UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

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

                  For the Quarterly Period Ended June 30, 1998

                         Commission File Number 0-15669

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

         Delaware                                  13-3426817
(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 of 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>
                          ML-LEE ACQUISITION FUND, L.P.

                                TABLE OF CONTENTS


                         PART I - FINANCIAL INFORMATION

                                                                     
Item 1.  Financial Statements

Statements of Assets, Liabilities and Partners' Capital
  as of June 30, 1998 and December 31, 1997                          

Statements of Operations - For the Three and Six Months Ended
  June 30, 1998 and 1997                                           

Statements of Changes in Net Assets - For the Six Months Ended
  June 30, 1998 and 1997                                             

Statements of Cash Flows - For the Six Months Ended
  June 30, 1998 and 1997                                            

Statement of Changes in Partners' Capital - June 30, 1998         

Schedule of Investments - June 30, 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


Item 6.  Exhibits and Reports on Form 8-K                           


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

<S>                                                                     <C>                 <C>
                                                                         (Unaudited)
                                                                        June 30, 1998      December 31, 1997
                                                                         -----------       -----------------

ASSETS:
Investments - Notes 2, 8, 9
Portfolio Investments at fair value
    Managed Companies (cost $16,652 at June 30,
         1998 and $53,480 at December 31, 1997)                          $        --             $    35,227
    Non-Managed Companies (cost $0 at June 30,
         1998 and $720 at December 31, 1997)                                      --                      26
    Temporary Investments, at amortized cost (cost $24,050 at
         June 30, 1998 and $4,040 at December 31, 1997)                       24,072                  18,125
Cash                                                                              26                       1
Prepaid Loan Fees - Notes 2, 4                                                    --                     384
Prepaid Expenses                                                                  --                       6
Receivable for Investment Sold (Net of Allowance for
  Uncollectable Proceeds) - Note 8                                                38                   3,926
                                                                         -----------             -----------
TOTAL ASSETS                                                             $    24,136             $    57,695
                                                                         ===========             ===========

LIABILITIES AND PARTNERS' CAPITAL:

Liabilities
    Legal and Professional Fees Payable                                  $        49             $       110
    Reimbursable Administrative Expenses Payable                                 158                     116
    Independent General Partner Expenses Payable                                  29                      23
                                                                         -----------             -----------
Total Liabilities                                                                236                     249
                                                                         -----------             -----------
Partners' Capital - Note 2
    Managing General Partner                                                     583                     918
    Limited Partners (487,489 Units)                                          23,317                  56,528
                                                                         -----------             -----------
Total Partners' Capital                                                       23,900                  57,446
                                                                         -----------             -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL                                  $    24,136             $    57,695
                                                                         ===========             ===========


</TABLE>

                            See the Accompanying Notes to Financial Statements.


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

<S>                                                        <C>             <C>           <C>             <C>    
                                                            For the Three Months Ended       For the Six Months Ended
                                                              ----------    ----------    -------------   ------------
                                                            June 30,1998  June 30,1997    June 30, 1998   June 30,1997
                                                              ----------    ----------    -------------   ------------
INVESTMENT INCOME - Notes 2, 8, 10:
Interest                                                      $        9    $      301       $       15    $      596
Discount                                                             228            46              424            93
Dividend & Other Income                                               --            --                1             6
                                                              ----------    ----------       ----------    ----------
    TOTAL INCOME                                                     237           347              440           695
                                                              ----------    ----------       ----------    ----------
EXPENSES:
Investment Advisory Fee - Note 5                                     300           297              600           594
Fund Administration Fee - Note 6                                      75            75              150           150
Uncollectable Receivable Expense - Note 8                          1,000            --            1,000            --
Loan Fees - Notes 2, 4                                               230           175              403           347
Independent General Partners' Fees and Expenses - Note 7              39           118               79           171
Legal and Professional Fees                                           --           416               --           648
Reimbursable Administrative Expenses - Note 6                        158           191              291           261
Insurance Expense                                                      5             2                7             4
                                                              ----------    ----------       ----------    ----------
    TOTAL EXPENSES                                                 1,807         1,274            2,530         2,175
                                                              ----------    ----------       ----------    ----------
NET INVESTMENT LOSS                                               (1,570)         (927)          (2,090)       (1,480)
NET REALIZED GAIN ON INVESTMENTS -
     NOTE 8 AND SCHEDULE 1                                        24,297         5,434            7,095         5,795
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
     ON INVESTMENTS - NOTE 9 AND SCHEDULE 2
        Publicly Traded Securities                               (25,351)       (3,012)         (18,959)       (2,728)
        Nonpublic Securities                                         254            --           21,254            --
                                                              ----------    ----------       ----------    ----------
             Subtotal                                            (25,097)       (3,012)           2,295        (2,728)
                                                              ----------    ----------       ----------    ----------
NET INCREASE (DECREASE) IN NET ASSETS
   RESULTING FROM OPERATIONS                                  $   (2,370)   $    1,495       $    7,300    $    1,587
                                                              ==========    ==========       ==========    ==========

                         See the Accompanying Notes to Financial Statements.

</TABLE>


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

<S>                                                                           <C>            <C>   

                                                                                     For the Six Months Ended
                                                                                -------------       -------------
                                                                                June 30, 1997       June 30, 1998
                                                                                -------------       -------------
FROM OPERATIONS:

Net Investment Loss                                                                $   (2,090)         $   (1,480)

Net Realized Gain on Investments                                                        7,095               5,795

Net Change in Unrealized Appreciation (Depreciation) on Investments                     2,295              (2,728)
                                                                                   ----------          ----------

Net Increase in Net Assets Resulting from Operations                                    7,300               1,587

Cash Distributions to Partners                                                        (40,846)               (936)
                                                                                   ----------          ----------

Total Increase (Decrease)                                                             (33,546)                651

NET ASSETS:

Beginning of Period                                                                    57,446              97,388
                                                                                   ----------          ----------

End of Period                                                                      $   23,900          $   98,039
                                                                                   ==========          ==========




                         See the Accompanying Notes to Financial Statements.

</TABLE>


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

<S>                                                                             <C>                   <C>   

                                                                                           For the Six Months Ended
                                                                                        ----------       -------------
                                                                                        June 30, 1998    June 30, 1997
                                                                                        ----------       -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
  Interest, Dividends and Discount Income                                               $      479         $      997
  Investment Advisory Fee                                                                     (600)              (594)
  Fund Administration Fee                                                                     (150)              (150)
  Legal and Professional Fees                                                                  (60)              (457)
  Loan Fees and Expenses                                                                       (19)                (9)
  Independent General Partners' Fees and Expenses                                              (73)              (153)
  (Purchase) Sale of Temporary Investments, Net                                             (5,987)           (13,838)
  Reimbursable Administrative Expenses                                                        (250)              (173)
  Proceeds from Sale of Portfolio Company Investments                                       47,531             15,303
                                                                                        ----------         ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                   40,871                926
                                                                                        ----------         ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Cash Distributions to Partners                                                           (40,846)              (936)
                                                                                        ----------         ----------
NET CASH APPLIED TO FINANCING ACTIVITIES                                                   (40,846)              (936)
                                                                                        ----------         ----------
  Net Increase (Decrease) in Cash                                                               25                (10)
  Cash at Beginning of Period                                                                    1                 10
                                                                                        ----------         ----------
CASH AT END OF PERIOD                                                                   $       26         $       --
                                                                                        ==========         ==========

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

Net Investment Loss                                                                     $   (2,090)       $   (1,480)
                                                                                        ----------        ----------
ADJUSTMENTS TO RECONCILE NET INVESTMENT LOSS
    TO NET CASH PROVIDED BY OPERATING ACTIVITIES
   (Increase) Decrease in Investments                                                       31,560            (4,331)
   Decrease in Receivable for Investments Sold
     (Net of Allowance for Uncollectable Proceeds)                                           3,888                --
   Decrease in Accrued Interest,
     Dividend and Discount Receivables                                                          40               302
  Decrease in Prepaid Expenses                                                                 391               333
  Increase in Independent General Partner Fees Payable                                           6                18
  Increase in Reimbursable Administrative Expenses Payable                                      41                88
  Increase (Decrease) in Legal and Professional Fees Payable                                   (60)              201
  Net Realized Gain on Investments                                                           7,095             5,795
                                                                                        ----------        ----------
TOTAL ADJUSTMENTS                                                                           42,961             2,406
                                                                                        ----------        ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                               $   40,871        $      926
                                                                                        ==========        ==========
</TABLE>

See the Accompanying Notes to Financial Statements.

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

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

For the Six Months Ended June 30, 1998
Partners' Capital at January 1, 1998                                               $        918      $     56,528      $     57,446
Allocation of Net Investment Loss                                                           (21)           (2,069)           (2,090)
Allocation of Net Realized Gain on Investments                                               71             7,024             7,095
Allocation of Net Change in Unrealized Appreciation                                          23             2,272             2,295
Cash Distributions to Partners                                                             (408)          (40,438)          (40,846)
                                                                                   ------------      ------------      ------------
Partners' Capital at June 30, 1998                                                 $        583      $     23,317      $     23,900
                                                                                   ============      ============      ============

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


<PAGE>
<TABLE>
<CAPTION>
                                                  ML-LEE ACQUISITION FUND, L.P.
                                                   SCHEDULE OF INVESTMENTS
                                                        JUNE 30, 1998
                                                    (DOLLARS IN THOUSANDS)
                                                        (CONTINUED)

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

                    CHADWICK-MILLER, INC. - Notes 9,14
  15,406 Warrants   CMI Holding Corp., Preferred Stock Purchase Warrants (a)(b)(c)         12/16/88   $ 12,916   $    -
  39,487 Warrants   CMI Holding Corp., Common Stock Purchase Warrants (a)(b)(c)             Various      3,736        -
                      (7.5% of fully diluted common equity) 
                      35,161 Shares Common Stock 
                      Purchased  06/30/93                $    352
                      Sold  09/03/93                     $    352
                      Realized Gain                      $      0 
                      $5,000 Senior Note 
                      Purchased  12/16/88                $  5,000 
                      Sold  11/23/94                     $  5,000
                      Realized  Gain                     $      0
                      189,996 Shares Preferred Stock
                      192,933 Shares Common Stock 
                      100,000 Common Stock Warrants
                      Purchased Various                  $ 16,652
                      Exchanged July 15, 1996 
                      15,406  Preferred Stock Warrants
                      39,487  Common Stock Warrants      $ 16,652
                      Realized Gain                      $      0                                     ------------------------------
                      Total Realized Gain                $      0                                       16,652        -         0.00
                                                                                                      -----------------------------

                    TEMPORARY INVESTMENTS

                    COMMERCIAL PAPER

$ 10,000            American General Finance Corp., 5.70% due 7/2/98                   6/26/98        $  9,991  $ 9,998        41.54
$ 10,000            Clipper Receivable, 5.70% due 7/2/98                               6/26/98           9,991    9,997        41.54
$  4,075            General Electric Co., 5.50% due 7/1/98                             6/19/98           4,068    4,075        16.92
                                                                                                      ------------------------------
                    TOTAL INVESTMENT IN COMMERCIAL PAPER                                                24,050   24,072       100.00
                                                                                                      ------------------------------
                    TOTAL TEMPORARY INVESTMENTS                                                         24,050   24,072       100.00
                                                                                                      ------------------------------
                    TOTAL INVESTMENT PORTFOLIO                                                        $ 40,702  $24,072       100.00
                                                                                                      ==============================




(a) Restricted non-income producing security.
(b) Non-accrual investment status.
(c) Inclusive of payment-in-kind securities.
(d) Represents original cost and excludes accretion of discount of $22 for Temporary Investments.

</TABLE>

See the Accompanying Notes to Financial Statements.

<PAGE>

                      ML-LEE ACQUISITION FUND, L.P.
                      NOTES TO FINANCIAL STATEMENTS
                              JUNE 30, 1998
                               (UNAUDITED)

1.  Organization and Purpose

     ML-Lee  Acquisition  Fund, L.P. (the "Fund") was formed and the Certificate
of Limited  Partnership  was filed under the Delaware  Revised  Uniform  Limited
Partnership Act on April 1, 1987. The Fund's operations commenced on October 19,
1987.

     The Managing General Partner,  subject to the supervision of the Individual
General  Partners,  is  responsible  for  overseeing  and  monitoring the Fund's
investments.  Mezzanine Investments, L.P. (the "Managing General Partner"), is a
limited  partnership  in which  ML  Mezzanine  Inc.,  an  indirect  wholly-owned
subsidiary of Merrill Lynch & Co., Inc., is the general  partner,  and Thomas H.
Lee Advisers I (the "Investment Adviser"), an affiliate of Thomas H. Lee, 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.

     The Fund  elected to operate as a business  development  company  under the
Investment Company Act of 1940. Its primary investment  objective was to provide
current income and long-term  capital  appreciation  by investing in "Mezzanine"
securities  consisting  primarily  of  Subordinated  Debt  and  Preferred  Stock
combined  with an equity  participation  issued  in  connection  with  leveraged
acquisitions  or  other  leveraged  transactions.

     The initial term of the Fund expired on June 15, 1998 and the Fund has five
years to  liquidate  its  remaining  investments.  However,  the Fund expects to
liquidate its remaining  assets,  including the  Promissory  Note related to the
sale of BeefAmerica , (as described below and in Note 8) by the end of 1998. The
expiration of the Fund's term has caused the  Management  Agreement  between the
Investment  Adviser and the Fund to expire. The Investment Adviser is continuing
to manage the Fund's remaining investments.

     As of July 13, 1998, the Fund's remaining investment in Portfolio Companies
consist  of a $1  million  Promissory  Note  related  to the sale of the  Fund's
interest in BeefAmerica  Inc. (see Note 8) Because the Fund no longer  generates
sufficient cash to pay current obligations, the Fund has available approximately
$3.8 million of cash  reserves to cover future  expenses  including all expenses
related to the  winding  up of the Fund's  affairs  such as  administrative  and
custodial  expenses,  and audit and tax preparation fees. Proceeds received from
the Promissory  Note related to the Fund's  investment in  BeefAmerica  Inc., if
any, as well as any remaining cash reserves in excess of amounts required to pay
the Fund's  obligations  prior to its termination (as discussed in Note 12) will
be distributed as a final  liquidating  distribution to Limited  Partners.  Such
liquidating  distribution  is expected  to be  distributed  to Limited  Partners
during 1998.

2.  Significant Accounting Policies

Basis of Accounting

     For financial  reporting  purposes,  the records of the Fund 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.

Valuation of Investments

     Securities for which market  quotations were readily  available were 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 was 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
the Fund. For privately issued securities in which the Fund typically  invested,
the fair value of an investment  was its original cost plus accrued value in the
case of original issue  discount or deferred pay  securities.  Such  investments
were revalued if there was an objective basis for doing so at a different price.
Investments  were  written  down in value if the  Managing  General  Partner and
Investment  Adviser believe adverse credit  developments of a significant nature
required a write-down of such  securities.  Investments were 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  used  their  best  judgment  in  estimating  the  fair  value  of these
investments,  there  were  inherent  limitations  in any  estimation  technique.
Therefore,  the  fair  value  estimates  presented  herein  are not  necessarily
indicative of the amount which the Fund could realize in a current transaction.
<PAGE>
     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 June 30,
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.

Payment-In-Kind Securities

     All  payment-in-kind  securities received in lieu of cash interest payments
by  the  Fund's   portfolio   companies  were  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 June 30, 1998, the Fund had
in  its  portfolio  of  investments  $2.9  million  of  payment-in-kind   equity
securities,  however  subsequent to the sale of Chadwick Miller, on July 9, 1998
there were no payment in kind securities remaining in the Fund. (See Note 14)

Investment Transactions

     The Fund records investment transactions on the date on which it obtains an
enforceable right to demand the securities or payment therefor. The Fund 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.

Loan Facility and Advisory Fees

     Loan  Facility  and  Advisory  Fees were being  amortized  over the life (7
years) of the Facility.  All such fees have been fully  amortized as of June 30,
1998.

Partners' Capital

     Partners' Capital represents the Fund's equity divided in proportion to the
Partners'  Capital  Contributions.   Profits  and  losses,  when  realized,  are
allocated  in  accordance  with  the  provisions  of the  Partnership  Agreement
summarized in Note 3.

3. Allocation of Profits and Losses

     Pursuant  to  the  Partnership   Agreement,   all  profits  from  Temporary
Investments  generally are  allocated 99% to the Limited  Partners and 1% to the
Managing  General Partner.  Profits from Mezzanine  Investments are, in general,
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% to the Limited  Partners and 1% to the Managing 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  balance of Mezzanine  securities,  and any  outstanding  Compensatory
    Payments,

    third,  69% to the Limited  Partners and 31% to the Managing General Partner
    until the Managing  General  Partner has  received 21% of the total  profits
    allocated,

    thereafter,  79% to the Limited  Partners and 21% to the  Managing  General
    Partner.

    Losses will be allocated in reverse  order of profits  previously  allocated
and  thereafter  99% to the  Limited  Partners  and 1% to the  Managing  General
Partner.

4.  Leverage

     The Fund entered into an amended credit  agreement,  dated as of August 13,
1991,  with a lending  group led by the First  National  Bank of Chicago,  which
provided the Fund with a maximum  credit  facility of $140  million.  The Credit
Facility was due to expire on July 31, 1998,  however,  due to the expiration of
the term of the Fund on June 15,  1998,  and in order to stop  incurring  Unused
Commitment  Fees (as noted  below) the credit  agreement  was amended to instead
expire  at June 30,  1998.  All fees  incurred  in  connection  with the  credit
agreement  have been fully  amortized  as of June 30,  1998.  Such  amortization
amounted to $384,079 during the six months ended June 30, 1998.

     Additionally,  the Fund paid Unused  Commitment Fees of 1/2 of 1% per annum
of the unused line of credit, which was $7.5 million during the six months ended
June 30, 1998. The Unused  Commitment Fees paid during the six months ended June
30, 1998 was $18,854.

<PAGE>
5.  Investment Advisory Fee

     The  Investment  Adviser  provided for the  identification,  management and
liquidation of investments for the Fund. As compensation  for services  rendered
to the Fund, the Investment  Adviser received a quarterly fee at the annual rate
of $1.2 million. The Investment Advisory Fee was paid quarterly, in advance. For
the six  months  ended  June 30,  1998 and  1997,  the Fund  paid  $600,000  and
$594,000, respectively, in Investment Advisory Fees to Thomas H. Lee Advisers I.

     The  expiration  of the Fund's  term has caused  the  Management  Agreement
between the Investment Adviser and the Fund to expire.  However,  the Investment
Adviser is continuing to manage the Fund's remaining investments.

6.  Fund Administration Fees & Expenses

     ML Fund Administrators Inc. (the "Fund Administrator") (an affiliate of the
Managing General Partner) performs the operational and  administrative  services
necessary for the management of the Fund.  Beginning  October 19, 1995, the Fund
Administration Fee is calculated at an annual fee of $300,000 plus out-of-pocket
expenses  incurred  by the Fund  Administrator,  as  described  below.  The Fund
Administration Fee is paid quarterly,  in advance. For the six months ended June
30, 1998 and 1997, the Fund paid $150,000,  respectively, in Fund Administration
Fees.

     In accordance with the Partnership  Agreement,  the Fund  Administrator  is
being  reimbursed  by the  Fund for 100% of  administrative  expenses  incurred.
Actual  out-of-pocket  expenses  ("reimbursable  expenses") primarily consist of
printing,  audits,  tax preparation and custodian fees. For the six months ended
June 30, 1998 and 1997,  reimbursable  expenses  totalled $291,062 and $261,320,
respectively.  For the three months ended June 30, 1998,  reimbursable  expenses
totalled $158,007.

     The Fund  Administrator  will  continue  to  perform  all  operational  and
administrative  services  required by the Fund until the Fund is terminated  and
all such administrative functions are no longer required.

7. Independent General Partners' Fees

     As  compensation  for  services  rendered  to the  Fund,  each of the three
Independent   General   Partners   receives   $40,000   annually  in   quarterly
installments,  $1,000 for each  meeting of the  General  Partners  attended  and
$1,000 for each committee  meeting attended ($500 if a committee meeting is held
on the same day as a meeting of the General Partners) plus reimbursement for any
legal and  out-of-pocket  expenses.  Compensation  for the  Independent  General
Partners is reviewed annually by the Individual General Partners.

     For the six months ended June 30, 1998 and 1997, the Fund incurred  $78,621
and $170,598,  respectively, in Independent General Partners' Fees and Expenses.
For the three months ended June 30, 1998 and 1997, Independent General Partner's
Fees and Expenses totalled $39,089 and $117,653, respectively.

8.  Investment Transactions
     
     On January  6, 1998 the Fund and  affiliates  of the Thomas H. Lee  Company
(the "Lee  Affiliates"),  together with the Fund,  the ("Selling  Stockholders")
sold  their  remaining  holdings  of  common  stock  in  Stanley  Furniture  Co.
("Stanley").  The  common  stock of each of the  Selling  Stockholders  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, the Fund sold its
remaining  400,719  shares of common  stock and  received  net proceeds of $10.8
million or $27 per share. On February 12, 1998, the Independent General Partners
established  a reserve  of $1.65  million  from  these  proceeds  to pay  future
expenses of the Fund.  Net  Distributable  Capital  Proceeds  from the sale,  as
defined in the  Partnership  Agreement,  of $9.2 million or $18.63 per Unit were
distributed to Limited Partners of record as of January 6, 1998.
<PAGE>
     On  February  28,  1998,  Signature  Brands  USA  and  Sunbeam  Corporation
("Sunbeam")  executed a definitive  merger  agreement  whereby Sunbeam agreed to
acquire all the  outstanding  shares of  Signature  Brands USA Common  Stock for
approximately  $250  million  ($8.25 per share) by means of a tender  offer (the
"Tender Offer"),  and assume all the debt of Signature  Brands USA.  Pursuant to
the Tender  Offer,  the Fund  tendered  all its shares of  Signature  Brands USA
Common  Stock  and  received   proceeds  of  approximately   $13  million.   Net
Distributable  Capital Proceeds of $26.19 per Unit were distributed on April 23,
1998,  to the  Fund's  Limited  Partners  of  record  as of April 2,  1998,  the
expiration date of this Tender Offer.

     On March 3, 1998,  the Fund sold its remaining  investment in  BeefAmerica,
consisting of 14,000 shares Sr.  Preferred Stock and 10,000 shares Jr. Preferred
Stock (the  "Securities"),  for $1 million to Lajara II LLC, a limited Liability
Company owned by the Management of BeefAmerica  Operating Company.  The proceeds
consisted of a $1 million  Promissory  Note payable to the Fund.  The Securities
have  been  pledged  to  secure  the  obligation  of  Lajara  II,  LLC under the
Promissory Note and the Fund recognized a loss of $23 million. The financial and
operating performance at BeefAmerica has continued to deteriorate.  As a result,
the Fund does not  expect  to  collect  any  additional  proceeds  and has fully
reserved against the $1 million Promissory Note.

     On May 27, 1998,  Playtex  Products Inc.,  ("Playtex"),  completed a public
offering  in the  international  markets of  approximately  4 million  shares of
Common Stock at a net price of $13.215 per share (the  "Playtex  Offering").  Of
the 4 million shares offered,  approximately  3.8 million shares were offered by
affiliates  of the Thomas H. Lee  Company,  including  the Fund.  As part of the
Playtex Offering, the Fund sold its remaining investment in Playtex,  consisting
of approximately  1.4 million shares of Common Stock. The Fund received proceeds
of  $18.5  million  and  recognized  a gain on the sale of  approximately  $15.3
million. Net Distributable  Proceeds of $37.74 per Unit were distributed on July
21, 1998, to Limited Partners of record as of May 27, 1998.

     As of June 30, 1998,  the Fund sold all but one of its remaining  Portfolio
Company investments (the last Portfolio Company investment, Chadwick Miller, was
subsequently  sold on July 9, 1998. See Note 14 for more  information.) On April
7, 1998,  pursuant to Rule 144 of the  Securities Act of 1933, the Fund sold its
investment of 25,500 shares of TLC Beatrice  International Holdings Common Stock
for $1.3  million  or $51.25  per  share.  During  May  1998,  the Fund sold its
investment in SWO Holdings,  consisting of 250,000 shares of SWO Holdings Common
Stock,  1,430  shares of Homeland  Holdings  Common  Stock,  and 1,506  Homeland
Holdings  Common Stock  Purchase  Warrants and  received  aggregate  proceeds of
$11,102.  The Fund also sold 567 Cole National  Common Stock  Purchase  Warrants
during May 1998, and received proceeds of $15,593. Additionally, on May 4, 1998,
the Fund sold 2,067 Common Stock Purchase  Warrants of Magellan  Health Services
for $5,168. The sale of these Portfolio Company investments have generated total
proceeds to the Fund of $1.34 million and were  distributed to Limited  Partners
on July 21, 1998.
  
9.  Unrealized Appreciation and Depreciation of Investments

     For the six months ended June 30, 1998,  the Fund  recorded net  unrealized
appreciation  of $2.3 million.  As of June 30, 1998,  the Fund's  cumulative net
unrealized depreciation on investments totalled $16.7 million.

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

10. Litigation

     On April 10,  1998,  the  parties  to Seidel v.  Thomas H. Lee,  et al, No.
93-494 (JJF), a putative  class action brought on behalf of limited  partners of
the Fund,  filed with United States District Court for the District of Delaware,
a Stipulation of Settlement preliminarily settling the action.

     The  settlement,  which was  approved by the Court at a hearing on July 16,
1998,  provides for dismissal with prejudice of all claims against the Fund, the
Fund's  Investment  Adviser and certain of its  affiliates,  the Fund's Managing
General  Partner  and  certain of its  affiliates,  and the  Fund's  Independent
General Partners.  Defendants,  other than the Fund, have agreed to provide cash
of $2.5 million and certain other  considerations  to settle the claims asserted
in this action. Defendants continue to deny all liability in this action.

     The Fund  had  previously  advanced  legal  expenses  incurred  by  certain
defendants and has included such expenses in Legal and Professional  Fees in the
Financial Statements.

11. Related Party Transactions

     Certain of the Mezzanine Investments and Bridge Investments which were made
by the Fund involved 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  the  Fund's   expectation   of   engaging   in  such
co-investments,  the Fund sought an exemptive order from the Commission allowing
such  co-investment,  which was received on September  23, 1987.  An  additional
exemptive order allowing  co-investment  with ML-Lee  Acquisition  Fund II, L.P.
("Fund  II")  and  ML-Lee  Acquisition  Fund  (Retirement   Accounts)  II,  L.P.
("Retirement  Fund") was received from the  Commission on September 1, 1989. The
Fund's investments in Managed Companies, and in certain cases its investments in
Non-Managed Companies,  typically involve the entry by the Fund and other equity
security  holders into  stockholders'  agreements.  While the provisions of such
stockholders'  agreements  vary,  such  agreements may include  provisions as to
corporate  governance,  registration  rights,  rights  of  first  offer or first
refusal,  rights to participate in sales of securities to third parties,  rights
of majority stockholders to compel minority stockholders to participate in sales
of securities to third parties, transfer restrictions and preemptive rights.

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

     Merrill  Lynch,  Pierce,  Fenner  &  Smith  Incorporated  ("MLPF&S")  is an
affiliate of the Managing General Partner. MLPF&S and certain of its affiliates,
in the ordinary course of their business, perform various financial services for
various portfolio  companies of the Fund, 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 Fund in connection with their ordinary investment
operations.

     For the six months  ending June 30,  1998,  the  Managing  General  Partner
received  cash  distributions  in the  amount of  $420,366  representing  its 1%
interest in the Fund.

12. Reserves

     In February  1993,  the Fund  established a $15 million  reserve to provide
funds for follow-on  investments and to pay expenses.  On February 12, 1998, the
Independent  General Partners approved an additional reserve of $1.65 million to
fund anticipated cash shortfalls. This reserve was established from the proceeds
received from the sale of Stanley Furniture Common Stock in January 1998.

     Because  the  Fund no  longer  generates  sufficient  cash  to pay  current
obligations,  the  Fund  has  approximately  $3.8  million  available  of  these
remaining cash reserves to cover future expenses  including all expenses related
to the winding up of the Fund's  affairs such as  administrative  and  custodial
expenses,  and audit and tax preparation fees.  Proceeds,  if any, received from
the Promissory  Note related to the Fund's  investment in BeefAmerica  Inc. (see
Note 8) as well as any remaining cash reserves in excess of amounts  required to
pay the Fund's  obligations  prior to its  termination  will be distributed as a
final liquidating distribution to Limited Partners. The Fund estimates that such
a liquidating distribution would be made during 1998.

13. 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 the Fund's  partners for  inclusion  in their  respective  tax
returns.

     Pursuant  to the  Statement  of  Financial  Accounting  Standards  No.  109
Accounting for Income Taxes,  the Fund is required to disclose any difference in
the tax basis of the Fund's assets and liabilities  versus the amounts  reported
in the  financial  statements.  As of December  31,  1997,  the tax basis of the
Fund's assets are greater than the amounts reported in the financial  statements
by $4.9  million.  This  difference  is  primarily  attributable  to  unrealized
appreciation  and  depreciation  recorded  on  investments  which  has not  been
recognized for tax purposes.

14. Subsequent Events

     On July 1,  1998,  the  Individual  General  Partners  approved  the second
quarter 1998 cash distribution  totalling  $19,967,334 (which includes Return of
Capital of $3,332,808), from the sale of the Fund's remaining portfolio holdings
effected during the quarter, the following distributions: a cash distribution to
Limited Partners in the amount of $40.55 per Unit and a cash distribution to the
Managing General Partner of $199,656 in proportion to its Capital  Contribution,
all such distributions were distributed on July 21, 1998.

     On July 9, 1998,  pursuant to a purchase and sale agreement,  the Fund sold
its  remaining  Warrants  to  purchase  Common and  Preferred  Stock of Chadwick
Miller, (which includes all payment-in-kind securities) and received proceeds of
$100.  The Fund  recognized a loss of $16.5  million on the  transaction  in the
third quarter 1998. The Fund had previously recorded $16.5 million in unrealized
depreciation on this investment.

<PAGE>
<TABLE>
<CAPTION>
                                                   SCHEDULE 1
                                         ML-LEE ACQUISITION FUND, L.P.
                                SUPPLEMENTAL SCHEDULE OF REALIZED GAINS AND LOSSES
                                      FOR THE SIX MONTHS ENDED JUNE 30, 1998
                                             (DOLLARS IN THOUSANDS)
                                                  (UNAUDITED)

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

 
                                                          Number of        Investment                      Realized
SECURITY                                               Shares/Principal        Cost      Net Proceeds     Gain/(Loss)
-----------------------------------                   -----------------     ---------    ------------     -----------
For the Three Months March 31, 1998

Stanley Furniture Company Inc. 
    Common Stock                                               400,719       $  5,021       $ 10,819       $   5,798


BeefAmerica Incorporated
  Jr. and Sr.Preferred Stock                                    24,000         24,000          1,000(a)     (23,000)
                                                                              -------       --------       --------- 

Total For the Three Months Ended March 31, 1998                                29,021         11,819        (17,202)
                                                                              -------       --------       -------- 
For the Three Months Ended June 30, 1998

Signature Brands USA
    Common Stock                                             1,563,053          4,552         12,895          8,343

Playtex Products Inc. 
    Common Stock                                             1,406,204          3,255         18,583         15,328

TLC Beatrice Int'l Holdings
    Common Stock                                                25,500             25          1,313          1,288

SWO Holdings Corp. 
    SWO Holdings Common Stock                                  250,000            250             -- (b)       (250)
    Homeland Holdings Corp. Common Stock                         1,430            440             11           (429)
    Homeland Holdings Corp. Purchase Warrants                    1,506             --             -- (b)         --


Magellan Health Services Inc. 
    Warrants                                                     2,067              4              5              1

Cole National Corp. 
    Warrants                                                     5,563             --             16             16
                                                                              -------       --------       --------   
Total for the Three Months Ended June 30, 1998                                  8,526         32,823         24,297
                                                                              -------       --------       --------              
Total for the Six Months Ended June 30, 1998                                 $ 37,547      $  44,642       $  7,095
                                                                             ========      =========       ========


(a) Proceeds received in the form of a Promissory Note which has been fully
    reserved against at June 30, 1998.  See Note 8 to the Financial  Statements
    for further information.

(b) Proceeds are less than $1,000.


</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                                  SCHEDULE 2
                                                        ML-LEE ACQUISITION FUND, L.P.
                                       SUPPLEMENTAL SCHEDULE OF UNREALIZED APPRECIATION AND DEPRECIATION
                                                       FOR THE PERIOD ENDED June 30, 1998
                                                            (DOLLARS IN THOUSANDS)
                                                                  (UNAUDITED)

<S>                                          <C>             <C>          <C>                <C>                <C>          
                                                                     Unrealized    Unrealized
                                                                    Appreciation   Appreciation       
                                                                   (Depreciation) (Depreciation)  Total Unrealized  Total Unrealized
                                                                   For the Three   For the Six      Appreciation      Appreciation
                                            Investment    Fair      Months Ended   Months Ended  (Depreciation) at   (Depreciation)
SECURITY                                       Cost       Value    June 30, 1998  June 30, 1998  December 31, 1997  at June 30, 1998
----------------------------------------   -----------   --------  -------------  -------------  ------------------ ----------------
Non-Public Securities

Chadwick-Miller, Inc. *
  Common Stock Purchase Warrants              $  3,736       $   --    $     --     $       --          $   (3,736)     $   (3,736)
  Preferred Stock Purchase Warrants             12,916           --          --             --             (12,916)        (12,916)
                                                                       ---------    ----------           ----------      ---------
                                                                       $     --     $       --          $  (16,652)     $  (16,652)
                                                                       ---------    ----------           ----------      ---------
  (Depreciation) for Investments Sold

Stanley (1)
  Common Stock                                $     --       $   --     $    --     $   (6,149)        $     6,149       $      --

BeefAmerica Incorporated
  Jr. and Sr.Preferred Stock  (2)                   --           --          --         21,000             (21,000)             --

Signature Brands USA
  Common Stock (1)                                  --           --      (8,294)        (2,091)              2,091              --

Playtex
  Common Stock (1)                                  --           --     (17,487)       (11,159)             11,159              -- 

SWO Holdings Corporation
  SWO Holdings Common Stock (2)                     --           --         250            250                (250)             --
  Homeland Holdings Common Stock (1)                --           --         430            440                (440)             --

Magellan Health Service
  Common Stock Warrants (2)                         --           --           4             --                  (4)             --
                                                                      ----------    ----------           ----------      ---------
Total Unrealized Appreciation/(Depreciation)
  for Investments Sold:                                               $ (25,097)    $    2,295           $  (2,295)      $      --
                                                                      ----------    ----------           ----------      ---------

 Net Unrealized Appreciation (Depreciation)                           $ (25,097)    $    2,295           $ (18,947)      $  (16,652)
                                                                      ==========    ==========           =========       ==========

(1)  Publicly Traded Security
(2)  Non-public Security
 
*    The Fund's  Investment in Chadwick  Miller was sold on July 9, 1998 and all
     unrealized  depreciation  was  reversed.  See  Note  14  to  the  Financial
     Statements for more information.
</TABLE>


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

Liquidity & Capital Resources

     The initial term of the Fund  expired on June 15,  1998.  The Fund has five
additional  years to  liquidate  its  remaining  investments  however,  the Fund
expects to liquidate its remaining assets, including the Promissory Note related
to the sale of the Fund's  investment in BeefAmerica  (as described in Note 8 to
the Financial Statements) by the end of 1998.

     In February  1993,  the Fund  established a $15 million  reserve to provide
funds for follow-on  investments and to pay expenses.  On February 12, 1998, the
Independent  General Partners approved an additional reserve of $1.65 million to
fund  anticipated cash shortfalls of the Fund. This reserve was established from
the proceeds received from the sale of Stanley Furniture Common Stock in January
1998.

     Because  the  Fund no  longer  generates  sufficient  cash  to pay  current
obligations,  the Fund has available approximately $3.8 million of cash reserves
to cover future expenses including all expenses related to the winding up of the
Fund's affairs such as administrative and custodial expenses,  and audit and tax
preparation  fees. Any proceeds received from the Promissory Note related to the
Fund's investment in BeefAmerica Inc. (see Note 8) as well as any remaining cash
reserves in excess of amounts  required to pay the Fund's  obligations  prior to
its  termination  will be distributed  as a final  liquidating  distribution  to
Limited Partners.

Investment in High-Yield Securities

     The Fund originally  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.

Results of Operations

Investment Income and Expenses

     For the six months ended June 30, 1998, the Fund had a net investment  loss
of $2,091,444 as compared to a net  investment  loss of $1,480,716  for the same
period in 1997.  The increase in net  investment  loss  represents a decrease in
interest  and  discount  income  received  by the  Fund and an  increase  in the
amortization of loan fees due to the termination of the Fund's Credit  Facility.
Additionally,  at June 30, 1998,  the Fund  recorded a $1 million  Allowance for
Uncollectable  Proceeds Expense related to the sale of the Fund's  investment in
BeefAmerica. (See Note 8 to the financial statements for further information.)

     As  compensation  for  services  rendered  to the  Fund,  each of the three
Independent   General   Partners   receives   $40,000   annually  in   quarterly
installments,  $1,000 for each  meeting of the  General  Partners  attended  and
$1,000 for each committee  meeting attended ($500 if a committee meeting is held
on the same day as a meeting of the General Partners) plus reimbursement for any
legal and  out-of-pocket  expenses.  Compensation  for the  Independent  General
Partners is reviewed annually by the Individual General Partners.

     For the six months ended June 30, 1998 and 1997, the Fund incurred  $78,621
and $170,598,  respectively, in Independent General Partners' Fees and Expenses.
For the three months ended June 30, 1998 and 1997, Independent General Partner's
Fees and Expenses totalled $39,089 and $117,653, respectively.

     The  Investment  Adviser  provided for the  identification,  management and
liquidation of investments for the Fund. As compensation  for services  rendered
to the Fund, the Investment  Adviser received a quarterly fee at the annual rate
of $1.2 million. The Investment Advisory Fee was paid quarterly, in advance. For
the six  months  ended  June 30,  1998 and  1997,  the Fund  paid  $600,000  and
$594,000, respectively, in Investment Advisory Fees to Thomas H. Lee Advisers I.

     The term of the Fund expired on June 15, 1998. The expiration of the Fund's
term has caused the Management  Agreement between the Investment Adviser and the
Fund to expire,  however,  the  Investment  Adviser is  continuing to manage the
Fund's remaining investments.
<PAGE>

     In accordance  with  Partnership  Agreement,  the Fund  Administration  Fee
amounts to an annual fee of $300,000  plus 100% of  Reimbursable  Administrative
Expenses  (accounting,   printing,  tax  preparation  and  other  administrative
services)  incurred by the Fund  Administrator.  For the three months ended June
30, 1998 and 1997, the Fund  Administration Fee was $75,000.  For the six months
ended  June 30,  1998 and 1997  Reimbursable  Administration  Expenses  totalled
$291,062 and $261,320, respectively.

    The Fund  Administrator  will  continue  to  perform  all  operational  and
administrative  services  required by the Fund until the Fund is terminated  and
all such administrative functions are no longer required.

     The Fund entered into an amended credit  agreement,  dated as of August 13,
1991,  with a lending  group led by the First  National  Bank of Chicago,  which
provided the Fund with a maximum  credit  facility of $140  million.  The Credit
Facility was due to expire on July 31, 1998,  however,  due to the expiration of
the term of the Fund on June 15,  1998,  and in order to stop  incurring  Unused
Commitment  Fees (as noted  below) the credit  agreement  was amended to instead
expire  at June 30,  1998.  All fees  incurred  in  connection  with the  credit
agreement  have been fully  amortized  as of June 30,  1998.  Such  amortization
amounted to $384,079 during the six months ended June 30, 1998.

     Additionally,  the Fund paid Unused  Commitment Fees of 1/2 of 1% per annum
of the unused line of credit, which was $7.5 million during the six months ended
June 30, 1998. The Unused  Commitment Fees paid during the six months ended June
30, 1998 was $18,854.

Net Assets
  
     The Fund's net assets decreased by $33,547,039  during the six months ended
June 30, 1998, due to a net investment loss of $2,091,444,  partially  offset by
net realized gains of $7,094,849 and net unrealized  depreciation  of $2,295,258
and cash distributions of $40,845,702.

Unrealized Appreciation and Depreciation and Non-Accrual of Investments

     For the six months ended June 30, 1998,  the Fund  recorded net  unrealized
appreciation  of  $2,295,258  as  compared  to net  unrealized  depreciation  of
$2,727,632 for the same period in 1997. This decrease in unrealized depreciation
reflects the reversal of net unrealized  deprecation for portfolio  investments
sold during the period from June 30, 1997 to June 30,  1998.  

     The  information   presented  herein  is  based  on  pertinent  information
available to the Managing General Partner and Investment  Adviser as of June 30,
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 the Supplemental  Schedule of
Unrealized Appreciation and Depreciation - Schedule 2.

Realized Gains and Losses

     The net realized  gains on  investments  sold for the six months ended June
30, 1998 was  $7,094,849  compared to a net realized gains of $5,795,392 for the
same period in 1997.

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

Cash Distributions

     On July 1,  1998,  the  Individual  General  Partners  approved  the second
quarter 1998 cash distribution  totalling  $19,967,334 (which includes Return of
Capital of $3,332,808), from the sale of the Fund's remaining portfolio holdings
effected during the quarter, the following distributions: a cash distribution to
Limited Partners in the amount of $40.55 per Unit and a cash distribution to the
Managing General Partner of $199,656 in proportion to its Capital  Contribution,
all such distributions were distributed on July 21, 1998.

     Because all of the Fund's debt holdings were  previously  sold or redeemed,
remaining portfolio income expected to be received by the Fund is not sufficient
to cover the Fund's expenses.  As a result,  any income received will be used to
pay Fund  expenses and may not be available  for  distribution.  

     As of July 13, 1998, the Fund's remaining investment in Portfolio Companies
consist  of a $1  million  Promissory  Note  related  to the sale of the  Fund's
interest in BeefAmerica  Inc.  Because the Fund no longer  generates  sufficient
cash to pay  current  obligations,  the Fund has  available  approximately  $3.8
million of cash reserves to cover future expenses including all expenses related
to the winding up of the Fund's  affairs such as  administrative  and  custodial
expenses,  and  audit  and tax  preparation  fees.  Proceeds  received  from the
Promissory  Note related to the Fund's  investment in BeefAmerica  Inc., if any,
(see  Note 8) as well as any  remaining  cash  reserves  in  excess  of  amounts
required  to pay  the  Fund's  obligations  prior  to its  termination  will  be
distributed as a final liquidating distribution to Limited Partners.

     Should a Limited  Partner  decide to sell his Units,  any such sale will be
recorded  on the  books  and  records  of the  Fund  quarterly,  only  upon  the
satisfactory  completion and acceptance of the Fund'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

     Items 1 - 5 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 second quarter ended
     June 30, 1998.

(b) Reports on form 8-K:           Form 8-K 
                                   Filed June 12, 1998 related to the 
                                   Termination of the Fund

                                   Form 8-K 
                                   Filed May 29, 1998 related to
                                   Playtex Sales

<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 10th day of
August, 1998.


                          ML-LEE ACQUISITION FUND, L.P.

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

                          By:  ML Mezzanine Inc.,
                          its General Partner


Dated: August 10, 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 10th day of
August, 1998.


                           ML-LEE ACQUISITION FUND, L.P.

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

                           By:  ML Mezzanine Inc.,
                                its General Partner


Dated: August 10, 1998     _____________________________   
                           Audrey Bommer
                           Vice President and Treasurer
                           (Chief Financial Officer)