<PAGE>

                                                                   Exhibit 13.01

               The S.E.C.T.O.R. STRATEGY FUND/SM/ L.P.
               (A Delaware Limited Partnership)



               Financial Statements for the years ended
               December 31, 1999, 1998 and 1997
               and Independent Auditors' Report




[LOGO] Merrill Lynch
<PAGE>

THE S.E.C.T.O.R. STRATEGY FUND/SM/ L.P.
(A Delaware Limited Partnership)
 ------------------------------


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

<TABLE>
<CAPTION>

                                                Page
                                                ----
<S>                                           <C>

INDEPENDENT AUDITORS' REPORT                       1

FINANCIAL STATEMENTS FOR THE YEARS ENDED
  DECEMBER 31, 1999, 1998 AND 1997:

  Statements of Financial Condition                2

  Statements of Operations                         3

  Statements of Changes in Partners' Capital       4

  Notes to Financial Statements                 5-11

</TABLE>
<PAGE>

INDEPENDENT AUDITORS' REPORT
----------------------------



To the Partners of
 The S.E.C.T.O.R. Strategy Fund/SM/ L.P.:

We have audited the accompanying statements of financial condition of The
S.E.C.T.O.R. Strategy Fund/SM/ L.P. (the "Partnership") as of December 31, 1999
and 1998, and the related statements of operations and of changes in partners'
capital for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Partnership's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of The S.E.C.T.O.R. Strategy Fund/SM/ L.P. as
of December 31, 1999 and 1998, and the results of its operations and changes in
partners' capital for each of the three years in the period ended December 31,
1999 in conformity with generally accepted accounting principles.


DELOITTE & TOUCHE LLP


New York, New York
February 4, 2000
<PAGE>

THE S.E.C.T.O.R. STRATEGY FUND/SM/ L.P.
(A Delaware Limited Partnership)
 ------------------------------

STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS                                                                    1999                1998
                                                                     ---------------     ---------------
<S>                                                                    <C>                 <C>
Investments (Note 6)                                                   $ 13,952,487        $ 18,934,681
Receivable from investments (Note 6)                                        246,627             528,786
                                                                     ---------------     ---------------

                TOTAL                                                  $ 14,199,114        $ 19,463,467
                                                                     ===============     ===============

LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES:
Redemptions payable                                                    $    246,627        $    528,786
                                                                     ---------------     ---------------

            Total liabilities                                               246,627             528,786
                                                                     ---------------     ---------------

PARTNERS' CAPITAL:
General Partner (1,077 Units and 1,177 Units)                               201,377             222,668
Limited Partners (73,542 Units and 98,908 Units)                         13,751,110          18,712,013
                                                                     ---------------     ---------------

            Total partners' capital                                      13,952,487          18,934,681
                                                                     ---------------     ---------------

                TOTAL                                                  $ 14,199,114        $ 19,463,467
                                                                     ===============     ===============

NET ASSET VALUE PER UNIT
(Based on 74,619 and 100,085 Units outstanding)                        $     186.98        $     189.19
                                                                     ===============     ===============

</TABLE>
See notes to financial statements.

                                      -2-
<PAGE>

THE S.E.C.T.O.R. STRATEGY FUND/SM/ L.P.
(A Delaware Limited Partnership)
 ------------------------------

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                     1999                   1998                 1997
                                                               ------------------      ---------------      ----------------
<S>                                                                 <C>                   <C>                   <C>
REVENUES:

    Trading profit (loss):
        Realized (Note 1)                                             $ -                  $ (520,547)           $ (100,337)
        Change in unrealized (Note 1)                                   -                    (703,331)              105,173
                                                               ------------------      ---------------      ----------------

            Total trading results                                       -                  (1,223,878)                4,836

    Interest income (Note 2)                                            -                     396,925             1,118,910
                                                               ------------------      ---------------      ----------------

            Total revenues                                              -                    (826,953)            1,123,746
                                                               ------------------      ---------------      ----------------

EXPENSES:

    Brokerage commissions (Note 2)                                      -                     662,247             1,936,603
    Profit Shares (Note 3)                                              -                     147,262               158,988
    Administrative fees (Note 2)                                        -                      18,921                55,331
                                                               ------------------      ---------------      ----------------

            Total expenses                                              -                     828,430             2,150,922
                                                               ------------------      ---------------      ----------------

INCOME (LOSS) FROM INVESTMENTS (Note 6)                                 (203,566)             675,414               968,354
                                                               ------------------      ---------------      ----------------

NET LOSS                                                              $ (203,566)          $ (979,969)           $  (58,822)
                                                               ==================      ===============      ================

NET INCOME (LOSS) PER UNIT:

    Weighted average number of General Partner and
    Limited Partner Units outstanding (Note 4)                            87,544              119,711               151,089
                                                               ==================      ===============      ================

    Net loss per weighted average
      General Partner and Limited Partner Unit                        $    (2.33)          $    (8.19)           $    (0.39)
                                                               ==================      ===============      ================

</TABLE>

See notes to financial statements.

                                      -3-
<PAGE>

THE S.E.C.T.O.R. STRATEGY FUND/SM/ L.P.
(A Delaware Limited Partnership)
 ------------------------------

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                      Units of
                                     Partnership           General                Limited
                                      Interest             Partner                Partners                  Total
                                    --------------      ---------------      -------------------      -------------------
<S>                                       <C>                <C>                   <C>                      <C>
PARTNERS' CAPITAL
  DECEMBER 31, 1996                       164,289            $ 489,672             $ 31,459,360             $ 31,949,032

Redemptions                               (27,674)                   -               (5,313,927)              (5,313,927)

Net income (loss)                               -                  165                  (58,987)                 (58,822)
                                    --------------      ---------------      -------------------      -------------------

PARTNERS' CAPITAL
  DECEMBER 31, 1997                       136,615              489,837               26,086,446               26,576,283

Redemptions                               (36,530)            (234,522)              (6,427,111)              (6,661,633)

Net loss                                        -              (32,647)                (947,322)                (979,969)
                                    --------------      ---------------      -------------------      -------------------

PARTNERS' CAPITAL
  DECEMBER 31, 1998                       100,085              222,668               18,712,013               18,934,681

Redemptions                               (25,466)             (18,073)              (4,760,555)              (4,778,628)

Net loss                                        -               (3,218)                (200,348)                (203,566)
                                    --------------      ---------------      -------------------      -------------------

PARTNERS' CAPITAL
  DECEMBER 31, 1999                        74,619            $ 201,377             $ 13,751,110             $ 13,952,487
                                    ==============      ===============      ===================      ===================
</TABLE>

See notes to financial statements.

                                      -4-
<PAGE>

THE S.E.C.T.O.R. STRATEGY FUND/SM/ L.P.
(A Delaware Limited Partnership)
 ------------------------------

NOTES TO FINANCIAL STATEMENTS

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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

  The S.E.C.T.O.R. Strategy Fund/SM/ L.P. (the "Partnership") was organized
  under the Delaware Revised Uniform Limited Partnership Act on April 30, 1990
  and commenced trading activities on July 16, 1990.  The Partnership engages
  (currently, through an investment in a limited liability company (see below))
  in the speculative trading of futures, options on futures, forwards and
  options on forward contracts on a wide range of commodities.  Merrill Lynch
  Investment Partners Inc. ("MLIP"), a wholly-owned subsidiary of Merrill Lynch
  Group, Inc., which, in turn, is a wholly-owned subsidiary of Merrill Lynch &
  Co., Inc. ("Merrill Lynch"), is the general partner of the Partnership. MLIP
  has agreed to maintain a general partner's interest of at least 1% of the
  total capital of the Partnership. MLIP and each Limited Partner share in the
  profits and losses of the Partnership in proportion to their respective
  interests in it.

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

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

  MLIP determines what percentage of the Partnership's total capital to invest
  in MM LLC attempting to maximize the percentage of the Partnership's assets
  invested in MM LLC, while managing the Partnership's exposure to prevent
  Merrill Lynch from being required to make a payment to the Partnership
  pursuant to its guarantee under the Partnership's principal protection
  structure (See Note 5).

                                      -5-
<PAGE>

  Estimates
  ---------

  The preparation of financial statements in conformity with generally accepted
  accounting principles requires management to make estimates and assumptions
  that effect the reported amounts of assets and liabilities and disclosure of
  contingent assets and liabilities at the date of the financial statements and
  the reported amounts of revenues and expenses during the reporting period.
  Actual results could differ from those estimates.

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

  Commodity futures, options on futures, forwards and options on forward
  contracts are recorded on the trade date, and open contracts are reflected in
  net unrealized profit on open contracts in the Statements of Financial
  Condition at the difference between the original contract value and the market
  value (for those commodity interests for which market quotations are readily
  available) or at fair value.  The change in unrealized profit (loss) on open
  contracts from one period to the next is reflected in Trading profit (loss):
  Change in unrealized in the Statements of Operations.  As a result of the
  investment in MM LLC, there were no open contracts as of December 31, 1999 or
  1998.  See Note 6 for discussion of revenue recognition for the Partnership's
  investment in Trading LLC's and MM LLC.

  Foreign Currency Transactions
  -----------------------------

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

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

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

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

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

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

  The Limited Partners are entitled to receive, equally per Unit, any
  distribution which may be made by the Partnership.  No such distributions had
  been made as of December 31, 1999.

  Redemptions
  -----------

  A Limited Partner may redeem some or all of such Partner's Units at Net Asset
  Value as of the close of business on the last business day of any month upon
  ten calendar days' notice.

                                      -6-
<PAGE>

  Dissolution of the Partnership
  ------------------------------

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

2. RELATED PARTY TRANSACTIONS

  The majority of the Partnership's U.S. dollar assets are maintained at MLF.
  On assets held in U.S. dollars, Merrill Lynch credits the Partnership through
  MM LLC with interest at the prevailing 91-day U.S. Treasury bill rate.  The
  Partnership through MM LLC is credited with interest on any of its net gains
  actually held by Merrill Lynch in non-U.S. dollar currencies at a prevailing
  local rate received by Merrill Lynch.  Merrill Lynch may derive certain
  economic benefit, in excess of the interest which Merrill Lynch pays to the
  Partnership through MM LLC, from possession of such assets.

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

  Through its investment in MM LLC, the Partnership pays brokerage commissions
  to MLF at a flat monthly rate equal to .729 of 1% (an 8.75% annual rate), and
  pays MLIP a monthly administrative fee of .021 of 1% (a .25% annual rate) of
  the Partnership's month-end assets allocated to trading.  Assets allocated to
  trading are not reduced, for purposes of calculating brokerage commissions and
  administrative fees, by any accrued brokerage commissions, administrative
  fees, Profit Shares or other fees or charges.

  Prior to the investment in MM LLC, MLIP estimates that the round-turn
  equivalent commission rate charged to the Partnership during the years ended
  December 31, 1998 and 1997 was approximately $69 and $114, respectively (not
  including, in calculating round-turn equivalents, forward contracts on a
  futures-equivalent basis).

  MLF currently pays the Advisors annual Consulting Fees up to 1.75% of the
  Partnership's average month-end assets allocated to them for management, after
  reduction for a portion of the brokerage commissions.

3. AGREEMENTS

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

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

                                      -7-
<PAGE>

4. WEIGHTED AVERAGE UNITS

  The weighted average number of Units outstanding was computed for purposes of
  disclosing net income or loss per weighted average Unit.  The weighted average
  number of Units outstanding for the years ended December 31, 1999, 1998 and
  1997 equals the Units outstanding, as of such date, adjusted proportionately
  for Units redeemed based on the respective length of time each was outstanding
  during the year.

5. MERRILL LYNCH & CO., INC. GUARANTEE

  Merrill Lynch has guaranteed to the Partnership that it will have sufficient
  Net Assets as of the Principal Assurance Date that the Net Asset Value per
  Unit as of such Principal Assurance Date will equal, after adjustment for all
  liabilities to third parties, not less than the minimum assured Net Asset
  Value per Unit.  Effective October 1, 1999, the Partnership restarted its
  trading program for a third Time Horizon of two years' duration and a new
  Principal Assurance Date of September 30, 2001, with a minimum assured Net
  Asset Value per Unit of $148.65.

6. INVESTMENTS

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

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

                                      -8-
<PAGE>

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

<TABLE>
<CAPTION>
      For the year ended           Total              Brokerage          Administrative          Profit       Income (Loss) from
      December 31, 1999           Revenues           Commissions              Fees               Shares         Investments
------------------------     ---------------     -----------------    ------------------    --------------    ----------------

<S>                             <C>                   <C>                      <C>               <C>               <C>
      MM LLC                    $ 1,363,384           $ 1,448,194              $ 41,377         $  77,379          $ (203,566)
                             ===============     =================    ==================    ==============    ================

      For the year ended           Total              Brokerage          Administrative          Profit       Income (Loss) from
      December 31, 1998           Revenues           Commissions              Fees               Shares         Investments
------------------------     ---------------     -----------------    ------------------    --------------    ----------------

      JWH LLC                   $  (700,366)          $   224,055              $  6,402         $ -                $ (930,823)
      MM LLC                      3,184,157             1,060,876                30,311           486,733           1,606,237
                             ---------------
                                                 -----------------    ------------------    --------------    ----------------
        Total                   $ 2,483,791           $ 1,284,931              $ 36,713         $ 486,733          $  675,414
                             ===============     =================    ==================    ==============    ================


      For the year ended           Total              Brokerage          Administrative          Profit         Income from
      December 31, 1997           Revenues           Commissions              Fees               Shares         Investments
------------------------     ---------------     -----------------    ------------------    --------------    ----------------

      JWH LLC                   $ 1,710,140           $   614,361              $ 17,552         $ 109,873          $  968,354
                               =============     =================    ==================    ==============    ================


</TABLE>

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

<TABLE>
<CAPTION>
                                    MM LLC                           MM LLC
                              December 31, 1999                December 31, 1998
                         ----------------------------     ----------------------------
<S>                                    <C>                              <C>
Assets                                 $ 100,901,677                    $ 125,332,558
                         ============================     ============================

Liabilities                            $   2,906,392                    $   4,949,082
Members' Capital                          97,995,285                      120,383,476
                         ----------------------------     ----------------------------

Total                                  $ 100,901,677                    $ 125,332,558
                         ============================     ============================

<CAPTION>
                                                              For the period from
                             For the year ended                 June 1, 1998 to
                              December 31, 1999                December 31, 1998
                         ----------------------------     ----------------------------
<S>                                     <C>                              <C>
Revenues                                $  9,090,190                     $ 19,255,343

Expenses                                  10,152,017                        9,491,842
                         ----------------------------     ----------------------------

Net Income (Loss)                       $ (1,061,827)                    $  9,763,501
                         ============================     ============================
</TABLE>

                                      -9-
<PAGE>

<TABLE>
<CAPTION>
                                   JWH LLC                          JWH LLC
                             For the period from
                             January 1, 1998 to               For the year ended
                                May 31, 1998                   December 31, 1997
                         ----------------------------     ----------------------------

<S>                                     <C>                              <C>
Revenues                                $  1,391,001                     $ 15,279,401

Expenses                                   4,069,362                        6,714,041
                         ----------------------------     ----------------------------

Net Income (Loss)                       $ (2,678,361)                    $  8,565,360
                         ============================     ============================
</TABLE>


7. FAIR VALUE AND OFF-BALANCE SHEET RISK

  As of June 1, 1998, the Partnership invested all of its assets in MM LLC.
  Accordingly, the Partnership invested indirectly in derivative instruments,
  but does not itself hold any derivative instrument positions.  As such, MLIP
  does not believe that the adoption of the provisions of Statement of Financial
  Accounting Standards No. 133 had a significant effect on the financial
  statements of the Partnership. Consequently, no such positions subsequent to
  May 31, 1998 are reflected in these financial statements.

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

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

  MLIP has procedures in place intended to control market risk exposure,
  although there can be no assurance that they will, in fact, succeed in doing
  so. These procedures focus primarily on monitoring the trading of the Advisors
  selected from time to time for the Partnership or MM LLC, and include
  adjusting the percentage of the Partnership's, the Trading LLC's or MM LLC's
  total assets allocated to trading, calculating the Net Asset Value of the
  Advisors' respective Partnership accounts and Trading LLC accounts, or
  currently MM LLC accounts, as of the close of business on each day and
  reviewing outstanding positions for over-concentrations both on an Advisor-by-
  Advisor and on an overall Partnership basis. While MLIP does not itself
  intervene in the markets to hedge or diversify the Partnership's market
  exposure (although MLIP may adjust the percentage of the Partnership's total
  assets allocated to trading), MLIP may urge Advisors to reallocate positions,
  or itself reallocate Partnership assets among Advisors (although typically
  only as of the end of a month) in an attempt to avoid over-concentration.
  However, such interventions are unusual. Except in cases in which it appears
  that an Advisor has begun to deviate from past practice or trading policies or
  to be trading erratically, MLIP's basic risk control procedures consist simply
  of the ongoing process of advisor monitoring and selection, with the market
  risk controls being applied by the Advisors themselves.

                                      -10-
<PAGE>

  One important aspect of the MLIP's risk controls is its adjustments to the
  leverage at which the Partnership trades. By controlling the percentage of the
  Partnership's assets allocated to trading, MLIP can directly affect the market
  exposure of the Partnership. Leverage control is the principal means by which
  MLIP hopes to be able to ensure that Merrill Lynch is never required to make
  any payments under its guarantee that the Net Asset Value per Unit will equal
  no less than a specified minimum as of the Principal Assurance Date (see Note
  5).

  Credit Risk
  -----------

  The risks associated with exchange-traded contracts are typically perceived to
  be less than those associated with over-the-counter (non-exchange-traded)
  transactions, because exchanges typically (but not universally) provide
  clearinghouse arrangements in which the collective credit (in some cases
  limited in amount, in some cases not) of the members of the exchange is
  pledged to support the financial integrity of the exchange. In over-the-
  counter transactions, on the other hand, traders must rely solely on the
  credit of their respective individual counterparties. Margins, which may be
  subject to loss in the event of a default, are generally required in exchange
  trading, and counterparties may require margin in the over-the-counter
  markets.

  The Partnership has credit risk in respect of its counterparties and brokers,
  but attempts to control this risk by dealing almost exclusively with Merrill
  Lynch entities as counterparties and clearing brokers.

  The Partnership, through MM LLC, in its normal course of business, enters into
  various contracts, with MLF acting as its commodity broker. Pursuant to the
  brokerage agreement with MLF (which includes a netting arrangement), to the
  extent that such trading results in receivables from and payables to MLF,
  these receivables and payables are offset and reported as a net receivable or
  payable in the financial statements of MM LLC in the Equity in commodity
  future trading accounts in the Statements of Financial Condition.


           *    *   *   *   *   *   *   *   *   *   *   *   *   *   *

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

                            /s/ Michael L. Pungello

                              Michael L. Pungello
                            Chief Financial Officer
                     Merrill Lynch Investment Partners Inc.
                               General Partner of
                    The S.E.C.T.O.R. Strategy Fund/SM/ L.P.