<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, 1999
                                      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 Merrill Lynch Investment Partners Inc.
                          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, 2000, limited partnership units with an aggregate value of
$26,774,334 were outstanding and held by non-affiliates.

                      Documents Incorporated by Reference

The registrant's "1999 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 1999,
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 1999 ON FORM 10-K


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

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

Item 3.     Legal Proceedings....................................................................     7

Item 4.     Submission of Matters to a Vote of Security Holders..................................     7

                                                   PART II
                                                   -------

Item 5.     Market for Registrant's Common Equity and Related Stockholder Matters................     7

Item 6.     Selected Financial Data..............................................................     8

Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations    12

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk...........................    16

Item 8.     Financial Statements and Supplementary Data..........................................    21

Item 9      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.    21

                                                  PART III
                                                  --------

Item 10.    Directors and Executive Officers of the Registrant...................................    21

Item 11.    Executive Compensation...............................................................    23

Item 12.    Security Ownership of Certain Beneficial Owners and Management.......................    23

Item 13.    Certain Relationships and Related Transactions.......................................    23

                                                  PART IV
                                                  -------

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K........................    25
</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") commenced operations on July 5, 1991.
Units may be redeemed as of the end of each calendar month. The Partnership
engages (currently, through an investment in a limited liability company (see
below)) in the speculative trading of a portfolio of futures, options on
futures, forwards and options on forward contracts and related options in the
currencies, interest rates, stock indices, metals, agricultural and energy
sectors of the world futures markets. The Partnership's objective is achieving,
through speculative trading, substantial capital appreciation over time, while
also assuring investors of at least a predetermined minimum Net Asset Value per
Unit as of the Principal Assurance Date.

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

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

               In addition to its investment in MM LLC, the Partnership
maintains a cash account. From time to time, MLIP allocates and reallocates
Partnership assets among its investment in MM LLC and cash accounts in an
attempt to increase profit potential while limiting the downside risks
associated with futures and forward trading (in order to prevent ML&Co. from
incurring any obligations under its guarantee of a minimum Net Asset Value per
Unit, as described below). Initially, MLIP allocated approximately 30% of the
Partnership's assets in each of the SECTOR II and SECTOR III portions to cash
and approximately 70% to trading. Since June 1, 1998, 100% has been invested in
MM LLC for the SECTOR II Units and for the SECTOR III Units.

               As of December 31, 1999, the Partnership's SECTOR II Unit
capitalization was $8,739,879, the Partnership's SECTOR III Unit capitalization
was $19,296,497, the Net Asset Value of a SECTOR II Unit sold as of December
5, 1990 for $100 was $156.88 and the Net Asset Value of SECTOR III Unit sold as
of July 5, 1991 for $100 was $164.77.

                                       1
<PAGE>

               ML&Co. guarantees that the Net Asset Value per Unit will equal at
least $125.50 as of December 31, 2001 for SECTOR II Units and at least $132.74
as of October 31, 2000 for SECTOR III Units (the "Principal Assurance Dates").
The initial Principal Assurances Dates for the SECTOR II Units and SECTOR III
Units were December 31, 1995 and September 30, 1996, respectively, at which time
the minimum Net Asset Value per Unit guaranteed by ML&Co. was $100 per Unit.  As
of January 1, 1996, the Fund restarted the trading program for SECTOR II Units,
setting a new Time Horizon of two years in duration with a second Principal
Assurance Date of December 31, 1997 and a minimum assured Net Asset Value of
$100.12. As of October 1, 1996, the Fund restarted the trading program for the
SECTOR III Units also setting a new Time Horizon of two years in duration, with
a second Principal Assurance Date of September 30, 1998 and a minimum assured
Net Asset Value of $100.92.  As of January 1, 1998, the Fund restarted the
trading program for SECTOR II Units, setting a new Time Horizon of two years in
duration with a third Principal Assurance Date of December 31, 1999 and a
minimum assured Net Asset Value of $125.10.  As of November 1, 1998, the Fund
restarted the trading program for SECTOR III Units, setting a new Time Horizon
of two years in duration with a third Principal Assurance Date as of October 31,
2000 and a minimum assured Net Asset Value of $132.74.  As of January 1, 2000,
the Fund restarted its trading program for SECTOR II Units, setting a new Time
Horizon of two years in duration with a fourth Principal Assurance Date of
December 31, 2001.  This guarantee does not prevent substantial investor losses,
but rather serves only as a form of "stop-loss," limiting the maximum loss which
investors who retain their Units until the Principal Assurance Date can incur.
MLIP will manage the percentage of assets allocated to trading so as to minimize
the likelihood that payments will be required to be made by ML&Co. pursuant to
the guarantee. As a result, the assets allocated to trading may be reduced or
eliminated if the present value of the guaranteed payments ($100 principal and
all remaining annual fixed-rate dividends) approaches the current value of the
assets in the Fund. If the spread between such present and current values
widens, the assets allocated to trading will increase. The determination of the
percentage of assets allocated to trading is affected by the performance of the
Fund, the level of interest rates used in determining the present value and the
time remaining to the Principal Assurance Date.

               Through December 31, 1999 the highest month-end Net Asset Value
per SECTOR II and SECTOR III Units was $159.63 (April 30, 1999) and $167.65
(April 30, 1999), respectively, and the lowest $98.68 (January 31, 1991) and
$97.74 (May 31, 1992), respectively. The Partnership does not engage in the sale
of goods or services.

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

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

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

               General

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

               MLIP is the Partnership's trading manager, with responsibility
for selecting Advisors to manage MM LLC's assets, allocating and reallocating MM
LLC's assets among different Advisors and determining the percentage of the
Partnership's assets committed to trading from time to time.

               Considered as a whole, the Fund trades in a diversified
range of international markets. Certain of the Advisors, considered
individually, concentrate primarily on trading in a limited portfolio of
markets. The composition of the "sectors" included in the Partnership's
portfolio varies substantially over time.

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

               One of the objectives of the Fund is to provide diversification
for a limited portion of the risk segment of the Limited Partners' portfolios.
Commodity pool performance has historically demonstrated a low degree of
performance correlation with traditional stock and bond holdings. Since it began
trading, the Fund's returns have, in fact, frequently been significantly non-
correlated with the United States stock and bond markets.

                                       2
<PAGE>

               ML&Co.'s "Principal Protection" Undertaking to the Fund

               ML&Co., the parent company of the Merrill Lynch organization,
which includes MLIP and MLF, has agreed to contribute sufficient capital to the
Partnership so that it will have adequate funds, after adjustment for all
liabilities to third parties, that the Net Asset Value per SECTOR II and SECTOR
III Unit, respectively, will be no less than $125.50 or $132.74 as of their
respective fourth and third Principal Assurance Dates. This guarantee, which is
effective only as of the Principal Assurance Date, is a guarantee only of the
minimum assured Net Asset Value (plus distributions, if any), not against the
loss of the time value of such investment or a guarantee of profit. This
guarantee is a general, unsecured obligation of ML&Co.

               Operation of the Partnership after the Fourth and Third Principal
Assurance Dates

               When the Fund reached the first Principal Assurance Dates for the
SECTOR II and SECTOR III Units, respectively, MLIP "restarted" the Fund's
trading program and the ML&Co. guarantee for a two-year period ending December
31, 1997 and September 30, 1998, respectively. When the Fund had reached
Principal Assurance Dates for the SECTOR II and SECTOR III Units, MLIP
"restarted" the Fund's trading program and the ML&Co. guarantee for two-year
period. MLIP may determine to terminate the Partnership's operations with
respect to either or both of the SECTOR II or SECTOR III Units as of their
fourth and third Principal Assurance Dates, respectively, to extend the ML&Co.
guarantee for a certain period of time (again resetting the minimum Net Asset
Value per Unit guaranteed by ML&Co.) or to continue to operate the Fund without
a "principal protection" feature. All investors will be given notice no later
than 45 days prior to the Principal Assurance Date for their Units as to what
the operation of the Fund (if any) will be with respect to such Units after such
current Principal Assurance Date.

               Use of Proceeds and Interest Income

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

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

               Many of the Fund's currency trades are executed in the
spot and forward foreign exchange markets (the "FX Markets") where there are no
direct execution costs. Instead, the participants, banks and dealers, in the FX
Markets take a "spread" between the prices at which they are prepared to buy and
sell a particular currency and such spreads are built into the pricing of the
spot or forward contracts with the Partnership.

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

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

                                       3
<PAGE>

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

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

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

                               ________________

               Charges

          The following table summarizes the charges incurred by the Fund during
1999, 1998 and 1997.

<TABLE>
<CAPTION>
                             1999                            1998                         1997
                ------------------------------------------------------------------------------------------
                                       % of                         % of                         % of
                                      Average                      Average                      Average
                    Dollar           Month End       Dollar       Month End       Dollar       Month End
    Cost            Amount          Net Assets       Amount      Net Assets       Amount      Net Assets
----------------------------------------------------------------------------------------------------------
<S>             <C>                 <C>            <C>           <C>            <C>           <C>
Brokerage        $        -             0.00%      $1,015,128        2.79%      $2,732,838        6.56%
Commissions
Administrative            -             0.00%          29,004        0.08%          78,081        0.19%
Expenses
Profit Shares             -             0.00%         301,645        0.83%         530,099        1.27%
                ------------------------------------------------------------------------------------------
Total            $        -             0.00%      $1,345,777        3.70%      $3,341,018        8.02%
                ==========================================================================================
</TABLE>

                             ____________________

               Brokerage Commissions and Administrative Fees and Profit Shares
are not representative of the actual amounts paid by the Fund, because the Fund
paid the bulk of these fees as an investor in the Trading LLCs or in MM LLC. See
"Description of Current Charges." During 1999, the Fund had 100% of its assets
invested in MM LLC.

                                       4
<PAGE>

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

               The Fund's SECTOR II Units average month-end Net Assets during
1999, 1998 and 1997 equaled $9,538,889, $11,959,856, and $14,791,387,
respectively.

               The Fund's SECTOR III Units average month-end Net Assets during
1999, 1998 and 1997 equaled $21,081,593, $24,385,480, and $26,871,244,
respectively.

               Interest income does not represent the actual amounts received by
the Fund since the bulk of the interest was received by the Fund as an interest
in the Trading LLCs of MM LLC.

               During 1998 and 1997, the Fund's SECTOR II Units earned $238,969
and $640,195 in interest income, or approximately 2.00% and 4.33% of the Fund's
average month-end Net Assets. During 1998 and 1997, the Fund's SECTOR III Units
earned $359,189 and $911,165 in interest income, or approximately 1.47% and
3.39% of the Fund's average month-end Net Assets.

               The variations in charges are primarily due to placing assets in
Trading LLCS and MM LLC (See Item 7).

                        Description of Current Charges

<TABLE>
<CAPTION>
Recipient           Nature of Payment        Amount of Payment
---------           -----------------        -----------------
<S>                 <C>                      <C>
MLF                 Brokerage Commissions    A flat-rate monthly commission of 0.7291 of 1% (an
                                             8.75% annual rate) of the SECTOR III and SECTOR II
                                             month-end assets committed to trading.  As of
                                             December 31, 1999 approximately 100% of the SECTOR II
                                             and the SECTOR III assets were allocated to trading.

                                             During 1999, the Fund paid round-turn
                                             commissions through its investment in MM LLC.

                                             During 1998 and 1997, the round-turn (each purchase
                                             and sale or sale and purchase of a single futures
                                             contract) equivalent rate of the Partnership's
                                             flat-rate Brokerage Commissions was approximately
                                             $52, and $63, respectively.

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

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

MLIB; Other         Bid-ask spreads          Bid-ask spreads on forward and related trades.
Counterparties
</TABLE>

                                       5
<PAGE>

<TABLE>
<S>                 <C>                      <C>
Advisors    Profit Shares                    All Advisors can receive quarterly or annual Profit
                                             Shares ranging from 15% to 25% (depending
                                             on the Advisor) of any New Trading Profit
                                             achieved by their Fund 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 Fund.  The Fund and MM LLC may pay substantial
                                             Profit Shares during periods when it is incurring
                                             significant overall losses.

Advisors    Consulting Fees                  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.

MLF;                Extraordinary expenses   Actual costs incurred; none paid to date.
  Others
</TABLE>

                            ______________________

               Regulation

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

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

               (xiii)  The Partnership has no employees.

          (d)  Financial Information about Geographic Areas:
               ---------------------------------------------

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

Item 2:  Properties
         ----------

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

               The Partnership's only place of business is the place of business
of MLIP, (Merrill Lynch Investment Partners Inc., Princeton Corporate Campus,
800 Scudders Mill Road -Section 2G, Plainsboro, New Jersey 08536). MLIP performs
all administrative services for the Partnership from MLIP's offices.

                                       6
<PAGE>

Item 3:  Legal Proceedings
         -----------------

               ML&Co. -- the sole stockholder of Merrill Lynch Group, Inc.
(which is the sole stockholder of MLIP) -- as well as certain of its
subsidiaries and affiliates have been named as defendants in civil actions,
arbitration proceedings and claims arising out of their respective business
activities. Although the ultimate outcome of these actions cannot be ascertained
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
MLIP or the Fund.

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

Item 4:  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

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

                                    PART II

Item 5:  Market for Registrant's Common Equity and Related Stockholder Matters
         ---------------------------------------------------------------------

Item 5(a)

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

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

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

               As of December 31, 1999, there were 1,582 holders of Units,
including MLIP.

          (c)  Dividends:
               ---------

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

Item 5(b)

               Not applicable.

                                       7
<PAGE>

Item 6:  Selected Financial Data
         -----------------------

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

<TABLE>
<CAPTION>
                                       For the Year     For the Year    For the Year     For the Year     For the Year
                                           Ended           Ended            Ended           Ended            Ended
                                       December 31,     December 31,    December 31,     December 31,     December 31,
 Statement of Operations Data              1999             1998            1997             1996             1995
-------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>               <C>               <C>              <C>              <C>
Revenues:

Trading Profits (Loss)
     Realized Gain (Loss)           $         -       $ 1,169,961       $ 4,629,434      $ 6,760,623       $13,084,311
     Change in Unrealized
     (Loss) Gain                              -          (671,259)           98,218       (1,911,494)       (1,408,174)
                                    -------------------------------------------------------------------------------------
     Total Trading Results                    -           498,702         4,727,652        4,849,129        11,676,137
                                    -------------------------------------------------------------------------------------

Interest Income                               -           598,158         1,551,360        2,009,987         3,519,449
                                    -------------------------------------------------------------------------------------
     Total Revenues                           -         1,096,860         6,279,012        6,859,116        15,195,586
                                    -------------------------------------------------------------------------------------

Expenses:
     Brokerage Commissions                    -         1,015,128         2,732,838        4,213,004         6,481,462
     Administrative Fees                      -            29,004            78,081          113,600                 -
     Profit Shares                            -           301,645           530,099          364,863         1,319,093
                                    -------------------------------------------------------------------------------------
     Total Expenses                           -         1,345,777         3,341,018        4,691,467         7,800,555
                                    -------------------------------------------------------------------------------------
Income (Loss) from Investment          (378,712)        1,406,243         1,708,985        2,258,309                 -
                                    -------------------------------------------------------------------------------------
Net Income (Loss)                   $  (378,712)      $ 1,157,326       $ 4,646,979      $ 4,425,958       $ 7,395,031
                                    =====================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
                           December 31,      December 31,      December 31,     December 31,      December 31,
Balance Sheet Data            1999              1998              1997             1996              1995
-----------------------------------------------------------------------------------------------------------------
<S>                    <C>                   <C>               <C>              <C>               <C>
Fund Net Asset Value       $28,036,376       $33,791,182       $40,650,457      $42,584,105       $57,593,256
Net Asset Value
 per SECTOR II Unit        $    156.88       $    158.74       $    156.37      $    143.42       $    125.15
Net Asset Value
 per SECTOR III Unit       $    164.77       $    166.72       $    159.00      $    140.75       $    128.26
                       ------------------------------------------------------------------------------------------
</TABLE>

<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>
  1995   $108.34   $115.58   $124.97   $127.02   $131.03   $130.14   $127.55   $126.66   $124.80   $123.65   $124.30   $125.15
-----------------------------------------------------------------------------------------------------------------------------------
  1996   $129.65   $123.52   $122.45   $124.82   $123.17   $121.68   $124.98   $123.96   $127.55   $139.16   $149.40   $143.42
-----------------------------------------------------------------------------------------------------------------------------------
  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
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       8
<PAGE>

<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>
  1995   $114.71   $122.70   $129.65   $128.97   $125.75   $123.17   $118.12   $119.65   $118.92   $119.78   $121.97   $128.26
-----------------------------------------------------------------------------------------------------------------------------------
  1996   $132.39   $120.96   $120.08   $127.41   $124.26   $123.53   $125.16   $122.91   $126.15   $138.27   $142.98   $140.75
-----------------------------------------------------------------------------------------------------------------------------------
  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
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

              Pursuant to CFTC policy, monthly performance is presented from
January 1, 1995, even though the Units were outstanding prior to such date.

                                       9
<PAGE>

                     THE SECTOR STRATEGY FUND (SM) II L.P.
                                SECTOR II Units
                               December 31, 1999

   Type of Pool:  Selected-Advisor/Publicly-Offered/"Principal Protected"/(1)/
                   Inception of Trading: December 5, 1990
                   Aggregate Subscriptions:     $136,410,000
                     Current Capitalization:    $8,739,879
                  Worst Monthly Drawdown/(2)/:  (4.73)% (2/96)
            Worst Peak-to-Valley Drawdown/(3)/: (8.01)% (8/97-4/98)

                                 _____________

            Net Asset Value per Unit, December 31, 1999: $156.88

<TABLE>
<CAPTION>
         -----------------------------------------------------------------------------
                                           Monthly Rates of Return/(4)/
         -----------------------------------------------------------------------------
          Month                 1999       1998         1997       1996       1995
         -----------------------------------------------------------------------------
         <S>                   <C>        <C>         <C>        <C>        <C>
          January              (1.26)%    (0.59)%      4.62%      3.59%     (1.74)%
         -----------------------------------------------------------------------------
          February              1.20      (2.23)      (0.63)     (4.73)      6.68
         -----------------------------------------------------------------------------
          March                (0.45)     (0.81)      (0.34)     (0.86)      8.13
         -----------------------------------------------------------------------------
          April                 1.09      (3.44)       0.32       1.93       1.64
         -----------------------------------------------------------------------------
          May                  (0.79)      0.69       (0.78)     (1.32)      3.16
         -----------------------------------------------------------------------------
          June                  0.37       0.23        1.93      (1.21)     (0.68)
         -----------------------------------------------------------------------------
          July                  0.20       0.12        4.95       2.71      (1.99)
         -----------------------------------------------------------------------------
          August               (0.68)      5.48       (1.69)     (0.82)     (0.69)
         -----------------------------------------------------------------------------
          September            (1.46)      2.13       (0.31)      2.90      (1.47)
         -----------------------------------------------------------------------------
          October              (2.73)     (0.31)      (0.38)      9.10      (0.92)
         -----------------------------------------------------------------------------
          November              2.69       0.09       (0.01)      7.36       0.53
         -----------------------------------------------------------------------------
          December              0.75       0.40        1.23      (4.00)      0.68
         -----------------------------------------------------------------------------
          Compound Annual
          Rate of Return       (1.17)%     1.51%       9.02%     14.60%     13.52%
         -----------------------------------------------------------------------------
</TABLE>

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

     (2)  Worst Monthly Drawdown represents the largest negative Monthly Rate of
Return experienced since January 1, 1995  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, 1995 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 SECTOR II
Units as of the beginning of such month.

                                      -10-
<PAGE>

                     THE SECTOR STRATEGY FUND (SM) II L.P.
                               SECTOR III UNITS
                               December 31, 1999

   Type of Pool:  Selected-Advisor/Publicly-Offered/"Principal Protected"/(1)/
                     Inception of Trading: July 5, 1991
                    Aggregate Subscriptions:   $194,005,000
                     Current Capitalization:   $19,296,497
                  Worst Monthly Drawdown/(2)/:  (8.64)% (2/96)
            Worst Peak-to-Valley Drawdown/(3)/:  (9.30)% (2/96-3/96)

                                 _____________

             Net Asset Value per Unit, December 31, 1999: $164.77

<TABLE>
<CAPTION>
         -----------------------------------------------------------------------------
                                        Monthly Rates of Return/(4)/
         -----------------------------------------------------------------------------
          Month                 1999       1998       1997       1996       1995
         -----------------------------------------------------------------------------
         <S>                   <C>        <C>        <C>        <C>        <C>
          January              (1.26)%     0.03%      4.55%      3.22%     (2.25)%
         -----------------------------------------------------------------------------
          February              1.20      (1.58)      1.56      (8.64)      6.97
         -----------------------------------------------------------------------------
          March                (0.45)      1.73       0.65      (0.73)      5.66
         -----------------------------------------------------------------------------
          April                 1.09      (4.72)     (2.29)      6.10      (0.53)
         -----------------------------------------------------------------------------
          May                  (0.79)      1.56      (0.54)     (2.47)     (2.50)
         -----------------------------------------------------------------------------
          June                  0.37       0.08       1.14      (0.59)     (2.05)
         -----------------------------------------------------------------------------
          July                  0.20       0.15       5.69       1.31      (4.10)
         -----------------------------------------------------------------------------
          August               (0.68)      5.47      (2.82)     (1.79)      1.29
         -----------------------------------------------------------------------------
          September            (1.46)      2.14       1.03       2.63      (0.61)
         -----------------------------------------------------------------------------
          October              (2.73)     (0.31)      0.38       9.60       0.72
         -----------------------------------------------------------------------------
          November              2.69       0.07       0.82       3.41       1.83
         -----------------------------------------------------------------------------
          December              0.75       0.40       2.42      (1.56)      5.16
         -----------------------------------------------------------------------------
          Compound Annual
          Rate of Return       (1.17)%     4.16%     12.98%      9.71%      9.28%
         -----------------------------------------------------------------------------
</TABLE>

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

     (2)  Worst Monthly Drawdown represents the largest negative Monthly Rate of
Return experienced since January 1, 1995 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, 1995 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 SECTOR
III Units as of the beginning of such month.

                                      -11-
<PAGE>

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

Results of Operations

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

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

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

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

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

     General
     -------

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

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

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

                                      -12-
<PAGE>

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

     Performance Summary
     -------------------

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

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

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

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


     1999

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

          The Fund finished 1999 with gains in energy, stock index and
agricultural trading and losses in currency, interest rate and metal 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 Fund 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
Fund 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 Fund throughout the year.
Long Japanese yen positions resulted in losses despite the yen trading higher
against the dollar. The Bank of Japan lowered rates to keep their 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 fund, 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 that 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 Fund 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.

     1998

<TABLE>
<CAPTION>
                                Total Trading
                                   Results
     <S>                        <C>
     Interest Rates             $   85,850
     Stock Indices                (139,134)
     Commodities                   518,301
     Currencies                   (343,635)
     Energy                        312,851
     Metals                         64,469
                                -----------
                                $  498,702
                                ===========
</TABLE>

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

                                      -13-
<PAGE>

expected, inflation continued to fall, the anticipated small U.S. budget deficit
turned into substantial surplus, and the Fed lowered interest rates.

          Trading results in stock index markets were mixed in early 1998,
despite a strong first-quarter performance by the U.S. equity market as several
consecutive weekly gains were recorded with most market averages setting new
highs.  Second quarter results were profitable as the Asia-Pacific region's
equity markets weakened across the board.  In particular, Hong Kong's Hang Seng
index trended downward during most of the second quarter and traded at a three-
year low.  As U.S. equity markets declined in July and August, the Fund profited
from short positions in the S&P 500, most notably during August, when the index
dropped 14.5%.  Volatility in September made for a difficult trading environment
in the stock index sector, and the Fund incurred modest losses, although results
remained profitable for the quarter and the year overall in these markets.

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

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

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

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

                                      -14-
<PAGE>

     1997

<TABLE>
<CAPTION>
                               Total Trading
                                  Results
     <S>                       <C>
     Interest Rates            $   51,377
     Stock Indices                747,204
     Commodities                1,098,616
     Currencies                 2,050,928
     Energy                       292,364
     Metals                       487,163
                               ----------
                               $4,727,652
                               ==========
</TABLE>

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

          In currency markets, the U.S. dollar rallied and started 1997 on a
strong note, rising to a four-year high versus the Japanese yen and two-and-a-
half year highs versus the Deutsche mark and the Swiss franc.  However, the
dollar underwent two significant corrections during the year.  The first
correction occurred in the Spring against the Japanese yen, due to the G7
finance ministers' determination that a further dollar advance would be counter-
productive to their current goals.  From August through mid-November, the dollar
corrected against the Eurocurrencies in advance of a well-advertised tightening
by the Bundesbank.  By mid-December the dollar had bounced back to new highs
against the yen and was rallying against the mark.

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

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

     Variables Affecting Performance
     -------------------------------

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

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

          The Fund's Brokerage Commissions and Administrative Fees are a
constant percentage of the Fund's assets allocated to trading.  The only Fund
costs (other than the insignificant currency trading costs) which are not based
on a percentage of the Fund's assets (allocated to trading or total) are the
Profit Shares payable to the Advisors on an Advisor-by-

                                      -15-
<PAGE>

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

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

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

Liquidity; Capital Resources

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

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

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

      Year 2000 Compliance Initiative

                In 1999, Merrill Lynch completed its efforts to address the
Year 2000 issue (the "Y2K issue"). The Y2K issue was the result of a widespread
programming technique that caused computer systems to identify a date based on
the last two numbers of a year, with the assumption that the first two numbers
of the year are "19". As a result, the year 2000 would be stored as "00",
causing computers to incorrectly interpret the year as 1900. Left uncorrected,
the Y2K issue may have caused serious failures in information technology systems
and other systems.

                In 1995, Merrill Lynch established the Year 2000 Compliance
Initiative to address the internal and extended risks associated with the Y2K
issue. The initiative consisted of six phases, completed by the millennium:
planning, pre-renovation, renovation, production testing, certification, and
integration testing. Contingency plans were established in the event of any
failures or disruptions.


                Through the date of this filing, there have been no material
failures or disruptions of systems or services at Merrill Lynch attributable to
the Y2K issue. Similarly, we have not been notified of any material failure or
disruption of systems or services affecting third parties in their capacity to
transact business with Merrill Lynch or in Merrill Lynch's capacity to transact
business with others. Merrill Lynch continues to monitor the performance of its
systems for any possible future failures or disruptions attributable to the Y2K
issue.

                As of December 31, 1999, the total estimated expenditures of
existing and incremental resources for the entire Year 2000 Compliance
Initiative was approximately $510 million, including $102 million of occupancy,
communications, and other related overhead expenditures, as Merrill Lynch is
applying a fully costed pricing methodology for this project. At December 31,
1999, of the total estimated expenditures, approximately $12 million, related to
continued testing, contingency planning, risk management, and the wind down of
the efforts, had not yet been spent.


Item 7A: Quantitative and Qualitative Disclosures About Market Risk
         ----------------------------------------------------------

Introduction

         Past Results Not Necessarily Indicative of Future Performance
         -------------------------------------------------------------

               The Fund is a speculative commodity pool.  Unlike an operating
company, the risk of market sensitive instruments is integral, not incidental,
to the Fund's main line of business.

               Market movements result in frequent changes in the fair market
value of the Fund's open positions and, consequently, in its earnings and cash
flow. The Fund's market risk is influenced by a wide variety of factors,
including the level and volatility of interest rates, exchange rates, equity
price levels, the market value of financial instruments and contracts, the
diversification effects among the Fund's open positions and the liquidity of the
markets in which it trades.

                                      -16-
<PAGE>

               The Fund, under the direction of the Advisors, rapidly
acquires and liquidates both long and short positions in a wide range of
different markets.  Consequently, it is not possible to predict how a particular
future market scenario will affect performance, and the Fund's past performance
is not necessarily indicative of its future results.

               Value at Risk is a measure of the maximum amount which the Fund
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Fund's speculative trading and the recurrence in the
markets traded by the Fund of market movements far exceeding expectations could
result in actual trading or non-trading losses far beyond the indicated Value at
Risk or the Fund's experience to date (i.e., "risk of ruin"). In light of the
foregoing as well as the risks and uncertainties intrinsic to all future
projections, the inclusion of the quantification in this section should not be
considered to constitute any assurance or representation that the Fund's losses
in any market sector will be limited to Value at Risk or by the Fund's attempts
to manage its market risk.

   Quantifying the Fund's Trading Value at Risk

          Quantitative Forward-Looking Statements
          ---------------------------------------

               The following quantitative disclosures regarding the Fund's
market risk exposures contain "forward-looking statements" within the meaning of
the safe harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
All quantitative disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor, except for statements of historical
fact.

               The Fund's risk exposure in the various market sectors traded by
the Advisors is quantified below in terms of Value at Risk. Due to the Fund's
mark-to-market accounting, any loss in the fair value of the Fund's open
positions is directly reflected in the Fund's earnings (realized or unrealized)
and cash flow (at least in the case of exchange-traded contracts in which
profits and losses on open positions are settled daily through variation
margin).

               Exchange maintenance margin requirements have been used by the
Fund as the measure of its Value at Risk. Maintenance margin requirements are
set by exchanges to equal or exceed 95%-99% of the maximum one-day losses in the
fair value of any given contract incurred during the time period over which
historical price fluctuations are researched for purposes of establishing margin
levels. The maintenance margin levels are established by dealers and exchanges
using historical price studies as well as an assessment of current market
volatility (including the implied volatility of the options on a given futures
contract) and economic fundamentals to provide a probabilistic estimate of the
maximum expected near-term one-day price fluctuation.

               In the case of market sensitive instruments which are not
exchange-traded (almost exclusively currencies in the case of the Fund), the
margin requirements for the equivalent futures positions have been used as Value
at Risk. In those rare cases in which a futures-equivalent margin is not
available, dealers' margins have been used.

               The fair value of the Fund's futures and forward positions does
not have any optionality component. However, certain of the Advisors trade
commodity options. The Value at Risk associated with options is reflected in the
following table as the margin requirement attributable to the instrument
underlying each option.

               100% positive correlation in the different positions held in each
market risk category has been assumed. Consequently, the margin requirements
applicable to the open contracts have been aggregated to determine each trading
category's aggregate Value at Risk.  The diversification effects resulting from
the fact that the Fund's positions are rarely, if ever, 100% positively
correlated have not been reflected.

                                      -17-
<PAGE>

The Fund's Trading Value at Risk in Different Market Sectors

          The following table indicates the average, highest and lowest trading
Value at Risk associated with the Fund's open positions by market category for
the fiscal year 1999. During the fiscal year 1999, the Fund's average
capitalization was approximately $30,620,492. As of December 31, 1998, the
Fund's total capitalization was approximately $33,791,182, all of which was
allocated to trading in MM LLC.

<TABLE>
<CAPTION>


                               December 31, 1999
                               -----------------

                    Average        % of Average
Market Sector    Value at Risk    Capitalization    Highest Value at Risk         Lowest Value at Risk
-------------    -------------    --------------    ---------------------         --------------------
<S>              <C>              <C>                     <C>                          <C>
Interest Rates     552,452           1.79%                 489,604                     276,034
Currencies         341,426           1.11%                 320,740                     217,742
Stock Indices      324,700           1.05%                 418,684                     133,268
Metals             149,311           0.48%                 168,401                      68,870
Commodities        144,064           0.47%                 205,906                      15,353
Energy             174,027           0.56%                 190,571                     147,231
                 ----------        -------               ---------                    ----------
  TOTAL          1,685,980           5.46%               1,793,906                     856,498
                 ==========        =======               =========                    ==========



<CAPTION>
                               December 31, 1998
                               -----------------
                             Average                 % of Average
Market Sector             Value at Risk             Capitalization
-------------             -------------             --------------
<S>                       <C>                       <C>
Interest Rates                159,263                         0.47%
Currencies                    294,936                         0.89%
Stock Indices                  79,470                         0.23%
Metals                        115,273                         0.34%
Commodities                    78,680                         0.23%
Energy                         63,550                         0.18%
                           ----------                       -------
  TOTAL                       791,172                         2.34%
                           ==========                       =======

</TABLE>

               Average, highest and lowest Value at Risk amounts relate to the
quarter-end amounts for each calendar quarter-end during the fiscal year.
Average Capitalization is the average of the Fund's capitalization at the end of
each calendar quarter of fiscal year 1999.

Material Limitations on Value at Risk as an Assessment of Market Risk

               The face value of the market sector instruments held by the Fund
is typically many times the applicable maintenance margin requirement
(maintenance margin requirements generally ranging between approximately 1% and
10% of contract face value) as well as many times the capitalization of the
Fund. The magnitude of the Fund's open positions creates a "risk of ruin" not
typically found in most other investment vehicles. Because of the size of its
positions, certain market conditions -- unusual, but historically recurring from
time to time -- could cause the Fund to incur severe losses over a short period
of time. Even comparatively minor losses could cause MLIP to further deleverage
or terminate the Fund's trading. The foregoing Value at Risk table -- as well as
the past performance of the Fund -- give no indication of this "risk of ruin."

Non-Trading Risk

     Foreign Currency Balances; Cash on Deposit with MLF

               The Fund has non-trading market risk on its foreign cash balances
not needed for margin. However, these balances (as well as the market risk they
represent) are immaterial.

               The Fund also has non-trading market risk on the approximately
90%-95% of its assets which are held in cash at MLF. The value of this cash is
not interest rate sensitive, but there is cash flow risk in that if interest
rates decline so will the cash flow generated on these monies. This cash flow
risk is immaterial.

     Qualitative Disclosures Regarding Primary Trading Risk Exposures

               The following qualitative disclosures regarding the Fund's market
risk exposures -- except for (i) those disclosures that are statements of
historical fact and (ii) the descriptions of how the Fund manages its primary
market risk exposures -- constitute forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. The Fund's primary market risk exposures as well as the strategies
used and to be used by

                                      -18-
<PAGE>

MLIP and the Advisors for managing such exposures are subject to numerous
uncertainties, contingencies and risks, any one of which could cause the actual
results of the Fund's risk controls to differ materially from the objectives of
such strategies. Government interventions, defaults and expropriations, illiquid
markets, the emergence of dominant fundamental factors, political upheavals,
changes in historical price relationships, an influx of new market participants,
increased regulation and many other factors could result in material losses as
well as in material changes to the risk exposures and the risk management
strategies of the Fund. There can be no assurance that the Fund's current market
exposure and/or risk management strategies will not change materially or that
any such strategies will be effective in either the short- or long-term.
Investors must be prepared to lose all or substantially all of the time value of
their investment in the Fund.

               The following were the primary trading risk exposures of the Fund
as of December 31, 1999, by market sector.

               Interest Rates. Interest rate risk is the principal market
               --------------
exposure of the Fund. Interest rate movements directly affect the price of
derivative sovereign bond positions held by the Fund and indirectly the value of
its stock index and currency positions. Interest rate movements in one country
as well as relative interest rate movements between countries materially impact
the Fund's profitability. The Fund's primary interest rate exposure is to
interest rate fluctuations in the United States and the other G-7 countries.
However, the Fund also takes positions in the government debt of smaller
nations --e.g., New Zealand and Australia. MLIP anticipates that G-7 interest
rates will remain the primary market exposure of the Fund for the foreseeable
future.

               Currencies. The Fund trades in a large number of currencies,
               ----------
including cross-rates -- i.e., positions between two currencies other than the
U.S. dollar. However, the Fund's major exposures have typically been in the
dollar/yen, and dollar/Euro positions. MLIP does not anticipate that the risk
profile of the Fund's currency sector will change significantly in the future.
The currency trading Value at Risk figure includes foreign margin amounts
converted into U.S. dollars with an incremental adjustment to reflect the
exchange rate risk inherent to the dollar-based Fund in expressing Value at Risk
in a functional currency other than dollars.

               Stock Indices. The Fund's primary equity exposure is to equity
               -------------
index price movements. The stock index futures traded by the Fund are by law
limited to futures on broadly based indices. As of December 31, 1999, the Fund's
primary exposures were in the S&P 500, Financial Times (England), Nikkei
(Japan), Hang Seng (Hong Kong) and DAX (Germany) stock indices. MLIP
anticipates little, if any, trading in non-G-7 stock indices. The Fund is
primarily exposed to the risk of adverse price trends or static markets in the
major U.S., European and Asian indices.

               Metals. The Fund's primary metals market exposure is to
               ------
fluctuations in the price of gold and silver. Although certain of the Advisors
will from time to time trade base metals such as aluminum, copper and tin, the
principal market exposures of the Fund have consistently been in the precious
metals, gold and silver (and, to a much lesser extent, platinum). Silver prices
have remained volatile over this period, and the Advisors have from time to time
taken substantial positions as they have perceived market opportunities to
develop. MLIP anticipates that gold and silver will remain the primary metals
market exposure for the Fund.

               Commodities.  The Fund's primary commodities exposure is to
               -----------
agricultural price movements which are often directly affected by severe or
unexpected weather conditions.  Soybeans, grains and orange juice accounted for
the substantial bulk of the Fund's commodities exposure as of December 31, 1999.
In the past, the Fund has had material market exposure to live cattle and
hogbellies and may do so again in the future. However, MLIP anticipates that the
Advisors will maintain an emphasis on soybeans, grains and orange juice, in
which the Fund has historically taken its largest positions.

               Energy. The Fund's primary energy market exposure is to gas and
               ------
oil price movements, often resulting from political developments in the Middle
East. Although the Advisors trade natural gas to a limited extent, oil is by far
the dominant energy market exposure of the Fund. Oil prices can be volatile and
substantial profits and losses have been and are expected to continue to be
experienced in this market.

                                      -19-
<PAGE>

     Qualitative Disclosures Regarding Non-Trading Risk Exposure

               The following were the only non-trading risk exposures of the
Fund as of December 31, 1999.

               Foreign Currency Balances.  The Fund's primary foreign currency
               -------------------------
balances are in Japanese yen, British pounds and Euros. The Fund has de minimis
exchange rate exposure on these balances.

               U.S. Dollar Cash Balance. The Fund holds U.S. dollars only in
               ------------------------
cash at MLF. The Fund has immaterial cash flow interest rate risk on its cash on
deposit with MLF in that declining interest rates would cause the income from
such cash to decline.

          Qualitative Disclosures Regarding Means of Managing Risk Exposure

          Trading Risk
          ------------

               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 Fund, adjusting the percentage of
the Fund's total assets allocated to the Advisors for management, calculating
the Net Asset Value of the Advisors' respective Fund 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 Fund basis. While MLIP does
not itself intervene in the markets to hedge or diversify the Fund's market
exposure, 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.

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

               At the Advisor level, each Advisor applies its own risk
management policies to its trading. These policies generally limit the total
exposure that may be taken per "risk unit" of assets under management. In
addition, many Advisors follow diversification guidelines (often formulated in
terms of the maximum margin which they will commit to positions in any one
contract or group of related contracts), as well as imposing "stop-loss" points
at which open positions must be closed out. Occasionally, Advisors will limit
the market exposure of their Fund account through acquiring put or call options
which "collar" the risk of open positions. However, because of the typically
high degree of liquidity in the markets traded by the Fund and the expense of
acquiring options, most Advisors rely simply on stop-loss policies, requiring
the liquidation of positions once losses of a certain magnitude have been
incurred.

               Certain Advisors treat their risk control policies as strict
rules; others only as general guidelines for controlling risk.

          Non-Trading Risk
          ----------------

               The Fund controls the non-trading exchange rate risk by regularly
converting foreign balances back into dollars (usually weekly but no less
frequently than twice a month, and more frequently if a particular foreign
currency balance becomes unusually high).

               The Fund has cash flow interest rate risk on its cash on deposit
with MLF in that declining interest rates would cause the income from such cash
to decline. However, a certain amount of cash or cash equivalents must be held
by the Fund in order to facilitate margin payments and pay expenses and
redemptions. MLIP does not take any steps to limit the cash flow risk on its
cash held on deposit at MLF.

                                      -20-
<PAGE>

Item 8:  Financial Statements and Supplementary Data
         -------------------------------------------

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

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

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

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


                                   PART III

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

     10(a) and 10(b)  Identification of Directors and Executive Officers:
                      --------------------------------------------------

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

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

John R. Frawley, Jr.     Chairman, Chief Executive Officer,
                         President and Director

Jeffrey F. Chandor       Senior Vice President, Director of
                         Sales, Marketing and Research and Director

Michael L. Pungello      Vice President, Chief Financial Officer and Treasurer

Allen N. Jones           Director

Stephen G. Bodurtha      Director

Michael J. Perini        Director

Steven B. Olgin          Vice President, Secretary and
                         Director of Administration

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

                                      -21-
<PAGE>

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

               Michael L. Pungello was born in 1957.  Effective May 1, 1999, Mr.
Pungello became Vice President, Chief Financial Officer and Treasurer of
MLIP.  He was First Vice President and Senior Director of Finance for Merrill
Lynch's Operations, Services and Technology Group from January 1998 to March
1999.  Prior to that, Mr. Pungello spent over 18 years with Deloitte & Touche
LLP, and was a partner in their Financial Services practice from June 1990 to
December 1997.  He graduated from Fordham University in 1979 with a Bachelor of
Science degree in accounting and received his Master of Business Administration
degree in Finance from New York University in 1987.

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

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

                Michael J. Perini was born in 1947. Effective May 11, 1999, Mr.
Perini became a Director of MLIP. Since February 1998, Mr. Perini has been First
Vice President and Senior Director of the Defined and Managed Funds Group, which
includes Defined Asset Funds, Special Investments and MLIP. This is part of the
Investment Strategy Product Group of Merrill Lynch Private Client. Previously
Michael Perini was Director of Defined Asset Funds and has held various
management positions since he joined Merrill Lynch in 1970. Mr. Perini attended
St. John's University and New York University as well as The Stanford University
Marketing Management Program. He was elected to the Board of Governors of the
Investment Company Institute in Washington, D.C., and is Chairman of the Unit
Investment Trust Committee of the Institute.

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

               As of December 31, 1999, the principals of MLIP had no
investments in the Fund and MLIP's general partner interest in the Fund was
valued at $393,339.

               MLIP acts as general partner to eleven public futures funds whose
units of limited 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 S.E.C.T.O.R. 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 Fund.  Because MLIP serves as the sole general partner of each of these
funds, the officers and directors of MLIP effectively manage them as officers
and directors of such funds.

                                      -22-
<PAGE>

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

               None.

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

               None.

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

               See Item 10(a)(b) above.

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

               None.

         (g)   Promoters and Control Persons:
               -----------------------------

               Not applicable.

Item 11:  Executive Compensation
          ----------------------

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

Item 12:  Security Ownership of Certain Beneficial Owners and Management
          --------------------------------------------------------------

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

         As of December 31, 1999, 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, 1999, MLIP owned 832 SECTOR II Units and 1,595
         SECTOR III Units (unit-equivalent general partnership interests), which
         was approximately 1.4% of the total Units outstanding.

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

         None.

   Item 13:  Certain Relationships and Related Transactions
             ----------------------------------------------

         (a)   Transactions Between Merrill Lynch and the Fund

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

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

                                      -23-
<PAGE>

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

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

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

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

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

             In 1999, the Partnership expensed the following fees: (i) Brokerage
Commissions of $2,739,243 to MLF, which included $353,456 in consulting fees
earned by the Advisors, and (ii) Administrative fees of $78,264. In addition,
MLIP and its affiliates may have derived certain economic benefits from
possession of the Fund's assets, as well as from foreign exchange and EFP
trading.

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

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

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

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

               Not applicable.

                                      -24-
<PAGE>

                                    PART IV

Item 14:  Exhibits, Financial Statement Schedules and Reports on Form 8-K
          ---------------------------------------------------------------

<TABLE>
<CAPTION>
          (a)1. Financial Statements (found in Exhibit 13.01):                                Page
                ----------------------------------------------                                ----
          <S>                                                                                 <C>

                Independent Auditors' Report                                                     1

                Statements of Financial Condition as of December 31, 1999 and 1998               2

                For the years ended December 31, 1999, 1998 and 1997
                    Statements of Operations                                                     3
                    Statements of Changes in Partners' Capital                                   4

                Notes to Financial Statements                                                 5-13
</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(a)                  Amended and Restated Certificate of Limited Partnership
                         of the Registrant, dated July 27, 1995.

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

3.01(b)                  Amended and Restated Limited Partnership Agreement of
                         the Partnership.

Exhibit 3.01(b):         Is incorporated herein by reference from Exhibit
---------------
                         3.01(b) (File No. 33-39966) filed on May 8, 1991, on
                         Form S-1 under the Securities Act of 1933 (the
                         "Registrant's Registration Statement").

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

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

10.02(b)                 Form of Consulting Agreement between each of the
                         Trading Advisors, the Partnership and Merrill Lynch
                         Futures Inc.

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

                                      -25-
<PAGE>

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

Exhibit 10.03:           Is incorporated herein by reference from Exhibit 10.03
-------------
                         contained in the Registrant's Registration Statement.

10.05                    Merrill Lynch & Co., Inc. Guarantee with respect to the
                         SECTOR II Units.

Exhibit 10.05:           Is incorporated herein by reference from Exhibit 10.05
-------------
                         contained in Amendment No. 1 (as Exhibit B) to the
                         Registration Statement (File No. 33-36517) filed on
                         October 2, 1990.

10.05(a)                 Merrill Lynch & Co., Inc. Guarantee with respect to the
                         SECTOR III Units.

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

10.07(i)                 Foreign Exchange Desk Service Agreement among Merrill
                         Lynch Investment Partners Inc., each advisor, Merrill
                         Lynch Futures Inc. and the Fund.

Exhibit 10.07(i):        Is incorporated herein by reference from Exhibit
----------------
                         10.07(i) contained in the Registrant's report on Form
                         10-K for the year ended December 31, 1997.

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

Exhibit 10.07(ii):       Is incorporated herein by reference from Exhibit
-----------------
                         10.07(ii) contained in the Registrant's report on Form
                         10-K for the year ended December 31, 1997.

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

Exhibit 10.07(iii)       Is incorporated herein by reference from Exhibit
------------------
                         10.07(iii) contained in the Registrant's report on Form
                         10-K for the year ended December 31, 1997.

13.01                    1999 Annual Report and Independent Auditors' Report.

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

13.01(a)                 1999 Annual Report and Independent Auditors' Report
                         for the following Trading Limited Liability Company
                         sponsored by Merrill Lynch Investment Partners Inc.:
                         ML Multi Manager Portfolio LLC

Exhibit 13.01(a):        Is incorporated herein by reference from Form 10-K
-----------------
                         (fiscal year ended December 31, 1999) Commission File
                         number 0-18702 for The S.E.C.T.O.R. Fund (SM) L.P.
                         (Registration Statement File No. 33-34432 filed on May
                         25, 1990 under the Securities Act of 1933).

28.01(i)                 Prospectus of the Partnership with respect to the
                         SECTOR II portion, dated October 2, 1990.

Exhibit 28.01(i):        Is incorporated by reference as filed with the
----------------
                         Securities and Exchange Commission on October 11, 1990
                         pursuant to Rule 424 under the Securities Act of 1933.

28.01(ii)                Prospectus of the Partnership with respect to the
                         SECTOR III portion, dated May 8, 1991.

                                      -26-
<PAGE>

Exhibit 28.01(ii):       Is incorporated by reference as filed with the
-----------------
                         Securities and Exchange Commission on May 14, 1991
                         pursuant to Rule 424 under the Securities Act of 1933.

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

               No reports on Form 8-K were filed during the fourth quarter of
1999.

                                  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: MERRILL LYNCH INVESTMENT PARTNERS INC.
                                 General Partner

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


          Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed on March 30, 2000 by the
following persons on behalf of the Registrant and in the capacities indicated.

<TABLE>
<CAPTION>

Signature                          Title                                                      Date
---------                          -----                                                      ----
<S>                                <C>                                                        <C>
/s/ John R. Frawley, Jr.           Chairman, Chief Executive Officer, President and Director  March 30, 2000
-----------------------------
John R. Frawley, Jr.               (Principal Executive Officer)

/s/  Michael L. Pungello           Vice President, Chief Financial Officer and Treasurer      March 30, 2000
-----------------------------
Michael L. Pungello                (Principal Financial and Accounting Officer)

/s/ Jeffrey F. Chandor             Senior Vice President, Director of Sales,                  March 30, 2000
-----------------------------
Jeffrey F. Chandor                 Marketing and Research, and Director

/s/ Michael J. Perini              Director                                                   March 30, 2000
-----------------------------
Michael J. Perini


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

MERRILL LYNCH INVESTMENT           General Partner of Registrant                              March 30, 2000
PARTNERS INC.

By: /s/ John R. Frawley, Jr.
   ----------------------------
   John R. Frawley, Jr.
</TABLE>

                                      -27-
<PAGE>

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

                                1999 FORM 10-K

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

                    Exhibit
                    -------

Exhibit 13.01       1999 Annual Report and Independent Auditors' Report

                                      -28-