<PAGE>
                                                                EXHIBIT 13.01(A)
 
                         ML MILLBURN GLOBAL L.L.C.
                         (A Delaware Limited Liability Company)


                         Financial Statements for the years ended
                         December 31, 1998 and 1997 and for the period from
                         December 2, 1996 (Commencement of Operations)
                         To December 31, 1996 and Independent Auditors' Report


[LOGO] Merrill Lynch
<PAGE>
 
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)


TABLE OF CONTENTS
--------------------------------------------------------------------------------
 
                                                                            Page
                                                                            ----
                                                                       
INDEPENDENT AUDITORS' REPORT                                                   1
                                                                       
FINANCIAL STATEMENTS FOR THE YEARS ENDED                               
  DECEMBER 31, 1998 AND 1997 AND  FOR THE PERIOD FROM                  
  DECEMBER 2, 1996 (COMMENCEMENT OF OPERATIONS)                        
  TO DECEMBER 31, 1996:                                                
                                                                       
  Statements of Financial Condition                                            2
                                                                       
  Statements of Income                                                         3
                                                                       
  Statements of Changes in Members' Capital                                    4
                                                                       
  Notes to Financial Statements                                             5-11
<PAGE>
 
INDEPENDENT AUDITORS' REPORT
----------------------------



To the Members of
 ML Millburn Global L.L.C.:

We have audited the accompanying statements of financial condition of ML
Millburn Global L.L.C. (the "Company") as of December 31, 1998 and 1997, and the
related statements of income and of changes in members' capital for the years
ended December 31, 1998 and 1997 and for the period from December 2, 1996
(commencement of operations) to December 31, 1996.  These financial statements
are the responsibility of Merrill Lynch Investment Partners Inc., the Company's
Administrator.  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 ML Millburn Global L.L.C. as of December 31,
1998 and 1997, and the results of its operations for the years ended December
31, 1998 and 1997 and for the period from December 2, 1996 (commencement of
operations) to December 31, 1996 in conformity with generally accepted
accounting principles.


DELOITTE & TOUCHE LLP


New York, New York
February 4, 1999
<PAGE>
 
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)

STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 and 1997
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 
ASSETS                                                        1998                  1997
                                                        ------------------    ------------------
<S>                                                     <C>                   <C> 
Equity in commodity futures trading accounts:                                               
    Cash and option premiums                                 $ 26,414,436          $ 34,556,738
    Net unrealized profit on open contracts                     1,304,531               873,497
Accrued interest (Note 2)                                          96,033               154,701
                                                        ------------------    ------------------
                                                    
                TOTAL                                        $ 27,815,000          $ 35,584,936
                                                        ==================    ==================
                                                    
LIABILITIES AND MEMBERS' CAPITAL                    
                                                    
LIABILITIES:                                                                                     
    Brokerage commissions payable (Note 2)                   $    220,182          $    279,690
    Profit Shares payable (Note 3)                                183,086               902,022
    Administrative fees payable (Note 2)                            5,794                 7,413
    Withdrawals payable                                           128,824               265,533
                                                        ------------------    ------------------
                                                    
            Total liabilities                                     537,886             1,454,658
                                                        ------------------    ------------------
                                                    
MEMBERS' CAPITAL:                                   
    Voting Members                                             27,277,114            34,130,278
                                                        ------------------    ------------------
                                                    
            Total Voting Members' capital                      27,277,114            34,130,278
                                                        ------------------    ------------------
                                                    
                TOTAL                                        $ 27,815,000          $ 35,584,936
                                                        ==================    ==================
</TABLE> 
                                                                
See notes to financial statements.

                                      -2-
<PAGE>
 
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE PERIOD FROM DECEMBER 2, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 
                                                     1998                 1997                 1996
                                               -----------------    -----------------     ---------------
<S>                                            <C>                  <C>                   <C> 
REVENUES:
Trading profit (loss):
    Realized                                        $ 1,728,662          $ 6,777,967          $ (548,574)
    Change in unrealized                                431,034              (43,022)            916,519
                                               -----------------    -----------------     ---------------

        Total trading results                         2,159,696            6,734,945             367,945

Interest income (Note 2)                              1,433,954            1,568,485              82,674
                                               -----------------    -----------------     ---------------

        Total revenues                                3,593,650            8,303,430             450,619
                                               -----------------    -----------------     ---------------

EXPENSES:
    Brokerage commissions (Note 2)                    2,836,503            3,530,493             270,878
    Profit Shares (Note 3)                              197,023              978,330              14,552
    Administrative fees (Note 2)                         74,885               91,883               5,940
                                               -----------------    -----------------     ---------------

        Total expenses                                3,108,411            4,600,706             291,370
                                               -----------------    -----------------     ---------------

NET INCOME                                          $   485,239          $ 3,702,724          $  159,249
                                               =================    =================     ===============
</TABLE> 


See notes to financial statements

                                      -3-
<PAGE>
 
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)


STATEMENTS OF CHANGES IN MEMBER'S CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE PERIOD FROM DECEMBER 2, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
--------------------------------------------------------------------------------

<TABLE> 

<S>                                                        <C> 
Initial Contributions                                       $     27,949,167

Contributions                                                      5,867,360

Receivable from Member                                            (5,867,360)

Withdrawals                                                         (383,590)

Net income                                                           159,249
                                                           ------------------

MEMBERS' CAPITAL,
  DECEMBER 31, 1996                                               27,724,826

Collection of receivable                                           5,867,360

Withdrawals                                                       (3,164,632)

Net income                                                         3,702,724
                                                           ------------------

MEMBERS' CAPITAL,
  DECEMBER 31, 1997                                         $     34,130,278

Withdrawals                                                       (7,338,403)

Net income                                                           485,239
                                                           ------------------

MEMBERS' CAPITAL,
  DECEMBER 31, 1998                                         $     27,277,114
                                                           ==================
</TABLE> 


See notes to financial statements.

                                      -4-
<PAGE>
 
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)

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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

   ML Millburn Global L.L.C. (the "Company") was organized under the Delaware
   Limited Liability Company Act on November 22, 1996 and commenced trading
   activities on December 2, 1996.  The Company engages in the speculative
   trading of futures, options on futures and forward contracts on a wide range
   of commodities.  Millburn Ridgefield Corporation (the "Advisor" or
   "Millburn") is the Advisor to the Company.  Merrill Lynch Investment Partners
   ("MLIP"), a wholly-owned subsidiary of Merrill Lynch Group, Inc., which, in
   turn, is a wholly-owned subsidiary of Merrill Lynch & Co., Inc.  ("Merrill
   Lynch"), has been delegated administrative authority over the Company.
   Merrill Lynch Futures Inc. ("MLF"), an affiliate of Merrill Lynch, is the
   Company's commodity broker.  The Company has authorized two classes of
   Membership Interests:  Non-Voting Interests and Voting Interests
   (collectively, "Interests").  These two classes of Interests have common
   economic interests in the Company, but the Non-Voting Interests, which could
   be held by non-United States investment funds sponsored by MLIP, would not
   participate in any respect in the management of the Company, or engage,
   directly or indirectly, in, participate in or control all or any portion of
   the business activities or affairs of the Company.  Management of the Company
   is vested solely in the Voting Interests, which are held by United States
   limited partnerships sponsored by MLIP.  The Voting Members control all
   business activities and affairs of the Company by agreement of the majority
   in interest of such Voting Members, subject to the trading authority vested
   in and delegated to Millburn and the administrative authority vested in and
   delegated to MLIP.  The Members of the Company, each of which is a "commodity
   pool" sponsored and managed by MLIP, share in the profits and losses of the
   Company in proportion to their respective capital accounts, although the
   Members are subject to somewhat different fees.  Currently, there is only one
   Member of the Company.

   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 as
   well as 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 market value (for
   those commodity interests for which market quotations are readily available)
   or at fair value.  The change in unrealized profit (loss) on open contracts
   from one period to the next is reflected in change in unrealized in the
   Statements of Income.

                                      -5-
<PAGE>
 
   Foreign Currency Transactions
   -----------------------------

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

   Organizational Costs
   --------------------

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

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

   MLIP pays for all operating costs (including all legal, accounting, printing,
   postage and similar administrative expenses) of the Company.

   Income Taxes
   ------------

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

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

   No distributions had been made by the Company to any Member as of December
   31, 1998.

   Withdrawals
   -----------

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

   Dissolution
   -----------

   The Company will terminate on December 31, 2046 or at an earlier date if
   certain conditions occur, as well as under certain other circumstances as set
   forth in the Organization 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. MLIP does not believe that the
   Statement will have a significant effect on the financial statements of the
   Company.

                                      -6-
<PAGE>
 
2. RELATED PARTY TRANSACTIONS

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

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

   Following the allocation of the Company's trading profit (loss) and interest
   income among the Members' respective capital accounts, MLIP calculates the
   brokerage commissions, administrative fees, Profit Shares and other expenses
   due from the Company to third parties, in respect of the Company's trading on
   behalf of the respective Members (the Company being subject to different
   commissions, fees, Profit Shares and expenses in respect of its trading as
   allocable to the various different Members).  Such commissions, fees and
   expenses are specifically allocated as of the end of each accounting period
   (not pro rata based on the Members' respective capital accounts) to, and
   deducted from, the appropriate Members' capital accounts and paid out by the
   Company.  The Company pays brokerage commissions to MLF at flat monthly rates
   reflecting the fee arrangement between each Member and MLF.  During the year
   ended December 31, 1997, and the period from December 2, 1996 to December 31,
   1996, such rates ranged from .729 of 1% (an 8.75% annual rate) to .979 of 1%
   (an 11.75% annual rate) of each Member's month-end assets invested in the
   Company.  During the period from January 1, 1998 to May 31, 1998, the rates
   ranged from .729 of 1% (an 8.75% annual rate) to .792 of 1% (a 9.50% annual
   rate).  As of May 31, 1998, the Members subject to a .729 of 1% brokerage
   commission rate withdrew from the Company, and thereafter, the rate was .792
   of 1% (a 9.50% annual rate).

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

   In 1996, MLF paid the Advisor an annual consulting fee of 4% of the Company's
   average month-end assets, after reduction for a portion of brokerage
   commissions.  Beginning January 1, 1997 the consulting fee paid by MLF to the
   Advisor was reduced to 2% per annum.

   Many of the Company'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 Company. MLIP anticipates that some of the Company's
   foreign currency trades will be executed through MLIB, an affiliate of MLIP.
   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 Company acquires
   cash currency positions through banks and dealers, including Merrill Lynch.
   The Company pays a spread when it exchanges these positions for futures.
   This spread reflects, in part, the different settlement dates of the cash and
   the

                                      -7-
<PAGE>
 
   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. ADVISORY AGREEMENT

   The Advisory Agreement between the Company and Millburn has remained
   essentially unchanged since the inception of the Company.  This Agreement is
   in effect for successive one-year terms, but, in fact, given the single
   advisor structure of the Company, the Company would terminate were the
   Advisor no longer to manage its trading.  The Advisor determines the
   commodity futures, options on futures and forward contract trades to be made
   on behalf of the Company, subject to certain rights reserved by MLIP.

   The Company pays to Millburn an annual Profit Share equal to 20% of any New
   Trading Profit, as defined, attributable to each Members' Capital Account in
   the Company.  Profit Shares are calculated separately in respect of each
   Members' Capital Account.  Prior to January 1, 1997, Profit Shares were
   determined as of the end of each calendar quarter.  Profit Shares are also
   paid to Millburn upon the withdrawal of capital from the Company by a Member
   for whatever purpose, other than to pay expenses.

4. FAIR VALUE AND OFF-BALANCE SHEET RISK

   The Company trades futures, options on futures and forward contracts on
   interest rates, stock indices, currencies and metals.  The Company's trading
   results for the years ended December 31, 1998 and 1997 and for the period
   from December 2, 1996 (Commencement of Operations) to December 31, 1996 were
   as follows:

<TABLE> 
<CAPTION> 
                                          Trading Results
                  -------------------------------------------------------------
                        1998                   1997                  1996
                  ------------------     ------------------     ---------------
<S>               <C>                    <C>                    <C> 
Interest rates          $ 4,995,651            $   591,963          $ (968,118)
Stock indices              (555,528)             1,181,885             265,546
Currencies               (1,713,442)             5,610,941           1,028,590
Metals                     (566,985)              (649,844)             41,927
                  ------------------     ------------------     ---------------
                        $ 2,159,696            $ 6,734,945          $  367,945
                  ==================     ==================     ===============
</TABLE> 
                                        

   Market Risk

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

   MLIP, which monitors the trading of the Company in MLIP's capacity as the
   Company's Administrator, 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 Advisor, calculating the Net Asset Value of the Company and of
   the Members' respective capital accounts as of the close of business on each
   day and reviewing outstanding positions for over-

                                      -8-
<PAGE>
 
   concentrations. While MLIP does not itself intervene in the markets to hedge
   or diversify the Company's market exposure, MLIP may consult with the Advisor
   concerning the possibility of the Advisor reducing trading leverage or market
   concentrations. However, such interventions are unusual. Except in cases in
   which it appears that the Advisor has begun to deviate from past practice and
   trading policies or to be trading erratically (which has not occurred to
   date), MLIP's basic risk control procedures consist simply of the ongoing
   process of monitoring Millburn with the market risk controls being applied by
   Millburn.

   Fair Value

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

   The contract/notional values of open contracts as of December 31, 1998 and
   1997 were as follows:

<TABLE> 
<CAPTION> 
                                            1998                                                    1997
                    ----------------------------------------------------    ---------------------------------------------------
                         Commitment to               Commitment to               Commitment to               Commitment to
                      Purchase (Futures,            Sell (Futures,            Purchase (Futures,            Sell (Futures,
                      Options & Forwards)         Options & Forwards)         Options & Forwards)         Options & Forwards)
                    ------------------------    ------------------------    ------------------------    -----------------------
<S>                 <C>                         <C>                         <C>                         <C>              
Interest rates           $  81,923,291               $ 244,863,913               $ 113,325,505               $  45,345,280
Stock indices                2,024,758                   4,584,393                     729,875                   7,900,952
Currencies                 106,295,680                  83,749,694                  61,598,754                  91,949,255
Metals                       7,509,850                  14,603,585                   2,768,365                  11,251,745
                    ------------------------    ------------------------    ------------------------    -----------------------
                         $ 197,753,579               $ 347,801,585               $ 178,422,499               $ 156,447,232
                    ========================    ========================    ========================    =======================
</TABLE> 

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

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

<TABLE> 
<CAPTION> 
                                            1998                                                    1997
                    ----------------------------------------------------    ---------------------------------------------------
                         Commitment to               Commitment to               Commitment to               Commitment to
                      Purchase (Futures,            Sell (Futures,            Purchase (Futures,            Sell (Futures,
                      Options & Forwards)         Options & Forwards)         Options & Forwards)         Options & Forwards)
                    ------------------------    ------------------------    ------------------------    -----------------------
<S>                 <C>                         <C>                         <C>                         <C> 
Exchange-
  Traded                 $  85,548,429               $ 253,061,446               $ 117,094,640               $  55,066,167
Non-Exchange-
  Traded                   112,205,150                  94,740,139                  61,327,859                 101,381,065
                    ------------------------    ------------------------    ------------------------    -----------------------
                         $ 197,753,579               $ 347,801,585               $ 178,422,499               $ 156,447,232
                    ========================    ========================    ========================    =======================
</TABLE> 

                                      -9-
<PAGE>
 
   The average fair values, based on contract/notional values, of the Company's
   derivative instrument positions which were open as of the end of each
   calendar month during the years ended December 31, 1998 and 1997 were as
   follows:

<TABLE> 
<CAPTION> 
                                          1998                                                1997
                    -----------------------------------------------     --------------------------------------------------
                         Commitment to           Commitment to              Commitment to               Commitment to
                      Purchase (Futures,         Sell (Futures,          Purchase (Futures,             Sell (Futures,
                      Options & Forwards)      Options & Forwards)       Options & Forwards)         Options & Forwards)
                    ------------------------------------------------------------------------------------------------------
<S>                 <C>                       <C>                       <C>                          <C> 
Interest rates         $ 124,601,864            $  73,655,157              $ 109,239,425               $  64,911,569
Stock indices              2,853,695                5,345,009                  4,174,099                   4,443,654
Currencies               189,443,664              191,133,976                181,132,627                 197,159,660
Metals                    10,024,800               14,065,584                 10,647,435                  11,798,908
                    --------------------      ---------------------     --------------------         ---------------------
                       $ 326,924,023            $ 284,199,726              $ 305,193,586               $ 278,313,791
                    ====================      =====================     ====================         =====================
</TABLE> 

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

   Credit Risk

   The risks associated with exchange-traded contracts are typically perceived
   to be less than those associated with over-the-counter (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
   Company's market exposure in the particular class of derivative instrument
   listed, but not the credit risk associated with counterparty nonperformance.
   The credit risk associated with these instruments from counterparty
   nonperformance is the net unrealized profit included on the Statements of
   Financial Condition.

                                      -10-
<PAGE>

                                                                EXHIBIT 13.01(A)

               -----------------------------------------------------------------
               ML Sjo Prospect L.L.C.
               (A Delaware Limited Liability Company)
               (In Liquidation)
 
               Financial Statements for the Period from January 1, 1998 to May
               31, 1998 and the Period from January 2, 1997 (Commencement of
               Operations) to December 31, 1997 and Independent Auditors' Report
<PAGE>
 
ML SJO PROSPECT L.L.C.
(A Delaware Limited Liability Company)
(In Liquidation)

TABLE OF CONTENTS
--------------------------------------------------------------------------------
 
                                                                            Page
                                                                            ----
 
INDEPENDENT AUDITORS' REPORT                                                   1
 
FINANCIAL STATEMENTS FOR THE PERIOD FROM JANUARY 1, 1998 TO MAY 31, 1998
  AND FOR THE PERIOD FROM JANUARY 2, 1997 (COMMENCEMENT OF OPERATIONS)
  TO DECEMBER 31, 1997:
 
  Statements of Financial Condition                                            2
 
  Statements of Income                                                         3
 
  Statements of Changes in Members' Capital                                    4
 
  Notes to Financial Statements                                             5-10
<PAGE>
 
INDEPENDENT AUDITORS' REPORT
----------------------------



To the Members of
ML Sjo Prospect L.L.C. (In Liquidation):

We have audited the accompanying statements of financial condition of ML Sjo
Prospect L.L.C. (a Delaware limited liability company; the "Company"), in
liquidation, as of May 31, 1998 and December 31, 1997, and the related
statements of income and of changes in members' capital for the period from
January 1, 1998 to May 31, 1998 and for the period from January 2, 1997
(commencement of operations) to December 31, 1997.  These financial statements
are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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 ML Sjo Prospect L.L.C. (In Liquidation) as
of May 31, 1998 and December 31, 1997, and the results of its operations for the
period from January 1, 1998 to May 31, 1998 and for the period from January 2,
1997 (commencement of operations) to December 31, 1997 in conformity with
generally accepted accounting principles.

As discussed in Notes 1 and 2 to the financial statements, all trading
operations were suspended as of May 31, 1998.  Liquidation was completed on July
30, 1998.  Formal dissolution was effective on October 14, 1998.

DELOITTE & TOUCHE LLP


New York, New York
October 16, 1998
<PAGE>
 
ML SJO PROSPECT L.L.C.
(A Delaware Limited Liability Company)
(In Liquidation)

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

<TABLE>
<CAPTION>

             ASSETS                                                                  1998                  1997
                                                                               ------------------    ------------------
<S>                                                                            <C>                   <C>
             Accrued interest (Note 3)                                                  $ 80,078              $ 93,192
             Equity in commodity futures trading accounts:
                 Cash and option premiums                                             18,489,797            20,891,450
                 Net unrealized profit on open contracts                                       -               255,565
                                                                               ------------------    ------------------

                             TOTAL                                                  $ 18,569,875          $ 21,240,207
                                                                               ==================    ==================

             LIABILITIES AND VOTING MEMBERS' CAPITAL

             LIABILITIES:
                 Withdrawals payable                                                $ 18,352,268           $ 1,716,855
                 Brokerage commissions payable (Note 3)                                  135,264               154,735
                 Profit Shares payable (Note 4)                                           78,478               182,607
                 Administrative fees payable (Note 3)                                      3,865                 4,420
                                                                               ------------------    ------------------

                             Total liabilities                                        18,569,875             2,058,617
                                                                               ------------------    ------------------

             VOTING MEMBERS' CAPITAL

                         Total Voting Members' capital                                         -            19,181,590
                                                                               ------------------    ------------------

                             TOTAL                                                  $ 18,569,875          $ 21,240,207
                                                                               ==================    ==================
</TABLE>


             See notes to financial statements.

                                      -2-
<PAGE>
 
ML SJO PROSPECT L.L.C.
(A Delaware Limited Liability Company)
(In Liquidation)

STATEMENTS OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1998 TO MAY 31, 1998 AND FOR THE PERIOD FROM
JANUARY 2, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

             REVENUES:                                                              1998                        1997
                                                                              -----------------           -----------------
<S>                                                                           <C>                          <C>
                 Trading profit (loss):
                 Realized                                                          $ 1,317,593                 $ 2,563,871
                 Change in unrealized                                                 (255,565)                    255,565
                                                                              -----------------           -----------------

                     Total trading results                                           1,062,028                   2,819,436

             Interest income (Note 3)                                                  410,214                   1,083,832
                                                                              -----------------           -----------------

                     Total revenues                                                  1,472,242                   3,903,268
                                                                              -----------------           -----------------

             EXPENSES:
                 Brokerage commissions (Note 3)                                        699,356                   1,874,826
                 Profit Shares (Note 4)                                                 83,540                     216,149
                 Administrative fees (Note 3)                                           19,982                      53,103
                                                                              -----------------           -----------------

                     Total expenses                                                    802,878                   2,144,078
                                                                              -----------------           -----------------

             NET INCOME                                                              $ 669,364                 $ 1,759,190
                                                                              =================           =================

</TABLE>

             See notes to financial statements.



                                      -3-
<PAGE>
 
ML SJO PROSPECT L.L.C.
(A Delaware Limited Liability Company)
(In Liquidation)

STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
FOR THE PERIOD FROM JANUARY 1, 1998 TO MAY 31, 1998 AND FOR THE PERIOD FROM
JANUARY 2, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                 Non-Voting                  
                                                      Voting Members               Members               Total
                                                    -------------------     ---------------------    ---------------
<S>                                                 <C>                     <C>                      <C>
             Initial Contributions                        $ 19,005,590            $ 2,036,797          $ 21,042,387

             Additions                                       4,053,526                      -             4,053,526

             Withdrawals                                    (5,495,743)            (2,177,770)           (7,673,513)

             Net Income                                      1,618,217                140,973             1,759,190
                                                    -------------------     ------------------    ------------------

             MEMBERS' CAPITAL,
               DECEMBER 31, 1997                            19,181,590                      -            19,181,590

             Withdrawals                                   (19,850,954)                     -           (19,850,954)

             Net Income                                        669,364                      -               669,364
                                                    -------------------     ------------------    ------------------

             MEMBERS' CAPITAL,
               MAY 31, 1998                               $     -                 $         -          $          -
                                                    ===================     ==================    ==================
</TABLE>


             See notes to financial statements.



                                      -4-
<PAGE>
 
ML SJO PROSPECT L.L.C.
(A Delaware Limited Liability Company)
(In Liquidation)

NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1998 TO MAY 31, 1998 AND FOR THE PERIOD FROM
JANUARY 2, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

   ML Sjo Prospect L.L.C. (the "Company") was organized under the Delaware
   Limited Liability Company Act on December 19, 1996 and commenced trading
   activities on January 2, 1997.  Effective May 31, 1998, the Company suspended
   trading operations (see Note 2).  The Company engaged in the speculative
   trading of futures, options on futures and forward contracts on a wide range
   of commodities.  Merrill Lynch Investment Partners Inc. ("MLIP"), a wholly-
   owned subsidiary of Merrill Lynch Group, Inc., which in turn is a wholly-
   owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch"), was
   delegated administrative authority over the Company, and Merrill Lynch
   Futures Inc. ("MLF"), also an affiliate of MLIP, was its commodity broker.
   The Company had authorized two classes of Membership Interests: Non-Voting
   Membership Interests and Voting Membership Interests (collectively,
   "Interests").  These two classes of Interests had common economic interests
   in the Company, but the Non-Voting Interests, which were held by non-United
   States investment funds sponsored by MLIP, did not participate in any respect
   in the management of the Company, or engage, directly or indirectly, in,
   participate in or control all or any portion of the business activities or
   affairs of the Company.  Management of the Company was vested solely in the
   Voting Interests, which were held by United States limited partnerships
   sponsored by MLIP.  The Voting Members controlled all business activities and
   affairs of the Company by agreement of the majority in interest of such
   Members, subject to the trading authority vested in and delegated to Sjo,
   Inc. (the "Advisor" or "Sjo") and the administrative authority vested in and
   delegated to MLIP.  The Members of the Company ("the Members"), each of which
   is a "commodity pool" sponsored and controlled by MLIP, shared in the trading
   profit and interest income of the Company in proportion to their respective
   capital accounts.

   Estimates
   ---------

   The preparation of financial statements in conformity with generally accepted
   accounting principles required 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 as
   well as the reported amounts of revenues and expenses during the reporting
   period.  Actual results may have differed from those estimates.

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

   Commodity futures, options on futures, and forward contract transactions were
   recorded on the trade date and open contracts were 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 was reflected in change in unrealized in the Statements of Income.  Fair
   value was based on quoted market prices on the exchange or market on which
   the contract was traded.

                                      -5-
<PAGE>
 
   Organizational Costs
   --------------------

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

   Income Taxes
   ------------

   No provision for income taxes was made in the accompanying financial
   statements as each Member was individually responsible for reporting income
   or loss based on such Member's respective share of the Company's income and
   expenses as reported for income tax purposes.  Non-Voting Members were not
   subject to U.S. tax.

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

   No distributions (except upon withdrawals) were made by the Company to any
   Member as of May 31, 1998.

   Withdrawals
   ------------

   Each Member was permitted to withdraw some or all of such Members' Capital at
   Net Asset Value as of the close of business on any business day.  There were
   no withdrawal fees or charges.

2. LIQUIDATION OF THE COMPANY

   Effective May 31, 1998, the Company suspended all trading operations and
   began formal liquidation of the Company.  All commodity positions were
   liquidated or offset and no other trading occurred.  In accordance with the
   liquidation, the Company's Advisory Agreement terminated and Members redeemed
   their capital.  Liquidation was completed on July 30, 1998.  Formal
   dissolution was effective on October 14, 1998.

3. RELATED PARTY TRANSACTIONS

   The Company's U.S. dollar assets were maintained at MLF.  On assets held in
   U.S. dollars, Merrill Lynch credited the Company with interest at the
   prevailing 91-day U.S. Treasury bill rate.  The Company was 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 have derived certain economic benefit, in excess of the
   interest which Merrill Lynch paid to the Company, from possession of such
   assets.

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

   Following the allocation of the Company's trading profit and interest income
   among the Members' respective capital accounts, MLIP calculated the brokerage
   commissions, Profit Shares, administrative fees and other expenses due from
   the Company to third parties, in respect of the Company's trading on behalf
   of the respective Members (the Company being subject to different
   commissions, fees and expenses in respect of its trading as allocable to the
   various different Members).  Such commissions, fees and expenses were
   specifically allocated as of the end of each accounting period (not pro rata
   based on the Members' respective capital accounts) to, and deducted from, the
   appropriate Members' capital accounts and paid out by the Company.  The
   Company paid brokerage commissions to MLF, at flat monthly rates reflecting
   the fee arrangement between each Member and MLF.  During the period from

                                      -6-
<PAGE>
 
   January 2, 1997 to May 31, 1998, such rates ranged from .646 of 1% (a 7.75%
   annual rate) to .831 of 1% (a 9.75% annual rate) of each Member's month-end
   assets invested in the Company.

   The Company paid MLIP a monthly administrative fee of .021 of 1% (a .25%
   annual rate) of each Member's month-end assets invested in the Company.

   Month-end assets were not reduced for purposes of calculating brokerage
   commissions and administrative fees by any accrued brokerage commissions,
   administrative fees, Profit Shares or other fees or charges.

   MLF paid the Advisor an annual consulting fee of 1% of the Company's average
   month-end assets, after reduction for a portion of the brokerage commissions.

   The Company traded forward contracts through a foreign exchange service desk
   (the "F/X Desk") established by MLIP.  The F/X Desk gave the Company access
   to counterparties in addition to (but also including) Merrill Lynch
   International Bank ("MLIB").  MLIP or another Merrill Lynch entity charged a
   service fee equal to, at current exchange 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 were charged on trades awarded to MLIB (which received bid-ask
   spreads on such trades).

   In its exchange of futures for physical ("EFP") trading with Merrill Lynch,
   the Company acquired 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 Company's other F/X Desk trading.  When the Company exchanged
   these positions for futures, there was a differential between the prices of
   the two positions.  This differential reflected, in part, the different
   settlement dates of the cash and the futures contracts and prevailing
   interest rates, but also included a pricing spread in favor of MLIB or
   another Merrill Lynch entity.  The Advisor made little use of EFPs.

   The Company's F/X Desk service fee and EFP differential costs totaled no more
   than .25 of 1% per annum of the Company's average month-end assets during the
   Company's operation.

4. ADVISORY AGREEMENT

   Pursuant to the Advisory Agreement between Sjo, the Company and MLIP, the
   Advisor determined the commodity futures, options on futures and forward
   contracts traded on behalf of the Company, subject to certain Company trading
   policies and to certain rights reserved by MLIP.

   The Company paid to Sjo an annual Profit Share equal to 15% of any New
   Trading Profit, as defined, attributable to each Member's capital account in
   the Company.  Profit Shares, which were calculated separately in respect of
   each Member's capital account, were determined as of the end of each calendar
   year and were also paid to Sjo upon the withdrawal of capital from the
   Company by a Member for whatever purpose, other than to pay expenses.

                                      -7-
<PAGE>
 
5. FAIR VALUE AND OFF-BALANCE SHEET RISK

   The Company traded futures, options on futures and forward contracts on
   interest rates, stock indices, commodities, currencies, energy and metals.
   The Company's trading results by reporting category for the period from
   January 1, 1998 to May 31, 1998 and the period from January 2, 1997
   (commencement of operations) to December 31, 1997 were as follows:

                                 Total Trading Results
                      ---------------------------------------------
   
                                1998                  1997
                         -------------------   --------------------
   
   Interest Rates               $ 1,084,775            $ 1,608,016
   Stock Indices                          -               (111,089)
   Commodities                            -              1,258,342
   Currencies                       (22,747)               450,478
   Energy                                 -               (516,170)
   Metals                                 -                129,859
                         -------------------   --------------------
                                $ 1,062,028            $ 2,819,436
                         ===================   ====================


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

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

   MLIP, which monitored the trading of the Company in MLIP's capacity as the
   General Partner of the Voting Members and Sponsor of the Non-Voting Members,
   had procedures in place intended to control market risk, although there was
   no assurance that they would, in fact, succeed in doing so.  The procedures
   focused primarily on monitoring the trading of the Advisor, calculating the
   Net Asset Value of the Company and of the Members' respective capital
   accounts as of the close of business on each day and reviewing outstanding
   positions for over-concentrations.  While MLIP did not itself intervene in
   the markets to hedge or diversify the Company's market exposure, MLIP did
   consult with the Advisor concerning the possibility of the Advisor reducing
   trading leverage or market concentrations.  However, such consultations were
   unusual.  MLIP's basic risk control procedures consisted simply of the
   ongoing process of monitoring Sjo with the market risk controls being applied
   by Sjo.

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

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

                                      -8-
<PAGE>
 
   The contract/notional values of open contracts, all of which were exchange
   traded, as of December 31, 1997 were as follows (there were no open contracts
   as of May 31, 1998):
                                            1997
                   --------------------------------------------------------
                        Commitment to                  Commitment to
                      Purchase (Futures,               Sell (Futures,
                     Options & Forwards)            Options & Forwards)
                   -------------------------      -------------------------
   
   Interest Rates   $      259,399,745             $        30,326,212
                   ====================           =====================


   The average fair values, based on contract/notional values, of the Company's
   derivative instrument positions which were open as of the end of each
   calendar month during the period from January 1, 1998 to May 31, 1998 and the
   period from January 2, 1997 (commencement of operations) through December 31,
   1997 were as follows:

<TABLE>
<CAPTION>
                                                1998                                                   1997
                        -----------------------------------------------------   --------------------------------------------------
                            Commitment to                 Commitment to             Commitment to               Commitment to
                         Purchase (Futures,               Sell (Futures,          Purchase (Futures,           Sell (Futures,
                         Options & Forwards)           Options & Forwards)       Options & Forwards)         Options & Forwards)
                        ----------------------        -----------------------   -----------------------     ----------------------
<S>                     <C>                           <C>                       <C>                         <C>
      Interest Rates            $ 218,889,921                  $ 113,033,438             $ 194,525,907               $ 93,811,198
      Stock Indices                         -                              -                10,338,576                 16,608,547
      Commodities                           -                              -                 7,268,084                  5,885,636
      Currencies                            -                              -                16,122,843                 19,305,449
      Energy                                -                              -                 1,618,935                  2,010,335
      Metals                                -                              -                 5,914,036                  5,393,765
                        ----------------------        -----------------------   -----------------------     ----------------------
                                $ 218,889,921                  $ 113,033,438             $ 235,788,381              $ 143,014,930
                        ======================        =======================   =======================     ======================
</TABLE>

   A portion of the amounts indicated as off-balance sheet risk reflects
   offsetting commitments to purchase and sell the same derivative instrument on
   the same date in the future.  These commitments were economically offsetting
   but were 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
   Company'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 was the net unrealized profit, if any, included on the
   Statements of Financial Condition.

                                      -9-
<PAGE>
 
   The Company also had credit risk because the sole counterparty or broker with
   respect to most of the Company's assets was MLF.

   The gross unrealized profit and net unrealized profit on the Company's open
   derivative instrument positions as of December 31, 1997 were as follows
   (there were no open derivative instrument positions as of May 31, 1998):


                                            1997
                          ----------------------------------------
                                Gross                   Net 
                              Unrealized             Unrealized  
                                Profit                 Profit 
                          -----------------     ------------------
                     
Exchange-Traded               $ 311,890              $ 255,565
                             ===========            ============

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

   The Company, in its normal course of business, entered into various
   contracts, with MLF acting as its commodity broker.  Pursuant to the
   brokerage arrangement with MLF (which included a netting arrangement), to the
   extent that such trading resulted 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/ Di Dario

                                Jo Ann Di Dario
                            Chief Financial Officer
                     Merrill Lynch Investment Partners Inc.
                           Commodity Pool Operator of
                             ML Sjo Prospect L.L.C.

                                     -10-
<PAGE>

                                                                EXHIBIT 13.01(A)

               -----------------------------------------------------------------
               ML Chesapeake Diversified L.L.C.
               (A Delaware Limited Liability Company)
               (In Liquidation)
 

               Financial Statements for the period from January 1, 1998 to May
               31, 1998, for the year ended December 31, 1997 and for the period
               from November 1, 1996 (Commencement of Operations) to December
               31, 1996 and Independent Auditors' Report
<PAGE>
 
ML CHESAPEAKE DIVERSIFIED L.L.C.
(A Delaware Limited Liability Company)
(In Liquidation)

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

                                                                        Page
                                                                        ----

INDEPENDENT AUDITORS' REPORT                                               1

FINANCIAL STATEMENTS FOR THE PERIOD FROM JANUARY 1, 1998 TO MAY 31, 1998, FOR
THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM NOVEMBER 1, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996:
 

  Statements of Financial Condition                                        2
                                            
  Statements of Income                                                     3
                                            
  Statements of Changes in Members' Capital                                4
                                            
  Notes to Financial Statements                                         5-11
<PAGE>
 
INDEPENDENT AUDITORS' REPORT
----------------------------



To the Members of
 ML Chesapeake Diversified L.L.C. (In Liquidation):

We have audited the accompanying statements of financial condition of ML
Chesapeake Diversified L.L.C. (a Delaware limited liability company; the
"Company"), in liquidation, as of May 31, 1998 and December 31, 1997 and the
related statements of income and changes in members' capital for the period from
January 1, 1998 to May 31, 1998, for the year ended December 31, 1997 and for
the period from November 1, 1996 (commencement of operations) to December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with 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 ML Chesapeake Diversified L.L.C. (In
Liquidation) as of May 31, 1998 and December 31, 1997, and the results of its
operations for the period from January 1, 1998 to May 31, 1998, for the year
ended December 31, 1997 and for the period from November 1, 1996 (commencement
of operations) to December 31, 1996 in conformity with generally accepted
accounting principles.

As discussed in Notes 1 and 2 to the financial statements, all trading
operations were suspended as of May 31, 1998.  Liquidation was completed on July
30, 1998.  Formal dissolution was effective on October 14, 1998.


DELOITTE & TOUCHE LLP


New York, New York
October 16, 1998
<PAGE>
 
  ML CHESAPEAKE DIVERSIFIED L.L.C.     
  (A Delaware Limited Liability Company)
  (In Liquidation)                     

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

  ASSETS                                              1998              1997
                                                  -----------       -----------

  Accrued interest (Note 3)                       $    72,745       $    71,406
  Equity in commodity futures trading accounts:
    Cash and option premiums                       16,384,123        15,538,921
    Net unrealized profit on open contracts           106,572         1,584,855
                                                  -----------       -----------

         TOTAL                                    $16,563,440       $17,195,182
                                                  ===========       ===========

  LIABILITIES AND MEMBERS' CAPITAL

  LIABILITIES:

    Withdrawals payable                           $16,181,857       $   265,782
    Brokerage commissions payable (Note 3)            122,074           126,690
    Profit Shares payable (Note 4)                    256,058           308,627
    Administrative fees payable (Note 3)                3,451             3,582
                                                  -----------       -----------

         Total liabilities                         16,563,440           704,681
                                                  -----------       -----------
  MEMBERS' CAPITAL:

    Voting Members                                     -             15,913,598
    Non-Voting Members                                 -                576,903
                                                  -----------       -----------

         Total Members' capital                        -             16,490,501
                                                  -----------       -----------

  TOTAL                                           $16,563,440       $17,195,182
                                                  ===========       ===========

  See notes to financial statements.

                                       -2-
<PAGE>
 
  ML CHESAPEAKE DIVERSIFIED L.L.C.

  (A Delaware Limited Liability Company)
  (In Liquidation)

  STATEMENTS OF INCOME
  FOR THE PERIOD FROM JANUARY 1, 1998 TO MAY 31, 1998, FOR THE YEAR ENDED
  DECEMBER 31, 1997 AND FOR THE PERIOD FROM NOVEMBER 1, 1996 (COMMENCEMENT OF
  OPERATIONS) TO DECEMBER 31, 1996
  ------------------------------------------------------------------------------

  REVENUES:                              1998           1997           1996
                                     ------------   ------------    ----------
  Trading profit (loss):            
    Realized                         $  3,107,279   $  1,335,899    $   70,795
    Change in unrealized               (1,478,283)     1,217,210       367,645
                                     ------------   ------------    ----------


      Total trading results             1,628,996      2,553,109       438,440
  Interest income (Note 3)                357,839        927,382       170,154

      Total revenues                    1,986,835      3,480,491       608,594
                                     ------------   ------------    ----------

  EXPENSES:                      

    Brokerage commissions (Note 3)        615,028      1,646,907       359,828
    Profit Shares (Note 4)                270,812        361,608        13,873
    Administrative fees (Note 3)           17,572         46,611         9,248
                                     ------------   ------------    ----------

      Total expenses                      903,412      2,055,126       382,949
                                     ------------   ------------    ----------

  NET INCOME                          $ 1,083,423    $ 1,425,365    $  225,645
                                     ============   ============    ==========


  See notes to financial statements.

                                       -3-
<PAGE>
 
  ML CHESAPEAKE DIVERSIFIED L.L.C.

  (A Delaware Limited Liability Company)
  (In Liquidation)

  STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
  FOR THE PERIOD FROM JANUARY 1, 1998 TO MAY 31, 1998, FOR THE YEAR ENDED
  DECEMBER 31, 1997 AND FOR THE PERIOD FROM NOVEMBER 1, 1996 (COMMENCEMENT OF
  OPERATIONS) TO DECEMBER 31, 1996
  ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                         Non-Voting
                                      Voting Members      Members          Total
                                     ---------------  -------------    -------------
<S>                                  <C>              <C>              <C>          
  Initial Contributions              $  17,859,707    $   3,403,696    $  21,263,403

  Withdrawals                             (743,910)         (50,859)        (794,769)

  Net Income                              191,985            33,660          225,645
                                     ---------------  -------------    -------------
  MEMBERS' CAPITAL,

    DECEMBER 31, 1996                   17,307,782        3,386,497       20,694,279

  Withdrawals                           (4,049,775)      (3,153,590)      (7,203,365)

  Contributions                          1,386,748          187,474        1,574,222

  Net Income                             1,268,843          156,522        1,425,365
                                     ---------------  -------------    -------------

  MEMBERS' CAPITAL,

    DECEMBER 31, 1997                   15,913,598          576,903       16,490,501

  Net Income                             1,047,899           35,524        1,083,423

  Withdrawals                          (16,961,497)        (612,427)     (17,573,924)
                                     ---------------  -------------    -------------

  MEMBERS' CAPITAL,

    MAY 31, 1998                     $     -          $      -         $     -
                                     ===============  =============    =============
</TABLE>

  See notes to financial statements.

                                       -4-
<PAGE>
 
ML CHESAPEAKE DIVERSIFIED L.L.C.
(A Delaware Limited Liability Company)
(In Liquidation)

NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1998 TO MAY 31, 1998, FOR THE YEAR ENDED DECEMBER
31, 1997 AND FOR THE PERIOD FROM NOVEMBER 1, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
--------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

   ML Chesapeake Diversified L.L.C. (the "Company") was organized under the
   Delaware Limited Liability Company Act on October 23, 1996 and commenced
   trading activities on November 1, 1996.  Effective May 31, 1998, the Company
   suspended trading operations (see Note 2).  The Company had engaged in the
   speculative trading of futures, options on futures and forward contracts on a
   wide range of commodities.  Merrill Lynch Investment Partners Inc. ("MLIP"),
   a wholly-owned subsidiary of Merrill Lynch Group, Inc., which in turn is a
   wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch"), was
   delegated administrative authority over the Company, and Merrill Lynch
   Futures Inc. ("MLF"), also an affiliate of MLIP, was its commodity broker.
   The Company had authorized two classes of Membership Interests: Non-Voting
   Interests and Voting Interests (collectively, "Interests").  These two
   classes of Interests had common economic interests in the Company.  The Non-
   Voting Interests, which were held by non-United States investment funds
   sponsored by MLIP, did not participate in any respect in the management of
   the Company, or engage, directly or indirectly, in, participate in or control
   all or any portion of the business activities or affairs of the Company.
   Management of the Company was vested solely in the Voting Interests, which
   were held by United States limited partnerships sponsored by MLIP.  The
   Voting Members controlled all business activities and affairs of the Company
   by agreement of the majority in interest of such Members, subject to the
   trading authority vested in and delegated to Chesapeake Capital Corporation
   (the "Advisor" or "Chesapeake") and the administrative authority vested in
   and delegated to MLIP.  The Members of the Company (the "Members"), each of
   which is a "commodity pool" sponsored by MLIP, shared in the trading profit
   and interest income of the Company in proportion to their respective capital
   accounts.

   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 as
   well as the reported amounts of revenues and expenses during the reporting
   period.  Actual results may have differed from those estimates.

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

   Commodity futures, options on futures, and forward contract transactions were
   recorded on the trade date and open contracts were 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 (loss) on open contracts from one period
   to the next was reflected in change in unrealized in the Statements of
   Income.  Fair value was based on quoted market prices on the exchange or
   market on which the contract was traded.

                                      -5-
<PAGE>
 
   Organizational Costs
   --------------------

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

   Income Taxes
   ------------

   No provision for income taxes was made in the accompanying financial
   statements as each Member was individually responsible for reporting income
   or loss based on such Member's respective share of the Company's income and
   expenses as reported for income tax purposes.  The Non-Voting Members were
   not subject to U.S. tax.

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

   No distributions (except upon withdrawals) were made by the Company to any
   Member as of May 31, 1998.

   Withdrawals
   ------------

   Each Member was permitted to withdraw some or all of such Member's Capital at
   Net Asset Value as of the close of business on any business day.  There were
   no withdrawal fees or charges.

2. LIQUIDATION OF THE COMPANY

   Effective May 31, 1998, the Company suspended all trading operations and
   began formal liquidation of the Company.  All commodity positions were
   liquidated or offset and no other trading occurred.  In accordance with the
   liquidation, the Company's Advisory Agreement terminated and Members redeemed
   their capital.  Liquidation was completed on July 30, 1998.  Formal
   dissolution was effective on October 14, 1998.

3. RELATED PARTY TRANSACTIONS

   The Company's U.S. dollar assets were maintained at MLF.  On assets held in
   U.S. dollars, Merrill Lynch credited the Company with interest at the
   prevailing 91-day U.S. Treasury bill rate.  The Company was 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 have derived certain economic benefit, in excess of the
   interest which Merrill Lynch pays to the Company, from possession of such
   assets.

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

   Following the allocation of the Company's trading profit (loss) and interest
   income among the Members' respective capital accounts, MLIP calculated the
   brokerage commissions, Profit Shares, administrative fees and other expenses
   due from the Company to third parties, in respect of the Company's trading on
   behalf of the respective Members (the Company being subject to different
   commissions, fees and expenses in respect of its trading as allocable to the
   various different Members).  Such commissions, fees and expenses were
   specifically allocated as of the end of each accounting period (not pro rata
   based on the Members' respective capital accounts) to, and deducted from, the
   appropriate Members' capital accounts and paid out by the Company.  The
   Company paid brokerage commissions to MLF, at flat monthly rates reflecting
   the fee arrangement between each Member and MLF.  During the year ended
   December 31, 1997 and the period ended December 31, 1996, such rates 

                                      -6-
<PAGE>
 
   ranged from .729 of 1% (an 8.75% annual rate) to .831 of 1% (a 9.75% annual
   rate) of each Members' month-end assets invested in the Company. Beginning
   January 1, 1998, the rate was .729 of 1% (an 8.75% annual rate) of each
   Members' month-end assets invested in the Company.

   The Company paid MLIP a monthly administrative fee of .021 of 1% (a .25%
   annual rate) of each Member's month-end assets invested in the Company.

   Month-end assets were not reduced for purposes of calculating brokerage
   commissions and administrative fees by any accrued brokerage commissions,
   administrative fees, profit shares or other fees or charges.

   MLF paid the Advisor an annual consulting fee of 2% of the Company's average
   month-end assets, after reduction for a portion of the brokerage commissions.
   Beginning January 1, 1997 the consulting fees paid by MLF to the Advisor were
   reduced to 1% per annum.

   The Company traded forward contracts through a foreign exchange service desk
   (the "F/X Desk") established by MLIP.  The F/X Desk gave the Company access
   to counterparties in addition to (but also including) Merrill Lynch
   International Bank ("MLIB").  MLIP or another Merrill Lynch entity charged a
   service fee equal to, at current exchange 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 were charged on trades awarded to MLIB (which received bid-ask
   spreads on such trades).

   In its exchange of futures for physical ("EFP") trading with Merrill Lynch,
   the Company acquired 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 Company's other F/X Desk trading.  When the Company exchanged
   these positions for futures, there was a differential between the prices of
   the two positions.  This differential reflected, in part, the different
   settlement dates of the cash and the futures contracts and prevailing
   interest rates, but also included a pricing spread in favor of MLIB or
   another Merrill Lynch entity.  The Advisor made little use of EFPs.

   The Company's F/X Desk service fee and EFP differential costs totaled no more
   than .25 of 1% per annum of the Company's average month-end assets during the
   Company's operation.

4. ADVISORY AGREEMENT

   Pursuant to the Advisory Agreement between Chesapeake, the Company and MLIP,
   the Advisor determined the commodity futures, options on futures and forward
   contracts traded on behalf of the Company, subject to certain Company trading
   policies and to certain rights reserved by MLIP.

   The Company paid to Chesapeake a Profit Share equal to 20% of any New Trading
   Profit, as defined, attributable to each Members' capital account in the
   Company.  Profit Shares, which were calculated separately in respect of each
   Members' capital account, were determined as of the end of each calendar
   quarter prior to 1997 and annually thereafter and were also paid to
   Chesapeake upon the withdrawal of capital from the Company by a Member for
   whatever purpose, other than to pay expenses.

                                      -7-
<PAGE>
 
5. FAIR VALUE AND OFF-BALANCE SHEET RISK

   The Company traded futures, options on futures and forward contracts on
   interest rates, stock indices, commodities, currencies, energy and metals.
   The Company's trading results by reporting category for the period from
   January 1, 1998 to May 31, 1998, for the year ended December 31, 1997 and for
   the period from November 1, 1996 (commencement of operations) to December 31,
   1996 were as follows:


                             Total Trading Results
                      ----------------------------------------
                          1998           1997          1996
                      ------------   ------------   ----------
Interest Rates        $    941,486   $    763,346   $  503,034
Stock Indices              333,049        666,880      (91,628)
Commodities                536,206        542,777     (388,130)
Currencies                (171,239)       671,508      422,927
Energy                     317,352     (1,082,330)     (49,487)
Metals                    (327,858)       990,928       41,724
                      ------------   ------------   ---------- 
                      $  1,628,996   $  2,553,109   $  438,440
                      ============   ============   ========== 

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

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

   MLIP, which monitored the trading of the Company in its capacity as the
   General Partner of the Voting Members and Sponsor of the Non-Voting Members,
   had procedures in place intended to control market risk, although there was
   no assurance that they would, in fact, have succeeded in doing so.  The
   procedures focused primarily on monitoring the trading of the Advisor,
   calculating the Net Asset Value of the Company and of the Members' respective
   capital accounts as of the close of business on each day and reviewing
   outstanding positions for over-concentrations.  While MLIP did not itself
   intervene in the markets to hedge or diversify the Company's market exposure,
   MLIP did consult from time to time with the Advisor concerning the
   possibility of the Advisor reducing trading leverage or market
   concentrations.  However, such consultations were unusual.  MLIP's basic risk
   control procedures consisted simply of the ongoing process of monitoring
   Chesapeake with the market risk controls being applied by Chesapeake.

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

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

                                      -8-
<PAGE>
 
The contract/notional values of open contracts as of May 31, 1998 and December
31, 1997 were as follows:

<TABLE>
<CAPTION>
                                       1998                                       1997
                    -----------------------------------------   -----------------------------------------
                       Commitment to         Commitment to         Commitment to         Commitment to
                    Purchase (Futures,      Sell (Futures,      Purchase (Futures,      Sell (Futures,
                    Options & Forwards)   Options & Forwards)   Options & Forwards)   Options & Forwards)
                    -------------------   -------------------   -------------------   -------------------
<S>                  <C>                   <C>                   <C>                   <C>            
  Interest Rates     $        -            $       -             $     58,695,056      $    18,009,766
  Stock Indices               -                    -                    1,272,700            1,184,672
  Commodities                 -                    -                    4,584,639            7,520,083
  Currencies               27,725,507          27,725,507              12,424,390           58,556,714
  Energy                      -                    -                       -                 1,978,682
  Metals                   11,696,691          11,696,691               4,971,476           10,357,200
                     ----------------      --------------        ----------------      ---------------

                     $     39,422,198      $   39,422,198        $     81,948,261      $    97,607,117
                     ================      ==============        ================      ===============
</TABLE>

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

<TABLE> 
<CAPTION> 
                                          1998                                        1997
                       -----------------------------------------   -----------------------------------------
                          Commitment to         Commitment to         Commitment to         Commitment to
                       Purchase (Futures,      Sell (Futures,      Purchase (Futures,      Sell (Futures,
                       Options & Forwards)   Options & Forwards)   Options & Forwards)   Options & Forwards)
                       -------------------   -------------------   -------------------   -------------------
<S>                     <C>                   <C>                   <C>                   <C>             
  Exchange Traded       $     -               $    -                $     73,789,832      $     71,082,507
  Non-Exchange-Traded      39,422,198           39,422,198                 8,158,429            26,524,610
                        --------------        -------------         -----------------     -----------------

                        $  39,422,198         $ 39,422,198          $     81,948,261      $     97,607,117
                        ==============        =============         =================     =================
</TABLE>

     The average fair values, based on contract/notional values, of the
     Company's derivative instrument positions which were open as of the end of
     each calendar month during the period from January 1, 1998 to May 31, 1998
     and the year ended December 31, 1997 were as follows:

<TABLE>
<CAPTION>
                                        1998                                             1997
                   ----------------------------------------------------------------------------------------
                      Commitment to           Commitment to          Commitment to         Commitment to    
                   Purchase (Futures,        Sell (Futures,       Purchase (Futures,      Sell (Futures,    
                   Options & Forwards)     Options & Forwards)    Options & Forwards)   Options & Forwards) 
                   -------------------     -------------------    -------------------   ------------------- 
<S>                                      <C>                       <C>                  <C>                        
  Interest Rates    $    67,066,558       $      7,255,012           $   66,490,915      $  33,591,146
  Stock Indices           5,149,711                688,223                6,987,284          1,450,982
  Commodities               904,093             10,784,647                7,427,509          3,331,339
  Currencies             25,826,290             40,695,373               13,883,403         42,553,986
  Energy                    100,880              1,843,474                1,655,737          1,203,131
  Metals                  8,612,561             11,593,682                6,500,099          7,542,869
                    ---------------       ----------------           --------------      -------------

                    $   107,660,093       $     72,860,411           $  102,944,947      $  89,673,453
                    ===============       ================           ==============      =============
</TABLE>

     A portion of the amounts indicated as off-balance sheet risk reflects
     offsetting commitments to purchase and sell the same derivative instrument
     on the same date in the future. These commitments were

                                       -9-
<PAGE>
 
  economically offsetting but were 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
  Company'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 was the net unrealized profit, included on the Statements of
  Financial Condition.

  The Company also had credit risk because the sole counterparty or broker with
  respect to most of the Company's assets was MLF.

  The gross unrealized profit and net unrealized profit on the Company's open
  derivative instrument positions as of May 31, 1998 and December 31, 1997 were
  as follows:

<TABLE>
<CAPTION>
                                     1998                            1997        
                         --------------------------       -------------------------                                              
                             Gross            Net            Gross          Net        
                           Unrealized     Unrealized      Unrealized    Unrealized     
                             Profit         Profit          Profit        Profit  
                         ------------     ---------       -----------   -----------  
<S>                      <C>              <C>             <C>           <C>        
  Exchange Traded        $     -          $    -          $ 1,275,702   $ 1,079,882
  Non-Exchange-Traded       1,115,292       106,572           669,503       504,973
                         ------------     ---------       -----------   -----------

                         $  1,115,292     $ 106,572       $ 1,945,205   $ 1,584,855
                         ============     =========       ===========   ===========
</TABLE>

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

  The Company, in its normal course of business, entered into various contracts,
  with MLF acting as its commodity broker. Pursuant to the brokerage arrangement
  with MLF (which included a netting arrangement), to the extent that such
  trading resulted in receivables from and payables to MLF, these receivables
  and payables were offset and reported as a net receivable or payable.

                                      -10-
<PAGE>
 
INDEPENDENT AUDITORS' REPORT
----------------------------



To the Members of
 ML Chesapeake Diversified L.L.C. (In Liquidation):

We have audited the accompanying statements of financial condition of ML
Chesapeake Diversified L.L.C. (a Delaware limited liability company; the
"Company"), in liquidation, as of May 31, 1998 and December 31, 1997 and the
related statements of income and changes in members' capital for the period from
January 1, 1998 to May 31, 1998, for the year ended December 31, 1997 and for
the period from November 1, 1996 (commencement of operations) to December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with 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 ML Chesapeake Diversified L.L.C. (In
Liquidation) as of May 31, 1998 and December 31, 1997, and the results of its
operations for the period from January 1, 1998 to May 31, 1998, for the year
ended December 31, 1997 and for the period from November 1, 1996 (commencement
of operations) to December 31, 1996 in conformity with generally accepted
accounting principles.

As discussed in Notes 1 and 2 to the financial statements, all trading
operations were suspended as of May 31, 1998.  Liquidation was completed on July
30, 1998.  Formal dissolution was effective on October 14, 1998.


DELOITTE & TOUCHE LLP


New York, New York
October 16, 1998
<PAGE>

                                                                EXHIBIT 13.01(A)

                         ML JWH FINANCIAL AND 
                         METALS PORTFOLIO L.L.C.
                         (A Delaware Limited Liability Company)


                         Financial Statements for the
                         Years Ended December 31, 1998 and 1997
                         and for the period from October 1, 1996
                         (Commencement of Operations) to December
                         31, 1996, and Independent Auditors' Report


[LOGO] MERRILL LYNCH
<PAGE>
 
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)


TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
 
                                                        Page
                                                        ----
<S>                                                     <C>
 
INDEPENDENT AUDITORS' REPORT                               1
 
FINANCIAL STATEMENTS FOR THE YEARS ENDED
  DECEMBER 31, 1998 AND 1997 AND FOR THE PERIOD FROM
  OCTOBER 1, 1996 (COMMENCEMENT OF OPERATIONS)
  TO DECEMBER 31, 1996:
 
  Statements of Financial Condition                        2
 
  Statements of Operations                                 3
 
  Statements of Changes in Members' Capital                4
 
  Notes to Financial Statements                         5-11
</TABLE>
<PAGE>
 
INDEPENDENT AUDITORS' REPORT
----------------------------



To the Members of
ML JWH Financial and Metals Portfolio L.L.C.:

We have audited the accompanying statements of financial condition of ML JWH
Financial and Metals Portfolio L.L.C. (the "Company") as of December 31, 1998
and 1997, and the related statements of operations and of changes in members'
capital for the years ended December 31, 1998 and 1997 and for the period from
October 1, 1996 (commencement of operations) to December 31, 1996.  These
financial statements are the responsibility of Merrill Lynch Investment Partners
Inc., the Company's Administrator.  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 ML JWH Financial and Metals Portfolio L.L.C.
as of December 31, 1998 and 1997, and the results of its operations for the
years ended December 31, 1998 and 1997 and for the period from October 1, 1996
(commencement of operations) to December 31, 1996 in conformity with generally
accepted accounting principles.


DELOITTE & TOUCHE LLP


New York, New York
February 4, 1999
<PAGE>
 
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)

STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

ASSETS
                                                                         1998                     1997
                                                                   ------------------       ------------------
<S>                                                                <C>                      <C>
Equity in commodity futures trading accounts:
    Cash and option premiums                                            $ 26,100,432             $ 62,041,417
    Net unrealized profit on open contracts                                3,074,669                2,728,987
Accrued interest (Note 2)                                                    102,296                  278,160
                                                                   ------------------       ------------------

                TOTAL                                                   $ 29,277,397             $ 65,048,564
                                                                   ==================       ==================

LIABILITIES AND MEMBERS' CAPITAL

LIABILITIES:

    Brokerage commissions payable (Note 2)                                 $ 231,621                $ 494,568
    Profit Shares payable (Note 3)                                                 -                  614,420
    Administrative fees payable (Note 2)                                       6,095                   13,545
    Withdrawals payable                                                      153,482                2,567,125
                                                                   ------------------       ------------------

            Total liabilities                                                391,198                3,689,658
                                                                   ------------------       ------------------

MEMBERS' CAPITAL:
    Voting Members                                                        28,886,199               59,766,977
    Non-Voting Members                                                             -                1,591,929
                                                                   ------------------       ------------------

            Total Members' capital                                        28,886,199               61,358,906
                                                                   ------------------       ------------------

                TOTAL                                                   $ 29,277,397             $ 65,048,564
                                                                   ==================       ==================
</TABLE>


See notes to financial statements.

                                      -2-
<PAGE>
 
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND FOR
THE PERIOD FROM OCTOBER 1, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
             REVENUES:                                        1998                   1997                   1996
                                                        ------------------     ------------------     ------------------
<S>                                                     <C>                    <C>                    <C>
             Trading (loss) profit:
                 Realized                                      $ (913,823)          $ 10,175,257           $ 17,860,411
                 Change in unrealized                             345,682              2,030,416                698,571
                                                        ------------------     ------------------     ------------------

                     Total trading results                       (568,141)            12,205,673             18,558,982

             Interest income (Note 2)                           1,959,142              3,073,728                806,967
                                                        ------------------     ------------------     ------------------

                     Total revenues                             1,391,001             15,279,401             19,365,949
                                                        ------------------     ------------------     ------------------

             EXPENSES:
                 Brokerage commissions (Note 2)                 3,638,923              5,539,579              2,063,021
                 Profit Shares (Note 3)                           332,560              1,024,612              2,313,537
                 Administrative fees (Note 2)                      97,879                149,850                 49,703
                                                        ------------------     ------------------     ------------------

                     Total expenses                             4,069,362              6,714,041              4,426,261
                                                        ------------------     ------------------     ------------------

             NET (LOSS) INCOME                               $ (2,678,361)           $ 8,565,360           $ 14,939,688
                                                        ==================     ==================     ==================
</TABLE>

             See notes to financial statements.

                                      -3-
<PAGE>
 
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)


STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE PERIOD FROM OCTOBER 1, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                  Non-Voting              
                                                     Voting Members                 Members                  Total
                                                    -------------------        -----------------       ------------------ 
<S>                                                 <C>                        <C>                     <C>
             Initial Contributions                        $ 56,790,791              $ 7,080,836             $ 63,871,627

             Contributions                                   1,212,016                    2,017                1,214,033

             Withdrawals                                   (17,295,297)              (1,752,897)             (19,048,194)

             Net Income                                     13,270,063                1,669,625               14,939,688
                                                    -------------------        -----------------       ------------------ 
             MEMBERS' CAPITAL,
               DECEMBER 31, 1996                            53,977,573                6,999,581               60,977,154

             Contributions                                   6,356,012                  714,303                7,070,315

             Withdrawals                                    (8,626,795)              (6,627,128)             (15,253,923)

             Net Income                                      8,060,187                  505,173                8,565,360
                                                    -------------------        -----------------       ------------------

             MEMBERS' CAPITAL,
               DECEMBER 31, 1997                            59,766,977                1,591,929               61,358,906

             Withdrawals                                   (28,414,824)              (1,379,522)             (29,794,346)

             Net Loss                                       (2,465,954)                (212,407)              (2,678,361)
                                                    -------------------        -----------------       ------------------

             MEMBERS' CAPITAL,
               DECEMBER 31, 1998                          $ 28,886,199              $         -             $ 28,886,199
                                                    ===================        =================       ==================
</TABLE>

             See notes to financial statements.

                                      -4-
<PAGE>
 
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

   ML JWH Financial and Metals Portfolio L.L.C. (the "Company") was organized
   under the Delaware Limited Liability Company Act on September 19, 1996 and
   commenced trading activities on October 1, 1996.  The Company engages in the
   speculative trading of futures, options on futures and forward contracts on a
   wide range of commodities.  John W. Henry & Company, Inc. (the "Advisor" or
   "JWH(R)") is the Advisor to the Company.  Merrill Lynch Investment Partners
   Inc. ("MLIP"or the "Administrator"), a wholly-owned subsidiary of Merrill
   Lynch Group, Inc., which, in turn, is a wholly-owned subsidiary of Merrill
   Lynch & Co., Inc. ("Merrill Lynch"), has been delegated administrative
   authority over the Company.   Merrill Lynch Futures Inc. ("MLF"), an
   affiliate of MLIP, is the Company's commodity broker.  The Company has
   authorized two classes of Membership Interests:  Non-Voting Interests and
   Voting Interests (collectively, "Interests").  These two classes of Interests
   have common economic interests in the Company, but the Non-Voting Interests,
   which were held by non-United States investment funds sponsored by MLIP, did
   not participate in any respect in the management of the Company, or engage,
   directly or indirectly, in, participate in or control all or any portion of
   the business activities or affairs of the Company.  Management of the Company
   is vested solely in the Voting Interests, which are held by United States
   limited partnerships.  The Voting Members control all business activities and
   affairs of the Company by agreement of the majority in interest of such
   Members, subject to the trading authority vested in and delegated to JWH and
   the administrative authority vested in and delegated to MLIP.  The Members of
   the Company (the "Members"), each of which is a "commodity pool" sponsored
   and managed by MLIP, share in the trading profit (loss) and interest income
   of the Company in proportion to their respective capital accounts, although
   the Members are subject to somewhat different fees.

   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 as
   well as 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 market value (for
   those commodity interests for which market quotations are readily available)
   or at fair value.  The change in unrealized profit on open contracts from one
   period to the next is reflected in change in unrealized in the Statements of
   Operations.

                                      -5-
<PAGE>
 
   Foreign Currency Transactions
   -----------------------------

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

   Organizational Costs
   --------------------

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

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

   MLIP pays for all operating costs (including all legal, accounting, printing,
   postage and similar administrative expenses) of the Company.

   Income Taxes
   -------------

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

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

   No distributions had been made by the Company to any Member as of December
   31, 1998.

   Withdrawals
   -----------

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

   Dissolution
   ------------

   The Company will terminate on September 30, 2046 or at an earlier date if
   certain conditions occur, as well as under certain other circumstances as set
   forth in the Organization 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 Administrator does not
   believe that the Statement will have a significant effect on the financial
   statements of the Company.

                                      -6-
<PAGE>
 
2. RELATED PARTY TRANSACTIONS

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

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

   Following the allocation of the Company's trading profit (loss) and interest
   income among the Members' respective capital accounts, MLIP calculates the
   brokerage commissions, Profit Shares, administrative fees and other expenses
   due from the Company to third parties, in respect of the Company's trading on
   behalf of the respective Members (the Company being subject to different
   commissions, fees and expenses in respect of its trading as allocable to the
   various different Members).  Such commissions, fees, Profit Shares and
   expenses are specifically allocated as of the end of each accounting period
   (not pro rata based on the Members' respective capital accounts) to, and
   deducted from, the appropriate Members' capital accounts and paid out by the
   Company.  The Company pays brokerage commissions to MLF at flat monthly rates
   reflecting the fee arrangement between each Member and MLF.  During the
   period from January 1, 1998 to May 31, 1998, the year ended December 31, 1997
   and the period from October 1, 1996 to December 31, 1996, such rates ranged
   from .646 of 1% (a 7.75% annual rate) to .979 of 1% (an 11.75% annual rate)
   of each Member's month-end assets invested in the Company.  As of May 31,
   1998, Members subject to various brokerage commission rates withdrew from the
   Company, and thereafter, the rate was .792 of 1% (a 9.5% annual rate).

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

   MLF pays the Advisor an annual consulting fee of 4% of the Company's average
   month-end assets, after reduction for a portion of the brokerage commissions.

   Many of the Company'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 Company. MLIP anticipates that some of the Company's
   foreign currency trades will be executed through MLIB, an affiliate of MLIP.
   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 Company acquires
   cash currency positions through banks and dealers, including Merrill Lynch.
   The Company 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. ADVISORY AGREEMENT

                                      -7-
<PAGE>
 
   The Advisory Agreement between the Company and JWH has remained essentially
   unchanged since the inception of the Company.  This Agreement is in effect
   for successive one-year terms, but, in fact, given the single advisor
   structure of the Company, the Company would terminate were the Advisor no
   longer to manage its trading.  The Advisor determines the commodity futures,
   options on futures and forward contract trades to be made on behalf of the
   Company, subject to certain Company trading policies and to certain rights
   reserved by MLIP.

   The Company pays to JWH a quarterly Profit Share equal to 15% of any New
   Trading Profit, as defined, attributable to each Member's capital account.
   Profit Shares are calculated separately in respect of each Member's Capital
   Account.  Profit Shares are determined as of the end of each calendar quarter
   and are also paid to JWH upon the withdrawal of capital from the Company by a
   Member for whatever purpose, other than to pay expenses.

4. FAIR VALUE AND OFF-BALANCE SHEET RISK

   The Company trades futures, options on futures and forward contracts on
   interest rates, stock indices,  currencies, and metals.  The Company's
   trading results by reporting category for the years ended December 31, 1998
   and 1997 and for the period from October 1, 1996 (commencement of operations)
   to December 31, 1996 were as follows:

<TABLE>
<CAPTION>
                                           Total Trading Results
                      ----------------------------------------------------------------
                            1998                   1997                   1996
                      ------------------     ------------------     ------------------
   
<S>                   <C>                    <C>                    <C>
   Interest Rates           $ 6,730,758            $ 4,763,680           $ 10,439,465
   Stock Indices             (1,829,531)             2,201,853               (371,033)
   Currencies                (1,826,268)             1,794,830              5,889,115
   Metals                    (3,643,100)             3,445,310              2,601,435
                      ------------------     ------------------     ------------------
                             $ (568,141)          $ 12,205,673           $ 18,558,982
                      ==================     ==================     ==================
</TABLE>


   Market Risk

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

   MLIP, which monitors the trading of the Company in MLIP's capacity as the
   Company's Administrator, 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 Advisor, calculating the Net Asset Value of the Company and of
   the Members' respective capital accounts as of the close of business on each
   day and reviewing outstanding positions for over-concentrations.  While MLIP
   does not itself intervene in the markets to hedge or diversify the Company's
   market exposure, MLIP may consult with the Advisor concerning the possibility
   of the Advisor reducing trading leverage or market concentrations.  However,
   such interventions are unusual.  Except in cases in which it appears that JWH
   has begun to deviate from past practice and trading policies or to be trading
   erratically (which has not occurred to date), MLIP's basic risk control

                                      -8-
<PAGE>
 
   procedures consist simply of the ongoing process of monitoring JWH with the
   market risk controls being applied by JWH.

   Fair Value

   The derivative instruments traded by the Company are 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 Operations.

   The contract/notional values of open contracts as of December 31, 1998 and
   1997 were as follows:

<TABLE>
<CAPTION>
                                            1998                                                      1997
                      -------------------------------------------------         -------------------------------------------------
                            Commitment to                Commitment to                Commitment to                Commitment to
                          Purchase (Futures,             Sell (Futures,             Purchase (Futures,             Sell (Futures,
                          Options & Forwards)          Options & Forwards)          Options & Forwards)        Options & Forwards)
                      --------------------         --------------------         --------------------         -------------------- 
<S>                   <C>                          <C>                          <C>                          <C>
   Interest Rates           $ 162,548,185                $ 173,898,152                $ 200,852,720                $ 260,424,574
   Stock Indices                        -                            -                            -                    4,996,821
   Currencies                  10,438,700                            -                   69,236,628                  134,487,777
   Metals                               -                    2,284,680                    8,173,620                   23,636,110
                      --------------------         --------------------         --------------------         -------------------- 
                            $ 172,986,885                $ 176,182,832                $ 278,262,968                $ 423,545,282
                      ====================         ====================         ====================         ====================
</TABLE> 

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

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

<TABLE>
<CAPTION>
                                                  1998                                                      1997
                           ------------------------------------------------        -------------------------------------------------
                              Commitment to              Commitment to               Commitment to                Commitment to
                            Purchase (Futures,           Sell (Futures,           Purchase (Futures,              Sell (Futures,
                            Options & Forwards)        Options & Forwards)        Options & Forwards)           Options & Forwards)
                           -------------------        -------------------        --------------------         --------------------
<S>                        <C>                        <C>                         <C>                         <C>
   Exchange-Traded              $ 172,986,885              $ 176,182,832               $ 209,026,340                $ 305,091,785
   Non-Exchange-Traded                      -                          -                  69,236,628                  118,453,497
                           -------------------        -------------------        --------------------         -------------------- 
                                $ 172,986,885              $ 176,182,832               $ 278,262,968                $ 423,545,282
                           ===================        ===================        ====================         ====================
</TABLE> 

                                      -9-
<PAGE>
 
   The average fair values, based on contract/notional values, of the Company's
   derivative instruments positions which were open as of the end of each
   calendar month during the years ended December 31, 1998 and 1997 were as
   follows:

<TABLE> 
<CAPTION> 
                                         1998                                                         1997
                      -------------------------------------------------         -------------------------------------------------
                         Commitment to                Commitment to                Commitment to                Commitment to
                       Purchase (Futures,             Sell (Futures,             Purchase (Futures,             Sell (Futures,
                       Options & Forwards)          Options & Forwards)          Options & Forwards)        Options & Forwards)
                      --------------------         --------------------         --------------------         -------------------- 
<S>                         <C>                          <C>                          <C>                          <C>
   Interest Rates           $ 300,311,628                $ 146,537,268                $ 364,504,683                $ 155,397,051
   Stock Indices                4,594,819                    5,430,676                   13,580,756                   11,229,979
   Currencies                  56,235,733                   71,244,084                  117,259,926                  148,327,330
   Metals                       7,683,213                    8,636,966                    6,409,749                   31,164,193
                      --------------------         --------------------         --------------------         -------------------- 
                            $ 368,825,393                $ 231,848,994                $ 501,755,114                $ 346,118,553
                      ====================         ====================         ====================         ====================
</TABLE> 

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

   Credit Risk

   The risks associated with exchange-traded contracts are typically perceived
   to be less than those associated with over-the-counter (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
   Company's market exposure in the particular class of derivative instrument
   listed, but not the credit risk associated with counterparty nonperformance.
   The credit risk associated with these instruments from counterparty
   nonperformance is the net unrealized profit included on the Statements of
   Financial Condition.

   The gross unrealized profit and net unrealized profit (loss) on the Company's
   open derivative instrument positions as of December 31, 1998 and 1997 were as
   follows:

<TABLE> 
<CAPTION>
                                            1998                                 1997
                           ---------------------------------     ---------------------------------
                            Gross Unrealized    Net Unrealized    Gross Unrealized  Net Unrealized
                                 Profit             Profit             Profit       Profit (Loss)
                           ---------------    --------------     --------------     --------------  
<S>                        <C>                <C>                <C>                <C>
   Exchange-Traded            $ 3,511,028       $ 3,074,669        $ 4,309,342        $ 3,661,949
   Non-Exchange Traded                  -                 -          1,587,289           (932,962)
                           ---------------    --------------     --------------     --------------  
                              $ 3,511,028       $ 3,074,669        $ 5,896,631        $ 2,728,987
                           ===============    ==============     ==============     ==============
</TABLE>

                                      -10-
<PAGE>
 
   The Company 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 Company, through its normal course of business, enters into various
   contracts, with MLF acting as its commodity broker. Pursuant to the brokerage
   arrangement with MLF (which includes a netting arrangement), to the extent
   that such trading results in receivables from and payables to MLF, these
   receivables and payables are offset and reported as a net receivable or
   payable.

               *     *     *     *     *     *     *     *     *

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

                                 /s/ Di Dario

                                Jo Ann Di Dario
                            Chief Financial Officer
                     Merrill Lynch Investment Partners Inc.
                            Commodity Pool Operator
                  ML JWH Financial and Metals Portfolio L.L.C.

                                      -11-
<PAGE>
 
                ML MULTI-MANAGER PORTFOLIO LLC
                (A Delaware Limited Liability Company)


                Financial Statements for the period from
                June 1, 1998 (Commencement of Operations)
                to December 31, 1998 and
                Independent Auditors' Report
<PAGE>
 
ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)


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

                                                                          Page
                                                                          ----
                                              
INDEPENDENT AUDITORS' REPORT                                                 1
                                              
FINANCIAL STATEMENTS FOR THE PERIOD FROM      
  JUNE 1, 1998 (COMMENCEMENT OF OPERATIONS)   
  TO DECEMBER 31, 1998:                       
                                              
  Statement of Financial Condition                                           2
                                              
  Statement of Income                                                        3
                                              
  Statement of Changes in Members' Capital                                   4
                                              
  Notes to Financial Statements                                           5-11
 
<PAGE>
 
INDEPENDENT AUDITORS' REPORT
----------------------------



To the Members of
 ML Multi-Manager Portfolio LLC:

We have audited the accompanying statement of financial condition of ML Multi-
Manager Portfolio LLC (the "Company") as of December 31, 1998, and the related
statements of income and of changes in members' capital for the period from June
1, 1998 (commencement of operations) to December 31, 1998.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of ML Multi-Manager Portfolio LLC as of
December 31, 1998, and the results of its operations for the period from June 1,
1998 (commencement of operations) to December 31, 1998 in conformity with
generally accepted accounting principles.


DELOITTE & TOUCHE LLP


New York, New York
February 4, 1999
<PAGE>
 
ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)

STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1998
--------------------------------------------------------------------------------

 ASSETS
                                                             1998
                                                       -----------------
 Equity in commodity futures trading accounts:         
     Cash and option premiums                          $     122,916,463
     Net unrealized profit on open contracts                   1,970,219
 Accrued interest (Note 2)                                       445,876
                                                       ------------------
                                                        
                 TOTAL                                 $     125,332,558
                                                       ==================
                                                        
 LIABILITIES AND MEMBERS' CAPITAL                       
                                                        
 LIABILITIES:                                           
                                                        
     Brokerage commissions payable (Note 2)            $         938,848
     Profit Shares payable (Note 3)                            1,944,169
     Administrative fees payable (Note 2)                         44,772
     Due to invested funds                                     2,021,293
                                                       ------------------
                                                        
             Total liabilities                                 4,949,082
                                                       ------------------
                                                        
 MEMBERS' CAPITAL:                                      
                                                        
     Voting Members                                          120,383,476
                                                       ------------------
                                                        
             Total Members' capital                          120,383,476
                                                       ------------------
                                                        
                 TOTAL                                 $     125,332,558
                                                       ==================


 See notes to financial statements.

                                     - 2 -
<PAGE>
 
ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)

STATEMENT OF INCOME
FOR THE PERIOD FROM JUNE 1, 1998 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
--------------------------------------------------------------------------------

REVENUES:                                       1998
                                            --------------
Trading profit:
    Realized                                 $ 13,866,078
    Unrealized                                  1,970,219
                                            --------------
                                               
        Total trading results                  15,836,297
                                               
Interest income (Note 2)                        3,419,046
                                            --------------
                                               
        Total revenues                         19,255,343
                                            --------------
                                               
EXPENSES:                                      
    Brokerage commissions (Note 2)              6,348,662
    Profit Shares (Note 3)                      2,943,598
    Administrative fees (Note 2)                  199,582
                                            --------------
                                               
        Total expenses                          9,491,842
                                            --------------
                                               
NET INCOME                                   $  9,763,501
                                            ==============


See notes to financial statements.

                                     - 3 -
<PAGE>
 
ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)


STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE PERIOD FROM JUNE 1, 1998 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                           Non-Voting
                                          Voting Members                    Members                  Total
                                        --------------------       --------------------      ------------------------

<S>                                     <C>                         <C>                      <C>          
Initial Contributions                         $ 116,715,631                $ 5,461,563              $ 122,177,194

Additions                                        11,012,473                     56,478                 11,068,951

Withdrawals                                     (16,715,086)                (5,911,084)               (22,626,170)

Net Income                                        9,370,458                    393,043                  9,763,501
                                        --------------------       --------------------       --------------------

MEMBERS' CAPITAL,
  DECEMBER 31, 1998                           $ 120,383,476                $         -              $ 120,383,476
                                        ====================       ====================       ====================
</TABLE>



See notes to financial statements.

                                     - 4 -
<PAGE>
 
ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

   ML Multi-Manager Portfolio LLC (the "Company") was organized under the
   Delaware Limited Liability Company Act on May 11, 1998 and commenced trading
   activities on June 1, 1998.  The Company engages in the speculative trading
   of futures, options on futures, forwards and options on forward contracts on
   a wide range of commodities.  Merrill Lynch Investment Partners Inc.
   ("MLIP"), a wholly-owned subsidiary of Merrill Lynch Group, Inc., which, in
   turn, is a wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
   Lynch"), has been delegated administrative authority over the Company.
   Merrill Lynch Futures Inc. ("MLF"), an affiliate of MLIP, is the Company's
   commodity broker. A portion of the Company'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 MLIP. The Company has
   authorized two classes of Membership Interests: Non-Voting Interests and
   Voting Interests (collectively, "Interests").  These two classes of Interests
   have common economic interests in the Company, but the Non-Voting Interests,
   which were held by non-United States investment funds sponsored by MLIP, do
   not participate in any respect in the management of the Company, or engage,
   directly or indirectly, in, participate in, or control all or any portion of
   the business activities or affairs of the Company.  Management of the Company
   is vested solely in the Voting Interests, which are held by United States
   limited partnerships.  The Voting Members control all business activities and
   affairs of the Company by agreement of the majority in interest of such
   Members, subject to the discretionary trading authority vested in and
   delegated to the trading advisors (the "Advisors" or "the "Trading Advisors")
   and the administrative authority vested in and delegated to MLIP.  The
   Members of the Company (the "Members"), each of which is a "commodity pool"
   sponsored and controlled by MLIP, share in the trading profit (loss) and
   interest income of the Company in proportion to their respective capital
   accounts.

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

   Estimates
   ---------

   The preparation of financial statements in conformity with 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 as
   well as 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 Statement 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 unrealized profit on open contracts
   is reflected in unrealized in the Statement of Income.

                                     - 5 -
<PAGE>
 
   Foreign Currency Transactions
   -----------------------------

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

   Organizational Costs
   --------------------

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

   Income Taxes
   -------------

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

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

   No distribution (except upon withdrawals) had been made by the Company to any
   Member as of December 31, 1998.

   Withdrawals
   -----------

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

   Dissolution of the Company
   --------------------------

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

   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. MLIP does not believe that the
   Statement will have a significant effect on the financial statements of the
   Company.

2. RELATED PARTY TRANSACTIONS

   The bulk of the Company's U.S. dollar assets are maintained at MLF.  On
   assets held in U.S. dollars, Merrill Lynch credits the Company with interest
   at the prevailing 91-day U.S. Treasury bill rate.  The Company is credited
   with interest on any of its 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 Company, from possession of such assets.

                                     - 6 -
<PAGE>
 
   Merrill Lynch charges the Company Merrill Lynch's cost of financing realized
   and unrealized losses on the Company's non-U.S. dollar-denominated positions.

   Following the allocation of the Company's trading profit (loss) and interest
   income among the Members' respective Capital Accounts, MLIP calculates the
   brokerage commissions, Profit Shares, administrative fees and other expenses
   due from the Company to third parties, in respect of the Company's trading on
   behalf of the respective Members (the Company being subject to different
   commissions, fees and expenses in respect of its trading as allocable to the
   various different Members).  Such brokerage commissions, fees and expenses
   are specifically allocated as of the end of each accounting period (not pro
   rata based on the Members' respective capital accounts) to, and deducted
   from, the appropriate Members' capital accounts and paid out by the Company.
   The Company pays brokerage commissions to MLF, at a flat monthly rate
   reflecting the fee arrangement between each Member and MLF.  During the
   period from June 1, 1998 to December 31, 1998, such rates for Members were
   .729 of 1% (an 8.75% annual rate) and for a certain Member, .292 of 1% (a
   3.5% annual rate) of such Member's month-end assets invested in the Company.

   The Company pays MLIP a monthly administrative fee of .021 of 1% (a .25%
   annual rate) and for a certain Member, .083 of 1% (a 1.0% annual rate) of
   such Member's month-end assets. Month-end assets are not reduced for purposes
   of calculating brokerage commissions and administrative fees by any accrued
   brokerage commissions, administrative fees, Profit Shares or other fees or
   charges.

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

   Many of the Company'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 Company. MLIP anticipates that some of the Company's
   foreign currency trades will be executed through MLIB, an affiliate of MLIP.
   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 Company acquires
   cash currency positions through banks and dealers, including Merrill Lynch.
   The Company 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. ADVISORY AGREEMENTS

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

   The Company pays, from the Capital Account of each Member, to the Advisors
   quarterly or annual Profit Shares generally ranging from 15% to 24% of any
   New Trading Profit, as defined, recognized by each Advisor, attributable to
   each Member's Capital Account, considered individually irrespective of the
   overall performance of the such Member's Capital Account.  Profit Shares,
   which are calculated separately in respect of each Member's Capital Account,
   are determined as of the end of each calendar 

                                     - 7 -
<PAGE>
 
   quarter or year and are also paid to each Advisor upon the withdrawal of
   capital from the Company by a Member for whatever purpose, other than to pay
   expenses and upon the reallocation of assets away from an Advisor.

4. FAIR VALUE AND OFF-BALANCE SHEET RISK

   The Company trades futures, options on futures, forwards and options on
   forward contracts on interest rates, stock indices, commodities, currencies,
   energy and metals.  The Company's trading results by reporting category for
   the period from June 1, 1998 to December 31, 1998 were as follows:

                                       1998
                                 ------------------
                              
            Interest Rates            $ 11,105,955
            Stock Indices                1,487,607
            Commodities                 (1,086,883)
            Currencies                   5,054,310
            Energy                         534,828
            Metals                      (1,259,520)
                                 ------------------
                                      $ 15,836,297
                                 ==================

                                        

   Market Risk

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

   MLIP, which monitors the trading of the Company in MLIP's capacity as the
   administrator, has procedures in place intended to control market risk
   exposure, although there can be no assurance that they will, in fact, succeed
   in doing so.  These procedures focus primarily on monitoring the trading of
   the Advisors, calculating the Net Asset Value of the Company and of the
   Members' respective capital accounts as of the close of business on each day
   and reviewing outstanding positions for over-concentrations.  While MLIP does
   not itself intervene in the markets to hedge or diversify the Company's
   market exposure, MLIP may consult with the Advisors concerning the
   possibility of the Advisors reducing trading leverage or market
   concentrations.  However, such interventions are unusual.  Except in cases in
   which it appears that the Advisors have begun to deviate from past practice
   and trading policies or to be trading erratically, MLIP's basic risk control
   procedures consist simply of the ongoing process of monitoring the Advisors
   with the market risk controls being applied by the Advisors.

                                     - 8 -
<PAGE>
 
   Fair Value

   The derivative instruments traded by the Company are marked to market daily
   with the resulting unrealized profit recorded in the Statement of Financial
   Condition and the related profit reflected in trading results in the
   Statement of Income.

   The contract/notional values of open contracts as of December 31, 1998 were
   as follows:
   
<TABLE> 
<CAPTION> 
                                                     1998
                              -------------------------------------------------------
                                   Commitment to                 Commitment to
                                 Purchase (Futures,              Sell (Futures,
                                Options & Forwards)           Options & Forwards)
                              -------------------------     -------------------------
<S>                           <C>                           <C> 
     Interest Rates            $           172,725,488       $           150,086,136
     Stock Indices                          14,192,947                     3,704,878
     Commodities                             2,049,190                     9,818,796
     Currencies                            324,281,552                   330,268,732
     Energy                                          -                     2,957,365
     Metals                                  3,062,623                     9,507,885
                              -------------------------     -------------------------
                               $           516,311,800       $           506,343,792
                              =========================     =========================
</TABLE> 
 

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

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

<TABLE> 
<CAPTION> 
                                                     1998
                              -------------------------------------------------------
                                   Commitment to                 Commitment to
                                 Purchase (Futures,              Sell (Futures,
                                Options & Forwards)           Options & Forwards)
                              -------------------------     -------------------------
                                                           
<S>                           <C>                           <C> 
   Exchange Traded               $        220,954,431       $            188,785,673
   Non-Exchange-Traded                    295,357,369                    317,558,119
                              ------------------------     --------------------------
                                 $        516,311,800       $            506,343,792
                              ========================     ==========================
</TABLE> 

                                     - 9 -
<PAGE>
 
   The average fair values, based on contract/notional values, of the Company's
   derivative instrument positions which were open as of the end of each
   calendar month during the period from June 1, 1998 (commencement of
   operations) to December 31, 1998 were as follows:

                                             1998
                      ------------------------------------------------
                          Commitment to             Commitment to
                        Purchase (Futures,          Sell (Futures,
                        Options & Forwards)       Options & Forwards)
                      -----------------------     --------------------
                    
    Interest Rates       $   338,431,556           $      129,323,310
    Stock Indices             12,109,631                    7,830,657
    Commodities               10,565,592                   14,601,554
    Currencies               316,276,954                  306,680,060
    Energy                     3,089,967                    5,895,385
    Metals                    14,005,485                   19,172,515
                      -------------------         --------------------
                         $   694,479,185           $      483,503,481
                      ===================         ====================
 
   A portion of the amounts indicated as off-balance sheet risk reflects
   offsetting commitments to purchase and sell the same derivative instrument on
   the same date in the future.  These commitments are economically offsetting
   but are not, as a technical matter, offset in the forward markets until the
   settlement date.

   Credit Risk

   The risks associated with exchange-traded contracts are typically perceived
   to be less than those  associated with over-the-counter (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
   Company's market exposure in the particular class of derivative instrument
   listed, but not the credit risk associated with counterparty nonperformance.
   The credit risk associated with these instruments from counterparty
   nonperformance is the net unrealized profit included on the Statement of
   Financial Condition.

   The gross unrealized profit and net unrealized profit on the Company's open
   derivative instrument positions as of December 31, 1998 were as follows:

                                           1998
                             ---------------------------------
                                  Gross             Net
                                Unrealized       Unrealized
                                  Profit           Profit
                             --------------     --------------
                         
   Exchange Traded              $2,565,566         $1,803,512
   Non-Exchange Traded           6,481,087            166,707
                             --------------     --------------
                                $9,046,653         $1,970,219
                             ==============     ==============
 

                                     - 10 -
<PAGE>
 
   The Company 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 Company, in its normal course of business, enters into various contracts,
   with MLF acting as its commodity broker. Pursuant to the brokerage
   arrangement with MLF (which includes a netting arrangement), to the extent
   that such trading results in receivables from and payables to MLF, these
   receivables and payables are offset and reported as a net receivable or
   payable.


                  *     *     *     *     *     *     *     *

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

                                 /s/ Di Dario

                                Jo Ann Di Dario
                            Chief Financial Officer
                     Merrill Lynch Investment Partners Inc.
                           Commodity Pool Operator of
                         ML MULTI-MANAGER PORTFOLIO LLC

                                     - 11 -