Corp., Jr. Sub. Nt. 18% due 03/30/90(c)(h)       03/30/90    6,355      6,355
$2,294             CST Office Products Corp., Sr. Sub. Nt. 15% due 03/31/00(c)(f)(h)    Various       195        195
$3,047             CST Office Products Corp., Jr. Sub. Nt. 15% due 06/30/96(c)(f)(h)    Various         0          0
162,949 Shares     Lee-CST Holding Corp., Common Stock (d)                              03/30/90    1,304      1,304
177,207 Warrants   Lee-CST Holding Corp., Common Stock Purchase Warrants(d)             03/30/90        0          0
                   (23.1% of fully diluted common equity assuming exercise of warrants)            14,209     14,209     9.52

                   FIRST ALERT, INC.(b) - Note 5
2,058,474 Shares   First Alert, Inc., Common Stock(a)(d)                                07/31/92    3,320     32,421
                     (8.1% of fully diluted common equity)
                      $ 10,198 12.5% Sub. Note
                      Purchased 07/31/92                    $10,198
                      Repaid 03/28/94                       $10,198
                      Realized Gain                         $     0
                                                                                                    3,320     32,421    21.72

                   GHIRARDELLI HOLDINGS CORPORATION (b) - Note 4
$4,672             Ghirardelli Holdings Corporation, 13% Subordinated Note
                     due 03/31/02(c)                                                    03/31/92    4,672      4,672
467,200 Shares     Ghirardelli Holdings Corporation, Common Stock(d)                    03/31/92      934        934
73,692 Shares      Ghirardelli Holdings Corporation, Common Stock(d)                    05/12/95      234        234
14,016 Shares      Ghirardelli Holdings Corporation, Series A Preferred Stock(d)        05/12/95    1,402      1,402
                     (8.2% of fully diluted common equity)
                     $7,008 Sr. Bridge Note
                     Purchased 03/31/92                     $7,008
                     Repaid 06/11/92                        $7,008
                     Realized Gain                          $    0
                                                                                                    7,242      7,242     4.84


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






<PAGE>
<TABLE>
<CAPTION>
                                              ML-LEE ACQUISITION FUND II, L.P.
                                      SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
                                                    SEPTEMBER 30, 1995
                                                  (DOLLARS IN THOUSANDS)

  Principal                                                                                                   Fair      % Of
   Amount/                                                                            Investment Investment  Value      Total
   Shares         Investment                                                            Date       Cost     (Note 2)  Investments
    <S>              <C>                                                                 <C>       <C>         <C>       <C>
                   HILLS STORES COMPANY (b) - Notes 4,5
458,432 Shares     Hills Stores Company, Common Stock(a)(j)                           04/03/90   $30,246    $ 5,215
62,616 Shares      Hills Stores Company, Common Stock(d)                              08/21/95     4,530        712
                     (3.7% of fully diluted common equity)                                        34,776      5,927       3.97

                   PETCO ANIMAL SUPPLIES, INC. (b) - Notes 4,5
116,825 Shares     Petco Animal Supplies, Common Stock(a)(d)                          Various      1,915      3,037
                     (1.3% of fully diluted common equity)
                     $52 14% Sr. Sub. Bridge Notes
                     Purchased various                      $   52
                     Repaid 04/19/91                        $   52
                     Realized Gain                          $    0
                     $1,667 12.5% Sr. Sub. Notes
                     Purchased various                      $1,667
                     Repaid 03/28/94                        $1,667
                     Realized Gain                          $    0
                     120,143 Shares Common Stock
                     Purchased various                      $1,969
                     Sold 04/26/95                          $2,368
                     Realized Gain                          $  399
                     Total Realized Gain                    $  399
                                                                                                   1,915      3,037       2.04



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






<PAGE>
<TABLE>
<CAPTION>
                                              ML-LEE ACQUISITION FUND II, L.P.
                                      SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
                                                    SEPTEMBER 30, 1995
                                                  (DOLLARS IN THOUSANDS)
  Principal                                                                                                   Fair      % Of
   Amount/                                                                            Investment Investment  Value      Total
   Shares         Investment                                                            Date       Cost     (Note 2)  Investments
    <S>              <C>                                                                 <C>        <C>         <C>       <C>
                  PLAYTEX PRODUCTS, INC. - Note 5,7,16
343,726 Shares    Playtex Products, Inc., Common Stock(a)(d)                          03/29/90   $ 5,299    $  2,965
                    (.66% of fully diluted common equity)
                    $7,333 15% Subordinated Note
                    Purchased 03/29/90                      $7,333
                    Sold 09/28/90                           $7,349
                    Realized Gain                           $   16
                    84,870 Shares Common Stock
                    Purchased 03/29/90                      $  282
                    Sold 12/20/91                           $  328
                    Realized Gain                           $   46
                    $7,334 15% Subordinated Note
                    Purchased 03/29/90                      $7,334
                    Sold 02/01/93                           $7,327
                    Realized Loss                           $   (7)
                    Total Net Realized Gain                 $   55
                                                                                                   5,299      2,965         1.99
                  RESTAURANTS UNLIMITED
$6,044            Restaurants Unlimited, 11% Subordinated Note due 06/30/02(c)        06/03/94     6,044      6,044
391,302 Warrants  Restaurants Unlimited, Common Stock Warrants(d)  06/03/94           06/03/94         0          0
                    (2.4% of fully diluted common equity)
                                                                                                   6,044      6,044         4.05
                  STANLEY FURNITURE COMPANY, INC. (b) - Note 5
23,105 Shares     Stanley Furniture Company, Inc., Common Stock(a)(j)                 06/30/91       291        202
                    (0.4% of fully diluted common equity)
                                                                                                     291        202         0.15
                  SUN PHARMACEUTICALS CORP.(b) - Note 7,16
$8,318            Sun Pharmaceuticals Corp., 12.5% Sub. Nt. due 12/31/02(c)           12/03/92     8,318      8,318
7,444.5 Warrants  Banana Boat Holding Corp., Common Stock Purchase Warrants(d)(i)     12/03/92         0          0
                    (5.9% of fully diluted common equity assuming exercise of warrants)
                    $11,051 Sr. Bridge Note
                    Purchased 12/03/92                      $11,051
                    Repaid 12/18/92                         $11,051
                    Realized Gain                           $     0
                                                                                                   8,318      8,318         5.58
                    TOTAL INVESTMENT IN MANAGED COMPANIES                                       $113,795   $112,746        75.56

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


<PAGE>



<TABLE>
<CAPTION>
                                              ML-LEE ACQUISITION FUND II, L.P.
                                      SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
                                                    SEPTEMBER 30, 1995
                                                  (DOLLARS IN THOUSANDS)
Principal                                                                                                    Fair       % Of
  Amount/                                                                            Investment Investment   Value      Total
  Shares          Investment                                                            Date       Cost     (Note 2)  Investments
   <S>               <C>                                                                 <C>       <C>         <C>       <C>
                  NON-MANAGED COMPANIES

                  BIOLEASE, INC.
$784              Biolease, Inc., 13% Sub. Nt. due 06/06/04 (c)                        06/08/94   $   676      $ 691
96.56 Shares      BioLease, Inc., Common Stock (d)                                     06/08/94        94         94
40,057 Warrants   Biotransplant, Inc., Common Stock Purchase Warrants(d)               06/08/94        14         14
                                                                                                      784        799      0.54
                  FITZ AND FLOYD/SYLVESTRI -Notes 4,5,6
$10,281           FFSC, Inc., Adjustable Rate Sr. Sub. Nt. due 03/31/03(c)             03/31/93    10,266     10,268
$ 2,419           FFSC, Inc., Adjustable Rate Sr. Sub. Nt. due 03/31/03(c)             07/30/93     2,414      2,414
1,511,856 Shares  FF Holding Co., Common Stock (d)                                     03/31/93        15          0
514,636 Shares    FF Holding Co., Common Stock (d)                                     07/30/93         5          0
515,845 Shares    FF Holding Co., Common Stock (d)                                     12/22/94         0          0
                                                                                                   12,700     12,682      8.50
                  FLA. ORTHOPEDICS, INC. - Notes 5,6,14
$4,842            FLA. Acquisition Corp., 12.5% Sub. Nt. due 07/31/99(c)(h)            08/02/93     4,842      2,421
121,040 Shares    FLA. Holdings, Inc. Common Stock(d)                                  08/02/93     1,513          0
72,624 Warrants   FLA. Holdings, Inc. Common Stock Purchase Warrants(d)                08/02/93         0          0
                                                                                                    6,355      2,421      1.62

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





<PAGE>
<TABLE>
<CAPTION>
                                              ML-LEE ACQUISITION FUND II, L.P.
                                      SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
                                                    SEPTEMBER 30, 1995
                                                  (DOLLARS IN THOUSANDS)
  Principal                                                                                                  Fair      % Of
   Amount/                                                                            Investment Investment  Value      Total
   Shares         Investment                                                            Date       Cost     (Note 2)  Investments
<S>                <C>                                                                  <C>        <C>         <C>       <C>
                  NATIONAL TOBACCO COMPANY, L.P.
$3,503            National Tobacco Company, 13% Sub. Nt. due 10/15/98(c)              04/14/92   $ 3,503     $ 3,503
$  115            National Tobacco Company, 16% Sub. Nt. due 10/15/98(c)(f)           06/30/93       115         115
$  234            National Tobacco Company, Class A Partnership Int.(d)               04/14/92       234         234
                                                                                                   3,852       3,852     2.58

                  SORETOX - Notes 4,5,6
$3,503            Stablex Canada, Inc., Sub. Nt. 10% due 06/30/07(c)(h)               06/29/95     3,503       2,590
$3,128            Stablex Canada, Inc., Jr. Sub. Nt. 11% due 06/30/09(c)(h)           06/29/95     3,128       2,439
2,004 Warrants    Seaway TLC, Inc. Common Stock Purchase Warrants                     06/29/95         0           0
                                                                                                   6,631       5,029     3.37

                   TOTAL INVESTMENT IN NON-MANAGED COMPANIES                                     $30,322      24,783    16.61

                   SUMMARY OF MEZZANINE INVESTMENTS

                   Subordinated Notes                                                 Various     87,112      83,106    55.70
                   Partnership Interest                                               04/14/92       234         234     0.16
                   Preferred Stock,Common Stock, Warrants and Stock Rights            Various     56,771      54,189    36.32

                   TOTAL MEZZANINE INVESTMENTS                                                  $144,117    $137,529    92.18

                            See the Accompanying Notes to Financial Statements.

</TABLE>


<PAGE>



<TABLE>
<CAPTION>
                                              ML-LEE ACQUISITION FUND II, L.P.
                                      SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
                                                    SEPTEMBER 30, 1995
                                                  (DOLLARS IN THOUSANDS)
  Principal                                                                                                  Fair      % Of
   Amount/                                                                            Investment Investment  Value      Total
   Shares         Investment                                                            Date       Cost     (Note 2)  Investments
   <S>             <C>                                                                  <C>        <C>         <C>       <C>
              TEMPORARY INVESTMENTS

              CERTIFICATES OF DEPOSIT AND TIME DEPOSITS
$  134        State Street Bank 2.5% due 10/02/95                                    09/29/95   $  134      $  134
$  605        Banque Nationale de Paris, 3.875% due 03/29/96 - Note 14               08/18/93      605         605
              TOTAL INVESTMENT IN C/D'S AND TIME DEPOSITS                                          739         739       0.51

              COMMERCIAL PAPER
$4,530        Ford Motor Credit, 5.72% due 10/20/95                                  09/22/95    4,510       4,516
$6,401        Avco Financial, 5.73% due 10/02/95                                     08/28/95    6,365       6,400
              TOTAL INVESTMENT IN COMMERCIAL PAPER                                              10,875      10,916       7.32

              TOTAL TEMPORARY INVESTMENTS                                                       11,614      11,655       7.83

              TOTAL INVESTMENT PORTFOLIO                                                      $155,731    $149,184     100.00%


(a)  Publicly traded class of securities.
(b)  Represents investment in affiliates as defined in the Investment Company Act of 1940.
(c)  Restricted security.
(d)  Restricted non-income producing equity security.
(e)  Represents original cost and excludes accretion of discount of $11,722 for Mezzanine Investments and $38,365 for
     Temporary Investments.
(f)  Inclusive of receipt of payment-in-kind securities.
(g)  Represents a dollar amount of less than one thousand dollars.
(h)  Non-accrual investment status.
(i)  Call option written against this security.
(j)  Non-income producing equity security.


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






<PAGE>

                               ML-LEE ACQUISITION FUND II, L.P.
                                NOTES TO FINANCIAL STATEMENTS
                                      SEPTEMBER 30, 1995
                                          (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 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 has 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 stated 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.


<PAGE>


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 its 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.  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.

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

    The information presented herein is based on pertinent information available
to the Managing General Partner and Investment Adviser as of September 30, 1995.
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 especially in light of the fact that the portfolio investments of
companies  whose  equity is publicly  traded are valued at the trading  price at
September 29, 1995, 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.


<PAGE>


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, 1995 and December 31,
1994,  Fund  II had in its  portfolio  of  investments  $751,907  and  $310,007,
respectively,  of payment-in-kind  debt securities which excludes $7,278,058 and
$4,479,539,  respectively,  of  payment-in-kind  securities  received from notes
placed on  non-accrual  status.  As of September 30, 1995 and December 31, 1994,
Fund II had in its portfolio of investments $2,293,457 of payment-in-kind equity
securities.

Deferred Organization Expenses

    Organization  costs  of  $292,128  for  Fund II were  fully  amortized  on a
straight-line basis as of November 10, 1994.

Investment Transactions

    Fund II records  investment  transactions on the date on which it obtains an
enforceable right to demand the securities or payment therefor.  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,  when realized,  are allocated in accordance with
the provisions of the Partnership Agreement summarized in Note 3.


<PAGE>


Interim Financial Statements

    The financial  information  included in this interim  report as of September
30, 1995 and for the period then ended has been prepared by  management  without
an audit by independent certified public accountants. The results for the period
ended  September 30, 1995 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 Mezzanine  Investments II, L.P., 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 are 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 20.225% 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.

    Losses will be allocated in reverse  order of profits  previously  allocated
and thereafter  99.75% to the Limited  Partners,  0.23% to the Managing  General
Partners and 0.02% to the Individual General Partner.

4.  Investment Transactions

    On January 27, 1995, Fund II sold 227,437 shares of EquiCredit Common Stock
realizing a gain of $6,682,098 on an original investment of $595,886.  The
proceeds from the sale were distributed to Fund II's partners in a special 
distribution on February 14, 1995.


<PAGE>


    On April 27, 1995, Petco Animal Supplies,  Inc. ("Petco") completed a public
offering  of  approximately  3.6  million  shares of Common  Stock  (the  "Petco
Offering") at a net price of $19.71 per share. Of the shares sold, approximately
2.4 million  shares were  offered by Petco and  approximately  1.2 million  were
offered  by certain  existing  shareholders,  including  Fund II. As part of the
Petco Offering,  Fund II sold 120,143 shares  (including shares sold as a result
of the  exercise  of the  underwriters'  overallotment  option on May 26,  1995)
representing 51% of its Petco holdings.  Fund II received proceeds of $2,368,319
and realized a gain of $398,415 on the sale of the equity.

    On May 12, 1995, Fund II made a follow-on investment in Ghirardelli Holdings
 Corp. for a total of $1,635,200.  Fund II received 14,016 shares of Series A
Preferred Stock for $1,401,600 and 73,692 additional shares of Common Stock 
for $233,600.

    Effective June 29, 1995,  Soretox  structured a management led buyout of the
company. As a result, the Stablex Canada, Inc. $6,189,075, 14% Subordinated Note
and the 183,921 shares of 176347 Canada Inc. Common Stock Purchase Warrants held
by Fund II were exchanged for a Stablex Canada, Inc. $3,503,250 principal amount
10% Subordinated Note, a $2,685,825  principal amount (plus capitalized interest
of $441,900  from the note  exchanged)  11% Junior  Subordinated  Note and 2,004
shares of Seaway TLC, Inc. Common Stock Purchase  Warrants.  No gain or loss was
recorded on the transaction.

    On August 21,  1995,  Fund II entered  into a stock  purchase  and  exchange
agreement  with Hills  Stores  Company and  exchanged  the 219,156  Common Stock
Rights held by Fund II for 62,616 shares of Hills Stores  Common Stock.  No gain
or loss was recognized on the  transaction.  The common shares  received will be
registered with the Securities and Exchange  Commission in the fourth quarter of
1995.

    On August 6, 1991, the Independent  General Partners  approved a reserve for
follow-on  investments of $24,985,029 for Fund II. As of September 30, 1995, the
reserve balance was reduced to $10,904,608 due to follow-on  investments of $286
in Petco Animal Supplies,  Inc., $2,418,970 in Fitz and Floyd, Inc., $240,060 in
Fine Clothing,  Inc. and $4,500,826 for a Certificate of Deposit  related to the
reorganization  of  Hills  Stores.  Fund  II  made  a  follow-on  investment  in
Ghirardelli  Holdings  Corp.  of $1,635,200  and has returned  $5,285,079 of the
reserve to  partners  during the nine  months  ended  September  30,  1995.  The
Independent  General  Partners have approved an additional  distribution  of the
reserve of $1,000,000  to Partners to be made on November 14, 1995.  See Note 16
for further information.  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 its existing 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.


<PAGE>


    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  the  nine  months  ended  September  30,  1995,  Fund II  recorded  net
unrealized  depreciation  of $9,640,975 (of which,  $7,220,175 is net unrealized
depreciation  from publicly  traded  securities and $2,420,800 is net unrealized
depreciation   from  non-public   securities)   compared  to  a  net  unrealized
depreciation  of $31,899,722  for the same period in 1994. As of this date, Fund
II's cumulative net unrealized depreciation on investments totaled $6,604,923.

    For  additional  information,  please  refer to the  Schedule of  Unrealized
Appreciation and Depreciation (Schedule 2 - pages 28 - 29).

6.  Non-Accrual of Investments

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

    - CST Office Products, Inc. on October 1, 1992.
    - Fitz and Floyd/Sylvestri Corporation on January 1, 1994.
    - FLA. Orthopedics, Inc., on January 1, 1995.
    - Stablex Canada, Inc., on June 29, 1995.

7.  Covered Call and Put Options

    Concurrently  with  the  Funds'  investment  in  Sun  Pharmaceuticals  Corp.
("Sun"), Playtex Products Inc. ("Playtex") entered into a distribution agreement
with Sun pursuant to which Playtex  agreed to act as the  principal  distributor
for  Sun's  products  in  the  ordinary   course  of  business.   As  additional
consideration  for entering into this agreement,  Playtex  obtained an option to
purchase at a formula price (under certain  conditions)  the Banana Boat Holding
Corp.  Common Stock held by other  investors in the  transaction,  including the
Common Stock purchasable upon exercise of the Funds' warrants. Playtex exercised
this option in the fourth quarter of 1995. See Note 16 for further information.


<PAGE>


8.  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),  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  Incentive  Fees (as defined in Note 12)
paid to the Managing  General  Partner.  For the nine months ended September 30,
1995  and  1994,  Fund II  paid  $1,156,833  and  $1,293,686,  respectively,  in
Investment Advisory Fees to Thomas H. Lee Advisors II, L.P.

9.  Fund Administration Fee

    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 annual  amount of the greater of $500,000 or 0.45% of
the excess of net offering proceeds less 50% of capital reductions. In addition,
ML Mezzanine II, Inc., an affiliate of the Fund  Administrator and Merrill Lynch
& Co., receives 5% of the benefit of any MGP Incentive Fees paid to the Managing
General  Partner  (as  defined  in Note  12).  The  Fund  Administration  Fee is
calculated and paid quarterly,  in advance,  by each Fund in proportion with the
net offering  proceeds.  For the nine months ended  September 30, 1995 and 1994,
Fund II paid $599,851 and $631,107, respectively, in Fund Administration Fees.

10. Administrative Expenses

    Pursuant to the  administrative  services  agreement between Fund II and the
Fund  Administrator,  effective  November  10,  1993,  a portion  of the  actual
out-of-pocket  expenses  incurred in connection with the  administration  of the
Retirement  Fund  is  being  reimbursed  to  the  Fund   Administrator.   Actual
out-of-pocket expenses ("reimbursable  expenses") primarily consist of printing,
audits,  tax preparation and custodian fees. For the nine months ended September
30, 1995 and 1994,  Fund II  incurred  $90,182 and  $194,337,  respectively,  in
reimbursable expenses.

11. 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 and
compensation for each of the Individual General Partners is reviewed annually by
the Independent  General Partners.  For the nine months ended September 30, 1995
and 1994, Fund II incurred  $122,394 and $80,184,  respectively,  in Independent
General Partners' Fees and Expenses.


<PAGE>


12. Related Party Transactions

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

    For the nine months ended  September 30, 1995,  Fund II paid $156,459 to the
Fund Administrator for reimbursable out-of-pocket expenses (please refer to Note
10 for further information).

    In 1995,  the  Fund II paid the  Individual  General  Partner  distributions
totaling  $3,600 and paid the Managing  General Partner  distributions  totaling
$3,665,776  (which includes  $3,629,773 of incentive fees ("MGP Incentive Fees")
and $36,003  with  respect to their  interest in Fund II). Of the MGP  Incentive
Fees  paid,  95% or  $3,448,284  was  paid  to the  Investment  Advisor  and the
remaining 5% totaling  $181,489 was paid to ML Mezzanine II Inc. As of September
30, 1995, the Managing  General Partner has earned  $16,547,004 in MGP Incentive
Fees of which  $2,937,537 is deferred in payment to the Managing General Partner
as a Deferred  Distribution  amount (the "Deferred  Distribution") in accordance
with the  Partnership  Agreement.  To the  extent not  payable  to the  Managing
General  Partner,  this 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.

13. Litigation

    On April 5, 1991,  two Limited  Partners  of Fund II filed a putative  class
action in the United  States  District  Court for the  Southern  District of New
York, purportedly on behalf of the class of all Limited Partners of record as of
September  30,  1990,  against  Fund  II,  the  Managing  General  Partner,  the
Individual  General Partners and the Investment  Adviser.  The complaint alleges
that the  disclosure  in Fund II's proxy  statement  for the Special  Meeting of
Limited  Partners  held  May  22,  1990  violated  Federal  statutes  and  rules
promulgated  by the  Securities  and Exchange  Commission.  The complaint  seeks
monetary  damages,  which are not quantified,  and other relief. On December 30,
1992,  the United States  District  Court for the Southern  District of New York
granted the defendants' motion to dismiss the plaintiffs' complaint,  with leave
to the plaintiffs to file an amended  complaint no later than February 15, 1993.
On  February  11,  1993,  plaintiffs  filed an amended  complaint  alleging,  in
addition to the allegation set forth in the original complaint,  that if certain
facts were  disclosed  in the 1990  proxy  statement,  plaintiffs  and the other
members of the class would have voted  differently in the elections to which the
proxy  statement  pertained.  The  defendants  thereafter  moved to dismiss  the
amended  complaint.  In  December  1994,  the  parties  entered  into a proposed
stipulation and settlement to resolve the litigation and on August 7, 1995 there
was a settlement hearing pursuant to which the settlement was approved on August
10, 1995. The settlement was thereafter  effected.  Fund II has advanced amounts
to the indemnified  parties based upon amounts which are deemed  reimbursable in
accordance with the indemnification provisions and has included these amounts in
professional fees.

    On February 3, 1992 and February 5, 1992, respectively,  one Limited Partner
from Fund II and one Limited  Partner from the  Retirement  Fund each  commenced
class actions in the US District Court for the District of Delaware, purportedly
on behalf of all persons who  purchased  limited  partnership  interests  in the
Funds  between  November  10, 1989 and January 5, 1990,  against the Funds,  the
Managing  General  Partner,  the  Individual  General  Partners,  the Investment
Adviser  to the  Funds and  certain  named  affiliates  of such  persons.  These
actions,   alleging   that  the   defendants   in  the  action   made   material
misrepresentations or omitted material information in the offering materials for
the Funds concerning the investment  purposes of the Funds, were consolidated by
the court on March  31,  1992,  and a  consolidated  complaint  was filed by the
plaintiffs  on May  14,  1992.  In  April  1993,  plaintiffs  filed  an  amended
complaint,  adding claims that certain transactions by the Funds were prohibited
by the federal  securities  laws  applicable  to the Funds and their  affiliates
under the Investment Company Act of 1940, as amended. The amended complaint also
named the Funds' counsel as a defendant. Defendants moved to dismiss the amended
complaint,  and, by Opinion and Order dated March 31, 1994, the Court granted in
part and denied in part the motions to dismiss.


<PAGE>


    Additionally,  by its March 31, 1994 Opinion and Order,  the Court certified
the case as a class  action,  and ordered  plaintiffs to replead by filing a new
complaint  reflecting the Court's rulings. On April 15, 1994,  plaintiffs served
and filed a new complaint,  which  defendants moved to strike for not conforming
to the court's ruling. On August 3, 1994, the Court granted  defendants'  motion
to strike  the new  complaint.  Plaintiffs  thereafter  filed a  revised  second
amended complaint dated September 26, 1994. Factual discovery in this litigation
has concluded.  Expert discovery is currently set to conclude in early 1996. The
defendants in this action  believe that the remaining  claims are without merit,
although  whether or not the plaintiffs  prevail,  the Funds may be obligated to
indemnify and advance litigation expenses to certain of the defendants under the
terms and conditions of various indemnity  provisions in the Funds'  Partnership
Agreements  and  separate  indemnification  agreements,  and the  amount of such
indemnification and expenses could be material.  Fund II has advanced amounts to
the  indemnified  parties  based upon amounts which are deemed  reimbursable  in
accordance with the indemnification provisions and has included these amounts in
professional fees. The outcome of this case is not determinable at this time.

    On  August  9,  1994,  the same two  Limited  Partners  from Fund II and the
Retirement Fund commenced another putative class action in the US District Court
for the  District of  Delaware,  purportedly  on behalf of all persons who owned
limited  partnership  interests  in the Funds on November  4, 1993,  against the
Funds, the Managing  General  Partners,  the Individual  General  Partners,  the
Investment  Adviser to the Funds and certain  named  affiliates of such persons.
Plaintiffs  allege  that  the  defendants  violated  certain  provisions  of the
Investment Company Act of 1940 and the common law in connection with the sale by
certain of the defendants of shares of common stock of Snapple Beverage Corp. in
a November 1993 secondary  offering and seek actual and punitive  damages and an
accounting  in  connection  therewith.  The  defendants  have  filed  papers  in
opposition  to the motion for partial  summary  judgment on January 10, 1995. On
August 4,  1995,  plaintiffs  filed an  amended  complaint  alleging  additional
violations of the  Investment  Company Act of 1940 and common law arising out of
the secondary offering.  The plaintiffs moved for summary judgment on certain of
these claims.  On October 13, 1995, the defendants in this litigation each filed
briefs in opposition to plaintiffs motion. Because the defendants in this action
believe that the claims are without merit,  each defendant also filed a separate
motion to dismiss, although whether or not the plaintiffs prevail, the Funds may
be  obligated  to indemnify  and advance  litigation  expenses to certain of the
defendants under the terms and conditions of various indemnity provisions in the
Funds'  Partnership  Agreements  and separate  indemnification  agreements.  The
outcome of this case is not determinable at this time.


<PAGE>


    On  November  2, 3 and 4,  1994,  stockholders  of  Snapple  Beverage  Corp.
commenced  approximately  twenty putative class actions in the Delaware Chancery
Court,  purportedly  on behalf of all public  stockholders  of Snapple,  against
Snapple,  the Funds,  Thomas H. Lee Equity  Partners,  L.P.,  and some or all of
Snapple's  directors.  Since  then,  the  plaintiffs  have filed a  Consolidated
Amended  Complaint  against Snapple,  the Funds,  Thomas H. Lee Equity Partners,
L.P., some or all of Snapple's  directors and Quaker Oats. The complaint alleges
that the sale of Snapple to Quaker Oats is at an unfair  price and in  violation
of the  defendants'  fiduciary  duties to public  stockholders.  The  plaintiffs
sought an  injunction  against the merger  transaction,  an  accounting  for any
damages  suffered by the public  stockholders,  and attorneys'  fees and related
expenses.  The Court on November 15, 1994, denied plaintiffs application to take
expedited  discovery and request to schedule a preliminary  injunction  hearing.
The  defendants  in these  actions  believe  that the claims are without  merit,
although  whether or not the plaintiffs  prevail,  the Funds may be obligated to
indemnify and advance litigation expenses to certain of the defendants under the
terms and conditions of various indemnity  provisions in the Funds'  Partnership
Agreements and separate indemnification  agreements. The outcome of this case is
not determinable at this time.

14. Commitments

    On August 2,  1993,  Fund II  established  a letter  of credit  from  Banque
Nationale  de  Paris  in  favor of FLA.  Orthopedics,  a  Non-Managed  portfolio
company.  Fund II posted as  collateral  a $605,200  Banque  Nationale  de Paris
certificate  of deposit  which pays an annual  interest  rate of 3.875%.  If the
commitment is drawn upon, Fund II will receive additional subordinated notes and
equity of FLA. Orthopedics. The letter of credit will expire on May 1, 1996.

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

    No provision  for income taxes has been made since 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.  Generally,  the tax basis of the Fund  II's  assets
approximate  the amortized  cost amounts  reported in the financial  statements.
This amount is computed  annually and as of December 31, 1994,  the tax basis of
Fund II's assets are less than the amounts reported in the financial  statements
by  $4,416,180.  This  difference is primarily  attributable  to net  unrealized
appreciation on investments which has not been recognized for tax purposes.


<PAGE>


16. Subsequent Events

    On October 17, 1995 Playtex  Products,  Inc.  and Banana Boat Holding  Corp.
entered an  Agreement  and Plan of Merger  (the  "Agreement")  pursuant to which
Playtex  agreed to  acquire  all of the  outstanding  equity of Banana  Boat not
already owned by Playtex.  In accordance  with the  Agreement,  the 12.5% Senior
Subordinated Note held by the Fund, plus all accrued interest,  was paid in full
by Playtex upon consummation of the merger. Additionally,  the Fund received net
proceeds of $173.55 per share for the 7444.5 Common Stock Purchase Warrants that
were exercised  pursuant to the Agreement.  As a result, the Fund received total
proceeds  of  $9,699,527  on  October  31,  1995  which  resulted  in a gain  of
$1,291,993.  These proceeds will be distributed to the partners in December 1995
in a special distribution.


    On November 3, 1995,  the  Individual  General  Partners  approved the third
quarter  1995  cash  distribution   totaling  $2,019,087  which  represents  net
investment  income of $892,051 from  Mezzanine  Investments,  $1,000,326  from a
return of the reserve for follow on  investments  and  $126,710  from  Temporary
Investments.  The total amount distributed to Limited Partners was $1,124,247 or
$5.07 per Unit, which was paid on November 14,1995. The Managing General Partner
received  a total of  $2,535,  with  respect  to its  interest  in Fund II,  and
$892,051 in performance  incentive fees. Thomas H. Lee, as an Individual General
Partner, received $254 with respect to his interest in Fund II.






<PAGE>
<TABLE>
<CAPTION>
                                         SCHEDULE 1
                              ML-LEE ACQUISITION FUND II, L.P.
                      SUPPLEMENTAL SCHEDULE OF REALIZED GAINS AND LOSSES
                         FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
                                        (UNAUDITED)
                                   (DOLLARS IN THOUSANDS)


                             NUMBER OF    INVESTMENT      NET        REALIZED
  SECURITY                    SHARES         COST       PROCEEDS       GAIN
  <S>                          <C>           <C>          <C>          <C>
EquiCredit Corp.
  Common Stock               227,437       $  596        $7,278       $6,682

Petco Animal Supplies
  Common Stock               120,143(a)     1,969         2,368          399

TOTAL                                      $2,565        $9,646       $7,081



(a) Includes the underwriters overallotment option exercised on May 26, 1995.

</TABLE>






<PAGE>

<TABLE>
<CAPTION>
                                                             SCHEDULE 2
                                                  ML-LEE ACQUISITION FUND II, L.P.
                                SUPPLEMENTAL SCHEDULE OF UNREALIZED APPRECIATION (DEPRECIATION)
                                                FOR THE PERIOD ENDED SEPTEMBER 30, 1995
                                                            (UNAUDITED)
                                                      (DOLLARS IN THOUSANDS)

                                                             UNREALIZED       UNREALIZED
                                                            APPRECIATION     APPRECIATION                             TOTAL
                                                           (DEPRECIATION)   (DEPRECIATION)        TOTAL            UNREALIZED
                                                           FOR THE THREE     FOR THE NINE       UNREALIZED        APPRECIATION
  SECURITY                                                  MONTHS ENDED     MONTHS ENDED      APPRECIATION      (DEPRECIATION) AT
                                   INVESTMENT     FAIR      SEPTEMBER 30,    SEPTEMBER 30,   (DEPRECIATION) AT     SEPTEMBER 30,
                                     COST         VALUE        1995              1995        DECEMBER 31, 1994        1995
  <S>                                <C>           <C>          <C>               <C>              <C>                 <C>
PUBLICLY TRADED/UNDERLYING
  SECURITY PUBLICLY TRADED:
EquiCredit Corp.
  Common Stock*                   $     -       $     -       $     -          $(6,654)          $ 6,654            $     -
First Alert, Inc.
  Common Stock                      3,320        32,421         1,802            2,316            26,785             29,101
Hills Stores Company
  Common Stock                     34,776         5,927        (6,430)          (4,940)          (23,909)           (28,849)
Petco Animal Supplies, Inc.
  Common Stock                      1,915         3,037           322            1,571              (449)             1,122
Playtex Products, Inc.
  Common Stock                      5,299         2,965          (387)             516            (2,850)            (2,334)
Stanley Furniture
  Common Stock                        291           202            25              (29)              (60)               (89)
TOTAL UNREALIZED APPRECIATION
  (DEPRECIATION) FROM PUBLICLY
  TRADED SECURITIES                                           $(4,668)         $(7,220)          $ 6,171            $(1,049)

</TABLE>





<PAGE>
<TABLE>
<CAPTION>
                                                          SCHEDULE 2
                                                ML-LEE ACQUISITION FUND II, L.P.
                               SUPPLEMENTAL SCHEDULE OF UNREALIZED APPRECIATION (DEPRECIATION)
                                               FOR THE PERIOD ENDED SEPTEMBER 30, 1995
                                                          (UNAUDITED)
                                                   (DOLLARS IN THOUSANDS)

                                                             UNREALIZED       UNREALIZED
                                                            APPRECIATION     APPRECIATION                             TOTAL
                                                           (DEPRECIATION)   (DEPRECIATION)        TOTAL            UNREALIZED
                                                           FOR THE THREE     FOR THE NINE       UNREALIZED        APPRECIATION
  SECURITY                                                  MONTHS ENDED     MONTHS ENDED      APPRECIATION      (DEPRECIATION) AT
                                   INVESTMENT     FAIR      SEPTEMBER 30,    SEPTEMBER 30,   (DEPRECIATION) AT     SEPTEMBER 30,
                                      COST        VALUE        1995              1995        DECEMBER 31, 1994        1995
  <S>                                 <C>          <C>          <C>               <C>              <C>                 <C>
NON PUBLIC SECURITIES:
Fitz and Floyd/Sylvestri
  Common Stock                       $   20      $   -        $   -           $     -           $   (20)            $   (20)
FLA. Orthopedics, Inc.
  Common Stock*                       1,513          -            -                 -            (1,513)             (1,513)
  Subordinated Note                   4,842      2,421            -            (2,421)                -              (2,421)
Stablex Canada Inc.
  Subordinated Notes*                 6,631      5,029            -                 -            (1,602)             (1,602)

TOTAL UNREALIZED APPRECIATION
  (DEPRECIATION)FROM NON PUBLIC
  SECURITIES                                                                   (2,421)           (3,135)              (5,556)

NET UNREALIZED APPRECIATION
  (DEPRECIATION)                                            $(4,668)          $(9,641)          $ 3,036             $(6,605)


*  Restricted security.


</TABLE>






<PAGE>

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


Liquidity & Capital Resources

    As of September 30, 1995,  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
January 5, 1990.  Net proceeds which were available for investment to Fund II as
of September 30, 1995 were  $160,908,803,  after returns of capital to partners,
volume discounts,  sales  commissions and  organizational,  offering,  sales and
marketing expenses.

    At  September  30, 1995,  Fund II had  outstanding  a total of  $144,115,397
invested  in  Mezzanine  Investments   representing   $113,794,255  Managed  and
$30,321,142  Non-Managed  portfolio  investments.  The  remaining  proceeds were
invested in Temporary  Investments  primarily  comprised of commercial paper and
bankers' acceptances with maturities of less than two months.

    Excluding  subordinated notes placed on non-accrual  status,  Fund II during
the nine months ending  September 30, 1995 received  $441,900 in additional debt
securities in lieu of cash interest payments  ("payment-in-kind"  securities) as
provided in certain of its subordinated  note  investments.  As of September 30,
1995,  Fund II has in its portfolio of investments  $751,907 of  payment-in-kind
debt  securities  and $2,293,457 of  payment-in-kind  equity  securities,  which
excludes $7,278,058 of payment-in-kind  securities received from notes placed on
non-accrual status.

    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 quarter of Fund II's investment period
terminated at various times through December 21, 1993.


<PAGE>


    As provided by the Partnership  Agreement,  the Managing  General Partner of
Fund II receives  incentive fees from transactions to the extent certain returns
of capital and priority  returns are  achieved.  As of September  30, 1995,  the
amount that was deferred in payment(the  "Deferred  Distribution Amount") to the
Managing  General  Partner  in  accordance  with the  Partnership  Agreement  is
$2,937,537.  To the extent not payable to the  Managing  General  Partner,  this
Deferred  Distribution  Amount  is  distributed  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  would
instead  be  payable  to  the  Managing   General  Partner  until  the  Deferred
Distribution  Amount is paid in full.  As of November  14,  1995,  the  Deferred
Distribution Amount owed to the Managing General Partner is $2,045,486.

    On August 6, 1991, the Independent  General Partners  approved a reserve for
follow-on  investments of $24,985,029 for Fund II. As of November  14,1995,  the
reserve  balance has been reduced to $9,904,608 due to follow-on  investments of
$286 in Petco Animal Supplies,  $2,418,970 in Fitz and Floyd, Inc.,  $240,060 in
Fine Clothing,  Inc. and $4,500,826 for a Certificate of Deposit  related to the
reorganization of Hills. Fund II also made a follow-on investment in Ghirardelli
Holdings Corp. of $1,635,000 and returned  $5,285,079 of the reserve to partners
during the nine  months  ended  September  30,  1995.  The  Independent  General
Partners have approved an additional  reserve of $1,000,000 to be distributed to
the partners on November  14,  1995.  The level of the reserve was based upon an
analysis of potential  follow-on  investments in specific  portfolio  companies,
which 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 or follow-on investments.

    The  proportion  of  distributions  provided  by net  investment  income has
dropped  significantly  from prior years,  due primarily to increased  sales and
redemptions of Mezzanine Investments,  a resulting decrease in investment income
as those  holdings  cease to generate  interest  income.  Given the  outstanding
Deferred Distribution Amount noted above, it is expected that all net investment
income from Mezzanine  Investments  will be distributed to the Managing  General
Partner  until the  Managing  General  Partner  receives an amount  equal to any
outstanding  Deferred  Distribution  Amount.  Given these  circumstances,  it is
expected that the majority of any future cash  distributions to Limited Partners
for the next few years will almost  entirely be derived from gains and recovered
capital  from  asset  sales,  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 from Temporary Investments,  estimated to be less than
one dollar per  Limited  Partnership  Unit each  quarter for the next few years.
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  invests   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  and implemented  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  meet  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.

    Certain issuers of High-Yield Securities held by Fund II
(First Alert, Hills, Petco, Playtex and Stanley Furniture) have registered their
equity  securities in public  offerings.  Although the equity  securities of the
same class  presently  held by Fund II (other than Stanley  Furniture)  were not
registered  in these  offerings,  Fund II has the ability  under Rule 144 of the
Securities Act of 1933 to sell publicly traded equity  securities held by it for
at least two years on the open market,  subject to the volume  restrictions  set
forth  in  that  rule.  The  Rule  144  volume  restrictions  generally  are not
applicable to equity securities of non-affiliated  companies held by Fund II for
at least three years. In certain cases, Fund II has agreed not to make any sales
of  equity  securities  for a  specified  hold-back  period  following  a public
offering.

    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.


<PAGE>


Results of Operations

Investment Income and Expenses

    The investment income from operations for the quarter 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, 1995, Fund II had investment  income
of  $5,861,519,  as compared  to  $11,610,226  for the same period in 1994.  The
decrease of $5,748,707 in 1995  investment  income from 1994 is due primarily to
the recognition of previously unrecorded interest,  dividend and discount income
of  $3,071,447  related to Petco Animal  Supplies that was recorded in the first
quarter 1994. Also  contributing to this decrease is (i) the amount of temporary
investments held by Fund II in 1995 after  distributions of return of capital to
partners and (ii) the  placement of two debt  securities on  non-accrual  status
during 1995.

    For the three months ended September 30, 1995, Fund II had investment income
of $1,981,008, compared to $2,780,482 for the same period in 1994.

    Major  expenses for the period  ended  September  30, 1995  consisted of the
Investment  Advisory Fee, legal and professional fees, Fund  Administration Fee,
the Independent General Partners' Fees and Expenses.

    The   Investment   Adviser  and  Fund   Administrator   both  receive  their
compensation on a quarterly basis.  The total  Investment  Advisory Fees paid to
the  Investment  Adviser for the nine months ended  September  30, 1995 and 1994
were  $1,156,833 and $1,293,686,  respectively,  and are calculated at an annual
rate of 1.0% of assets  under  management  (net  offering  proceeds  reduced  by
cumulative capital  reductions),  with a minimum annual amount of $1,200,000 for
Fund II and the Retirement Fund on a combined basis.  For the three months ended
September 30, 1995 and 1994,  Fund II paid $373,533 and $398,704,  respectively,
in  Investment  Advisory  Fees.  The  decrease  in 1995's as  compared to 1994's
Investment  Advisory  Fee was a direct  result of returns of capital to partners
and realized losses on investments.

    Legal and professional fees for the nine months ended September 30, 1995 and
1994 were  $1,003,338 and  $1,738,726,  respectively.  These fees were primarily
incurred in connection  with the litigation  proceedings as described in Note 13
to the Financial  Statements.  For the three months ended September 30, 1995 and
1994  Fund II  incurred  $613,814  and  $743,938,  respectively,  in  legal  and
professional  fees.  The  decrease is  attributable  to a decrease in 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.


<PAGE>


    The Fund  Administration  Fees paid to the Fund  Administrator  for the nine
months  ended   September   30,  1995  and  1994  were  $599,851  and  $631,107,
respectively, and are calculated at an annual rate of 0.45% of the excess of net
offering  proceeds  less 50% of capital  reductions.  For the three months ended
September 30, 1995 and 1994,  Fund II paid $197,233 and $202,896,  respectively,
in Fund  Administration  Fees. The decrease in 1995's as compared to 1994's Fund
Administration  Fees was a direct  result of returns of capital to partners  and
realized losses on investments.

    Pursuant to the  administrative  services  agreement between Fund II and the
Fund  Administrator,  effective  November  10,  1993,  a portion  of the  actual
out-of-pocket  expenses  incurred in connection with the  administration  of the
Retirement Fund is reimbursable to the Fund Administrator.  Actual out-of-pocket
expenses  ("reimbursable  expenses") primarily consist of printing,  audits, tax
preparation and custodian fees. For the nine months ended September 30, 1995 and
1994,  reimbursable  expenses  totaled $90,182 and $194,337,  respectively.  The
decrease from 1994 to 1995 is due to an increase in the accrual for reimbursable
expenses in 1994.

    For the nine months  ended  September  30,  1995 and 1994,  Fund II incurred
$122,394 and $80,184,  respectively,  in Independent  General Partners' Fees and
Expenses.  The increase in Independent  General  Partners' Fees and Expenses was
primarily  attributable  to the increase in legal fees  incurred and advanced on
behalf of  indemnified  Independent  General  Partners  in  connection  with the
aforementioned   litigation   proceedings.   (See  Note  13  to  the   Financial
Statements).

    For the nine months ended  September  30, 1995,  Fund II had net  investment
income of $2,885,370, as compared to $7,624,420 for the same period in 1994. For
the three months ended September 30, 1995, Fund II had net investment  income of
$742,273 as compared to $1,333,830 for the same period in 1994. This decrease in
1995 as compared to 1994 is primarily attributable to higher interest,  discount
and dividend  income  recorded from  Mezzanine  Investments in 1994 due to Petco
Animal Supplies' September 17, 1994 initial public offering.

Net Assets

    Fund II's net assets  decreased by $17,533,115  during the nine months ended
September  30,  1995,  due to the payment of cash  distributions  to partners of
$17,861,057  ($6,006,824  of the cash  distributions  paid was return of capital
from the sale of  portfolio  investments  and the  return  of a  portion  of the
reserve to Limited  Partners) and net  unrealized  depreciation  of  $9,640,975,
partially  offset  by  realized  gain from the sale of  EquiCredit  and Petco of
$7,080,913  and net investment  income of  $2,885,370.  The 1995 decrease in net
assets over the nine months is smaller than the decrease in the comparable  1994
period.  This compares to the nine months ended  September 30, 1994's net assets
decreasing by $55,878,511 due to the payment of cash  distributions  to partners
of $32,106,064 ($16,225,312 of the cash distributions paid was return of capital
from  the  sales  portfolio  investments)  and net  unrealized  depreciation  of
$31,899,722,  partially  offset by net  investment  income of $7,624,420 and net
realized gains of $502,855.


<PAGE>


    Fund II's net assets  decreased by $7,402,308  during the three months ended
September 30, 1995, due to net investment income of $742,273 partially offset by
net unrealized  depreciation of $4,668,098 and the payment of cash distributions
to partners of $3,477,483  ($125,641 of the cash distributions paid was from the
return of capital  from the sale of Petco).  This  compares to the three  months
ended  September 30,  1994's net assets  decreasing  by  $22,706,981  due to the
payment of cash distributions to partners of $4,214,710  ($2,720,889 of the cash
distributions   paid  was  return  of  capital   from  the  sales  of  portfolio
investments) and net unrealized depreciation of $19,826,101, partially offset by
net investment income of $1,333,830.

Unrealized Appreciation and Depreciation on Investments

    For  the  nine  months  ended  September  30,  1995,  Fund II  recorded  net
unrealized  depreciation  of $9,640,975  (of which  $7,220,175 is net unrealized
depreciation  from publicly  traded  securities and $2,420,800 is net unrealized
depreciation   from  non-public   securities)   compared  to  a  net  unrealized
depreciation  of $31,899,722 for the same period in 1994. On September 30, 1995,
Fund  II's  cumulative  net  unrealized   depreciation  on  investments  totaled
$6,604,923.  The  decrease  in 1995  depreciation  as  compared  to 1994  can be
attributed  to the increase in value of First Alert at September 30, 1995 offset
by the  unrealized  depreciation  recorded in the investment in Hills Stores and
reversal of unrealized  appreciation  due to the sale of EquiCredit in the first
quarter of 1995.

    For the  three  months  ended  September  30,  1995,  Fund II  recorded  net
unrealized  depreciation  on  investments  of  $4,668,098  (all of which is from
publicly  traded  securities),  compared  to a net  unrealized  depreciation  of
$19,826,101 for the same period in 1994.

    Fund II's  valuation  of the  Common  Stock of First  Alert,  Hills,  Petco,
Playtex and Stanley  Furniture  reflect their closing market prices at September
29, 1995.

    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.

    A number of Fund II's  assets (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.


<PAGE>


    The First Alert, Petco and Playtex securities held by Fund II are restricted
securities  under the SEC's Rule 144 and can only be sold under that rule,  in a
registered  public  offering,  or pursuant to an exemption from the registration
requirement.  In addition, resale in some cases is restricted by lockup or other
agreements.  Fund II may be  considered  an affiliate of First Alert and Stanley
Furniture  under the SEC's Rule 144, and  therefore  any resale of securities of
those  companies  under Rule 144 is limited  by the volume  limitations  in that
rule.  Accordingly,  the values referred to in the financial  statements for the
remaining First Alert, Petco,  Playtex and Stanley Furniture  securities held by
Fund II do not necessarily  represent the prices at which these securities could
currently be sold.

    The information presented herein is based on pertinent information available
to the Managing General Partner and Investment Adviser as of September 30, 1995.
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 the  Supplemental  Schedule of
Unrealized Appreciation and Depreciation (Schedule 2 - pages 28 - 29).

Realized Gains and Losses

    For the nine months ended September 30, 1995, Fund II had net realized gains
from the sales of EquiCredit and Petco Animal Supplies of $7,080,913 as compared
to $502,855 for the same period in 1994.

    For additional  information,  please refer to the  Supplemental  Schedule of
Realized Gains and Losses (Schedule 1 - page 27).

Cash Distributions

    On November 3, 1995,  the  Individual  General  Partners  approved the third
quarter  1995  cash  distribution   totaling  $2,019,087  which  represents  net
investment  income of $892,051 from  Mezzanine  Investments,  $1,000,326  from a
return of the reserve for follow on  investments  and  $126,710  from  Temporary
Investments.  The total amount distributed to Limited Partners was $1,124,247 or
$5.07 per Unit, which was paid on November 14,1995. The Managing General Partner
received  a total of  $2,535,  with  respect  to its  interest  in Fund II,  and
$892,051 in performance  incentive fees. Thomas H. Lee, as an Individual General
Partner, received $254 with respect to his interest in Fund II.






<PAGE>
Part II - Other Information

     Items 1 - 4 are  herewith  omitted as the  response  to all items is either
none or not applicable.

     Item 5. Other Information

     On October 17, 1995 Playtex  Products,  Inc. and Banana Boat Holding  Corp.
entered an  Agreement  and Plan of Merger  (the  "Agreement")  pursuant to which
Playtex  agreed to  acquire  all of the  outstanding  equity of Banana  Boat not
already owned by Playtex.  In accordance  with the  Agreement,  the 12.5% Senior
Subordinated Note held by the Fund, plus all accrued interest,  was paid in full
by Playtex upon consummation of the merger. Additionally,  the Fund received net
proceeds of $173.55 per share for the 7444.5 Common Stock Purchase Warrants that
were exercised  pursuant to the Agreement.  As a result, the Fund received total
proceeds  of  $9,699,527  on  October  31,  1995  which  resulted  in a gain  of
$1,291,993.  These proceeds will be distributed to the partners in December 1995
in a special distribution.

     On  November  1,  1995,  the  Fund  entered  into  a  Partnership  Interest
Redemption  Agreement  (the  "Agreement")  with National  Tobacco  Company,  LP.
Pursuant to the Agreement,  National Tobacco will redeem the Class A Partnership
Interests and repay all Subordinated  Notes,  plus unpaid and accrued  interest,
held by Fund II. As consideration,  National Tobacco shall pay a 2.5% prepayment
penalty  on the  principal  amount  of  the  13%  subordinated  note  and  pay a
contingent  interest  amount to be determined in accordance  with the Agreement.
The prepayment penalty and contingent  interest amounts will be calculated as of
the closing  date which is  anticipated  to occur by  December  20,  1995.  This
Agreement  may be terminated by either party if the closing does not occur on or
before December 20, 1995.

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

         Exhibit 27 - Financial Data Schedule for the quarter  ending  September
         30, 1995.

     (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 this
14th day of November, 1995.

                        ML-LEE ACQUISITION FUND II, L.P.

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

                        By: ML Mezzanine II Inc.,
                            its General Partner

Dated: November 14, 1995      /s/  James V. Caruso
                            James V. Caruso
                            Executive Vice President and Director



Dated: November 14, 1995      /s/  Audrey Bommer
                            Audrey Bommer
                            Vice President and Treasurer
                            (Chief Financial Officer)






<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 this
14th day of November, 1995.

                      ML-LEE ACQUISITION FUND II, L.P.

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

                      By: ML Mezzanine II Inc.,
                          its General Partner

Dated: November 14, 1995
                          James V. Caruso
                          Executive Vice President and
                          Director



Dated: November 14, 1995
                          Audrey Bommer
                          Vice President and Treasurer
                          (Chief Financial Officer)