<PAGE>

                                                                   Exhibit 13.01



                    The SECTOR STRATEGY FUND/SM/ II 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 SECTOR STRATEGY FUND/SM/ II L.P.
(A Delaware Limited Partnership)
 ------------------------------


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

                                                Page

                                                ----

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                 5-13
<PAGE>

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



To the Partners of
 The SECTOR Strategy Fund/SM/ II L.P.:

We have audited the accompanying statements of financial condition of The SECTOR
Strategy Fund/SM/ II 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 SECTOR Strategy Fund/SM/ II 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 SECTOR STRATEGY FUND/SM/ II 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 7)                                       $  28,036,376       $   33,791,182
Receivable from investments (Note 7)                             516,693              662,200
                                                           --------------      ---------------

                TOTAL                                      $  28,553,069       $   34,453,382
                                                           ==============      ===============

LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES:
   Redemptions payable                                     $     516,693       $      662,200
                                                           --------------      ---------------

            Total liabilities                                    516,693              662,200
                                                           --------------      ---------------

PARTNERS' CAPITAL:
   General Partner:
      (832 and 832 SECTOR II Units)                              130,524              132,067
      (1,595 and 1,595 SECTOR III Units)                         262,815              265,921
   Limited Partners:
      (54,878 and 66,576 SECTOR II Units)                      8,609,354           10,567,998
      (115,514 and 136,907 SECTOR III Units)                  19,033,683           22,825,196
                                                           --------------      ---------------

            Total partners' capital                           28,036,376           33,791,182
                                                           --------------      ---------------

                TOTAL                                      $  28,553,069       $   34,453,382
                                                           ==============      ===============

NET ASSET VALUE PER UNIT:

    SECTOR II Units (Based on 55,710 and 67,408
    Units outstanding)                                     $      156.88       $       158.74
                                                           ==============      ===============

    SECTOR III Units (Based on 117,109 and 138,502
    Units outstanding)                                     $      164.77               166.72
                                                           ==============      ===============
</TABLE>
 See notes to financial statements.

                                      -2-
<PAGE>

THE SECTOR STRATEGY FUND/SM/ II 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)                                   $          -      $    1,169,961      $    4,629,434
        Change in unrealized (Note 1)                                  -            (671,259)             98,218
                                                            -------------     ---------------     ---------------

            Total trading results                                      -             498,702           4,727,652

    Interest income (Note 2)                                           -             598,158           1,551,360
                                                            -------------     ---------------     ---------------

            Total revenues                                             -           1,096,860           6,279,012
                                                            -------------     ---------------     ---------------

EXPENSES:

    Brokerage commissions (Note 2)                                     -           1,015,128           2,732,838
    Profit Shares (Note 3)                                             -             301,645             530,099
    Administrative fees (Note 2)                                       -              29,004              78,081
                                                            -------------     ---------------     ---------------

            Total expenses                                             -           1,345,777           3,341,018
                                                            -------------     ---------------     ---------------

INCOME (LOSS) FROM INVESTMENTS (Note 7)                         (378,712)          1,406,243           1,708,985
                                                            -------------     ---------------     ---------------

NET INCOME (LOSS)                                           $   (378,712)     $    1,157,326      $    4,646,979
                                                            =============     ===============     ===============
</TABLE>

For weighted average net income (loss) per Unit for SECTOR II Units and SECTOR
III Units see Note 4.

See notes to financial statements.

                                      -3-
<PAGE>

THE SECTOR STRATEGY FUND/SM/ II 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                     General Partner              Limited Partners
                      -------------------------      --------------------------    -----------------------------

                       SECTOR II     SECTOR III       SECTOR II      SECTOR III      SECTOR II       SECTOR III      Total
                      ----------    -----------      ----------     -----------     ------------   ------------   ------------
<S>                   <C>           <C>              <C>            <C>             <C>            <C>            <C>
PARTNERS' CAPITAL,
  DECEMBER 31, 1996     106,070        194,467       $    307,633   $   549,638     $ 14,904,769   $ 26,822,065   $ 42,584,105

Redemptions             (17,625)       (25,781)             --             --         (2,692,322)    (3,888,305)    (6,580,627)

Net income                 --             --               27,776        71,244        1,282,074      3,265,885      4,646,979
                      ----------    -----------      ------------   -----------     -------------  -------------    ------------

PARTNERS' CAPITAL,
  DECEMBER 31, 1997      88,445        168,686            335,409       620,882       13,494,521     26,199,645     40,650,457

Redemptions             (21,037)       (30,184)          (192,459)     (355,953)      (3,011,647)    (4,456,542)    (8,016,601)

Net income (loss)          --             --              (10,883)          992           85,124      1,082,093      1,157,326
                      ----------    -----------      ------------   -----------     ------------   ------------    ------------

PARTNERS' CAPITAL,
  DECEMBER 31, 1998      67,408        138,502            132,067       265,921       10,567,998     22,825,196     33,791,182

Redemptions             (11,698)       (21,393)             --            --          (1,842,204)    (3,533,890)    (5,376,094)

Net loss                   --             --               (1,543)       (3,106)        (116,440)      (257,623)      (378,712)
                      ----------    -----------      ------------   -----------     ------------   ------------   ------------

PARTNERS' CAPITAL,
  DECEMBER 31, 1999      55,710        117,109       $    130,524   $   262,815     $  8,609,354   $ 19,033,683   $ 28,036,376
                      ==========    ===========      ============   ===========     ============   ============   ============
</TABLE>
See notes to financial statements.

                                      -4-
<PAGE>

THE SECTOR STRATEGY FUND/SM/ II L.P.
(A Delaware Limited Partnership)
 ------------------------------

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

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

  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
  commenced trading activities on December 5, 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. The Partnership
  raised $136,410,000 for its initial capitalization ("SECTOR II Units") and
  raised an additional $194,005,000 in a second offering of Units of limited
  partnership interest ("SECTOR III Units"; SECTOR II and SECTOR III Units being
  collectively referred to as "Units") and commenced trading activities with
  respect to its SECTOR III Units on July 5, 1991. 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
  L.L.C. ("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.

  Prior to June 1998, the Partnership invested in Trading LLC's (see discussion
  in Note 7). Sector II Units and Sector III Units were permitted to invest in
  different Trading LLC's.

  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 Fund'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 6).

                                      -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 7 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 expenses (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 day's 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 of .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 $52 and $63, 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 net 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. INCOME PER UNIT

   The profit and loss of the SECTOR II and SECTOR III Units for the years
   ended December 31, 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
                                                             SECTOR II UNITS                            SECTOR III UNITS
                                                            -----------------                          ------------------
                                                    1999          1998           1997           1999          1998          1997
                                                 -----------   -----------   ------------    ----------   ------------   -----------
<S>                                              <C>          <C>           <C>             <C>          <C>            <C>
REVENUES:

Trading (loss) profit:
     Realized (Note 1)                           $        -    $ (260,351)   $ 1,765,544     $       -    $ 1,430,312    $ 2,863,890
     Change in unrealized (Note 1)                        -      (104,914)      (106,339)            -       (566,345)       204,557
                                                 -----------   -----------   ------------    ----------   ------------   -----------

        Total trading results                             -      (365,265)     1,659,205             -        863,967      3,068,447

Interest income (Note 2)                                  -       238,969        640,195             -        359,189        911,165
                                                 -----------   -----------   ------------    ----------   ------------   -----------

     Total revenues                                       -      (126,296)     2,299,400             -      1,223,156      3,979,612
                                                 -----------   -----------   ------------    ----------   ------------   -----------
EXPENSES:

Brokerage commissions (Note 2)                            -       403,960      1,130,850             -        611,168      1,601,988
Administrative fees (Note 2)                              -        11,542         32,310             -         17,462         45,771
Profit Shares (Note 3)                                    -           517        129,719             -        301,128        400,380
                                                 -----------   -----------   ------------    ----------   ------------   -----------

     Total expenses                                       -       416,019      1,292,879             -        929,758      2,048,139
                                                 -----------   -----------   ------------    ----------   ------------   -----------

INCOME (LOSS) FROM INVESTMENTS (Note 7)            (117,983)      616,556        303,329      (260,729)       789,687      1,405,656
                                                 -----------   -----------   ------------    ----------   ------------   -----------

NET INCOME (LOSS)                                $ (117,983)   $   74,241    $ 1,309,850     $(260,729)   $ 1,083,085    $ 3,337,129
                                                 ===========   ===========   ============    ==========   ============   ===========

NET INCOME (LOSS) PER UNIT:

Weighted average number of General Partner
and Limited Partner Units outstanding (Note 5)       61,592        71,181         98,187       129,329        142,671        179,541
                                                 ===========   ===========   ============    ==========   ============   ===========

Weighted average net income (loss) per Unit      $    (1.92)   $     1.04    $     13.34     $   (2.02)        $ 7.59        $ 18.59
                                                 ===========   ===========   ============    ==========   ============   ===========
</TABLE>

See notes to financial statements

                                      -8-
<PAGE>

5. WEIGHTED AVERAGE UNITS

   The weighted average number of Units outstanding was computed for purposes of
   disclosing net income per weighted average Unit. The weighted average number
   of Units outstanding 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.

6. MERRILL LYNCH &  CO., INC. GUARANTEE

   Merrill Lynch has guaranteed to the Partnership that it will have sufficient
   Net Assets with respect to SECTOR II and SECTOR III Units as of their
   respective Principal Assurance Dates, that the Net Asset Value per Unit as of
   such Principal Assurance Dates will equal, after adjustment for all
   liabilities to third parties, not less than the minimum assured Net Asset
   Value per Unit. Effective January 1, 1998, the Partnership restarted its
   trading program for SECTOR II Units for an additional Time Horizon of two
   years' duration, with a new Principal Assurance Date of December 31, 1999 and
   a minimum assured Net Asset Value per Unit of $125.10. On January 1, 2000,
   the Fund restarted its trading program for a fourth Time Horizon of two years
   duration, with a new Principal Assurance Date of December 31, 2001. The
   assured minimum Net Asset Value per unit as of December 31, 2001 is $125.50.
   Effective November 1, 1998, the Partnership restarted its trading program for
   SECTOR III Units with a third Time Horizon, as defined, of two years'
   duration, and a new Principal Assurance Date of October 31, 2000 and a
   minimum assured Net Asset Value per unit of $132.74.

7. 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 LLCs 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. The resulting difference between
   cost and fair value is reflected on the Statements of Operations as Income
   (loss) from investments.

                                      -9-
<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>
SECTOR II Units
---------------
MM LLC               $ 806,617       $ 854,560         $ 24,416         $ 45,624          $ (117,983)
                   ------------   -------------    -------------      -----------    --------------------


SECTOR III Units
----------------
MM LLC             $ 1,777,514     $ 1,884,683         $ 53,848         $ 99,712          $ (260,729)
                   ------------   -------------    -------------      -----------    --------------------


Total All Units
---------------
MM LLC             $ 2,584,131     $ 2,739,243         $ 78,264        $ 145,336          $ (378,712)
                   ============   =============    =============      ===========    ====================

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

SECTOR II Units
---------------
JWH LLC             $ (222,268)       $ 71,032          $ 2,030              $ -          $ (295,330)
MM LLC               1,792,563         596,814           17,052          266,811             911,886
                   ------------   -------------    -------------      -----------    --------------------

Total              $ 1,570,295       $ 667,846         $ 19,082        $ 266,811           $ 616,556
                   ============   =============    =============      ===========    ====================

SECTOR III Units
----------------
JWH LLC             $ (711,701)      $ 228,238          $ 6,521              $ -          $ (946,460)
Millburn LLC           (31,859)        106,408            3,040              100            (141,407)
MM LLC               3,727,049       1,244,165           35,548          569,782           1,877,554
                   ------------   -------------    -------------      -----------    --------------------

Total              $ 2,983,489     $ 1,578,811         $ 45,109        $ 569,882           $ 789,687
                   ============   =============    =============      ===========    ====================

Total All Units
---------------
JWH LLC             $ (933,969)      $ 299,270          $ 8,551              $ -        $ (1,241,790)
Millburn LLC           (31,859)        106,408            3,040              100            (141,407)
MM LLC               5,519,612       1,840,979           52,600          836,593           2,789,440
                   ------------   -------------    -------------      -----------    --------------------

Total              $ 4,553,784     $ 2,246,657         $ 64,191        $ 836,693         $ 1,406,243
                   ============   =============    =============      ===========    ====================
</TABLE>

                                      -10-
<PAGE>

<TABLE>
<CAPTION>

For the year ended    Total         Brokerage      Administrative       Profit           Income from
December 31, 1997    Revenues      Commissions         Fees             Shares           Investments
------------------ ------------   -------------    -------------      -----------    --------------------
<S>               <C>            <C>               <C>               <C>            <C>
SECTOR II Units
---------------
JWH LLC              $ 537,094       $ 193,763          $ 5,535         $ 34,467           $ 303,329
                   ============   =============    =============      ===========    ====================

SECTOR III Units
----------------
JWH LLC            $ 1,694,378       $ 526,322         $ 15,038        $ 127,575         $ 1,025,443
Millburn LLC           775,215         293,884            8,397           92,721             380,213
                   ------------   -------------    -------------      -----------    --------------------

Total              $ 2,469,593       $ 820,206         $ 23,435        $ 220,296         $ 1,405,656
                   ============   =============    =============      ===========    ====================

Total All Units
---------------
JWH LLC            $ 2,231,472       $ 720,085         $ 20,573        $ 162,042         $ 1,328,772
Millburn LLC           775,215         293,884            8,397           92,721             380,213
                   ------------   -------------    -------------      -----------    --------------------

Total              $ 3,006,687     $ 1,013,969         $ 28,970        $ 254,763         $ 1,708,985
                   ============   =============    =============      ===========    ====================
</TABLE>

    Condensed statements of financial condition and statements of operations for
    MM LLC, JWH LLC and Millburn 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
               ===============    =================


                                  For the period from
              For the year ended    June 1, 1998 to
               December 31, 1999   December 31, 1998
               -----------------   ------------------

Revenues          $ 9,090,190       $ 19,255,343

Expenses           10,152,017          9,491,842
               ---------------    ---------------
Net Income
(Loss)           $ (1,061,827)       $ 9,763,501
               ===============    ===============
</TABLE>
<TABLE>
<CAPTION>

                   JWH LLC             Millburn LLC
              For the period from   For the period from       JWH LLC           Millburn LLC
              January 1, 1998 to    January 1, 1998 to    For the year ended  For the year ended
                 May 31, 1998       May 31, 1998          December 31, 1997   December 31, 1997
              -------------------  --------------------   ------------------  ------------------
<S>           <C>                  <C>                  <C>             <C>
Revenues          $ 1,391,001        $ 3,593,650           $ 15,279,401          $ 8,303,430

Expenses            4,069,362          3,108,411              6,714,041            4,600,706
              -------------------  --------------------   ------------------  ------------------

Net Income (Loss)$ (2,678,361)         $ 485,239            $ 8,565,360          $ 3,702,724
              ===================  ====================   ==================  ==================
</TABLE>

                                      -11-
<PAGE>

8. 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 is 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 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-
   concentrations. 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.

   One important aspect of 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
   (Both Sector II and Sector III Units) will equal no less than a specified
   minimum as of the Principal Assurance Date (See Note 6).

   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

                                      -12-
<PAGE>

  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 SECTOR Strategy Fund/SM/ II L.P.

                                      -13-