<PAGE>
 
               THE SECTOR STRATEGY FUND(SM) VI L.P.
               (A Delaware Limited Partnership)



               Financial Statements for the years ended
               December 31, 1998, 1997 and 1996
               and Independent Auditors' Report



[LOGO]  Merrill Lynch
<PAGE>
 
To:  The Limited Partners of The SECTOR Strategy Fund(SM) VI L.P.

The SECTOR Strategy Fund(SM) VI L.P. (the "Fund" or the "Partnership") ended its
sixth fiscal year of trading on December 31, 1998 with a Net Asset Value ("NAV")
per Unit of $122.84, representing an increase of 4.42% from the December 31,
1997 NAV per Unit of $117.64.  During 1998, trading profits were generated in
the interest rate, currency, energy and stock index markets while losses were
incurred in metals and agricultural trading.

Global interest rate markets provided the Fund with its most profitable
positions for the first quarter, particularly in European bonds where an
extended bond market rally continued despite an environment of robust growth in
the United States, Canada and the United Kingdom, as well as a strong pick-up in
growth in continental Europe.  In the second quarter, swings in the U.S. dollar
and developments in Japan affected bond markets, causing the Fund's interest
rate trading to result in losses.  This was turned around in the third quarter,
as markets worldwide were turned upside down and the Fund's non-correlation with
general equity and debt markets was strongly exhibited, and trading was
particularly profitable in positions in Eurodollars, German and Japanese bonds,
and U.S. Treasury notes and bonds.  Global investors staged a major flight to
quality, resulting in a significant widening of credit spreads on a global
basis.  In October, investors pushed the yields on U.S. Treasury bonds to a 31-
year low.  The long bond yield fell about 75 basis points in 1998 as the world
economy slowed more than expected, inflation continued to fall, the anticipated
small U.S. budget deficit turned into substantial surplus, and the Federal
Reserve lowered interest rates.

In currency markets, results early in the year were mixed, but unprofitable.
During the second quarter, strong gains were realized in positions in the
Japanese yen, which weakened during June to an eight-year low versus the U.S.
dollar.  Significant gains from Japanese yen trading continued into the third
quarter, and Japan's problems spread to other sectors of the global economy,
causing commodities prices to decline as demand from the Asian economies
weakened.  Japan's deepening recession and credit crunch continued through the
fourth quarter, and the Fund achieved gains from long yen positions.

In energy markets, demand for crude oil in the Middle East was affected by low
oil prices early in the year, and trading resulted in losses.  Initially buoyed
on concerns about a U.S.-led military strike against Iraq, crude oil fell to a
nine-year low, as the globally warm winter, the return of Iraq as a producer and
the Asian economic crisis added to OPEC's supply glut problems.  Despite
production cuts initiated by OPEC at the end of March, world oil supplies
remained excessive and oil prices stood at relatively low levels throughout the
first half of 1998.  Short heating oil positions in the third quarter proved
profitable for the Fund as the market for heating oil prices dropped to its
lowest level in more than a decade.  In early December, oil and natural gas
prices dropped sharply, causing continued problems for many emerging market
countries that depend on commodity exports for economic growth and government
financing.  These price pressures were mainly due to excessive supply
availability and near-term weather indications that inventories would remain at
more than adequate levels even in the event of a cold Northern Hemisphere
winter.  Also, the December U.S. air attack on Iraq failed to cause any damage
to oil pumping and shipping operations, and oil prices fell over 10%.
<PAGE>
 
Trading results in stock index markets were also mixed in early 1998, despite a
strong first-quarter performance by the U.S. equity market as several
consecutive weekly gains were recorded with most market averages setting new
highs.  Second quarter results were profitable as the Asia-Pacific region's
equity markets weakened across the board.  In particular, Hong Kong's Hang Seng
index trended downward during most of the second quarter and traded at a three-
year low.  As U.S. equity markets declined in July and August, the Fund profited
from short positions in the S&P 500, most notably during August, when the index
dropped 14.5%.  Volatility in September made for a difficult trading environment
in the stock index sector, and the Fund incurred modest losses, although results
remained profitable for the quarter and the year overall in these markets

Gold prices began the year drifting sideways, and continued to weaken following
news in the second quarter of a European Central Bank consensus that ten to
fifteen percent of reserves should be made up of gold bullion, which was at the
low end of expectations.  Gold was unable to extend third quarter rallies or to
build any significant upside momentum, resulting in a trendless environment.
This was also the case in the fourth quarter, as gold's cost of production
declined.  Also, silver markets remained range-bound, while also experiencing a
significant selloff in November, and aluminum traded at its lowest levels since
1994, with many aluminum smelters operating at a loss.

In agricultural commodity markets, 1998 began with strong gains as live cattle
and hog prices trended downward throughout the first quarter.  In the second
quarter, although the U.S. soybean crop got off to a good start which
contributed to higher yield expectations and a more burdensome supply outlook,
soybean prices traded in a volatile pattern.  Sugar futures maintained mostly a
downtrend, as no major buyers emerged to support the market.  Similarly, coffee
prices trended downward, as good weather conditions in Central America and
Mexico increased the prospects of more output from these countries.  The third
quarter resulted in losses as the U.S. soybean crop increased relative to the
USDA's production estimate as a result of timely rains, which contributed to
lower prices.  These losses continued into the fourth quarter as the Fund was
caught on the short side of the soybean complex, as the soybean supply surplus
became more manageable following the November 10th USDA reports, causing prices
to gain upward momentum.

Despite a year of unprecedented volatility in key global markets, we were
pleased with the Fund's ability to generate a profit by trading both the long
and short side of a variety of markets, demonstrating its value as an element of
diversification in an investor's portfolio.  We look forward to 1999 and the
opportunities it may present.



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


FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
<PAGE>
 
THE SECTOR STRATEGY FUND(SM) VI L.P.
(A Delaware Limited Partnership)
 ------------------------------ 

 
TABLE OF CONTENTS
----------------------------------------------------------------------------- 
                                                                         Page 
                                                                         ---- 
                                                                              
INDEPENDENT AUDITORS' REPORT                                                1 
                                                                              
FINANCIAL STATEMENTS FOR THE YEARS ENDED                                      
  DECEMBER 31, 1998, 1997 AND 1996:                                           
                                                                              
  Statements of Financial Condition                                         2 
                                                                              
  Statements of Income                                                      3 
                                                                              
  Statements of Changes in Partners' Capital                                4 
                                                                              
  Notes to Financial Statements                                          5-15  
 
<PAGE>
 
INDEPENDENT AUDITORS' REPORT
----------------------------



To the Partners of
 The SECTOR Strategy Fund(SM) VI L.P.:

We have audited the accompanying statements of financial condition of The SECTOR
Strategy Fund(SM) VI L.P. (the "Partnership") as of December 31, 1998 and 1997
and the related statements of income and of changes in partners' capital for
each of the three years in the period ended December 31, 1998.  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 financial statements present fairly, in all material
respects, the financial position of The SECTOR Strategy Fund(SM) VI L.P. as of
December 31, 1998 and 1997 and the results of its operations for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.


DELOITTE & TOUCHE LLP


New York, New York
February 4, 1999
<PAGE>
 
THE SECTOR STRATEGY FUND(SM) VI L.P.
(A Delaware Limited Partnership)
 ------------------------------ 
<TABLE> 
<CAPTION> 
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
---------------------------------------------------------------------------------------------------------------

                                                                                1998                 1997
                                                                           ---------------     ---------------           
ASSETS                                                          
<S>                                                                     <C>                     <C> 
Equity in commodity futures trading accounts:                                                                 
  Cash and option premiums (Note 1)                                        $        -          $   10,274,262 
  Net unrealized profit on open contracts (Note 1)                                  -                 112,024 
Accrued interest (Note 2)                                                           -                  46,180 
Investments (Note 6)                                                           19,571,183          16,692,504 
Receivable from investments (Note 6)                                              438,365             273,940 
                                                                           ---------------     ---------------            
        TOTAL                                                              $   20,009,548      $   27,398,910
                                                                           ===============     ===============             

LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES
   Brokerage commissions payable (Note 2)                                  $        -          $       38,199
   Administrative fees payable (Note 2)                                             -                   1,080
   Redemptions payable                                                            438,365             441,150
                                                                           ---------------     ---------------             
        Total liabilities                                                         438,365             480,429
                                                                           ---------------     ---------------             

PARTNERS' CAPITAL
   General Partner (1,993 Units and 6,971 Units)                                  244,832             820,070
   Limited Partners (157,330 Units and 221,850 Units)                          19,326,351          26,098,411
                                                                           ---------------     ---------------             

        Total partners' capital                                                19,571,183          26,918,481
                                                                           ---------------     ---------------             

        TOTAL                                                              $   20,009,548      $   27,398,910
                                                                           ===============     ===============             

NET ASSET VALUE PER UNIT
(Based on 159,323 and 228,821 Units outstanding)                           $       122.84      $       117.64    
                                                                           ===============     ===============             

</TABLE> 
See notes to financial statements.

                                      -2-
<PAGE>
 
THE SECTOR STRATEGY FUND(SM) VI L.P.
(A Delaware Limited Partnership)
 ------------------------------ 
<TABLE> 
<CAPTION> 
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
------------------------------------------------------------------------------------------------------------------------------

                                                                                   1998              1997             1996
                                                                              -------------      -------------   -------------
<S>                                                                             <C>             <C>             <C> 
REVENUES
  Trading (loss) profits:
     Realized (Note 1)                                                        $  (267,771)       $    222,536    $   4,174,847
     Change in unrealized (Note 1)                                               (112,024)             51,814       (2,454,976)
                                                                              -------------      -------------   -------------

          Total trading results                                                  (379,795)            274,350        1,719,871

   Interest income (Note 2)                                                       289,431             790,813        1,661,887
                                                                              -------------      -------------   -------------

               Total revenues                                                     (90,364)          1,065,163        3,381,758
                                                                              -------------      -------------   -------------

EXPENSES:
  Brokerage commissions (Note 2)                                                  166,505             519,637        2,243,462
  Profit Shares (Note 3)                                                           -                    2,914          434,053
  Administrative fees (Note 2)                                                      4,757              14,688           57,524
                                                                              -------------      -------------   -------------

               Total expenses                                                     171,262             537,239        2,735,039
                                                                              -------------      -------------   -------------

INCOME FROM INVESTMENTS (Note 6)                                                1,036,655           1,679,221          984,327
                                                                              -------------      -------------   -------------

NET INCOME                                                                    $   775,029        $  2,207,145    $   1,631,046
                                                                              =============      =============   =============

NET INCOME PER UNIT:
  Weighted average number of General Partner and
  Limited Partner Units outstanding (Note 4)                                      191,611             256,535          362,917
                                                                              =============      =============   =============

  Net income per weighted average
     General Partner and Limited
     Partner Unit                                                             $      4.04        $       8.60    $        4.49
                                                                              =============      =============   =============

</TABLE> 

See notes to financial statements.






                                      -3-
<PAGE>
 
THE SECTOR STRATEGY FUND(SM) VI L.P.
(A Delaware Limited Partnership)
 ------------------------------ 

<TABLE> 
<CAPTION> 
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------------------------------------------

                                                                  Limited            General
                                                  Units           Partners           Partner         Total
                                               -----------      -------------      -----------    -----------
<S>                                             <C>             <C>                     <C>             <C> 
PARTNERS' CAPITAL
  DECEMBER 31, 1995                              484,717          49,707,772          723,241      50,431,013
                                                                               
Net income                                          -              1,595,507           35,539       1,631,046
                                                                               
Redemptions                                     (200,404)        (21,115,152)           -         (21,115,152)
                                               -----------      -------------      -----------    -----------

PARTNERS' CAPITAL
  DECEMBER 31, 1996                              284,313          30,188,127          758,780      30,946,907

Net income                                          -              2,145,855           61,290       2,207,145

Redemptions                                      (55,492)         (6,235,571)            -         (6,235,571)
                                               -----------      -------------      -----------    -----------

PARTNERS' CAPITAL
 DECEMBER 31, 1997                               228,821          26,098,411          820,070      26,918,481

Net income                                          -                778,792           (3,763)        775,029

Redemptions                                      (69,498)         (7,550,852)        (571,475)     (8,122,327)
                                               -----------      -------------      -----------    -----------

PARTNERS' CAPITAL,
  DECEMBER 31, 1998                              159,323          19,326,351          244,832      19,571,183
                                               ===========      =============      ===========    ===========

</TABLE> 

See notes to financial statements.




                                      -4-
<PAGE>
 
THE SECTOR STRATEGY FUND(SM) VI L.P.
(A Delaware Limited Partnership)
 ------------------------------ 

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

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

  The SECTOR Strategy Fund(SM) VI L.P. (the "Partnership") was organized under
  the Delaware Revised Uniform Limited Partnership Act on April 23, 1993 and
  commenced trading activities on September 10, 1993. 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" 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. A portion of the
  Partnership's assets is held by a commodity broker, other than MLF, to
  facilitate the trading of a certain independent advisor, subject to an
  arrangement recognized by the General Partner. The General Partner has agreed
  to maintain a general partnership interest in the Partnership of at least 1%
  of the total capital of 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.

  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" or the "Trading 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. 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.

  MLIP determines what percentage of the Partnership's total capital to invest
  in MM LLC from time to time, attempting to balance the desirability of
  reducing the opportunity costs of the Partnership's "principal protection"
  structure by investing 100% of the Partnership's assets in MM LLC against the
  necessity of preventing Merrill Lynch from ever being required to make any
  payments to the Partnership under the Merrill Lynch guarantee (See Note 5).

                                      -5-
<PAGE>
 
  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.

  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 (loss) profit on open
  contracts from one period to the next is reflected in change in unrealized in
  the Statements of Income. (As a result of the investment in MM LLC, there were
  no open contracts as of December 31, 1998.)

  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.

  Operating Expenses
  -------------------

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

  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 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 the Net Asset Value as of the close of business on the last
  business day of any month upon ten calendar days' notice.

                                      -6-
<PAGE>
 
  Dissolution of the Partnership
  ------------------------------

  The Partnership will terminate on December 31, 2023 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. RELATED PARTY TRANSACTIONS

  The majority of the Partnership's U.S. dollar assets are maintained at MLF.
  On assets held in U.S. dollars, Merrill Lynch credits the Partnership with
  interest at the prevailing 91-day U.S. Treasury bill rate.  The Partnership 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 Partnership, from possession of such
  assets.

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

  The General Partner determined that there may have been a miscalculation in
  the interest credited to the Partnership for a period prior to November 1996
  (such period may extend prior to that covered by these financial statements).
  Accordingly, the General Partner credited current and former investors who
  maintained a Merrill Lynch customer account in December 1997 with interest
  which was compounded.  Former investors who do not maintain a Merrill Lynch
  customer account have been credited as their response forms are processed.
  The total amount of the adjustment was approximately $1,302,000.  Since this
  amount was paid directly to investors by the General Partner, it is not
  reflected in these financial statements.  The General Partner determined that
  interest was calculated appropriately since November 1996.

  Prior to January 1, 1996, the Partnership paid brokerage commissions to MLF,
  at a flat monthly rate equal to .833 of 1% (a 10% annual rate) of the
  Partnership's month-end assets allocated to trading.  Effective January 1,
  1996, the percentage was reduced to .813 of 1% (a 9.75% annual rate), and the
  Partnership began to pay MLIP a monthly administrative fee of .021 of 1% (a
  .25% annual rate) of the Partnership's month-end assets allocated to trading
  (this recharacterization had no economic effect on the Partnership).
  Effective February 1, 1997, the Partnership's brokerage commission percentage
  was reduced to .729 of 1% (an 8.75% annual rate) of the Partnership's month-
  end assets allocated to trading.  Assets allocated to trading 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.

  The General Partner estimates that the round-turn equivalent commission rate
  charged to the Partnership during the years ended December 31, 1998, 1997 and
  1996 was approximately $54, $56 and  $86, respectively (not including, in
  calculating round-turn equivalents, forward contracts on a futures-equivalent
  basis).

                                      -7-
<PAGE>
 
  MLF pays the Advisors annual Consulting Fees ranging up to 4% of the
  Partnership's average month-end assets allocated to them for management, after
  reduction for a portion of the brokerage commissions.

  Many of the Partnership'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 Partnership.  The General Partner anticipates that some of
  the Partnership'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.

  In its exchange of futures for physical ("EFP") trading, the Partnership
  acquires cash currency positions through banks and dealers, including Merrill
  Lynch.  The Partnership 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.

3. AGREEMENTS

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

  In the case of the Trading LLCs, as defined in Note 6, the Trading LLCs
  entered into the Advisory Agreements with the Advisors.

  In the case of MM LLC, as defined in Note 1, MM LLC entered into the current
  Advisory Agreements with the Advisors.

  Profit Shares, generally ranging from 15% to 25% 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, were paid by the Partnership or the Trading LLCs and are currently
  paid by MM LLC to each Advisor.  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 such New Trading Profit attributable to such
  Units.

4. 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
  number of Units outstanding at December 31, 1998, 1997 and 1996 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.

                                      -8-
<PAGE>
 
5. MERRILL LYNCH & CO., INC. GUARANTEE

  Merrill Lynch has guaranteed to the Partnership that it will have sufficient
  Net Assets as of the Principal Assurance Date, that the Net Asset Value per
  Unit as of such Principal Assurance Date will equal, after adjustment for all
  liabilities to third parties, not less than $100.  Effective January 1, 1999,
  the Partnership restarted its trading program for an additional Time Horizon
  of two years' duration and a new Principal Assurance Date of December 31,
  2000, with a minimum assured Net Asset Value per Unit of $98.27.

6. 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 the General Partner. The only
  members of the Trading LLCs were commodity pools sponsored by the General
  Partner. Each Trading LLC traded under the management of a single Advisor
  pursuant to a single strategy and at a uniform degree of leverage. Placing
  assets 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 benefited 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 Trading LLCs and MM LLC are reflected in the financial
  statements at fair value based upon the Partnership's interest in each Trading
  LLC and MM LLC.  Fair value is equal to the market value of the net assets of
  the Trading LLCs and of MM LLC.  The resulting difference between cost and
  fair value is reflected on the Statements of Income as income from
  investments.
 
  As of December 31, 1998, the Partnership had an investment in MM LLC and as
  of December 31, 1997, the Partnership had investments in the ML JWH Financial
  and Metals Portfolio L.L.C. ("JWH LLC"), ML Chesapeake Diversified L.L.C.
  ("Chesapeake LLC"), and  ML Sjo Prospect L.L.C ("SJO LLC") as follows:


                              1998                     1997     
                       ------------------       ------------------- 
JWH LLC                $      -                 $    6,115,739   
Chesapeake LLC                -                      5,354,159   
SJO LLC                       -                      5,222,606   
MM LLC                     19,571,183                  -         
                       ------------------       ------------------- 
Total                  $   19,571,183           $   16,692,504   
                       ==================       =================== 


  During the second quarter of 1998, the Partnership withdrew its investments
  in JWH LLC, Chesapeake LLC, and SJO LLC.

                                      -9-
<PAGE>
 
   Total revenues and fees with respect to such investments are set forth as
  follows:

<TABLE> 
<CAPTION> 

                                                                                    (Loss) Income
 For the year ended        Total         Brokerage    Administrative    Profit          from
 December 31, 1998        Revenues      Commissions        Fees         Shares       Investments
--------------------   -------------   -------------  -------------  -------------  -------------
<S>                     <C>             <C>             <C>             <C>             <C> 
JWH LLC                $  (613,096)    $   191,892    $     5,483    $      --      $  (810,471)
Chesapeake LLC             636,803         195,824          5,595         87,023        348,361
SJO LLC                    392,486         186,551          5,330         22,479        178,126
MM LLC                   2,685,824         929,533         26,558        409,094      1,320,639
                       -------------   -------------  -------------  -------------  -------------
Total                  $ 3,102,017     $ 1,503,800    $    42,966    $   518,596    $ 1,036,655
                       =============   =============  =============  =============  =============


 For the year ended        Total         Brokerage    Administrative    Profit       Income from
 December 31, 1997        Revenues      Commissions        Fees         Shares       Investments
--------------------   -------------   -------------  -------------  -------------  -------------
<S>                     <C>             <C>             <C>             <C>             <C> 
JWH LLC                $ 1,516,818     $   422,946    $    12,000    $   127,410    $   954,462
Chesapeake LLC             976,710         453,884         12,850        103,240        406,736
SJO LLC                    731,357         365,509         10,374         37,451        318,023
                       -------------   -------------  -------------  -------------  -------------
Total                  $ 3,224,885     $ 1,242,339    $    35,224    $   268,101    $ 1,679,221
                       =============   =============  =============  =============  =============


 For the year ended        Total         Brokerage    Administrative    Profit       Income from
 December 31, 1996        Revenues      Commissions        Fees         Shares       Investments
--------------------   -------------   -------------  -------------  -------------  -------------
<S>                     <C>             <C>             <C>             <C>             <C> 
JWH LLC                $ 1,205,291     $   119,551    $     3,065    $   154,480    $   928,195
Chesapeake LLC             146,512          84,100          2,156          4,124         56,132
                       -------------   -------------  -------------  -------------  -------------
Total                  $ 1,351,803     $   203,651    $     5,221    $   158,604    $   984,327
                       =============   =============  =============  =============  =============

</TABLE> 

                                      -10-
<PAGE>
 
Condensed statements of financial condition and statements of income for MM LLC,
JWH LLC, Chesapeake LLC, and SJO LLC are set forth as follows:

<TABLE> 
<CAPTION> 
                               MM LLC              JWH LLC               Chesapeake LLC             SJO LLC
                                             
                         December 31, 1998     December 31, 1997        December 31, 1997       December 31, 1997
                        -------------------   -------------------      -------------------     -------------------   
<S>                     <C>                     <C>                     <C>                     <C>  
Assets                     $125,332,558          $ 65,048,564               $ 17,195,182            $ 21,240,207
                        ===================   ===================      ===================     ===================    

Liabilities                $  4,949,082          $  3,689,658               $    704,681            $  2,058,617
Members' Capital            120,383,476            61,358,906                 16,490,501              19,181,590
                        -------------------   -------------------      -------------------     -------------------   
Total                      $125,332,558          $ 65,048,564               $ 17,195,182            $ 21,240,207
                        ===================   ===================      ===================     ===================    

                        For the period from                                                    For the period from
                          June 1, 1998 to      For the year ended      For the year ended       January 2, 1997 to
                         December 31, 1998     December 31, 1997        December 31, 1997       December 31, 1997
                        -------------------   -------------------      -------------------     -------------------    
<S>                     <C>                     <C>                     <C>                     <C>  
Revenues                   $ 19,255,343          $ 15,279,401               $  3,480,491            $  3,903,268 
                                                                                                                 
Expenses                      9,491,842             6,714,041                  2,055,126               2,144,078 
                        -------------------   -------------------      -------------------     -------------------    
Net Income                 $  9,763,501          $  8,565,360               $  1,425,365            $  1,759,190  
                        ===================   ===================      ===================     ===================    


                              JWH LLC            Chesapeake LLC
        
                        For the period from   For the period from
                         October 1, 1996 to   November 1, 1996 to
                         December 31, 1996     December 31, 1996
                        -------------------   -------------------       
<S>                     <C>                     <C> 
Revenues                   $ 19,365,949          $    608,594
                                                   
Expenses                      4,426,261               382,949
                        -------------------   -------------------                                                       

Net Income                 $ 14,939,688          $    225,645
                        ===================   ===================       

</TABLE> 

                                      -11-
<PAGE>
 
7. 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.  Consequently,
  no such positions subsequent to May 31, 1998 are reflected in these financial
  statements or in this Note 7.

  The Partnership traded futures, options on futures, forwards and options on
  forward contracts in interest rates, stock indices, commodities, currencies,
  energy and metals.  The Partnership's total trading results by reporting
  category for the period from January 1, 1998 to May 31, 1998 and for the years
  ended December 31, 1997 and 1996 (during 1998, 1997 and 1996, a portion of the
  Partnership's trading was done through Trading LLCs and is not, accordingly,
  reflected below) were as follows:


                                       Total Trading Results
                        -----------------------------------------------
                             1998            1997            1996
                        --------------   -------------   -------------- 

Interest Rates          $   (39,575)     $     (441)     $  1,150,787 
Stock Indices              (208,161)        (39,146)         (410,783)
Commodities                 (38,600)        (49,481)         (466,980)
Currencies                 (103,404)        288,251         1,103,173 
Energy                       37,352          12,635         1,410,507 
Metals                      (27,407)         62,532        (1,066,833) 
                        --------------   -------------   --------------   
                        $  (379,795)     $  274,350      $  1,719,871
                        ==============   =============   ============== 

 

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

  Derivative financial 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 underlying
  financial instruments or commodities underlying such derivative instruments
  frequently resulted in changes in the Partnership's net unrealized (loss)
  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 as reflected in the respective
  Statements of Financial Condition of the Trading LLCs and MM LLC.  The
  Partnership's 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 such markets in which such derivative instruments are traded.

  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.  These procedures focus primarily on monitoring the trading of
  the Advisors selected from time to time for the Partnership or MM LLC,
  adjusting the percentage of the  Partnership's, the Trading LLC's or MM LLC's
  total assets allocated to trading, calculating the Net Asset Value of the
  Advisors' 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 the General Partner does
  not itself intervene in the markets to hedge or diversify the Partnership's
  market exposure (although the General Partner does adjust the percentage of
  the Partnership's total assets allocated to trading), the General Partner 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-concentration.  However, such interventions are unusual.
  Except in cases in which it appears that an Advisor has begun to deviate from
  past practice and trading policies or 

                                      -12-



<PAGE>
 
  to be trading erratically, the General Partner'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 the General Partner'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, the General Partner can
  directly affect the market exposure of the Partnership. Leverage control is
  the principal means by which the General Partner 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 will equal no less than a specified minimum
  as of the Principal Assurance Date.

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

  The derivative instruments traded by the Partnership were marked to market
  daily with the resulting net unrealized profit recorded in the Statements of
  Financial Condition and the related (loss) profit reflected in trading results
  in the Statements of Income.

  The contract/notional values of open contracts as of December 31, 1997, all
  of which were exchange-traded, were as follows (there were no open contracts
  as of December 31, 1998):


                                              1997
                       Commitment to                     Commitment to
                      Purchase (Futures,                 Sell (Futures,
                     Options & Forwards)              Options & Forwards)
                     -------------------              ------------------- 


Interest Rates           $ 8,526,872                       $ 1,289,262
Stock Indices              1,833,153                            58,102
Commodities                   53,000                           484,698
Currencies                   723,600                         5,212,058
Energy                          --                             895,458
Metals                          --                             117,150
                     -------------------              ------------------- 
                         $11,136,625                       $ 8,056,728
                     ===================              =================== 

 
 
  All of the Partnership's derivative instruments outstanding as of December
  31, 1997 expired within one year.

                                      -13-
<PAGE>
 
  The average fair values, based on contract/notional values, of the
  Partnership's derivative financial instruments positions which were open as of
  the end of each calendar month during the years ended December 31, 1998 and
  1997 (during 1998 and 1997, a portion of the Partnership's trading was done
  through Trading LLCs and is not, accordingly, reflected below) 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            $ 7,410,063           $ 6,542,413                   $16,385,163          $ 9,028,153
Stock Indices               1,387,861               723,028                     1,038,952              657,344
Commodities                   128,905               166,504                       847,261              467,905
Currencies                    912,600             2,081,261                     1,708,711            3,329,939
Energy                         54,743               199,890                       485,906              483,373
Metals                        186,264                  --                         817,854              704,123
                     -------------------     -------------------          -------------------   -------------------   
                          $10,080,436           $ 9,713,096                   $21,283,847          $14,670,837
                     ===================     ===================          ===================   ===================   
</TABLE> 


  A portion of the amounts indicated as off-balance sheet risk is due to
  offsetting commitments to purchase and to 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 (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 fair value amounts in the above tables represent the extent of the
  Partnership'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 in the Statements of
  Financial Condition.

                                      -14-
<PAGE>
 
  The gross unrealized profit and net unrealized profit (loss) on the
  Partnership's open derivative instrument positions as of December 31, 1997 (as
  of December 31, 1997, a portion of the Partnership trading was done through
  Trading LLCs and is not, accordingly, reflected below) were as follows (there
  were no open derivative instrument positions as of December 31, 1998):


                                             1997
                           --------------------------------------
                           Gross Unrealized        Net Unrealized
                               Profit              Profit (Loss)
                           ----------------        -------------- 
                                             
Exchange-Traded              $ 135,522               $ 112,280
Non-Exchange-Traded                 87                    (256)
                           ----------------        --------------     

                             $ 135,609               $ 112,024
                           ================        ============== 


  The Partnership 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 Partnership, 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 were 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
                      The SECTOR Strategy Fund(SM) VI L.P.

                                      -15-