<PAGE>
 
              ML JWH STRATEGIC ALLOCATION FUND L.P.
              (A Delaware Limited Partnership)
              AND JOINT VENTURE


              Consolidated Financial Statements for the years ended December 31,
              1998 and 1997 and for the period from July 15, 1996 (Commencement
              of Operations) to December 31, 1996 and Independent Auditors'
              Report




[LOGO] MERRILL LYNCH
<PAGE>
 
To:    The Limited Partners of ML JWH Strategic Allocation Fund L.P.

ML JWH Strategic Allocation Fund L.P. (the "Fund" or the "Partnership") ended
its third fiscal year of trading on December 31, 1998 with a Net Asset Value
("NAV") per Unit of $154.34, representing an increase of 13.99% from the
December 31, 1997 NAV per Unit of $135.40.

Set forth below is a report from John W. Henry & Company, Inc. addressing
performance for 1998. This report is included for the convenience of the Fund's
investors and may not reflect the opinions or recommendations of the General
Partner.

We appreciate your continued investment in the Fund and look forward to 1999 and
the trading opportunities it may bring.

                                        Sincerely,
                                        John R. Frawley, Jr.
                                        President
                                        Merrill Lynch Investment Partners Inc.
                                        (General Partner)



                          Report of the Trading Advisor
                          John W. Henry & Company, Inc.

Calendar 1998 was a profitable one for the ML JWH Strategic Allocation Fund
L.P., even though global markets were among the most volatile experienced to
date by the Fund.

The year began with global markets negatively impacted by the worsening
economies of Asia. In the financial markets, global liquidity declined sharply
as investors grew more risk averse, unwilling to commit funds to any but the
most conservative investments. The decline in investor participation exaggerated
market movements, generating substantial volatility. At mid-year, Russia's
default on sovereign debt led to significant losses in leveraged investment
vehicles, shaking investor confidence further. The result was a classic
liquidity crisis which threatened to unsettle the global economy and led to a
series of activist interventions by the U.S. Federal Reserve Bank ("Fed") to
restore stability.

In the commodity markets, the continued global slowdown raised the specter of
deflation. Massive oversupply was complicated by a lack of demand. The vast gulf
between the price deflation in commodities relative to the inflated value of
financial assets was striking.

The Fund's performance in the first half of 1998 was hampered by volatility and
a shift in several trends that had been in place since the beginning of the
Asian crisis. May and June showed promise of reversing this decline in
performance, but the Fed's intervention in support of the Japanese yen against
the U.S. dollar roiled markets once again.
<PAGE>
 
By August, equity markets showed clear signs of a bear market in the making.
However, this period also saw some of the best performance in the Fund's
history, presenting almost a mirror image of the performance of the stock
market. Significant profits were recorded in the Fund's interest rate and
currency positions even as equity investors saw an estimated $4 trillion of net
worth vanish.

October and November produced mixed performance as trends in key markets shifted
direction again and other markets remained undefined by any trends at all. By
year's end, however, markets appeared to be more calm and underlying trends were
evident in a number of financial products. Overall, worldwide trading volume was
light, particularly in the currency markets pending the launch of the euro on
January 1.

Ultimately, the favorable one-year total returns for investors in most major
asset classes in 1998 belie the level of risk faced by most investors during the
year. On balance, 1998 served as a reminder, if one was needed, that the world
is a volatile and uncertain place where stability may be the exception and not
the rule. But the market swings of 1998 also served to reinforce our confidence
in our disciplined, systematic trading system - one which pays little heed to
short-term volatility and remains focused on the long-term. Notably, the Fund's
strong performance during the sharp declines of the stock market is an important
indicator of its value as a portfolio diversifier in these dynamic and uncertain
markets.


FOR THE EXCLUSIVE USE OF INVESTORS IN ML JWH STRATEGIC ALLOCATION FUND L.P. THIS
ANNUAL REPORT IS NOT AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES. AN OFFER CAN ONLY BE MADE BY THE CURRENT PROSPECTUS, TOGETHER WITH
SUMMARY FINANCIAL INFORMATION CURRENT WITHIN 60 DAYS. THESE DOCUMENTS CONTAIN
IMPORTANT INFORMATION CONCERNING RISK FACTORS, PERFORMANCE AND OTHER MATERIAL
ASPECTS OF THE FUND AND MUST BE READ CAREFULLY BEFORE INVESTING. THIS ANNUAL
REPORT MUST NOT BE REPRODUCED OR DISTRIBUTED IN ANY MANNER. FUTURES TRADING IS
SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS. THE FUND'S SINGLE-ADVISOR
MULTI-STRATEGY APPROACH IS NOT ANTICIPATED TO PROVIDE THE SAME LEVEL OF RISK
CONTROL AS IS COMMONLY EXPECTED IN A MULTI-ADVISOR PORTFOLIO.
<PAGE>
 
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
--------------------------------------------------

TABLE OF CONTENTS
--------------------------------------------------------------------------------
                                                            Page
                                                            ----

INDEPENDENT AUDITORS' REPORT                                   1

CONSOLIDATED FINANCIAL STATEMENTS 
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE PERIOD FROM JULY 15, 1996 
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996:

  Consolidated Statements of Financial Condition               2

  Consolidated Statements of Income                            3

  Consolidated Statements of Changes in Partners' Capital      4

  Notes to Consolidated Financial Statements                5-12
<PAGE>
 
INDEPENDENT AUDITORS' REPORT
----------------------------



To the Partners of
  ML JWH Strategic Allocation Fund L.P.:

We have audited the accompanying consolidated statements of financial condition
of ML JWH Strategic Allocation Fund L.P. (the "Partnership") and its joint
venture (the "Joint Venture") with John W. Henry & Company, Inc. as of December
31, 1998 and 1997, and the related consolidated statements of income and changes
in partners' capital for the years ended December 31, 1998 and 1997 and for the
period from July 15, 1996 (commencement of operations) to December 31, 1996.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of ML JWH Strategic Allocation Fund
L.P. and the Joint Venture as of December 31, 1998 and 1997 and the results of
their operations for the years ended December 31, 1998 and 1997 and for the
period from July 15, 1996 (commencement of operations) to December 31, 1996 in
conformity with generally accepted accounting principles.


DELOITTE & TOUCHE LLP


New York, New York
February 4, 1999
<PAGE>
 
ML JWH STRATEGIC ALLOCATION FUND L.P.
(A Delaware Limited Partnership) AND JOINT VENTURE
--------------------------------------------------

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 
                                                                     1998              1997
                                                                --------------     ------------
ASSETS
<S>                                                           <C>                 <C> 
Equity in commodity futures trading accounts:
  Cash and options premiums                                      $ 34,991,460      $ 42,006,060
  Net unrealized profit on open contracts                          26,157,000        14,377,004
Government Securities (Cost: $263,057,253 and $170,434,242)       263,939,939       170,955,529
Cash                                                                   57,273              --
Accrued interest (Note 3)                                           3,064,653         1,826,823
                                                                --------------     ------------
TOTAL                                                            $328,210,325      $229,165,416
                                                                ==============     ============
LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES:
  Brokerage commissions payable (Note 3)                         $  2,086,278      $  1,473,380
  Profit Share payable (Note 2)                                     5,436,351         2,640,194
  Redemptions payable                                               5,952,585         1,116,238
  Administrative fees payable (Note 3)                                 67,299            47,527
  Organizational and initial offering costs payable (Note 1)             --             114,951
                                                                --------------     ------------
Total liabilities                                                  13,542,513         5,392,290
                                                                --------------     ------------
MINORITY INTEREST                                                     154,901           135,830
                                                                --------------     ------------

PARTNERS' CAPITAL:
  General Partner (17,281 Units and 18,177 Units)                   2,667,093         2,455,940
  Limited Partners (2,020,545 Units and 1,634,252 Units)          311,845,818       221,181,356
                                                                --------------     ------------
Total partners' capital                                           314,512,911       223,637,296
                                                                --------------     ------------
TOTAL                                                            $328,210,325      $229,165,416
                                                                ==============     ============

NET ASSET VALUE PER UNIT (NOTE 4)
</TABLE> 

See notes to consolidated financial statements.

                                       2
<PAGE>
 
ML JWH STRATEGIC ALLOCATION FUND L.P.
(A Delaware Limited Partnership) AND JOINT VENTURE
--------------------------------------------------

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND THE PERIOD FROM JULY 15, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 
                                                         1998               1997               1996
                                                     ------------       ------------       -------------
<S>                                                <C>                 <C>                <C> 
REVENUES:
 Trading profit:
   Realized                                          $ 35,957,735       $ 18,820,033       $ 29,800,074
   Change in unrealized                                12,141,395         10,201,917          4,696,372
                                                     ------------       ------------       -------------
Total trading results                                  48,099,130         29,021,950         34,496,446

Interest income (Note 3)                               12,766,955         12,021,263          3,030,330
                                                     ------------       ------------       -------------
Total revenues                                         60,866,085         41,043,213         37,526,776
                                                     ------------       ------------       -------------
EXPENSES:
  Brokerage commissions (Note 3)                       19,086,026         17,377,236          4,873,368
  Administrative fees (Note 3)                            615,678            560,556            157,205
                                                     ------------       ------------       -------------
Total expenses                                         19,701,704         17,937,792          5,030,573
                                                     ------------       ------------       -------------
INCOME BEFORE PROFIT SHARE
ALLOCATION AND MINORITY INTEREST                       41,164,381         23,105,421         32,496,203

Profit Share Allocation (Note 2)                       (5,436,351)        (2,640,194)        (4,683,010)

Minority interest in income                               (19,071)           (12,447)           (23,383)
                                                     ------------       ------------       -------------
NET INCOME                                           $ 35,708,959       $ 20,452,780       $ 27,789,810
                                                     ============       ============       =============
NET INCOME PER UNIT:
  Weighted average number of General Partner
  and Limited Partner Units outstanding (Note 5)        1,736,281          1,739,531          1,163,568
                                                     ============       ============       =============
  Net income per weighted average General Partner
  and Limited Partner Unit                           $      20.57       $      11.76       $      23.88
                                                     ============       ============       =============

</TABLE> 

See notes to consolidated financial statements

                                       3
<PAGE>
 
ML JWH STRATEGIC ALLOCATION FUND L.P.
(A Delaware Limited Partnership) AND JOINT VENTURE
--------------------------------------------------

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND THE PERIOD FROM JULY 15, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 

                                                                                            Subscriptions
                                       Units      Limited Partners    General Partner        Receivable             Total
                                     --------     ----------------    ---------------      ---------------     -------------
<S>                                <C>          <C>                  <C>                  <C>                <C> 
Initial offering                      14,832       $ 100,516,800       $   1,483,200       $        --         $ 102,000,000

Organizational and initial
offering costs                          --              (985,459)            (14,541)               --            (1,000,000)

Additions                          1,565,526          64,575,292             198,925                --            64,774,217

Redemptions                          (28,762)         (3,241,918)               --                  --            (3,241,918)

Net Income                              --            27,419,350             370,460                --            27,789,810

Subscriptions Receivable            (148,169)               --                  --           (18,248,494)        (18,248,494)
                                     --------     ----------------    ---------------      ---------------     -------------

PARTNERS' CAPITAL,
DECEMBER 31, 1996                  1,403,427         188,284,065           2,038,044         (18,248,494)        172,073,615

Organizational and initial              --               366,712               3,765                --               370,477
offering cost recovery

Additions                            409,237          32,969,453             152,196          18,248,494          51,370,143

Redemptions                         (160,235)        (20,629,719)               --                  --           (20,629,719)

Net Income                              --            20,190,845             261,935                --            20,452,780
                                     --------     ----------------    ---------------      ---------------     -------------

PARTNERS' CAPITAL,
DECEMBER 31, 1997                  1,652,429         221,181,356           2,455,940                --           223,637,296

Additions                            713,063         100,796,172             214,178                --           101,010,350

Redemptions                         (327,666)        (45,513,612)           (330,082)               --           (45,843,694)

Net Income                              --            35,381,902             327,057                --            35,708,959
                                     --------     ----------------    ---------------      ---------------     -------------

PARTNERS' CAPITAL,
DECEMBER 31, 1998                  2,037,826       $ 311,845,818       $   2,667,093       $        --         $ 314,512,911
                                   ==========     ==============      ==============       ===============     =============
</TABLE> 

See notes to consolidated financial statements.

                                       4
<PAGE>
 
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
--------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Organization
     ------------

     ML JWH Strategic Allocation Fund L.P. (the "Partnership") was organized
     under the Delaware Revised Uniform Limited Partnership Act on December 11,
     1995 and commenced trading on July 15, 1996. When available for investment,
     the Partnership issues new units of limited partnership interest ("Units")
     at Net Asset Value as of the beginning of each calendar month. The
     Partnership engages in the speculative trading of futures, options on
     futures and forward contracts on a wide range of commodities through its
     joint venture (the "Joint Venture") with John W. Henry & Company, Inc.
     ("JWH(R)"), the trading advisor for the Partnership, and investing in
     Government Securities, as defined. Merrill Lynch Investment Partners Inc.,
     ("MLIP" or the "General Partner"), a wholly-owned subsidiary of Merrill
     Lynch Group, Inc., which, in turn, is a wholly-owned subsidiary of Merrill
     Lynch & Co., Inc. ("Merrill Lynch"), is the general partner of the
     Partnership. Merrill Lynch Futures Inc. ("MLF"), a Merrill Lynch affiliate,
     is the Partnership's commodity broker and Merrill Lynch Asset Management
     Inc. ("MLAM"), also an affiliate of Merrill Lynch, provides cash management
     services to the Partnership. Substantially all of the Partnership's assets
     are held in accounts maintained at Merrill Lynch, Pierce, Fenner & Smith
     Incorporated, also a Merrill Lynch affiliate.

     The General Partner has agreed to maintain a general partner's interest of
     at least 1% of the total capital in the Partnership. The General Partner
     and each Limited Partner share in the profits and losses of the Partnership
     in proportion to their respective interests in it.

     The Joint Venture trades in the international futures and forward markets,
     applying multiple proprietary trading strategies under the direction of
     JWH. JWH selects, allocates and reallocates the Partnership's assets among
     different combinations of JWH's programs--an approach which JWH refers to
     as the "JWH Strategic Allocation Program."

     The consolidated financial statements include the accounts of the Joint
     Venture to which the Partnership has contributed substantially all of its
     capital, representing a current equity interest in the Joint Venture of
     approximately 99%. All related transactions between the Partnership and the
     Joint Venture are eliminated in consolidation.

     Certain of the prior year balances have been reclassified to conform with
     the current year's presentation.

     Estimates
     ---------

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

                                       5
<PAGE>
 
     Government Securities
     ---------------------

     The Partnership invests a portion of its assets in obligations of the U.S.
     Treasury and certain U.S. government agencies ("Government Securities")
     under the direction of MLAM within the parameters established by MLIP for
     which MLAM accepts no responsibility. These investments are carried at fair
     value.

     Revenue Recognition
     -------------------

     Commodity futures, options on futures and forward contract transactions are
     recorded on the trade date, and open contracts are reflected in net
     unrealized profit on open contracts in the Consolidated Statements of
     Financial Condition at the difference between the original contract value
     and the market value (for those commodity interests for which market
     quotations are readily available) or at fair value. The change in
     unrealized profit on open contracts and Government Securities from one
     period to the next is reflected in change in unrealized in the Consolidated
     Statements of Income.

     Foreign Currency Transactions
     -----------------------------

     The Partnership's functional currency is the U.S. dollar; however, it
     transacts business in currencies other than the U.S. dollar. Assets and
     liabilities denominated in currencies other than the U.S. dollar are
     translated into U.S. dollars at the rates in effect at the dates of the
     Statements of Financial Condition. Income and expense items denominated in
     currencies other than the U.S. dollar are translated into U.S. dollars at
     the rates in effect during the period. Gains and losses resulting from the
     translation to U.S. dollars are reported in total trading results
     currently.

     Organizational and Initial Offering Costs, Ongoing Operating Costs, 
     ------------------------------------------------------------------
     Operating Expenses and Selling Commissions
     ------------------------------------------

     The General Partner advanced all organizational and initial offering costs
     relating to the Partnership. The Partnership reimbursed the General Partner
     for such costs in 24 monthly installments. For financial reporting
     purposes, the Partnership deducted the estimated organizational and initial
     offering reimbursement costs of $1,000,000 from the Partners' capital at
     inception. For all other purposes (including determining the Net Asset
     Value of the Units), the Partnership deducted the organizational and
     initial offering cost reimbursements only as actually paid. Adjustments in
     the final organizational and initial offering costs were added back to the
     Partners' capital.

     Although, according to the terms of the Prospectus, as of September 1,
     1998, the General Partner is entitled to receive, from the Partnership,
     ongoing offering cost reimbursements (estimated at $600,000) of up to .25
     of 1% of the Partnership's average month-end assets, the General Partner is
     currently paying for all ongoing offering costs incurred in connection with
     the offering of Units. The General Partner pays for all routine operating
     costs (including legal, accounting, printing, postage and similar
     administrative expenses) of the Partnership, including the Partnership's
     share of any such costs incurred by the Joint Venture (See Note 2). The
     General Partner receives an administrative fee, as well as a portion of the
     brokerage commissions paid to MLF by the Joint Venture.

     No selling commissions have been or are paid directly by the Limited
     Partners.  All selling commissions are paid by MLIP.

                                       6
<PAGE>
 
     Income Taxes
     ------------

     No provision for income taxes has been made in the accompanying
     consolidated financial statements as each Partner is individually
     responsible for reporting income or loss based on such Partner's respective
     share of the Partnership's income and expenses as reported for income tax
     purposes.

     Distributions
     -------------

     The Unitholders are entitled to receive, equally per Unit, any distribution
     which may be made by the Partnership. No such distributions had been made
     as of December 31, 1998.

     Redemptions
     -----------

     A Limited Partner may require the Partnership to redeem some or all of such
     Partner's Units at Net Asset Value as of the close of business on the last
     business day of any month upon ten calendar days' notice. Units redeemed on
     or prior to the end of the twelfth full month after purchase are assessed
     an early redemption charge of 3% of their Net Asset Value as of the date of
     redemption. If an investor acquires Units at more than one time, such Units
     are treated on a "first-in, first-out" basis for purposes of determining
     whether redemption charges are applicable.

     Dissolution of the Partnership
     ------------------------------

     The Partnership will terminate on December 31, 2026 or at an earlier date
     if certain conditions occur, as well as under certain other circumstances
     as set forth in the Limited Partnership Agreement.

     Recently Issued Accounting Pronouncements
     -----------------------------------------

     In June 1998, the Financial Accounting Standards Board issued Statement of
     Financial Accounting standard No. 133, "Accounting for Derivative
     Instruments and Hedging Activities" (the "Statement"). Such Statement is
     effective for fiscal years commencing after June 15, 1999. The General
     Partner does not believe that the Statement will have a significant effect
     on the financial statements of the Partnership.

2.   JOINT VENTURE AGREEMENT

     The Partnership and JWH entered into a Joint Venture Agreement as of the
     commencement of operations whereby JWH contributed $100,000 to the Joint
     Venture and the Partnership contributed substantially all of its capital.
     The Joint Venture Agreement initially expired September 30, 1997, subject
     to two one-year renewals at the option of MLIP. The renewal options were
     exercised at September 30, 1998 and 1997. As of October 30, 1998, the Joint
     Venture Agreement was amended to allow the Joint Venture Agreement to
     continue in effect until December 31, 1999 and for automatic renewal for
     successive annual terms. The General Partner is the manager of the Joint
     Venture, while JWH has sole discretion in determining the commodity
     futures, options on futures and forward trades to be made on its behalf,
     subject to the trading limitations outlined in the Joint Venture Agreement.

     Pursuant to the Joint Venture Agreement, JWH and the Partnership share in
     the profits of the Joint Venture based on equity ownership provided that
     15% of the Partnership's allocable quarterly New Trading Profits, as
     defined, are allocated to JWH. Losses are allocated to JWH and the
     Partnership based on equity ownership.

                                       7
<PAGE>
 
     Pursuant to the Joint Venture Agreement, JWH's share of profits may earn
     interest at the prevailing rates for 91-day U.S. Treasury bills or such
     share of profits may participate in the profits and losses of the Joint
     Venture. For the year ended December 31, 1998, JWH received a profit share
     allocation of $5,383,828 and earned interest of $52,523 on such amount. For
     the year ended December 31, 1997, JWH received a profit share allocation of
     $2,601,187 and earned interest of $39,007 on such amount. For the period
     from July 15, 1996 to December 31, 1996 JWH received a profit share
     allocation of $4,675,905, and earned interest of $7,105 on such amount.

3.   RELATED PARTY TRANSACTIONS

     Approximately 80% of the Joint Venture's U.S. dollar assets are managed by
     MLAM, pursuant to the guidelines established by MLIP for which MLAM assumes
     no responsibility, in the Government Securities market. MLF pays MLAM
     annual management fees of .20 of 1% on the first $25 million of certain
     assets ("Capital"), including assets of the Joint Venture managed by MLAM,
     .15 of 1% on the next $25 million of Capital, .125 of 1% on the next $50
     million, and .10 of 1% on Capital in excess of $100 million. Such fees are
     paid quarterly in arrears and are calculated on the basis of the average
     daily assets managed by MLAM.

     A portion of the Joint Venture's U.S. dollar assets is maintained at MLF.
     On assets held in U.S. dollars, Merrill Lynch credits the Joint Venture
     with interest at the prevailing 91-day U.S. Treasury bill rate. The Joint
     Venture is credited with interest on any of its net gains actually held by
     Merrill Lynch in non-U.S. dollar currencies at a prevailing local rate
     received by Merrill Lynch. Merrill Lynch may derive certain economic
     benefit in excess of the interest which Merrill Lynch pays to the Joint
     Venture, from possession of such assets.

     Merrill Lynch charges the Joint Venture Merrill Lynch's cost of financing
     realized and unrealized losses on the Joint Venture's non-U.S. dollar-
     denominated positions.

     The Joint Venture pays brokerage commissions to MLF at a flat rate of .646
     of 1% (a 7.75% annual rate) of the Joint Venture's month-end assets, and
     pays MLIP a monthly administrative fee of .021 of 1% (a .25% annual rate)
     of the Joint Venture's month-end assets. Month-end assets are not reduced,
     for purposes of calculating brokerage and administrative fees, by any
     accrued brokerage commissions, administrative fees, Profit Shares or other
     fees or charges.

     MLIP estimates that the round-turn equivalent commission rate charged to
     the Joint Venture during the years ended December 31, 1998 and 1997 and for
     the period from July 15, 1996 (commencement of operations) to December 31,
     1996 was approximately $145, $212 and $208 (not including, in calculating
     round-turn equivalents, forward contracts on a futures-equivalent basis).

     MLF pays JWH annual Consulting Fees of 4% of the Partnership's average
     month-end assets, after reduction for a portion of the brokerage
     commissions.

     Many of the Joint Venture's currency trades are executed in the spot and
     forward foreign exchange markets (the "FX Markets") where there are no
     direct execution costs. Instead, the participants, banks and dealers,
     including Merrill Lynch International Bank ("MLIB"), in the FX Markets take
     a "spread" between the prices at which they are prepared to buy and sell a
     particular currency and such spreads are built into the pricing of the spot
     or forward contracts with the Joint Venture. The General Partner
     anticipates that some of the Joint Venture's foreign currency trades will
     be executed through MLIB, an affiliate of the General Partner. MLIB has
     discontinued the operation of the foreign exchange service desk, which
     included seeking multiple quotes from counterparties unrelated to MLIB for
     a service fee and trade execution.

                                       8
<PAGE>
 
     In its exchange of futures for physical ("EFP") trading, the Joint Venture
     acquires cash currency positions through banks and dealers, including
     Merrill Lynch. The Joint Venture pays a spread when it exchanges these
     positions for futures. This spread reflects, in part, the different
     settlement dates of the cash and the futures contracts, as well as
     prevailing interest rates, but also includes a pricing spread in favor of
     the banks and dealers, which may include a Merrill Lynch entity.

4.   NET ASSET VALUE PER UNIT

     For financial reporting purposes, the Partnership deducted the total
     organizational and initial offering cost reimbursement payable to MLIP at
     inception. For all other purposes (including computing Net Asset Value for
     redemptions), the Partnership deducted the organizational and initial
     offering cost reimbursement only as actually paid. The final payment was
     deducted from the Net Asset Value in June 1998. As of December 31, 1997,
     the Net Asset Value per Unit was $135.34 for financial reporting purposes
     and $135.40 for all other purposes. As of December 31, 1998, the Net Asset
     Value per Unit was $154.34 for financial reporting purposes and for all
     other purposes.

5.   WEIGHTED AVERAGE UNITS

     The weighted average number of Units outstanding was computed for purposes
     of disclosing net income per weighted average Unit. The weighted average
     Units outstanding at December 31, 1998, 1997 and 1996 equals the Units
     outstanding as of such date, adjusted proportionately for Units sold and
     redeemed based on the respective length of time each was outstanding during
     the year.


6.   FAIR VALUE AND OFF-BALANCE SHEET RISK

     The Joint Venture trades futures, options on futures and forward contracts
     in interest rates, stock indices, commodities, currencies, energy and
     metals. The Joint Venture's total trading results by reporting category for
     the years ended December 31, 1998, 1997 and 1996 were as follows:

 
                                           Total Trading Results
                             -------------------------------------------------
                                 1998             1997               1996
                             -------------   ---------------    --------------
                           
Interest rates and        
Stock indices                $ 44,472,322     $ 19,982,977       $ 18,719,739
Commodities                       218,353       (2,328,550)        (2,473,692)
Currencies                      1,242,166       19,023,250         10,116,005
Energy                          9,562,147      (14,267,006)         6,404,320
Metals                         (7,395,858)       6,611,279          1,730,074
                             -------------   ---------------    --------------
                             $ 48,099,130     $ 29,021,950       $ 34,496,446
                             =============   ===============    ==============

     Market Risk
     -----------

     Derivative instruments involve varying degrees of off-balance sheet market
     risk, and changes in the level or volatility of interest rates, foreign
     currency exchange rates or the market values of the financial instruments
     or commodities underlying such derivative instruments frequently result in
     changes in the Partnership's net unrealized profit on such derivative
     instruments as reflected in the Consolidated Statements of Financial
     Condition. The Joint Venture's exposure to market risk is influenced by a
     number of factors, including the relationships among the derivative
     instruments held by the Joint Venture as well as the volatility and
     liquidity in the markets in which such derivative instruments are traded.

                                       9
<PAGE>
 
     The General Partner has procedures in place intended to control market risk
     exposure, although there can be no assurance that they will, in fact,
     succeed in doing so. The procedures focus primarily on monitoring the
     trading of JWH and reviewing outstanding positions for over-concentrations.
     While the General Partner will not itself intervene in the markets to hedge
     or diversify the Joint Venture's market exposure, the General Partner may
     urge JWH to reallocate positions in an attempt to avoid over-
     concentrations. However, such interventions are unusual. Except in cases in
     which it appears that JWH has begun to deviate from past practice and
     trading policies or to be trading erratically (which has not occurred to
     date), the General Partner's basic risk control procedures consist simply
     of monitoring JWH, with the market risk controls being applied by JWH
     itself.

     Fair Value
     ----------

     The derivative instruments traded by the Joint Venture are marked to market
     daily with the resulting net unrealized profit recorded in the Consolidated
     Statements of Financial Condition and the related profit reflected in
     trading results in the Consolidated Statements of Income.

     The contract/notional values of the open derivative instrument positions as
     of December 31, 1998 and 1997 were as follows:

<TABLE> 
<CAPTION> 

                                                1998                                                    1997
                           ----------------------------------------------------     ------------------------------------------------
                               Commitment to                   Commitment to            Commitment to              Commitment to
                             Purchase (Futures,                Sell (Futures,          Purchase (Futures,          Sell (Futures,
                             Options & Forwards)             Options & Forwards)      Options & Forwards)        Options & Forwards)
                           -----------------------       ----------------------     -----------------------     --------------------
<S>                       <C>                              <C>                      <C>                        <C> 
Interest rates and
Stock indices                 $1,092,704,439                  $  856,715,210         $  926,562,961               $  351,175,040
Commodities                       25,732,606                      34,202,326             21,239,916                   27,160,968
Currencies                       240,511,095                     176,535,503            199,371,182                  390,721,620
Energy                                  --                        34,390,257                   --                     39,106,920
Metals                                  --                        40,529,780             18,503,375                   43,958,106
                           -----------------------       ----------------------     -----------------------     --------------------
                              $1,358,948,140                  $1,142,373,076         $1,165,677,434               $  852,122,654
                           =======================       ======================     =======================     ====================
</TABLE> 

     Substantially all of the Joint Venture's derivative financial instruments
     outstanding as of December 31, 1998 expire within one year.

     The contract/notional values of the Joint Venture's open exchange-traded
     and non-exchange-traded derivative instrument positions as of December 31,
     1998 and 1997 were as follows:

<TABLE> 
<CAPTION> 

                                                1998                                                    1997
                           ----------------------------------------------------     ------------------------------------------------
                               Commitment to                   Commitment to            Commitment to              Commitment to
                             Purchase (Futures,                Sell (Futures,          Purchase (Futures,          Sell (Futures,
                             Options & Forwards)             Options & Forwards)      Options & Forwards)        Options & Forwards)
                           -----------------------       ----------------------     -----------------------     ------------------- 
<S>                       <C>                              <C>                      <C>                        <C> 
Exchange-
Traded                         $1,314,058,020                  $1,057,972,923            $  791,818,184            $  468,259,393
Non-Exchange-                                                                                                 
Traded                             44,890,120                      84,400,153               373,859,250               383,863,261
                           -----------------------       ----------------------     -----------------------     -------------------
                               $1,358,948,140                  $1,142,373,076            $1,165,677,434            $  852,122,654
                           =======================       ======================     =======================     ===================
</TABLE> 

     The average fair values, based on contract/notional values, of the Joint
     Venture's derivative instrument

                                       10
<PAGE>
 
     positions which were open as of the end of each calendar month during the
     year ended December 31, 1998 and 1997 were as follows:

<TABLE> 
<CAPTION> 

                                                1998                                                    1997
                           ----------------------------------------------------     ------------------------------------------------
                               Commitment to                   Commitment to            Commitment to              Commitment to
                             Purchase (Futures,                Sell (Futures,          Purchase (Futures,          Sell (Futures,
                             Options & Forwards)             Options & Forwards)      Options & Forwards)        Options & Forwards)
                           -----------------------       ----------------------     -----------------------     ------------------- 
<S>                       <C>                              <C>                      <C>                        <C> 
Interest rates and
Stock indices                   $1,203,084,796              $  469,701,059              $1,010,667,321              $  263,783,626
Commodities                         14,712,644                  35,906,262                  25,901,996                  21,055,353
Currencies                         380,746,340                 388,335,661                 395,236,535                 484,258,015
Energy                               8,369,033                  33,942,343                  22,168,532                  21,307,623
Metals                              15,928,582                  30,607,494                   9,266,297                  36,089,734
                           -----------------------       ----------------------     -----------------------     ------------------- 
                                $1,622,841,395              $  958,492,819              $1,463,240,681              $  826,494,351
                           =======================       ======================     =======================     =================== 
</TABLE> 

     A portion of the amounts indicated as off-balance sheet risk reflects
     offsetting commitments to purchase and sell the same derivative instrument
     on the same date in the future. These commitments are economically
     offsetting but are not, as a technical matter, offset in the forward
     markets until the settlement date.

     Credit Risk
     -----------

     The risks associated with exchange-traded contracts are typically perceived
     to be less than those associated with over-the-counter transactions (non-
     exchange-traded), because exchanges typically (but not universally) provide
     clearinghouse arrangements in which the collective credit (in some cases
     limited in amount, in some cases not) of the members of the exchange is
     pledged to support the financial integrity of the exchange. In over-the-
     counter transactions, on the other hand, traders must rely solely on the
     credit of their respective individual counterparties. Margins, which may be
     subject to loss in the event of a default, are generally required in
     exchange trading, and counterparties may require margin in the over-the-
     counter markets.

     The fair value amounts in the above tables represent the extent of the
     Joint Venture's market exposure in the particular class of derivative
     instrument listed, but not the credit risk associated with counterparty
     nonperformance. The credit risk associated with these instruments from
     counterparty nonperformance is the net unrealized profit included on the
     Consolidated Statements of Financial Condition.

                                       11
<PAGE>
 
     The gross unrealized profit and the net unrealized profit (loss) on the
     Joint Venture's open derivative instrument positions as of December 31,
     1998 and 1997 were as follows:

<TABLE> 
<CAPTION> 
                                            1998                                  1997
                            -----------------------------------      -----------------------------------

                             Gross  Unrealized   Net Unrealized       Gross Unrealized   Net Unrealized
                                  Profit         Profit  (Loss)          Profit            Profit
                            -----------------  ----------------      ----------------  ----------------- 
<S>                     <C>                    <C>                 <C>                 <C> 
Exchange-                                                                              
Traded                         $ 34,342,877      $ 27,254,898         $ 14,037,333      $ 12,316,384
Non-Exchange-                                                                          
Traded                              347,586        (1,097,898)           8,613,088         2,060,620
                            -----------------  ----------------      ----------------  -----------------
                               $ 34,690,463      $ 26,157,000        $  22,650,421      $ 14,377,004
                            =================  ================      ================  =================

</TABLE> 

     The Joint Venture has credit risk in respect of its counterparties and
     brokers, but attempts to control this risk by dealing almost exclusively
     with Merrill Lynch entities as counterparties and brokers.

     The Joint Venture, in its normal course of business, enters into various
     contracts, with MLF acting as its commodity broker. Pursuant to the
     brokerage arrangement with MLF (which includes a netting arrangement), to
     the extent that such trading results in receivables from and payables to
     MLF, these receivables and payables are offset and reported as a net
     receivable or payable.


         *     *     *     *     *     *     *     *     *     *     *

                To the best of the knowledge and belief of the
                undersigned, the information contained in this
                       report is accurate and complete.


                              /s/ Jo Ann Di Dario

                                Jo Ann Di Dario
                            Chief Financial Officer
                    Merrill Lynch Investment Partners Inc.
                              General Partner of
                     ML JWH Strategic Allocation Fund L.P.

                                       12