<PAGE>

                                       THE SECTOR STRATEGY FUND-SM- II L.P.
                                       (A DELAWARE LIMITED PARTNERSHIP)


                                       Financial Statements for the years ended
                                       December 31, 2000, 1999 and 1998
                                       and Independent Auditors' Report










[GRAPHIC][MERRILL LYNCH LOGO]
<PAGE>

THE SECTOR STRATEGY FUND-SM- II L.P.
(A Delaware Limited Partnership)
 ------------------------------


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

                                                                            PAGE

INDEPENDENT AUDITORS' REPORT                                                   1

FINANCIAL STATEMENTS FOR THE YEARS ENDED
 DECEMBER 31, 2000, 1999 and 1998:

 Statements of Financial Condition                                             2

 Statements of Operations                                                      3

 Statements of Changes in Partners' Capital                                    4

 Notes to Financial Statements                                              5-12
<PAGE>

INDEPENDENT AUDITORS' REPORT



To the Partners of
 The SECTOR Strategy Fund-SM- II L.P.:

We have audited the accompanying statements of financial condition of The SECTOR
Strategy Fund-SM- II L.P. (the "Partnership") as of December 31, 2000 and 1999,
and the related statements of operations and of changes in partners' capital for
each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted
in the United States of America. 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 financial statements present fairly, in all material
respects, the financial position of The SECTOR Strategy Fund-SM- II L.P. as of
December 31, 2000 and 1999, and the results of its operations and changes in its
partners' capital for each of the three years in the period ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States of America.


DELOITTE & TOUCHE LLP


New York, New York
February 5, 2001
<PAGE>

THE SECTOR STRATEGY FUND-SM- II L.P.
(A Delaware Limited Partnership)
 ------------------------------

STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS                                                            2000                     1999
<S>                                                        <C>                      <C>
                                                           --------------------     --------------------
Investment in MM LLC (Note 7)                                     $ 20,623,861             $ 28,036,376
Receivable from investment in MM LLC (Note 7)                          468,048                  516,693
                                                           --------------------     --------------------

                TOTAL                                             $ 21,091,909             $ 28,553,069
                                                           ====================     ====================

LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES:
   Redemptions payable (Note 1)                                      $ 468,048                $ 516,693
                                                           --------------------     --------------------

            Total liabilities                                          468,048                  516,693
                                                           --------------------     --------------------

PARTNERS' CAPITAL:
   General Partner:
      (464 and 832 SECTOR II Units)                                     76,890                  130,524
      (884 and 1,595 SECTOR III Units)                                 153,867                  262,815
   Limited Partners:
      (41,672 and 54,878 SECTOR II Units)                            6,905,743                8,609,354
      (77,488 and 115,514 SECTOR III Units)                         13,487,361               19,033,683
                                                           --------------------     --------------------

            Total partners' capital                                 20,623,861               28,036,376
                                                           --------------------     --------------------

                TOTAL                                             $ 21,091,909             $ 28,553,069
                                                           ====================     ====================

NET ASSET VALUE PER UNIT:

    SECTOR II Units (Based on 42,136 and 55,710
    Units outstanding)                                                $ 165.72                 $ 156.88
                                                           ====================     ====================

    SECTOR III Units (Based on 78,372 and 117,109
    Units outstanding)                                                $ 174.06                 $ 164.77
                                                           ====================     ====================
</TABLE>

 See notes to financial statements.


                                      -2-
<PAGE>

THE SECTOR STRATEGY FUND-SM- II L.P.
(A Delaware Limited Partnership)
 ------------------------------

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                 2000                 1999                1998
                                                           -----------------    -----------------    ---------------
REVENUES:
<S>                                                        <C>                  <C>                  <C>
    Trading profit:
        Realized (Note 1)                                   $      -             $      -                $1,169,961
        Change in unrealized (Note 1)                              -                    -                  (671,259)
                                                           -----------------    -----------------    ---------------

            Total trading results                                  -                    -                   498,702

    Interest income (Note 2)                                       -                    -                   598,158
                                                           -----------------    -----------------    ---------------

            Total revenues                                         -                    -                 1,096,860
                                                           -----------------    -----------------    ---------------

EXPENSES:

    Brokerage commissions (Note 2)                                 -                    -                 1,015,128
    Profit Shares (Note 3)                                         -                    -                   301,645
    Administrative fees (Note 2)                                   -                    -                    29,004
                                                           -----------------    -----------------    ---------------

            Total expenses                                         -                    -                 1,345,777
                                                           -----------------    -----------------    ---------------

INCOME (LOSS) FROM INVESTMENTS (Note 7)                           919,869             (378,712)           1,406,243
                                                           -----------------    -----------------    ---------------

NET INCOME (LOSS)                                           $     919,869        $    (378,712)           $1,157,326
                                                           =================    =================    ===============
</TABLE>


For weighted average net income (loss) per Unit for SECTOR II Units and SECTOR
III Units, see Note 4.



See notes to financial statements.


                                      -3-
<PAGE>

THE SECTOR STRATEGY FUND-SM- II L.P.
(A Delaware Limited Partnership)
 ------------------------------

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                   Units                      General Partner                Limited Partners
                       ----------------------------    ----------------------------    --------------------------------------------

                         SECTOR II     SECTOR III        SECTOR II      SECTOR III       SECTOR II      SECTOR III         Total
                       ------------    ------------    ------------    ------------    ------------    ------------    ------------

<S>                    <C>             <C>             <C>             <C>             <C>             <C>             <C>
 PARTNERS' CAPITAL,
   DECEMBER 31, 1997         88,445         168,686    $    335,409    $    620,882    $ 13,494,521    $ 26,199,645    $ 40,650,457

 Redemptions                (21,037)        (30,184)       (192,459)       (355,953)     (3,011,647)     (4,456,542)     (8,016,601)

 Net income (loss)          --              --              (10,883)            992          85,124       1,082,093       1,157,326
                       ------------    ------------    ------------    ------------    ------------    ------------    ------------

 PARTNERS' CAPITAL,
   DECEMBER 31, 1998         67,408         138,502         132,067         265,921      10,567,998      22,825,196      33,791,182

 Redemptions                (11,698)        (21,393)        --              --           (1,842,204)     (3,533,890)     (5,376,094)

 Net loss                   --              --              (1,543)         (3,106)        (116,440)       (257,623)       (378,712)
                       ------------    ------------    ------------    ------------    ------------    ------------    ------------

 PARTNERS' CAPITAL,
   DECEMBER 31, 1999         55,710         117,109         130,524         262,815       8,609,354      19,033,683      28,036,376

 Redemptions                (13,574)        (38,737)        (57,524)       (116,756)     (2,039,138)     (6,118,966)     (8,332,384)

 Net income                 --              --                3,890           7,808         335,527         572,644         919,869
                       ------------    ------------    ------------    ------------    ------------    ------------    ------------

 PARTNERS' CAPITAL,
   DECEMBER 31, 2000         42,136          78,372    $     76,890    $    153,867    $  6,905,743    $ 13,487,361    $ 20,623,861
                       ============    ============    ============    ============    ============    ============    ============
</TABLE>

See notes to financial statements.


                                      -4-
<PAGE>

THE SECTOR STRATEGY FUND-SM- II L.P.
(A Delaware Limited Partnership)
 ------------------------------

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

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     ORGANIZATION

     The SECTOR Strategy Fund-SM- II L.P. (the "Partnership") was organized
     under the Delaware Revised Uniform Limited Partnership Act on August 21,
     1990 and commenced trading activities of its first offering ("Sector II
     Units") on December 5, 1990. A second offering of Units of limited
     partnership interest ("SECTOR III Units"; SECTOR II and SECTOR III Units
     being collectively referred to as "Units") commenced trading activities on
     July 5, 1991. The Partnership engages (currently, through an investment in
     a limited liability company (see below)) in the speculative trading of
     futures, options on futures, forwards and options on forward contracts on a
     wide range of commodities. Merrill Lynch Investment Partners Inc. ("MLIP"),
     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. MLIP has agreed to maintain a
     general partner's interest of at least 1% of the total capital of the
     Partnership. MLIP and each Limited Partner share in the profits and losses
     of the Partnership in proportion to their respective interests in it.

     MLIP, an indirect subsidiary of Merrill Lynch, became a member of Merrill
     Lynch Investment Managers ("MLIM") - Alternative Investments Group during
     October 2000. MLIM's Alternative Investments Group creates and manages a
     variety of alternative investment products, including managed futures
     funds, hedge funds, funds of funds, exchange funds and private equity
     funds. MLIP, organized in 1986, is the hedge fund, fund of funds and
     managed futures sponsor within MLIM's Alternative Investments Group.

     Many of the multi-advisor funds (the "Multi-Advisor Funds") sponsored by
     MLIP allocate their assets to a number of the same independent advisors
     (the "Advisors"). However, because different Multi-Advisor Funds had
     historically allocated assets to slightly different Advisor groups, the
     Multi-Advisor Funds often were required to open and maintain individual
     trading accounts with each Advisor. MLIP consolidated the trading accounts
     of nine of its Multi-Advisor Funds (including the Partnership) as of June
     1, 1998. The consolidation was achieved by having these Multi-Advisor Funds
     close their existing trading accounts and invest in a limited liability
     company, ML Multi-Manager Portfolio L.L.C. ("MM LLC"), a Delaware limited
     liability company, which opened a single account with each Advisor
     selected. MM LLC is managed by MLIP, has no investors other than the
     Multi-Advisor Funds and serves solely as the vehicle through which the
     assets of such Multi-Advisor Funds are combined in order to be managed
     through single rather than multiple accounts. As of September 2000, two
     additional Multi-Advisor Funds were added to MM LLC. The placement of
     assets into MM LLC did not change the operations or fee structure of the
     Partnership; therefore, the following notes relate to the operation of the
     Partnership through its investment in MM LLC. The administrative authority
     over the Partnership remains with MLIP. MLIP, on an ongoing basis, may
     change the number of Multi-Advisor Funds investing in MM LLC.

     MLIP selects the Advisors to manage MM LLC's assets, and allocates and
     reallocates such trading assets among existing, replacement and additional
     Advisors. Merrill Lynch Futures Inc. ("MLF"), a Merrill Lynch affiliate, is
     MM LLC's commodity broker.

     MLIP determines what percentage of the Partnership's total capital to
     invest in MM LLC, attempting to maximize the percentage of the Fund's
     assets invested in MM LLC, while managing the Partnership's


                                      -5-
<PAGE>

     exposure to prevent Merrill Lynch from being required to make a payment to
     the Partnership pursuant to its guarantee under the Partnership's principal
     protection structure (See Note 6).

     ESTIMATES

     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States of America 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.

     CASH MANAGEMENT

     As of June 2000, the Partnership, through MM LLC, began an Income
     Enhancement Program, whereas, a portion of its assets is invested in
     Commercial Paper. This was done to improve the yield on the cash assets
     not required for margin for trading purposes at MLF. These holdings
     generally have maturities of 30, 60 or 90 days and are held to maturity.

     REVENUE RECOGNITION

     Commodity futures, options on futures, forwards and options on forward
     contracts are recorded on the trade date, and open contracts are reflected
     in net unrealized profit (loss) on open contracts in the Statements of
     Financial Condition of MM LLC 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 (loss) on open contracts from one period to the next
     is reflected in Change in unrealized under Trading profit (loss) in the
     Statements of Operations (of MM LLC subsequent to June 1, 1998). As a
     result of the investment in MM LLC, there were no open contracts as of
     December 31, 2000, 1999 or 1998. See Note 7 for discussion of revenue
     recognition for the Partnership's investment in Trading LLCs and MM LLC.

     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 through MM LLC.
     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.

     OPERATING EXPENSES

     MLIP pays for all routine operating expenses (including legal, accounting,
     printing, postage and similar administrative expenses) of the Partnership.
     MLIP receives an administrative fee as well as a portion of the brokerage
     commissions paid to MLF, by the Partnership, through MM LLC.

     INCOME TAXES

     No provision for income taxes has been made in the accompanying 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 Limited Partners are entitled to receive, equally per Unit, any
     distribution which may be made by the Partnership. No such distributions
     had been declared for the years ended December 31, 2000, 1999 or 1998.

     REDEMPTIONS


                                      -6-
<PAGE>

     A Limited Partner may 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 day's notice.

     DISSOLUTION OF THE PARTNERSHIP

     The Partnership will terminate on December 31, 2010 or at an earlier date
     if certain conditions occur, as well as under certain other circumstances
     as set forth in the Limited Partnership Agreement.

2.   RELATED PARTY TRANSACTIONS

     A portion of the Partnership's U.S. dollar assets invested in MM LLC is
     maintained at MLF. On assets held in U.S. dollars, Merrill Lynch credits MM
     LLC with interest at the prevailing 91-day U.S. Treasury bill rate. MM LLC
     is credited with interest on any of its assets and 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 MM LLC, from
     possession of such assets.

     Merrill Lynch charges the Partnership, through MM LLC, Merrill Lynch's cost
     of financing realized and unrealized losses on MM LLC's non-U.S.
     dollar-denominated positions.

     Through its investment in MM LLC, the Partnership pays brokerage
     commissions to MLF at a flat monthly rate of .729 of 1% (an 8.75% annual
     rate) and pays MLIP a monthly administrative fee of .021 of 1% (a 0.25%
     annual rate) of the Partnership's month-end assets. Month-end assets are
     not reduced for purposes of calculating brokerage commissions and
     administrative fees by any accrued brokerage commissions, administrative
     fees, Profit Shares or other fees or charges.

     Prior to the investment in MM LLC, MLIP estimates that the round-turn
     equivalent commission rate charged to the Partnership for the year ended
     December 31, 1998 was approximately $52 (not including, in calculating
     round-turn equivalents, forward contracts on a futures-equivalent basis).
     The estimated aggregate round-turn commission rate for MM LLC for the years
     ended December 31, 2000 and 1999 are $82 and $136, respectively.

     MLF currently pays the Advisors, through MM LLC, annual Consulting Fees up
     to 2.00% of the Partnership's average month-end assets allocated to them
     for management, after reduction for a portion of the brokerage commissions.

3.   ADVISORY AGREEMENTS

     Pursuant to the Advisory Agreements among the Advisors, MM LLC and MLIP,
     the Advisors determine the commodity futures, options on futures, forwards
     and options on forward contracts traded on behalf of MM LLC, subject to
     certain rights reserved by MLIP. The Advisory Agreements generally renew
     annually after they are entered into, subject to certain renewal rights.

     Profit Shares, currently ranging from 20% to 23% of any New Trading Profit,
     as defined, recognized by each Advisor considered individually irrespective
     of the overall performance of the Partnership, either as of the end of each
     calendar quarter or year and upon the net reallocation of assets away from
     an Advisor, are paid by MM LLC (Trading LLCs prior to June 1, 1998) to each
     of the Advisors. Profit Shares are also paid out in respect of Units
     redeemed as of the end of interim months, to the extent of the applicable
     percentage of any New Trading Profit attributable to such Units.


                                      -7-
<PAGE>

4.   INCOME PER UNIT

     The profit and loss of the SECTOR II and SECTOR III Units for the years
     ended December 31, 2000, 1999 and 1998 was as follows:

<TABLE>
<CAPTION>
                                                             SECTOR II UNITS                           SECTOR III UNITS
                                                             ---------------                           ----------------

                                                    2000          1999           1998           2000         1999           1998
                                                -----------   -----------    -----------    -----------   -----------    -----------
<S>                                             <C>           <C>            <C>            <C>           <C>            <C>
REVENUES:

Trading (loss) profit:
     Realized (Note 1)                          $     --      $    --        $(260,351)     $    --       $    --        $1,430,312
     Change in unrealized (Note 1)                    --           --         (104,914)          --            --          (566,345)
                                                -----------   -----------    -----------    -----------   -----------    -----------

        Total trading results                         --           --         (365,265)          --            --           863,967

Interest income (Note 2)                              --           --          238,969           --            --           359,189
                                                -----------   -----------    -----------    -----------   -----------    -----------

     Total revenues                                   --           --         (126,296)          --            --         1,223,156
                                                -----------   -----------    -----------    -----------   -----------    -----------

EXPENSES:

Brokerage commissions (Note 2)                        --           --          403,960           --            --           611,168
Administrative fees (Note 2)                          --           --           11,542           --            --            17,462
Profit Shares (Note 3)                                --           --              517           --            --           301,128
                                                -----------   -----------    -----------    -----------   -----------    -----------

     Total expenses                                   --           --          416,019           --            --           929,758
                                                -----------   -----------    -----------    -----------   -----------    -----------

INCOME (LOSS) FROM INVESTMENTS (Note 7)            339,417     (117,983)       616,556        580,452      (260,729)        789,687
                                                -----------   -----------    -----------    -----------   -----------    -----------

NET INCOME (LOSS)                               $  339,417    $(117,983)     $  74,241      $ 580,452     $(260,729)     $ 1,083,085
                                                ===========   ===========    ===========    ===========   ===========    ===========

NET INCOME (LOSS) PER UNIT:

Weighted average number of General Partner
and Limited Partner Units outstanding (Note 5)      48,887       61,592         71,181        100,845       129,329          142,671
                                                ===========   ===========    ===========    ===========   ===========    ===========

Weighted average net income (loss) per Unit     $     6.94    $   (1.92)     $    1.04      $    5.76     $  (2.02)      $      7.59
                                                ===========   ===========    ===========    ===========   ===========    ===========
</TABLE>


                                      -8-
<PAGE>

5.   WEIGHTED AVERAGE UNITS

     The weighted average number of Units outstanding was computed for purposes
     of calculating net income (loss) per weighted average Unit. The weighted
     average number of Units outstanding for the years ended December 31, 2000,
     1999 and 1998 equals the Units outstanding as of such date, adjusted
     proportionately for Units redeemed based on the respective length of time
     each was outstanding during the year.

6.   MERRILL LYNCH & CO., INC. GUARANTEE

     Merrill Lynch has guaranteed to the Partnership that it will have
     sufficient Net Assets with respect to SECTOR II and SECTOR III Units as of
     their respective Principal Assurance Dates, that the Net Asset Value per
     Unit as of such Principal Assurance Dates will equal, after adjustment for
     all liabilities to third parties, not less than the minimum assured Net
     Asset Value per Unit. On January 1, 2000, the Fund restarted its trading
     program for Sector II Units for a fourth Time Horizon of two years
     duration, with a new Principal Assurance Date of December 31, 2001. The
     assured minimum Net Asset Value per unit as of December 31, 2001 is
     $125.50. Effective November 1, 1998, the Partnership restarted its trading
     program for SECTOR III Units with a third Time Horizon, as defined, of two
     years' duration, and a new Principal Assurance Date of October 31, 2000 and
     a minimum assured Net Asset Value per unit of $132.74. On November 1, 2000,
     the Partnership did not renew its guarantee for SECTOR III Units.
     Therefore, Limited Partners holding SECTOR III Units no longer have any
     assurance of a minimum Net Asset Value per Unit if they remain in the
     Partnership until a stated date in the future.

7.   INVESTMENTS

     Prior to investing in MM LLC, the Partnership placed assets under the
     management of certain of the Advisors by investing in private limited
     liability companies ("Trading LLCs") formed by MLIP. Sector II Units and
     Sector III Units were permitted to invest in different Trading LLCs. The
     only members of the trading LLCs were commodity pools sponsored by MLIP.
     Each trading LLC traded under the management of a single Advisor pursuant
     to a single strategy and at a uniform degree of leverage. Assets placed
     with an advisor through a Trading LLC rather than a managed account had no
     economic effect on the Partnership, except to the extent that the
     Partnership benefits from the Advisor not having to allocate trades among a
     number of different accounts (rather than acquiring a single position for
     the Trading LLC as a whole).

     The investments in MM LLC, and previously certain Trading LLCs, are
     reflected in the financial statements at fair value based upon the
     Partnership's interest in MM LLC or certain Trading LLCs, respectively.
     Fair value of the investment on MM LLC is equal to the market value of the
     net assets of MM LLC allocable to the Partnership as an investor. The
     resulting difference between cost and fair value is reflected on the
     Statements of Operations as Income (loss) from investments.


                                      -9-
<PAGE>

Total revenues and fees with respect to such investments were as follows:


<TABLE>
<CAPTION>
 For the year ended     Total        Brokerage    Administrative   Profit        Income from
 December 31, 2000    Revenues      Commission        Fees         Shares        Investment
-------------------  ----------     ----------     ----------     ----------     ----------
<S>                  <C>            <C>           <C>             <C>            <C>
SECTOR II UNITS
MM LLC               $1,148,709     $  638,119     $   18,232     $  152,941     $  339,417
                     ----------     ----------     ----------     ----------     ----------

SECTOR III UNITS
MM LLC               $2,305,521     $1,381,260     $   39,464     $  304,345     $  580,452
                     ----------     ----------     ----------     ----------     ----------

TOTAL ALL UNITS
MM LLC               $3,454,230     $2,019,379     $   57,696     $  457,286     $  919,869
                     ==========     ==========     ==========     ==========     ==========
</TABLE>

<TABLE>
<CAPTION>
 For the year ended     Total        Brokerage    Administrative   Profit        Loss from
 December 31, 1999    Revenues      Commission        Fees         Shares        Investment
-------------------  ----------     ----------     ----------     ----------     ----------
<S>                  <C>            <C>           <C>             <C>            <C>
SECTOR II UNITS
MM LLC               $  806,617     $  854,560     $   24,416     $   45,624     $ (117,983)
                     ----------     ----------     ----------     ----------     ----------

SECTOR III UNITS
MM LLC               $1,777,514     $1,884,683     $   53,848     $   99,712     $ (260,729)
                     ----------     ----------     ----------     ----------     ----------

TOTAL ALL UNITS
MM LLC               $2,584,131     $2,739,243     $   78,264     $  145,336     $ (378,712)
                     ==========     ==========     ==========     ==========     ==========
</TABLE>

<TABLE>
<CAPTION>
 For the year ended      Total         Brokerage     Administrative     Profit     Income (Loss) from
 December 31, 1998     Revenues       Commission          Fees          Shares         Investment
-------------------  -----------      -----------     -----------     -----------     -----------
<S>                  <C>              <C>            <C>              <C>          <C>
SECTOR II UNITS
JWH LLC              $  (222,268)     $    71,032     $     2,030     $   --          $  (295,330)
MM LLC                 1,792,563          596,814          17,052         266,811         911,886
                     -----------      -----------     -----------     -----------     -----------

Total                $ 1,570,295      $   667,846     $    19,082     $   266,811     $   616,556
                     ===========      ===========     ===========     ===========     ===========

SECTOR III UNITS
JWH LLC              $  (711,701)     $   228,238     $     6,521     $   --          $  (946,460)
Millburn LLC             (31,859)         106,408           3,040             100        (141,407)
MM LLC                 3,727,049        1,244,165          35,548         569,782       1,877,554
                     -----------      -----------     -----------     -----------     -----------

Total                $ 2,983,489      $ 1,578,811     $    45,109     $   569,882     $   789,687
                     ===========      ===========     ===========     ===========     ===========

TOTAL ALL UNITS
JWH LLC              $  (933,969)     $   299,270     $     8,551     $   --          $(1,241,790)
Millburn LLC             (31,859)         106,408           3,040             100        (141,407)
MM LLC                 5,519,612        1,840,979          52,600         836,593       2,789,440
                     -----------      -----------     -----------     -----------     -----------

Total                $ 4,553,784      $ 2,246,657     $    64,191     $   836,693     $ 1,406,243
                     ===========      ===========     ===========     ===========     ===========
</TABLE>


                                      -10-
<PAGE>

Condensed statements of financial condition and statements of operations for MM
LLC, JWH LLC and Millburn LLC are set forth as follows:

<TABLE>
<CAPTION>
                                MM LLC                       MM LLC
                          December 31, 2000            December 31, 1999
                        -----------------------      -----------------------
<S>                     <C>                          <C>
Assets                   $      252,995,756           $      100,901,677
                        =======================      =======================

Liabilities              $        5,383,789           $        2,906,392
Members' Capital                247,611,967                   97,995,285
                        -----------------------      -----------------------

Total                    $      252,995,756           $      100,901,677
                        =======================      =======================
</TABLE>

<TABLE>
<CAPTION>
                          For the year ended           For the year ended
                          December 31, 2000            December 31, 1999
                        -----------------------      -----------------------
<S>                     <C>                          <C>
Revenues                 $       28,324,323           $        9,090,190

Expenses                         13,557,899                   10,152,017
                        -----------------------      -----------------------

Net Income (loss)        $       14,766,424           $       (1,061,827)
                        =======================      =======================
</TABLE>

<TABLE>
<CAPTION>
                                MM LLC                      JWH LLC                    Millburn LLC
                         For the period from          For the period from          For the period from
                           June 1, 1998 to             January 1, 1998 to           January 1, 1998 to
                          December 31, 1998               May 31, 1998                 May 31, 1998
                        -----------------------      -----------------------      -----------------------
<S>                     <C>                          <C>                          <C>

Revenues                 $       19,255,343           $         1,391,001           $        3,593,650

Expenses                          9,491,842                     4,069,362                    3,108,411
                        -----------------------      -----------------------      -----------------------

Net Income (loss)        $        9,763,501           $        (2,678,361)          $          485,239
                        =======================      =======================      =======================
</TABLE>

8.   FAIR VALUE AND OFF-BALANCE SHEET RISK

     As of June 1, 1998, the Partnership invested all of its assets in MM LLC.
     Accordingly, the Partnership is invested indirectly in derivative
     instruments, but does not itself hold any derivative instrument positions.
     The application of the provisions of Statement of Financial Accounting
     Standards No. 133, as amended by SFAS No. 137, and further amended by
     SFAS No. 138, did not have a significant effect on the financial
     statements of the Partnership. Consequently, no such positions subsequent
     to May 31, 1998 are reflected in these financial statements.

     MARKET RISK

     Derivative instruments involve varying degrees of off-balance sheet market
     risk. 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 Statements of Financial Condition or, with
     respect to Partnership assets invested in Trading LLCs and in MM LLC, the
     net unrealized profit (loss) as reflected in the respective Statements of
     Financial Condition of the Trading LLCs and MM LLC. The Partnership's

                                      -11-
<PAGE>

     exposure to market risk is influenced by a number of factors, including the
     relationships among the derivative instruments held by the Partnership, the
     Trading LLCs and currently MM LLC, as well as the volatility and liquidity
     of the markets in which such derivative instruments are traded.

     MLIP 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. These procedures focus primarily on monitoring the trading of the
     Advisors selected from time to time by the Partnership or MM LLC, and
     include calculating the Net Asset Value of their respective Partnership
     accounts and Trading LLC accounts, or currently MM LLC accounts, as of the
     close of business on each day and reviewing outstanding positions for
     over-concentrations both on an Advisor-by-Advisor and on an overall
     Partnership basis. While MLIP does not itself intervene in the markets to
     hedge or diversify the Partnership's market exposure, MLIP may urge
     Advisors to reallocate positions, or itself reallocate Partnership assets
     among Advisors (although typically only as of the end of a month) in an
     attempt to avoid over-concentrations. However, such interventions are
     unusual. Except in cases in which it appears that an Advisor has begun to
     deviate from past practice or trading policies or to be trading
     erratically, MLIP's basic risk control procedures consist simply of the
     ongoing process of advisor monitoring and selection with the market risk
     controls being applied by the Advisors themselves.

     One important aspect of MLIP's risk controls is its adjustments to the
     leverage at which the Partnership trades. By controlling the percentage of
     the Partnership's assets allocated to trading, MLIP can directly affect the
     market exposure of the Partnership. Leverage control is the principal means
     by which MLIP hopes to be able to ensure that Merrill Lynch is never
     required to make any payments under its guarantee that the Net Asset Value
     per Unit (Both Sector II and Sector III Units) will equal no less than a
     specified minimum as of the Principal Assurance Date (See Note 6).

     CREDIT RISK

     The risks associated with exchange-traded contracts are typically perceived
     to be less than those associated with over-the-counter
     (non-exchange-traded) transactions, 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 Partnership, through MM LLC, has credit risk in respect of its
     counterparties and brokers, but attempts to mitigate this risk by dealing
     almost exclusively with Merrill Lynch entities as clearing brokers.

     The Partnership, through MM LLC, in its normal course of business, enters
     into various contracts, with MLF acting as its commodity broker. Pursuant
     to the brokerage agreement 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 in the financial statements of MM LLC in the Equity
     in commodity future trading accounts in the Statements of Financial
     Condition.

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



                               Michael L. Pungello
                             Chief Financial Officer
                     Merrill Lynch Investment Partners Inc.
                               General Partner of
                       The SECTOR Strategy Fund-SM- II L.P.


                                      -12-
<PAGE>




                                       ML MULTI-MANAGER PORTFOLIO LLC
                                       (A DELAWARE LIMITED LIABILITY COMPANY)


                                       Financial Statements for the years ended
                                       December 31, 2000 and 1999
                                       and Independent Auditors' Report










[MERRILL LYNCH LOGO]

<PAGE>



ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)


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

                                                                            Page
                                                                            ----
INDEPENDENT AUDITORS' REPORT                                                   1

FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999:

  Statements of Financial Condition                                            2

  Statements of Operations                                                     3

  Statements of Changes in Members' Capital                                    4

  Notes to Financial Statements                                              5-9


<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Members of
 ML Multi-Manager Portfolio LLC:

We have audited the accompanying statements of financial condition of ML
Multi-Manager Portfolio LLC (the "Company") as of December 31, 2000 and 1999,
and the related statements of operations and of changes in members' capital for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 financial statements present fairly, in all material
respects, the financial position of ML Multi-Manager Portfolio LLC as of
December 31, 2000 and 1999, and the results of its operations and changes in its
members' capital for the years then ended in conformity with accounting
principles generally accepted in the United States of America.


DELOITTE & TOUCHE LLP


New York, New York
February 5, 2001

<PAGE>

ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)

STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
                                                                  2000              1999
                                                            ----------------  ----------------
<S>                                                         <C>               <C>
Equity in commodity futures trading accounts:
    Cash and option premiums                                  $ 139,346,615      $ 97,949,902
    Net unrealized profit on open contracts                      13,995,141         2,517,003
Cash                                                              2,835,198                 -
Commercial Paper (Cost $95,200,766)                              95,200,766                 -
Accrued interest (Note 2)                                         1,618,036           434,772
                                                            ----------------  ----------------

                TOTAL                                         $ 252,995,756     $ 100,901,677
                                                            ================  ================

LIABILITIES AND MEMBERS' CAPITAL

LIABILITIES:

    Brokerage commissions payable (Note 2)                    $   1,265,023     $     708,081
    Profit Shares payable (Note 3)                                3,036,430           420,906
    Administrative fees payable (Note 2)                             41,341            24,744
    Due to Invested Funds                                         1,040,995         1,752,661
                                                            ----------------  ----------------

            Total liabilities                                     5,383,789         2,906,392
                                                            ----------------  ----------------

MEMBERS' CAPITAL:

    Voting Members                                              247,611,967        97,995,285
                                                            ----------------  ----------------

            Total Members' capital                              247,611,967        97,995,285
                                                            ----------------  ----------------

                TOTAL                                         $ 252,995,756     $ 100,901,677
                                                            ================  ================
</TABLE>


See notes to financial statements.


                                       -2-
<PAGE>

ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REVENUES:                                                         2000              1999
                                                            ----------------  ----------------
<S>                                                         <C>               <C>
Trading profit:
    Realized                                                  $   8,646,046     $   3,344,876
    Change in unrealized                                         11,538,356           546,402
                                                            ----------------  ----------------

        Total trading results                                    20,184,402         3,891,278

Interest income (Note 1 & Note 2)                                 8,139,921         5,198,912
                                                            ----------------  ----------------

        Total revenues                                           28,324,323         9,090,190
                                                            ----------------  ----------------

EXPENSES:

    Brokerage commissions (Note 2)                               10,015,693         9,316,187
    Profit Shares (Note 3)                                        3,201,454           515,566
    Administrative fees (Note 2)                                    340,752           320,264
                                                            ----------------  ----------------

        Total expenses                                           13,557,899        10,152,017
                                                            ----------------  ----------------

NET INCOME (LOSS)                                             $  14,766,424     $ (1,061,827)
                                                            ================  ================
</TABLE>


See notes to financial statements.


                                       -3-
<PAGE>

ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)


STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                           Voting Members
                                         -----------------
<S>                                      <C>
MEMBERS' CAPITAL,
  DECEMBER 31, 1998                           120,383,476

Withdrawals                                   (21,326,364)

Net loss                                       (1,061,827)
                                         -----------------

MEMBERS' CAPITAL,
  DECEMBER 31, 1999                            97,995,285

Additions                                     175,347,578

Withdrawals                                   (40,497,320)

Net income                                     14,766,424
                                         -----------------

MEMBERS' CAPITAL,
  DECEMBER 31, 2000                           247,611,967
                                         =================
</TABLE>


See notes to financial statements.


                                       -4-
<PAGE>

ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)

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

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      ORGANIZATION

      ML Multi-Manager Portfolio LLC (the "Company") was organized under the
      Delaware Limited Liability Company Act on May 11, 1998 and commenced
      trading activities on June 1, 1998. The Company engages in the speculative
      trading of futures, options on futures, forwards and options on forward
      contracts on a wide range of commodities. Merrill Lynch Investment
      Partners Inc. ("MLIP"), a wholly-owned subsidiary of Merrill Lynch Group,
      Inc., which, in turn, is a wholly-owned subsidiary of Merrill Lynch & Co.,
      Inc. ("Merrill Lynch"), has been delegated administrative authority over
      the Company. Merrill Lynch Futures Inc. ("MLF"), an affiliate of
      Merrill Lynch, is the Company's commodity broker. A portion of the
      Company's assets were held by a commodity broker, other than MLF, to
      facilitate the trading of a certain independent advisor, subject to an
      arrangement recognized by MLIP. This advisor was terminated during 2000.
      The Company has one class of Membership Interests, Voting Interests.
      Voting Interests are held by United States limited partnerships
      ("Members"). The Members control all business activities and affairs of
      the Company by agreement of the majority interest of the Members, subject
      to the discretionary trading authority vested in and delegated to the
      independent trading advisors (the "Advisors") and the administrative
      authority vested in and delegated to MLIP. Each Member is a "commodity
      pool" sponsored and controlled by MLIP and shares in the Trading results
      and Interest income of the Company in proportion to their respective
      capital accounts.

      MLIP, an indirect subsidiary of Merrill Lynch, became a member of Merrill
      Lynch Investment Managers ("MLIM") - Alternative Investments Group during
      October 2000. MLIM's Alternative Investments Group creates and manages a
      variety of alternative investment products, including managed futures
      funds, hedge funds, funds of funds, exchange funds and private equity
      funds. MLIP, organized in 1986, is the hedge fund, fund of funds and
      managed futures sponsor within MLIM's Alternative Investments Group.

      MLIP selects independent advisors to manage the Company's assets, and
      allocates and reallocates the Company's assets among existing, replacement
      and additional Advisors.

      ESTIMATES

      The preparation of financial statements in conformity with accounting
      principles generally accepted in the United States of America 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.

      CASH MANAGEMENT

      As of June 2000, the Company began an Income Enhancement Program, whereas,
      a portion of its assets is invested in Commercial Paper. This was
      done to improve the yield on the cash assets not required for margin for
      trading purposes. These holdings generally have maturities of 30, 60
      or 90 days and are held to maturity.

      One Member invests assets that are not allocated to any Advisors
      directly into the Income Enhancement Program. This Member receives a
      priority allocation of interest income earned on these assets before
      the allocation of interest income in proportion to those Members whose
      assets are allocated for trading purposes.

                                       -5-

<PAGE>

      REVENUE RECOGNITION

      Commodity futures, options on futures, forwards and options on forward
      contracts are recorded on the trade date and open contracts are reflected
      in Net unrealized profit on open contracts in the 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 from one period to the next is reflected in Change in
      unrealized under Trading profit in the Statements of Operations.


      FOREIGN CURRENCY TRANSACTIONS

      The Company'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 date 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.

      ORGANIZATIONAL COSTS

      MLIP paid all organizational costs relating to the Company without direct
      reimbursement from the Company or any Member.

      INCOME TAXES

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

      DISTRIBUTIONS

      The Members are entitled to receive any distributions which may be made by
      the Company in proportion to their respective capital accounts. No such
      distributions have been declared for the years ended December 31, 2000 or
      1999.

      WITHDRAWALS

      Each Member may withdraw some or all of such Members' capital at the Net
      Asset Value as of the close of business on any business day. There are no
      withdrawal fees or charges.


      DISSOLUTION OF THE COMPANY

      The Company will terminate on December 31, 2028 or at an earlier date if
      certain conditions occur, as well as under certain other circumstances as
      set forth in the Organization Agreement.

2.    RELATED PARTY TRANSACTIONS

      A portion of the Company's U.S. dollar assets are maintained at MLF. On
      assets held in U.S. dollars, Merrill Lynch credits the Company with
      interest at the prevailing 91-day U.S. Treasury bill rate. The Company is
      credited with interest on any of its assets and net gains actually held by
      Merrill Lynch in


                                       -6-
<PAGE>

      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 Company from the possession of
      such assets.

      As of June 2000, the Company began investing in Commercial Paper.
      Merrill Lynch Pierce Fenner & Smith acts as custodian for these
      assets.

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

      Following the allocation of the Company's trading profit and interest
      income among the Members' Capital Accounts, MLIP calculates the brokerage
      commissions, Profit Shares, administrative fees and other expenses due
      from the Company to third parties, relating to the Company's trading on
      behalf of the Members. Such brokerage commissions, fees and expenses are
      specifically allocated as of the end of each accounting period (not pro
      rata based on the Members' respective capital accounts) to, and deducted
      from, the Members' capital accounts and paid out by the Company. The
      Company pays brokerage commissions to MLF, at a flat monthly rate
      reflecting the fee arrangement between each Member and MLF. For the years
      ended December 31, 2000 and 1999, the monthly rates for Members ranged
      from .291 of 1% (a 3.50% annual rate) to .729 of 1% (an 8.75% annual rate)
      of each Member's month-end assets invested in the Company.

      The Company pays MLIP a monthly administrative fee ranging from .021 of 1%
      (a .25% annual rate) to .083 of 1% (a 1.00% annual rate) of each Member's
      month-end assets. Month-end assets are not reduced for purposes of
      calculating brokerage commissions and administrative fees by any accrued
      brokerage commissions, administrative fees, Profit Shares or other fees or
      charges.

      MLF pays the Advisors annual Consulting Fees up to 2% of the Company's
      average month-end assets allocated to them for management after reduction
      for a portion of the brokerage commissions.

3.    ADVISORY AGREEMENTS

      Pursuant to the Advisory Agreements among the Advisors, the Company and
      MLIP, the Advisors determine the commodity futures, options on futures,
      forwards and options on forward contracts traded on behalf of the Company,
      subject to certain rights reserved by MLIP. The Advisory Agreements
      generally renew one year after they are entered into, subject to certain
      renewal rights exercisable by the Company.

      The Company pays, from the Capital Account of each Member, to the Advisors
      quarterly or annual Profit Shares generally ranging from 15% to 23% of any
      New Trading Profit, as defined, recognized by each Advisor, attributable
      to each Member's Capital Account, considered individually irrespective of
      the overall performance of the such Member's Capital Account. Profit
      Shares, which are calculated separately in respect of each Member's
      Capital Account, are determined as of the end of each calendar quarter or
      year and are also paid to each Advisor upon the withdrawal of capital from
      the Company by a Member for whatever purpose, other than to pay expenses
      and upon the reallocation of assets away from an Advisor.

4.    FAIR VALUE AND OFF-BALANCE SHEET RISK

      In June 1998, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
      Instruments and Hedging Activities" (the "Statement"), effective for
      fiscal years beginning after June 15, 2000, as amended by SFAS No. 137.
      SFAS No. 133 is further amended by SFAS No. 138, which clarifies issues
      surrounding interest risk, foreign currency denominated items, normal
      purchases and sales and net hedging. This Statement supercedes SFAS No.
      119 ("Disclosure about Derivative Financial Instruments and Fair Value of


                                       -7-
<PAGE>

      Financial Instruments") and SFAS No. 105 ("Disclosure of Information about
      Financial Instruments with Off-Balance Sheet Risk and Financial
      Instruments with Concentrations of Credit Risk") whereby disclosure of
      average aggregate fair values and contract/notional values, respectively,
      of derivative financial instruments is no longer required for an entity
      such as the Company which carries its assets at fair value. Such Statement
      sets forth a much broader definition of a derivative instrument. The
      application of the provisions of SFAS No. 133, as amended by SFAS No. 137
      and SFAS No. 138, did not have a significant effect on the financial
      statements.

      SFAS No. 133 defines a derivative as a financial instrument or other
      contract that has all three of the following characteristics: (1) one or
      more underlyings and notional amounts or payment provisions; (2) requires
      no initial net investment or a smaller initial net investment than would
      be required for other types of contracts that would be expected to have a
      similar response to changes in market factors; and, (3) terms that require
      or permit net settlement. Generally, derivatives include futures,
      forwards, swaps, options or other financial instruments with similar
      characteristics such as caps, floors and collars.

      MARKET RISK

      Derivative instruments involve varying degrees of off-balance sheet market
      risk. 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 Company's net unrealized profit on such derivative
      instruments as reflected in the Statements of Financial Condition. The
      Company's exposure to market risk is influenced by a number of factors,
      including the relationships among the derivative instruments held by the
      Company as well as the volatility and liquidity of the markets in which
      the derivative instruments are traded.

      MLIP 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. These procedures focus primarily on monitoring the trading of
      the Advisors, calculating the Net Asset Value of the Company as of the
      close of business on each day and reviewing outstanding positions for
      over-concentrations. While MLIP does not itself intervene in the markets
      to hedge or diversify the Company's market exposure, MLIP may urge the
      Advisors to reallocate positions in an attempt to avoid
      over-concentrations. However, such interventions are unusual. Except in
      cases in which it appears that the Advisors have begun to deviate from
      past practice or trading policies or to be trading erratically, MLIP's
      basic risk control procedures consist simply of the ongoing process of
      advisor monitoring, with the market risk controls being applied by the
      Advisors themselves.

      CREDIT RISK

      The risks associated with exchange-traded contracts are typically
      perceived to be less than those associated with over-the-counter
      (non-exchange-traded) transactions, 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 also require margin in the over-the-counter markets.

      The credit risk associated with these instruments from counterparty
      nonperformance is the net unrealized profit on open contracts, if any,
      included in the Statements of Financial Condition. The


                                       -8-
<PAGE>

      Company attempts to mitigate this risk by dealing almost exclusively with
      Merrill Lynch entities as clearing brokers.

      The Company, in its normal course of business, enters into various
      contracts, with MLF acting as its commodity broker. Pursuant to the
      brokerage agreement 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 and included in the Equity in commodity futures
      trading accounts in the Statements of Financial Condition.










                                 * * * * * * * *

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



                               Michael L. Pungello
                             Chief Financial Officer
                     Merrill Lynch Investment Partners Inc.
                           Commodity Pool Operator of
                         ML Multi-Manager Portfolio LLC















                                       -9-