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 March 31, 1998

                         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

Item 1.  Financial Statements


Statements of Assets, Liabilities and Partners'
  Capital as of March 31, 1998 and December 31, 1997

Statements of Operations - For the Three
  Months Ended March 31, 1998 and 1997

Statements of Changes in Net Assets -
  For the Three Months Ended March 31, 1998 and 1997

Statements of Cash Flows - For the Three Months
  Ended March 31, 1998 and 1997

Statement of Changes in Partners' Capital at
  March 31, 1998

Schedule of Portfolio Investments - March 31, 1998

Notes to Financial Statements

Supplemental Schedule of Realized Gains and Losses - Schedule 1

Supplemental Schedule of Unrealized Appreciation
 and Depreciation - Schedule 2

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

Part II.  Other Information


<PAGE>
<TABLE>
<CAPTION>
                        ML-LEE ACQUISITION FUND II, L.P.
             STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
                             (DOLLARS IN THOUSANDS)
<S>                                                                             <C>                   <C>
                                                                                March 31, 1998         December 31, 1997
                                                                                --------------         -----------------
ASSETS:
Investments - Notes 2,4,5
Portfolio Investments at fair value
    Managed Companies (amortized cost $66,583
      at March 31, 1998 and $68,023 at December 31, 1997)                           $   41,345                 $  34,206
    Non-Managed Companies (amortized cost $23,967
      at March 31, 1998 and at December 31, 1997)                                        8,440                     8,440
    Temporary Investments, at amortized cost (cost $5,295
      at March 31, 1998 and $3,612 at December 31, 1997)                                 5,309                     3,627
Cash                                                                                         5                       245
Accrued Interest & Other Receivable - Note 2                                               495                       585
Prepaid Expenses                                                                             2                         4
                                                                                    ----------                 ---------
TOTAL ASSETS                                                                        $   55,596                 $  47,107
                                                                                    ==========                 =========

LIABILITIES AND PARTNERS' CAPITAL:

Liabilities
    Legal and Professional Fees Payable                                             $       40                 $     100
    Reimbursable Administrative Expenses Payable - Note 8                                   83                        11
    Independent General Partners' Fees Payable - Note 9                                     23                        12
    Deferred Interest Income - Note 2                                                      141                       151
                                                                                    ----------                 ---------
Total Liabilities                                                                          287                       274
                                                                                    ----------                 ---------

Partners' Capital - Note 2
    Individual General Partner                                                              17                        15
    Managing General Partner                                                               294                       266
    Limited Partners (221,745 Units)                                                    54,998                    46,552
                                                                                    ----------                 ---------
Total Partners' Capital                                                                 55,309                    46,833
                                                                                    ----------                 ---------
TOTAL LIABILITIES AND PARTNERS' CAPITAL                                             $   55,596                 $  47,107
                                                                                    ==========                 =========

See the Accompanying Notes to Financial Statements.

</TABLE>

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

<S>                                                                               <C>                  <C>
                                                                                    For the Three Months Ended
                                                                                ----------------------------------
                                                                                March 31, 1998      March 31, 1997
                                                                                --------------      --------------
INVESTMENT INCOME - Notes 2,4,6:
Interest                                                                        $        737         $      1,186
Discount and Dividend Income                                                              53                  130
                                                                                ------------         ------------
    TOTAL INCOME                                                                         790                1,316
                                                                                ------------         ------------
EXPENSES:
Investment Advisory Fee - Note 7                                                         175                  204
Fund Administration Fee - Note 8                                                          56                  158
Legal and Professional Fees                                                               29                   99
Reimbursable Administrative Expenses - Note 8                                             83                   26
Independent General Partners' Fees and Expenses - Note 9                                  33                   25
Insurance Expense                                                                          1                    1
                                                                                ------------         ------------
    TOTAL EXPENSES                                                                       377                  513
                                                                                ------------         ------------

NET INVESTMENT INCOME                                                                    413                  803
Net Realized Gain on Investments - Note 4 and Schedule 1                                 297                    3
Net Change in Unrealized Appreciation (Depreciation)
  on Investments: Note 5 and Schedule 2
  Publicly Traded Securities                                                           8,577                 (960)
  Nonpublic Securities                                                                    --               (2,439)
                                                                                ------------         ------------
SUBTOTAL                                                                               8,577               (3,399)
NET INCREASE (DECREASE) IN NET ASSETS
   RESULTING FROM OPERATIONS                                                           9,287               (2,593)
                                                                                ------------         ------------

Less:  Earned MGP Distribution to Managing General Partner                               120                   --
                                                                                ------------         ------------
NET INCREASE (DECREASE) AVAILABLE FOR PRO-RATA
  DISTRIBUTION TO ALL PARTNERS                                                  $      9,167         $     (2,593)
                                                                                ============         ============

See the Accompanying Notes to Financial Statements 

</TABLE>

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

<S>                                                                              <C>                      <C>

                                                                                     For the Three Months Ended
                                                                                ------------------------------------
                                                                                March 31, 1998        March 31, 1997
                                                                                --------------        --------------

FROM OPERATIONS:

Net Investment Income                                                            $        413          $        803

Net Realized Gain on Investments                                                          297                     3

Net Change in Unrealized  Appreciation
  (Depreciation) From Investments                                                       8,577                (3,399)
                                                                                -------------          ------------

Net Increase (Decrease) in Net Assets
  Resulting from Operations                                                             9,287                (2,593)

Cash Distributions to Partners                                                           (811)               (1,833)
                                                                                -------------          ------------

Total Increase (Decrease)                                                               8,476                (4,426)

NET ASSETS:

Beginning of Year                                                                      46,833                71,115
                                                                                -------------          ------------

End of Period                                                                   $      55,309          $     66,689
                                                                                =============          ============






See the Accompanying Notes to Financial Statements.

</TABLE>


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

<S>                                                                              <C>                    <C>

                                                                                         For the Three Months Ended
                                                                                      --------------------------------
                                                                                      March 31, 1998    March 31, 1997
                                                                                      --------------    --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
  Interest, Dividends and Discount Income                                               $        583      $      1,312
  Legal and Professional Fees                                                                    (89)             (191)
  Investment Advisory Fee                                                                       (175)             (204)
  Fund Administration Fee                                                                        (55)             (158)
  Independent General Partners' Fees and Expenses                                                (21)              (22)
  Reimbursable Administrative Expenses                                                           (11)              (35)
  (Purchase) Sale of Temporary Investments, Net                                               (1,683)            1,115
  Proceeds from Sales of Portfolio Company Investments                                         1,736                 7
                                                                                        ------------      ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                        285             1,824
                                                                                        ------------      ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Cash Distributions to Partners                                                                (525)           (1,833)
                                                                                        ------------      ------------
NET CASH APPLIED TO FINANCING ACTIVITIES                                                        (525)           (1,833)
                                                                                        ------------      ------------
  Net Decrease in Cash                                                                          (240)               (9)
  Cash at Beginning of Year                                                                      245               125
                                                                                        ------------      ------------
CASH AT END OF PERIOD                                                                   $          5      $        116
                                                                                        ============      ============

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

Net Investment Income                                                                   $        413      $        803
                                                                                        ------------      ------------
ADJUSTMENTS TO RECONCILE NET INVESTMENT INCOME (LOSS)
    TO NET CASH PROVIDED BY OPERATING ACTIVITIES
  (Increase) Decrease in Investments                                                            (244)            1,118
  Increase in Accrued Interest,
    Dividend and Discount Receivable                                                            (206)               (4)
  Decrease in Prepaid Expenses                                                                     2                 2
  Decrease in Legal and Professional Fees Payable                                                (60)              (92)
  (Decrease) Increase in Reimbursable Administrative Expenses Payable                             72                (9)
  Increase in Independent General Partners' Fees Payable                                          11                 3
  Net Realized Gain on Sales of Investments                                                      297                 3
                                                                                        ------------      ------------
TOTAL ADJUSTMENTS                                                                               (128)            1,021
                                                                                        ------------      ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                               $        285      $      1,824
                                                                                        ============      ============


See the Accompanying Notes to Financial Statements.

</TABLE>


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

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


For the Three Months Ended March 31, 1998
Partners' Capital at January 1, 1998                                $      15       $     266         $  46,552       $ 46,833
Allocation of Net Investment Income                                         0             121               292            413
Allocation of Net Realized Gain on Investments                              -               1               296            297
Allocation of Net Change in Unrealized                                                                                          
  Depreciation From Investments                                             2              19             8,556          8,577
Cash Distributions to Partners                                              -            (113)             (698)          (811)
                                                                    ---------       ---------         ---------       --------
Partners' Capital at March 31, 1998                                 $      17       $     294         $  54,998       $ 55,309
                                                                    =========       =========         =========       ========


See the Accompanying Notes to Financial Statements.

</TABLE>


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


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

                   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      31.11
                                                                                                 ------------------------------
                   CINNABON INTERNATIONAL, INC. - Note 6
                   (formerly Restaurants Unlimited)
$6,044             Cinnabon, 13% Subordinated Note due 06/30/02(c)(g)                  06/03/94     6,044      6,044
391,302 Warrants   Cinnabon, Common Stock Warrants(d)                                  06/03/94         0          0
                    (2.1% of fully diluted common equity)                                        ------------------------------
                                                                                                    6,044      6,044      10.97
                                                                                                 ------------------------------
                   COLE NATIONAL CORPORATION
13,161 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
                                                                                                 ------------------------------
2,058,474 Shares   FIRST ALERT, INC., (b) - Notes 4,5,13
                   First Alert, Inc., Common Stock(a)(d)                               07/31/92     3,320     10,742
                     (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     10,742      19.50
                                                                                                 ------------------------------
                  HILLS STORES COMPANY - Note 5
458,432 Shares    Hills Stores Company, Common Stock(a)(d)                            04/03/90     30,246      2,063
62,616 Shares     Hills Stores Company, Common Stock(a) (d)                           08/21/95      4,530        282
                   (4.1% of fully diluted common equity)                                         ------------------------------
                                                                                                   34,776      2,345       4.26
                                                                                                 ------------------------------

                  PLAYTEX PRODUCTS, INC. (b) - Notes 5,13
343,726 Shares    Playtex Products, Inc., Common Stock(a)(d)                          03/29/90      5,299      5,070
                    (.6% 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      5,070       9.20
                                                                                                 ------------------------------

                  TOTAL INVESTMENT IN MANAGED COMPANIES                                          $ 66,583   $ 41,345      75.04
                                                                                                 ==============================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                        ML-LEE ACQUISITION FUND II, L.P.
                        SCHEDULE OF PORTFOLIO INVESTMENTS
                             MARCH 31, 1998
                           (DOLLARS IN THOUSANDS)


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

                  NON-MANAGED COMPANIES

                  BIOLEASE, INC.- Note 5
$784              BioLease, Inc., 13% Sub. Nt. due 06/06/04 (c)                        06/08/94   $   676     $  392
96.56 Shares      BioLease, Inc., Common Stock (d)                                     06/08/94        94          -
10,014 Warrants   Biotransplant, Inc., Common Stock Purchase Warrants(d)               06/08/94        14         14
                                                                                                  -------------------------------
                                                                                                      784        406          .74
                                                                                                  -------------------------------

                  FITZ AND FLOYD - Note 5
$2,420            Fitz and Floyd, 12% Sub. Nt. due 04/15/04 (c)                        04/11/97     2,420      2,420
 8,470 Shares     Fitz and Floyd, Series A Preferred Stock (d)                         04/11/97    12,619      3,024
                   1,324,508 Shares Common Stock
                   Purchased various                      $    20
                   Surrendered May 1996                   $     -
                   Realized Loss                          $   (20)
                   $10,281  Sr. Sub. Note
                   $2,419  Sr. Sub. Note
                   Purchased various                      $12,619
                   Exchanged 04/14/97
                   8,470 Sh Series A Preferred Stock and
                   51,245 Shares Common Stock             $12,619
                   Realized Gain                          $     0
                   Total Realized Loss                    $   (20)                                -------------------------------
                                                                                                   15,039      5,444         9.88
                                                                                                  -------------------------------

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

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


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


 Principal                                                                                                  Fair      % Of
   Amount/                                                                            Investment Investment  Value      Total
   Shares         Investment                                                            Date       Cost(e)  (Note 2)  Investments
<S>                <C>                                                                  <C>        <C>         <C>       <C>
                  SORETOX - Notes 5,6
$3,503            Stablex Canada, Inc., Sub. Nt. 10% due 06/30/07(c)(f)(g)            06/29/95  $  3,503     $ 2,590
$3,128            Stablex Canada, Inc., Jr. Sub. Nt. 11% due 06/30/09(c)(f)(g)        06/29/95     3,128           0
2,004 Warrants    Seaway TLC, Inc. Common Stock Purchase Warrants                     12/06/91         0           0
                                                                                                -----------------------------
                                                                                                   6,631       2,590     4.70
                                                                                                -----------------------------
                   TOTAL INVESTMENT IN NON-MANAGED COMPANIES                                    $ 23,967     $ 8,440    15.32
                                                                                                =============================

                   SUMMARY OF MEZZANINE INVESTMENTS
                   Subordinated Notes                                                 Various     28,808      24,483    44.44
                   Preferred Stock, Common Stock, Warrants and Stock Rights           Various     61,742      25,302    45.92
                                                                                                -----------------------------
                   TOTAL MEZZANINE INVESTMENTS                                                  $ 90,550     $49,785    90.36
                                                                                                =============================

                  TEMPORARY INVESTMENTS

                  COMMERCIAL PAPER
$ 3,170           General Electric Corp. 5.54% due 4/2/98                              3/06/98     3,157       3,169
$ 2,140           General Electric Corp. 5.57% due 4/1/98                              3/25/98     2,138       2,140
                                                                                                -----------------------------
                  TOTAL INVESTMENT IN COMMERCIAL PAPER                                             5,295       5,309     9.64
                                                                                                -----------------------------
                  TOTAL TEMPORARY INVESTMENTS                                                   $  5,295    $  5,309     9.64
                                                                                                -----------------------------
                  TOTAL INVESTMENT PORTFOLIO                                                    $ 95,845    $ 55,094   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 $33 for Mezzanine Investments
        and $14 for Temporary Investments.
(f)     Inclusive of receipt of payment-in-kind securities.
(g)     Non-accrual investment status.

See the Accompanying Notes to Financial Statements.

</TABLE>
<PAGE>
                              ML-LEE ACQUISITION FUND II, L.P.
                                NOTES TO FINANCIAL STATEMENTS
                                      March 31, 1998
                                        (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  elected to operate as a business  development company under the
Investment  Company Act of 1940.  Fund II's primary  investment  objective is to
provide  current  income and capital  appreciation  potential  by  investing  in
privately-structured,   friendly   leveraged   buyouts   and   other   leveraged
transactions.   Fund  II  pursues  this  objective  by  investing  primarily  in
subordinated  debt and related equity  securities issued in conjunction with the
"mezzanine  financing"  of friendly  leveraged  buyout  transactions,  leveraged
acquisitions and leveraged recapitalizations. Fund II may also invest in "bridge
investments"  if it is  believed  that such  investments  would  facilitate  the
consummation of a mezzanine financing.

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

2.  Significant Accounting Policies

Basis of Accounting

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

Valuation of Investments

        Securities for which market  quotations are readily available are valued
by reference to such market  quotation  using the last trade price (if reported)
or the  last  bid  price  for the  period.  For  securities  without  a  readily
ascertainable  market value  (including  securities  restricted as to resale for
which a corresponding  publicly traded class exists),  fair value is determined,
on a quarterly  basis,  in good faith by the  Managing  General  Partner and the
Investment  Adviser with final approval from the Individual  General Partners of
Fund II. For privately issued securities in which Fund II typically invests, the
fair value of an  investment is 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.
Future  confirming  events will also affect the  estimates of fair value and the
effect of such events on the estimates of fair value could be material.

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

     The  information   presented  herein  is  based  on  pertinent  information
available to the Managing General Partner and Investment Adviser as of March 31,
1998. Although the Managing General Partner and Investment Adviser are not aware
of any  factors  not  disclosed  herein  that  would  significantly  affect  the
estimated  fair  value  amounts,  such  amounts  have not  been  comprehensively
revalued  since that time,  and because the portfolio  investments  of companies
whose equity is publicly  traded are valued at the last price at March 31, 1998,
the  current  estimated  fair  value  of  these  investments  may  have  changed
significantly since that point in time.

Interest Receivable on Investments

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

Payment-In-Kind Securities

     All  payment-in-kind  securities received in lieu of cash interest payments
by Fund II's portfolio  companies are recorded at face value (which approximates
accrued  interest),  unless the  Investment  Adviser  and the  Managing  General
Partner  determine that there is no reasonable  assurance of collecting the full
principal  amounts of such  securities.  As of March 31, 1998 and  December  31,
1997,  Fund II has in its portfolio of investments  $441,900 of  payment-in-kind
notes which excludes $2.5 million of  payment-in-kind  notes received from notes
placed on non-accrual  status.  As of March 31, 1998 and December 31, 1997, Fund
II has in its portfolio of investments $29,059 of payment-in-kind equity.

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,  as defined in the  Partnership  Agreement,  when
realized,  are allocated in accordance  with the  provisions of the  Partnership
Agreement summarized in Note 3.

Interim Financial Statements

        The financial  information  included in this interim  report as of March
31, 1998 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  March 31,  1998 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 20.281% of the total profits allocated,

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

    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 6, 1998, Fund II sold its remaining  holdings of common stock in
Stanley Furniture Company, Inc. The common stock was sold pursuant to a Form S-3
Registration  Statement,  which was filed by Stanley on  December  22,  1997 and
declared  effective by the  Securities  and Exchange  Commission on December 23,
1997. In connection  with the sale,  Fund II sold its remaining  3,461 shares of
common stock and received net proceeds of $93,447 or $27 per share.

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

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

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

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

5.  Unrealized Appreciation and Depreciation of Investments

     For the three months ended March 31, 1998,  Fund II recorded net unrealized
appreciation  of $8.6 million (of which all is  attributable  to publicly traded
securities) compared to net unrealized depreciation of $3.4 million for the same
period  in 1997.  As of March 31,  1998,  Fund II's  cumulative  net  unrealized
depreciation on investments totaled $40.8 million.

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

6.  Non-Accrual of Investments

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

    - Cinnabon International on January 1, 1998.
    - Florida Orthopedics, Inc., on January 1, 1995.
    - Stablex Canada, Inc., on June 29, 1995.

7.  Investment Advisory Fee

     The  Investment  Adviser  provides  the   identification,   management  and
liquidation of portfolio investments for the Funds. As compensation for services
rendered to the Funds,  the Investment  Adviser  receives a quarterly fee at the
annual rate of 1% of assets under  management (net offering  proceeds reduced by
cumulative capital reductions and realized losses), with a minimum annual fee of
$1.2  million  for Fund II and the  Retirement  Fund on a  combined  basis.  The
Investment  Advisory  Fee is  calculated  and paid  quarterly,  in  advance.  In
addition,  the  Investment  Adviser  receives  95% of  the  benefit  of any  MGP
Distributions  paid to the Managing General Partner (see Note 10). For the three
months  ended  March 31,  1998 and 1997,  Fund II paid  $175,490  and  $203,953,
respectively, in Investment Advisory Fees to Thomas H. Lee Advisors II, L.P.

8.  Fund Administration Fees and Expenses

     As compensation for its services,  ML Fund  Administrators  Inc. (the "Fund
Administrator";  an affiliate of the  Managing  General  Partner) is entitled to
receive  from the Funds an  Administration  Fee and  reimbursement  for  certain
out-of-pocket expenses incurred by the Fund Administrator on behalf of the Funds
("reimbursable  expenses").  The Fund  Administration Fee is calculated and paid
quarterly,  in advance,  by each Fund. For the three months ended March 31, 1998
and  1996,   Fund  II  paid  $55,500  and  $157,943,   respectively,   in  Fund
Administration Fees.

     Beginning in November of 1997,  the Fund  Administration  Fee changed to an
annual  amount of  $400,000  for Fund II and the  Retirement  Fund on a combined
basis,   plus  100%  of  all  reimbursable   expenses  incurred  by  the  Funds.
Reimbursable expenses primarily consist of printing,  audit, tax preparation and
custodian  fees.  For the three  months  ended March 31, 1998 and 1997,  Fund II
incurred $83,097 and $25,810, respectively, in reimbursable expenses.

     For the period  prior to November  1997,  the Fund  Administration  Fee was
calculated at an annual amount of the greater of $500,000 or 0.45% of the excess
of net  offering  proceeds  less 50% of capital  reductions  and 50% of realized
losses plus a portion of reimbursable expenses incurred by Fund II.

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

9. Independent General Partners' Fees and Expenses

     As compensation for their services,  each Independent  General Partner will
receive a combined annual fee of $40,000  (payable  quarterly) from the Funds in
addition to a $1,000 fee for each meeting attended ($500 if a meeting is held on
the same day as a committee meeting of the General Partners) plus  reimbursement
for any out-of-pocket expenses incurred. Fees and expenses are allocated between
the Funds in proportion to the number of units issued by each fund. Compensation
for each of the Individual General Partners is reviewed annually.  For the three
months  ended March 31, 1998 and 1997,  Fund II  incurred  $20,515 and  $25,374,
respectively, in Independent General Partners' Fees and Expenses.

10. Related Party Transactions

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

     Thomas H. Lee  Company,  a sole  proprietorship  owned by Thomas H. Lee, an
Individual  General  Partner  of  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  receive in
consideration   therewith   various  fees,   commissions   and   reimbursements.
Furthermore,  MLPF&S  and its  affiliates  or  investment  companies  advised by
affiliates of MLPF&S may, from time to time,  purchase or sell securities issued
by portfolio  companies of the Funds in connection with its ordinary  investment
operations.

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

     In the first quarter of 1998,  Fund II paid the Individual  General Partner
distributions  totaling $84 and Managing General Partner distributions  totaling
$112,846 (which includes $112,010 of MGP  Distributions).  As of March 31, 1998,
the  Managing  General  Partner  has  earned  a total of  $25.0  million  in MGP
Distributions  none of which is  deferred  in  payment to the  Managing  General
Partner  as a Deferred  Distribution  Amount.  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.

11. Litigation

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

     The proposed settlement,  which is subject to Court approval,  provides for
dismissal with prejudice of all claims against the Funds, the Funds'  Investment
Adviser and certain of its affiliates,  the Funds' Managing  General Partner and
certain of its affiliates, the Funds' counsel and the Funds' Independent General
Partners.  Although  defendants continue to deny all liability in these actions,
defendants, other than the Funds, have agreed to provide cash of $16 million and
certain other  considerations to settle the claims asserted in these actions. In
addition,  certain  affiliates of Thomas H. Lee, a General Partner of the Funds,
have  agreed to provide up to $14 million for  purchases  of the Funds'  limited
partnership units pursuant to a liquidity option to be offered to eligible class
members.  On  May  4,  1998,  the  Court  granted  preliminary  approval  to the
Settlement and scheduled a final hearing to consider the Settlement for July 16,
1998.

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

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

     Pursuant  to the  Statement  of  Financial  Accounting  Standards  No.  109
Accounting  for Income Taxes,  Fund II is required to disclose any difference in
the tax basis of Fund II's assets and liabilities versus the amounts reported in
the financial  statements.  As of December 31, 1997,  the tax basis of Fund II's
assets are greater  than the amounts  reported in the  financial  statements  by
$49.9 million. This difference is attributable to net unrealized depreciation on
investments which has not been recognized for tax purposes.

13. Subsequent Events

     On February  28,  1998,  First Alert and  Sunbeam  Corporation  ("Sunbeam")
executed a  definitive  merger  agreement  whereby  Sunbeam  acquired all of the
outstanding  shares of First Alert Common Stock for  approximately  $175 million
($5.25 per share) by means of a tender offer (the "Tender  Offer"),  and assumed
all of the debt of First Alert.  Pursuant to the Tender Offer,  Fund II tendered
all of its shares of First Alert Common Stock and expects to receive proceeds of
approximately  $10.8 million.  Net Distributable  Capital Proceeds of $48.62 per
Unit will be distributed to Limited  Partners of record as of April 2, 1998, the
expiration date of this Tender Offer is extended. See Note 13.

     On April 22,  1998,  the  Individual  General  Partners  approved the first
quarter  1998  cash  distribution   totaling  $2,169,870  which  represents  net
distributable  capital proceeds of $1,736,127 from the sale of Stanley Furniture
and Anchor  Advanced  Holdings common stock (which includes return of capital of
$1,439,068),  net investment  income of $401,036 from Mezzanine  Investments and
$32,494 income from Temporary  Investments.  The total amount distributed to the
Limited  Partners was $9.22 per Unit, which was distributed on May 15, 1998. The
Managing General Partner received a total of $4,610 with respect to its interest
in Fund II and $120,311 as an MGP Distribution.  Thomas H. Lee, as an Individual
General Partner, received $461 with respect to his interest in Fund II.

     On April 22, 1998, in connection  with Fund II's investment in First Alert,
the Individual  General Partners approved a cash distribution  consisting of net
Distributable  Capital Proceeds from the sale of First Alert, of $10,806,989 (of
which $3,320,120 is return of capital),  a cash distribution to Limited Partners
of record as of the effective date of such sale in the amount of $48.62 per Unit
(of which  $944,837  is Deferred  Distribution  Amount as defined in Note 10), a
cash  distribution  of $24,309 to the Managing  General Partner in proportion to
its Capital Contribution,  and a cash distribution of $2,431 to Thomas H. Lee as
an Individual  General Partner,  all such distributions to be payable on May 15,
1998, in accordance with the Partnership Agreement.

     On April 15, 1998  Playtex  filed a  registration  statement  covering  all
shares of the common stock owned by Fund II, the  Retirement  Fund,  Fund I, and
the Lee Affiliates pursuant to an underwritten public offering. Such offering is
expected to be consummated during the second quarter of 1998; however, there can
be no  assurance  that such  offering  will be  consummated  or that the selling
stockholders,  including the Fund,  will be able to sell all of their  remaining
shares of Playtex common stock in such offering.
<PAGE>
<TABLE>
<CAPTION>
                                            SCHEDULE 1
                                 ML-LEE ACQUISITION FUND II, L.P.
                        SUPPLEMENTAL SCHEDULE OF REALIZED GAINS AND LOSSES
                               FOR THE 3 MONTHS ENDED MARCH 31, 1998
                                      (DOLLARS IN THOUSANDS)
                                            (UNAUDITED)

<S>                                                            <C>                 <C>            <C>                 <C>
                                                                  Par Value or        Investment               Net          Realized
SECURITY                                                          Number of Shares          Cost          Proceeds              Gain
                                                                  ----------------    ----------      ------------      ------------

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

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

TOTAL REALIZED GAIN                                                                 $      1,440      $      1,737      $        297
                                                                                    ============      ============      ============



</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                   SCHEDULE 2
                                         ML-LEE ACQUISITION FUND II, L.P.
                           SUPPLEMENTAL SCHEDULE OF UNREALIZED APPRECIATION AND DEPRECIATION
                                       FOR THE PERIOD ENDED MARCH 31, 1998
                                             (DOLLARS IN THOUSANDS)
                                                  (UNAUDITED)

<S>                                           <C>             <C>           <C>                   <C>                  <C>
                                                                                     Total
                                                                                   Unrealized                
                                                                                  Appreciation             Total Unrealized  
                                                                               (Decpreciation) for     Appreciation/(Depreciation)
                                                 Investment         Fair       Three Months Ended    at December 31,    at March 31,
SECURITY                                            Cost            Value       March 31, 1998            1997             1998
-------------------------------------           -----------      ----------      --------------        ------------      -----------

PUBLICLY TRADED/UNDERLYING
  SECURITY PUBLICLY TRADED:

First Alert, Inc. 
  Common Stock (a)                                    3,320            10,742        $    6,368        $    1,054        $    7,422

Hills Stores Company
  Common Stock *                                     34,776             2,345               716           (33,148)       $  (32,432)

Playtex Products, Inc. 
  Common Stock (a)                                    5,299             5,070             1,547            (1,776)       $     (229)
                                                                                     ----------        ----------        ----------
TOTAL UNREALIZED APPRECIATION
  (DEPRECIATION) FROM PUBLICLY
  TRADED SECURITIES                                                                  $    8,631        $  (33,870)       $  (25,239)
                                                                                     ----------        ----------        ----------

NON PUBLIC SECURITIES:

Fitz and Floyd
  Preferred Stock *                                  12,619        $    3,024                --            (9,596)       $   (9,596)

Biolease
  Common Stock*                                          94                --                --               (94)       $      (94)
  Subordinated Notes*                                   676               392                --              (318)       $     (318)

FLA. Orthopedics, Inc. 
  Preferred  Stock*                                   1,513                --                --            (1,513)       $   (1,513)

Soretox
  Subordinated Notes*                                 6,631             2,590                --            (4,041)       $   (4,041)
                                                                                     ----------        ----------        ----------
TOTAL UNREALIZED DEPRECIATION
  FROM NON PUBLIC SECURITIES                                                         $       --        $  (15,562)       $  (15,562)
                                                                                     ----------        ----------        ----------

REVERSAL OF UNREALIZED
 APPRECIATION FROM SECURITIES SOLD

Stanley
    Common Stock                                                                            (54)               54                --
                                                                                     ----------        ----------        ----------

NET UNREALIZED APPRECIATION/
  (DEPRECIATION)                                                                     $    8,577        $  (49,378)       $  (40,801)
                                                                                     ==========        ==========        ==========


(a) See Note 13 to the Financial Statements.
 *  Restricted Security
</TABLE>
<PAGE>



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


Liquidity & Capital Resources

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

     At  March  31,  1998,  Fund II had a total  of $49.8  million  invested  in
Mezzanine  Investments  representing  $41.4  million  Managed  and $8.4  million
Non-Managed  portfolio  investments.  The  remaining  proceeds  were invested in
Temporary  Investments  primarily  comprised of commercial paper with maturities
less than one month.

     Fund  II  invested  substantially  all of its  net  proceeds  in  Mezzanine
Investments,  which consisted of high-yield  subordinated  debt and/or preferred
stock  linked  with an equity  participation,  of  middle  market  companies  in
connection with friendly  leveraged  acquisitions,  recapitalizations  and other
leveraged  financings.  Fund II's Mezzanine Investments typically were issued in
private   placement   transactions   which  are  generally  subject  to  certain
restrictions  on sales  thereby  limiting  their  liquidity.  Fund II was  fully
invested as of December  20,  1992,  which was within 36 months from the date of
the final closing  (after  including the reserve for follow-on  investments  and
exclusive of amounts available for  reinvestment).  The reinvestment  period for
various  amounts of capital  proceeds  received during the last twelve months of
Fund II's  investment  period  terminated at various times through  December 18,
1993.

     As provided by the Partnership  Agreement,  the Managing General Partner of
Fund II is entitled to receive an incentive  distribution ("MGP  Distributions")
after Limited Partners have received their Priority Return of 10% per annum. The
Managing  General Partner is required to defer a portion of any MGP Distribution
earned  from the sale of  portfolio  investments  in excess  of 20% of  realized
capital  gains,  net realized  capital losses and  unrealized  depreciation,  in
accordance with the Partnership Agreement (the "Deferred  Distribution Amount").
Any Deferred  Distribution  Amount is distributable to the Partners  pro-rata in
accordance with their capital contributions, and certain amounts otherwise later
payable to Limited Partners from  distributable cash from operations are instead
payable to the Managing General Partner until the Deferred  Distribution  Amount
is paid.  As of May 15, 1998 there is Deferred  Distribution  Amount of $944,837
that is payable to the MGP.

     On August 6, 1991, the Independent  General Partners approved a reserve for
follow-on  investments  of $24.9  million for Fund II. As of May 15,  1998,  the
remaining reserve balance was $3.1 million due to follow-on investments in Petco
Animal Supplies, Fitz and Floyd, Fine Clothing, Inc., Hills Stores,  Ghirardelli
Holdings  and  Anchor  Advanced  Products.  Additionally,  $8.29  million of the
reserve has been  returned to the  partners.  The level of the reserve was based
upon an analysis  of  potential  follow-on  investments  in  specific  portfolio
companies  that may become  necessary to protect or enhance  Fund II's  existing
investment.

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

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

Investment in High-Yield Securities

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

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

     Certain  issuers of  Securities  held by Fund II (Hills and  Playtex)  have
registered  their equity  securities  in public  offerings.  Although the equity
securities of the same class  presently  held by Fund II were not  registered in
these offerings, Fund II has the ability under Rule 144 under the Securities Act
of 1933 to sell publicly  traded equity  securities  held by it for at least one
year 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 two 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.

     On April 15, 1998  Playtex  filed a  registration  statement  covering  all
shares of the common stock owned by Fund II, the  Retirement  Fund,  Fund I, and
the Lee Affiliates pursuant to an underwritten public offering. Such offering is
expected to be consummated during the second quarter of 1998; however, there can
be no  assurance  that such  offering  will be  consummated  or that the selling
stockholders,  including the Fund,  will be able to sell all of their  remaining
shares of Playtex common stock in such 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.

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 Mezzanine  Investments
and short-term money market instruments.

     For the three months ended March 31, 1998, Fund II had investment income of
$789,498, as compared to $1,315,661 for the same period in 1997. The decrease in
1998  investment  income  as  compared  to 1997 is due to the  sales  of  income
producing portfolio companies.

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

     The  Investment   Adviser  and  Fund   Administrator   both  receive  their
compensation  on a quarterly  basis.  The  Investment  Advisory  Fee paid to the
Investment  Adviser for the quarter  ended March 31, 1998 and 1997 was  $175,490
and  $203,953,  respectively,  and was  calculated  at an annual rate of 1.0% of
assets under  management (net offering  proceeds  reduced by cumulative  capital
reductions  and realized  losses),  with a minimum annual amount of $1.2 million
for  Fund II and the  Retirement  Fund on a  combined  basis.  The  decrease  in
Investment Advisory Fees are a direct result of sales of investments, returns of
capital distributed to partners and realized losses on investments.

     Beginning in November of 1997,  the Fund  Administration  Fee changed to an
annual  amount of  $400,000  for Fund II and the  Retirement  Fund on a combined
basis,  plus 100% of all  reimbursable  expenses (as defined below)  incurred by
Fund II.  Actual  out-of-pocket  expenses  ("reimbursable  expenses")  primarily
consist of printing, audit, tax preparation and custodian fees. For the quarters
ended  March  31,  1998  and  1997,  Fund  II  incurred   $83,097  and  $25,810,
respectively, in reimbursable expenses.

     The Fund  Administration Fees paid to the Fund Administrator for the months
ended March 31, 1998 and 1997 were  calculated at an annual rate of 0.45% of the
excess of net  offering  proceeds,  less 50% of  capital  reductions  and 50% of
realized losses. The decrease in Fund  Administration  Fees were a direct result
of sales of investments, returns of capital distributed to partners and realized
losses on  investments.  For the  months  ended  March 31,  1998 and 1997,  Fund
Administration Fees were $55,500 and $157,943, respectively.

     For the  three  months  ended  March  31,  1998  and  1997  Fund II had net
investment income of $413,057 and $802,239,  respectively.  The decrease in 1998
as compared to 1997 net investment income is due to the sale of income producing
portfolio companies, partially offset by lower Investment Advisory Fees.

Net Assets

     Fund II's net assets  increased  by $8.5  million  during the three  months
ended March 31, 1998, due to net unrealized  appreciation of $8.6 milllion,  net
investment  income of  $413,057  and  realized  gains  from the sale of  Stanley
Furniture and Anchor common stock of $297,059,  partially  offset by the payment
of cash distributions to partners of $811,053.  This compares to the decrease in
net assets of $4.4 million for the three  months ended March 31, 1997  resulting
from the  payment  of cash  distributions  to  partners  of  $1,833,047  and net
unrealized  depreciation  of $3.4 million,  partially  offset by net  investment
income of $802,239 and realized gains from investments of $3,105 million.

Unrealized Appreciation and Depreciation on Investments

     For the three months ended March 31, 1998,  Fund II recorded net unrealized
appreciation  of $8.6 million (of which all is  attributable  to publicly traded
securities) compared to net unrealized depreciation of $3.4 million for the same
period  in 1997.  As of March 31,  1998,  Fund II's  cumulative  net  unrealized
depreciation on investments totaled $40.8 million.

     Fund II's valuation of the Common Stock of First Alert, Hills,  Playtex and
Stanley Furniture reflect their closing market prices at March 31, 1998.

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

     Approximately  58% of Fund  II's  investments  (at cost)  are  invested  in
private placement securities for which there are no ascertainable market values.
Although  the Managing  General  Partner and  Investment  Adviser use their best
judgment in estimating the fair value of these  investments,  there are inherent
limitations in any estimation  technique.  Therefore,  the fair value  estimates
presented  herein are not  necessarily  indicative  of the amount  which Fund II
could realize in a current transaction.

     The Hills 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.
Accordingly,  the  values  referred  to in  the  financial  statements  for  the
remaining  Hills  and  Playtex  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 March 31,
1998. Although the Managing General Partner and Investment Adviser are not aware
of any  factors  not  disclosed  herein  that  would  significantly  affect  the
estimated  fair  value  amounts,  such  amounts  have not  been  comprehensively
revalued  since  that  time,  and the  current  estimated  fair  value  of these
investments may have changed significantly since that point in time.

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

Realized Gains and Losses

     For the three months ended March 31, 1998,  Fund II had net realized  gains
from the sale of Stanley  and Anchor  common  stock of  $297,059  as compared to
$3,105 for the same period in 1997.

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

Cash Distributions

     On April 22,  1998,  the  Individual  General  Partners  approved the first
quarter  1998  cash  distribution   totaling  $2,169,870  which  represents  net
distributable  capital proceeds of $1,736,127 from the sale of Stanley Furniture
and Anchor  Advanced  Holdings common stock (which includes return of capital of
$1,439,068),  net investment  income of $401,036 from Mezzanine  Investments and
$32,494 income from Temporary  Investments.  The total amount distributed to the
Limited  Partners was $9.22 per Unit, which was distributed on May 15, 1998. The
Managing General Partner received a total of $4,610 with respect to its interest
in Fund II and $120,311 as an MGP Distribution.  Thomas H. Lee, as an Individual
General Partner, received $461 with respect to his interest in Fund II.

     On April 22, 1998, in connection  with Fund II's investment in First Alert,
the Individual  General Partners approved a cash distribution  consisting of net
Distributable  Capital Proceeds from the sale of First Alert, of $10,806,989 (of
which $3,320,120 is return of capital),  a cash distribution to Limited Partners
of record as of the effective date of such sale in the amount of $48.62 per Unit
(of which  $944,837  is Deferred  Distribution  Amount as defined in Note 10), a
cash  distribution  of $24,309 to the Managing  General Partner in proportion to
its Capital Contribution,  and a cash distribution of $2,431 to Thomas H. Lee as
an Individual  General Partner,  all such distributions to be payable on May 15,
1998, in accordance with the Partnership Agreement.

     Should a Limited  Partner  decide to sell his Units,  any such sale will be
recorded  on the  books  and  records  of  Fund  II  quarterly,  only  upon  the
satisfactory  completion  and  acceptance of the Fund II's  transfer  documents.
There can be no  assurances  that such  transfer  will be  effected  before  any
specified date.  Additionally,  pursuant to the Partnership  Agreement,  until a
transfer is recognized,  the Limited  Partner of record (i.e. the transferor) is
entitled to receive all the benefits and burdens of ownership of Units,  and any
transferee has no rights to distributions of sale proceeds generated at any time
prior  to  the  recognition  of  the  transfer  and   assignment.   Accordingly,
Distributable  Cash from  Investments  for a quarter and  Distributable  Capital
Proceeds  from sales after  transfer or assignment  have been entered into,  but
before such  transfer  and  assignment  is  recognized,  would be payable to the
transferor and not the transferee.

<PAGE>
Part II - Other Information

     Item 1 - Litigation

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

     The proposed settlement,  which is subject to Court approval,  provides for
dismissal with prejudice of all claims against the Funds, the Funds'  Investment
Adviser and certain of its affiliates,  the Funds' Managing  General Partner and
certain of its affiliates, the Funds' counsel and the Funds' Independent General
Partners.  Although  defendants continue to deny all liability in these actions,
defendants, other than the Funds, have agreed to provide cash of $16 million and
certain other  considerations to settle the claims asserted in these actions. In
addition,  certain  affiliates of Thomas H. Lee, a General Partner of the Funds,
have  agreed to provide up to $14 million for  purchases  of the Funds'  limited
partnership units pursuant to a liquidity option to be offered to eligible class
members.  On  May  4,  1998,  the  Court  granted  preliminary  approval  to the
Settlement and scheduled a final hearing to consider the Settlement for July 16,
1998.

     Items 2 - 4 are  herewith  omitted as the  response  to all items is either
none or not applicable.



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

         Exhibit 27 - Financial  Data Schedule for the quarter  ending March 31,
         1998.

     (b) Reports on form 8-K:           Form 8-K dated February 28, 1998
                                        Filed March 16, 1998 related to 
                                        Tender Offer of Sunbeam and First Alert

                                        Form 8-K dated and filed April 10, 1998
                                        related to settlement of litigation

Item 5.   Other Information

     As of April 10, 1998,  John W. Childs resigned as the President and Trustee
of the Investment  Adviser to Fund II. In addition,  Mr. Childs  transferred his
Shares in the Investment  Adviser to a limited  liability company of which he is
the sole  member.  At such  time,  David V.  Harkins,  formerly  the  Investment
Adviser's Senior Vice President,  was appointment as President. Mr. Harkins will
remain a Trustee of the Investment Adviser. In addition,  C. Hunter Boll, a Vice
President of the  Investment  Adviser,  was appointed as a trustee.  At the same
time,  Mr.  Childs also  resigned his  position of  President of the  Investment
Adviser to the Retirement Fund and ML-Lee Acquisition Fund, L.P.


<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 15th day of
May, 1998.

                        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: May 15, 1998       /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 15th day of
May, 1998.

                      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: May 15, 1998
                          Audrey Bommer
                          Vice President and Treasurer
                          (Chief Financial Officer)