<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, 2001
                                       or
                  ( ) Transition Report Pursuant to Section 13
                or 15(d) of the Securities Exchange Act of 1934

                        Commission file number: 0-18944

                     THE SECTOR STRATEGY FUND (SM) II L.P.
                     -------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

           DELAWARE                                             13-3584544
 ----------------------------------                ----------------------------
  (State or other jurisdiction of                         (I.R.S. Employer
  incorporation or organization)                         Identification No.)

                       C/O MLIM ALTERNATIVE STRATEGIES LLC
                           PRINCETON CORPORATE CAMPUS
                       800 SCUDDERS MILL ROAD - SECTION 2G
                          PLAINSBORO, NEW JERSEY 08536
                          ----------------------------
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (609) 282-6996

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, 2002, limited partnership units with an aggregate value of
$16,685,316 were outstanding and held by non-affiliates.

                       DOCUMENTS INCORPORATED BY REFERENCE
The registrant's "2001 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 2001,
is incorporated by reference into Part II, Item 8 and Part IV hereof and filed
as an Exhibit herewith.


<Page>


                      THE SECTOR STRATEGY FUND (SM) II L.P.

                       ANNUAL REPORT FOR 2001 ON FORM 10-K

                                TABLE OF CONTENTS

<Table>
<Caption>
                                   PART I                                                  PAGE
                                   ------                                                  ----
<S>             <C>                                                                        <C>
Item 1          Business                                                                    1

Item 2          Properties                                                                  5

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.                                                    6

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

Item 7A         Quantitative and Qualitative Disclosures About Market Risk.                14

Item 8          Financial Statements and Supplementary Data                                15

Item 9          Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure                                                       15

                                    PART III
                                    --------

Item 10         Directors and Executive Officers of the Registrant                         16

Item 11         Executive Compensation                                                     17

Item 12         Security Ownership of Certain Beneficial Owners and Management             17

Item 13         Certain Relationships and Related Transactions                             17

                                     PART IV
                                     -------

Item 14         Exhibits, Financial Statement Schedules and Reports on Form 8-K            19
</Table>

                                      i)
<Page>


                                     PART I
ITEM 1:  BUSINESS

         (a)      GENERAL DEVELOPMENT OF BUSINESS:

                  The SECTOR Strategy Fund (SM) II L.P. (the "Partnership")
was organized under the Delaware Revised Uniform Limited Partnership Act on
August 21, 1990 and began trading operations on December 5, 1990 ("SECTOR II
Units"). A re-opening of the Partnership through the public offering of
SECTOR III Limited Partnership Units ("SECTOR III Units" and collectively
with the SECTOR II Units, "Units") commenced operations on July 5, 1991.
Units may be redeemed as of the end of each calendar month. The Partnership
engages, 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. Previously investors were assured of at least a predetermined
minimum Net Asset Value per Unit as of the Principal Assurance Date.

                  MLIM Alternative Strategies LLC ("MLIM AS LLC"), formerly
Merrill Lynch Investment Partners Inc. ("MLIP"), a wholly-owned subsidiary of
Merrill Lynch Investment Managers, LP ("MLIM") which, in turn, is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch"), is the
general partner of the Partnership. Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), the successor to Merrill Lynch Futures, Inc. ("MLF")
by merger, is the Partnership's commodity broker.

                  Effective May 31, 2001, MLIP converted to a Delaware limited
liability company and changed its name. Effective August 14, 2001, Merrill Lynch
Group, Inc. contributed all of the issued and outstanding shares of MLIM AS LLC
to its affiliate MLIM in a tax-free reorganization. All of the officers of MLIP
at the time continued with their former roles with MLIM AS LLC. The changes had
no impact on the Partnership's investors. Effective November 2, 2001, MLF merged
into its affiliate, MLPF&S, a wholly owned subsidiary of Merrill Lynch. MLPF&S
became the successor party to the agreements between MLF and the Partnership.
The terms of the agreements remained unchanged and the merger had no effect on
the terms on which the Partnership's transactions were executed.

                  Prior to October 1, 1996, the Partnership placed assets with
the commodity trading advisors ("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 Advisors through investing in
private funds ("Trading LLCs") sponsored by MLIM AS LLC, through which the
trading accounts of different MLIM AS LLC-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 MLIM AS LLC. 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, MLIM AS LLC 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, ML Multi-Manager Portfolio LLC ("MM LLC"), which opened a single
account with each Advisor selected. MM LLC is managed by MLIM AS LLC, 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 MLIM AS LLC.

                                       1
<Page>


                  As of December 31, 2001, the Partnership's SECTOR II Unit
capitalization was $6,250,611, the Partnership's SECTOR III Unit
capitalization was $11,216,929, the Net Asset Value of a SECTOR II Unit,
originally $100 as of December 5, 1990, was $167.20 and the Net Asset Value
of a SECTOR III Unit, originally $100 as of July 5, 1991, was $175.65.

                  Merrill Lynch guaranteed that the Net Asset Value per
Sector II Unit would equal at least $125.50 as of December 31, 2001 (the
"Principal Assurance Date"). On January 1, 2002, the Partnership did not
renew its guarantee for a new Time Horizon and currently operates without a
principal protection feature. Sector III Units have been operating without a
principal protection feature since November 1, 2000. This guarantee served
only as a form of "stop loss" limiting the maximum loss which investors who
retained their Units until the Principal Assurance Date could incur.

                  Through December 31, 2001, the highest month-end Net Asset
Value per SECTOR II and SECTOR III Units were $176.13 (October 31, 2001) and
$185.02 (October 31, 2001), respectively, and the lowest was $98.68 (January 31,
1991) and 97.74 (May 31, 1992), respectively.

         (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 Partnership trades, 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. Previously investors were assured
of at least a predetermined minimum Net Asset Value per Unit as of the
Principal Assurance Date with respect to the SECTOR II Units and SECTOR III
Units.

                  MLIM AS LLC 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.

                  Considered as a whole, the Partnership, through its
investment in MM LLC, trades in a diversified range of international markets.
Certain Advisors, considered individually, concentrate primarily on

                                       2
<Page>


trading in a limited portfolio of markets. The composition of the "sectors"
included in the Partnership's portfolio varies substantially over time.

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

                  One of the objectives of the Partnership 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 Partnership's returns have, in fact, frequently been
non-correlated with the United States stock and bond markets.

                  MERRILL LYNCH'S PREVIOUS "PRINCIPAL PROTECTION" UNDERTAKING
TO THE PARTNERSHIP

                  Merrill Lynch, the parent company of the Merrill Lynch
organization, which includes MLIM AS LLC and MLPF&S, agreed to contribute
sufficient capital to the Partnership so that it would have adequent funds,
after adjustment for all liabilities to third parties, and so that the Net
Asset Value per Sector II Unit would be no less than $125.50 as of the last
Principal Assurance Date (December 31, 2001) and that the Net Asset Value per
Sector III Unit would be no less than $132.74 as of its last Principal
Assurance Date (October 31, 2000). These guarantees, which were effective only
as of the Principal Assurance Dates, were guarantees only of the minimum
assured Net Asset Value not against the loss of the use of time value of such
investments or guarantee of profit. Merrill Lynch was not required to make
any payments pursuant to this guarantee. Such guarantees are no longer in
place.

                  OPERATION OF THE PARTNERSHIP AFTER THE LAST PRINCIPAL
ASSURANCE DATES

                  When the Partnership reached its last Principal Assurance
Dates for the SECTOR II and SECTOR III Units, December 31, 2001 and October
31, 2000, respectively, MLIM AS LLC notified investors that they would
continue to operate the Partnership without a "Principal Protection" feature.

                  USE OF PROCEDES AND INTEREST INCOME

                  MARKET SECTORS

                  The Partnership, through its investment in MM LLC, trades in
a diversified group of markets under the direction of multiple independent
Advisors. These Advisors 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.

                  MARKET TYPES

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

                  Many of the Partnership's currency trades, through its
investment in MM LLC, 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 in the FX Markets take a
"spread" between the prices at which they are prepared to buy and sell
particular currencies and such spreads are built into the pricing of the spot
or forward contracts with the Partnership. 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
Partnership's commitments to different types of


                                       3
<Page>


markets -- U.S. and non-U.S., regulated and non-regulated -- differ
substantially from time to time as well as over time.

                  CUSTODY OF ASSETS

                  The majority of the Partnership's assets are currently held in
customer accounts at Merrill Lynch.

                  CASH MANAGEMENT

                  As of June 2000, the Partnership, through MM LLC, began an
Income Enhancement Program, whereby, a portion of its assets could be invested
in Commercial Paper. This was done to improve the yield on cash assets not
required for margin for trading purposes at MLPF&S. These holdings generally
have maturities of 30, 60 or 90 days and are held to maturity. As of December
31, 2001, the Income Enhancement Program was inactive.

                  INTEREST PAID BY MERRILL LYNCH ON THE PARTNERSHIP'S U.S.
DOLLAR AND NON-U.S. DOLLAR ASSETS

                  The Partnership's U.S. dollar assets invested in MM LLC are
maintained at MLPF&S. On assets held in U.S. dollars, not in the Income
Enhancement Program, Merrill Lynch credits MM LLC with interest at the
prevailing 91-day U.S. Treasury bill rate. MM LLC is credited with interest
on any of its assets and 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 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.

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

                  CHARGES

                  During 2001, 2000 and 1999, the Partnership had 100% of its
assets invested in MM LLC. The charges incurred by the Partnership through its
investment in MM LLC are described in "Description of Current Charges" below.

                  The Partnership's SECTOR II Units average month-end Net Assets
during 2001, 2000 and 1999 equaled $6,719,444, $7,447,420, and $9,538,889,
respectively.

                  The Partnership's SECTOR III Units average month-end Net
Assets during 2001, 2000 and 1999 equaled $12,238,713, $16,059,786, and
$21,081,593, respectively.

                         DESCRIPTION OF CURRENT CHARGES

<Table>
<Caption>
RECIPIENT                  NATURE OF PAYMENT                  AMOUNT OF PAYMENT
---------                  -----------------                  -----------------
<S>                        <C>                                <C>
MLPF&S                     Brokerage Commissions              A flat-rate monthly  commission of 0.729 of 1% (an 8.75%
                                                              annual  rate)  of  the  Partnership's  month-end  assets
                                                              allocated to trading.  As of December 31,  2001, 100% of
                                                              the  Partnership's  assets were  allocated to trading in
                                                              MM LLC.

                                                              The estimated aggregate round-turn commission  rates for
                                                              MM LLC for the years ended  December 31, 2001, 2000  and
                                                              1999 were $64, $82 and $136, respectively.


                                       4
<Page>


<S>                        <C>                                <C>
MLPF&S                     Use of Partnership assets          Merrill Lynch may derive certain  economic  benefit from
                                                              the deposit of certain of the Partnership's  U.S. dollar
                                                              assets in offset accounts.

MLIM AS LLC                Administrative Fees                The   Partnership   pays   MLIM   AS   LLC   a   monthly
                                                              Administrative  Fee equal to 0.021 of 1% (a 0.25% annual
                                                              rate) of the  Partnership's  month-end  assets allocated
                                                              to  trading.  As of  December  31,  2001,  100%  of  the
                                                              Partnership's  assets  were  allocated  to trading in MM
                                                              LLC. MLIM AS LLC pays all of the  Partnership's  routine
                                                              administrative costs.

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

Advisors                   Profit Shares                      All  Advisors  can receive  quarterly  or annual  Profit
                                                              Shares  ranging  from  20%  to  23%  (depending  on  the
                                                              Advisor)  of any New  Trading  Profit  achieved by their
                                                              Partnership  account.  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
                                                              Partnership.  The  Partnership,  through MM LLC, may pay
                                                              substantial Profit  Shares  during  periods  when it  is
                                                              incurring significant overall losses.

Advisors                   Consulting Fees                    MLPF&S pays the Advisors annual Consulting
                                                              Fees of up to 2% of the Partnership's average month-end
                                                              assets allocated to them for management, after reduction
                                                              for a portion of the brokerage commissions.

MLPF&S;                    Extraordinary expenses             Actual costs incurred; none paid to date.
  Others
</Table>

                  REGULATION

                  MLIM AS LLC, the Advisors and the MLPF&S are each subject
to regulation by the Commodity Futures Trading Commission (the "CFTC") and
the National Futures Association (the "NFA"). 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 (the "SEC"). However, MLIM AS LLC itself
is registered as an "investment adviser" under the Investment Advisers Act of
1940. MLPF&S is also regulated by the SEC and the National Association of
Securities Dealers.

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

                  (xiii)  The Partnership has no employees.

         (d)      FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS:

                  The Partnership does not engage in material operations in
foreign countries, nor is a material portion of the Partnership's revenues
derived from customers in foreign countries. However, 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.


                                       5
<Page>


                  The Partnership's only place of business is the place of
business of MLIM AS LLC (MLIM Alternative Strategies LLC, Princeton Corporate
Campus, 800 Scudders Mill Road - Section 2G, Plainsboro, New Jersey 08536). MLIM
AS LLC performs all administrative services for the Partnership from MLIM AS
LLC's offices.

ITEM 3:  LEGAL PROCEEDINGS

                  Merrill Lynch -- a partner of MLIM (which is the sole
member of MLIM AS LLC) -- 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 or financial condition of MLIM
AS LLC or the Partnership.

                  MLIM AS LLC 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 established public trading market for the Units,
nor will one develop. Limited Partners may redeem Units as of the end of each
month at Net Asset Value.

         (b)      HOLDERS

                  As of December 31, 2001, there were 439 holders of SECTOR II
Units, including MLIM AS LLC, and 582 holders of SECTOR III Units, including
MLIM AS LLC.

         (c)      DIVIDENDS:

                  The Partnership has made no distributions, nor does MLIM AS
LLC 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:


                                       6
<Page>

<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               2001           2000            1999            1998            1997
---------------------------------------------------------------------------------------------------------------
<S>                                  <C>             <C>            <C>            <C>             <C>
Revenues:

Trading (Loss) Profit:
     Realized                              $ -             $ -             $ -     $ 1,169,961     $ 4,629,434
     Change in Unrealized                    -               -               -        (671,259)         98,218
                                     ---------       ---------      ----------     -----------     -----------
     Total Trading Results                   -               -               -         498,702       4,727,652
                                     ---------       ---------      ----------     -----------     -----------

Interest Income                              -               -               -         598,158       1,551,360
                                     ---------       ---------      ----------     -----------     -----------
     Total Revenues                          -               -               -       1,096,860       6,279,012
                                     ---------       ---------      ----------     -----------     -----------

Expenses:
     Brokerage Commissions                   -               -               -       1,015,128       2,732,838
     Administrative Fees                     -               -               -          29,004          78,081
     Profit Shares                           -               -               -         301,645         530,099
                                     ---------       ---------      ----------     -----------     -----------
     Total Expenses                          -               -               -       1,345,777       3,341,018
                                     ---------       ---------      ----------     -----------     -----------
Income (Loss) from Investments         202,282         919,869        (378,712)      1,406,243       1,708,985
                                     ---------       ---------      ----------     -----------     -----------
Net Income (Loss)                    $ 202,282       $ 919,869      $ (378,712)    $ 1,157,326     $ 4,646,979
                                     =========       =========      ==========     ===========     ===========
</Table>

<Table>
<Caption>
                                  DECEMBER 31,   DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
BALANCE SHEET DATA                   2001           2000            1999            1998            1997
---------------------------------------------------------------------------------------------------------------
<S>                                <C>             <C>             <C>             <C>             <C>
Partnership Net Asset Value        $17,467,540     $20,623,861     $28,036,376     $33,791,182     $40,650,457

Net Asset Value
   per SECTOR II Unit                  $167.20         $165.72         $156.88         $158.74         $156.37

Net Asset Value
   per SECTOR III Unit                 $175.65         $174.06         $164.77         $166.72         $159.00
                                   -----------     -----------     -----------     -----------     -----------
</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 SECTOR II 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>     |
1997   $150.05 | $149.10 | $148.60 | $149.07 | $147.91 | $150.77 | $158.23 | $155.56 | $155.08 | $154.49 | $154.47 | $156.37 |
1998   $155.45 | $151.98 | $150.75 | $145.57 | $146.58 | $146.91 | $147.09 | $155.15 | $158.46 | $157.97 | $158.11 | $158.74 |
1999   $156.73 | $158.61 | $157.90 | $159.63 | $158.37 | $158.96 | $159.28 | $158.21 | $155.90 | $151.64 | $155.71 | $156.88 |
2000   $157.42 | $156.23 | $153.51 | $153.71 | $155.98 | $154.07 | $151.86 | $152.35 | $147.76 | $148.02 | $156.47 | $165.72 |
2001   $164.50 | $166.08 | $173.90 | $168.84 | $167.09 | $167.20 | $166.81 | $167.74 | $169.17 | $176.13 | $167.56 | $167.20 |
</Table>

<Table>
<Caption>
                                      MONTH-END NET ASSET VALUE PER SECTOR III 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>     |
1997   $147.15 | $149.44 | $150.41 | $146.96 | $146.16 | $147.82 | $156.23 | $151.82 | $153.39 | $153.98 | $155.24 | $159.00 |
1998   $159.04 | $156.52 | $159.24 | $151.72 | $154.09 | $154.27 | $154.50 | $162.95 | $166.44 | $165.93 | $166.05 | $166.72 |
1999   $164.61 | $166.59 | $165.84 | $167.65 | $166.34 | $166.96 | $167.29 | $166.16 | $163.74 | $159.27 | $163.54 | $164.77 |
2000   $165.34 | $164.09 | $161.23 | $161.44 | $163.83 | $161.82 | $159.50 | $160.02 | $155.20 | $155.46 | $164.34 | $174.06 |
2001   $172.78 | $174.44 | $182.67 | $177.34 | $175.51 | $175.62 | $175.22 | $176.21 | $177.71 | $185.02 | $176.01 | $175.65 |
</Table>

                  Pursuant to CFTC policy, monthly performance is presented only
from January 1, 1997 even though Units were outstanding prior to such date.

                      THE SECTOR STRATEGY FUND (SM) II L.P.
                                 SECTOR II UNITS
                                DECEMBER 31, 2001

    TYPE OF POOL: SELECTED-ADVISOR/PUBLICLY-OFFERED/"NON-PRINCIPAL PROTECTED"(1)
                     INCEPTION OF TRADING: December 5, 1990
                      AGGREGATE SUBSCRIPTIONS: $136,410,000
                       CURRENT CAPITALIZATION: $6,250,611
                    WORST MONTHLY DRAWDOWN(2): (4.87)% (11/01)
              WORST PEAK-TO-VALLEY DRAWDOWN(3): (8.01)% (8/97-8/98)
                                   ----------

              NET ASSET VALUE PER UNIT, DECEMBER 31, 2001: $167.20

<Table>
<Caption>
                            MONTHLY RATES OF RETURN(4)
                            --------------------------
MONTH                          2001    |   2000    |   1999    |    1998   |   1997   |
-----                          ----    |   ----    |   ----    |    ----   |   ----   |
<S>                           <C>      |  <C>      |  <C>      |  <C>      |  <C>     |
January                       (0.73)%  |   0.34%   |  (1.26)%  |  (0.59)%  |   4.62%  |
February                       0.96    |  (0.76)   |   1.20    |  (2.23)   |  (0.63)  |
March                          4.71    |  (1.74)   |  (0.45)   |  (0.81)   |  (0.34)  |
April                         (2.91)   |   0.13    |   1.09    |  (3.44)   |   0.32   |
May                           (1.04)   |   1.48    |  (0.79)   |   0.69    |  (0.78)  |
June                           0.07    |  (1.23)   |   0.37    |   0.23    |   1.93   |
July                          (0.23)   |  (1.43)   |   0.20    |   0.12    |   4.95   |
August                         0.56    |   0.33    |  (0.68)   |   5.48    |  (1.69)  |
September                      0.86    |  (3.01)   |  (1.46)   |   2.13    |  (0.31)  |
October                        4.11    |   0.17    |  (2.73)   |  (0.31)   |  (0.38)  |
November                      (4.87)   |   5.71    |   2.69    |   0.09    |  (0.01)  |
December                      (0.21)   |   5.91    |   0.75    |   0.40    |   1.23   |
Compound Annual                        |           |           |           |          |
Rate of Return                 0.90%   |   5.63%   |   (1.17)% |   1.51%   |   9.02%  |
</Table>


                                       8
<Page>


                  (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 Partnership 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. MLIM AS LLC's trading
leverage policies and the Merrill Lynch guarantee limited Limited Partners'
losses on their Units at the Principle Assurance Date of 20% of the Net Asset
Value of their units as of the beginning of each new Time Horizon. The
Principal Protection feature was discontinued for Sector II Units as of
December 31, 2001.

                  (2) Worst Monthly Drawdown represents the largest negative
Monthly Rate of Return experienced since January 1, 1997 by the SECTOR II Units;
a Drawdown 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, 1997 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
SECTOR II Units during the month of determination (including interest income and
after all expenses have been accrued or paid) divided by the total equity of the
Partnership as of the beginning of such month.

                      THE SECTOR STRATEGY FUND (SM) II L.P.
                                SECTOR III UNITS
                                DECEMBER 31, 2001

   TYPE OF POOL: SELECTED-ADVISOR/PUBLICLY-OFFERED/"NON-PRINCIPAL PROTECTED"(1)
                       INCEPTION OF TRADING: July 5, 1991
                      AGGREGATE SUBSCRIPTIONS: $194,005,000
                       CURRENT CAPITALIZATION: $11,216,929
                    WORST MONTHLY DRAWDOWN(2): (4.87)% (11/01)
              WORST PEAK-TO-VALLEY DRAWDOWN(3): (7.44)% (5/99-12/00)
                                   ----------

              NET ASSET VALUE PER UNIT, DECEMBER 31, 2001: $175.65

<Table>
<Caption>
                            MONTHLY RATES OF RETURN(4)
                            --------------------------
MONTH                          2001    |   2000    |   1999    |    1998   |   1997   |
-----                          ----    |   ----    |   ----    |    ----   |   ----   |
<S>                         <C>        |  <C>      |  <C>      |  <C>      |  <C>     |
January                       (0.73)%  |   0.34%   |  (1.26)%  |   0.03%   |   4.55%  |
February                       0.96    |  (0.76)   |   1.20    |  (1.58)   |   1.56   |
March                          4.71    |  (1.74)   |  (0.45)   |   1.73    |   0.65   |
April                         (2.91)   |   0.13    |   1.09    |  (4.72)   |  (2.29)  |
May                           (1.03)   |   1.48    |  (0.79)   |   1.56    |  (0.54)  |
June                           0.06    |  (1.23)   |   0.37    |   0.08    |   1.14   |
July                          (0.23)   |  (1.43)   |   0.20    |   0.15    |   5.69   |
August                         0.56    |   0.33    |  (0.68)   |   5.47    |  (2.82)  |
September                      0.85    |  (3.01)   |  (1.46)   |   2.14    |   1.03   |
October                        4.11    |   0.17    |  (2.73)   |  (0.31)   |   0.38   |
November                      (4.87)   |   5.71    |   2.69    |   0.07    |   0.82   |
December                      (0.21)   |   5.91    |   0.75    |   0.40    |   2.42   |
Compound Annual
Rate of Return                 0.91%   |   5.63%   |  (1.17)%  |   4.81%   |  12.98%  |
</Table>

                                       9
<Page>


                  (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 Partnership 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. The Principal Protection
feature was discontinued for Sector III Units as of October 31, 2000.

                  (2) Worst Monthly Drawdown represents the largest negative
Monthly Rate of Return experienced since January 1, 1997 by the SECTOR III
Units; a Drawdown 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, 1997 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
SECTOR III Units during the month of determination (including interest income
and after all expenses have been accrued or paid) divided by the total equity of
the Partnership as of the beginning of such month.


ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

ADVISOR SELECTIONS

                  The Partnership's results of operations depend on MLIM AS
LLC's ability to select Advisors and the Advisors' ability to trade profitably.
MLIM AS LLC'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 Partnership's results of operations is its
actual performance record to date. Because of the speculative nature of its
trading, the Partnership's past performance is not necessarily indicative of its
future results.

                  MLIM AS LLC has made and expects to continue making frequent
changes to both trading asset allocations among Advisors and Advisor
combinations.

                  MLIM AS LLC'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 MLIM AS LLC'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 MLIM AS LLC's principals is an
important factor in its asset allocation decisions.

                  MLIM AS LLC 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 Partnership.

                  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


                                       10
<Page>

macroeconomic assessments of the relative strengths of different national
economies or economic sectors are evaluated. Instead, the programs apply
proprietary computer models to analyze 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 Partnership'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 who 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.

PERFORMANCE SUMMARY

                  This performance summary is an outline description of how the
Partnership 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 Partnership.

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

2001

                  During 2001, all of the Partnership's assets were invested in
MM LLC. The Partnership received trading profits as an investor in MM LLC. The
following commentary for 2001 describes the trading results of MM LLC during the
year.

                  Trading in the interest rate sector was the most successful
strategy for 2001. The impact of the weakening U.S. economy and the Federal
Reserve's move to cut interest rates was felt throughout the futures market,
as Euro futures contracts rose dramatically since December 2000. Eurodollar
positions continued to post gains later in the year. Swiss franc short term
interest rate contract trading and short Sterling 500 positions were also
profitable. In October, the U.S. Treasury's announcement to stop issuing 30
year debt, coupled with worldwide governments easing of monetary policy,
benefited long positions across the global yield curve.

                  Despite year long volatility, stock index trading was
profitable. Short positions resulted in gains as global equity markets
remained caught between negative news about corporate earnings, the potential
effects of further monetary easing and the global economic slump would worsen
as an aftermath of the September 11 attacks. The global equity markets
improved by year end, driven by the rebounding technology sector.

                  Agricultural commodities trading was successful despite
losses sustained early in the year. Excellent growing weather in the U.S.,
Argentina and Brazil, concerns about the U.S. export potential and
inventories at historically high levels, kept the markets on the defensive.
The cotton market sank to a 15 year low on short supply and increased demand.
Short corn and cotton positions were profitable at mid year. By October, the
soybean complex posted gains as the crushing capacity tightened up, driving
spreads up to between $0.80-$1.00 in nearby delivery months, crushing spreads
had been near the $0.60 range.

                  Trading in the metals markets was successful. Silver prices
reversed its earlier trend in February, as short positions were profitable.
Silver trading continued to be volatile as China exports were high due to
poor domestic demand, adversely affecting prices. Short positions in base
metals posted gains in October as a weak economic outlook kept prices
depressed. By year end, base metals reversed their downward trend on
expectations of a quick economic recovery, generating losses on short
positions.

                  Currency trading suffered losses for the Partnership. Long
Euro positions realized losses as the Euro fell back to the $0.90 level,
despite strong fundamentals. The further weakening of the Euro and Japanese
yen displayed how the global economy is not immune to the U.S. economic
slowdown. Long British pound positions were profitable in September as it
appreciated versus the U.S. dollar on concerns of the negative economic
implications from the September 11 attacks.

                  Energy trading was the most unprofitable strategy in 2001.
Early on, crude oil prices were driven lower by both a seasonal downturn in
global energy usage and heavier than normal refinery maintenance work,
reducing demand. The sector continued to fade from downside pressure from a
slowing global economy, inventory surplus and OPEC's decision to leave
production levels unchanged. Oil prices sank in the last quarter as traders
feared the attacks would cripple the airline industry, a major consumer of
oil.

2000

                  During 2000, all of the Partnership's assets were invested in
MM LLC. The Partnership received trading profits as an investor in MM LLC. The
following commentary for 2000 describes the trading results of MM


                                       11
<Page>
LLC during the year.

                  The Partnership's overall trading strategy was profitable for
2000. Gains were realized by trading in the interest rate, currency and energy
markets. Losses were sustained in the agricultural, metals and stock index
sectors. Trading was volatile and unprofitable through September, however, gains
realized in the interest rate and currency markets in November and December
eradicated those losses.

                  Interest rate trading was profitable for the Partnership.
Short Eurodollar trading was profitable early in the year as the European Union
ministers blamed the Euro's decline on rapid U.S. growth and fears that the
Federal Reserve would continue to increase interest rates. By mid year, losses
were incurred from U.S. Treasury bond and Euro 10-year bond trading as
investors shifted to Treasuries due to increased volatility in the NASDAQ and
other equity markets. Short Eurodollar turned unprofitable as the Euro improved
after the European Central Bank's 50 basis point repo rate hike. Uncertainty
surrounding the U.S. Presidential election caused investors to favor the bond
markets over equities, resulting in significant gains for the Partnership's
various long positions.

                  Trading in the currency markets was also successful. Short
Euro positions were profitable after officials from the Group of Seven met in
January and failed to express concern about the low levels of the currency.
Despite steep interest rate hikes by the Swiss National Bank ("SNB") and the
general weakness of the Euro, the SNB said it will not keep the Swiss franc from
rising. Short British pound positions were profitable as the pound was weak in
the wake of the Bank of England's references to "sterling overvaluation". Short
Japanese yen trading yielded gains in July as the Japanese yen finished weaker
against the U.S. dollar in anticipation that the U.S. Federal Reserve would
continue to raise interest rates. Short positions in the Canadian dollar
resulted in gains as the currency weakened during November despite worsening
U.S. dollar fundamentals, a large Canadian budget surplus and plans for tax cuts
in Canada.

                  Energy trading was profitable throughout the year as prices
continued to surge. Despite the possibility of OPEC increasing oil
production, crude oil prices continued to rise as such a hike would still
leave oil inventories much below normal. Light crude oil prices continued to
rise in June even though OPEC agreed to increase production on July 1. The
market was looking for a larger production hike. By November, oil prices were
pushed higher as a result of significantly lower temperatures than the
previous year combined with a large inventory deficit.

                  Agriculture trading sustained modest losses for the year. Corn
prices fluctuated early on numerous changes in weather forecasts. A USDA grain
crop report projected a 12% rise in soybean inventories from the previous
season. This led to fears of an abundance of supply, lowering prices. Short
wheat trading was beneficial in July as drought warnings issued in early spring
proved inaccurate. As a result of good global grain and oilseed crops, supply
exceeded demand, resulting in profits in short soyoil positions at year-end.

                  Metals trading alternated between profitability and
unprofitability during the year. Copper trading resulted in losses after a
Freeport, Indonesia mine announced output cuts would not be as severe, damaging
the Partnership's long positions. Gold prices declined for most of 2000 as
investors were discouraged from the drop in the Euro, severe weakness in the
Australian dollar along with sharp decreases in the South African rand and
Indian rupee. Nickel prices declined from slowing demand for stainless steel in
Europe and Asia.

                  Stock index markets trading was unprofitable during a volatile
year. Signs of rising inflation fueled fears that the Federal Reserve would
continue to raise interest rates aggressively to slow the economy. S&P 500
positions sustained losses as buyers retreated due to fears of a U.S. economic
slowdown. Long positions were generally unprofitable throughout the year, with
minimal gains realized from the Partnership's short positions.

1999

                  During 1999, all of the Partnership's assets were invested in
MM LLC. The Partnership received trading profits and losses as an investor in MM
LLC. The following commentary for 1999 describes the trading results of MM LLC
during the year.

                  The Partnership finished 1999 with gains in energy, stock
index and agricultural trading and

                                       12
<Page>

losses in currency, interest rate and metals trading. Commodities spent 1999
in a transition phase, shifting from bearishness to a more neutral position.
Lack of demand, particularly in Asia, was the dominant factor in the overall
decline in commodity prices.

                  Overall, the Partnership profited from trading in crude oil,
heating oil, and unleaded gas in 1999. Positions in crude oil offset losses from
short positions in natural gas and gas oil trading. In March, OPEC ratified new
production cuts totaling 1.716 million barrels per day at its conference, which
resulted in higher prices for crude. In the natural gas markets, prices rallied
sharply resulting from a decline in U.S. natural gas production, along with high
levels of energy consumption and weather scares throughout the country. Near the
end of the year, there was a continued upward momentum in crude oil reflecting
the tightening between supply and demand and a new, higher OPEC-indicated target
price.

                  Stock index trading was profitable for the first half of 1999.
Also of note, the Dow Jones Industrial Average closed above the 10,000 mark for
the first time ever at the end of March, setting a record for the index, and
equity markets rallied worldwide in April and June. In the second half of the
year, the Partnership suffered losses in stock index positions as trading was
mixed due to significant volatility globally. However, there was profitable
trading in Hang Seng, Nikkei 225 and Topix Indices, which resulted in gains
during November and December. Such activity depicted evidence of Japan's
stronger-than-expected recovery coupled with a sudden decline in its
unemployment rate.

                  In agricultural trading, gains in live hogs and live cattle
offset losses in corn positions. Initially, the corn market continued to
struggle due to supply/demand imbalances and ongoing favorable weather in South
America. These factors also led to an increase in prices as there was a sharp
decline in crop ratings during the second half of the year. There was also a
sharp upturn in soy prices, and losses in coffee trading became evident due to
cold temperature and lack of rainfall in Brazil.

                  Currency trading produced losses for the Partnership
throughout the year. Long Japanese yen positions resulted in losses despite the
yen trading higher against the U.S. dollar. The Bank of Japan lowered rates to
keep its economy sufficiently liquid to allow fiscal spending to restore some
growth to the economy and to drive down the surging yen. The European Central
Bank raised the repo rate in November due to inflation pressures. On a
trade-weighted basis, the Swiss franc ended the first quarter to close at a
seven-month low, mostly as a result of the stronger U.S. dollar. The Canadian
dollar also underwent similar fluctuations throughout the year.

                  Interest rate trading was also volatile as the flight to
quality in the bond market reversed during the first half of 1999 and the
Federal Reserve raised interest rates three times during the year. Early in the
year, interest rate trading proved unprofitable for the Partnership, which was
triggered by the Japanese Trust Fund Bureau's decision to absorb a smaller share
of futures issues, leaving the burden of financing future budget deficits to the
private sector. Interest rate trading did gain strength at mid-year as the
flight to quality in the bond market reversed and concerns about higher interest
rates in the U.S. continued to rattle the financial markets. During the third
quarter, Eurodollar trading generated losses amidst speculation of the
probability of a tightening by the U.S. Federal Reserve, which became evident
with the higher interest rates in their November 16 meeting due to concerns of
inflation. In December, the yield on the 30-year Treasury bond recently
surpassed its October high propelled by inflation worries and fears the Federal
Reserve might tighten further in 2000.

                  Metals trading was mixed for the year as gold played a major
part in the volatility of the metals market. Gold had failed to maintain its
status as a safety vehicle and a monetary asset during the first half of 1999.
In early June, gold had reached its lowest level in over 20 years. A major
statement from the president of the European Central Bank stated that the member
banks had agreed not to expand their gold lending. This sent gold prices sharply
higher in late September. Unfortunately, the Partnership held short positions in
gold futures at that time. Gold prices had stabilized in the fourth quarter
following the price surge. Early in the year, burdensome warehouse stocks and
questionable demand prospects weighed on base metals as aluminum fell to a
five-year low and copper fell to nearly an 11-year low. The economic scenario
for Asia, Brazil, Europe and emerging market nations helped to keep copper and
other base metals on the defensive as demand receded with virtually no supply
side response in the second quarter. A substantial increase in Chinese imports
combined with the recovery in the rest of Asia and Europe had significantly
improved demand for aluminum pushing prices higher during December.

                                       13
<Page>

VARIABLES AFFECTING PERFORMANCE

                  The principal variables which determine the net performance of
the Partnership are gross profitability and interest income.

                  During all periods set forth under "Selected Financial
Data," the interest rates in many countries were at unusually low levels. The
interest rates in the United States negatively impacted revenues because
interest income is typically a major component of the Partnership's
profitability. In addition, interest rates are frequently associated with
reduced fixed income market volatility, and in static markets the
Partnership'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 Partnership may be reduced as compared to
high yielding and much lower risk fixed-income investments.

                  The Partnership's Brokerage Commissions and Administrative
Fees are a constant percentage of the Partnership's assets allocated to
trading. The only Partnership costs (other than the insignificant currency
trading costs) which are not based on a percentage of the Partnership's assets
(allocated to trading or total) are the Profit Shares payable to the Advisors
on an Advisor-by-Advisor basis. 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 Partnership between realized and unrealized
profits. Most of the contracts traded by the Partnership, through MM LLC, are
highly liquid and can be closed out at any time.

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

LIQUIDITY; CAPITAL RESOURCES

                  The Partnership 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 Partnership's U.S.
dollar deposits. These borrowings are at a prevailing short-term rate in the
relevant currency. They have been immaterial to the Partnership's operation to
date and are expected to continue to be so.

                  Substantially all of the Partnership's assets are held in
cash. The Net Asset Value of the Partnership'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 Partnership's profit potential generally
increases. Inflation in commodity prices could also generate price movements
which the strategies might successfully follow.

                  Except in very unusual circumstances, the Partnership should
be able to close out any or all of its open trading positions and liquidate any
or all of its contract 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 Partnership's positions and assets, the
Partnership's monthly Net Asset Value calculations are precise, and investors
need only wait ten business days to receive the full redemption proceeds of
their Units.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                  Not applicable.


                                       14
<Page>

ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SELECTED QUARTERLY FINANCIAL DATA
     SECTOR STRATEGY II / III LP

Net Income by Quarter
Eight Quarters through December 31, 2001

<Table>
<Caption>
                             FOURTH          THIRD          SECOND          FIRST
                            QUARTER         QUARTER        QUARTER         QUARTER
                             2001            2001           2001            2001
                             ----            ----           ----            ----
<S>                        <C>            <C>            <C>            <C>
Total Income               $ 154,968      $ 794,457      $ (420,173)    $ 1,749,052
Total Expenses               357,388        578,129         360,394         780,111
                        ---------------------------------------------------------------
Net Income                $ (202,420)     $ 216,328      $ (780,567)      $ 968,941

Net Income per Unit          $ (1.95)        $ 2.03         $ (7.00)         $ 8.26

<Caption>
                              FOURTH         THIRD           SECOND          FIRST
                             QUARTER        QUARTER         QUARTER         QUARTER
                              2000            2000           2000            2000
                              ----            ----           ----            ----
<S>                       <C>             <C>              <C>              <C>
Total Income              $ 3,252,347     $ (494,430)      $ 647,135        $ 49,178
Total Expenses                917,834        451,391         549,866         615,270
                        -------------------------------------------------------------
Net Income                $ 2,334,513     $ (945,821)       $ 97,269      $ (566,092)

Net Income per Unit           $ 17.83        $ (6.48)         $ 0.63         $ (3.38)
</Table>


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

                  The supplementary financial information ("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.


                                       15
<Page>


                                    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 MLIM AS LLC. Trading decisions are made
by the Advisors is on behalf of the Partnership. MLIM AS LLC promotes the
Partnership and is its controlling person.

                  The managers and executive officers of MLIM AS LLC and their
respective business backgrounds are as follows:

FABIO P. SAVOLDELLI        Chairman, Chief Executive Officer and Manager

ROBERT M. ALDERMAN         Manager

FRANK M. MACIOCE           Vice President and Manager

STEVEN B. OLGIN            Vice President, Chief Administrative Officer and
                           Manager

MICHAEL L. PUNGELLO        Vice President, Chief Financial Officer and Treasurer

                  Fabio P. Savoldelli was born in 1961. Mr. Savoldelli is
Chairman, Chief Executive Officer and a Manager of MLIM AS LLC. He oversees
the Partnership's investments. Most recently, Mr. Savoldelli was Chief
Investment Officer for the Americas at the Chase Manhattan Private Bank,
responsible for managers investing assets in international and domestic
institutional, private client and ERISA funds. Previously, he was Deputy
Chief Investment Officer and Head of Fixed Income and Foreign Exchange at
Swiss Bank Corp. London Portfolio Management International. Mr. Savoldelli
was educated at the University of Windsor, Canada, and the London School of
Economics.

                  Effective March 1, 2002, Mr. Robert M. Alderman was elected
a manager of MLIM AS LLC.  Mr. Alderman was born in 1960.  Mr. Alderman is a
Managing Director of MLIM and global head of Retail Sales and Business
Management for Alternative Investments.  Prior to re-joining Merrill Lynch
and the International Private Client Group in 1999, he was a partner in the
Nashville, Tennessee based firm of J.C. Bradford & Co. where he was the
Director of Marketing, and a National Sales Manager for Prudential
Investments.  Mr. Alderman first joined Merrill Lynch in 1987 where he worked
until 1997.  During his tenure at Merrill Lynch, Mr. Alderman has held
positions in Financial Planning, Asset Management and High Net Worth
Services.  He received his Master's of Business Administration from the
Carroll School of Management Boston College and a Bachelor of Arts from
Clark University. Mr. Alderman was elected as a Manager effective
March 1, 2002.

                  Frank M. Macioce was born in 1945. Mr. Macioce is a Vice
President and a Manager of MLIM AS LLC and the senior legal counsel responsible
for Alternative Investments. He joined MLIM in February 2000. From 1995 to 2000,
Mr. Macioce was General Counsel of Operations, Services and Technology for
Merrill Lynch, and from 1993 to 1995 served as Merrill Lynch Investment Banking
General Counsel. From 1980 to 1993 he served as Assistant General Counsel of
Merrill Lynch responsible for Corporate Law. During his 28 years with Merrill
Lynch, he has served as a director and officer of a number of its affiliates.
Mr. Macioce graduated from Purdue University with a Bachelor of Science in
Economics and Psychology in 1967 and from Vanderbilt Law School with a Juris
Doctor in 1972. Mr. Macioce is a member of the New York Bar.

                  Steven B. Olgin was born in 1960. Mr. Olgin is a Vice
President, Chief Adminstrative Officer and a Manager of MLIM AS LLC. He
joined MLIM AS LLC 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 in Business Administration and a Bachelor of Arts
in Economics. In 1986, he received his Juris Doctor 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
National Futures Association. Mr. Olgin is a member of the Illinois Bar.

                  Michael L. Pungello was born in 1957. Mr. Pungello is a Vice
President, Chief Financial Officer and Treasurer of MLIM AS LLC. 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 in
Accounting and received his Master's of Business Administration in Finance from
New York University in 1987.

                  As of December 31, 2001, the principals of MLIM AS LLC had no
investment in the Partnership, and MLIM AS LLC's general partner interest in the
Partnership was valued at $191,890.

                  MLIM AS LLC acts as general partner to eleven public futures
funds whose units of limited


                                       16
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partnership interest are registered under the Securities Exchange Act of 1934:
The Futures Expansion Fund Limited Partnership, ML Futures Investments II L.P.,
ML Futures Investments L.P., John W. Henry & Co./Millburn L.P., The SECTOR
Strategy Fund (SM) L.P., The SECTOR Strategy Fund (SM) V L.P., The SECTOR
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 Partnership. Because MLIM AS
LLC serves as the sole general partner of each of these funds, the officers and
managers of MLIM AS LLC 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 Items 10(a) and (b) above.

         (f)      INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS:

                  None.

         (g)      PROMOTERS AND CONTROL PERSONS:

                  Not applicable.

ITEM 11:  EXECUTIVE COMPENSATION

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

ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         (a)      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS:

                  As of December 31, 2001, 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, 2001, MLIM AS LLC owned 406 SECTOR II
Units and 706 SECTOR III Units (unit-equivalent general partnership
interests), which was less than 1.1% of the total Units outstanding.

         (c)      CHANGES IN CONTROL:

                  None.

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         (a)      TRANSACTIONS BETWEEN MERRILL LYNCH AND THE PARTNERSHIP


                                       17
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                  All of the service providers to the Partnership, other than
the Advisors, are affiliates of Merrill Lynch. Merrill Lynch negotiated with the
Advisors over the level of their advisory fees and Profit Shares. However, none
of the fees paid by the Partnership to any Merrill Lynch party were negotiated,
and they are higher than would have been obtained in arms-length bargaining.

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

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

                  No loans have been, are or will be outstanding between MLIM AS
LLC or any of its principals and the Partnership.

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

         (b)      CERTAIN BUSINESS RELATIONSHIPS:

                  MLPF&S, an affiliate of MLIM AS LLC, acts as the principal
commodity broker for the Partnership.

                  In 2001, the Partnership, through MM LLC, expensed the
following fees: (i) Brokerage Commissions of $1,655,537 to MLPF&S, which
included $248,893 in consulting fees earned by the Advisors; and (ii)
Administrative Fees of $47,301 to MLIM AS LLC. In addition, MLIM AS LLC and its
affiliates may have derived certain economic benefits from possession of the
Partnership'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 MLIM AS LLC 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.


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<Page>


                                     PART IV

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

<Table>
<Caption>
         (a)1.    FINANCIAL STATEMENTS:                                                   PAGE
                  ---------------------                                                   ----
                  <S>                                                                     <C>
                  Independent Auditors' Report                                               1

                  Financial Statements:

                  Statements of Financial Condition as of December 31, 2001 and 2000         2

                  Statements of Operations For the years ended December 31, 2001,
                  2000 and 1999                                                              3

                  Statements of Changes in Partners' Capital For the years ended
                  December 31, 2001, 2000 and 1999                                           4

                  Financial Data Highlights for the year ended December 31, 2001             5

                  Notes to Financial Statements                                           6-13
</Table>

         (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,
                           MLIM Alternative Strategies LLC, MLPF&S and each
                           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 Advisor
                           of the Partnership and MLPF&S.

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


                                       19
<Page>


10.03(a)                   Form of Customer Agreement between the Partnership
                           and MLPF&S.

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, MLIM Alternative
                           Strategies LLC, MLPF&S and the Partnership.

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 MLIM Alternative Strategies LLC, each Advisor,
                           the Partnership and MLPF&S.

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 MLPF&S.

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                      2001 Annual Report and Independent Auditors' Report.

EXHIBIT 13.01:             Is filed herewith.

13.01 (a)                  2001 Annual Report and Independent Auditors' Report
                           for the following Trading Limited Liability Company
                           sponsored by MLIM Alternative Strategies 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
2001.


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<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 SECTOR STRATEGY FUND (SM) II L.P.

                       By:  MLIM ALTERNATIVE STRATEGIES LLC
                       (formerly Merrill Lynch Investment Partners Inc.)
                            General Partner

                      By: /s/ FABIO P. SAVOLDELLI
                          -----------------------
                                Fabio P. Savoldelli
                                Chairman, Chief Executive Officer and Manager
                                (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 29, 2002, by the
following persons on behalf of the Registrant and in the capacities indicated.

<Table>
<Caption>
SIGNATURE                           TITLE                                                        DATE
---------                           -----                                                        ----

<S>                                 <C>                                                          <C>
/s/FABIO P. SAVOLDELLI              Chairman Chief Executive Officer and Manager                 March 29, 2002
----------------------              (Principal Executive Officer)
Fabio P. Savoldelli

/s/ROBERT M. ALDERMAN               Manager                                                      March 29, 2002
---------------------
Robert M. Alderman

/s/STEVEN B. OLGIN                  Vice President, Chief Administrative Officer and Manager     March 29, 2002
------------------
Steven B. Olgin

/s/MICHAEL L. PUNGELLO              Vice President, Chief Financial Officer and Treasurer        March 29, 2002
----------------------              (Principal Financial and Accounting Officer)
Michael L. Pungello

(Being the principal executive officer, the principal financial and accounting
officer and a majority of the managers of MLIM Alternative Strategies LLC)

MLIM ALTERNATIVE STRATEGIES         General Partner of Registrant                                March 29, 2002
   LLC
</Table>

By/s/ FABIO P. SAVOLDELLI
  -----------------------
      Fabio P. Savoldelli


                                       21
<Page>


                      THE SECTOR STRATEGY FUND (SM) II L.P.

                                 2001 FORM 10-K

                                INDEX TO EXHIBITS

                                     EXHIBIT


Exhibit 13.01              2001 Annual Report and Independent Auditors' Report

Exhibit 13.01(a)           2001 Annual Report and Independent Auditors' Report
                           for the following Trading Limited Liability Company
                           sponsored by MLIM Alternative Strategies LLC:
                           ML Multi-Manager Portfolio LLC


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