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

                                    FORM 10-K

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

                   For the Fiscal Year Ended December 31, 1998

                         Commission File Number 0-15669

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

              Delaware                            13-3426817
   (State or other jurisdiction        (IRS Employer Identification No.)
  of incorporation or organization)

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


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


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

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     Documents  Incorporated by Reference:  Pages 15-33, 47-50 of the Prospectus
of the Registrant  dated August 12, 1987, filed with the Securities and Exchange
Commission pursuant to Rule 424(b), as supplemented by supplements dated May 12,
1988,  May 13,  1988 and May 25,  1988 filed with the  Securities  and  Exchange
Commission pursuant to Rule 497(d), are incorporated by reference in Parts I and
II hereof.

     
<PAGE>
                                    Part I

Item l.       Business.

Formation

     ML-Lee  Acquisition  Fund,  L.P.  (the  "Fund"  or the  "Registrant")  is a
Delaware limited partnership organized on April 1, 1987. Mezzanine  Investments,
L.P. (the "Managing  General  Partner") and four  individuals  (the  "Individual
General Partners") act as the General Partners of the Fund. The Managing General
Partner is a limited  partnership  organized  under Delaware law by ML Mezzanine
Inc.,  as sole general  partner,  and Thomas H. Lee Advisors I (the  "Investment
Adviser"),   as  sole  limited  partner.   ML  Mezzanine  Inc.  is  an  indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. and an affiliate of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"). The Investment Adviser is
a  Massachusetts  business  trust  controlled  by  Thomas  H.  Lee,  one  of the
Individual General Partners. The other Individual General Partners are Vernon R.
Alden,  Joseph L.  Bower and  Stanley  H.  Feldberg  (the  "Independent  General
Partners").

     The Fund has elected to operate as a business development company under the
Investment  Company Act of 1940.  Its primary  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
recapitalizations.  The Fund  considers  this  activity to  constitute  a single
industry segment of mezzanine financing investing.

     The Fund publicly offered, through MLPF&S, up to 1 million units of limited
partnership interest (the "Units") at $1,000 per Unit. The Units were registered
under the Securities  Act of 1933 pursuant to a  Registration  Statement on Form
N-2 (File No.  33-13394)  which was declared  effective on August 12, 1987.  The
information  set forth under the headings  "Risk and Other  Important  Factors",
"Mezzanine  Financing"  and  "Investment  Objective  and  Policies"  on pages 15
through 33 and  "Conflicts of Interest" on pages 47 through 50 in the prospectus
of the Fund  dated  August 12,  1987,  filed with the  Securities  and  Exchange
Commission  pursuant  to Rule  424(b)  under  the  Securities  Act of  1933,  as
supplemented  by  supplements  dated May 12, 1988, May 13, 1988 and May 25, 1988
filed with the Securities and Exchange  Commission  pursuant to Rule 497(d) (the
"Prospectus"), is incorporated herein by reference.

     The term of the Fund expired on June 15, 1998 resulting in the  dissolution
of the Fund.  The Fund has five  additional  years to  liquidate  its  remaining
investments.  As of July 1, 1998, the Fund no longer pays the Investment Adviser
an Investment Advisory Fee.

Mezzanine and Bridge Investments

     The Fund  commenced  operations  on  October  19,  1987 and  completed  its
Investment  Period on June 15, 1991.  As of December  31, 1998,  the Fund had no
Mezzanine or Bridge Investments outstanding.

     REVIEW OF INVESTMENTS SOLD DURING 1998

     BeefAmerica, Inc. ("BeefAmerica")
     --------------------------------

     On March 3, 1998,  the Fund sold its remaining  investment in  BeefAmerica,
consisting of 14,000 shares Sr.  Preferred Stock and 10,000 shares Jr. Preferred
Stock (the  "Securities"),  for $1 million to Lajara II LLC, a limited Liability
Company owned by the Management of BeefAmerica  Operating Company.  The proceeds
consisted of a $1 million  Promissory  Note payable to the Fund.  The Securities
have  been  pledged  to  secure  the  obligation  of  Lajara  II,  LLC under the
Promissory  Note and the Fund  recognized a loss of $23 million.  The  operating
performance at BeefAmerica  continued to deteriorate and on October 8, 1998, the
company filed for  bankruptcy  protection  under Chapter 11 of the United States
Bankruptcy Code. As a result, the Fund does not expect to collect any additional
proceeds and has fully reserved against the $1 million promissory note.

     Chadwick-Miller, Inc. ("CMI")
     ----------------------------

     On July 9, 1998,  pursuant to a purchase and sale agreement,  the Fund sold
its  remaining  Warrants  to  purchase  Common and  Preferred  Stock of Chadwick
Miller, (which includes all payment-in-kind securities) and received proceeds of
$100.  The Fund  recognized a loss of $16.7  million on the  transaction  in the
third quarter 1998. The Fund had previously recorded $16.7 million in unrealized
depreciation on this  investment,  all of which was reversed at the time of this
sale.

     Cole National Corporation ("Cole")
     ---------------------------------

     The Fund sold 567 Cole National Common Stock Purchase Warrants in May 1998,
and received proceeds of $15,593, all of which was a realized gain.  
<PAGE>

     Playtex Products Inc. ("Playtex")
     --------------------------------

     On May 27, 1998,  Playtex  Products  Inc.  ("Playtex"),  completed a public
offering  in the  international  markets of  approximately  4 million  shares of
Common Stock at a net price of $13.215 per share (the  "Playtex  Offering").  Of
the 4 million shares offered,  approximately  3.3 million shares were offered by
affiliates of the Thomas H. Lee Company,  including the Fund, ML-Lee Acquisition
Fund II, L.P. and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. As part
of the Playtex  Offering,  the Fund sold its  remaining  investment  in Playtex,
consisting  of  approximately  1.4  million  shares  of Common  Stock.  The Fund
received  proceeds  of  $18.5  million  and  recognized  a gain  on the  sale of
approximately $15.3 million. Net Distributable  Proceeds of $37.74 per Unit were
distributed on July 21, 1998, to Limited Partners of record as of May 27, 1998.
     
     Signature Brands USA (formerly Health o meter Products, Inc.)
     ------------------------------------------------------------

     Signature Brands USA is a manufacturer of a comprehensive line of consumer,
medical, office and food service scales and equipment under the Signature Brands
USA and  Pelouze  brand  names,  as well as related  measuring  instruments  and
personal care  products.  Mr.  Coffee,  a  wholly-owned  subsidiary of Signature
Brands USA and a manufacturer  of automatic drip coffee makers and tea makers in
the United  States,  offers an extensive  line of automatic  drip coffee makers,
coffee filters, accessories and other kitchen counter-top appliances.

     On April 2, 1998, Sunbeam Corporation  ("Sunbeam") completed a tender offer
for all of the  outstanding  shares of  Signature  Brands USA  Common  Stock for
approximately  $250  million  ($8.25  per  share)  and  assumed  all the debt of
Signature  Brands USA.  Pursuant to the Tender Offer,  the Fund tendered all its
shares  of  Signature   Brands  USA  Common  Stock  and  received   proceeds  of
approximately   $13  million  and  recognized  a  gain  of  $8.3  million.   Net
Distributable  Capital Proceeds of $26.19 per Unit were distributed on April 23,
1998, to the Funds' Limited Partners of record as of April 2, 1998.

     Stanley Furniture Company, Inc. ("Stanley")
     ------------------------------------------
     
     On January  6, 1998 the Fund and  affiliates  of the  Thomas H Lee  Company
including  ML-Lee   Acquisition  Fund  II,  L.P.  and  ML-Lee  Acquisition  Fund
(Retirement  Accounts)  II, L.P.  (the "Lee  Affiliates",  and together with the
Fund, the "Selling  Stockholders") sold their remaining holdings of common stock
in  Stanley.  The  common  stock of each of the  Selling  Stockholders  was sold
pursuant to a Form S-3 Registration  Statement,  which was declared effective by
the Securities and Exchange  Commission on December 23, 1997. In connection with
the  sale,  the Fund sold its  remaining  400,719  shares  of  common  stock and
received net proceeds of $10.8 million or $27 per share and recognized a gain of
$5.8 million. On February 12, 1998, the Independent General Partners established
a reserve of $1.65  million  from these  proceeds to pay future  expenses of the
Fund.  Net  Distributable  Capital  Proceeds  from the sale,  as  defined in the
Partnership  Agreement,  of $9.2 million or $18.63 per Unit were  distributed to
Limited Partners of record as of January 6, 1998.
          
     Magellan Health Services, Inc. (formerly Charter Medical Corporation)
     --------------------------------------------------------------------

     On May 4, 1998,  the Fund sold 40,000  Common  Stock  Purchase  Warrants of
Magellan Health Services for $5,168 and recognized a gain of $1,168.

     SWO Holdings Corporation
     ------------------------

     During May 1998, the Fund sold its  investment in SWO Holdings,  consisting
of 250,000 shares of SWO Holding Common Stock, 1,430 shares of Homeland Holdings
Common Stock, and 1,506 Homeland  Holdings Common Purchase Warrants and received
aggregate proceeds of $11,102. The Fund recognized a loss of $679,312 from these
sales.
<PAGE>
     
     TLC Beatrice International Holdings, Inc.
     -----------------------------------------

     On April 17, 1998,  pursuant to Rule 144 of the Securities Act of 1933, the
Fund sold its investment of 25,500 shares of TLC Beatrice International Holdings
Common Stock for $1.3 million,  or $51.25 per share.  The Fund recognized a gain
of $1.29 million from the sale.

Competition

     The Fund has completed its investment period and reinvestment period and no
longer has to compete for investments.


Employees

     The  Fund  has  no  employees.  The  Investment  Adviser,  subject  to  the
supervision of the Managing General Partner and the Individual General Partners,
manages and controls the Fund's  investments.  ML Fund  Administrators Inc. (the
"Fund Administrator")  performs  administrative  services for the Fund. The Fund
Administrator  is a  subsidiary  of  Merrill  Lynch & Co.,  Inc.,  the parent of
MLPF&S.

Item 2.  Properties

     The Fund does not own or lease any physical properties.

Item 3.  Legal Proceedings

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

     The  settlement,  which was  approved by the Court at a hearing on July 16,
1998,  dismissed  with  prejudice  all  claims  against  the  Fund,  the  Fund's
Investment  Adviser and certain of its affiliates,  the Fund's Managing  General
Partner  and  certain  of its  affiliates,  and the Fund's  Independent  General
Partners.  Defendants,  other than the Fund,  have provided cash of $2.5 million
and certain other  considerations  to settle the claims asserted in this action.
The settlement became effective on August 24, 1998.  Defendants continue to deny
all liability in this action.

     On August 2,  1996,  an action  was  commenced  against  General  Nutrition
Companies,  Inc.  ("GNC"),  its  officers,  directors  and certain of its former
shareholders,  including the Fund, in the United States  District  Court for the
Western District of Pennsylvania  (the "Court").  Plaintiffs  assert that GNC is
liable for  violations of Sections 11 and 12(a)(2) of the Securities Act of 1933
and  Section  1-501(a)  of  the  Pennsylvania  Securities  Act,  arising  out of
allegedly  false and misleading  statements in the  prospectus and  registration
statement for the February 7, 1996 public offering of GNC common stock,  and for
violations  of  Section  10 (b) of  the  Securities  Exchange  Act of  1934  and
negligent misrepresentation arising out of allegedly false and misleading public
statements  during the period from the public  offering  through  May 28,  1996.
Plaintiffs also allege that certain officers, directors and shareholders of GNC,
including the Fund, as well as the  underwriters  for the public  offering,  are
liable for certain of such  violations of the federal and state  securities laws
and/or  control  person  liability  in  connection   therewith,   and  negligent
misrepresentation. Plaintiffs seek certification of the action as a class action
purportedly  on behalf of all  persons,  other than  defendants,  who  purchased
shares of GNC common stock during the proposed class action period from February
7, 1996 through May 28, 1996. After the defendants filed a motion to dismiss the
action  in  its  entirety,  the  plaintiffs  filed  an  amended  complaint.  The
defendants  thereafter  filed a motion to dismiss the amended  complaint  in its
entirety,  which motion has been fully  briefed.  The  defendants in this action
believe that the claims against them are without merit.  In the opinion of legal
counsel, the outcome of this case is not determinable at this time. On March 30,
1998, the Court entered an order adopting the Report and  Recommendation  of the
Magistrate Judge granting defendants' motion to dismiss the amended complaint in
its entirety with prejudice.  Plaintiffs  thereafter filed an appeal,  which has
been  briefed  and argued by both  plaintiffs  and  defendants.  The parties are
awaiting the Court's decision on the appeal.

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

     No matters  were  submitted  to a vote of the Limited  Partners of the Fund
during the fourth quarter ended December 31, 1998.
<PAGE>
                                    Part II


Item 5.  Market for Registrant's Common Equity and Related
              Stockholder Matters

         There is no established  trading market for the Units.  The Partnership
Agreement contains  restrictions that are intended to prevent the development of
a public market.  Accordingly,  accurate  information as to the market values of
Units at any given date is not available.

     The  approximate  number of Unit  holders as of  January 1, 1999,  the last
effective  date of transfer  (as  described  below),  was 34,676.  The  Managing
General Partner also holds a general partner interest in the Fund.

     MLPF&S reports  estimated  values of limited  partnerships and other direct
investments  on client  account  statements  and no longer  reports  the general
partner's  estimate  of limited  partnership  net asset  value to Unit  holders.
Pursuant  to  MLPF&S  guidelines,   estimated  values  for  limited  partnership
interests  originally  sold by MLPF&S (such as the Fund's Units) are provided by
independent  valuation  services.   MLPF&S  clients  may  contact  their  MLPF&S
Financial Consultants to obtain a general description of the methodology used by
the independent  valuation  services to determine their estimates of value.  The
estimated values provided by the independent services and the Fund's current net
asset value as estimated by the general  partner are not market  values and Unit
holders may not be able to sell their Units or realize either amount upon a sale
of their  Units.  In  addition,  Unit  holders may not  realize the  independent
estimated  value or the Fund's  current net asset value upon the  liquidation of
the Fund's assets over its remaining life.

         The  Fund   distributes   Distributable   Cash  from   Investments  and
Distributable  Capital  Proceeds in accordance with the terms of the Partnership
Agreement.

         Pursuant  to  the  Partnership   Agreement,   transfers  of  Units  are
recognized  on the first day of the  fiscal  quarter  after  which the  Managing
General Partner has been duly notified of a transfer pursuant to the Partnership
Agreement.  Until a transfer is recognized,  the limited partner of record (i.e.
the  transferor)  will  continue  to receive  all the  benefits  and  burdens of
ownership of Units (including allocations of profit and loss and distributions),
and any  transferee  will have no rights to  distributions  on sale  proceeds or
distributable  cash  from  investments  generated  at  any  time  prior  to  the
recognition of the transfer and assignment.

     Accordingly,   Distributable  Cash  from  Investments  for  a  quarter  and
Distributable Capital Proceeds from sales after transfer or assignment have been
entered  into,  but before such  transfer and  assignment  is  recognized by the
Managing  General  Partner,  will  be  payable  to the  transferor  and  not the
transferee.

Cash Distributions

     The Fund has made quarterly  distributions,  including  both  Distributable
Cash from Investments and Distributable Capital Proceeds.  The Fund's ability to
make future distributions is restricted.

     As set forth in Item 7.  Management's  Discussion and Analysis of Financial
Condition  and Results of  Operations  - Liquidity  and Capital  Resources - the
information contained is incorporated herein by reference.
<PAGE>
<TABLE>
<S>                                <C>                <C>                  <C>                 <C>                 <C>
Item 6. Selected Financial Data

                                                                    For the Years Ended
Supplemental Information             December 31, 1998    December 31, 1997  December 31, 1996  December 31, 1995  December 31, 1994
Schedule
  Selected Financial Data

TOTAL FUND INFORMATION:

Net Investment Income (Loss)          $   (2,408,833)      $  9,323,884        $ (1,411,814)      $ (1,155,421)        $  9,305,007 

Net Realized Gains (Losses) on                 
  Investments                             (9,556,977)        10,880,887          63,695,316         75,808,138          (37,008,074)
Net Change in Unrealized
  Appreciation(Depreciation) on
  Investments                             18,947,186         (8,132,721)        (23,317,903)         9,920,766            9,271,721 

Cash Distributions to Partners     (a)    60,813,036         52,013,619         195,931,182        186,920,065           43,760,745

Net Assets                                 3,614,610         57,446,269          97,387,831        254,353,413          356,699,995 
Cost of Mezzanine Investments                     --         54,199,296         103,063,947        223,694,546          336,632,272
Total Assets                               3,763,092         57,695,443          97,635,860        254,776,082          357,777,636 

PER UNIT OF LIMITED PARTNERSHIP
INTEREST:
Investment Income                     $         1.22       $      26.66        $       6.21       $      11.68         $      37.10
Expenses                                       (6.11)             (7.72)              (9.08)            (14.03)              (18.20)
                                      --------------       ------------        ------------       ------------         ------------
Net Investment Income (Loss)                   (4.89)             18.94               (2.87)             (2.35)               18.90
                                      ==============       ============        ============       ============         ============
Net Realized Gains (Losses) on
  Investments                         $       (19.41)      $      22.10        $     129.35       $     153.95        $      (75.16)

Net Change in Unrealized
  Appreciation (Depreciation)                  38.48             (16.52)             (51.46)             20.15                18.83

Cash Distributions                 (a)        123.50             105.63              397.90             379.60                88.87
Cumulative Cash Distributions               1,578.54           1,455.04            1,349.41             951.51               571.91

Net Asset Value                                 6.64             115.96              197.07             519.95               727.79
</TABLE>

(a)      Includes  $26,452,077 or $54.26 per Limited Partnership Unit return of
         capital  from cash distributed during 1998.

         See the Cash  Distributions  Schedule for further information.
<PAGE>


Item 7.       Management's Discussion and Analysis of Financial Condition
              and Results of Operations

Liquidity & Capital Resources

     The term of the Fund expired on June 15, 1998 resulting in the  dissolution
of the Fund.  The Fund has five  additional  years to  liquidate  its  remaining
investments.  As of July 1, 1998, the Fund no longer pays the Investment Adviser
an Investment Advisory Fee. 

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

     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.  The
agreement provided the Fund with a maximum of $140 million, consisting of a $100
million term loan and a $40 million  revolving  credit line. The Credit Facility
was due to expire on July 31, 1998,  however,  due to the expiration of the term
of the Fund on June 15, 1998, and in order to stop incurring Unused  Committment
Fees the Credit agreement was amended to instead expire as of June 30, 1998.

     Because  all of  the  Fund's  debt  investments  were  previously  sold  or
redeemed, interest and other income expected to be received by the Fund will not
be sufficient to cover the Fund's  expenses.  To fund the anticipated  cash flow
shortfall  in the near future and to maintain  adequate  reserves  for  possible
follow-on  investments  and  expenses,  the Fund  reserved  $15  million  of the
proceeds  received from the Playtex  notes sale in February,  1993. A portion of
the reserve was used to make follow-on investments in American Health Companies,
Duro-Test Corp.,  Chadwick-Miller,  Signature  Brands USA and Petco,  along with
distributions to partners totalling $1.4 million. In addition,  $2.9 million was
utilized  from the  reserve to pay down a portion of the First  Chicago  loan on
January 6, 1994. In February 1998, the Independent  General Partners approved an
additional  reserve of $1.65  million  which has been reserved from the proceeds
received from the sale of Stanley  Furniture in January  1998.  This reserve was
established  to fund  anticipated  cash  shortfalls  in the  future.  The Fund's
reserve balance as of March 19, 1999 was  approximately  $3.8 million,  which is
made up of cash and temporary investments.
<PAGE> 

Results of Operations

Investment Income and Expenses

     The total  investment  income  earned  on  investments  for the year  ended
December  31,  1998  was  $601,351,  all of  which  was  earned  from  Temporary
Investments.  The total  investment  income earned on  investments  for the year
ended December 31, 1997 was  $13,127,105,  of which  $12,510,356 was earned from
Mezzanine Investments and $616,749 was earned from Temporary Investments.

     For the same period in 1996, total investment  income earned on investments
was $3,061,608,  of which  $1,611,001 was earned from Mezzanine  Investments and
$1,450,607 was earned from Temporary Investments.

     For the year ended December 31, 1998, the Fund had net investment loss from
operations of $2,408,833  as compared to a net  investment  income of $9,323,884
and a net  investment  loss of $1,411,814 for the same periods in 1997 and 1996,
respectively.  The decrease in net investment income for the year ended December
31, 1998 compared to the year ended  December 31, 1997 is the result of the sale
of income producing portfolio companies in 1998.

     The increase in net investment  income for the year ended December 31, 1997
versus the  comparative  period in 1996 is the result of an increase in dividend
income  received  in  connection  with the sale of  Alliance.  Additionally,  $6
million of  settlement  proceeds  were received in 1997 pursuant to an agreement
with Deloitte & Touche.

     Major  expenses for the period  consisted of  Investment  Advisory Fees and
Legal and Professional Fees.

     The Investment Adviser and Fund Administrator receive their compensation on
a quarterly  basis.  The total  Investment  Advisory Fee paid to the  Investment
Adviser  for the year  ended  December  31,  1998 was  $600,000,  compared  with
$1,193,717  for the year ended  December  31, 1997 and  $1,282,991  for the year
ended December 31, 1996. 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 $1.2  million.  This
decrease in 1998 as compared to 1997 and 1996 Investment Advisory Fees is due to
the expiration of the Fund's term on June 15, 1998,  which caused the Management
Agreement  between the Investment  Adviser and the Fund to expire.  As a result,
the Investment Adviser is no longer receiving compensation for services rendered
effective July 1, 1998,  however,  the Investment  Adviser has agreed to provide
investment advisory services to the Fund as needed until final liquidation.

     Legal and  Professional  Fees paid by the Fund  consist  primarily of legal
fees incurred in  conjunction  with the Fund's  litigation.  For the years ended
December  31,  1998,  1997 and 1996,  legal and  professional  fees were $5,124,
$854,470  and  $1,559,223,  respectively.  This  decrease  from  1997 to 1998 is
primarily  attributable to the decrease in litigation  expenses  incurred by the
Fund and the settlement of the litigation.

     Total Fund Administration Fees paid to the Fund Administrator for the years
ended  December 31, 1998,  1997 and 1996 were  $300,000,  $300,000 and $299,335,
respectively.  In accordance with Partnership  Agreement,  beginning October 19,
1995,  the Fund  Administration  Fee changed to an annual fee of $300,000,  plus
100% of actual  out-of-pocket  expenses incurred by the Fund Administrator.  For
the period ending October 19, 1995, Fund  Administration Fees were calculated at
an annual rate of 0.45% of net offering  proceeds reduced by one-half of the sum
of returns of capital to partners and  realized  losses on  investments,  with a
minimum annual payment of $400,000.  This decrease in Fund  Administration  Fees
reflects  adjustments  relating  to a return  of  capital  and  realized  losses
recorded in 1995 and the change in the Fund  Administration  fee to $300,000 per
annum.

     Beginning  October 19, 1995, the Fund  Administrator is being reimbursed by
the Fund for 100% of the out-of-pocket  expenses incurred.  Total  out-of-pocket
expenses  incurred by the Fund for the years ended  December 31, 1998,  1997 and
1996 were $542,747, $519,134 and $414,544, respectively.

     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
years ended  December 31, 1998,  1997 and 1996 totaled  $402,933,  $700,249 and
$701,021 , respectively.  This decrease in 1998 as compared to the 1997 and 1996
loan fees is the result of reductions in the Credit Facility.

<PAGE>
Net Assets

     The  Fund's  net  assets  decreased  by  $53,831,660  during the year ended
December 31, 1998 due to cash distributions of $60,813,036 (of which $26,451,153
was return of capital from the sales of portfolio  investments)  and reversal of
unrealized  depreciation of $18,947,186  partially offset by net realized losses
of $9,556,977 and net investment loss of $2,408,833.

     The  Fund's  net  assets  decreased  by  $39,941,569  during the year ended
December 31, 1997 due to additional net unrealized  depreciation  of $8,132,721,
net  realized  gains of  $10,880,887  and net  investment  income of  $9,323,884
partially offset by cash  distributions to partners of $52,013,619  ($31,452,790
of the cash  distributions  distributed  in 1997 was return of capital  from the
sales of portfolio investments).

     The Fund's  net  assets  decreased  by  $156,965,582  during the year ended
December  31,  1996  due  to  net   investment   loss  of  $1,411,814  and  cash
distributions  to partners of $195,931,182  ($72,697,537  of cash  distributions
distributed  in  1996  was  return  of  capital  from  the  sales  of  portfolio
investments) and additional net unrealized  depreciation of $23,317,903,  offset
by net realized gains of $63,695,316.
     
Unrealized Appreciation and Depreciation on Investments

     For the  year  ended  December  31,  1998,  the  Fund  recorded  total  net
unrealized  appreciation of $18.9 million.  Approximately  $19.0 million was net
unrealized  depreciation in the market value of publicly traded  securities sold
by the Fund at December 31, 1998. This compares to a net unrealized depreciation
of  $8.1  million  of  which  $2.8  million  was a  reversal  of net  unrealized
depreciation  for investments  sold during 1997. For the year ended December 31,
1996,  the Fund recorded net unrealized  appreciation  of $23.3 million of which
$27.5 million was net unrealized appreciation in market value of publicly traded
securities  held by the Fund at December 31,  1996.  The Fund's  cumulative  net
unrealized depreciation on investments at December 31, 1998 totaled zero.
    
     For additional  information,  please refer to the Supplemental  Schedule of
Unrealized Appreciation and Depreciation (Schedule 2).

Realized Gains and Losses

     Net realized  losses on  investments  for the year ended  December 31, 1998
were $9,556,977 compared to a net realized gain of $10,880,887 in 1997 and a net
realized gain of $63,695,316 for 1996.

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

Cash Distributions

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

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

Year 2000 Compliance Initiative

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

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

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

     Merrill Lynch will participate in further  industrywide  testing  currently
scheduled  for March and April 1999,  which will  involve an expanded  number of
firms, transactions, and conditions.

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

Item 7A.  Quantitative and Qualitative Disclosure About Market
                  Risk

     As of  December  31,  1998,  the  Fund  maintains  a  portion  of its  cash
equivalents in financial instruments with original maturities of three months or
less.  These  financial  instruments are subject to interest rate risk, and will
decline in value if interest rates increase.  A significant increase or decrease
in  interest  rates  would not have a material  effect on the  Fund's  financial
position.

<PAGE>
<TABLE>
<CAPTION>

Cash Distributions
     The following  table  represents  distributions  approved by the Individual
General Partners of ML-Lee  Acquisition Fund, L.P. since inception  (October 19,
1987):

<S>                        <C>              <C>             <C>            <C>            <C>             <C>
                              Total            Total Distributed to         Per Unit        Managing
                           Distributed          Limited Partners           Return of        General       Incentive
                              Cash              Amount        Per Unit*      Capital**      Partner        Fee***
Fourth Quarter 1987        $   2,577,304   $   2,551,531      $    6.14    $      -       $  25,773     $       -
First Quarter 1988             6,328,879       6,266,217          14.80           -          62,662             -
Second Quarter 1988            7,495,858       7,420,899          16.50           -          74,959             -
Third Quarter 1988            14,228,737      14,086,450          29.45           -         142,287             -
Fourth Quarter 1988           13,788,416      13,074,454          26.82           -         137,884       576,078
First Quarter 1989            16,291,215      15,034,161          30.84           -         162,929     1,094,125
Second Quarter 1989           15,374,977      13,771,564          28.25           -         153,740     1,449,673
Third Quarter 1989            36,416,661      28,292,735          58.64           -         364,164     7,759,762
Fourth Quarter 1989           19,252,214      13,284,076          27.25           -         192,558     5,775,580
First Quarter 1990            10,119,121       7,180,713          14.73           -         101,197     2,837,211
Second Quarter 1990            5,270,048       3,636,668           7.46           -          52,690     1,580,690
Third Quarter 1990            12,467,001       9,783,904          20.07           -         124,649     2,558,448
Fourth Quarter 1990            7,138,368       6,488,478          13.31           -          71,384       578,506
First Quarter 1991             1,496,932       1,481,967           3.04           -          14,965             -
Second Quarter 1991            5,298,352       5,245,382          10.76           -          52,970             -
Third Quarter 1991             5,539,662       5,484,251          11.25           -          55,411             -
Fourth Quarter 1991            6,829,769       6,761,472          13.87           -          68,297             -
First Quarter 1992             9,611,889       9,515,786          19.52           -          96,103             -
Second Quarter 1992            5,997,616       5,937,616          12.18       10.37          60,000             -
Third Quarter 1992             1,570,785       1,555,090           3.19           -          15,695             -
Fourth Quarter 1992            1,989,335       1,969,456           4.04           -          19,879             -
First Quarter 1993            18,170,064      17,988,344          36.90       36.15         181,720             -
Second Quarter 1993            5,086,627       5,035,761          10.33         .86          50,866             -
Third Quarter 1993            31,366,725      31,053,049          63.70           -         313,676             -
Fourth Quarter 1993           29,052,375      28,761,851          59.00           -         290,524             -
First Quarter 1994             8,001,724       7,921,696          16.25        6.52          80,028             -
Second Quarter 1994            1,083,292       1,072,476           2.20        1.22          10,816             -
Third Quarter 1994             5,623,355       5,567,124          11.42         .48          56,231             -
Fourth Quarter 1994            7,602,855       7,526,830          15.44        5.04          76,025             -
First Quarter 1995            44,671,712      44,225,002          90.72       41.20         446,710             -
Second Quarter 1995           19,863,955      19,665,306          40.34       17.13         198,649             -
Third Quarter 1995           114,781,543     113,633,686         233.10       60.61       1,147,857             -
Fourth Quarter 1995            5,391,914       5,338,005          10.95   (a) 13.66          53,909             -
First Quarter 1996            26,916,067      26,646,919          54.66       53.06         269,148             -
GNC Distribution on
  March 29, 1996             101,737,501     100,720,102         206.61       27.94       1,017,399             -
Petco Distribution on
  June 11, 1996               40,289,255      39,886,350          81.82       16.66         402,905             -
Second Quarter 1996            4,027,927       3,987,660           8.18        6.45          40,267             -
Third Quarter 1996               709,056         701,984           1.44   (a)  2.15           7,072             -
Stanley Distribution
  on December 23, 1996        16,860,231      16,691,623          34.24       27.78         168,608             -
Fourth Quarter 1996              650,009         643,485           1.32   (a)  2.04           6,524             -
First Quarter 1997               285,576         282,744            .58   (a)   .79           2,832             -
Second Quarter 1997           14,181,503      14,039,683          28.80       18.12         141,820             -
Third Quarter 1997             5,997,616       5,937,616          12.18           -          60,000             - 
Fourth Quarter 1997           49,674,649      49,177,891         100.88       71.08         496,759             -
First Quarter 1998             9,173,668       9,081,920          18.63       10.20          91,748             -
Signature Distribution
   on April 23, 1998          12,896,300      12,767,337          26.19        9.24         128,963             -
Second Quarter 1998           19,967,334      19,767,679          40.55        6.77         199,655             -
                           -------------   -------------      ---------   ---------    ------------    -----------
Totals                     $ 799,145,971   $ 766,944,993      $1,578.54   $  445.52    $  7,990,906    $24,210,073
                           =============   =============      =========   =========    ============    ===========


*    For periods prior to Third Quarter 1988,  the amounts shown are for the 1st
     closing participants only.  Subsequent closings' amounts as to such periods
     will vary.

**   The Per Unit Return of Capital  figures are  included in the total Per Unit
     Distribution amount in the previous column.

***  Incentive  distributions paid to the Managing General Partner for exceeding
     the  cumulative  Priority  Return  on  Mezzanine   Investments  to  Limited
     Partners.

(a)  Return of Capital  amounts  received in such  quarters were reduced by Fund
     expenses .
</TABLE>
<PAGE>

Item 8.       Financial Statements and Supplementary Data


                          ML-LEE ACQUISITION FUND, L.P.


                                TABLE OF CONTENTS


Report of Independent Accountants

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

Statements of Operations
   For the Years Ended December 31, 1998, 1997 and 1996

Statements of Changes in Net Assets
   For the Years Ended December 31, 1998, 1997 and 1996

Statements of Cash Flows
   For the Years Ended December 31, 1998, 1997 and 1996

Statements of Changes in  Partners'  Capital
   For the Years Ended December 31, 1998, 1997 and 1996

Schedule of Portfolio Investments - December 31, 1998

Notes to Financial Statements

Supplementary Schedule of Realized Gains and Losses (Schedule 1)

Supplementary Schedule of Unrealized Appreciation and Depreciation (Schedule 2)

PART III - OTHER INFORMATION

Item 10. Directors and Executive Officers of the Registrant
Item 14. Exhibits Financial Statement Schedules and Reports on Form 8-K.





<PAGE>

                       Report of Independent Accountants


To the General and Limited Partners of
ML-Lee Acquisition Fund L.P.

     In our opinion,  the  accompanying  statements of assets,  liabilities  and
partners'  capital,  including  the schedule of portfolio  investments,  and the
related  statements of operations,  of changes in net assets, of cash flows, and
of changes in partners'  capital present fairly, in all material  respects,  the
financial  position of ML-Lee Acquisition Fund L.P. (the "Fund") at December 31,
1998 and 1997, and the results of its operations, the changes in its net assets,
its cash flows,  and the changes in its partners'  capital for each of the three
years in the period ended  December  31,  1998,  in  conformity  with  generally
accepted   accounting   principles.   These   financial   statements   are   the
responsibility  of the Fund's  management;  our  responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  financial  statements in  accordance  with  generally  accepted
auditing  standards  which  require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits,  which  included  confirmation  of  securities  at December  31, 1998 by
correspondence  with the custodian,  provide a reasonable  basis for the opinion
expressed above.

     As discussed  in Note 1, the Fund  dissolved on June 15, 1998 and has until
June 15, 2003 to liquidate its remaining assets.

     Our  audits  were  conducted  for the  purpose of forming an opinion on the
basic financial  statements taken as a whole. The schedule of realized gains and
losses (Schedule 1) and the schedule of unrealized appreciation and depreciation
(Schedule 2) are presented for the purpose of additional  analysis and are not a
required  part  of the  basic  financial  statements.  These  schedules  are the
responsibility of the Fund's  management.  Such schedules have been subjected to
the auditing procedures applied in our audits of the basic financial  statements
and, in our opinion,  are fairly stated in all material respects when considered
in relation to the basic financial statements taken as a whole.





/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York





March 23, 1999
<PAGE>
<TABLE>
<CAPTION>
                          ML-LEE ACQUISITION FUND, L.P.
             STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
                             (DOLLARS IN THOUSANDS)

<S>                                                                                           <C>                    <C>
                                                                                December 31, 1998      December 31, 1997
                                                                               -------------------    ------------------

Assets:
Investments - Notes 2, 8, 9
Portfolio Investments at fair value
    Managed Companies (cost $0 at December 31, 1998 and
         $53,480 at December 31, 1997)                                                    $    --                $35,227
    Non-Managed Companies (cost $0 at December 31, 1998 and
         $720 at December 31, 1997)                                                            --                     26
    Temporary Investments, at amortized cost (cost $3,760 at
         December 31, 1998 and $18,062 at December 31, 1997)                                3,760                 18,125
Cash                                                                                            3                      1
Prepaid Loan Fees - Notes 2, 4                                                                 --                    384
Prepaid Expenses                                                                               --                      6
Note Receivable (Net of reserve of $1,000 at December 31, 1998)                                --                  3,926
                                                                                          -------               --------
Total Assets                                                                              $ 3,763                $57,695
                                                                                          =======               ========

Liabilities and Partners' Capital:

Liabilities
    Legal and Professional Fees Payable                                                   $     1                $   110
    Reimbursable Administrative Expenses Payable                                              125                    116
    Independent General Partner Expenses Payable                                               23                     23
                                                                                          -------                -------
Total Liabilities                                                                             149                    249
                                                                                          -------                -------
Partners' Capital - Note 2
    Managing General Partner                                                                  379                    918
    Limited Partners (487,489 Units)                                                        3,235                 56,528
                                                                                          -------                -------
Total Partners' Capital                                                                     3,614                 57,446
                                                                                          -------                -------
Total Liabilities and Partners' Capital                                                   $ 3,763                $57,695
                                                                                          =======                =======


                     See the Accompanying Notes to Financial Statements.

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



                                                                          For the Years Ended December 31,
<S>                                                                        <C>             <C>             <C>           
                                                                          1998            1997            1996
                                                                     ---------       ---------       ---------
Investment Income - Notes 2, 8, 10:
Interest                                                             $      16             912           1,444
Discount                                                                   585             601           1,451
Dividend & Other Income                                                      1          11,614             167
                                                                     ---------       ---------       ---------
    Total Income                                                           602          13,127           3,062
                                                                     ---------       ---------       ---------
Expenses:
Investment Advisory Fee - Note 5                                           600           1,194           1,283
Fund Administration Fee - Note 6                                           300             300             299
Provision for Uncollectible Receivable - Note 8                          1,000            --                 0
Loan Fees - Notes 2, 4                                                     403             700             701
Independent General Partners' Fees and Expenses - Note 7                   145             227             208
Legal and Professional Fees                                                  5             855           1,559
Reimbursable Administrative Expenses - Note 6                              543             519             415
Insurance Expense                                                           15               8               8
                                                                     ---------       ---------       ---------
                                                                                               
    Total Expenses                                                       3,011           3,803           4,473
                                                                     ---------       ---------       ---------
Net Investment Income (Loss)                                            (2,409)          9,324          (1,411)
                                                                     ---------       ---------       ---------
Net Realized Gain (Loss) on Investments -
     Note 8 and Schedule 1                                              (9,557)         10,881          63,695
                                                                     ---------       ---------       ---------
Net Change in Unrealized Appreciation (Depreciation)
     on Investments - Note 9 and Schedule 2
        Publicly Traded Securities                                     (18,959)         (1,133)        (84,416)
        Nonpublic Securities                                            37,906          (7,000)         61,098
                                                                     ---------       ---------       --------- 
                                                                                               
             Subtotal                                                   18,947          (8,133)        (23,318)
                                                                     ---------       ---------       --------- 
Net Increase (Decrease) in Net Assets
   Resulting From Operations                                         $   6,981       $  12,072       $  38,966
                                                                     =========       =========       ========= 


</TABLE>

                  See the Accompanying Notes to Financial Statements.


<PAGE>
<TABLE>
<CAPTION>

                             ML-LEE ACQUISITION FUND, L.P.
                          STATEMENTS OF CHANGES IN NET ASSETS
                                (DOLLARS IN THOUSANDS)



                                                                                      For the Years Ended December 31, 
<S>                                                                                  <C>             <C>             <C>   
                                                                                    1998            1997            1996
                                                                               ---------       ---------       ---------
From Operations:

Net Investment Income (Loss)                                                   $  (2,409)       $  9,324        $ (1,411)

Net Realized Gain (Loss) on Investments                                           (9,557)         10,881          63,695

Net Change in Unrealized Appreciation (Depreciation) on Investments               18,947          (8,133)        (23,318)
                                                                               ---------       ---------       ---------

Net Increase in Net Assets Resulting from Operations                               6,981          12,072          38,966

Cash Distributions to Partners                                                   (60,813)        (52,014)       (195,931)
                                                                               ---------       ---------       ---------

Total Decrease                                                                   (53,832)        (39,942)       (156,965)

Net Assets:

Beginning of Period                                                               57,446          97,388         254,353
                                                                               ---------       ---------       ---------

End of Period                                                                  $   3,614        $ 57,446        $ 97,388
                                                                               =========       =========       =========


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

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


                                                                                       For the Years Ended December 31,
<S>                                                                                   <C>             <C>             <C>           
                                                                                     1998            1997            1996
                                                                                ---------       ---------       ---------        
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows From Operating Activities:
  Interest, Dividends and Discount Income                                       $     665       $  13,370       $   2,598
  Investment Advisory Fee                                                            (600)         (1,194)         (1,283)
  Fund Administration Fee                                                            (300)           (300)           (299)
  Legal and Professional Fees                                                        (101)           (883)         (1,393)
  Loan Fees and Expenses                                                              (29)            (53)            (62)
  Independent General Partners' Fees and Expenses                                    (145)           (227)           (213)
  (Purchase) Sale of Temporary Investments, Net                                    14,302         (14,021)          3,317
  Reimbursable Administrative Expenses                                               (545)           (506)           (483)
  Proceeds from Sale of Portfolio Company Investments                              47,568          55,819         187,705
                                                                                ---------       ---------       ---------    
                                                                                                    
Net Cash Provided by Operating Activities                                          60,815          52,005         189,887
                                                                                ---------       ---------       ---------  
Cash Flows From Financing Activities:
  Cash Distributions to Partners                                                  (60,813)        (52,014)       (195,931)
                                                                                ---------       ---------       ---------
                                                                                                     
Net Cash Applied to Financing Activities                                          (60,813)        (52,014)       (195,931)
                                                                                ---------       ---------       ---------  
  Net Increase (Decrease) in Cash                                                       2              (9)         (6,044)
  Cash at Beginning of Year                                                             1              10           6,054
                                                                                ---------       ---------       ---------
                                                                                                    
Cash at End of Year                                                             $       3       $       1       $      10
                                                                                =========       =========       ========= 

Reconciliation of Net Investment Income (Loss) to
   Net Cash Provided by Operating Activities

Net Investment Income (Loss)                                                    $  (2,409)      $   9,324       $  (1,411)
                                                                                ---------       ---------       ---------     
Adustments to Reconcile Net Investment Income (Loss)
    to Net Cash Provided by Operating Activities
  Decrease in Investments                                                          68,513          34,844         123,947
 (Increase) Decrease in Receivable for Investments Sold
   (Net of Allowance)                                                               3,926          (3,926)          3,377
 (Increase) Decrease in Accrued Interest,
    Dividend and Discount Receivables                                                  51             243            (458)
  Decrease in Prepaid Expenses                                                        391             638             748
  Increase in Independent General Partner Fees Payable                                 --              --              (5)
  Increase (Decrease) in Reimbursable Administrative Expenses Payable                   9              13             (68)
  Increase (Decrease) in Legal and Professional Fees Payable                         (109)            (12)             62
  Net Realized Gain (Loss) on Investments                                          (9,557)         10,881          63,695
                                                                                ---------       ---------       ---------   
                                                                                                    
Total Adjustments                                                                  63,224          42,681         191,298
                                                                                ---------       ---------       --------- 
Net Cash Provided by Operating Activities                                       $  60,815      $   52,005       $ 189,887
                                                                                =========      ==========       =========     

                                                                             


</TABLE>

               See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
                          ML-LEE ACQUISITION FUND, L.P.
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                             (DOLLARS IN THOUSANDS)


<S>                                                                          <C>               <C>            <C>
                                                                        Managing
                                                                         General           Limited
                                                                         Partner          Partners          Total
                                                                    ------------      ------------   ------------
For the Twelve Months Ended December 31, 1996
Partners' Capital at January 1, 1996                                $        884      $    253,469   $    254,353
Allocation of Net Investment Loss                                            (14)           (1,397)        (1,411)
Allocation of Net Realized Gain on Investments                               637            63,058         63,695
Allocation of Net Change in Unrealized Depreciation                        1,769           (25,087)       (23,318)
Cash Distributions to Partners                                            (1,959)         (193,972)      (195,931)
                                                                    ------------      ------------   ------------
Partners' Capital at December 31, 1996                              $      1,317      $     96,071   $     97,388
                                                                    ============      ============   ============

For the Twelve Months Ended December 31, 1997
Partners' Capital at January 1, 1997                                $      1,317      $     96,071   $     97,388
Allocation of Net Investment Income                                           93             9,231          9,324
Allocation of Net Realized Gain on Investments                               109            10,772         10,881
Allocation of Net Change in Unrealized Depreciation                          (81)           (8,052)        (8,133)
Cash Distributions to Partners                                              (520)          (51,494)       (52,014)
                                                                    ------------      ------------   ------------
Partners' Capital at December 31, 1997                              $        918      $     56,528   $     57,446
                                                                    ============      ============   ============

For the Twelve Months Ended December 31, 1998
Partners' Capital at January 1, 1998                                $        918      $     56,528   $     57,446
Allocation of Net Investment Loss                                            (24)           (2,385)        (2,409)
Allocation of Net Realized Loss on Investments                               (96)           (9,461)        (9,557)
Allocation of Net Change in Unrealized Depreciation                          189            18,758         18,947
Cash Distributions to Partners                                              (608)          (60,205)       (60,813)
                                                                    ------------      ------------   ------------
Partners' Capital at December 31, 1998                              $        379      $      3,235   $      3,614
                                                                    ============      ============   ============


</TABLE>

               See the Accompanying Notes to Financial Statements.



<PAGE>
<TABLE>
<CAPTION>
                                                ML-LEE ACQUISITION FUND, L.P.
                                             SCHEDULE OF PORTFOLIO INVESTMENTS
                                                       DECEMBER 31, 1998
                                                    (DOLLARS IN THOUSANDS)
                                                          (CONTINUED)
<S>                 <C>                                                                   <C>              <C>      <C>        <C>
                                                                                                                  Fair      % Of
                                                                                    Investment      Investment    Value    Total
Shares/Warrants     Investment                                                         Date           Cost      (Note 2) Investments
                 
                    TEMPORARY INVESTMENTS

                    TIME DEPOSITS

$3,760              State Street Bank Time Deposit, 3.75% due 1/4/99                12/31/98             3,760     3,760      100.00
                    ------------------------------
                    TOTAL INVESTMENT IN TIME DEPOSITS                                                    3,760     3,760      100.00
                                                                                                      ------------------------------
                    TOTAL TEMPORARY INVESTMENTS                                                          3,760     3,760      100.00
                                                                                                      ------------------------------
                    TOTAL INVESTMENT PORTFOLIO                                                        $  3,760  $  3,760      100.00
                                                                                                      ==============================




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


<PAGE>
                          ML-LEE ACQUISITION FUND, L.P.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1998


1.  Organization and Purpose

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

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

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

     The term of the Fund expired on June 15, 1998 resulting in the  dissolution
of the Fund.  The Fund has an  additional  five years to liquidate its remaining
investments.  As of December  31, 1998,  the Fund has sold all of its  remaining
investments in Portfolio Companies. The last portfolio-related asset held by the
Fund is a $1 million  (principal  amount) Promissory Note related to the sale of
the Fund's  interest in BeefAmerica  Inc. (see Note 8). The Promissory  Note was
written-down to zero during 1998. The Fund no longer  generates  sufficient cash
to pay current  obligations;  however the Fund has available  approximately $3.8
million of cash reserves to cover future expenses including all expenses related
to the winding up of the Fund's  affairs such as  administrative  and  custodial
expenses,  and audit,  tax and legal fees. Any remaining cash reserves in excess
of amounts required to pay the Fund's  obligations  prior to its termination (as
discussed  in Note 12) will be  distributed  as soon as  practicable  as a final
liquidating distribution to Limited Partners.

2.  Significant Accounting Policies

Basis of Accounting

     For financial  reporting  purposes,  the records of the Fund are maintained
using the  accrual  method of  accounting.  For  Federal  income  tax  reporting
purposes,   the  results  of  operations  are  adjusted  to  reflect   statutory
requirements arising from book to tax differences.

Valuation of Investments

     Securities for which market  quotations 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.

<PAGE>
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.

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 December 31, 1998, the Fund had no
payment-in-kind 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.

Loan Facility and Advisory Fees

     Loan Facility and Advisory Fees were  amortized  over the life (7 years) of
the Facility which commenced in August, 1991.

Partners' Capital

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

3. Allocation of Profits and Losses

     Pursuant  to  the  Partnership   Agreement,   all  profits  from  Temporary
Investments  generally are  allocated 99% to the Limited  Partners and 1% to the
Managing  General Partner.  Profits from Mezzanine  Investments are, in general,
allocated as follows:

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

    second,  99% to the Limited  Partners and 1% to the Managing General Partner
    until the sum allocated to the Limited  Partners  equals any previous losses
    allocated  together with a cumulative  Priority Return of 10% on the average
    daily  balance of Mezzanine  securities,  and any  outstanding  Compensatory
    Payments,

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

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

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

     The Fund entered into an amended credit  agreement,  dated as of August 13,
1991 (the "Credit  Facilities"),  with a lending group led by the First National
Bank of Chicago ("First Chicago"), which provided the Fund with a maximum credit
facility of $140 million. The Credit Facilities consisted of a $100 million term
loan and a $40 million  secured  revolving  credit line. In October of 1993, the
Fund amended the credit  agreement  enabling it to make  prepayments of the term
loan at any time and without any  corresponding  reduction to the revolving line
of  credit.  As a result of  paydowns  of the term loan the  Fund's  outstanding
balance was paid in full as of March 29,  1994.  The Credit  Facility was due to
expire on July 31, 1998,  however due to the  expiration of the term of the Fund
on June 15, 1998, and in order to stop  incurring  Unused  Commitment  Fees, the
credit agreement was amended to expire as of June 30, 1998.

     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 were amortized over the life of the credit  facility.   The
     amount expensed for the year ended December 31,  1998  was  $368,531.   The
     Credit Facility expired on June 30, 1998.

     An annual Loan  Administration Fee of $25,000 for the administration of the
     credit  facility.  The amount expensed for the year ended December 31, 1998
     was $15,548.

     An  Unused  Commitment  Fee of 1/2 of 1% per  annum of the  unused  line of
     credit.  The amount  expensed  for the year  ended  December  31,  1998 was
     $18,854.

     For the years ended  December 31, 1998,  1997 and 1996,  the Fund  incurred
     $402,933, $700,249, and $701,021, respectively, in total loan fees.

5.   Investment Advisory Fee

     The  expiration  of the  Fund's  term on June  15,  1998,  has  caused  the
Management Agreement between the Investment Adviser and the Fund to expire. As a
result, the Investment Adviser is no longer receiving  compensation for services
rendered  effective July 1, 1998,  however the Investment  Adviser has agreed to
provide  investment  advisory  services  to  the  Fund  as  needed  until  final
liquidation.

     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 received 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  $1.2  million.  The
Investment Advisory Fee was calculated and paid quarterly,  in advance.  For the
years  ended  December  31,  1998,  1997  and  1996,  the  Fund  paid  $600,000,
$1,193,717, and $1,282,991,  respectively, in Investment Advisory Fees to Thomas
H. Lee  Advisors  I. As of July 1,  1998,  the Fund no  longer  pays  Investment
Advisory Fees to Thomas H. Lee Advisors I.

6.  Fund Administration Fee and Expenses

     ML Fund Administrators Inc. (the "Fund Administrator") (an affiliate of the
Managing General Partner) performs the operational and  administrative  services
necessary for the management of the Fund.  Beginning  October 19, 1995, the Fund
Administration Fee is calculated at an annual fee of $300,000 plus out-of-pocket
expenses  incurred  by the Fund  Administrator,  as  described  below.  The Fund
Administration Fee is paid quarterly,  in advance.  For the years ended December
31,  1998,  1997,  and 1996,  the Fund paid  $300,000,  $300,000,  and  $299,335
respectively, in Fund Administration Fees.

     Beginning  October 19, 1995, in accordance with the Partnership  Agreement,
the  Fund   Administrator   is  being   reimbursed  by  the  Fund  for  100%  of
administrative  expenses incurred.  Actual out-of-pocket expenses ("reimbursable
expenses") primarily consist of printing,  audits, tax preparation and custodian
fees.  Total  out-of-pocket  expenses  incurred  by the Fund for the years ended
December  31,  1998,  1997 and  1996  were  $542,747,  $519,134,  and  $414,544,
respectively.

<PAGE>
7.   Independent General Partners' Fees and Expenses

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

     For the years ended  December 31, 1998,  1997 and 1996,  the Fund  incurred
$144,670, $227,171, and $207,827, respectively, in Independent General Partners'
Fees and Expenses.

8.   Investment Transactions

     On January  6, 1998 the Fund and  affiliates  of the Thomas H. Lee  Company
(the "Lee Affiliates",  together with the Fund, the "Selling Stockholders") sold
their remaining  holdings of common stock in Stanley Furniture Co.  ("Stanley").
The common stock of each of the Selling Stockholders was sold pursuant to a Form
S-3 Registration  Statement,  which was declared effective by the Securities and
Exchange  Commission on December 23, 1997. In connection with the sale, the Fund
sold its remaining  400,719  shares of common stock and received net proceeds of
$10.8 million or $27 per share.  On February 12, 1998, the  Independent  General
Partners  established  a reserve of $1.65  million  from these  proceeds  to pay
future expenses of the Fund. Net  Distributable  Capital Proceeds from the sale,
as defined in the Partnership Agreement, of $9.2 million or $18.63 per Unit were
distributed to Limited Partners of record as of January 6, 1998.

     On April 2, 1998, Sunbeam Corporation  ("Sunbeam") completed a tender offer
for all of the  outstanding  shares of  Signature  Brands USA  Common  Stock for
approximately  $250  million  ($8.25  per  share)  and  assumed  all the debt of
Signature  Brands USA.  Pursuant to the Tender Offer,  the Fund tendered all its
shares  of  Signature   Brands  USA  Common  Stock  and  received   proceeds  of
approximately $13 million. Net Distributable Capital Proceeds of $26.19 per Unit
were  distributed on April 23, 1998, to the Fund's Limited Partners of record as
of April 2, 1998.

     On March 3, 1998,  the Fund sold its remaining  investment in  BeefAmerica,
consisting of 14,000 shares Sr.  Preferred Stock and 10,000 shares Jr. Preferred
Stock (the  "Securities"),  for $1 million to Lajara II LLC, a limited Liability
Company owned by the Management of BeefAmerica  Operating Company.  The proceeds
consisted of a $1 million  Promissory  Note payable to the Fund.  The Securities
have  been  pledged  to  secure  the  obligation  of  Lajara  II,  LLC under the
Promissory  Note and the Fund  recognized a loss of $23 million.  The  operating
performance at BeefAmerica  has continued to deteriorate and on October 8, 1998,
the  company  filed for  bankruptcy  protection  under  Chapter 11 of the United
States  Bankruptcy Code (see Note 13). As a result,  the Fund does not expect to
collect any additional  proceeds and has fully  reserved  against the $1 million
Promissory Note.

     On May 27, 1998,  Playtex  Products  Inc.  ("Playtex"),  completed a public
offering  in the  international  markets of  approximately  4 million  shares of
Common Stock at a net price of $13.215 per share (the  "Playtex  Offering").  Of
the 4 million shares offered,  approximately  3.3 million shares were offered by
affiliates of the Thomas H. Lee Company,  including the Fund, ML-Lee Acquisition
Fund II, L.P. and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. As part
of the Playtex  Offering,  the Fund sold its  remaining  investment  in Playtex,
consisting  of  approximately  1.4  million  shares  of Common  Stock.  The Fund
received  proceeds  of  $18.6  million  and  recognized  a gain  on the  sale of
approximately $15.3 million. Net Distributable  Proceeds of $37.74 per Unit were
distributed on July 21, 1998, to Limited Partners of record as of May 27, 1998.
<PAGE>

     On April 7, 1998,  pursuant to Rule 144 of the  Securities Act of 1933, the
Fund sold its investment of 25,500 shares of TLC Beatrice International Holdings
Common  Stock for $1.3  million or $51.25 per share.  During May 1998,  the Fund
sold its  investment  in SWO  Holdings,  consisting  of  250,000  shares  of SWO
Holdings Common Stock, 1,430 shares of Homeland Holdings Common Stock, and 1,506
Homeland Holdings Common Stock Purchase Warrants and received aggregate proceeds
of $11,102.  The Fund also sold 567 Cole National Common Stock Purchase Warrants
during May 1998, and received proceeds of $15,593. Additionally, on May 4, 1998,
the Fund sold 2,067 Common Stock Purchase  Warrants of Magellan  Health Services
for $5,168. The sale of these Portfolio Company investments have generated total
proceeds to the Fund of $1.34 million and were  distributed to Limited  Partners
on July 21, 1998.
  
     On July 9, 1998,  pursuant to a purchase and sale agreement,  the Fund sold
its  remaining  Warrants  to  purchase  Common and  Preferred  Stock of Chadwick
Miller, (which includes all payment-in-kind securities) and received proceeds of
$100.  The Fund  recognized a loss of $16.7  million on the  transaction  in the
third quarter 1998. The Fund had previously recorded $16.7 million in unrealized
depreciation on this  investment,  all of which was reversed at the time of this
sale.

9. Unrealized Appreciation and Depreciation of Investments

     For  information  please refer to the  Supplemental  Schedule of Unrealized
Appreciation and Depreciation (Schedule 2).

10. Litigation

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

     The  settlement,  which was  approved by the Court at a hearing on July 16,
1998,  dismissed  with  prejudice  all  claims  against  the  Fund,  the  Fund's
Investment  Adviser and certain of its affiliates,  the Fund's Managing  General
Partner  and  certain  of its  affiliates,  and the Fund's  Independent  General
Partners.  Defendants,  other than the Fund,  have provided cash of $2.5 million
and certain other  considerations  to settle the claims asserted in this action.
The settlement became effective on August 24, 1998.  Defendants continue to deny
all liability in this action.

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

     On August 2,  1996,  an action  was  commenced  against  General  Nutrition
Companies,  Inc.  ("GNC"),  its  officers,  directors  and certain of its former
shareholders,  including the Fund, in the United States  District  Court for the
Western District of Pennsylvania  (the "Court").  Plaintiffs  assert that GNC is
liable for  violations of Sections 11 and 12(a)(2) of the Securities Act of 1933
and  Section  1-501(a)  of  the  Pennsylvania  Securities  Act,  arising  out of
allegedly  false and misleading  statements in the  prospectus and  registration
statement for the February 7, 1996 public offering of GNC common stock,  and for
violations  of  Section  10 (b) of  the  Securities  Exchange  Act of  1934  and
negligent misrepresentation arising out of allegedly false and misleading public
statements  during the period from the public  offering  through  May 28,  1996.
Plaintiffs also allege that certain officers, directors and shareholders of GNC,
including the Fund, as well as the  underwriters  for the public  offering,  are
liable for certain of such  violations of the federal and state  securities laws
and/or  control  person  liability  in  connection   therewith,   and  negligent
misrepresentation. Plaintiffs seek certification of the action as a class action
purportedly  on behalf of all  persons,  other than  defendants,  who  purchased
shares of GNC common stock during the proposed class action period from February
7, 1996 through May 28, 1996. After the defendants filed a motion to dismiss the
action  in  its  entirety,  the  plaintiffs  filed  an  amended  complaint.  The
defendants  thereafter  filed a motion to dismiss the amended  complaint  in its
entirety,  which motion has been fully  briefed.  The  defendants in this action
believe that the claims against them are without merit.  In the opinion of legal
counsel, the outcome of this case is not determinable at this time. On March 30,
1998, the Court entered an order adopting the Report and  Recommendation  of the
Magistrate Judge granting defendants' motion to dismiss the amended complaint in
its entirety with prejudice.  Plaintiffs  thereafter filed an appeal,  which has
been  briefed  and argued by both  plaintiffs  and  defendants.  The parties are
awaiting the Court's decision on the appeal.

<PAGE>
12.  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 1998, the Managing  General Partner  received cash  distributions in
the amount of $608,144 representing its 1% interest in the Fund.

12.  Reserves

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

     Because  the  Fund no  longer  generates  sufficient  cash  to pay  current
obligations,  the  Fund  has  approximately  $3.8  million  available  of  these
remaining cash reserves to cover future expenses  including all expenses related
to the winding up of the Fund's  affairs such as  administrative  and  custodial
expenses,  and audit and tax  preparation  fees.  Any remaining cash reserves in
excess  of  amounts  required  to  pay  the  Fund's  obligations  prior  to  its
termination  will be distributed  as soon as practicable as a final  liquidating
distribution to Limited Partners.

13. Income Taxes 

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

     Pursuant  to the  Statement  of  Financial  Accounting  Standards  No.  109
Accounting for Income Taxes,  the Fund is required to disclose any difference in
the tax basis of the Fund's assets and liabilities  versus the amounts  reported
in the  financial  statements.  As of December  31,  1998,  the tax basis of the
Fund's assets are greater than the amounts reported in the financial  statements
by $1 million.  This difference is primarily  attributable to the write-off of a
receivable which has not been recognized for tax purposes.


<PAGE>
<TABLE>
<CAPTION>

                                   SCHEDULE 1
                          ML-LEE ACQUISITION FUND, L.P.
                SUPPLEMENTARY SCHEDULE OF REALIZED GAINS (LOSSES)
                      FOR THE YEAR ENDED DECEMBER 31, 1998
                    (DOLLARS IN THOUSANDS, SHARES ARE ACTUAL)

<S>                                      <C>                         <C>           <C>             <C>              <C> 
                                                               Number Of    Investment
Security                                                Shares/Principal       Cost        Net Proceeds   Realized Gain
                                                            ------------   ------------    ------------   ------------    

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

BeefAmerica Incorporated                  Jr. and Sr.
  Other Securities                    Preferred Stock         $   24,000         24,000           1,000        (23,000)

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

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

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

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

Magellan Health Services Inc.                Warrants             40,000              4               5              1

Cole National Corp.                          Warrants              5,563             --              16             16

Chadwick-Miller, Inc.                 C/S Purchase Wt             39,487          3,736              -- (a)     (3,736)
                                     P/S Purchase Wts             15,406         12,916              -- (a)    (12,916)

                                                                             ----------       ---------      ---------
Total Realized Gains                                                             54,199          44,642         (9,557)
                                                                             ==========       =========      =========

See the Accompanying Notes to Financial Statements.

    (a) proceeds are less than $1,000


</TABLE>

     See Notes to Financial Statements.


<PAGE>
<TABLE>
<CAPTION>
                                   SCHEDULE 2
                          ML-LEE ACQUISITION FUND, L.P.
       SUPPLEMENTARY SCHEDULE OF UNREALIZED APPRECIATION AND DEPRECIATION
                     FOR THE PERIOD ENDED DECEMBER 31, 1998
                             (DOLLARS IN THOUSANDS)
<S>                                <C>          <C>     <C>           <C>        <C>          <C>         <C>         <C>
                                                   Total Unrealized
                                                     Appreciation
                                                    (Depreciation)
                                                         at
                                                     December 31,                                                           1994
Security                                                1998              1998           1997         1996        1995   and Prior
--------------------------------------------------   ------------   ----------     ----------    ---------    --------   ---------
Reversal of Unrealized Appreciation
  (Depreciation) for Investments Sold in 1998

Chadwick-Miller, Inc. 
  Common Stock (2)                                   $       --     $    3,736    $     --       $  (1,929)   $     --    $ (1,807)
  Preferred Stock (2)                                        --         12,916          --         (12,916)         --          --

Stanley Furniture
  Common Stock (1)                                           --         (6,149)     (5,315)         23,580      (5,351)     (6,765)

BeefAmerica Inc. 
  Jr. and Sr.Preferred Stock (2)                             --         21,000      (7,000)        (14,000)         --          --

Signature Brands USA
  Common Stock (1)                                           --         (2,091)     (1,758)          2,735         293         821

Playtex Products
  Common Stock (1)                                           --        (11,159)      3,166             701         528       6,764

SWO Holdings Corporation
   SWO Holdings Common Stock (2)                             --            250          --            (440)         --         190
   Homeland Holdings Common Stock (1)                        --            440          --            (595)         --         155

Magellan Health Service
  Common Stock Warrants (2)                                  --              4          --              --          --          (4)
                                                     ----------     ----------    --------      ----------   ---------   ---------

Total Reversal of Unrealized Appreciation
   (Depreciation) for Investments Sold during 1998           --         18,947     (10,907)         (2,864)     (4,530)       (646)
                                                     ----------     ----------    --------      ----------    --------   --------- 

Reversal of Unrealized
  Appreciation (Depreciation) for
  Investments Sold prior to 1998                             --             --       2,774        (111,432)     14,451      94,207
                                                     ----------     ----------    --------      ----------    --------   --------- 
Total Unrealized Appreciation (Depreciation)         $       --     $   18,947    $ (8,133)     $ (114,296)   $  9,921   $  93,561
                                                     ==========     ==========    ========      ==========    ========   ========= 

(1) Publicly Traded Security
(2) Non-Public Security

See Notes to Financial Statements.
</TABLE>
<PAGE>


Item 9.  Changes in and Disagreements with Accountants
                on Accounting and Financial Disclosure

         None.
                                    PART III


Item 10. Directors and Executive Officers of the Registrant

     The five General  Partners of the Fund are  responsible  for the management
and administration of the Fund. The General Partners of the Fund consist of four
Individual  General  Partners:  Vernon R.  Alden,  Joseph L.  Bower,  Stanley H.
Feldberg  (the  "Independent  General  Partners"),  Thomas H. Lee and  Mezzanine
Investments,  L.P., the Managing General  Partner.  Pursuant to exemptive orders
issued by the  Securities  and Exchange  Commission,  each  Independent  General
Partner is not an "interested person" of the Fund as such term is defined in the
Investment Company Act of 1940.

Individual General Partners

     The Individual  General  Partners  provide overall guidance and supervision
with  respect to the  operations  of the Fund and  perform  the  various  duties
imposed on the  directors of business  development  companies by the  Investment
Company Act of 1940.  The  Individual  General  Partners  supervise the Managing
General Partner and must, with respect to any Mezzanine Investment transactions,
either  certify that it meets the Fund  investment  guidelines  or  specifically
approve  it as a  non-Guideline  Investment  or Bridge  Investment.  The  Fund's
investment and reinvestment period expired in 1992, and the only investments now
permitted  are  Follow  On  Investments  in  existing  portfolio  companies.  In
addition,  if a Portfolio Company is in default under a material  provision of a
lending  agreement or has a ratio of operating  income to current  fixed charges
that is less  than or equal to 1.1 to 1, the  Individual  General  Partners  are
required to approve any changes in the terms of or sale of the Fund's investment
in such Portfolio Company.

     Messrs.  Alden,  Bower,  Feldberg and Lee have served as Individual General
Partners of the Fund since 1989.  Each  Individual  General  Partner  shall hold
office until his removal or withdrawal  pursuant to the provisions of the Fund's
Partnership Agreement.

     Mr.  Alden,  age  76,  Individual  General  Partner  of  the  Fund,  ML-Lee
Acquisition  Fund II, L.P. ("Fund II") and ML-Lee  Acquisition  Fund (Retirement
Accounts)  II, L. P.; and together  with Fund II, the "New Funds";  and together
with  the  Fund,  the  "Funds").   Director  of  Sonesta   International  Hotels
Corporation.  Chairman of the Japan Society of Boston,  Trustee  Emeritus of the
Boston  Symphony  Orchestra and the Boston Museum of Science and Honorary Consul
General of the Royal Kingdom of Thailand.

     Mr. Bower,  age 60,  Individual  General Partner of the Funds.  Donald Kirk
David Professor of Business  Administration,  Harvard University Graduate School
of  Business  Administration;  faculty  member  since  1963.  Director  of Anika
Research,  Inc.,  Brown  Group,  Inc.,  New America  High Income  Fund,  Sonesta
International  Hotels  Corporation  and The Lincoln  Foundation.  Trustee of the
DeCordova & Dana Museum and Park and the New England Conservatory of Music.

     Mr.  Feldberg,  age 74,  Individual  General  Partner  of the  Funds.  Past
Director of the TJX Companies, Inc. and Waban Inc., Trustee-Emeritus of Brandeis
University, Honorary Trustee of Besth Israel Deaconess Medical Center.
<PAGE>
     Mr. Lee, age 54, Individual  General Partner of the Funds.  Chairman of the
Investment  Adviser of the Funds  since  1987;  Chairman  of the  Administrative
General Partner of the Investment Adviser to the new Funds since 1989;  Chairman
of the  Administrative  General  Partner of Thomas H. Lee Equity  Partners  L.P.
since 1989.  Chairman  of the  Administrative  General  Partner of Thomas H. Lee
Equity Fund III, L.P. since 1996. Founder of the Thomas H. Lee Company (the "Lee
Company") and its President  since 1974.  Director of Finlay  Enterprises  Inc.,
First Security Services  Corporation,  Livent,  Inc., Miller Import Corporation,
Safelite Glass  Corporation,  Sondik Supply  Corporation and Vail Resorts,  Inc.
Trustee of Brandeis  University (Vice  Chairman),  Museum of Fine Arts (Boston),
the  Wang  Center  for  the  Performing  Arts,  Boston's  Beth  Israel  Hospital
(Treasurer), NYU Medical Center and the Whitney Museum of American Art. Overseer
of Boston Symphony  Orchestra and New England  Conservatory of Music,  Member of
the Dean's  Council,  Faculty of Arts and Sciences  and an  Executive  Committee
Member of the Committee on University and an Executive  Committee  Member of the
Committee  on  University  Resources  at  Harvard  University;   Member  of  the
Corporation of Belmont Hill School.

The Investment Adviser

     The  expiration  of the  Fund's  term on June  15,  1998,  has  caused  the
Management Agreement between the Investment Adviser and the Fund to expire. As a
result, the Investment Adviser is no longer receiving  compensation for services
rendered  effective July 1, 1998,  however the Investment  Adviser has agreed to
provide  investment  advisory  services  to  the  Fund  as  needed  until  final
liquidation.

     The  Investment  Adviser,  pursuant to an investment  management  agreement
among the  Investment  Adviser,  the  Thomas H. Lee  Company  and the Fund dated
September 14, 1987,  as amended March 18, 1988 and as assumed by the  Investment
Adviser December 29, 1988 was responsible for the identification, management and
liquidation of Mezzanine  Investments  and Bridge  Investments for the Fund. The
Investment Adviser received an Investment Advisory Fee in compensation for these
services outlined in Note 5 to the Financial Statements.

     Certain  officers of the Lee Company have been  designated  as trustees and
executive officers of T. H. Lee Mezzanine II, the administrative general partner
of the Investment Adviser.

                                    Title

         Thomas H. Lee              Chairman, Trustee

         Thomas R. Shepherd         Executive Vice President

         David V. Harkins           President, Trustee

         C. Hunter Boll             Vice President, Trustee

         Scott A. Schoen            Vice President

         Wendy L. Masler            Treasurer, Clerk

        Information concerning Mr. Lee is set forth above.


     Mr. Shepherd,  age 69, is a Managing  Director of the Thomas H. Lee Company
since 1986. Mr. Shepherd is currently a director of General Nutrition Companies,
Inc. and Rayovac  Corporation.  He is Executive  Vice President of Thomas H. Lee
Advisors I and T.H. Lee Mezzanine II.

     Mr. Harkins,  age 57, has been a Managing Director of the Lee Company since
1986 and the Chairman of National Dentex  Corporation since 1983. Mr. Harkins is
a Senior  Vice  President  and  Trustee of  Advisors I. He also is a director of
National Dentex  Corporation,  Cott  Corporation,  First Security Services Inc.,
Fisher Scientific  International,  Inc., Freedom Securities Corporation,  Metris
Companies, Inc. (pending), Stanley Furniture Company and Syratech Corporation.

     Mr.  Boll,  age 43, has served as a Managing  Director  of the Lee  Company
since 1991.  From 1986 to 1991 he served as a Vice President of the Lee Company.
Mr. Boll is a Director of Big V Supermarkets  Inc.,  Cott  Corporation,  Freedom
Securities Corporation,  Metris Companies,  Inc. (pending),  New York Restaurant
Group, Transwestern Publishing, L.P. and United Industries Corporation.

     Mr.  Schoen,  age 40, has served as a Managing  Director of the Lee Company
since 1991.  From 1986 to 1990 he served as a Vice President of the Lee Company.
Mr.  Schoen is a Vice  President of Advisors I. Mr. Schoen is also a Director of
Rayovac  Corporation,  ARC Holdings,  LLC,  Syratech  Corporation,  Transwestern
Publishing L.P. and United Industries Corporation.

     Ms.  Masler,  age 45, has been Treasurer of the Lee Company since 1984. Ms.
Masler is also Treasurer and Clerk of Advisors I.
<PAGE>

The Managing General Partner

        The  Managing  General  Partner  is a  limited  partnership  in which ML
Mezzanine II Inc. is the sole general partner and the Investment  Adviser is the
limited partner. The Managing General Partner is responsible for the supervision
of the Fund's investments.

     The  executive  officers  of ML  Mezzanine  Inc.  ("ML  Mezzanine")  are as
follows:

                                    Title

         Kevin K. Albert            Chairman and President

         James V. Caruso            Executive Vice President, Director

         Rosalie Y. Goldberg        Vice President, Director

         Robert J. Remick           Vice President, Treasurer

         Sharon McKenzie            Vice President, Assistant Treasurer

     Kevin K.  Albert,  46, a  Managing  Director  of Merrill  Lynch  Investment
Banking Group ("ML  Investment  Banking"),  joined  Merrill  Lynch in 1981.  Mr.
Albert  works  in  the  Equity  Private  Placement  Group  and  is  involved  in
structuring  and  placing  a  diversified  array  of  private  equity  financing
including common stock, preferred stock, limited partnership interests and other
equity-related  securities. Mr. Albert is also a director of ML Media Management
Inc.  ("ML Media"),  an affiliate of ML Mezzanine and a joint  venturer of Media
Management Partners, the general partner of ML Media Partners,  L.P.; a director
of ML Opportunity  Management  Inc. ("ML  Opportunity")  and a joint Venturer of
Media Opportunity  Management  Partners,  the general partner of ML Opportunity,
Media Partners,  L.P.;a director of ML Mezzanine II Inc. ("ML Mezzanine II"), an
affiliate of ML  Mezzanine  and sole  general  partner of the  managing  general
partner  of  ML-Lee  Acquisition  Fund II,  L.P.  and  ML-Lee  Acquisition  Fund
(Retirement Accounts) II, L.P.; a director of Merrill Lynch Venture Capital Inc.
("ML  Venture"),  an affiliate of ML  Mezzanine  and the general  partner of the
Managing General Partner of ML Venture  Partners II, L.P.  ("Venture II") and ML
Oklahoma Venture Partners Limited  Partnership  ("Oklahoma");  and a director of
Merrill Lynch R&D Management  Inc. ("ML R&D"),  an affiliate of ML Mezzanine and
the general partner of the General Partner of ML Technology Ventures,  L.P.; Mr.
Albert also serves as an independent general partner of Venture II.

     James V. Caruso,  47, a Director of ML Investment  Banking,  joined Merrill
Lynch in 1975.  Mr.  Caruso  manages  the  Investment  Banking  Group  Corporate
Accounting,  Master Lease and off Balance Sheet accounting  functions as well as
the Controller's area of the Partnership  Analysis and Finance Group. Mr. Caruso
is also a director of ML Media, ML Opportunity, ML Venture, ML R&D, ML Mezzanine
II and MLH Property  Managers Inc., an affiliate of ML Mezzanine and the general
partner of MLH Income Realty Partnership VI.

     Rosalie Y.  Goldberg,  61, a First Vice  President  and Senior  Director of
Merrill Lynch's Private Client Group and the Director of its Special Investments
Group,  joined  Merrill  Lynch in 1975.  Ms.  Goldberg  is also a Director of ML
Mezzanine II, ML Media, and ML Opportunity.

     Robert  J.  Remick,  age 28,  serves  as  Assistant  Vice  President  in ML
Investment  Banking of ML & Co.  and joined the firm in 1994.  He serves as Vice
President  and  Treasurer of and ML Mezzanine  II. Mr.  Remick  manages  certain
accounting,  financial  reporting  and  administrative  functions in the Merrill
Lynch Partnership  Analysis and Finance  Department and serves as Vice President
and Treasurer of ML Mezzanine II.

     Sharon McKenzie, age 40, joined ML Investment Banking in 1996 and serves as
Vice President, Assistant Treasurer and controller to the funds. Ms. McKenzie is
responsible  for financial  reporting  and fund  accounting in the Merrill Lynch
Partnership  Analysis and Finance  Department  and serves as Vice  President and
Assistant Treasurer of ML Mezzanine II.
<PAGE>
The Fund Administrator

     ML Fund  Administrators  Inc., a Delaware  corporation  and a subsidiary of
Merrill Lynch & Co.,  Inc., is responsible  for the provision of  administrative
services  necessary  for the  operation  of the  Funds.  The Fund  Administrator
receives Fund Administration Fees as compensation for these services as outlined
in Note 6 to the Financial Statements.

     The Fund  Administrator  is responsible  for the day-to-day  administrative
affairs of the Funds and for the management of the accounts of Limited Partners.
The Fund  Administrator  also  provides the Funds,  at the Fund  Administrator's
expense,  with office space,  facilities,  equipment and personnel  necessary to
carry out its obligations under the Administrative Services Agreement.

Item 11.   Executive Compensation

     The  information  with respect to  compensation  of the Individual  General
Partners set forth under the caption  "Management  Arrangements - the Individual
General  Partners" in the  Prospectus  pages 73 - 74 is  incorporated  herein by
reference.  Fund II paid Independent General Partners,  Mr. Alden, Mr. Bower and
Mr. Feldberg  $144,670  collectively  for their services as Independent  General
Partners in 1998.

     The  information  with respect to the allocation and  distribution  of Fund
II's  profits  and losses to the  Managing  General  Partner set forth under the
caption  "Distributions  and Allocations - Allocations of Profits and Losses" in
the Prospectus pages 86 - 87 is incorporated  herein by reference.  The Managing
General Partner received  distributions of $917,125 during 1998 all of which was
paid to ML Mezzanine Inc.

     The information with respect to the Investment  Advisory Fee payable to the
Investment  Adviser (and  distributions  from the Managing  General Partner) set
forth under the caption  "Management  Arrangements - Description of the Advisory
Agreement" in the Prospectus pages 74 - 75 is incorporated  herein by reference.
Pursuant to the  Investment  Advisory  Agreement,  the Fund paid the  Investment
Adviser $600,000 with respect to 1998.

     The information with respect to the Fund  Administration  Fees and Expenses
payable  to the Fund  Administrator  set  forth  under the  caption  "Management
Arrangements  - The  Fund  Administrator"  in the  Prospectus  pages  72 - 73 is
incorporated  herein  by  reference.  Pursuant  to the  Administrative  Services
Agreement, the Fund paid the Fund Administrator a total of $300,000 in 1998.

Item 12. Security Ownership of Certain Beneficial Owners and  Management

     The Fund is not aware of any persons who are beneficial owners of more than
five percent of its Units of limited partnership interest,  based upon Schedules
13D and 13G filed with the  Securities  and Exchange  Commission and a review of
the Fund's records.

         There exists no  arrangement  known to the Fund, the operation of which
may at a subsequent date result in a change of control of the Fund.

Item 13. Certain Relationships and Related Transactions

     On January  6, 1998 the Fund and  affiliates  of the Thomas H. Lee  Company
(the "Lee Affiliates",  together with the Fund, the "Selling Stockholders") sold
their remaining  holdings of common stock in Stanley Furniture Co.  ("Stanley").
The common stock of each of the Selling Stockholders was sold pursuant to a Form
S-3 Registration  Statement,  which was declared effective by the Securities and
Exchange  Commission on December 23, 1997. In connection with the sale, the Fund
sold its remaining  400,719  shares of common stock and received net proceeds of
$10.8  million  or $27 per  share  and  recognized  a gain of $5.8  million.  On
February 12, 1998, the  Independent  General  Partners  established a reserve of
$1.65  million  from these  proceeds  to pay future  expenses  of the Fund.  Net
Distributable  Capital  Proceeds  from the sale,  as defined in the  Partnership
Agreement,  of $9.2  million  or $18.63  per Unit were  distributed  to  Limited
Partners of record as of January 6, 1998.

     On April 2, 1998, Sunbeam Corporation  ("Sunbeam") completed a tender offer
for all of the  outstanding  shares of  Signature  Brands USA  Common  Stock for
approximately  $250  million  ($8.25  per  share)  and  assumed  all the debt of
Signature  Brands USA.  Pursuant to the Tender Offer,  the Fund tendered all its
shares  of  Signature   Brands  USA  Common  Stock  and  received   proceeds  of
approximately   $13  million  and  recognized  a  gain  of  $8.3  million.   Net
Distributable  Capital Proceeds of $26.19 per Unit were distributed on April 23,
1998, to the Fund's Limited Partners of record as of April 2, 1998.

     On May 27, 1998,  Playtex  Products  Inc.  ("Playtex"),  completed a public
offering  in the  international  markets of  approximately  4 million  shares of
Common Stock at a net price of $13.215 per share (the  "Playtex  Offering").  Of
the 4 million shares offered,  approximately  3.3 million shares were offered by
affiliates of the Thomas H. Lee Company,  including the Fund, ML-Lee Acquisition
Fund II, L.P. and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. As part
of the Playtex  Offering,  the Fund sold its  remaining  investment  in Playtex,
consisting  of  approximately  1.4  million  shares  of Common  Stock.  The Fund
received  proceeds  of  $18.5  million  and  recognized  a gain  on the  sale of
approximately $15.3 million. Net Distributable  Proceeds of $37.74 per Unit were
distributed on July 21, 1998, to Limited Partners of record as of May 27, 1998.
<PAGE>


                                     PART IV

Item 14.     Exhibits, Financial Statement Schedules and Reports on Form 8-K.

        (a)     Financial Statements, Financial Statement Schedules and Exhibits

                Financial Statements and Financial Statement Schedules

See Item 8.  "Financial Statements and Supplementary Data-Table of Contents"

<TABLE>
           Exhibits
<S>        <C>                                      <C>
 3.1       Amended and Restated Certificate of      Incorporated by reference to Exhibit
           Limited Partnership, dated as of July    3.1 to Registrant's Annual Report on
           8, 1987.                                 Form 10-K for the year ended December
                                                    31, 1987.

 3.2.1     Amended and Restated Agreement of        Incorporated by reference to Exhibit
           Limited Partnership, dated October 19,   3.2 to Registrant's Annual Report on
           1987 as amended by Amendment No. 1,      Form 10-K for the year ended December
           dated as of November 23, 1987,           31, 1987.
           Amendment
           No. 2 dated as of December 2, 1987.

 3.2.2     Amendment No. 3, dated May 12, 1988      Incorporated by reference to Exhibit
 3.2.3     and Amendment No. 4, dated November      3.2.2 and Exhibit 3.2.3, respectively,
           15, 1988                                 to Registrant's Annual Report on Form
                                                    10-K for the year ended December 31,
                                                    1988.

 3.2.4     Amendment No. 5, dated May 5, 1989 and   Incorporated by reference to Exhibit
           Amendment No. 6, dated June 30, 1989.    3.2.4 to Registrant's Annual Report on
                                                    Form 10-K for the year ended
                                                    December 31, 1989.

10.1.1     Management Agreement, dated September    Incorporated by reference to Exhibit
           14, 1987 by and between Registrant,      10.1.1 to Registrant's Annual Report on
           Thomas H. Lee Advisors, Inc. and         Form 10-K for the year ended December
           Thomas H. Lee                            31, 1987.

10.1.2     Amendment to Management Agreement,       Incorporated by reference to Exhibit
           dated March 18, 1988.                    10.1.2 to Registrant's Annual Report on
                                                    Form 10-K for the year ended
                                                    December 31, 1987.

10.1.3     Notification of Transfer of Limited      Incorporated by reference to Exhibit
           Partnership Interest, dated December     10.1.3 to Registrant's Annual Report on
           29, 1988, given by Thomas H. Lee         Form 10-K for the year ended December
           Advisors, Inc., as Transferor and        31, 1988.
           Thomas H. Lee Advisors I, as
           Transferee, to Mezzanine Investments,
           L.P.

10.1.4     Waiver, Acknowledgment and Consent,      Incorporated by reference to Exhibit
           dated December 29, 1988, of ML           10.1.4 to Registrant's Annual Report on
           Mezzanine Inc.                           Form 10-K for the year ended December
                                                    31, 1988.

10.1.5     Instrument of Assignment and             Incorporated by reference to Exhibit
           Assumption of Management Agreement,      10.1.5 to Registrant's Annual Report on
           dated as of December 29, 1988, among     Form 10-K for the year ended December
           Registrant, Thomas H. Lee Advisors I     31, 1988.
           and Thomas H. Lee Company.

10.2       Demand Note,  dated  September 9,        Incorporated by reference to Exhibit
           1988, given by  Registrant,              10.2 to Registrant's Current Report
           as Borrower, to The First  National      on Form 8-K filed with the Commission
           Bank of Chicago,  as Payee.              on September 27, 1988.


10.3.1     Third Amended  Restated  Pledge          Incorporated by reference to Exhibit
           Agreement, dated August 13, 1991,        10.3.1 to Registrant's Current Report
           between the Registrant and the           Form 8-K filed with the Commission 
           First National Bank of Chicago,          on August 26, 1991.
           as agent for the Lenders.
</TABLE>
<PAGE>
<TABLE>
<S>        <C>                                      <C>
10.3.2     Amended  Restated  Custodian  Contract,  Incorporated by reference to Exhibit
           dated  August 13,  1991,  between  the   10.3.2 to Registrant's current report
           Registrant and State Street Bank.        Form 8-K filed with the Commission
                                                    on August 26, 1991.

10.4.1     Amended and Restated Credit Agreement,   Incorporated by reference to Exhibit
           dated August 13, 1991, between the       10.4.1 to Registrant's on Form 8-K filed
           Registrant, certain listed financial     with the Commission on August 26, 1991.
           instructions and the First National
           Bank of Chicago, as Agent.

10.4.2     Amendment No. 1 to Credit Agreement,     Incorporated by reference to Exhibit
           dated February 8, 1993, among the        10.4.2 to Registrant's Annual Report on
           Registrant, certain listed financial     Form 10-K for the year ended December
           institutions and the First National      31, 1992.
           Bank of Chicago, as Agent.

10.4.3     Amendment No. 2 to Credit Agreement,     Incorporated by reference to Exhibit
           dated February 9, 1993, among the        10.4.3 to Registrant's Annual Report on
           Registrant, certain listed financial     Form 10-K for the year ended December
           institutions and the First National      31, 1992.
           Bank of Chicago, as Agent.

10.4.4     Amendment No. 3 to Credit Agreement,     Incorporated by reference to Exhibit
           dated May 21, 1993 among the             10.4.4 to Registrant's Annual Report on
           Registrant, certain listed financial     Form 10-K for the year ended December
           institutions and the First National      31, 1993.
           Bank of Chicago, as Agent.

10.4.5     Amendment No. 4 to Credit Agreement,     Incorporated by reference to Exhibit
           dated October 29, 1993 among the         10.4.5 to Registrant's Annual Report on
           Registrant, certain listed financial     Form 10-K for the year ended December
           institutions and the First National      31, 1993.
           Bank of Chicago, as Agent.

10.4.6     Amendment No. 5 to Credit Agreement,     Incorporated by reference to Exhibit
           dated February 14, 1994 among the        10.4.6 to Registrant's Annual Report on
           Registrant certain listed financial      Form 10-K for the year ended December
           institutions and the First National      31, 1994.
           Bank of Chicago, as Agent.

10.4.7     Fee Letter dated February 7, 1994        Incorporated by reference to Exhibit
           among the Registrant and the First       10.4.7 to Registrant's Annual Report on
           National Bank of Chicago, as Agent.      Form 10-K for the year ended December
                                                    31, 1994.

10.4.8     Amendment No. 6 to Credit Agreement,     Incorporated by reference to Exhibit
           dated December 1, 1995 among the         10.4.8 to Registrant's Annual Report on
           Registrant, and the First National       Form 10-K for the year ended December
           Bank of Chicago, as Agent.               31, 1995.

10.5       Administrative  Services  Agreement,     Incorporated  by  reference  to Exhibit 
           dated June 30, 1989, by and between      10.5 to Registrant's Annual Report on
           Registrant and ML Fund Administrators    Form 10-K for the year ended December 31, 1987.
           Inc.

27         Financial Data Schedule for the year     Filed Herewith.
           ended December 31, 1998.

99         Pages 15 through 57 of Prospectus        Incorporated by reference to Exhibit 99 
           dated August 12, 1987, filed pursuant    to Registrant's           
           to Rule424(b) under the Securities       Annual Report on Form 10-K 
           Act of 1933.                             year ended December 31, 1987.     
            
(b)      - Registrant Filed Forms 8-K with respect to the following:

               NONE



</TABLE>
<PAGE>

                                   SIGNATURES



Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  Registrant  has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on this 31th day of March 1999.


                                        ML-LEE ACQUISITION FUND, L.P.

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

                                        By:      ML Mezzanine Inc.
                                                 its General Partner




                                        /s/ Kevin K. Albert
                                        --------------------------------
Dated:  March 31, 1999                  Kevin K. Albert
                                        President, ML Mezzanine Inc.
                                        General Partner of Mezzanine
                                        Investments, L.P., the Managing
                                        General Partner




<PAGE>


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the  following  persons on behalf of the  registrant in
the capacities indicated on the 31th day of March, 1999.


              Signature                            Title


/s/ Kevin K. Albert                 ML Mezzanine Inc.
Kevin K. Albert                     President and Director
                                    (Principal Executive Officer of Registrant)

/s/ Vernon R. Alden                 Individual General Partner
Vernon R. Alden                     ML-Lee Acquisition Fund, L.P.

/s/ Robert J. Remick                ML Mezzanine Inc.
Robert J. Remick                    Vice President and Treasurer
                                    (Principal Financial Officer of Registrant)

/s/ Joseph L. Bower                 Individual General Partner
Joseph L. Bower                     ML-Lee Acquisition Fund, L.P.

/s/ Sharon McKenzie                 ML Mezzanine Inc.
Sharon McKenzie                     Vice President and Assistant Treasurer
                                    (Principal Accounting Officer of Registrant)

/s/ Stanley Feldberg                Individual General Partner
Stanley H. Feldberg                 ML-Lee Acquisition Fund, L.P.


/s/ Thomas H. Lee                   Individual General Partner
Thomas H. Lee                       ML-Lee Acquisition Fund, L.P.


<PAGE>