<PAGE>
 
                THE SECTOR STRATEGY FUND/SM/ VI L.P.
                (A DELAWARE LIMITED PARTNERSHIP)


                Financial Statements for the years ended
                December 31, 1997, 1996 and 1995
                and Independent Auditors' Report
<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 "Partnership") ended its
fifth fiscal year of trading on December 31, 1997 with a Net Asset Value ("NAV")
per Unit of $117.64, representing an increase of 8.08% from the December 31,
1996 NAV per Unit of $108.85. During 1997, trading profits were generated in the
interest rate, currency, metals and stock index markets while losses were
incurred in agriculture and energy trading. (Trading results include that of the
Advisors, as well as, the Trading LLCs (defined in Note 6 to the financial
statements)).

Trend reversals and extreme market volatility, affected by such factors as the
Asian flu and El Nino, were characteristic of most of 1997.  However, the year
proved to be a profitable one overall for the Fund as trends in several key
markets enabled the Trading Advisors to profit despite the significant
obstacles.  Although trading results in several sectors may have been
lackluster, the global currency and bond markets offered noteworthy trading
opportunities, which resulted in significant profits in these markets during the
year.  Additionally, the currency and interest rate sectors of the Fund's
portfolio represented its largest percentage of market commitments.

In currency markets, the U.S. dollar rallied and started 1997 on a strong note,
rising to a four-year high versus the Japanese yen and two-and-a-half year highs
versus the Deutsche mark and the Swiss franc.  However, the dollar underwent two
significant corrections during the year.  The first correction occurred in the
Spring against the Japanese yen, due to the G7 finance ministers' determination
that a further dollar advance would be counter-productive to their current
goals.  From August through mid-November, the dollar corrected against the
Eurocurrencies in advance of a well-advertised tightening by the Bundesbank.  By
mid-December the dollar had bounced back to new highs against the yen and was
rallying against the mark.

Global interest rate markets began the year on a volatile note, as investors
evaluated economic data for signs of inflation.  By the middle of the year,
economic data in key countries was positive indicating lower inflation and
igniting a worldwide rally in the bond markets.  Specifically, investor
sentiment was particularly strong in the U.S., where prices on the 30-year
Treasury bond and 10-year Treasury note rose to their highest levels in over two
years.  This followed a largely positive economic report delivered by Federal
Reserve Chairman Greenspan in testimony before Congress.  Effects of the plunge
in the Hong Kong stock market in late October spread rapidly throughout the
world's financial markets, including global bond markets.  After continued
volatility in subsequent months made trading difficult, 1997 interest rate
trading ended on a positive note when U.S. and Japanese bond markets rallied as
a flight to safety from plunging stock markets around the world occurred in
December.

In energy markets, a slump in crude oil prices was characteristic of its
lackluster performance from the beginning of the year.  Early in 1997,
volatility returned in the energy markets, reflecting the impact of a winter
significantly warmer than normal.  By mid-year, the decline in prices reversed
sharply as Saudi Arabia and Iran, together representing about 45% of OPEC's oil
production, joined forces to pressure oil-producing nations to stay within OPEC
production quotas.  In December, financial and economic problems in Asia reduced
demand for oil, and in combination with ample
<PAGE>
 
supplies, resulted in crude oil prices declining once again.

Although the overall return for the Fund might have paled in comparison to some
of the popular market indices during 1997, a significant observation is worth
noting.  From the time the Dow Jones industrial average hit its high of 8259.31
in August through the end of the year, it declined 4.25% with a continued
increase in volatility.  Conversely, the Fund, which has been designed with the
objective of producing returns non-correlated to traditional debt and equity
markets, steadily improved performance during the same time period.  We
appreciate your continued investment in the Fund and look forward to 1998 and
the trading opportunities it may bring.

                              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>
<CAPTION>
 
TABLE OF CONTENTS
---------------------------------------------------------------------------
<S>                                                                     <C>
 
                                                                        Page
                                                                        ----
 
INDEPENDENT AUDITORS' REPORT                                               1
 
FINANCIAL STATEMENTS FOR THE YEARS ENDED
  DECEMBER 31, 1997, 1996 AND 1995:
 
  Statements of Financial Condition                                        2
 
  Statements of Income                                                     3
 
  Statements of Changes in Partners' Capital                               4
 
  Notes to Financial Statements                                         5-13
 
</TABLE>
<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. (a Delaware limited partnership; the "Partnership") as
of December 31, 1997 and 1996 and the related statements of income and of
changes in partners' capital for each of the three years in the period ended
December 31, 1997.  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, 1997 and 1996 and the results of its operations for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.


DELOITTE & TOUCHE LLP

February 6, 1998
New York, New York
<PAGE>
 
THE SECTOR STRATEGY FUND/SM/ VI L.P.
(A Delaware Limited Partnership)
 ------------------------------ 

STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
 
ASSETS                                                        1997               1996 
                                                          -----------        ----------- 
<S>                                                       <C>                <C>         
Accrued interest (Note 2)                                 $    46,180        $    93,352 
Equity in commodity futures trading accounts:                                            
    Cash and option premiums                               10,274,262         22,269,250 
    Net unrealized profit on open contracts                   112,024             60,210 
Investments (Note 6)                                       16,692,504          8,288,948 
Receivable from investments (Note 6)                          273,940          1,278,557 
                                                          -----------        ----------- 
                                                                                         
                TOTAL                                     $27,398,910        $31,990,317 
                                                          ===========        ===========  

LIABILITIES AND PARTNERS' CAPITAL
 
LIABILITIES:
    Redemptions payable                                  $   441,150          $   928,164   
    Brokerage commissions payable (Note 2)                    38,199               69,505   
    Administrative fees payable (Note 2)                       1,080                1,782   
    Profit Shares payable (Note 3)                                --               43,959   
                                                         -----------          -----------   
                                                                                            
            Total liabilities                                480,429            1,043,410   
                                                         -----------          -----------   
                                                                                            
PARTNERS' CAPITAL:                                                                         
    General Partner (6,971 Units and 6,971 Units)            820,070              758,780   
    Limited Partner (221,850 Units and 277,342 Units)     26,098,411           30,188,127   
                                                         -----------          -----------   
                                                                                            
            Total partners' capital                       26,918,481           30,946,907   
                                                         -----------          -----------   
                                                                                            
                TOTAL                                    $27,398,910          $31,990,317   
                                                         ===========          ===========   
                                                                                            
NET ASSET VALUE PER UNIT                                                                    
(Based on 228,821 and 284,313 Units outstanding)         $    117.64          $    108.85   
                                                         ===========          ===========    
</TABLE>

See notes to financial statements.

                                      -2-
<PAGE>
 
THE SECTOR STRATEGY FUND/SM/ VI L.P.
(A Delaware Limited Partnership)
 ------------------------------ 

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

REVENUES:                                            1997                      1996                        1995          
                                                 -----------                -----------                ------------      
  <S>                                             <C>                       <C>                        <C>               
    Trading profits (loss):                                                                                              
        Realized                                  $  222,536                $ 4,174,847                 $ 9,810,089      
        Change in unrealized                          51,814                 (2,454,976)                 (2,396,610)     
                                                 -----------                -----------                ------------      
                                                                                                                         
            Total trading results                    274,350                  1,719,871                   7,413,479      
                                                                                                                         
    Interest income (Note 2)                         790,813                  1,661,887                   4,001,380      
                                                 -----------                -----------                ------------      
                Total revenues                     1,065,163                  3,381,758                  11,414,859      
                                                 -----------                -----------                ------------      
                                                                                                                         
EXPENSES:                                                                                                                
    Profit shares (Note 3)                             2,914                    434,053                   1,086,165      
    Brokerage commissions (Note 2)                   519,637                  2,243,462                   5,771,415      
    Administrative fees (Note 2)                      14,688                     57,524                          --      
                                                 -----------                -----------                ------------      
                                                                                                                         
                Total expenses                       537,239                  2,735,039                   6,857,580      
                                                 -----------                -----------                ------------      
                                                                                                                         
INCOME FROM INVESTMENTS (Note 6)                   1,679,221                    984,327                          --      
                                                 -----------                -----------                ------------      
                                                                                                                         
NET INCOME                                        $2,207,145                $ 1,631,046                 $ 4,557,279      
                                                 ===========                ===========                ============      
                                                                                                                         
NET INCOME PER UNIT:                                                                                                    
    Weighted average number of units                                                                                     
       outstanding (Note 4)                          256,535                    362,917                     786,097      
                                                 ===========                ===========                ============      
                                                                                                                         
    Net income per weighted average                                                                                      
       General Partner and Limited                                                                                       
       Partner Unit                                    $8.60                      $4.49                       $5.80      
                                                 ===========                ===========                ============      
</TABLE>


See notes to financial statements.

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

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                            Limited       General
                                Units      Partners       Partner         Total
                              --------   ------------    ----------   ------------ 
<S>                           <C>        <C>            <C>           <C> 
PARTNERS' CAPITAL,
  DECEMBER 31, 1994            959,450   $ 92,015,350    $1,171,862   $ 93,187,212

Net income                          --      4,505,266        52,013      4,557,279
 
Organization and initial
   offering costs recovery          --          3,938            51          3,989
 
Redemptions                   (474,733)   (46,816,782)     (500,685)   (47,317,467)
                              --------   ------------    ----------   ------------ 
 
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
                              ========   ============    ==========   ============
</TABLE>

See notes to financial statements.

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

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 AND 1995
--------------------------------------------------------------------------------

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
    in the speculative trading of futures, options on futures and forward
    contracts on a wide range of commodities. Merrill Lynch Investment Partners
    Inc. (formerly, ML Futures 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 and Merrill Lynch Futures
    Inc. ("MLF"), also a Merrill Lynch affiliate, is its commodity broker. The
    General Partner has agreed to maintain a general partnership interest in the
    Partnership equal to 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.

    MLIP selects independent advisors (the "Advisors" or the "Trading Advisors")
    to manage the Partnership's assets, and allocates and reallocates the
    Partnership's trading assets among existing, replacement and additional
    Advisors.

    MLIP also determines what percentage of the Partnership's total capital to
    allocate to trading from time to time, attempting to balance the
    desirability of reducing the opportunity costs of the Partnership's
    "principal protection" structure by allocating 100% (or more) of the
    Partnership's assets to trading 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).

    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 and forward contract transactions 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 fair value.
    The change in net unrealized profit on open contracts from one period to the
    next is reflected in change in unrealized in the Statements of Income. Fair
    value is based on quoted market prices on the exchange or market on which
    the contract is traded.

                                      -5-
<PAGE>
 
   Organizational and Initial Offering Costs, Operating Expenses and Selling
   -------------------------------------------------------------------------
   Commissions
   -----------

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

   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 as
   reimbursement for the foregoing expenses.

   No selling commissions have been or are paid by Limited Partners.

   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, 1997.

   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. Units redeemed
   during the four successive six-month periods ending after the Partnership
   commenced trading with respect to each series of Units were assessed early
   redemption charges of 4%, 3%, 2% and 1%, respectively, of their Net Asset
   Value as of the date of redemption.

   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
   defined in the Limited Partnership Agreement.

2. RELATED PARTY TRANSACTIONS

   The Partnership's U.S. dollar assets are held at MLF in cash. On the cash
   held at MLF, the Partnership receives interest from Merrill Lynch at the
   prevailing 91-day U.S. Treasury bill rate. Merrill Lynch may derive certain
   economic benefits, in excess of the interest which Merrill Lynch pays to the
   Partnership, from possession of such cash.

   Merrill Lynch credits the Partnership with interest on the Partnership's non-
   U.S. dollar-denominated assets based on local short-term rates. 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.

                                      -6-
<PAGE>
 
    The General Partner has 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 will be credited as their response forms are
    processed. The total amount of the adjustment is 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 has
    determined that interest has been calculated appropriately since November
    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) of the Partnership's month-end
    assets allocated to trading and the Partnership began to pay MLIP a monthly
    administrative fee of .021 of 1% (a .25% annual rate) of the 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, 1997, 1996
    and 1995 was approximately $56, $86 and $100, respectively (not including,
    in calculating round-turn equivalents, forward contracts on a futures-
    equivalent basis).

    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.

    The Partnership trades forward contracts through a foreign exchange service
    desk (the "F/X Desk") established by MLIP. The F/X Desk gives the
    Partnership access to counterparties in addition to (but also including )
    Merrill Lynch International Bank ("MLIB"). MLIP or another Merrill Lynch
    entity charges a service fee equal to, at current exchanges rates,
    approximately $5.00 to $12.50 on each purchase or sale (not round-turn) of a
    futures contract-equivalent face amount of a given currency traded in the
    forward markets. No service fees are charged on trades awarded to MLIB
    (which receives bid-ask spreads on such trades).

    In its exchange of futures for physical ("EFP") trading with Merrill Lynch,
    the Partnership acquires spot or forward (collectively, "cash") currency
    positions through the F/X Desk in the same manner and on the same terms as
    in the case of the Partnership's other F/X Desk trading. When the
    Partnership exchanges these positions for futures, there is a differential
    between the prices of the two positions. This differential reflects, in
    part, the different settlement dates of the cash and the futures contracts
    and prevailing interest rates, but also includes a pricing spread in favor
    of MLIB or another Merrill Lynch entity. The Advisors, to date, have made
    little use of EFPs.

    The Partnership's F/X Desk service fee and EFP differential costs have, to
    date totaled no more than .25 of 1% per annum of the Partnership's average
    month-end assets.

                                      -7-
<PAGE>
 
3. AGREEMENTS

   The Partnership and the Advisors have each entered into Advisory Agreements.
   The Advisory Agreements generally terminate one year after they are entered
   into, subject to certain renewal rights exercisable by the Partnership. The
   Advisors determine the commodity futures and forward contract trades to be
   made on behalf of their respective Partnership accounts, subject to certain
   trading policies and to certain rights reserved by the General Partner.

   In the case of Trading LLCs, as defined in Note 6, the Trading LLCs entered
   into the 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 annually, are paid 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 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, 1997, 1996 and 1995 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 such
   year.

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.

6. INVESTMENTS

   The Partnership places assets under the management of certain of the Advisors
   not through opening managed accounts with them but rather through investing
   in private limited liability companies ("Trading LLCs") sponsored by MLIP.
   The only members of the Trading LLCs are commodity pools sponsored by MLIP.
   Each Trading LLC trades 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 investing in a Trading LLC rather than a managed account has
   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 are reflected in the financial statements at fair value based
   upon the Partnership's interest in each Trading LLC. Fair value is equal to
   the market value of the net assets of the Trading LLCs. The resulting
   difference between cost and fair value is reflected on the Statement of
   Income as income or loss from investments.

                                      -8-
<PAGE>
 
    As of December 31, 1997 and 1996, 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:

<TABLE> 
<CAPTION> 

                                 1997                 1996          
                            ---------------      --------------- 
       <S>                  <C>                  <C>                
       JWH LLC               $  6,115,739         $  3,567,853      
       Chesapeake LLC           5,354,159            4,721,095      
       SJO LLC                  5,222,606                -       
                            ---------------      --------------- 
       Total                 $ 16,692,504         $  8,288,948   
                            ===============      =============== 
</TABLE> 

    Total revenues and fees with respect to such investments are set forth as
    follows:

<TABLE>
<CAPTION>

  For the year ended                 Total                 Brokerage         Administrative           Profit            Income from
  December 31, 1997                 Revenue               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                 Revenue               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>

    Condensed statements of financial condition as of December 31, 1997 and 1996
    and statements of income for the periods ended December 31, 1997 and 1996
    for JWH LLC, Chesapeake LLC and SJO LLC are set forth as follows:

<TABLE> 
<CAPTION>
 
                                                            1997                                               1996 
                                      ----------------------------------------------------        ------------------------------
                                          JWH              Chesapeake            SJO                  JWH            Chesapeake  
                                          LLC                 LLC                LLC                  LLC                LLC     
                                      -----------          -----------        -----------         -------------      ----------- 
<S>                                    <C>                <C>                <C>                  <C>                <C>         
 Assets                               $62,481,438          $17,195,182        $21,240,207           $80,825,364      $21,273,568 
                                      ===========          ===========        ===========         =============      =========== 
                                                                                                                                 
Liabilities                           $ 1,122,533          $   704,681        $ 2,058,617           $19,848,210      $   579,289 
Members' Capital                       61,358,905           16,490,501         19,181,590            60,977,154       20,694,279 
                                      -----------          -----------        -----------         -------------      ----------- 
                                                                                                                                 
Total                                 $62,481,438          $17,195,182        $21,240,207           $80,825,364      $21,273,568 
                                      ===========          ===========        ===========         =============      =========== 
                                                                                                                                 
Revenues                              $15,279,401          $ 3,480,490        $ 3,903,267           $19,365,949      $   608,594 
                                                                                                                                 
Expenses                                6,714,041            2,055,125          2,144,078             4,426,261          382,949 
                                      -----------          -----------        -----------         -------------      ----------- 
                                                                                                                                 
Net Income                            $ 8,565,360          $ 1,425,365        $ 1,759,189           $14,939,688      $   225,645 
                                      ===========          ===========        ===========         =============      ===========  
 
</TABLE>

                                      -9-
<PAGE>

7. FAIR VALUE AND OFF-BALANCE SHEET RISK

   The Partnership trades futures, options and forward contracts in interest
   rates, stock indices, commodities, currencies, energy and metals. The
   Partnership's total trading results by reporting category for the years ended
   December 31, 1997, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>

                                           Total Trading Results 
                              -----------------------------------------------
                                 1997               1996              1995
                              -----------        -----------      ----------- 
<S>                          <C>                <C>              <C>
Interest Rates                 $     (441)       $ 1,150,787      $ 5,877,387
Stock Indices                     (39,146)          (410,783)         279,104
Commodities                       (49,481)          (466,980)        (779,374)
Currencies                        288,251          1,103,173        4,409,558
Energy                             12,635          1,410,507        1,397,675
Metals                             62,532         (1,066,833)      (3,770,871)
                              -----------        -----------      ----------- 
                               $  274,350        $ 1,719,871      $ 7,413,479
                              ===========        ===========      ===========
</TABLE>

   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 market values of the underlying financial
   instruments or commodities underlying such derivative instruments frequently
   result in changes in the Partnership's unrealized profit (loss) on such
   derivative instruments as reflected in the Statements of Financial Condition.
   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 as well as the volatility and liquidity of the markets in
   which the derivative instruments are traded.

   The General Partner has procedures in place intended to control market risk,
   although there can be no assurance that they will, in fact, succeed in doing
   so. The procedures focus primarily on monitoring the trading of the Advisors
   selected from time to time for the Partnership, adjusting the percentage of
   the Partnership's total assets allocated to trading, calculating the Net
   Asset Value of the Advisors' respective Partnership 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 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 $100 as
   of the Principal Assurance Date.

                                     -10-
<PAGE>

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

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

   The contract/notional values of open contracts as of December 31, 1997 and
   1996 were as follows:

<TABLE>
<CAPTION>
 
                                                      1997                                      1996
                                    -----------------------------------------  ------------------------------------------- 
                                       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                           $ 8,526,872            1,289,262            $19,868,322           $ 1,564,238
Stock Indices                              1,833,153               58,102                     --               250,367
Commodities                                   53,000              484,698                120,648               324,279
Currencies                                   723,600            5,212,058              1,050,027             3,065,985
Energy                                            --              895,458                 82,109                    --
Metals                                            --              117,150                639,127             1,085,360
                                         -----------          -----------            -----------          ------------
                                                                                                 
                                         $11,136,625          $ 8,056,728            $21,760,233           $ 6,290,229
                                         ===========          ===========            ===========          ============
</TABLE>

   Substantially all of the Partnership's derivative financial instruments
   outstanding at December 31, 1997, expire within one year.

   The contract/notional values of the Partnership's open exchange-traded and
   non-exchange-traded derivative instrument positions as of December 31, 1997
   and 1996 were as follows:

<TABLE>
<CAPTION>
                                                       1997                                        1996 
                                    -----------------------------------------  -------------------------------------------
                                       Commitment to        Commitment to          Commitment to        Commitment to     
                                     Purchase (Futures,     Sell (Futures,       Purchase (Futures,     Sell (Futures,    
                                     Options & Forwards)  Options & Forwards)    Options & Forwards   Options & Forwards) 
                                    --------------------  -------------------  ---------------------  -------------------- 
 <S>                                <C>                   <C>                  <C>                    <C> 
Exchange-Traded                            $11,136,625           $ 8,056,728            $21,171,231            $5,598,019      
Non-Exchange-Traded                                 --                    --                589,002               692,210      
                                         -------------         --------------         ------------         --------------      
                                           $11,136,625           $ 8,056,728            $21,760,233           $ 6,290,229      
                                         =============         ==============         =============        ==============  
</TABLE> 


                                     -11-
<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, 1997
    and 1996 were as follows:

<TABLE> 
<CAPTION> 

                                           1997                                                1996
                          -----------------------------------------        -------------------------------------------
                             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              $   16,385,163       $   9,028,153                $   99,859,109        $   61,662,340
Stock Indices                    1,038,952             657,344                     9,556,040             2,455,672
Commodities                        847,261             467,905                     8,046,443             1,227,924
Currencies                       1,708,711           3,329,939                    21,644,329            27,211,306
Energy                             485,906             483,373                     3,186,493               101,599
Metals                             817,854             704,123                    12,593,308             6,766,261
                         -----------------      -------------------         -----------------       ------------------- 
                            $   21,283,847       $  14,670,837                 $ 154,885,722        $   99,435,102
                         =================      ===================         =================       =================== 
</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 market 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 gain, if any, included in
    the Statements of Financial Condition.

    The Partnership also has credit risk because the sole counterparty or broker
    with respect to most of the Partnership's assets is MLF.

                                     -12-
<PAGE>

   The gross unrealized profit and net unrealized profit (loss) on the
   Partnership's open derivative instrument positions as of December 31, 1997
   and 1996 were as follows:

<TABLE> 
<CAPTION> 

                                                  1997                                     1996                      
                                      ------------------------------           --------------------------------    
                                          Gross            Net                   Gross                           
                                       Unrealized       Unrealized             Unrealized       Net Unrealized   
                                          Profit       Profit (Loss)             Profit          Profit (Loss)   
                                      -----------      -------------           -----------      ---------------    
<S>                                    <C>            <C>                      <C>              <C>               
Exchange-Traded                       $   135,522        $  112,280              $  80,876          $   64,542 
Non-Exchange-Traded                            87             (256)                 34,397              (4,332)
                                      -----------      -------------           -----------      ---------------    

                                      $   135,609        $  112,024              $ 115,273          $   60,210 
                                      ===========      =============           ===========      ===============    
</TABLE> 

   The Partnership controls credit risk by dealing almost exclusively with
   Merrill Lynch entities as brokers and counterparties.

   The Partnership in its normal courses of business, enters into various
   contracts, with MLF acting as its commodity broker. Pursuant to the brokerage
   arrangement with MLF, to the extent that such trading results in receivables
   from and payables are offset and reported as a net receivable or payable.




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

                            /s/ Michael A. Karmelin

                              Michael A. Karmelin
                            Chief Financial Officer
                    Merrill Lynch Investment Partners Inc.
                              General Partner of
                     The SECTOR Strategy Fund/SM/ VI L.P.

                                     -13-