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

                            FORM 10-Q

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

              For the Period Ended September 30, 1995

                 Commission File Number 0-15669

                  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.





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                  ML-LEE ACQUISITION FUND, L.P.

                        TABLE OF CONTENTS


                 PART I - FINANCIAL INFORMATION

                                                                     Page
Item 1.  Financial Statements

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

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

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

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

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

Schedule of Portfolio Investments - September 30, 1995                8

Notes to Financial Statements                                        23

Supplemental Schedule of Realized Gains and Losses - (Schedule 1)    34

Supplemental Schedule of Unrealized Appreciation and
  Depreciation - (Schedule 2)                                        35

Item 2.  Management's Discussion and Analysis of Financial
  Condition and Results of Operations                                37


                PART II - OTHER INFORMATION



Item 1.  Legal Proceedings                                           45

Item 2.  Change in Securities                                        45

Item 3.  Defaults Upon Senior Securities                             45

Item 4.  Submission of Matters to a Vote of Security Holders         45

Item 5.  Other Information                                           45

Item 6.  Exhibits and Reports on Form 8-K                            46





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<TABLE>
<CAPTION>
                  ML-LEE ACQUISITION FUND, L.P.
     STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
                     (DOLLARS IN THOUSANDS)
                                                      September 30,
                                                          1995        December
                                                       (Unaudited)    31, 1994
ASSETS:
<S>                                                       <C>           <C>
Investments - Notes 2,8,9
 Portfolio Investments, at fair value
  Managed Companies (amortized cost
   $252,762 at September 30, 1995 and
   $313,930 at December 31, 1994)                       $234,000      $326,672
  Non-Managed Companies (amortized cost
   $17,600 at September 30, 1995 and $22,703
   at December 31, 1994)                                   8,783        12,542
 Temporary Investments, at amortized cost
   (cost $5,216 at September 30, 1995 and
   $10,498 at December 31, 1994)                           5,234        10,511
Cash (of which $3,145,997 is restricted
  at September 30, 1995) - Note 8                          3,146         3,442
Accrued Interest Receivable - Note 2                           -         1,077
Prepaid Loan Fees - Notes 2,4                              1,827         2,299
Prepaid Expenses and Other Receivables                         -             7
Receivable for Investments Sold                               75         1,227
TOTAL ASSETS                                            $253,065      $357,777

LIABILITIES AND PARTNERS' CAPITAL:

Liabilities
 Professional and Independent General Partner
  Fees Payable                                          $    170      $    305
 Deferred Interest Income - Note 2                           179           773
Total Liabilities                                            349         1,078

Partners' Capital - Note 2
  Managing General Partner                                   868         1,908
  Limited Partners (487,489 Units)                       251,848       354,791
Total Partners' Capital                                  252,716       356,699

TOTAL LIABILITIES AND PARTNERS' CAPITAL                 $253,065     $ 357,777

</TABLE>

       See the Accompanying Notes to Financial Statements.





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


                                   For the Three Months Ended   For the Nine Months Ended
                                  September 30,  September 30,  September 30, September 30,
                                        1995          1994          1995        1994
<S>                                     <C>           <C>           <C>         <C>
INVESTMENT INCOME - NOTE 2,10:
Interest                              $   537     $  1,821       $  3,503     $ 12,844
Discount                                  521           70          1,251          416
Dividend and Other Income                 168           49            594        3,036

  TOTAL INCOME                          1,226        1,940          5,348       16,296

EXPENSES:
Investment Advisory Fee - Note 5          691          909          2,197        2,741
Fund Administration Fee - Note 6          410          460          1,259        1,384
Loan Fees - Notes 2,4                     188          188            555          587
Independent General Partners' Fees
  and Expenses - Note 7                    49          107            268          260
Professional Fees                         166          178          1,403          584
Insurance Expense                           2            3              7            8
Interest Expense - Note 4                   -            -              -           58
TOTAL EXPENSES                          1,506        1,845          5,689        5,622

NET INVESTMENT INCOME (LOSS)             (280)          95           (341)      10,674

NET REALIZED GAIN ON INVESTMENTS -
  NOTE 8 AND SCHEDULE 1                84,715            -        112,849        6,803

NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS - NOTE 9
AND SCHEDULE 2
Publicly Traded Securities            (59,741)      31,250        (19,709)     (62,957)
Non Public Securities                    (385)      (3,445)       (10,453)      (2,828)
  Subtotal                            (60,126)      27,805        (30,162)     (65,785)

NET INCREASE (DECREASE) IN NET
  ASSETS RESULTING FROM OPERATIONS   $ 24,309     $ 27,900      $  82,346     $(48,308)


            See the Accompanying Notes to Financial Statements.

</TABLE>





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

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

Net Investment Income (Loss)                 $   (341)      $ 10,674

Net Realized Gain on Investments              112,849          6,803

Net Change in Unrealized Depreciation
  on Investments                              (30,162)       (65,785)

Net Increase (Decrease) In Net
  Assets Resulting From Operations             82,346        (48,308)

Cash Distributions to Partners               (186,329)       (38,137)

Total Decrease                               (103,983)       (86,445)

NET ASSETS:

Beginning of Period                           356,699        418,892

End of Period                                $252,716       $332,447

       See the Accompanying Notes to Financial Statements.

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

                                                         For the Nine Months Ended
                                                       September 30,    September 30,
                                                           1995             1994
<S>                                                        <C>              <C>
Increase  (Decrease)  in Cash and Cash  Equivalents  CASH FLOWS  FROM  OPERATING
ACTIVITIES:
 Interest, Dividends and Discount Income                $  5,826       $   9,577
 Investment Advisory Fee                                  (2,197)         (2,741)
 Fund Administration Fee                                  (1,259)         (1,384)
 Professional Fees and Other Expenses                     (1,530)           (517)
 Loan Fees and Expenses                                     (100)            (48)
 Interest Expense                                              -             (58)
 Independent General Partners' Fees and Expenses            (260)           (247)
 Sale of Temporary Investments, Net                        5,281          26,027
 Proceeds from Sale of Portfolio Company Investments     180,272          23,467
 Purchase of Portfolio Company Investments                     -          (6,344)
 Net Cash Provided by Operating Activities               186,033          47,732
CASH FLOWS FROM FINANCING ACTIVITIES:
 Repayments of Borrowings, Net                                 -          (9,594)
 Cash Distributions to Partners                         (186,329)        (38,137)
 Net Cash Applied to Financing Activities               (186,329)        (47,731)
 Net Increase (Decrease) in Cash                            (296)              1
 Cash at Beginning of Period                               3,442               -
 Cash at End of Period                                 $   3,146        $      1

                  RECONCILIATION OF NET INVESTMENT INCOME (LOSS) TO
                      NET CASH PROVIDED BY OPERATING ACTIVITIES

Net Investment Income (Loss)                           $    (341)       $ 10,674
Adjustments to Reconcile Net Investment Income (Loss)
  to Net Cash Provided by Operating Activities:
Decrease in Investments                                   71,552          23,470
Decrease in Receivable for Investments Sold                1,152          14,933
(Increase) Decrease in Accrued Interest,
  Dividend and Discount Receivables                          477          (6,719)
Decrease in Prepaid Expenses                                 479             546
Decrease in Option Payable                                     -          (2,057)
Increase (Decrease) in Professional Fees and
  Independent General Partner Fees Payable                  (135)             82
Net Realized Gain on Investments                         112,849           6,803
Total Adjustments                                        186,374          37,058
Net Cash Provided by Operating Activities              $ 186,033        $ 47,732

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





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

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

Partners' Capital at January 1, 1995                 $ 1,908    $354,791   $356,699
Allocation of Net Investment Loss                         (3)       (338)      (341)
Allocation of Net Realized Gain on Investments         1,128     111,721    112,849
Allocation of Net Change in Unrealized Depreciation     (302)    (29,860)   (30,162)
Cash Distributions to Partners                        (1,863)   (184,466)  (186,329)
Partners' Capital at September 30, 1995              $   868    $251,848   $252,716


          See the Accompanying Notes to Financial Statements.

</TABLE>






<PAGE>

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


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

                ALLIANCE INTERNATIONAL GROUP, INC. (a)(e) - Note 11
$10,810         Alliance International Group, Sub. Note 10% due 12/31/97(c)            12/31/87   $10,810    $10,810
$267            Alliance International Group, Def. Int. Note 10% due 03/30/97(c)(h)    03/31/93       267        267
$276            Alliance International Group, Def. Int. Note 10% due 12/31/97(c)(h)    06/30/93       276        276
$286            Alliance International Group, Def. Int. Note 10% due 12/31/97(c)(h)    09/30/93       286        286
$293            Alliance International Group, Def. Int. Note 10% due 12/31/97(c)(h)    12/31/93       293        293
5,016 Shares    Alliance International Group, Cumulative Redeemable Preferred Stock(d) 04/22/91       502        502
110,000 Shares  Alliance International Group, Cumulative Preferred Stock(d)(h)         12/31/92    11,000     11,000


                                      See the Accompanying Notes to Financial Statements.

</TABLE>





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


  Principal                                                                                               Fair      % Of
   Amount/                                                                         Investment Investment  Value     Total
   Shares           Investment                                                        Date     Cost (f)  (Note 2) Investments
<S>                  <C>                                                              <C>        <C>         <C>     <C>
250,800 Shares      Alliance International Group, Common Stock(d)                    12/31/87   1,951     1,951
15,228.43 Warrants  Alliance International Group, Common Stock Purchase Warrants(d)  03/28/89       0         0(i)
62,700 Warrants     Alliance International Group, Common Stock Purchase Warrants(d)  04/22/91       0         0
657,614.21 Warrants Alliance International Group, Common Stock Purchase Warrants(d)  12/31/92       0         0
50,000 Warrants     Alliance International Group, Common Stock Purchase Warrants(d)  various        0         0(i)
                     (52.5% of fully diluted common equity assuming  exercise of
                     warrants)  19,200  Shares Common Stock  Purchased  12/31/87
                     $149 Sold  01/30/89-9,600  Shares $107 Sold  01/02/90-9,600
                     Shares $147
                     Realized Gain                          $105                               25,385    25,385      10.24


                                      See the Accompanying Notes to Financial Statements.

</TABLE>





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


  Principal                                                                                                 Fair      % Of
   Amount/                                                                           Investment Investment  Value     Total
   Shares        Investment                                                             Date     Cost (f) (Note 2) Investments
<S>               <C>                                                                   <C>        <C>      <C>        <C>
                 BEEFAMERICA, INC. (a) (e) - Notes 4,9,10,11
$41,997          BeefAmerica, Inc., Sr. Sub. Interim Note 15.5% due 09/30/98(c)(g)(h) 09/09/88  $20,000   $10,000
$80,951          BeefAmerica, Inc., Sub. Note 15% due 09/30/98 (c)(g)(h)              09/09/88   38,928         0
5,661.11 Shares  BeefAmerica, Inc., Class A Redeemable Preferred Stock(d)             04/10/91   40,050         0
51,000 Shares    BeefAmerica, Inc., Common Stock (d)                                  various     2,000         0
1 Warrant        BeefAmerica, Inc., Common Stock Purchase Warrant(d)                  09/09/88        0         0(i)
                  (59% of fully diluted common equity assuming exercise of warrants)
                  $1,072 15% Sub. Nt.
                  Purchased 09/9/88                     $1,072
                  Redeemed 02/20/92                     $1,072
                  Realized Gain                         $    0
                  Preferred Stock
                  Purchased 09/9/88                     $2,700
                  Redeemed 02/20/92                     $2,700
                  Realized Gain.                        $    0
                  Total Realized Gain                   $    0                                 100,978    10,000       4.03


                                      See the Accompanying Notes to Financial Statements.

</TABLE>





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


  Principal                                                                                         Fair       % Of
   Amount/                                                         Investment    Investment        Value        Total
   Shares      Investment                                             Date         Cost (f)         (Note 2)   Investments
<S>             <C>                                                   <C>           <C>             <C>           <C>
               CELEBRITY, INC. - Notes 5,8,9
11,539 Shares  Celebrity, Inc. Common Stock(b)(k)                    06/16/92      $   150        $   81
                 (0.3% of fully  diluted  common  equity) 5,769 Shares of Common
                 Stock Purchased  06/16/92 $75 Sold 09/29/93 $75 Realized Gain $
                 0 5,769  Shares of Common  Stock  Purchased  06/16/92  $75 Sold
                 09/19/94  $75  Realized  Gain $ 0  5,769  Shares  Common  Stock
                 Purchased 06/16/92 $75 Sold 09/19/95 $75 Realized Gain $ 0
                 Total Realized Gain                   $ 0                             150            81          0.03


                                      See the Accompanying Notes to Financial Statements.

</TABLE>





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


  Principal                                                                                                   Fair        % Of
   Amount/                                                                    Investment    Investment        Value       Total
   Shares         Investment                                                    Date         Cost (f)         (Note 2)   Investments
<S>                <C>                                                          <C>           <C>               <C>         <C>
                  CHADWICK-MILLER, INC. (a)(e) - Notes 8,9,10,14
189,996 Shares    CMI Holding Corp., Preferred Stock(a) (d)                    12/16/88    $  12,916         $  12,916
192,933 Shares    CMI Holding Corp., Common Stock (d)                          Various         3,736             1,929
100,000 Warrants  CMI Holding Corp., Common Stock Warrants (d)                 Various             0                 0
                    (63.6% of fully diluted common equity)
                    35,161 Shares Common Stock
                    Purchased 06/30/93                    $  352
                    Sold 09/03/93                         $  352
                    Realized Gain                         $    0
                    $5,000,000 Senior Note
                    Purchased 12/16/88                    $5,000
                    Sold 11/23/94                         $5,000
                    Realized Gain                         $    0
                    Total Realized Gain                   $    0                             16,652            14,845       5.99


                                     See the Accompanying Notes to Financial Statements.

</TABLE>





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


  Principal                                                                                                Fair    % Of
   Amount/                                                                         Investment  Investment  Value    Total
   Shares          Investment                                                        Date       Cost (f)  (Note 2) Investments
<S>                 <C>                                                               <C>          <C>      <C>      <C>
                   COLE NATIONAL CORPORATION
567 Warrants       Cole National Corporation, Common Stock Purchase Warrants(d)    09/26/90    $     0    $    0
                     (0.0% of fully diluted common equity assuming exercise
                     of warrants)
                     $589 Senior Bridge Note
                     Purchased 09/25/90                    $589
                     Sold 11/15/90                         $589
                     Realized Gain                         $  0                                      0         0      0.00

                  DURO-TEST CORPORATION (a)(e) - Notes 9,14,16
26,178.05 Shares  Duro-Test Corp., Preferred Stock Series A (d)(h)                05/12/94       2,618     2,618
6,153,420 Shares  Duro-Test Holding Corp., Common Stock (d)                       Various       36,045     1,997
                    (61.5% of fully diluted common equity)
                                                                                                38,663     4,615      1.86


                                     See the Accompanying Notes to Financial Statements.

</TABLE>





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


  Principal                                                                                                     Fair    % Of
   Amount/                                                                            Investment  Investment    Value    Total
   Shares         Investment                                                            Date       Cost (f)   (Note 2) Investments
<S>                <C>                                                                  <C>         <C>         <C>       <C>
                  GENERAL NUTRITION COMPANIES, INC. (a) Notes 8,9,16
53,558.5 Shares   General Nutrition Cos., Inc. Common Stock(d)(k)                     08/21/89    $   523    $  2,437
1,024,590 Shares  General Nutrition Cos.,Inc. Common Stock (d)(k)                     11/21/91     10,000      46,619
1,373,734 Shares  General Nutrition Cos., Inc., Common Stock (d)(k)                    Various      3,236      62,505
                    (5.4% of fully diluted common equity)  469,306 Shares Common
                    Stock  Purchased  various $ 1,900 Sold Shares various 1993 $
                    17,154  Realized Gain $ 15,254  433,424  Shares Common Stock
                    Purchased  various $ 1,626 Sold Shares various 1994 $ 12,272
                    Realized  Gain  $  10,646   423,454  Common  Stock  Purchase
                    Warrants  Purchased  Various $ 0 Sold July 19, 1995 $ 12,185
                    Realized Gain $ 12,185 $29,477 7.5% Convertiable Junior
                      Subordinated Note Purchased 8/29/89 $ 29,477
                    Converted to 3,020,212 Shares Common
                      Stock Various 1995
                    Sold various 1995                     $102,007
                    Realized Gain                         $ 72,530
                    Total Realized Gain                   $110,615                               $13,759     $111,561       44.98


                                       See the Accompanying Notes to Financial Statements.

</TABLE>





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


  Principal                                                                                              Fair      % Of
   Amount/                                                                    Investment   Investment    Value      Total
   Shares         Investment                                                    Date        Cost (f)   (Note 2)   Investments
<S>                <C>                                                           <C>          <C>        <C>         <C>
                  HEALTH O METER PRODUCTS, INC. (a)  Notes 9,14
952,500 Shares    Health o meter Products, Inc., Common Stock (d)(k)           04/28/88     $ 1,270   $ 3,929
610,553 Shares    Health o meter Products, Inc., Common Stock (b)(k)           08/17/94       3,282     2,519
                    (15.4% of fully diluted common equity)
                    $16,000 14.50% Subordinated Note
                    Purchased 04/28/88                    $16,000
                    Sold 03/24/92                         $16,000
                    Realized Gain                         $     0
                    187,500 Shares of Common Stock
                    Purchased 04/28/88                    $   250
                    Sold 03/30/92                         $ 2,441
                    Realized Gain                         $ 2,191
                    Total Realized Gain                   $ 2,191                             4,552     6,448       2.60


                                       See the Accompanying Notes to Financial Statements.

</TABLE>





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


  Principal                                                                                              Fair      % Of
   Amount/                                                                    Investment   Investment    Value      Total
   Shares         Investment                                                    Date        Cost (f)   (Note 2)   Investments
<S>                <C>                                                           <C>          <C>        <C>         <C>
                  PETCO ANIMAL SUPPLIES, INC. (a)(e) - Notes 8,9,14
981,748 Shares    Petco Animal Supplies, Inc. Common Stock(d)(k)              Various     $15,846   $  25,525
                    (10.96% of fully diluted common equity)
                    $269 14% Sr. Bridge Note
                    Purchased 11/19/90                     $   269
                    Repaid 04/19/91                        $   269
                    Realized Gain                          $     0
                    $98 14% Sr. Bridge Note
                    Purchased 11/28/90                     $    98
                    Repaid 04/19/91                        $    98
                    Realized Gain                          $     0
                    $2,397 12.65% Sr. Sub. Note
                    Purchased various                      $ 2,397
                    Repaid 03/27/94                        $ 2,397
                    Realized Gain                          $     0
                    1,009,638 Shares Common Stock
                    Purchased various                      $16,296
                    Sold  1,009,638 Shares various 1995    $19,902
                    Realized Gain                          $ 3,606
                    Total Realized Gain                    $ 3,606                        15,846      25,525         10.29


                                    See the Accompanying Notes to Financial Statements.

</TABLE>





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


  Principal                                                                                              Fair      % Of
   Amount/                                                                    Investment   Investment    Value      Total
   Shares         Investment                                                    Date        Cost (f)   (Note 2)   Investments
<S>                <C>                                                           <C>          <C>        <C>         <C>
                    PLAYTEX PRODUCTS, INC. (d) (k) - Note 9
1,406,204 Shares    Playtex Products, Inc., Common Stock(d)(k)                12/28/88     $ 3,255     $ 12,129
                      (2.8% of fully diluted common equity)
                      $19,285 15% Subordinated Notes
                      Purchased 12/28/88                    $19,285
                      Sold 06/30/89                         $19,285
                      Realized Gain                         $     0
                      3,214,000 Shares Preferred Stock
                      Purchased 12/28/88                    $ 3,214
                      Sold 06/30/89                         $ 3,214
                      Realized Gain                         $     0
                      2,571,314 Shares Common Stock
                      Purchased 12/28/88                    $ 1,286
                      Sold 06/30/89                         $ 1,286
                      Realized Gain                         $     0

                                       See the Accompanying Notes to Financial Statements.

</TABLE>





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


  Principal                                                                                              Fair      % Of
   Amount/                                                                    Investment   Investment    Value      Total
   Shares         Investment                                                    Date        Cost (f)   (Note 2)   Investments
    <S>              <C>                                                        <C>          <C>        <C>          <C>
                   $11,250 15% Subordinated Note
                    Purchased 12/28/88                      $11,250
                    Sold 09/28/90                           $11,275
                    Realized Gain                           $    25
                    2,571,314 Shares Common Stock
                    Purchased 12/28/88                      $ 1,286
                    Sold 09/28/90                           $10,512
                    Realized Gain                           $ 9,226
                    347,209 Shares Common Stock
                    Purchased 12/28/88                      $   174
                    Sold 12/20/91                           $ 1,343
                    Realized Gain                           $ 1,169
                    $71,251 15% Subordinated Notes
                    Purchased 12/28/88                      $71,251
                    Sold 02/01/93                           $71,181
                    Realized Loss                           $   (70)
                    Total Net Realized Gain                 $10,350                          3,255       12,129     4.89


                                   See the Accompanying Notes to Financial Statements.

</TABLE>





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


  Principal                                                                                              Fair      % Of
   Amount/                                                                    Investment   Investment    Value      Total
   Shares         Investment                                                    Date        Cost (f)   (Note 2)   Investments
<S>                <C>                                                           <C>          <C>        <C>         <C>
                    STANLEY FURNITURE COMPANY, INC. (a)(e) - Note 9
2,675,552 Shares    Stanley Furniture Co., Inc., Common Stock(b)(h)(k)         Various     $ 33,522    $ 23,411
                      (50.2% of fully diluted common equity)
                      $2,000 Loan participation
                      Purchased 03/12/92                    $2,000
                      Repaid 04/05/93                       $2,000
                      Realized Gain                         $    0                           33,522      23,411      9.44

                      TOTAL INVESTMENT IN MANAGED COMPANIES                                $252,762    $234,000     94.35

                      NON-MANAGED COMPANIES

                    CHARTER MEDICAL CORPORATION - Note 9
40,000 Warrants     Charter Medical Corp. Common Stock Purchase Warrants(d)  09/01/88             4           0
                      $5,000 14% Subordinated Notes
                      Purchased 09/01/88                    $5,000
                      Sold 12/05/88                         $5,000
                      Realized Gain                         $    0                                4           0      0.00

                     SFX BROADCASTING, INC. - Note 9
26,000 Shares        SFX Broadcasting Co. Common Stock(b)(k)                 12/16/88         4,880         741
8,667 Option Shares  SFX Broadcasting Co. Common Stock Option(b)(j)          12/16/88             0           0

                                                                                              4,880         741      0.30

                                                See the Accompanying Notes to Financial Statements.

</TABLE>




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


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

                    SWO HOLDINGS CORPORATION - Note 9
250,000 Shares      SWO Holdings Corp., Common Stock(d)                        11/24/87    $   250     $  595
185,048 Shares      Homeland Holding Corp., Common Stock(d)                    08/10/90        440        440
                      $5,000 15.5% Subordinated Notes
                      Purchased 11/24/87                   $5,000
                      Sold 09/15/88                        $5,075
                      Realized Gain                        $   75                              690      1,035        0.42

                    TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
25,500 Shares       TLC Beatrice Int'l Holdings., Inc., Common Stock(d)        11/30/87         26         26
                      $8,500 13% Subordinated Notes
                      Purchased 11/30/87                    $8,500
                      Sold 08/18/88                         $8,500
                      Realized Gain                         $    0                              26         26        0.01


                                   See the Accompanying Notes to Financial Statements.

</TABLE>





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


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

                  WALTER INDUSTRIES, INC. - Note 9
547,200 Shares    Walter Industries, Inc., Common Stock(b)(k)                  01/07/88    $ 12,000     $  6,977
326 Shares        Walter Industries, Inc., Common Stock (b)(k)                 09/13/95           0            4
                    (formerly Hillsborough Holdings Corporation)
                                                                                             12,000        6,981     2.81

                  TOTAL INVESTMENT IN NON-MANAGED COMPANIES                                $ 17,600     $  8,783     3.54

                  SUMMARY OF MEZZANINE INVESTMENTS
                  Subordinated Notes                                                         70,860       21,932     8.84
                  Preferred Stock                                                            67,086       27,036    10.90
                  Common Stock and Warrants                                                 132,416      193,815    78.15
                  TOTAL MEZZANINE INVESTMENTS                                              $270,362     $242,783    97.89


                                            See the Accompanying Notes to Financial Statements.

</TABLE>




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


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

                  TIME DEPOSIT
$276              State Street 2.5% due 10/02/95                              09/29/95   $    276   $    276
                  TOTAL TIME DEPOSIT                                                          276        276         .11

                  COMMERCIAL PAPER
$2,987            AVCO Financial 5.73% due 10/02/95                           08/28/95   $  2,970   $  2,986
$1,974            Ford Motor Credit Corp. 5.74% due 10/6/95                   09/22/95      1,970      1,972

                  TOTAL INVESTMENT IN COMMERCIAL PAPER                                      4,940      4,958        2.00

                  TOTAL TEMPORARY INVESTMENTS                                            $  5,216   $  5,234        2.11

                  TOTAL INVESTMENT PORTFOLIO                                             $275,578   $248,017      100.00%


(a)  Represents investments in Affiliates as defined in the Investment Company Act of 1940.
(b)  Non-income producing security.
(c)  Restricted security.
(d)  Restricted non-income producing security.
(e)  Issuers of which the Fund, as of September 30, 1995, owned more than 25% of
     the voting securities and which therefore were presumed to be controlled by
     the Fund under the Investment Company Act of 1940 as of such date.
(f)  Represents original cost and excludes accretion of discount of $18,207 for Temporary Investments.
(g)  Non-accrual investment status.
(h)  Inclusive of receipt of payment-in-kind securities.
(i)  Represents an amount of less than one thousand dollars.
(j)  Publicly traded underlying class of securities.
(k)  Publicly traded class of securities.


               See the Accompanying Notes to Financial Statements.

</TABLE>





<PAGE>

                      ML-LEE ACQUISITION FUND, L.P.
                      NOTES TO FINANCIAL STATEMENTS
                            SEPTEMBER 30, 1995
                               (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 Advisors 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 has elected to operate as a business  development company under the
Investment Company Act of 1940. Its primary  investment  objective is 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  which  management  of the Fund
believes offer significant possibilities for return.

    As stated in the Prospectus, the Fund will terminate upon the liquidation of
all Fund  investments  but no later than June 15, 1998,  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  the  Fund.  The  Fund  has  five  years  more  to  liquidate  its  remaining
investments.

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.


<PAGE>


Valuation of Investments

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

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

    The information presented herein is based on pertinent information available
to the Managing General Partner and Investment Adviser as of September 30, 1995.
Although the Managing  General  Partner and Investment  Adviser are not aware of
any factors not disclosed herein that would  significantly  affect the estimated
fair value amounts,  such amounts have not been  comprehensively  revalued since
that time and especially in light of the fact that the portfolio  investments of
companies  whose  equity is publicly  traded are valued at the trading  price at
September 29, 1995, the current  estimated fair value of these  investments  may
have changed significantly since that point in time.

Interest Receivable on Investments

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


<PAGE>


Payment-In-Kind Securities

    All payment-in-kind securities received in lieu of cash interest payments by
the Fund's  portfolio  companies are recorded at face value (which  approximates
accrued  interest),  unless the  Investment  Adviser  and the  Managing  General
Partner  determine that there is no reasonable  assurance of collecting the full
principal amounts of such securities.  As of September 30, 1995 and December 31,
1994,  the Fund had in its portfolio of investments  $1,122,216 and  $4,098,017,
respectively, of payment-in-kind debt securities, which excludes $80,538,137 and
$81,267,344,  respectively,  of payment-in-kind  securities  received from notes
placed on  non-accrual  status.  As of September 30, 1995 and December 31, 1994,
the  Fund  had in its  portfolio  of  investments  $9,795,012  and  $16,608,872,
respectively, of payment-in-kind equity securities.

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.

Deferred Interest Income

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

Loan Facility and Advisory Fees

    Loan Facility and Advisory Fees are being  amortized over the life (7 years)
of the Facility commencing in August, 1991.

Partners' Capital

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

Interim Financial Statements

    The financial  information  included in this interim  report as of September
30, 1995 and for the period then ended has been prepared by  management  without
an audit by independent certified public accountants. The results for the period
ended  September 30, 1995 are not  necessarily  indicative of the results of the
operations  expected for the year and reflect  adjustments,  all of a normal and
recurring  nature,  necessary  for the fair  presentation  of the results of the
interim  period.  In the opinion of Mezzanine  Investments,  L.P.,  the Managing
General  Partner of the Fund,  all necessary  adjustments  have been made to the
aforementioned  financial information for a fair presentation in accordance with
generally accepted accounting principles.


<PAGE>


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 investments in 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 a credit  agreement,  dated as of August 13, 1991 (the
"Credit  Facilities"),  with a maximum  credit  facility of $140  million with a
lending group led by the First National Bank of Chicago ("First  Chicago").  The
Credit  Facilities  consisted  of a $100  million  secured  term  loan and a $40
million  secured  revolving  credit line. As of September 30, 1995,  the maximum
availability  under the Credit  Facilities was reduced to $19,894,240 due to the
sales of pledged  securities.  The Available Credit  Facilities has been further
reduced by a $4 million  letter of credit in connection  with the  investment in
BeefAmerica,  Inc.  The Credit  Facilities  will mature on July 31,  1998.  Loan
advances  bear interest at a floating rate equal to the greater of prime plus 1%
or the federal funds rate plus 1.5%. The Fund paid down the term loan during the
first quarter of 1994. In connection  with the Credit  Facilities,  the Fund has
pledged its debt and equity portfolio securities to its lenders.

    In connection  with the Credit  Facilities,  the Fund incurred the following
loan fees:

    Nonrecurring  loan advisory and loan  facility  fees of  $4,441,580  paid to
    First  Chicago  in  1991 in  connection  with  the  creation  of the  credit
    facility,  which are being  amortized over the life of the credit  facility.
    The  amount  expensed  for the nine  months  ended  September  30,  1995 was
    $476,819.


<PAGE>


    An annual Loan  Administration  Fee of $25,000 for the administration of the
    credit facility. The amount expensed for the nine months ended September 30,
    1995 was $18,621.

    An  Unused  Commitment  Fee of 1/2 of 1% per  annum  of the  unused  line of
    credit.  The  expense  for the nine  months  ended  September  30,  1995 was
    $59,267.

    For the nine months ended September 30, 1995 and 1994, the Fund has incurred
$555,145 and $586,624, respectively, in total loan fees.

    For additional information, see Note 11.

5.  Investment Advisory Fee

    The  Investment  Adviser  provides for the  identification,  management  and
liquidation of investments for the Fund. As compensation  for services  rendered
to the Fund, 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,  plus outstanding bank borrowing as specified in the Fund's
Partnership Agreement),  with a minimum annual fee of $1,200,000. The Investment
Advisory Fee is calculated and paid quarterly,  in advance.  For the nine months
ended  September 30, 1995 and 1994,  the Fund paid  $2,197,065  and  $2,741,152,
respectively,  in Investment  Advisory Fees to Thomas H. Lee Advisors I. For the
three  months  ended  September  30, 1995 and 1994,  the Fund paid  $690,976 and
$909,354, respectively, in Investment Advisory Fees.

6.  Fund Administration Fee

    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.  For the period from October 19, 1991
to October 19, 1995, the Fund Administrator is entitled to receive from the Fund
an annual  amount  equal to the greater of $400,000 or 0.45% of the Net Proceeds
Available  for  Investments  subject to certain  reductions  as specified in the
Fund's   Partnership   Agreement.   Beginning   October  19,   1995,   the  Fund
Administration  Fee will change to an annual fee of $300,000 plus  out-of-pocket
expenses  incurred  by the  Fund  Administrator  as  described  below.  The Fund
Administration  Fee is calculated and paid quarterly,  in advance.  For the nine
months  ended  September  30,  1995 and  1994,  the  Fund  paid  $1,259,424  and
$1,383,818,  respectively,  in Fund  Administration  Fees.  For the three months
ended  September  30,  1995 and  1994,  the Fund  paid  $410,498  and  $459,633,
respectively, in Fund Administration Fees.

    For the period ending October 19, 1995, the Fund's  expenses for accounting,
audits,   printing,   tax   preparation   and  other   administrative   services
("out-of-pocket  expenses")  (excluding  the costs of bonding and  extraordinary
legal expenses) were paid by the Fund Administrator. Beginning October 19, 1995,
in  accordance  with  Partnership  Agreement,  the Fund  Administrator  is being
reimbursed by the Fund for 100% of the out-of-pocket expenses incurred.


<PAGE>


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.

    For the nine months ended  September  30, 1995 and 1994,  the Fund  incurred
$267,567 and $260,471,  respectively,  in Independent General Partners' Fees and
Expenses.

8.  Investment Transactions

    On November 23, 1994, in  connection  with the  financial  restructuring  of
Chadwick-Miller,  Inc. and its holding  company,  CMI Holding Corp.,  the Fund's
$5,000,000  14.75%  Senior Note was  redeemed.  The  proceeds  received  were $5
million,  however,  as of September  30, 1995,  $3.1  million is  classified  as
restricted  cash and remains held in escrow until certain  leasing  consents are
obtained from store landlords.

    On April 27, 1995 Petco Animal Supplies,  Inc. ("Petco")  completed a public
offering  of  approximately  3.6  million  shares of Common  Stock  (the  "Petco
Offering") at a net price of $19.71 per share. Of the shares sold, approximately
2.4 million  shares were  offered by Petco and  approximately  1.2 million  were
offered by certain  existing  shareholders,  including  the Fund. As part of the
Petco  Offering,  the Fund sold  1,009,638  shares  (including  shares sold as a
result of the  exercise  of the  underwriters'  overallotment  option on May 26,
1995),  representing  51%  percent  of its  Petco  holdings.  The Fund  received
proceeds of  $19,902,489  and realized a gain of  $3,606,557  on the sale of the
equity.

    In connection with a General Nutrition Companies, Inc. public offering of 10
million shares of Common Stock,  together with a 15% overallotment option to the
underwriters  (the "GNC  Offering")  on July 19, 1995,  the Fund sold  3,020,212
shares of common  stock  (including  the  underwriters  overallotment  option of
449,174 shares exercised on August 1, 1995) at a net price per share of $33.775.
The Fund also sold  423,454  common stock  purchase  warrants at a net price per
warrant of $28.775  (the net price per share  less the $5 per  warrant  exercise
price).  Proceeds from the sales totalled  $114,192,216 with an original cost of
$29,476,469  resulted  in  realized  gains  of  $84,715,747  and  proceeds  were
distributed to the Partners of the Fund in a special  distribution on August 14,
1995.  Subsequent to the sale, all remaining GNC Convertible  Subordinated Notes
held by the Fund were converted into Common Stock.

    At September  30,  1995,  the Fund had a total of  $270,361,232  invested in
Mezzanine   Investments   representing   $252,761,190  Managed  and  $17,600,042
Non-Managed portfolio investments.

    For the nine months ended  September  30, 1995,  the proceeds and costs from
the sales of  investments  resulted in net realized gains of  $112,848,806.  For
additional  information,  please refer to the Supplemental  Schedule of Realized
Gains and Losses (Schedule 1) on page 34.


<PAGE>


    Because  the  Fund  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 the Fund cannot eliminate its risks associated with its investments
in high-yield securities,  it has procedures in place to continually monitor its
risks associated with its investments under a variety of market conditions.  Any
potential  Fund  loss  would  generally  be  limited  to its  investment  in the
portfolio  company  reflected in the portfolio of  investments.  See Note 11 for
information concerning commitments and guarantees.

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

9.  Unrealized Appreciation and Depreciation of Investments

    For the  nine  months  ended  September  30,  1995,  the Fund  recorded  net
unrealized  depreciation  of  $30,162,528  and  as  of  this  date,  the  Fund's
cumulative net unrealized depreciation on investments totalled $27,579,857.

    For additional  information,  please refer to the  Supplemental  Schedule of
Unrealized Appreciation and Depreciation (Schedule 2) on pages 35-36.

10. Non-Accrual of Investments

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

-   BeefAmerica Incorporated on July 1, 1990.
-   Chadwick-Miller, Inc. on January 1, 1993.

11. Commitments and Guarantees

    On October 12, 1989,  the Fund  established a $4 million  standby  letter of
credit  issued for  BeefAmerica's  Senior Bank Group as security for part of the
Fund's loan to BeefAmerica, Inc.

    On January 20, 1992,  the Fund entered into a commitment  to guarantee up to
$150,480 to support an  obligation  of a  subsidiary  of Alliance  International
Group, Inc. The amount of such guarantee  represents the Fund's pro-rata portion
of a $600,000  aggregate  additional  advance  provided by the senior  lender of
Alliance.


<PAGE>


    On April 13,  1994,  the Fund and the Lee  Affiliates  agreed  to  severally
guarantee  ultimate  payment to Diet  Center's  legal  counsel  for all past and
ongoing legal  services  rendered in connection  with the Diet Center  franchise
litigation (see Note 12 to the Financial Statements). The Fund guaranteed 85.71%
and the Lee Affiliates guaranteed 14.29% of such fees. In addition, from June 28
to December 8, 1994,  the Fund  guaranteed the payment of certain other expenses
in connection with such  litigation and the Lee Affiliates  entered into similar
agreements in proportion to their equity. As of September 30, 1995, the Fund has
paid legal and other  expenses in  connection  with the Diet  Center  litigation
pursuant to the aforementioned guarantee totalling $1,257,012.

12. Litigation

    On March 9, 1989, a number of franchisees of Diet Center,  Inc.  initiated a
suit in San Francisco  Superior Court challenging Diet Center's 50 cent increase
in the Continuing  License Fee which is paid by all franchisees on a per dieter,
per day basis.  Plaintiffs alleged that all defendants  (including the Fund, its
Investment Adviser and Thomas H. Lee) conspired to finance the leveraged buy-out
of Diet Center's corporate parent, American Health Companies Inc., by wrongfully
increasing the License Fee. Plaintiffs  subsequently filed an amended fraudulent
conveyance  count. On January 27, 1995 Judge Baxter of the San Francisco Supreme
Court  issued a written  opinion  after trial in which she ruled in favor of all
defendants  (including,  the Fund, its Investment  Adviser and Thomas H. Lee) on
plaintiffs'  allegation that the leveraged buy-out of American Health Companies,
Inc.  was a  constructively  fraudulent  conveyance.  The Court  had  previously
granted  summary  judgment to the Fund,  the Thomas H. Lee Company and Thomas H.
Lee on plaintiffs' other allegations  against those defendants.  On May 1, 1995,
the  parties  entered  into a  "Settlement  Agreement"  pursuant  to  which  the
plaintiffs withdrew their appeals and the defendants, including the Fund, agreed
not to seek to  recover  from  plaintiffs  the  defendants'  costs  incurred  in
connection with the litigation.  This settlement agreement became effective June
1, 1995.

    On September 7, 1991, the Fund brought suit in the Court of Common Pleas for
the County of Greenville, South Carolina against Deloitte & Touche in connection
with Deloitte & Touche's audit  opinions on the financial  statements of Emb-Tex
Corporation,  formerly an  operating  subsidiary  of a portfolio  company of the
Fund.  The Fund contends that the value of Emb-Tex  Corporation's  inventory and
operating income were substantially overstated in its financial statements.  The
Fund  seeks  actual and  punitive  damages  in  connection  with the loss of its
aggregate $18 million investment.  Deloitte & Touche obtained a summary judgment
in its favor and the Fund  pursued  an appeal in the  Appellate  Courts of South
Carolina.  On August 21, 1995, the South Carolina Court of Appeals  reversed the
summary  judgment ruling and rewarded the case for trial. On September 11, 1995,
Deloitte & Touche filed a petition for rehearing with the Court of Appeals which
is pending.


<PAGE>


    On October  18,  1991,  one  Limited  Partner of the Fund  commenced a class
action in the Supreme  Court of the State of New York in the County of New York,
on behalf of a class of all  Limited  Partners  of record  during  1990 or their
successors in interest, against the Fund's Managing General Partner,  Individual
General  Partners,  Investment  Adviser  and  certain of their  affiliates.  The
complaint alleges that the defendants breached the Fund's Partnership  Agreement
in 1990 by causing the Fund to pay $7,554,855 in incentive  compensation  to the
Managing General Partner with respect to that year. The complaint seeks monetary
damages in the amount of $7,554,855,  together with interest,  and other relief.
The  defendants  believe  that the claim is without  merit and sought to have it
dismissed. The court denied the defendants' motion for summary judgment, and the
defendants  filed  an  interlocutory  appeal  to the  New  York  Supreme  Court,
Appellate Division, which was denied. Thereafter,  defendants moved to decertify
the class and that motion was denied.  A trial was held in late  January,  1995.
Whether or not the  plaintiff  prevails,  the Fund may be obligated to indemnify
and advance litigation expenses to one or more of the defendants under the terms
and  conditions  of  various  indemnity  provisions  of the  Fund's  Partnership
Agreement  and  separate  indemnification  agreements.  The  Fund  has  advanced
litigation  expenses to the  indemnified  parties  based upon amounts  which are
deemed  reimbursable in accordance with the  indemnification  provisions and has
included these amounts in  professional  fees. The final outcome of this case is
not determinable at this time.

    On October 14, 1993, a Limited Partner  commenced a putative class action in
the U.S.  District Court for the District of Delaware,  purportedly on behalf of
all persons who  purchased  limited  partnership  interests  in the Fund between
August 12, 1987 and the date of filing of the  complaint,  against the Fund, the
Managing  General  Partner,  the  Individual  General  Partners,  the Investment
Adviser to the Fund and certain named  affiliates  of such persons.  As amended,
the complaint  alleges that the  defendants  operated the Fund, and caused it to
make certain  investments,  for the benefit of some or all of the  defendants at
the expense of the Fund's Limited  Partners in breach of  defendants'  fiduciary
and  contractual  duties to the  Limited  Partners,  thereby  violating  federal
securities laws  applicable to the Fund and its affiliates  under the Investment
Company Act of 1940, as amended,  as well as Delaware  state law. By Order dated
September 30, 1994 and Opinion dated October 14, 1994, the court granted in part
and  denied  in part  defendants'  motion  to  dismiss  the  amended  complaint,
dismissing plaintiff's claims with respect to several investments as time-barred
and dismissing all claims for aiding and abetting liability under the Investment
Company Act of 1940. The plaintiff  thereafter filed a second amended  complaint
on November 3, 1995 raising  additional  allegations in connection  with certain
transactions  engaged by the Fund, and that  defendants  violated the Investment
Company Act of 1940 of the federal  securities  laws and Delaware state law. The
plaintiff  seeks an  accounting,  rescission,  rescissory or actual  damages and
punitive  damages.  The  defendants  in this action  believe that the claims are
without  merit and have moved to  dismiss  them.  Whether  or not the  plaintiff
prevails on any  remaining  claims,  the Fund may be obligated to indemnify  and
advance  litigation  expenses to certain of the  defendants  under the terms and
conditions of various indemnity  provisions in the Fund's Partnership  Agreement
and separate indemnification agreements, and the amounts of such indemnification
and expenses could be material.  The outcome of this case is not determinable at
this time.  The Fund has  incurred  litigation  expenses  which are  recorded in
professional fees.


<PAGE>


13. Related Party Transactions

    Certain of the Mezzanine  Investments and Bridge Investments which were made
by the Fund 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  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.

    During 1995, the Managing General Partner received cash distributions in the
amount of $1,863,310, representing its 1% interest in the Fund.

14. Reserves

    In February  1993,  the Fund  established a  $15,055,806  reserve to provide
funds for follow-on  investments and to pay expenses.  As of September 30, 1995,
the reserve  balance was reduced to  approximately  $3,139,606  due to follow-on
investments  in CMI Holding  Corp.,  Diet Center  Inc.,  Duro-Test  Corporation,
Health o meter and Petco of  $2,250,000,  $441,861,  $2,617,805,  $3,281,722 and
$529, respectively,  along with a distribution to partners in the second quarter
of 1993 of $424,264 and a payment of $2,900,018 to First Chicago to pay down the
Fund's loan.


<PAGE>


15. 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 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.  Generally, the tax basis of the Fund's assets approximate
the amortized cost amounts reported in the financial statements.  This amount is
computed  annually  and as of  December  31,  1994,  the tax basis of the Fund's
assets are greater  than the amounts  reported in the  financial  statements  by
$21,040,094.   This   difference   is  primarily   attributable   to  unrealized
depreciation on investments which has not been recognized for tax purposes.

16. Subsequent Events

    On October 17, 1995,  General Nutrition  Companies,  Inc. ("GNC") effected a
2-for-1 stock split to the  shareholders  on record as of September 8, 1995. The
stock  split  resulted in an  additional  2,451,882  shares of GNC Common  Stock
bringing the total amount held by the Fund to 4,903,765.

    On November 1, 1995, pursuant to an Agreement and Plan of Merger,  Duro-Test
Corporation  effected  a merger  pursuant  to which  Duro-Test  (the  "surviving
company") was aquired by a third party for approximately  $33 million.  Proceeds
received by the Fund from this merger were  $4,614,585,  of which  $1,758,974 is
held in escrow for potential indemnification costs of the surviving company, its
shareholders  and directors from losses  resulting from  misrepresentations  and
breaches of warranty,  in accordance with the Agreement and Plan of Merger.  The
Fund will realize a loss on the sale of Duro-Test of $30,739,290.

    On November 3, 1995,  the  Individual  General  Partners  approved the third
quarter 1995 cash distribution totalling $590,917, which consists of $371,285 as
return of  capital  and  $446,115  from net  investment  income  from  Temporary
Investments partially offset by a net investment loss of $226,483 from Mezzanine
Investments  during the third quarter.  The total amount  distributed to Limited
Partners was $584,987 or $1.20 per Unit. The Managing  General Partner  received
$5,930,  representing  its 1% interest in the Fund. This cash  distribution  was
paid on November 14, 1995.






<PAGE>

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

                                                        NUMBER
                                                          OF                                      REALIZED
SECURITY                                                SHARES/       ORIGINAL        NET          GAIN/
                                                       PRINCIPAL        COST        PROCEEDS      (LOSS)
<S>                                                        <C>           <C>          <C>           <C>
For the Three Months Ended March 31, 1995

Chiat/Day, Inc. Advertising
  Sr. Subordinated Note                              $    5,000      $  5,000       $  4,950       $   (50)

Hillsborough Holdings Corporation
  Common Stock                                           20,658           103             17           (86)

Omega Wire, Inc.
  Sr. Subordinated Note                                  15,000        15,000         15,900           900
  Common Stock                                           80,000           320         24,083        23,763

Total for the Three Months ended March 31, 1995                        20,423         44,950        24,527

For the Three Months Ended June 30, 1995

Petco Animal Supplies Inc.
  Common Stock                                        1,009,638        16,296         19,903         3,607

Total for the Three Months ended June 30, 1995                         16,296         19,903         3,607

For the Three Months Ended September 30, 1995

General Nutrition Companies, Inc.
  Jr. convertible Subordinated Note                  $   29,447        29,477        102,007        72,530
  Common Stock Purchase Warrants                        423,454             -         12,185        12,185

Celebrity, Inc.
  Common Stock                                            5,769            75             75             -

Total for the Three Months Ended September 30, 1995                    29,552        114,267        84,715

Total for the Nine Months Ended September 30, 1995                    $66,271       $179,120      $112,849

</TABLE>





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

                                                               UNREALIZED      UNREALIZED
                                                              APPRECIATION    APPRECIATION        TOTAL              TOTAL
                                                             (DEPRECIATION)  (DEPRECIATION)     UNREALIZED         UNREALIZED
                                                             FOR THE THREE     FOR THE NINE     APPRECIATION       APPRECIATION
                                                              MONTHS ENDED    MONTHS ENDED   (DEPRECIATION) AT  (DEPRECIATION) AT
                                     INVESTMENT      FAIR     SEPTEMBER 30,   SEPTEMBER 30,     DECEMBER 31,      SEPTEMBER 30,
  SECURITY                              COST         VALUE        1995           1995              1994               1995
  <S>                                   <C>          <C>         <C>              <C>             <C>                  <C>
PUBLICLY TRADED/UNDERLYING
  SECURITY PUBLICLY TRADED:
Celebrity, Inc.
  Common Stock*                      $    150     $     81     $     37          $     80         $   (149)           $    (69)
General Nutrition Companies, Inc.
  Common Stock                         13,759      111,561      (51,169)          (17,652)         115,454              97,802
  Common Stock Purchase Warrants(b)         -            -      (12,758)          (10,164)          10,164                   -
Health o meter
  Common Stock*                         4,552        6,448          587             1,075              821               1,896
Petco Animal Supplies
  Common Stock(a)                      15,846       25,525        2,699            12,946           (3,267)              9,679
Playtex Products, Inc.
  Common Stock                          3,255       12,129       (1,581)            2,109            6,764               8,873
SFX Broadcasting, Inc.
  Common Stock                          4,880          741           45               260           (4,399)             (4,139)
Stanley Furniture Company
  Common Stock                         33,522       23,411        3,010            (3,344)          (6,767)            (10,111)
Walter Industries, Inc.
  Common Stock                         12,000        6,981         (611)           (5,019)               -              (5,019)

TOTAL NET UNREALIZED APPRECIATION
  (DEPRECIATION) FROM PUBLICLY TRADED/
  UNDERLYING SECURITIES PUBLICLY TRADED                        $(59,741)         $(19,709)        $118,621            $ 98,912

*   Underlying security publicly traded.
(a) Restricted security.

</TABLE>





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

                                                              UNREALIZED      UNREALIZED
                                                              APPRECIATION    APPRECIATION        TOTAL              TOTAL
                                                             (DEPRECIATION)  (DEPRECIATION)     UNREALIZED         UNREALIZED
                                                             FOR THE THREE    FOR THE NINE     APPRECIATION       APPRECIATION
                                                              MONTHS ENDED    MONTHS ENDED   (DEPRECIATION) AT  (DEPRECIATION) AT
                                     INVESTMENT      FAIR     SEPTEMBER 30,   SEPTEMBER 30,     DECEMBER 31,      SEPTEMBER 30,
  SECURITY                              COST         VALUE        1995           1995              1994               1995
  <S>                                   <C>           <C>          <C>            <C>               <C>                 <C>
NONPUBLIC SECURITIES:
BeefAmerica Inc.
  Senior Subordinated Note            $20,000     $10,000     $     -          $     -          $ (10,000)          $ (10,000)
  Subordinated Notes                   38,928           -           -                -            (38,928)            (38,928)
  Preferred Stock                      40,050           -           -                -            (40,050)            (40,050)
  Common Stock                          2,000           -           -                -             (2,000)             (2,000)
Chadwick-Miller, Inc.
  Common Stock                          3,736       1,929           -                -             (1,807)             (1,807)
Charter Medical Corporation
  Common Stock Warrants                     4           -           -                -                 (4)                 (4)
Duro-Test Corporation
  Common Stock                         38,663       4,615         (385)         (3,585)           (30,463)            (34,048)
Hillsborough Holdings Corporation
  Subordinated Note                         -           -           -            6,000             (6,000)                  -
  Common Stock                              -           -           -              103               (103)                  -
Omega Wire, Inc.
  Common Stock                              -           -           -          (12,971)            12,971                   -
SWO Holdings Corporation
  Common Stock                            250         595           -                -                345                 345

TOTAL NET UNREALIZED APPRECIATION
  (DEPRECIATION) FROM NONPUBLIC
  SECURITIES                                                      (385)        (10,453)          (116,039)           (126,492)

TOTAL NET UNREALIZED (DEPRECIATION)
  APPRECIATION                                                ($60,126)      ($ 30,162)          $  2,582           $ (27,580)

 *  Underlying security publicly traded.
(a) Restricted security.
(b) All Convertible Junior Subordinated Notes have been converted to Common Stock.

</TABLE>





<PAGE>

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

Liquidity & Capital Resources

    As of September 30, 1995, the Fund had a total of  $270,361,232  invested in
Mezzanine Investments.  These investments were financed by net offering proceeds
and debt  financing.  This  represents a $66,271,040  decrease  versus the total
invested in  Mezzanine  Investments  at December 31, 1994 of  $336,632,272.  The
decrease  in  investments  is due  primarily  to the  sales and  redemptions  of
Portfolio  Investments.  The Fund's Mezzanine  Investments consist of high-yield
subordinated debt and/or preferred stock linked with an equity  participation in
middle market companies  typically issued in private placement  transactions and
are usually  subject to  restrictions  on the transfer or sale of the  security,
thereby limiting their liquidity.

    Excluding  subordinated notes placed on non-accrual  status, the Fund during
the nine months ended September 30, 1995, received no additional debt securities
in lieu of cash interest payments ("payment-in-kind"). As of September 30, 1995,
the Fund had in its portfolio $53,920,538 of payment-in-kind debt securities and
$6,819,211 of payment-in-kind  equity securities,  which excludes $80,538,137 of
payment-in-kind securities received from notes placed on non-accrual status).

    On August 13, 1991, the Fund completed a refinancing of its credit agreement
with  a  lending  group  led by The  First  National  Bank  of  Chicago  ("First
Chicago"). The new agreement provided the Fund with a maximum credit facility of
$140 million, consisting of a $100 million term loan and a $40 million revolving
credit line, both maturing on July 31, 1998. The Fund has pledged  substantially
all of its  securities  to secure  repayment  of this  facility.  The  agreement
generally provided for mandatory  prepayments,  and a permanent reduction in the
credit  facility,  equal to the lesser of cost or cash  proceeds in the event of
the sale or other cash disposition of Mezzanine Investments.

    On October  29,  1993,  the Fund  entered  into an  amendment  to its credit
agreement enabling the Fund to make prepayments of the term loan at any time and
without any corresponding  reduction to the revolving credit line. On January 6,
1994,  the Fund paid down its term loan by $6.2  million  ($3.3  million of this
amount  was set aside  from  fourth  quarter  1993  gains and $2.9  million  was
utilized from the Fund's reserve). In addition, due to sales of securities,  the
Fund made a series of  mandatory  loan  paydowns  in the first  quarter of 1994,
aggregating $3,394,004. As of March 29, 1994, the outstanding term loan was paid
in full. As of September 30, 1995, the Fund's  maximum credit  facility had been
reduced  to  $19,894,240  due to loan  paydowns  from  the  sales  of  Mezzanine
Investments.  Of this amount the Fund utilized $4 million to support a letter of
credit  established  by the Fund,  leaving  the  remaining  credit  facility  of
$15,894,240.


<PAGE>


    The  Fund is now in its  eighth  year of  operation.  Because  a  number  of
investments  have already been repaid or sold and other portfolio  companies are
unable to pay current interest to the Fund, cash dividends and interest expected
to be  received  by the Fund in the near  future  might  not  cover  the  Fund's
expenses.  Distribution from operations in the future, if any, will therefore be
minimal.  Future cash  distributions  to Limited Partners will be mostly derived
from capital  proceeds and gains resulting from sales of securities.  The amount
and  timing  of asset  sales  are  dependent  on future  market  conditions  and
therefore are inherently  unpredictable.  Generally, the proceeds generated from
the sale of the Fund's  investments  will be  distributed to partners only after
application  of the  original  cost of the  investments,  and in some  cases  an
additional  amount, to repay the Funds' outstanding loan if any, or to replenish
the Fund's  reserve.  To fund the  anticipated  cash flow  shortfall in the near
future and to maintain adequate reserves for possible follow-on investments, the
Fund had reserved  $15,055,806  of the proceeds  received from the Playtex notes
sale in  February,  1993.  A portion of the reserve  was used to make  follow-on
investments  of $441,861,  $2,617,805,  $2,250,000,  $3,281,722 and $529 in Diet
Center,   Duro-Test   Corp.,   Chadwick-Miller,   Health  o  meter  and   Petco,
respectively,  along with a  distribution  to partners in the second  quarter of
1993 of $424,264.  In  addition,  $2,900,018  was  utilized  from the reserve to
paydown a portion of the First  Chicago  loan on  January  6,  1994.  The Fund's
reserve  balance  as  of  September  30,  1995  was  reduced  to   approximately
$3,139,606.  The Fund has invested its remaining $3,139,606 reserve in Temporary
Investments.  As of November 14, 1995,  the  Independent  General  Partners have
approved retention of the reserve at its current level.

    On June 26, 1995 General  Nutrition  Companies,  Inc.  filed a  registration
statement in connection  with a public  offering of 10 million  shares of common
stock,  together with a 15% overallotment  option to the  underwriters(the  "GNC
Offering"),  all of which were being  offered by affiliates of the Thomas H. Lee
Company, including the Fund. The GNC Offering was declared effective on July 19,
1995  and the  Fund  sold  3,020,212  shares  of  common  stock  (including  the
underwriters overallotment option of 449,174 shares that was exercised on August
1, 1995) at a net price per share of $33.775.  The Fund also sold 423,454 common
stock purchase warrants at a net price per warrant of $28.775 (the net price per
share less the $5 per warrant exercise price). Proceeds from both sales totalled
$114,192,216  with an original cost of $29,476,469,  resulting in total realized
gain for the Fund in the  amount of  $84,715,747.  The  proceeds  from the sales
amounted to $231.90 per Unit and were distributed on August 14, 1995. Subsequent
to the sale, all remaining GNC Convertible  Subordinated  Notes held by the Fund
were  converted  into Common Stock.  As of September  30, 1995,  the Fund held a
total of 2,451,883 shares of GNC Common Stock. On October 17, 1995, GNC effected
a 2-for-1  stock split,  bringing the total number of GNC common  shares held by
the Fund to 4,903,766.


<PAGE>


Investment in High-Yield Securities

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

    Although the Fund cannot eliminate the risks associated with its investments
in High-Yield Securities,  it has established risk management policies. The Fund
subjected each prospective  investment to rigorous  analysis and made only those
investments  that were  recommended by the  Investment  Adviser and that met the
Fund's investment guidelines or that had otherwise been approved by the Managing
General Partner and the Independent  General  Partners.  Fund  investments  were
measured against specified Fund investment and performance guidelines.  To limit
the  exposure of the Fund's  capital in any single  issuer,  the Fund limits the
amount of its investment in a particular issuer. However, due to the substantial
increase  in the fair  value of the  Fund's  investment  securities  of  General
Nutrition Companies,  Inc., over 44% of the Fund's total assets (on a fair value
basis) is represented by this issuer at September 30, 1995.  Future results will
be  significantly  affected by changes in the market value of General  Nutrition
Companies' Common Stock. The Fund's Investment Adviser also continually monitors
portfolio  companies  in  order  to  minimize  the  risks  associated  with  its
investments in High-Yield Securities.

    Certain issuers of securities held by the Fund (Celebrity, General Nutrition
Companies,  Petco,  Playtex,  SFX Broadcasting  Inc., Walter  Industries,  Inc.,
Stanley  Furniture  and in part,  Health o meter) have  registered  their equity
securities in public offerings. Although the equity securities of the same class
presently  held by the Fund (except  Celebrity,  Stanley  Furniture and in part,
Health o meter) were not registered in these offerings, the Fund has the ability
under Rule 144 of the  Securities  Act of 1933 to sell  publicly  traded  equity
securities held by it for at least two years on the open market,  subject to the
volume  restrictions  set forth in that rule.  The Rule 144 volume  restrictions
generally are not applicable to equity  securities of  non-affiliated  companies
held by the Fund for at least three years  (currently,  SFX  Broadcasting).  The
Fund in certain cases has agreed not to make any sales of equity  securities for
a specified hold-back period following a public offering.


<PAGE>


    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  Fund  (and  affiliated
investors where applicable), serve as one or more of the directors on the boards
of  portfolio  companies.  The  Fund  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

    For the nine months ended  September 30, 1995, the Fund had a net investment
loss of $340,338,  as compared to net investment  income of $10,674,143  for the
same period in 1994. The total  investment  income earned on investments for the
nine months ended  September  30, 1995 was  $5,348,099 of which  $4,096,646  was
earned from  Mezzanine  Investments  and  $1,251,453,  was earned from Temporary
Investments.  For the same period in 1994,  total  investment  income  earned on
investments  was  $16,296,010  of which  $15,877,452  was earned from  Mezzanine
Investments and $418,558 was earned from Temporary Investments.

    The decrease in the nine months ending 1995 net investment income versus the
comparative  period in 1994 reflects the 1994 recognition of prior year's income
from Petco Animal Supplies. In addition,  this decrease in net investment income
was  partially due to higher legal and  professional  fees and higher legal fees
incurred on behalf of the Independent General Partners'. Additionally, sales and
conversions  of  income-producing   mezzanine   investments,   offset  by  lower
Investment  Advisory Fees and Fund  Administration Fees have also contributed to
the decrease in net investment  income.  The gradual  economic  recovery and the
higher  level of consumer  and  business  confidence  has improved the sales and
profit  levels  of some of the  Fund's  portfolio  companies.  As long as  these
business and economic  conditions  improve,  they should continue to improve the
Fund's performance.

    For the three months ended September 30, 1995, the Fund had a net investment
loss from  operations  of  $279,263,  as  compared to net  investment  income of
$94,875  for the same  period in 1994.  The total  investment  income  earned on
investments  for the three months ended  September  30, 1995 was  $1,225,766  of
which  $704,947 was earned from  Mezzanine  Investments  and $520,819 was earned
from Temporary Investments. For the same period in 1994, total investment income
earned on  investments  was  $1,940,540  of which  $1,869,168  was  earned  from
Mezzanine Investments and $71,372 was earned from Temporary Investments.

    The decrease in the three month ending 1995 net investment income versus the
comparative  period in 1994 reflects lower interest income,  partially offset by
lower  legal  and  professional   fees,   Investment   Advisory  Fees  and  Fund
Administration Fees.

    Major  expenses for the period ending  September 30, 1995 consisted of legal
and professional fees,  Investment  Advisory Fees, Fund  Administration Fees and
loan fees.


<PAGE>


    Professional  fees paid by the Fund consist primarily of legal fees incurred
in  conjunction  with  litigation.  Professional  fees for the nine months ended
September 30, 1995 and 1994 were  $1,402,131  and $584,194,  respectively.  This
increase is attributable to litigation expenses incurred and legal fees required
to be advanced by the Fund in connection  with the litigation  described in Note
12 to the Financial  Statements.  For the three months ended  September 30, 1995
and 1994, professional fees were $165,587 and $178,400, respectively.

    The Investment Adviser and Fund Administrator  receive their compensation on
a quarterly basis. Total Investment Advisory Fees paid to the Investment Adviser
for the nine months  ended  September  30,  1995 was  $2,197,065  compared  with
$2,741,152  for the nine months ended  September 30, 1994.  For the three months
ended  September  30,  1995 and  1994,  the Fund  paid  $690,976  and  $909,354,
respectively,  in Investment  Advisory  Fees. The fee is calculated at an annual
rate  of 1% of  assets  under  management,  subject  to  certain  reductions  as
specified in the Fund's  Partnership  Agreement with a minimum annual payment of
$1,200,000.  The decrease in 1995 as compared to 1994 Investment Advisory Fee is
a  direct  result  of  the  reductions  in  outstanding  borrowings,   sales  of
investments, returns of capital to partners and realized losses on investments.

    The total Fund  Administration  Fee paid to the Fund  Administrator  for the
nine months ended  September  30, 1995 was  $1,259,424  and is  calculated at an
annual  rate of  0.45% of net  offering  proceeds  reduced  by  one-half  of the
realized loss and distributions of capital.  For the nine months ended September
30, 1994, the Fund Administration Fee was $1,383,818. For the three months ended
September 30, 1995 and 1994, the Fund paid $410,498 and $459,633,  respectively,
in Fund Administrative Fees.

    Beginning October 19, 1995, the calculation of the Fund  Administration  Fee
changed to the sum of $300,000 per year plus all actual  out-of-pocket  expenses
incurred on behalf of the Fund by the Fund Administrator (excluding compensation
for  the  executive  officers  of  the  Fund  Administrator),  but  in no  event
exceeding, in aggregate,  the annual amount of $2.0 million.  Out-of-pocket Fund
expenses  consist of accounting,  audits,  printing,  tax  preparation and other
administrative services.

    Loan fees consist of fees on the unused portion of the Fund's facility, loan
administration  fees,  amortization  of the loan  advisory and facility fees and
various miscellaneous fees attributable to the facility.  Loan fees for the nine
months  ended  September  30, 1995 and 1994,  totalled  $555,145  and  $586,624,
respectively.  The decrease of $32,480 for the nine months ended  September  30,
1995 versus the same period in 1994 is primarily due to reductions of the Credit
Facilities as described in Note 4 to the Financial Statements. Loan Fees for the
three months ended  September 30, 1995 and 1994 totalled  $187,661 and $187,939,
respectively.


<PAGE>


Net Assets

    The Fund's net assets decreased by $103,939,551 during the nine months ended
September  30, 1995,  due to net realized  gains of  $112,848,806  offset by net
unrealized  depreciation  of $30,162,528 a net  investment  loss of $340,338 and
cash distributions of $186,329,148

    The Fund's  valuation of the Common Stock of  Celebrity,  General  Nutrition
Companies,  Health o meter, Petco, Playtex, SFX Broadcasting,  Stanley Furniture
and Walter Industries reflect their closing market price at September 29, 1995.

    The General Nutrition  Companies Inc.,  Health o meter (in part),  Petco and
Playtex  securities  held  by the  Fund  are  restricted  securities  under  the
Securities  and Exchange  Commission's  Rule 144 and can only be sold under that
rule,  in a registered  public  offering,  or pursuant to an exemption  from the
registration  requirement.  In addition,  resale in some cases is  restricted by
lockup or other agreements.  The Fund may be considered an affiliate of Health o
meter and Stanley Furniture under the Securities and Exchange  Commission's Rule
144, and therefore, any resale of Health o meter or Stanley Furniture securities
under Rule 144 is limited by the volume  limitations in that rule.  Accordingly,
the values  referred to in the financial  statements  for the remaining  General
Nutrition Companies,  Inc., Health o meter, Petco, Playtex and Stanley Furniture
securities  held by the Fund do not  necessarily  represent  the prices at which
these securities could currently be sold.

    As overall economic,  market and business conditions improve,  the sales and
profit  levels of some of the Fund's  companies  have  increased,  resulting  in
higher valuations for some of the Fund's equity  investments,  primarily General
Nutrition Companies, Inc. and to a lesser extent Petco Animal Supplies.

Unrealized Appreciation and Depreciation and Non-Accrual of Investments

    For the  nine  months  ended  September  30,  1995,  the Fund  recorded  net
unrealized   depreciation  of  $30,162,528  as  compared  to  a  net  unrealized
depreciation  of $65,785,478 for the same period in 1994. On September 30, 1995,
the Fund's  cumulative  net  unrealized  depreciation  on  investments  totalled
$27,579,857.

    For the three  months  ended  September  30,  1995,  the Fund  recorded  net
unrealized  depreciation of $60,126,558 compared to net unrealized  appreciation
of $27,805,497 for the same period in 1994.


<PAGE>


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

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

    The information presented herein is based on pertinent information available
to the Managing General Partner and Investment Adviser as of September 30, 1995.
Although the Managing  General  Partner and Investment  Adviser are not aware of
any factors not disclosed herein that would  significantly  affect the estimated
fair value amounts,  such amounts have not been  comprehensively  revalued since
that time, and the current  estimated fair value of these  investments  may have
changed significantly since that point in time.

    Due to the substantial  increase in the fair value of the Fund's  investment
securities of General  Nutrition  Companies,  Inc., over 44% of the Fund's total
assets (on a fair value basis) are  represented  by this issuer at September 30,
1995.  Future  results will be  significantly  affected by changes in the market
value of General Nutrition Companies' Common Stock.

    For additional information, please refer to the Supplemental Schedule of 
Unrealized Appreciation and Depreciation (Schedule 2) on pages 35 - 36.

Realized Gains and Losses

    The net realized gain on investments for the nine months ended September 30,
1995 was $112,848,806 compared to a net realized gain of $6,802,953 for the same
period in 1994.

    For additional  information,  please refer to the  Supplemental  Schedule of
Realized Gains and Losses (Schedule 1) on page 34.


<PAGE>


Cash Distributions

    On November 3, 1995,  the  Individual  General  Partners  approved the third
quarter 1995 cash distribution  totalling  $590,917,  which consists of $371,285
from return of capital and $446,115 from net  investment  income from  Temporary
Investments partially offset by a net investment loss of $226,483 from Mezzanine
Investments  during the third quarter.  The total amount  distributed to Limited
Partners was $584,987 or $1.20 per Unit. The Managing  General Partner  received
$5,930,  representing  its 1% interest in the Fund. This cash  distribution  was
paid on November 14, 1995.






<PAGE>
Part II - Other Information

   Items 1 - 3 are herewith  omitted as the response to all items is either none
or not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders

   The 1995 Annual Meeting of the Limited Partner was held on June 27, 1995.  
The results of the proposals were as follows:

                          Number of         Number of        Number of
Proposition           Affirmative Votes   Opposed Votes   Withheld Votes

1.  Election of the
Individual General
Partners

Vernon R. Alden            248,692                             14,942
Joseph L. Bower            249,081                             14,553
Stanley H. Feldberg        248,748                             14,886
Thomas H. Lee              248,619                             15,015

2.  Election of the
Managing General
Partner to serve for
the ensuing year and
to approve the
continuance of its
compensation as set
forth in the
Partnership Agreement      247,747             15,887               0

3.  Ratification of
the selection of
Price Waterhouse LLP as
Independent Certified
Public Accountants of
the Fund for its
fiscal year ending
December 31, 1995          252,526              4,120           6,988


ITEM 5.  OTHER INFORMATION

   On June 26, 1995, General Nutrition  Companies,  Inc., a Delaware Corporation
("GNC" or the "Company"),  a Portfolio Company in ML-Lee  Acquisition Fund, L.P.
(the "Fund"), filed a Registration Statement on Form S-3 with the Securities and
Exchange Commission (File No. 33-93954) for the registration of up to 11,500,000
shares of the Company's Common Stock including 1,500,000 shares of the Company's
Common  Stock  which may be sold  pursuant to the  Underwriters'  over-allotment
option.  All the shares  were  offered by certain  Selling  Shareholders  of the
Company, including the Fund.


<PAGE>


   The Registration  Statement was declared  effective on July 19, 1995, and the
Fund sold an aggregate  of  2,994,492  shares of GNC Common Stock at the initial
closing,  of which  2,571,038  shares were issued upon  conversion of the Fund's
convertible  subordinated  promissory  notes and  warrants to  purchase  423,454
shares were sold to the Underwriters  who, in turn,  exercised such Warrants and
sold the  underlying  shares  to the  public.  In  addition,  the  Underwriters'
over-allotment  option  was  exercised  on  August  1, 1995 and the Fund sold an
additional  449,174 shares of GNC Common Stock,  all of such shares being issued
upon  conversion  of  the  Fund's  convertible  subordinated  promissory  notes.
Subsequent to the sale,  all remaining  GNC  Concertible  Notes held by the Fund
were converted into Common Stock.

   All of the shares were sold at a net price of $33.775  per share  ($35.00 per
share less underwriting discounts and commissions of $1.225 per share). The Fund
sold the  warrants at a net price per share of $28.775 (net price per share less
the  exercise   price  per  warrant).   The  Fund  received  total  proceeds  of
$114,192,521,  of which $102,007,632 was for the sale of the 3,020,212 shares of
Common Stock issued upon conversion of the  Subordinated  Notes, and $12,184,889
was for the sale of the  shares  underlying  the  warrants  (net of the  warrant
exercise price of $5.00 per share). These cash proceeds,  equal to approximately
$231.90 per $1,000 Unit, were  distributed to those Limited Partners of the Fund
of record as of the dates of such sales in a special Cash  Distribution  made on
August 14, 1995.

    On November 1, 1995, pursuant to an Agreement and Plan of Merger,  Duro-Test
Corporation  effected  a merger  pursuant  to which  Duro-Test  (the  "surviving
company") was aquired by a third party for approximately  $33 million.  Proceeds
received by the Fund from this merger were  $4,614,585,  of which  $1,758,974 is
held in escrow for potential indemnification costs of the surviving company, its
shareholders  and directors from losses  resulting from  misrepresentations  and
breaches of warranty,  in accordance with the Agreement and Plan of Merger.  The
Fund will realize a loss on the sale of Duro-Test of $30,739,290.

Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits:

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

 (b) Reports on Form 8-K:  None





<PAGE>
                           SIGNATURES

    Pursuant  to the  requirements  of  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized on this 14th day of
November, 1995.


                       ML-LEE ACQUISITION FUND, L.P.

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

                       By:  ML Mezzanine Inc.,
                       its General Partner


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


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







<PAGE>

                           SIGNATURES

   Pursuant  to the  requirements  of  Section  13 or  15(d)  of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized on this 14th day of
November, 1995.


                       ML-LEE ACQUISITION FUND, L.P.

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

                       By:  ML Mezzanine Inc.,
                       its General Partner


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


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