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 three months ended March 31, 1999

                         Commission File Number 0-17383

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

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

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

       Registrant's telephone number, including area code: (212) 236-6562

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

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

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

                        Units of Limited Partnership Interest
                                (Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No .

     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, 1999 and December 31, 1998

Statements of Operations - For the Three
  Months Ended March 31, 1999 and 1998

Statements of Changes in Net Assets -
  For the Three Months Ended March 31, 1999 and 1998

Statements of Cash Flows - For the Three Months
  Ended March 31, 1999 and 1998

Statement of Changes in Partners' Capital at
  March 31, 1999

Schedule of Portfolio Investments - March 31, 1999

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>
                                                                                            (Unaudited)           
                                                                                         March 31, 1999         December 31, 1998
                                                                                          --------------         -----------------
                                                                                                                  
Assets:

Investments - Notes 2,4,5
  Portfolio Investments at fair value
    Managed Companies (amortized cost $17,144
      at March 31, 1999 and at December 31, 1998)                                         $       17,144         $          17,144
    Non-Managed Companies (amortized cost $17,336
      at March 31, 1999 and $23,967 at December 31, 1998)                                          5,850                     8,440
    Temporary Investments, at amortized cost (cost $9,047
      at March 31, 1999 and $3,401 at December 31, 1998)                                           9,070                     3,408
Cash                                                                                                   7                         5
Accrued Interest & Other Receivable - Note 2                                                         335                     1,395
Receivable for Investment Sold                                                                         -                       782
Prepaid Expenses                                                                                       2                         3
                                                                                          --------------         -----------------
Total Assets                                                                              $       32,408         $          31,177
                                                                                          ==============         =================
Liabilities and Partners' Capital:

Liabilities
    Legal and Professional Fees Payable                                                   $           28         $              30
    Reimbursable Administrative Expenses Payable Note 8                                               75                        22
    Independent General Partners' Fees Payable - Note 9                                                7                        18
    Deferred Interest Income - Note 2                                                                 72                        81
                                                                                          --------------         -----------------
Total Liabilities                                                                                    182                       151
                                                                                          --------------         -----------------
Partners' Capital - Note 2
    Individual General Partner                                                                        14                        13
    Managing General Partner                                                                         222                       525
    Limited Partners (221,745 Units)                                                              31,990                    30,488
                                                                                          --------------         -----------------
Total Partners' Capital                                                                           32,226                    31,026
                                                                                          --------------         -----------------
Total Liabilities and Partners' Capital                                                   $       32,408         $          31,177
                                                                                          ==============         =================
</TABLE>

See the Accompanying Notes to Financial Statements (Unaudited).
<PAGE>
<TABLE>
<CAPTION>
                        ML-LEE ACQUISITION FUND II, L.P.
                            Statements of Operations
                             (Dollars in Thousands)
                                  (Unaudited)
<S>                                                                               <C>                          <C>


                                                                          For the Three Months Ended
                                                                        March 31, 1999   March 31, 1998
                                                                         -------------    -------------
Investment Income - Notes 2,4,6:
  Interest                                                               $         569    $         737
  Discount, Dividend & Other Income                                                 58               53
                                                                         -------------    -------------
    Total Income                                                                   627              790
                                                                         -------------    -------------
Expenses:
  Investment Advisory Fee - Note 7                                                 166              175
  Fund Administration Fee - Note 8                                                  56               56
  Reimbursable Administrative Expenses - Note 8                                     75               83
  Legal and Professional Fees                                                       --               29
  Independent General Partners' Fees and Expenses - Note 9                          24               33
  Insurance Expense                                                                  1                1
                                                                         -------------    -------------
    Total Expenses                                                                 322              377
                                                                         -------------    -------------
Net Investment Income                                                              305              413
                                                                         -------------    -------------
Net Realized Gain (Loss) on Investments - Note 4 and Schedule 1                 (1,026)             297
                                                                         -------------    -------------
Net Change in Unrealized Appreciation (Depreciation)
  on Investments: Note 5 and Schedule 2
  Publicly Traded Securities                                                        --            8,577
  Nonpublic Securities                                                           4,041               --
                                                                         -------------    -------------
  Subtotal                                                                       4,041            8,577
                                                                         -------------    -------------
Net Increase in Net Assets Resulting from Operations                             3,320            9,287
                                                                         -------------    -------------
Less:  Earned MGP Distributions to Managing General Partner                        (98)            (120)
                                                                         -------------    -------------
Net Increase Available For Pro-Rata Distribution to All Partners         $       3,222    $       9,167
                                                                         =============    =============


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

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

<S>                                                                     <C>            <C> 

                                                                          For the Three Months Ended
                                                                        March 31, 1999   March 31, 1998
                                                                         -------------    -------------

From Operations:
Net Investment Income                                                    $         305    $         413
Net Realized Gain (Loss) on Investments                                         (1,026)             297
Net Change in Unrealized Appreciation from Investments                           4,041            8,577
                                                                         -------------    -------------
Net Increase in Net Assets
  Resulting from Operations                                                      3,320            9,287
Cash Distributions to Partners                                                  (2,120)            (811)
                                                                         -------------    -------------
Total Increase                                                                   1,200            8,476
Net Assets:
Beginning of Year                                                               31,026           46,833
                                                                         -------------    -------------
End of Period                                                            $      32,226    $      55,309
                                                                         =============    =============

</TABLE>


See the Accompanying Notes to Financial Statements (Unaudited).

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


<S>                                                                              <C>                      <C>
                                                                                 For the Three Months Ended
                                                                             March 31, 1999   March 31, 1998
                                                                              -------------    -------------
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows From Operating Activities:
  Interest, Dividends, Discount and Other Income                              $       1,663    $         583
  Legal and Professional Fees                                                            (2)             (89)
  Investment Advisory Fee                                                              (167)            (175)
  Fund Administration Fee                                                               (56)             (55)
  Independent General Partners' Fees and Expenses                                       (35)             (21)
  Reimbursable Administrative Expenses                                                  (22)             (11)
  (Purchase) Sale of Temporary Investments, Net                                      (5,646)          (1,683)
  Proceeds from Sales of Portfolio Company Investments                                6,387            1,736
                                                                              -------------    -------------
Net Cash Provided by Operating Activities                                             2,122              285
                                                                              -------------    -------------
Cash Flows from Financing Activities:
  Cash Distributions to Partners                                                     (2,120)            (525)
                                                                              -------------    -------------
Net Cash Applied to Financing Activities                                             (2,120)            (525)
                                                                              -------------    -------------
  Net Decrease in Cash                                                                    2             (240)
  Cash at Beginning of Year                                                               5              245
                                                                              -------------    -------------
Cash at End of Period                                                         $           7    $           5
                                                                              =============    =============

Reconciliation of Net Investment Income
  to Net Cash Provided by Operating Activities
  Net Investment Income                                                       $         305    $         413
                                                                              -------------    -------------
Adjustments to Reconcile Net Investment Income
  to Net Cash Provided by Operating Activities
  Decrease in Investments                                                             2,548             (244)
  (Increase) Decrease in Receivable for Investments Sold                               (782)              --
  (Increase) Decrease in Accrued Interest,
    Dividend and Discount Receivable                                                  1,036             (206)
   Decrease in Prepaid Expenses                                                           1                2
  Decrease in Legal and Professional Fees Payable                                        (2)             (60)
  Increase (Decrease) in Reimbursable Administrative Expenses Payable                    53               72
  Increase (Decrease) in Independent General Partners' Fees Payable                     (11)              11
  Net Realized Gain on Sales of Investments                                          (1,026)             297
                                                                              -------------    -------------
Total Adjustments                                                                     1,817             (128)
                                                                              -------------    -------------
Net Cash Provided by Operating Activities                                     $       2,122    $         285
                                                                              =============    =============
</TABLE>

See the Accompanying Notes to Financial Statements (Unaudited).           
<PAGE>
<TABLE>
<CAPTION>
                                              ML-LEE ACQUISITION FUND II, L.P.
                                         Statements of Changes in Partners' Capital
                                                        (Unaudited)
                                                   (Dollars in Thousands)

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

                                                                          Individual       Managing
                                                                             General        General         Limited
                                                                             Partner        Partner        Partners           Total
                                                                        ------------   ------------    ------------    ------------
For the Three Months Ended March 31, 1999
Partners' Capital at January 1, 1999                                    $         13   $        525    $     30,488    $     31,026
Allocation of Net Investment Income                                               --             93             212             305
Allocation of Net Realized Gain on Investments                                    --              3          (1,029)         (1,026)
Allocation of Net Change in Unrealized
  Depreciation From Investments                                                    1              9           4,031           4,041
Cash Distributions to Partners                                                    --           (408)         (1,712)         (2,120)
                                                                        ------------   ------------    ------------    ------------
Partners' Capital at March 31, 1999                                     $         14   $        222    $     31,990    $     32,226
                                                                        ============   ============    ============    ============
</TABLE>

See the Accompanying Notes to Financial Statements (Unaudited).

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


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


                   BIG V SUPERMARKETS, INC. (a)
$13,037            Big V Supermarkets, Inc., Sr. Sub. Nt. 14.14% due 03/15/01(b)       12/27/90  $ 13,037   $ 13,037
117,333 Shares     Big V Holding Corp., Common Stock(c)                                12/27/90     4,107      4,107
                   (16.6% of fully diluted common equity) (f)                                    --------------------------------
                                                                                                   17,144     17,144        53.47
                                                                                                 --------------------------------
                   COLE NATIONAL CORPORATION
13,161 Warrants    Cole National Corporation, Common Stock Purchase Warants (c)         9/26/90         -          -
                     (0.0% of fully diluted common equity
                        assuming exercise of warrants)
                        $1,393 13% Sr. Secured Bridge Note
                        Purchased 9/25/90           $1,393
                        Repaid 11/15/90             $1,393                                        -------------------------------
                        Realized Gain               $    0                                               -          -        0.00
                                                                                                  -------------------------------

                  TOTAL INVESTMENT IN MANAGED COMPANIES                                           $17,144     17,144        53.47
                                                                                                  -------------------------------


                  NON-MANAGED COMPANIES

                  BIOLEASE, INC.- Note 5
$784              BioLease, Inc., 13% Sub. Nt. due 06/06/04 (b)                        06/08/94       676        392
96.56 Shares      BioLease, Inc., Common Stock (c)                                     06/08/94        94          -
10,014 Warrants   Biotransplant, Inc., Common Stock Purchase Warrants(c)               06/08/94        14         14
                                                                                                  -------------------------------
                                                                                                      784        406         1.27
                                                                                                  -------------------------------

                  FITZ AND FLOYD -Note 5
$2,420            Fitz and Floyd, 12% Sub. Nt. due 04/15/04 (b)                        04/11/97     2,420      2,420
 8,470 Shares     Fitz and Floyd, Series A Preferred Stock (c)                         04/11/97    12,619      3,024
                   1,324,508 Shares Common Stock
                   Purchased various                      $    20
                   Surrendered May 1996                   $     0
                   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        16.98
                                                                                                  -------------------------------

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

                   TOTAL INVESTMENT IN NON-MANAGED COMPANIES                                     $ 17,336     $ 5,850       18.25
                                                                                                 ================================

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


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


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

                   SUMMARY OF MEZZANINE INVESTMENTS
                   Subordinated Notes                                                 Various     16,133      15,849    49.43
                   Preferred Stock, Common Stock, Warrants and Stock Rights           Various     18,347       7,145    22.28
                                                                                                -----------------------------
                   TOTAL MEZZANINE INVESTMENTS                                                  $ 34,480     $22,994    71.71
                                                                                                =============================

                  TEMPORARY INVESTMENTS

                  COMMERCIAL PAPER
$3,450            Ford Motor Credit, 4.78% due 4/1/99                                  3/10/99     3,440       3,450
$5,620            Prudential Funding, 4.75% due 4/1/99                                 3/15/99     5,607       5,620
                                                                                                -----------------------------
                  TOTAL INVESTMENT IN COMMERCIAL PAPER                                             9,047       9,070    28.29
                                                                                                -----------------------------
                  TOTAL TEMPORARY INVESTMENTS                                                   $  9,047    $  9,070    28.29
                                                                                                -----------------------------
                  TOTAL INVESTMENT PORTFOLIO                                                    $ 43,527    $ 32,064   100.00%
                                                                                                =============================



(a)     Represents investment in affiliates as defined in the Investment Company Act of 1940.
(b)     Restricted security.
(c)     Restricted non-income producing equity security.
(d)     Inclusive of receipt of payment-in-kind securities.
(e)     Non-accrual investment status.
(f)     Percentages of Common Equity have not been audited by PricewaterhouseCoopers LLP.
(g)     Represents orignal cost and excludes accretion of discount of $33 for
        Mezzanine Investments and $23 for Temporary Investments.

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

                         ML-LEE ACQUISITION FUND II, L.P.
                          NOTES TO FINANCIAL STATEMENTS
                                March 31, 1999

1.      Organization and Purpose

     ML-Lee Acquisition Fund II, L.P. ("Fund II") (formerly T.H. Lee Acquisition
Fund II,  L.P.) was  formed  along  with  ML-Lee  Acquisition  Fund  (Retirement
Accounts)  II, L.P.  (the  "Retirement  Fund";  collectively  referred to as the
"Funds")  and the  Certificates  of Limited  Partnership  were  filed  under the
Delaware  Revised  Uniform  Limited  Partnership  Act on September 23, 1988. The
Funds' operations commenced on November 10, 1989.

     Mezzanine Investments II, L.P. (the "Managing General Partner"), subject to
the  supervision  of  the  Individual  General  Partners,   is  responsible  for
overseeing and monitoring of Fund II's investments. The Managing General Partner
is a Delaware  limited  partnership in which ML Mezzanine II Inc. is the general
partner and Thomas H. Lee  Advisers  II,  L.P.,  the  Investment  Adviser to the
Funds, is the limited  partner.  The Individual  General  Partners are Vernon R.
Alden,  Joseph L.  Bower and  Stanley  H.  Feldberg  (the  "Independent  General
Partners") and Thomas H. Lee.

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

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

2.      Significant Accounting Policies

Basis of Accounting

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

Valuation of Investments

     Securities for which market  quotations are readily available are valued by
reference to such market  quotation  using the last trade price (if reported) or
the  last  bid  price  for  the  period.   For  securities   without  a  readily
ascertainable  market value  (including  securities  restricted as to resale for
which a corresponding  publicly traded class exists),  fair value is determined,
on a quarterly  basis,  in good faith by the  Managing  General  Partner and the
Investment  Adviser with final approval from the Individual  General Partners of
Fund II. For privately issued securities in which Fund II typically invests, the
fair value of an investment is generally its original cost plus accrued value in
the case of original issue discount or deferred pay securities. Such investments
generally  will be  revalued  if there is an  objective  basis for doing so at a
different  price.  Investments  will be  written  down in value if the  Managing
General Partner and Investment Adviser believe adverse credit  developments of a
significant nature require a write-down of such securities.  Investments will be
written  up in  value  only if  there  has  been  an  arms'-length  third  party
transaction to justify the increased  valuation.  Although the Managing  General
Partner and  Investment  Adviser use their best judgment in estimating  the fair
value of these  investments,  there are inherent  limitations  in any estimation
technique.  Therefore,  the  fair  value  estimates  presented  herein  are  not
necessarily  indicative  of the amount which Fund II could  realize in a current
transaction.  Future  confirming  events will also affect the  estimates of fair
value and the effect of such  events on the  estimates  of fair  value  could be
material.
<PAGE>
     Temporary  Investments  with  maturities of less than 60 days are stated at
amortized cost, which approximates market value.

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

Interest Receivable on Investments

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

Payment-In-Kind Securities

     All  payment-in-kind  securities received in lieu of cash interest payments
by Fund II's portfolio  companies are recorded at face value (which approximates
accrued  interest),  unless the  Investment  Adviser  and the  Managing  General
Partner  determine that there is no reasonable  assurance of collecting the full
principal  amounts of such  securities.  As of March 31, 1999,  Fund II does not
have any  payment-in-kind  securities.  As of March 31, 1998, Fund II had 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.

Investment Transactions

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

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

Sales and Marketing Expenses, Offering Expenses and Sales Commissions

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

Deferred Interest Income

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

Partners' Capital

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

Interim Financial Statements

     The financial  information included in this report as of March 31, 1999 and
for the period then ended has been  prepared by  management  without an audit by
independent cetified public accountants.  The results for the period ended March
31,  1999  are not  necessarily  indicative  of the  results  of the  operations
expected  for the year and reflect  adjustments,  all of a normal and  recurring
nature,  necessary  for the fair  presentation  of the  results  of the  interim
period.  In the opinion of 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 will be allocated 99.75% to the Limited Partners, 0.23% to
the  Managing  General  Partner  and 0.02% to the  Individual  General  Partner.
Profits from Mezzanine Investments will, in general, be allocated as follows:

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

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


4.      Investment Transactions

     On March 12, 1999,  Fund II and the Retirement  Fund (together the "Funds")
entered  into  a  Note  Repurchase  and  Warrant  Cancellation   Agreement  (the
"Agreement")  with Stablex  Canada Inc. and Seaway TLC Inc. to purchase,  retire
and  cancel  all of the  Subordinated  Notes  outstanding  and held by the Funds
(including all Deferred  Interest Notes).  Pursuant to the Agreement,  the Funds
also  relinquished all Warrants held.  Total proceeds  received by the Funds for
retiring  the  Notes and  Warrants  was  $12,000,000;  of which  $5,605,200  was
allocated to Fund II. Fund II will recognize a loss of  approximately $1 million
from this transaction. The distribution of any Capital Proceeds relating to this
transaction will be made in connection with the first quarter cash distribution,
to Limited Partners of record as of March 12, 1999.

     In addition, under the Agreement, the Funds are entitled,  collectively, to
receive twenty percent (20%) of the net proceeds of any payment or consideration
or  distribution  (whether  received  in  cash,  property,   securities  or  any
combination thereof) arising out of transfer,  disposition,  recapitalization or
exchange of  substantially  all of the stock or other equity  interest in either
Stablex Canada Inc. or Seaway TLC Inc. if such transaction is consummated within
forty-two  (42)  months  from the closing of the  Agreement.  Any  Distributable
Capital  Proceeds  relating  to  future  receipts  by  Fund II  pursuant  to the
Agreement  will be payable to Limited  Partners of record as of the date of such
receipt.

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

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

     Should bankruptcy proceedings commence,  either voluntarily or by action of
the court against a portfolio  company,  the ability of Fund II to liquidate the
position or collect proceeds from the action may be delayed or limited.
<PAGE>
5.   Unrealized Appreciation and Depreciation of Investments

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

6.   Non-Accrual of Investments

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

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

7.    Investment Advisory Fee

     The  Investment  Adviser  provides  the   identification,   management  and
liquidation of portfolio investments for the Funds. As compensation for services
rendered to the Funds,  the Investment  Adviser  receives a quarterly fee at the
annual rate of 1% of assets under  management (net offering  proceeds reduced by
cumulative capital reductions and realized losses), with a minimum annual fee of
$1.2  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,  1999 and 1998,  Fund II paid  $166,500  and  $175,490,
respectively, in Investment Advisory Fees to Thomas H. Lee Advisers 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 a Fund  Administration  Fee.  The Fund  Administration  Fee is an annual
amount of $400,000 for Fund II and the Retirement Fund on a combined basis.  The
Fund  Administration Fee is calculated and paid quarterly,  in advance,  by each
Fund.  For the three months ended March 31, 1999 and 1998,  Fund II paid $55,500
in Fund Administration Fees.

     In addition, the Fund Administrator is entitled to reimbursement of 100% of
all out-of-pocket  expenses incurred by the Fund  Administrator on behalf of the
Funds  ("reimbursable  expenses").  Reimbursable  expenses  primarily consist of
printing,  audit and tax  preparation,  legal fees and  expenses,  and custodian
fees.  For the three  months  ended  March 31,  1999 and 1998,  Fund II incurred
$74,727 and $83,097, respectively, in reimbursable expenses.

     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, 1999 and 1998,  Independent  General  Partners'  Fees and
Expenses were $24,210 and $32,511, respectively.
<PAGE>
10.     Related Party Transactions

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

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

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

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

     During the three months ended March 31, 1999,  Fund II paid the  Individual
General  Partner  distributions  totaling  $386  and  Managing  General  Partner
distributions totaling $408,104 (which includes $404,244 of MGP Distributions as
defined above).  As of March 31, 1999, the Managing General Partner has earned a
total of $26.5  million  in MGP  Distributions,  none of  which is  deferred  in
payment to the Managing General Partner as a Deferred  Distribution  amount (the
"Deferred  Distribution")  at this  time,  in  accordance  with the  Partnership
Agreement.  To the  extent not  payable to the  Managing  General  Partner,  any
Deferred Distribution is distributed to the Partners pro-rata in accordance with
their capital  contributions,  and certain  amounts  otherwise  later payable to
Partners from distributable cash from operations would instead be payable solely
to the Managing General Partner until the Deferred  Distribution  amount is paid
in full.

     
<PAGE>
11.  Income Taxes (Statement of Financial Accounting Standards  No. 109)

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

     Pursuant  to the  Statement  of  Financial  Accounting  Standards  No.  109
Accounting  for Income Taxes,  Fund II is required to disclose any difference in
the tax basis of Fund II's assets and liabilities versus the amounts reported in
the financial  statements.  As of December 31, 1998,  the tax basis of Fund II's
assets are greater  than the amounts  reported in the  financial  statements  by
$15.6 million. This difference is attributable to net unrealized depreciation on
investments which has not been recognized for tax purposes.

12.     Subsequent Events

     On May 10, 1999, the Individual General Partners approved the first quarter
1999 cash  distribution  which represents net investment income of $323,052 from
Mezzanine  Investments and Net  Distributable  Capital proceeds from the sale of
Stablex of  $5,605,200  (all of which is return of  capital).  The total  amount
distributed  to Limited  Partners was  $5,814,154 or $26.22 per Unit,  which was
paid on May 14, 1999. The Managing  General Partner  received a total of $13,113
with respect to its interest in Fund II and $98,165 in MGP Distributions. Thomas
H. Lee, as an Individual  General  Partner,  received $1,311 with respect to his
interest in Fund II.

 
<PAGE>
<TABLE>
<CAPTION>

                                                         SCHEDULE 1
                                               ML-LEE ACQUISITION FUND II, L.P.
                                    SUPPLEMENTARY SCHEDULE OF REALIZED GAINS AND LOSSES
                                             FOR THE THREE MONTHS ENDED MARCH 31, 1999
                                                   (DOLLARS IN THOUSANDS)
                                                        (Unaudited)

<S>                                                            <C>              <C>          <C>            <C>
                                                                Number of 
                                                                 Shares/
                                                                Principal      Investment          Net          Realized
Security                                                         Amount          Cost            Proceeds         Loss
                                                               -----------     ----------     ------------    ------------  
                                                                                                  

Stablex Canada, Inc.                                 Various    $  6,631       $  6,631           $  5,605      $ (1,026)
                                                                               --------           --------      --------
Total Realized Loss for the Three Months
  ended March 31, 1999                                                         $  6,631           $  5,605      $ (1,026)
                                                                               ========           ========      ========

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                                   SCHEDULE 2
                                       SUPPLEMENTARY SCHEDULE OF UNREALIZED APPRECIATION AND DEPRECIATION
                                                           ML-LEE ACQUISITION II, L.P.
                                                   FOR THE PERIOD ENDED MARCH 31, 1999
                                                              (DOLLARS IN THOUSANDS)
                                                                    (Unaudited)
<S>                                         <C>       <C>           <C>       <C>   <C>        <C>        <C>      <C>          <C>
                                                                         Unrealized           Total Unrealized      Total Unrealized
                                                                        Appreciation            Appreciation          Appreciation
                                                                    Depreciation) for the      (Depreciation)        (Depreciation)
                                          Investment       Fair       Three Months Ended       at December 31,         at March 31,
Security                                     Cost          Value        March 31, 1999              1998                   1999
                                          ----------       -----    ---------------------     ----------------      ----------------
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)
  Subordinated Note *                              -           -                 -                          -                     -
                                                                          --------                 ----------             ---------
Total Unrealized Depreciation
  from Non Public Securities                                                     -                    (11,521)              (11,521)
                                                                          --------                 ----------             ---------
Reversal of Unrealized Appreciation
  (Depreciation) from Securities Sold
  in 1999
Soretox
  Subordinated Notes*                                                        4,041                     (4,041)                    -
                                                                          --------                 ----------             ---------
Net Unrealized Appreciation (Depreciation)                                $  4,041                 $  (15,562)            $ (11,521)
                                                                          ========                 ==========             =========


*  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,  1999,  Fund II had  outstanding  a total  (at cost) of $34.4
million invested in Mezzanine Investments representing $17.1 million Managed and
$17.3 million  Non-Managed  portfolio  investments.  The remaining proceeds were
invested in Temporary  Investments  primarily comprised of commercial paper with
maturities of less than one month.

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

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

     On August 6, 1991, the Independent  General Partners approved a reserve for
follow-on  investments  of $24.9  million for Fund II. As of May 14,  1999,  the
remaining reserve balance was $3.1 million due to follow-on investments in Petco
Animal Supplies, Fitz and Floyd, Fine Clothing, Inc., Hills Stores,  Ghirardelli
Holdings  and  Anchor  Advanced  Products.  Additionally,  $8.29  million of the
reserve has been  returned to the  partners.  The level of the reserve was based
upon an analysis  of  potential  follow-on  investments  in  specific  portfolio
companies  that may become  necessary to protect or enhance  Fund II's  existing
investment.

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

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

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

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

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

Results of Operations

Investment Income and Expenses

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

     For the three months ended March 31, 1999, Fund II had investment income of
$627,309 as compared to $789,498 for the comparable three months ended 1998. The
decrease  in 1999  investment  income as compared to 1998 was due to the sale of
income producing portfolio companies in 1998.

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

     The  Investment   Adviser  and  Fund   Administrator   both  receive  their
compensation on a quarterly basis.  The total  Investment  Advisory Fees paid by
Fund II to the Investment  Adviser for the three months ended March 31, 1999 and
1998 were $166,500 and $175,490,  respectively, and were calculated at an annual
rate of 1.0% of assets  under  management  (net  offering  proceeds  reduced  by
cumulative capital reductions and realized losses), with a minimum annual amount
of $1.2 million for Fund II and the  Retirement  Fund on a combined  basis.  The
decrease  in  Investment   Advisory  Fees  are  a  direct  result  of  sales  of
investments,  returns of capital  distributed to partners and realized losses on
investments.

     As compensation  for its services,  the Fund  Administrator  is entitled to
receive 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. For the three  months  ended March 31, 1999 and 1998,  Fund
Administration Fees were $55,500.  Actual out-of-pocket expenses  ("reimbursable
expenses") primarily consist of printing, audit, tax preparation, legal fees and
expenses,  and  custodian  fees.  For the three  months ended March 31, 1999 and
1998,  Fund II  incurred  $74,727 and  $83,097,  respectively,  in  reimbursable
expenses.
<PAGE>
     Pursuant to the  administrative  services agreement between Fund II and the
Fund  Administrator,  for the period ending  November 10, 1997, a portion of the
actual out-of-pocket  expenses incurred in connection with the administration of
Fund II was reimbursable to the Fund Administrator.

     Professional  fees for the three months ended March 31, 1998 were  $28,795.
These expenses are attributable to legal fees incurred and advanced on behalf of
indemnified  defendants  as  well  as  fees  incurred  directly  by  Fund  II in
connection with the certain litigation proceedings.

     For the three  months  ended  March 31,  1999,  Fund II had net  investment
income of $305,481 as  compared  to  $413,057  for the same period in 1998.  The
decrease in 1999 net  investment  income as compared to 1998 was due to the sale
of income producing portfolio companies in 1998.

Net Assets

     Fund II's net assets  increased  by $1.2  million  during the three  months
ended March 31, 1999, due to net  investment  income of $305,481 and reversal of
net  unrealized   depreciation  of  $4.0  million,   partially  offset  by  cash
distributions  to  partners  of $2.1  million  ($781,572  of which was return of
capital from the sale of  portfolio  investments)  and realized  losses from the
sale of Mezzanine Investments of $1.0 million.

Unrealized Appreciation and Depreciation on Investments

     For the three months ended March 31, 1999,  Fund II recorded net unrealized
appreciation  of $4.0  million all of which was  related to the  reversal of net
unrealized  depreciation  from Stablex,  which was sold on March 12 ,1999.  This
compares to the  reversal of net  unrealized  depreciation  of $8.6  million for
1998.  Fund II's  cumulative  net unrealized  depreciation  on investments as of
March 31, 1999 totaled $11.5 million.

     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  71.2% of Fund II's  investments  (at cost) are  invested  in
private placement securities for which there are no ascertainable market values.
Although  the Managing  General  Partner and  Investment  Adviser use their best
judgment in estimating the fair value of these  investments,  there are inherent
limitations in any estimation  technique.  Therefore,  the fair value  estimates
presented  herein are not  necessarily  indicative  of the amount  which Fund II
could  realize  in a  current  transaction.  As of March  31,  1999,  Fund  II's
investment in Big V Supermarkets  Inc.  represents  approximately  64.8% of Fund
II's fair value.

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

     For  additional  information  please  refer  to  Supplemental  Schedule  of
Unrealized Appreciation and Depreciation - Schedule 2.
<PAGE>
Realized Gains and Losses

     For the three months ended March 31, 1999, Fund II recorded realized losses
from  investments  of $1.0 million as compared to realized gains of $297,059 for
the three months ended March 31, 1998. For additional information,  please refer
to the Supplemental Schedule of Realized Gains and Losses - Schedule 1.

Cash Distributions

     On May 10, 1999, the Individual General Partners approved the first quarter
1999 cash  distribution  which represents net investment income of $323,052 from
Mezzanine  Investments and Net  Distributable  Capital Proceeds from the sale of
Stablex of  $5,605,200  (all of which is return of  capital).  The total  amount
distributed  to Limited  Partners was  $5,814,154 or $26.22 per Unit,  which was
paid on May 14, 1999. The Managing  General Partner received a total of $111,278
with respect to its interest in Fund II and $98,165 in MGP Distributions. Thomas
H. Lee, as an Individual  General  Partner,  received $1,311 with respect to his
interest in Fund II.

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

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

Year 2000 Compliance Initiative

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

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

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

     Merrill Lynch participated in further industrywide testing during March and
April  1999,  sponsored  by the  Securities  Industry  Association.  These tests
involved an expanded number of firms, transactions, and conditions compared with
those previously conducted.

     Although Fund II has not finally  determined the cost  associated  with its
Year 2000  readiness  efforts,  Fund II does not  anticipate the cost of the Y2K
problem  to be  material  to its  business,  financial  condition  or results of
operations  in any  given  year.  However,  there can be no  guarantee  that the
systems  of other  companies  on which  Fund  II's  systems  rely will be timely
converted,  or that a failure to convert by another company or a conversion that
is incompatible  with Fund II's systems would not have a material adverse effect
on Fund II's business, financial condition or results of operations.
<PAGE>
Item 3.  Quantitative and Qualitative Disclosure About Market
                  Risk

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

Part II - Other Information

     Item 1 - Litigation

  
     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 March 12, 1999
                                        Filed on March 18, 1999 related to 
                                        Stablex Note Repurchase
                                       

Item 5.   Other Information

<PAGE>
                                   SIGNATURES



     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 14th day of May,
1999.


                                   ML-LEE ACQUISITION FUND
                                   (RETIREMENT ACCOUNTS) II, L.P.

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

                             By:   ML Mezzanine II Inc.,
                                   its General Partner



                               /s/ Robert J. Remick
                               ----------------------------------
Dated:  May 14, 1999               Robert J. Remick
                                   ML Mezzanine II, Inc.
                                   Vice President and Treasurer
                                  (Principal Financial Officer of Registrant)