<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

                                   FORM 10-K

              (x) Annual Report Pursuant to Section 13 or 15(d) 
                    of the Securities Exchange Act of 1934

                 For the fiscal year ended: December 31, 1998
                                      or
                 ( ) Transition Report Pursuant to Section 13
                or 15(d) of the Securities Exchange Act of 1934

                        Commission file number: 0-18702

                   THE S.E.C.T.O.R. STRATEGY FUND (SM) L.P.
             (Safety of Equity Capital; Targeting Overall Return)
            ------------------------------------------------------   
            (Exact name of registrant as specified in its charter)

               DELAWARE                                    13-3568563
   -------------------------------                    -------------------
   (State or other jurisdiction of                     (I.R.S. Employer
    incorporation or organization)                    Identification No.)

                  C/O MERRILL LYNCH INVESTMENT PARTNERS INC.
                       MERRILL LYNCH WORLD HEADQUARTERS
                            WORLD FINANCIAL CENTER
                        SOUTH TOWER, NEW YORK, NY 10080
                   ---------------------------------------- 
                   (Address of principal executive offices)

      Registrant's telephone number, including area code: (212) 236-5662


SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:  None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:  Limited Partnership
Units

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.                               Yes  X   No ___
                                                                     ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant: the registrant is a limited partnership: as of
February 1, 1999, limited partnership units with an aggregate value of
$17,954,767 were outstanding and held by non-affiliates.

                      DOCUMENTS INCORPORATED BY REFERENCE

The registrant's "1998 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 1998,
is incorporated by reference into Part II, Item 8 and Part IV hereof and filed
as an Exhibit herewith.
<PAGE>
 
                   THE S.E.C.T.O.R. STRATEGY FUND (SM) L.P.

                      ANNUAL REPORT FOR 1998 ON FORM 10-K


                               Table of Contents
                               -----------------

<TABLE>
<CAPTION>
                                                          PART I                                                        PAGE
                                                          ------                                                        ----
<S>                                                                                                                     <C>
Item 1.  Business.....................................................................................................     1

Item 2.  Properties...................................................................................................     6

Item 3.  Legal Proceedings............................................................................................     6

Item 4.  Submission of Matters to a Vote of Security Holders..........................................................     6


                                                          PART II
                                                          -------

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters........................................     6

Item 6.  Selected Financial Data......................................................................................     7

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations........................    10

Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................................    17

Item 8.  Financial Statements and Supplementary Data..................................................................    17

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........................    17


                                                          PART III
                                                          -------- 

Item 10. Directors and Executive Officers of the Registrant...........................................................    17

Item 11. Executive Compensation.......................................................................................    19

Item 12. Security Ownership of Certain Beneficial Owners and Management...............................................    19

Item 13. Certain Relationships and Related Transactions...............................................................    20


                                                          PART IV  
                                                          ------- 

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................................    21
</TABLE>
<PAGE>
 
                                    PART I

ITEM 1:  BUSINESS
         --------
 
     (a)  General Development of Business:
          -------------------------------

          The S.E.C.T.O.R. Strategy Fund (SM) L.P. (Safety of Equity Capital;
Targeting Overall Return) (the "Partnership") was organized under the Delaware
Revised Uniform Limited Partnership Act on April 30, 1990 and began trading
operations on July 16, 1990. The Partnership made a single offering of its units
of limited partnership interest ("Units"). Units may be redeemed as of the end
of each calendar month. The Partnership engages (currently, through an
investment in a limited liability company, see below) in the speculative trading
of a portfolio of futures, options on futures, forwards and options on forward
contracts and related options in the currencies, interest rates, stock index,
metals, agricultural and energy sectors of the world futures markets. The
Partnership's objective is achieving, through speculative trading, substantial
capital appreciation, over time, while also assuring investors of at least a
predetermined minimum Net Asset Value per Unit as of the Principal Assurance
Date.

          Merrill Lynch Investment Partners Inc. (the "General Partner" or
"MLIP") is the general partner of the Partnership and selects and allocates the
Partnership's assets (through the Partnership's investment in ML Multi-Manager
Portfolio LLC ("MM LLC"), among professional advisors ("Trading
Advisors" or "Advisors"), each unaffiliated with MLIP and each of which trades
independently of the others. The Partnership and MM LLC are referred to
throughout this document, either individually and/or collectively, as the
"Fund". MLIP also determines what percentage of the Fund's assets to allocate to
trading and what percentage to hold in reserve. Merrill Lynch Futures Inc. (the
"Commodity Broker" or "MLF") is the Partnership's commodity broker. A portion of
the Partnership's assets is held by a commodity broker, other than MLF, to
facilitate the trading of a certain independent advisor. The General Partner is
a wholly-owned subsidiary of Merrill Lynch Group, Inc., which, in turn, is a
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML&Co."). The Commodity
Broker is an indirect wholly-owned subsidiary of ML&Co. (ML&Co. and its
affiliates are herein sometimes referred to as "Merrill Lynch.")

          Prior to October 1, 1996, the Partnership placed assets with the
Trading Advisors by opening individual managed accounts with them. For the
period from October 1, 1996 to May 31, 1998, the Partnership placed assets with
certain of the Trading Advisors through investing in private funds ("Trading
LLCs") sponsored by MLIP, through which the trading accounts of different
MLIP-sponsored funds managed by the same Advisor pursuant to the same strategy
were consolidated. The only members of the Trading LLCs were commodity pools
sponsored by MLIP. Placing assets with an Advisor through investing in a Trading
LLC rather than a managed account had no economic effect on the Partnership,
except to the extent that the Partnership benefited from the Advisor not having
to allocate trades among a number of different accounts (rather than acquiring a
single position for the Trading LLC as a whole). As of June 1, 1998, MLIP
consolidated the trading accounts of nine of its multi-advisor funds (the
"Multi-Advisor Funds"), including the Partnership. The consolidation was
achieved by having these Multi-Advisor Funds invest in a single Delaware limited
liability company, MM LLC, which opened a single account with each Advisor
selected. MM LLC is managed by MLIP, has no investors other than the
Multi-Advisor Funds and serves solely as the vehicle through which the assets of
such Multi-Advisor Funds are combined in order to be managed through single
rather than multiple accounts. The placement of assets into MM LLC did not
change the operations or fee structure of the Partnership. The administrative
authority over the Partnership, as well as MM LLC, remains with MLIP. The
following disclosures relate to the operation of the Partnership through its
investment in MM LLC.

          In addition to its investment in MM LLC, the Partnership maintains a
cash account. From time to time, the General Partner allocates and reallocates
Partnership assets among its investment in MM LLC and its cash accounts in an
attempt to increase profit potential while limiting the downside risks
associated with futures and forward trading (in order to prevent ML&Co. from
incurring any obligations under its guarantee of a minimum Net Asset Value per
Unit, as described below). Initially, the General Partner allocated
approximately 30% of the Partnership's assets to cash and approximately 70% to
trading. As of December 31, 1998, 100% was invested in MM LLC.

          As of December 31, 1998, the Partnership's capitalization was
$18,934,681, and the Net Asset Value of a Unit sold as of July 16, 1990 for $100
was $189.19. 

                                       1
<PAGE>
 
          ML&Co. guarantees that the Net Asset Value per Unit will equal at
least $150.06 as of September 30, 1999 (the "Principal Assurance Date").
The initial Principal Assurance Date was set at five years after
trading commenced. Effective October 1, 1995, the Fund restarted its trading
program for a new Time Horizon of two years' duration. A third Time Horizon,
also two years in length, was begun as of October 1, 1997. This guarantee does
not prevent substantial investor losses, but rather serves only as a form of
"stop loss," limiting the maximum loss which investors who retain their Units
until the Principal Assurance Date can incur. In order to protect ML&Co. from
any liability under its guarantee, at such time, if any, as the Net Asset Value
per Unit were to decline to 110% or less of the present value of the guaranteed
minimum Net Asset Value per Unit discounted back from the current Principal
Assurance Date, MLIP would terminate trading altogether in order to ensure that
ML&Co. incurred no financial obligation to the Fund under ML&Co.'s guarantee of
the minimum Net Asset Value per Unit.

          Through December 31, 1998, the highest month-end Net Asset Value per
Unit was $199.62 (February 27, 1997) and the lowest was $102.26 (July 31, 1990).

     (b)  Financial Information about Segments:
          ------------------------------------     

          The Partnership's business constitutes only one segment for financial
reporting purposes, i.e., a speculative "commodity pool." The Partnership does
not engage in sales of goods or services.

     (c)  Narrative Description of Business:
          ---------------------------------

          GENERAL

          The Fund trades (currently, through its investment in MM LLC) in
futures, options on futures, forwards and options on forward contracts in major
sectors of the world economy, with the objective of achieving substantial
capital appreciation over time, while assuring investors of at least a
predetermined minimum Net Asset per Unit as of the Principal Assurance Date.

          The General Partner is the Partnership's trading manager, with
responsibility for selecting Advisors to manage MM LLC's assets, allocating and
reallocating MM LLC assets among different Advisors and determining the
percentage of the Partnership's assets to be invested in MM LLC from time to
time.

          Although considered as a whole, the Partnership (currently, through an
investment in MM LLC) trades in a diversified range of international markets.
Certain of the Trading Advisors, considered individually, concentrate primarily
on trading in a limited portfolio of markets. The composition of the "sectors"
included in the Partnership's portfolio varies substantially over time.

          MLIP may, from time to time, direct certain individual Advisors to
manage their Fund accounts as if they were managing more equity than the actual
capital allocated to them.

          One of the objectives of the Fund is to provide diversification for a
limited portion of the risk segment of the Limited Partners' portfolios.
Commodity pool performance has historically demonstrated a low degree of
performance correlation with traditional stock and bond holdings. Since it began
trading, the Fund's returns have, in fact, frequently been significantly non-
correlated (not, however, negatively correlated) with the United States stock
and bond markets.

          ML&CO.'S "PRINCIPAL PROTECTION" UNDERTAKING TO THE FUND

          ML&Co., the parent company of the Merrill Lynch organization, which
includes the General Partner and the Commodity Broker, has agreed to contribute
sufficient capital to the Partnership so that it will have adequate funds, after
adjustment for all liabilities to third parties, that the Net Asset Value per
Unit will be no less than $150.06 as of the third Principal Assurance Date
(September 30, 1999). This guarantee, which is effective only as of the
Principal Assurance Date, is a guarantee only of the minimum assured Net Asset
Value, (plus distributions, if any), not against the loss of the use of time
value of such investment or a guarantee of profit. This guarantee is a general,
unsecured obligation of ML&Co.

                                       2
<PAGE>
 
          OPERATION OF THE PARTNERSHIP AFTER THE THIRD PRINCIPAL ASSURANCE DATE

          When the Fund reached its first Principal Assurance Date, MLIP
"restarted" the Fund's trading program and the ML&Co. guarantee for a two-year
period ending September 30, 1997. As of October 1, 1997, MLIP again "restarted"
the Fund's trading program and the ML&Co. guarantee for an additional two-year
period ending September 30, 1999. MLIP may determine to dissolve the Partnership
as of the current Principal Assurance Date (September 30, 1999), to extend the
ML&Co. guarantee for a certain period of time (again resetting the minimum Net
Asset Value per Unit guaranteed by ML&Co.) or to continue to operate the Fund
without a "principal protection" feature. All investors will be given notice by
no later than August 15, 1999 as to what the operation of the Fund (if any) will
be after the current Principal Assurance Date.

          USE OF PROCEEDS AND INTEREST INCOME

          Market Sectors. The Partnership (currently, through an investment in
          --------------
MM LLC) trades in a diversified group of markets under the direction of multiple
independent Advisors. These Advisors can, and do, from time to time materially
alter the allocation of their overall trading commitments among different market
sectors. Except in the case of certain trading programs which are purposefully
limited in the markets which they trade, there is essentially no restriction on
the commodity interests which may be traded by any Advisor or the rapidity with
which an Advisor may alter its market sector allocations.

          The Fund's financial statements contain information relating to the
market sectors traded by the Fund. There can, however, be no assurance as to
which markets may be included in the Fund's portfolio or in which market sectors
the Fund's trading may be concentrated at any one time or over time.

          Market Types. The Fund trades (currently, through its investment in
          ------------
MM LLC) on a variety of United States and foreign futures exchanges.
Substantially all of the Fund's off-exchange trading takes place in the highly
liquid, institutionally-based currency forward markets.

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

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

          As in the case of its market sector allocations, the Fund's
commitments to different types of markets -- U.S. and non-U.S., regulated and
unregulated --differ substantially from time to time as well as over time.

          The Fund's financial statements contain information relating to the
types of markets traded by the Fund. There can, however, be no assurance as to
which markets the Fund may trade or as to how the Fund's trading may be
concentrated at any one time or over time.

          Custody of Assets.  The majority of the Fund's assets are currently
          -----------------
held in customer accounts at Merrill Lynch.

                                       3
<PAGE>
 
               Interest paid by Merrill Lynch on the Fund's U.S. Dollar and Non
               ----------------------------------------------------------------
U.S. Dollar Assets  A majority of the Fund's U.S. dollar assets are maintained 
------------------
at MLF. On assets held in U.S. dollars, Merrill Lynch credits the Fund with
interest at the prevailing 91-day U.S. Treasury bill rate. The Fund 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 Fund, from possession of such assets.

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


               CHARGES

               The following table summarizes the charges incurred by the Fund
during 1998, 1997 and 1996.

<TABLE>
<CAPTION>
                                  1998                          1997                         1996
                         ----------------------------------------------------------------------------------
                                                                                                  
                                      % of Average                % of Average                  % of Average 
                           Dollar      Month-End       Dollar      Month-End        Dollar       Month-End
   Changes                 Amount      Net Assets      Amount      Net Assets       Amount       Net Assets
-----------------------------------------------------------------------------------------------------------
<S>                      <C>          <C>            <C>          <C>              <C>          <C>  
Brokerage                 
Commissions               $662,247        3.05%      $1,936,603        6.75%       $2,636,241       8.21%
Administrative          
Fees                        18,921        0.09%          55,331        0.19%           75,321       0.23%
Profit Shares              147,262        0.68%         158,988        0.56%          457,989       1.43%
                         ----------------------------------------------------------------------------------
Total                     $828,430        3.82%      $2,150,922        7.50%       $3,169,551       9.87%
                         ==================================================================================
</TABLE>

                           ________________________


               Subsequent to October 1, 1996, Brokerage Commissions,
Administrative Fees and Profit Shares are not representative of the actual
amounts paid by the Fund, because the Fund paid the bulk of these fees as an
investor in the Trading LLCs or MM LLC. See "Description of Current Charges."

               The foregoing table does not reflect the bid-ask spreads paid by
the Fund on its forward trading, or the annual benefits which may be derived by
Merrill Lynch from the deposit of certain of the Fund's U.S. dollar assets in
offset accounts.

               The Fund's average month-end Net Assets during 1998, 1997 and
1996 equaled $21,720,057, $28,696,419 and $32,095,064, respectively.

               During 1998, 1997 and 1996, the Fund earned $396,925, $1,118,910
and $1,364,326 in interest income, or approximately 1.83%, 3.90% and 4.25% of
the Fund's average month-end Net Assets. 

                                       4
<PAGE>
 
               Effective January 1, 1996, the 9.0% per annum Brokerage
Commissions paid by the Fund to MLF were recharacterized as 8.75% per annum
Brokerage Commissions and a 0.25% per annum Administrative Fee paid by the Fund
to MLIP. This recharacterization had no economic effect on the Fund.

                        DESCRIPTION OF CURRENT CHARGES

RECIPIENT         NATURE OF PAYMENT               AMOUNT OF PAYMENT
---------         -----------------               -----------------

MLF               Brokerage Commissions           A flat-rate monthly commission
                                                  of 0.729 of 1% (a 8.75% annual
                                                  rate) of the Fund's month-end
                                                  assets allocated to trading.
                                                  As of December 31, 1998, 100%
                                                  of the Fund's assets were
                                                  allocated to trading.

                                                  During 1998, 1997 and 1996,
                                                  the round-turn (each purchase
                                                  and sale or sale and purchase
                                                  of a single futures contract)
                                                  equivalent rate of the Fund's
                                                  flat-rate Brokerage Com
                                                  missions was approximately
                                                  $69, $114 and $118,
                                                  respectively.


MLF               Use of Fund assets              Merrill Lynch may derive an
                                                  annual benefit from the
                                                  deposit of certain of the
                                                  Fund's U.S. dollar assets in
                                                  offset accounts.


MLIP              Administrative Fees             The Fund pays MLIP a monthly
                                                  Administrative Fee equal to
                                                  0.020833 of 1% of the Fund's
                                                  month-end assets committed to
                                                  trading (0.25% annually). MLIP
                                                  pays all of the Fund's routine
                                                  administrative costs.


MLIB; Other       Bid-ask spreads                 Bid-ask spreads on forward and
Counterparties                                    related trades.

Trading Advisors  Profit Shares                   Prior to January 1, 1997, all
                                                  Advisors received quarterly
                                                  Profit Shares ranging from 15%
                                                  to 25% (depending on the
                                                  Trading Advisor) of any New
                                                  Trading Profit achieved by
                                                  their Fund account. As of
                                                  January 1, 1998, a number of
                                                  Advisors agreed to receive
                                                  only annual Profit Shares.
                                                  Profit Shares are also paid
                                                  upon redemption of Units and
                                                  upon the net reallocation of
                                                  assets away from an Advisor.
                                                  New Trading Profit is
                                                  calculated separately in
                                                  respect of each Advisor,
                                                  irrespective of the overall
                                                  performance of the Fund. The
                                                  Fund and MM LLC may pay
                                                  substantial Profit Shares
                                                  during periods when it is
                                                  incurring significant overall
                                                  losses.


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


MLF;              Extraordinary expenses          Actual costs incurred; none
  Others                                          paid to date.

                                       5
<PAGE>
 
               REGULATION

               The General Partner, the Trading Advisors and the Commodity
Broker are each subject to regulation by the Commodity Futures Trading
Commission, (the "CFTC") and the National Futures Association. Other than in
respect of its periodic reporting requirements under the Securities Exchange Act
of 1934, the Partnership itself is generally not subject to regulation by the
Securities and Exchange Commission. However, MLIP itself is registered as an
"investment adviser" under the Investment Advisers Act of 1940.

               (i) through (xii) -- not applicable.

               (xiii)  The Partnership has no employees.

      (d)      Financial Information about Foreign and Domestic Operations and
               ---------------------------------------------------------------
Export Sales:
------------

               The Partnership trades, through its investment in MM LLC, on a
number of foreign commodity exchanges. The Partnership does not engage in the
sales of goods or services.

ITEM 2:  PROPERTIES
         ----------

               The Partnership does not use any physical properties in the
conduct of its business.

               The Partnership's only place of business is the place of business
of the General Partner, Merrill Lynch World Headquarters, World Financial
Center, South Tower, New York, New York, 10080. The General Partner performs all
administrative services for the Partnership from the General Partner's offices.

ITEM 3:  LEGAL PROCEEDINGS
         -----------------

               ML&Co. -- the sole stockholder of Merrill Lynch Group, Inc.
(which is the sole stockholder of MLIP) -- as well as certain of its
subsidiaries and affiliates have been named as defendants in civil actions,
arbitration proceedings and claims arising out of their respective business
activities. Although the ultimate outcome of these actions cannot be predicted
at this time and the results of legal proceedings cannot be predicted with
certainty, it is the opinion of management that the result of these matters will
not be materially adverse to the business operations of financial condition of
MLIP or the Fund.

               MLIP itself has never been the subject of any material
litigation.

ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

              The Partnership has never submitted any matter to a vote of its
Limited Partners.

                                    PART II

ITEM 5:  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
         ---------------------------------------------------------------------

Item 5(a)

        (a)    Market Information:
               ------------------

               There is no trading market for the Units, nor will one develop.
Rather, Limited Partners may redeem Units as of the end of each month at Net
Asset Value. Units redeemed prior to the applicable Principal Assurance Date are
not entitled to any benefits under the ML&Co. guarantee.

        (b)    Holders:
               -------

               As of December 31, 1998, there were 1,273 holders of Units,
including the General Partner.

                                       6
<PAGE>
 
        (c)    Dividends:
               ---------

               The Partnership has made no distributions, nor does the General
Partner presently intend to make any distributions in the future.

Item 5(b)

               Not applicable.

ITEM 6:  SELECTED FINANCIAL DATA
         -----------------------

The following selected financial data has been derived from the audited
financial statements of the Partnership:


<TABLE>
<CAPTION>
                                          FOR THE YEAR        FOR THE YEAR       FOR THE YEAR      FOR THE YEAR      FOR THE YEAR
                                             ENDED               ENDED              ENDED             ENDED             ENDED
                                          DECEMBER 31,        DECEMBER 31,       DECEMBER 31,      DECEMBER 31,      DECEMBER 31,
STATEMENT OF OPERATIONS                       1998                1997               1996              1995              1994
----------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                     <C>                <C>               <C>               <C>  
Revenues:

Trading (Loss) Profit:
     Realized (Loss) Gain                    $  (520,547)         $ (100,337)       $3,756,114       $10,514,336       $(1,230,908)
     Change in Unrealized                       (703,331)            105,173          (284,224)       (1,160,384)         (504,496)
     (Loss) Gain
                                      --------------------------------------------------------------------------------------------
     Total Trading Results                    (1,223,878)              4,836         3,471,890         9,353,952        (1,735,404)
                                      --------------------------------------------------------------------------------------------
 
Interest Income                                  396,925           1,118,910         1,364,326         1,954,622         1,793,843
                                      --------------------------------------------------------------------------------------------
     Total Revenues                             (826,953)          1,123,746         4,836,216        11,308,574            58,439
                                      --------------------------------------------------------------------------------------------
 
Expenses:
     Brokerage Commissions                       662,247           1,936,603         2,636,241         3,480,701         4,498,435
     Administrative Fees                          18,921              55,331            75,321                 -                 -
     Profit Shares                               147,262             158,988           457,989         1,084,170           529,654
                                      --------------------------------------------------------------------------------------------
     Total Expenses                              828,430           2,150,922         3,169,551         4,564,871         5,028,089
                                      --------------------------------------------------------------------------------------------
Income from Investments                          675,414             968,354         2,032,587                 -                 -
                                      --------------------------------------------------------------------------------------------
Net (Loss) Income                            $  (979,969)         $  (58,822)       $3,699,252       $ 6,743,703       $(4,969,650)
                                      ============================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                  DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
BALANCE SHEET DATA                   1998            1997            1996            1995            1994
---------------------------------------------------------------------------------------------------------------
<S>                               <C>             <C>             <C>             <C>             <C>
Fund Net Asset Value                $18,934,681   $26,576,283     $31,949,032     $34,684,047     $41,096,545
Net Asset Value per Unit            $    189.19   $    194.53     $    194.47     $    173.02     $    145.09
                                  -----------------------------------------------------------------------------
</TABLE>

               The variations in income statement line items are primarily due
to investing in Trading LLCs and in MM LLC.

                                       7
<PAGE>
 
<TABLE>
<CAPTION>

                                      MONTH-END NET ASSET VALUE PER UNIT
-------------------------------------------------------------------------------------------------------------------
          Jan.     Feb.     Mar.     Apr.      May     June     July     Aug.     Sept.    Oct.     Nov.     Dec.
-------------------------------------------------------------------------------------------------------------------
<S>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
------------------------------------------------------------------------------------------------------------------- 
1994     $152.94  $147.23  $150.83  $147.70  $152.86  $156.40  $155.52  $150.29  $152.71  $150.36  $149.40  $145.09
------------------------------------------------------------------------------------------------------------------- 
1995     $143.16  $151.75  $158.05  $161.56  $161.66  $158.32  $157.85  $163.55  $167.25  $167.26  $170.88  $173.02
------------------------------------------------------------------------------------------------------------------- 
1996     $181.96  $170.88  $173.16  $175.80  $173.86  $176.00  $171.33  $175.62  $177.79  $185.94  $195.14  $194.47
------------------------------------------------------------------------------------------------------------------- 
1997     $198.92  $199.62  $198.24  $192.04  $184.00  $184.90  $196.21  $184.18  $187.57  $186.07  $188.49  $194.53
-------------------------------------------------------------------------------------------------------------------
1998     $190.87  $188.05  $184.76  $174.28  $174.87  $175.08  $175.33  $184.91  $188.86  $188.27  $188.44  $189.19
-------------------------------------------------------------------------------------------------------------------
</TABLE>

               Pursuant to CFTC policy, monthly performance is presented only
from January 1, 1994 even though Units were outstanding prior to such date.

                                       8
<PAGE>
 
                   THE S.E.C.T.O.R. STRATEGY FUND (SM) L.P.
                               December 31, 1998

   TYPE OF POOL:  SELECTED-ADVISOR/PUBLICLY-OFFERED/"PRINCIPAL PROTECTED"(1)
                     INCEPTION OF TRADING:   July 16, 1990
                   AGGREGATE SUBSCRIPTIONS:    $125,853,001
                    CURRENT CAPITALIZATION:   $18,934,681
                   WORST MONTHLY DRAWDOWN/(2)/: (6.13)%  (8/97)
            WORST PEAK-TO-VALLEY DRAWDOWN/(3)/:  (12.70)% (3/97-4/98)

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

            Net Asset Value per Unit, December 31, 1998:   $189.19

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                         MONTHLY RATES OF RETURN/(4)/
---------------------------------------------------------------------------------------------
MONTH                      1998          1997          1996          1995          1994
---------------------------------------------------------------------------------------------
<S>                        <C>           <C>           <C>           <C>           <C>
January                      (1.88)%        2.29%         5.17%        (1.33)%       (4.39)%
---------------------------------------------------------------------------------------------
February                     (1.48)         0.35         (6.09)         6.00         (3.73)
---------------------------------------------------------------------------------------------
March                        (1.75)        (0.69)         1.33          4.15          2.44
---------------------------------------------------------------------------------------------
April                        (5.67)        (3.13)         1.53          2.22         (2.08)
---------------------------------------------------------------------------------------------
May                           0.34         (4.19)        (1.11)         0.06          3.50
---------------------------------------------------------------------------------------------
June                          0.12          0.49          1.23         (2.07)         2.32
---------------------------------------------------------------------------------------------
July                          0.14          6.12         (2.65)        (0.30)        (0.57)
---------------------------------------------------------------------------------------------
August                        5.46         (6.13)         2.50          3.61         (3.36)
---------------------------------------------------------------------------------------------
September                     2.14          1.84          1.24          2.26          1.61
---------------------------------------------------------------------------------------------
October                      (0.31)        (0.80)         4.58          0.01         (1.54)
---------------------------------------------------------------------------------------------
November                      0.09          1.30          4.95          2.16         (0.64)
---------------------------------------------------------------------------------------------
December                      0.40          3.20         (0.35)         1.25         (2.89)
---------------------------------------------------------------------------------------------
Compound Annual            
Rate of Return               (2.74)%        0.03%        12.40%        19.25%        (9.29)%
--------------------------------------------------------------------------------------------- 
</TABLE>

               (1) Pursuant to applicable CFTC regulations, a "Multi-Advisor"
fund is defined as one that allocates no more than 25% of its trading assets
(i.e., assets committed to trading) to any single manager. As the Fund may
allocate more than 25% of its trading assets to one or more Advisors, it is
referred to as a "Selected-Advisor" fund. Applicable CFTC regulations define a
"Principal Protected" fund as one which is designed to limit the loss of
participants' initial investment. MLIP's trading leverage policies and the
ML&Co. guarantee limit Limited Partners' losses on their Units to the time value
of their investments over the Time Horizon from the beginning of trading to the
Principal Assurance Date.

               (2) Worst Monthly Drawdown represents the largest negative
Monthly Rate of Return experienced since January 1, 1994 by the Fund; a drawdown
on is measured on the basis of month-end Net Asset Value only, and does not
reflect intra-month figures. 

               (3) Worst Peak-to-Valley Drawdown represents the greatest
percentage decline since January 1, 1994 from a month-end cumulative Monthly
Rate of Return without such cumulative Monthly Rate of Return being equaled or
exceeded as of a subsequent month-end. For example, if the Monthly Rate of
Return was (1)% in each of January and February, 1% in March and (2)% in April,
the Peak-to-Valley Drawdown would still be continuing at the end of April in the
amount of approximately (3)%, whereas if the Monthly Rate of Return had been
approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of
the end of February at approximately the (2)% level.

               (4) Monthly Rate of Return is the net performance of the Fund
during the month of determination (including interest income and after all
expenses have been accrued or paid) divided by the total equity of the Fund as
of the beginning of such month.

                                       9
<PAGE>
 
ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         -----------------------------------------------------------------------
         OF OPERATIONS
         -------------
         
RESULTS OF OPERATIONS

Advisor Selections
------------------

               The Fund's results of operations depend on MLIP's ability to
select Advisors and the Advisors' ability to trade profitably. MLIP's selection
procedures and trading leveraging analysis, as well as the Advisors' trading
methods, are confidential, so that substantially the only available information
relevant to the Fund's results of operations is its actual performance record to
date. Because of the speculative nature of its trading, the Fund's past
performance is not necessarily indicative of its future results.

               MLIP has made and expects to continue making frequent changes to
both trading asset allocations among Advisors and Advisor combinations as well
as from time to time adjusting the percentage of the Fund's assets committed to
trading.

               MLIP's decision to terminate or reallocate assets among Advisors
is based on a combination of numerous factors. Advisors are, in general,
terminated primarily for unsatisfactory performance, but other factors -- for
example, a change in MLIP's or an Advisor's market outlook, apparent deviation
from announced risk control policies, excessive turnover of positions, changes
in principals, commitment of resources to other business activities, etc. -- may
also have a role in the termination or reallocation decision. The market
judgment and experience of MLIP's principals is an important factor in its asset
allocation decisions.

               MLIP has no timetable or schedule for making Advisor changes or
reallocations, and generally makes a medium- to long-term commitment to all
Advisors selected. There can be no assurance as to the frequency or number of
Advisor changes that may take place in the future, or as to how long any of the
current Advisors will continue to manage assets for the Fund.

General
-------

               A number of the Advisors are trend-following traders, whose
programs do not attempt to predict price movements. No fundamental economic
supply or demand analyses are used by these Advisors, and no macroeconomic
assessments of the relative strengths of different national economies or
economic sectors. Instead, the programs apply proprietary computer models to
analyzing past market data, and from this data alone attempt to determine
whether market prices are trending. These technical traders base their
strategies on the theory that market prices reflect the collective judgment of
numerous different traders and are, accordingly, the best and most efficient
indication of market movements. However, there are frequent periods during which
fundamental factors external to the market dominate prices.

               If a trend-following Advisor's models identify a trend, they
signal positions which follow it. When these models identify the trend as having
ended or reversed, these positions are either closed out or reversed. Due to
their trend-following character, these Advisors' programs do not predict either
the commencement or the end of a price movement. Rather, their objective is to
identify a trend early enough to profit from it and detect its end or reversal
in time to close out the Fund's positions while retaining most of the profits
made from following the trend.

               In analyzing the performance of trend-following programs,
economic conditions, political events, weather factors, etc., are not directly
relevant because only market data has any input into trading results.
Furthermore, there is no direct connection between particular market conditions
and price trends. There are so many influences on the markets that the same
general type of economic event may lead to a price trend in some cases but not
in others. The analysis is further complicated by the fact that the programs are
designed to recognize only certain types of trends and to apply only certain
criteria of when a trend has begun. Consequently, even though significant price
trends may occur, if these trends are not comprised of the type of intra-period
price movements which the programs are designed to identify, a trend-following
Advisor may miss the trend altogether.

               In the case of the Advisors which implement strategies which rely
more on discretion and market judgment, it is not possible to predict, from
their performance during past market cycles, how they will respond to future
market events.

                                      -10-
<PAGE>
 
Performance Summary
-------------------

               This performance summary is an outline description of how the
Fund performed in the past, not necessarily any indication of how it will
perform in the future. In addition, the general causes to which certain price
movements are attributed may or may not in fact have caused such movements, but
simply occurred at or about the same time.

               The Advisors, as a group, are unlikely to be profitable in
markets in which such trends do not occur. Static or erratic prices are likely
to result in losses. Similarly, unexpected events (for example, a political
upheaval, natural disaster or governmental intervention) can lead to major 
short-term losses as well as gains.

               While there can be no assurance that any Advisor will be
profitable, under any given market condition, markets in which substantial and
sustained price movements occur typically offer the best profit potential for
the Fund.

               The performance of the Fund is also materially affected by the
percentage of its assets allocated to trading. The greater the percentage of the
Fund's assets allocated to trading, the greater its profit potential, risk and
performance volatility

         1998


                                              Total Trading
                                                 Results
                                    
Interest Rates and Stock Indices               $    46,962
Commodities                                        262,150
Currencies                                          65,904
Energy                                          (1,390,575)
Metals                                            (208,319)
                                           -----------------
                                               $(1,223,878)
                                           =================


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

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

               Trading results in stock index markets were also mixed in early
1998, despite a strong first-quarter performance by the U.S. equity market as
several consecutive weekly gains were recorded with most market averages setting
new highs. Second quarter results were profitable as the Asia-Pacific region's
equity markets weakened across the board. In particular, Hong Kong's Hang Seng
index trended downward during most of the second quarter and traded at a three-
year low. As U.S. equity markets declined in July and August, the Fund profited
from short positions in the 

                                      -11-
<PAGE>
 
S&P 500, most notably during August, when the index dropped 14.5%. Volatility in
September made for a difficult trading environment in the stock index sector,
and the Fund incurred modest losses, although results remained profitable for
the quarter and the year overall in these markets

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

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

         In energy markets, demand for crude oil in the Middle East was affected
by low oil prices early in the year, and trading resulted in losses. Initially
buoyed on concerns about a U.S.-led military strike against Iraq, crude oil fell
to a nine-year low, as the globally warm winter, the return of Iraq as a
producer and the Asian economic crisis added to OPEC's supply glut problems.
Despite production cuts initiated by OPEC at the end of March, world oil
supplies remained excessive and oil prices stood at relatively low levels
throughout the first half of 1998. Short heating oil positions in the third
quarter proved profitable for the Fund as the market for heating oil prices
dropped to its lowest level in more than a decade. In early December, oil and
natural gas prices dropped sharply, causing continued problems for many emerging
market countries that depend on commodity exports for economic growth and
government financing. These price pressures were mainly due to excessive supply
availability and near-term weather indications that inventories would remain at
more than adequate levels even in the event of a cold Northern Hemisphere
winter. Also, the December U.S. air attack on Iraq failed to cause any damage to
oil pumping and shipping operations, and oil prices fell over 10%.

1997

        
                                          Total Trading
                                             Results
                                           
Interest Rates and Stock Indices            $   (30,260)
Commodities                                    (265,231)
Currencies                                    1,301,214
Energy                                         (950,072)
Metals                                          (50,815)
                                           -------------
                                            $     4,836 
                                           =============



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

               In currency markets, the U.S. dollar rallied and started 1997 on
a strong note, rising to a four-year high versus the Japanese yen and two-and-a-
half year highs versus the Deutsche mark and the Swiss franc. However, the
dollar underwent two significant corrections during the year. The first
correction occurred in the Spring against the Japanese yen, due to the G7
finance ministers' determination that a further dollar advance would be counter-
productive 

                                      -12-
<PAGE>
 
to their current goals. From August through mid-November, the dollar corrected
against the Eurocurrencies in advance of a well-advertised tightening by the
Bundesbank. By mid-December the dollar had bounced back to new highs against the
yen and was rallying against the mark.

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

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

<TABLE> 
<CAPTION> 
    1996

                                               Total Trading
                                                  Results
<S>                                            <C> 
Interest Rates and Stock Indices               $    42,816
Commodities                                        693,244
Currencies                                       1,306,971
Energy                                           1,265,776
Metals                                             163,083
                                               -----------
                                               $ 3,471,890
                                               ===========
</TABLE> 


                  1996 began with the East Coast blizzard, continuing
difficulties in federal budget talks and an economic slowdown having a negative
impact on many markets. The Fund was profitable in January due to strong profits
in currency trading as the U.S. dollar reached a 23-month high against the
Japanese yen. In February, however, the Fund incurred its worst monthly loss due
to the sudden reversals in several strong price trends and considerable
volatility in the currency and financial markets. During March, large profits
were taken in the crude oil and gasoline markets as strong demand continued and
talks between the United Nations and Iraq were suspended. This trend continued
into the second quarter, during which strong gains were also recognized in the
agricultural markets as a combination of drought and excessive rain drove wheat
and grain prices to historic highs. In the late summer and early fall months,
the Fund continued to trade profitably as trending prices in a number of key
markets favorably impacted the Fund's performance. In September heating oil hit
a five-year high on soaring prices in Europe, and the Fund was also able to
capitalize on downward trends in the metals markets. Strong trends in the
currency and global bond markets produced significant gains in October and
November, but the year ended with declining performance as December witnessed
the reversal of several strong upward trends and increased volatility in key
markets. 

                                      -13-
<PAGE>
 
Variables Affecting Performance
-------------------------------

               The principal variables which determine the net performance of
the Fund are gross profitability and interest income. Gross profitability is, in
turn, affected by the percentage of the Fund's assets allocated to trading.

               During all periods set forth under "Selected Financial Data,"
the interest rates in many countries were at unusually low levels. The low
interest rates in the United States (although higher than in many other
countries) negatively impacted revenues because interest income is typically a
major component of the Fund's profitability. In addition, low interest rates are
frequently associated with reduced fixed income market volatility, and in static
markets the Fund's profit potential generally tends to be diminished. On the
other hand, during periods of higher interest rates, the relative attractiveness
of a high risk investment such as the Fund may be reduced as compared to high
yielding and much lower risk fixed-income investments.

               The Fund's Brokerage Commissions and Administrative Fees are a
constant percentage of the Fund's assets allocated to trading. The only Fund
costs (other than the insignificant currency trading costs) which are not based
on a percentage of the Fund's assets (allocated to trading or total) are the
Profit Shares payable to the Advisors on an Advisor-by-Advisor basis. Gross
profitability is in turn, affected by the percentages of the Fund's assets
allocated to trading. During periods when Profit Shares are a high percentage of
net trading gains, it is likely that there has been substantial performance
non-correlation among the Advisors (so that the total Profit Shares paid to
those Advisors which have traded profitably are a high percentage, or perhaps
even in excess, of the total profits recognized, as other Advisors have incurred
offsetting losses, reducing overall trading gains but not the Profit Shares paid
to the successful Advisors) -- suggesting the likelihood of generally trendless,
non-consensus markets.

               Unlike many investment fields, there is no meaningful
distinction in the operation of the Fund between realized and unrealized
profits. Most of the contracts traded by the Fund are highly liquid and can be
closed out at any time.

               Except in unusual circumstances, factors -- regulatory
approvals, cost of goods sold, employee relations and the like -- which often
materially affect an operating business have virtually no impact on the Fund.

LIQUIDITY; CAPITAL RESOURCES

               The Fund borrows only to a limited extent and only on a
strictly short-term basis in order to finance losses on non-U.S. dollar
denominated trading positions pending the conversion of the Fund's dollar
deposits. These borrowings are at a prevailing short-term rate in the relevant
currency. They have been immaterial to the Fund's operation to date and are
expected to continue to be so.

               Substantially all of the Fund's assets are held in cash. The
Net Asset Value of the Fund's cash is not affected by inflation. However,
changes in interest rates could cause periods of strong up or down price trends,
during which the Fund's profit potential generally increases. Inflation in
commodity prices could also generate price movements which the strategies might
successfully follow.

               Substantially all of the Fund's assets are held in cash.
Accordingly, except in very unusual circumstances, the Fund should be able to
close out any or all of its open trading positions and liquidate any or all of
its securities holdings quickly and at market prices. This permits an Advisor to
limit losses as well as reduce market exposure on short notice should its
strategies indicate doing so. In addition, because there is a readily available
market value for the Fund's positions and assets, the Fund's monthly Net Asset
Value calculations are precise, and investors need only wait 10 business days to
receive the full redemption proceeds of their Units. 

                                      -14-
<PAGE>
 
YEAR 2000 COMPLIANCE INITIATIVE

               As the millennium approaches, Merrill Lynch has undertaken
initiatives to address the Year 2000 problem (the "Y2K problem"). The Y2K
problem is the result of a widespread programming technique that causes computer
systems to identify a date based on the last two numbers of a year, with the
assumption that the first two numbers of the year are "19". As a result, the
year 2000 would be stored as "00," causing computers to incorrectly interpret
the year as 1900. Left uncorrected, the Y2K problem may cause information
technology systems (e.g., computer databases) and non-information technology
systems (e.g., elevators) to produce incorrect data or cease operating
completely.

               Merrill Lynch believes that it has identified and evaluated its
internal Y2K problem and that it is devoting sufficient resources to renovating
technology systems that are not already Year 2000 compliant. The resource-
intensive renovation phase (as further discussed) of Merrill Lynch's Year 2000
efforts was approximately 95% completed as of January 31, 1999. Merrill Lynch
will focus primarily on completing its renovation and testing and on integration
of the Year 2000 programs of recent acquisitions during the remainder of 1999.
In order to focus attention on the Y2K problem, management has deferred certain
other technology projects: however, this deferral is not expected to have a
material adverse effect on the company's business, results of operations, or
financial condition.

               The failure of Merrill Lynch's technology systems relating to a
Y2K problem would likely have a material adverse effect on the company's
business, results of operations, and financial condition. This effect could
include disruption of normal business transactions, such as the settlement,
execution, processing, and recording of trades in securities, commodities,
currencies, and other assets. The Y2K problem could also increase Merrill
Lynch's exposure to risk and its need for liquidity.

               In 1995, Merrill Lynch established the Year 2000 Compliance
Initiative, which is an enterprisewide effort to address the risks associated
with the Y2K problem, both internal and external. The Year 2000 Compliance
Initiative's efforts to address the risks associated with the Y2K problem have
been organized into six phases: planning, pre-renovation, renovation, production
testing, certification, and integration testing.

               The planning phase involved defining the scope of the Year 2000
Compliance Initiative, including its annual budget and strategy, and determining
the level of expert knowledge available within Merrill Lynch regarding
particular systems or applications. The pre-renovation phase involved developing
a detailed enterprisewide inventory of applications and systems, identifying the
scope of necessary renovations to each application system, and establishing a
conversion schedule. During the renovation phase, source code is actually
converted, date fields are expanded or windowed (windowing is used on an
exception basis only), test data is prepared, and each system or application is
tested using a variety of Year 2000 scenarios. The production testing phase
validates that a renovated system is functionally the same as the existing
production version, that renovation has not introduced defects, and that
expanded or windowed date fields continue to handle current dates properly. The
certification phase validates that a system can run successfully in a Year 2000
environment. The integration testing phase, which will occur throughout 1999,
validates that a system can successfully interface with both internal and
external systems. Finally, as Merrill Lynch continues to implement new systems,
they are also being tested for Year 2000 readiness.

               In 1996 and 1997, as part of the planning and pre-renovation
phases, both plans and funding of plans for inventory, preparation, renovation,
and testing of computer systems for the Y2K problem were approved. All plans for
both mission-critical and non-mission-critical systems are tracked and
monitored. The work associated with the Year 2000 Compliance Initiative has been
accomplished by Merrill Lynch employees, with the assistance of consultants
where necessary.

               As part of the production testing and certification phases,
Merrill Lynch has performed, and will continue to perform, both internal and
external Year 2000 testing intended to address the risks from the Y2K problem.
As of January 31, 1999, production testing was approximately 93% completed. In
July 1998, Merrill Lynch participated in an industrywide Year 2000 systems test
sponsored by the Securities Industry Association ("SIA"), in which selected
firms tested their computer systems in mock stock trades that simulated dates in
December 1999 and January 2000. Merrill Lynch will participate in further
industrywide testing sponsored by the SIA, currently scheduled for March and
April 1999, which will involve an expanded number of firms, transactions, and
conditions. Merrill Lynch also 

                                      -15-
<PAGE>
 
participated in various other domestic and international industry tests during
1998.

               Merrill Lynch continues to survey and communicate with third
parties whose Year 2000 readiness is important to the company. Information
technology and non-information technology vendors and service providers are
contacted in order to obtain their Year 2000 compliance plans. Based on the
nature of the response and the importance of the product or service involved,
Merrill Lynch determines if additional testing is needed. The results of these
efforts are maintained in a database that is accessible throughout the firm.
Third parties that have been contacted include transactional counterparties,
exchanges, and clearinghouses; a process to access and rate their responses has
been developed. This information as well as other Year 2000 readiness
information on particular countries and their political subdivisions will be
used by Merrill Lynch to manage risk resulting from the Y2K problem. Management
is unable at this point to ascertain whether all significant third parties will
successfully address the Y2K problem. Merrill Lynch will continue to monitor
third parties' Year 2000 readiness to determine if additional or alternative
measures are necessary. In connection with information technology and non-
information technology products and services, contingency plans, which are
developed at the business unit level, may include selection of alternative
vendors or service providers and changing business practices so that a
particular system is not needed. In the case of securities exchanges and
clearinghouses, risk mitigation could include the re-routing of business. In
light of the interdependency of the parties in or serving the financial markets,
however, there can be no assurance that all Y2K problems will be identified and
remediated on a timely basis or that all remediation will be successful. The
failure of exchanges, clearing organizations, vendors, service providers,
counterparties, regulators, or others to resolve their own processing issues in
a timely manner could have a material adverse effect on Merrill Lynch's
business, results of operations, and financial condition.

               At year-end 1998, the total estimated expenditures for the entire
Year 2000 Compliance Initiative were approximately $425 million, of which
approximately $125 million was remaining. The majority of these remaining
expenditures are expected to cover testing, risk management, and contingency
planning. There can be no assurance that the costs associated with such
remediation efforts will not exceed those currently anticipated by Merrill
Lynch, or that the costs associated with the remediation efforts or the possible
failure of such remediation efforts would not have a material adverse effect on
Merrill Lynch's business, results of operations, or financial condition.

EUROPEAN ECONOMIC AND MONETARY UNION ("EMU") INITIATIVE

               As of January 1, 1999, the "euro" was adopted as the common legal
currency of participating member states of the EMU. As a consequence of the
introduction of and conversion to the euro, Merrill Lynch was required to make
significant changes to nearly 200 global business systems in order to reflect
the substitution of the euro for the 11 member national currencies and the
European currency unit. The introduction of the euro brings about fundamental
changes in the structure and nature of European financial markets, including the
creation of a unified, more liquid capital market in Europe. As financial
markets in EMU member states converge and local barriers are removed,
competition is expected to increase.

               The introduction of the euro affects all Merrill Lynch facilities
that transact, distribute, or provide custody or recordkeeping for securities or
cash denominated in the currency of a participating member state. Merrill
Lynch's systems or procedures that handle such securities or cash were modified
in order to implement the conversion to the euro. The implementation phase is
continuing into the first quarter of 1999 to resolve any post-conversion issues.
The success of Merrill Lynch's euro conversion efforts was dependent on the 
euro-compliance of third parties, such as trading counterparties, financial
intermediaries (e.g., securities and commodities exchanges, depositories,
clearing organizations, and commercial banks), and vendors.

               As of the end of the 1998 fiscal year, the total estimated
expenditures associated with the introduction of and conversion to the euro were
approximately $79 million, of which $1 million is remaining to be spent during
the first quarter of 1999 on compliance efforts and project administration.
Management believes that it has identified and evaluated all of the systems and
operational modifications necessary for the conversion to the euro. On January
4, 1999 and since then, Merrill Lynch has conducted normal business operations,
having successfully completed its conversion program. Management does not expect
the introduction of the euro to have a negative effect on its future business,
currency risk, or competitive positioning in the European markets.  

                                      -16-
<PAGE>
 
ITEM 7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
          ----------------------------------------------------------

                  Not applicable.

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
          ------------------------------------------- 

                  The financial statements required by this Item are included in
Exhibit 13.01.

                  The supplementary financial information ("selected quarterly
financial data" and "information about oil and gas producing activities")
specified by Item 302 of Regulation S-K is not applicable.

ITEM 9:   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          ---------------------------------------------------------------     
          FINANCIAL DISCLOSURE
          --------------------

                  There were no changes in or disagreements with independent
auditors on accounting or financial disclosure.

                                   PART III

Item 10:  Directors and Executive Officers of the Registrant
          --------------------------------------------------

          (a,b)   Identification of Directors and Executive Officers:
                  --------------------------------------------------

                  As a limited partnership, the Partnership itself has no
officers or directors and is managed by the General Partner. Trading decisions
are made by the Trading Advisors on behalf of the Partnership. The General
Partner promotes the Fund and its controlling person.

                  The directors and executive officers of MLIP and their
respective business backgrounds are as follows:

JOHN R. FRAWLEY, JR.       Chairman, Chief Executive Officer,
                           President and Director

JEFFREY F. CHANDOR         Senior Vice President, Director of
                           Sales, Marketing and Research and Director

JO ANN DI DARIO            Vice President, Chief Financial Officer and 
                           Treasurer, through April 30, 1999
                           

MICHAEL L. PUNGELLO        Vice President, Chief Financial Officer and 
                           Treasurer, effective May 1, 1999

JOSEPH H. MOGLIA           Director

ALLEN N. JONES             Director

STEPHEN G. BODURTHA        Director

STEVEN B. OLGIN            Vice President, Secretary and Director of
                           Administration

                  John R. Frawley, Jr. was born in 1943. Mr. Frawley is
Chairman, Chief Executive Officer, President and a Director of MLIP and Co-
Chairman of MLF. He joined Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S") in 1966 and has served in various positions, including Retail and
Institutional Sales, Manager of New York Institutional Sales, Director of
Institutional Marketing, Senior Vice President of Merrill Lynch Capital Markets
and Director of International Institutional Sales. Mr. Frawley holds a Bachelor
of Science degree from Canisius College. Mr. Frawley served on the CFTC's
Regulatory Coordination Advisory Committee from its formation in 1990 through
its dissolution in 1994. Mr. Frawley has served four consecutive one-year terms
as Chairman of the Managed Funds Association (formerly, the Managed Futures
Association), a national trade association that represents the managed futures,
hedge funds and fund of funds industry. Mr. Frawley currently serves as a member
of the CFTC's Global Markets Advisory Committee.

                                      -17-
<PAGE>
 
          Jeffrey F. Chandor was born in 1942. Mr. Chandor is Senior Vice
President, Director of Sales, Marketing and Research and a Director of MLIP. He
joined MLPF&S in 1971 and has served as the Product Manager of International
Institutional Equities, Equity Derivatives and Mortgage-Backed Securities as
well as Managing Director of International Sales in the United States, and
Managing Director of Sales in Europe. Mr. Chandor holds a Bachelor of Arts
degree from Trinity College, Hartford, Connecticut. Mr. Chandor is serving a two
year term as a director of the Managed Funds Association.

          Jo Ann Di Dario was born in 1946. Ms. Di Dario is, through April 30,
1999, Vice President, Chief Financial Officer and Treasurer of MLIP. Before
joining MLIP in May 1998, she was self-employed for one year. From February 1996
to May 1997, she worked as a consultant for Global Asset Management, an
international mutual fund organizer and operator headquartered in London, where
she offered advice on restructuring their back-office operations. From May 1992
to January 1996, she served as a Vice President of Meridian Bank Corporation, a
regional bank holding company. She was responsible for managing the treasury
operations of Meridian Bank Corporation including its wholly-owned subsidiary,
Meridian Investment Company Inc. From September 1991 to May 1992, Ms. Di Dario
managed the Domestic Treasury Operations of First Fidelity Bank, a regional
bank. From January 1991 to September 1991, Ms. Di Dario was self-employed. For
the previous five years, Ms. Di Dario was Vice President, Secretary and
Controller of Caxton Corporation, a Commodity Pool Operator and Commodity
Trading Advisor. Her background includes seven years of public accounting
experience, and she graduated with high honors from Stockton State College with
a Bachelor of Science degree in Accounting.
 
          Michael L. Pungello was born in 1957. Effective May 1, 1999, Mr.
Pungello will become Vice President, Chief Financial Officer and Treasurer of
MLIP. He was First Vice President and Senior Director of Finance for Merrill
Lynch's Operations, Services and Technology Group from January 1998 to March
1999. Prior to that, Mr. Pungello spent over 18 years with Deloitte & Touche
LLP, and was a partner in their Financial Services practice from June 1990 to
December 1997. He graduated from Fordham University in 1979 with a Bachelor of
Science degree in accounting and received his Master of Business Administration
degree in Finance from New York University in 1987.

          Joseph H. Moglia was born in 1949. Mr. Moglia is a Director of MLIP.
In 1971, he graduated from Fordham University with a Bachelor of Arts degree in
Economics. He later received his Master of Science degree from the University of
Delaware. He taught at the high school and college level for sixteen years. Mr.
Moglia joined MLPF&S in 1984, and has served in a number of senior roles,
including Director of New York Fixed Income Institutional Sales, Director of
Global Fixed Income Institutional Sales, and Director of the Municipal Division.
He is currently Senior Vice President and Director of the Investment Strategy
and Product Group in Merrill Lynch Private Client, and Director of Middle
Markets.

          Allen N. Jones was born in 1942. Mr. Jones is a Director of MLIP and,
from July 1995 until January 1998, Mr. Jones was also Chairman of the Board of
Directors of MLIP. Mr. Jones graduated from the University of Arkansas with a
Bachelor of Science, Business Administration degree in 1964. Since June 1992,
Mr. Jones has held the position of Senior Vice President of MLPF&S. From June
1992 through February 1994, Mr. Jones was the President and Chief Executive
Officer of Merrill Lynch Insurance Group, Inc. ("MLIG") and remains on the Board
of Directors of MLIG and its subsidiary companies. From February 1994 to April
1997, Mr. Jones was the Director of Individual Financial Services of the Merrill
Lynch Private Client Group. In April 1997, Mr. Jones became the Director of
Private Client marketing.

          Stephen G. Bodurtha was born in 1958. Mr. Bodurtha is a Director of
MLIP. In 1980, Mr. Bodurtha graduated magna cum laude from Wesleyan University,
Middletown, Connecticut with a Bachelor of Arts degree in Government. From 1980
to 1983, Mr. Bodurtha worked in the Investment Banking Division of Merrill
Lynch. In 1985, he was awarded his Master of Business Administration degree from
Harvard University, where he also served as Associates Fellow (1985 to 1986).
From 1986 to 1989, Mr. Bodurtha held the positions of Associate and Vice
President with Kidder, Peabody & Co., Incorporated where he worked in their
Financial Futures & Options Group. Mr. Bodurtha joined MLPF&S in 1989 and has
held the position of First Vice President since 1995. He has been the Director
in charge of the Structured Investments Group of MLPF&S since 1995.

          Steven B. Olgin was born in 1960. Mr. Olgin is Vice President,
Secretary and the Director of Administration of MLIP. He joined MLIP in July
1994 and became a Vice President in July 1995. From 1986 until July 1994, Mr.
Olgin was an associate of the law firm of Sidley & Austin. In 1982, Mr. Olgin
graduated from The American University with a Bachelor of Science degree in
Business Administration and a Bachelor of Arts degree in Economics. In 1986, he
received his Juris Doctor degree from The John Marshall Law School. Mr. Olgin is
a member of the Managed Funds Association's Government Relations Committee and
has served as an arbitrator for the NFA. Mr. Olgin is also a member of the
Committee on Futures Regulation of the Association of the Bar of the City of New
York.

          As of December 31, 1998, the principals of MLIP had no investment in
the Fund, and MLIP's general partner interest in the Fund was valued at
$222,668.

                                      -18-
<PAGE>
 
          MLIP acts as general partner to twelve public futures funds whose
units of limited partnership interest are registered under the Securities
Exchange Act of 1934: The Futures Expansion Fund Limited Partnership, The Growth
and Guarantee Fund L.P., ML Futures Investments II L.P., ML Futures Investments
L.P., John W. Henry & Co./Millburn L.P., The S.E.C.T.O.R. Strategy Fund (SM) II
L.P., The S.E.C.T.O.R. Strategy Fund (SM) V L.P., The S.E.C.T.O.R. Strategy Fund
(SM) VI L.P., ML Global Horizons L.P., ML Principal Protection L.P. , ML JWH
Strategic Allocation Fund L.P. and the Fund. Because MLIP serves as the sole
general partner of each of these funds, the officers and directors of MLIP
effectively manage them as officers and directors of such funds.

     (c)  Identification of Certain Significant Employees:
          -----------------------------------------------

          None.

     (d)  Family Relationships:
          --------------------

          None.

     (e)  Business Experience:
          -------------------

          See Item 10(a)(b) above.

     (f)  Involvement in Certain Legal Proceedings:
          ----------------------------------------

          None.

     (g)  Promoters and Control Persons:
          -----------------------------
          
          Not applicable.

ITEM 11: EXECUTIVE COMPENSATION
         ----------------------

          The directors and officers of the General Partner are remunerated
by the General Partner. The Partnership does not itself have any officers,
directors or employees. The Partnership pays Brokerage Commissions to an
affiliate of the General Partner and Administrative Fees to the General Partner.
The General Partner or its affiliates may also receive certain economic benefits
from holding the Fund's dollar available assets. The directors and officers
receive no "other compensation" from the Partnership, and the directors receive
no compensation for serving as directors of the General Partner. There are no
compensation plans or arrangements relating to a change in control of either the
Partnership or the General Partner.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         --------------------------------------------------------------

     (a)  Security Ownership of Certain Beneficial Owners:
          -----------------------------------------------

          As of December 31, 1998, no person or "group" is known to be or have
been the beneficial owner of more than 5% of the Units.

     (b)  Security Ownership of Management:
          --------------------------------

          As of December 31, 1998, the General Partner owned 1,177 Units (unit-
equivalent general partnership interests), which was less than 1.2% of the total
Units outstanding.

     (c)  Changes in Control:
          ------------------

          None.

                                     -19-
<PAGE>
 
ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

         (a)   Transactions Between Merrill Lynch and the Fund 
               -----------------------------------------------

               All of the service providers to the Fund, other than the
Advisors, are affiliates of Merrill Lynch. Merrill Lynch negotiated with the
Advisors over the level of its advisory fees and Profit Share. However, none of
the fees paid by the Fund to any Merrill Lynch party were negotiated, and they
are higher than would have been obtained in arm's-length bargaining. 

               The Fund pays Merrill Lynch substantial Brokerage Commissions and
Administrative Fees as well as bid-ask spreads on forward currency trades. The
Fund also pays MLF interest on short-term loans extended by MLF to cover losses
on foreign currency positions.

               Within the Merrill Lynch organization, MLIP is the direct
beneficiary of the revenues received by different Merrill Lynch entities from
the Fund. MLIP controls the management of the Fund and serves as its promoter.
Although MLIP has not sold any assets, directly or indirectly, to the Fund, MLIP
makes substantial profits from the Fund due to the foregoing revenues.

               No loans have been, are or will be outstanding between MLIP or
any of its principals and the Fund.

               MLIP pays substantial selling commissions and trailing
commissions to MLPF&S for distributing the Units. MLIP is ultimately paid back
for these expenditures from the revenues it receives from the Fund.

          (b)  Certain Business Relationships:
               ------------------------------

               MLF, an affiliate of the General Partner, acts as the principal
commodity broker for the Partnership.

               In 1998 the Partnership expensed: (i) Brokerage Commissions of
$662,247 to the Commodity Broker, which included $114,382 in consulting fees
earned by the Trading Advisors, and (ii) Administrative Fees of $18,921 to MLIP.
Through its investments in Trading LLCs and MM LLC, the following fees were
expensed: (i) Brokerage Commissions of $1,284,931 to the Commodity Broker, which
included consulting fees earned by the Trading Advisors of $245,250; and (ii)
Administrative Fees of $36,713 to MLIP. In addition, MLIP and its affiliates may
have derived certain economic benefits from possession of the Fund's assets, as
well as from foreign exchange and EFP trading.

               See Item 1(c), "Narrative Description of Business -- Charges" and
"Description of Current Charges" for a discussion of other business dealings
between MLIP affiliates and the Partnership.

          (c)  Indebtedness of Management:
               --------------------------

               The Partnership is prohibited from making any loans, to
               management or otherwise.

          (d)  Transactions with Promoters:
               ---------------------------

               Not applicable.

                                      -20-
<PAGE>
 
                                    PART IV

ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
          ---------------------------------------------------------------

          (a)1.   Financial Statements:                                   Page
                  --------------------                                    ---- 

                  Independent Auditors' Report                               1

                  Statements of Financial Condition as of 
                  December 31, 1998 and 1997                                 2

                  For the years ended December 31, 1998, 1997 and 1996 
                          Statements of Income                               3
                          Statements of Changes in Partners' Capital         4

                  Notes to Financial Statements                           5-14

          (a)2.   Financial Statement Schedules:
                  -----------------------------

                  Financial statement schedules not included in this Form 10-K
have been omitted for the reason that they are not required or are not
applicable or that equivalent information has been included in the financial
statements or notes thereto.

          (a)3.   Exhibits:
                  --------

                  The following exhibits are incorporated by reference or are
filed herewith to this Annual Report on Form 10-K:

Designation              Description
-----------              -----------

3.01(i)                  Amended and Restated Certificate of Limited Partnership
                         of the Registrant, dated July 27, 1995.

Exhibit 3.01(i):         Is incorporated herein by reference from Exhibit
---------------
                         3.01(d) contained in the Registrant's report on Form 
                         10-Q for the Quarter Ended June 30, 1995.

3.01(ii)                 Limited Partnership Agreement of the Partnership.

Exhibit 3.01(ii):        Is incorporated herein by reference from Exhibit
----------------
                         3.01(a) contained in Amendment No. 1 (as Exhibit A) to
                         the Registration Statement (File No. 33-34432) filed on
                         May 25, 1990 on Form S-1 under the Securities Act of
                         1933 (the "Registrant's Registration Statement").

10.01(o)                 Form of Advisory Agreement between the Partnership,
                         Merrill Lynch Investment Partners Inc., Merrill Lynch
                         Futures Inc. and each Trading Advisor.

Exhibit 10.01(o):        Is incorporated herein by reference from Exhibit
----------------
                         10.01(o) contained in the Registrant's report on Form
                         10-Q for the Quarter Ended June 30, 1995.

10.02(a)                 Form of Consulting Agreement between each Trading
                         Advisor of the Partnership and Merrill Lynch Futures
                         Inc.

Exhibit 10.02(a):        Is incorporated herein by reference from Exhibit
----------------
                         10.02(a) contained in the Registrant's Registration
                         Statement.

10.03(a)                 Form of Customer Agreement between the Partnership and
                         Merrill Lynch Futures Inc.

                                      -21-
<PAGE>
 
Exhibit 10.03(a):        Is incorporated herein by reference from Exhibit
----------------
                         10.03(a) contained in the Registrant's Registration
                         Statement.

10.05                    Merrill Lynch & Co., Inc. Guarantee.

Exhibit 10.05:           Is incorporated herein by reference from Exhibit 10.05
-------------
                         contained in the Registrant's Registration Statement.

10.06                    Foreign Exchange Desk Service Agreement among Merrill
                         Lynch Investment Bank, Merrill Lynch Investment
                         Partners Inc., Merrill Lynch Futures Inc. and the Fund.

Exhibit 10.06:           Is incorporated herein by reference from Exhibit 10.06
-------------
                         contained in the Registrant's report on Form 10-K for
                         the year ended December 31, 1996.

10.07(a)                 Form of Advisory and Consulting Agreement Amendment
                         among Merrill Lynch Investment Partners Inc., each
                         Advisor, the Fund and Merrill Lynch Futures Inc.

Exhibit 10.07(a):        Is incorporated herein by reference from Exhibit
----------------
                         10.07(a) contained in the Registrant's report on Form
                         10-K for the year ended December 31, 1996.

10.07(b)                 Form of Amendment to the Customer Agreement among the
                         Partnership and MLF.

Exhibit 10.07(b):        Is incorporated herein by reference from Exhibit
----------------
                         10.07(b) contained in the Registrant's report on Form
                         10-K for the year ended December 31, 1996.

13.01                    1998 Annual Report and Independent Auditors' Report.

Exhibit 13.01:           Is filed herewith.
-------------

13.01(a)                 1998 Annual Reports and Independent Auditors' Reports
                         for the following Trading Limited Liability Companies
                         sponsored by Merrill Lynch Investment Partners Inc.:
                           ML Millburn Global LLC
                           ML Sjo Prospect LLC
                           ML Chesapeake Diversified LLC
                           ML JWH Financial and Metals Portfolio LLC
                           ML Multi-Manager Portfolio LLC

Exhibit 13.01(a):        Is filed herewith.
----------------

28.01                    Prospectus of the Partnership dated June 1, 1990.

Exhibit 28.01:           Is incorporated by reference as filed with the
-------------
                         Securities and Exchange Commission pursuant to Rule 424
                         under the Securities Act of 1933 (File No. 33-34432)
                         filed on June 7, 1990.

          (b)  Report on Form 8-K:
               ------------------

               No reports on Form 8-K were filed during the fourth quarter of
               1998.

                                      -22-
<PAGE>
 
                                  SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                            THE S.E.C.T.O.R. STRATEGY FUND (SM) L.P.
                            (Safety of Equity Capital; Targeting Overall Return)

                            By:  MERRILL LYNCH INVESTMENT PARTNERS INC.
                                 General Partner

                            By:  /s/ John R. Frawley, Jr.
                                 -----------------------  
                                 John R. Frawley, Jr.
                                 Chairman, Chief Executive Officer, President 
                                 and Director
                                   (Principal Executive Officer)


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed on March 25, 1999 by the
following persons on behalf of the Registrant and in the capacities indicated.


<TABLE> 
<CAPTION> 
Signature                          Title                                                       Date
<S>                                <C>                                                         <C> 
/s/ John R. Frawley, Jr.           Chairman, Chief Executive Officer, President and Director   March 25, 1999
-------------------------
John R. Frawley, Jr.               (Principal Executive Officer)

/s/ Jo Ann Di Dario                Vice President, Chief Financial Officer, and Treasurer      March 25, 1999
-------------------------
Jo Ann Di Dario                    (Principal Financial and Accounting Officer)

/s/ Jeffrey F. Chandor             Senior Vice President, Director of Sales,                   March 25, 1999
-------------------------
Jeffrey F. Chandor                 Marketing and Research, and Director

/s/ Allen N. Jones                  Director                                                   March 25, 1999
-------------------------
Allen N. Jones
</TABLE> 

(Being the principal executive officer, the principal financial and accounting
officer and a majority of the directors of Merrill Lynch Investment Partners
Inc.)

MERRILL LYNCH INVESTMENT      General Partner of Registrant      March 25, 1999 
  PARTNERS INC.

By: /s/ John R. Frawley, Jr.
    -------------------------
    John R. Frawley, Jr.

                                      -23-
<PAGE>
 
                   THE S.E.C.T.O.R. STRATEGY FUND (SM) L.P.

                                1998 FORM 10-K

                               INDEX TO EXHIBITS
                               -----------------

                                    Exhibit
                                    -------

Exhibit 13.01            1998 Annual Report and Independent Auditors' Report

Exhibit 13.01(a)         1998 Annual Reports and Independent Auditors' Reports
                         for the following Trading Limited Liability Companies
                         sponsored by Merrill Lynch Investment Partners Inc.:
                         ML Millburn Global LLC
                         ML Sjo Prospect LLC
                         ML Chesapeake Diversified LLC
                         ML  JWH Financial and Metals Portfolio LLC
                         ML Multi-Manager Portfolio LLC

                                      -24-