<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended June 30, 2000
                               -------------
               OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

For the transition period from_______________ to _______________

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                (IRS Employer Identification No.)
incorporation or organization)


                   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)
                                   (Zip Code)

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

     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
                                              ----    -----


<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements

                      THE SECTOR STRATEGY FUND -SM- II L.P.
                        (a Delaware limited partnership)
                        --------------------------------

                        STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                    June 30,           December 31,
                                                                     2000                 1999
                                                                  (unaudited)
                                                               ------------------    ------------------
<S>                                                            <C>                   <C>
ASSETS
------
Investment                                                      $     23,653,803      $     28,036,376
Receivable from investment                                               423,060               516,693
                                                               ------------------    ------------------
                TOTAL                                           $     24,076,863      $     28,553,069
                                                               ==================    ==================

LIABILITY AND PARTNERS' CAPITAL
-------------------------------
Liability-Redemptions payable                                   $        423,060      $        516,693

PARTNERS' CAPITAL:
    General Partner:
        (597 and 832 Sector II Units)                                     91,979               130,524
        (1,235 and 1,595 Sector III Units)                               199,851               262,815
    Limited Partners:
        (47,474 and 54,878 Sector II Units)                            7,314,343             8,609,354
        (99,169 and 115,514 Sector III Units)                         16,047,630            19,033,683
                                                               ------------------    ------------------

            Total partners' capital                                   23,653,803            28,036,376
                                                               ------------------    ------------------

                TOTAL                                           $     24,076,863      $     28,553,069
                                                               ==================    ==================

NET ASSET VALUE PER UNIT:
     SECTOR II UNITS
        (Based on 48,071 and 55,710 Units outstanding)          $         154.07      $         156.88
                                                               ==================    ==================

     SECTOR III UNITS
        (Based on 100,404 and 117,109 Units outstanding)        $         161.82      $         164.77
                                                               ==================    ==================
</TABLE>

See notes to financial statements.


                                       2
<PAGE>

                      THE SECTOR STRATEGY FUND-SM- II L.P.
                        (a Delaware limited partnership)
                        --------------------------------

                            STATEMENTS OF OPERATIONS
                                  (unaudited)

<TABLE>
<CAPTION>
                                             For the three        For the three       For the six          For the six
                                             months ended         months ended        months ended         months ended
                                                June 30,            June 30,            June 30,             June 30,
                                                  2000                1999                2000                 1999
                                           ------------------   ------------------  -----------------   -----------------
<S>                                         <C>                  <C>                 <C>                 <C>
    Income (Loss) from investments          $         97,269     $        217,410    $      (468,823)    $        37,670
                                           ------------------   ------------------  -----------------   -----------------

NET INCOME (LOSS)                           $         97,269     $        217,410    $      (468,823)    $        37,670
                                           ==================   ==================  =================   =================

NET INCOME (LOSS) PER UNIT:
    Weighted average number of units
        outstanding                                  154,529              194,264            160,989             198,805
                                           ==================   ==================  =================   =================

    Weighted average net income (loss)
       per General Partner
      and Limited Partner Unit              $           0.63     $           1.12    $         (2.91)    $          0.19
                                           ==================   ==================  =================   =================
</TABLE>

See notes to financial statements.


                                       3
<PAGE>

                      THE SECTOR STRATEGY FUND-SM- II L.P.
                        (a Delaware limited partnership)
                        --------------------------------

                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
            FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
                                  (unaudited)

<TABLE>
<CAPTION>
                                             Units                             General Partner
                                             -----                             ----------------
                                  SECTOR II          SECTOR III
                                    UNITS               UNITS            SECTOR II          SECTOR III
                                    -----               -----            ---------          ----------
<S>                         <C>                 <C>               <C>                 <C>
PARTNERS' CAPITAL,
  December 31, 1998                    67,408            138,502            $132,067           $265,921

Redemptions                            (6,887)           (10,200)                -                  -

Net income                                -                  -                   190                381
                           ------------------- ------------------ ------------------- ------------------

PARTNERS' CAPITAL,
  June 30, 1999                        60,521            128,302            $132,257           $266,302
                           =================== ================== =================== ==================

PARTNERS' CAPITAL,
  December 31, 1999                    55,710            117,109            $130,524           $262,815

Redemptions                            (7,639)           (16,705)            (36,714)           (59,071)

Net loss                                  -                  -                (1,831)            (3,893)
                           ------------------- ------------------ ------------------- ------------------

PARTNERS' CAPITAL,
  June 30, 2000                        48,071            100,404             $91,979           $199,851
                           =================== ================== =================== ==================

<CAPTION>
                                     Limited Partners
                                     ----------------

                               SECTOR II         SECTOR III               Total
                               ---------         ----------               -----
<S>                         <C>                <C>               <C>
PARTNERS' CAPITAL,
  December 31, 1998              $10,567,998        $22,825,196         $33,791,182

Redemptions                       (1,089,612)        (1,697,304)         (2,786,916)

Net income                            10,027             27,072              37,670
                           ------------------ ------------------ -------------------

PARTNERS' CAPITAL,
  June 30, 1999                   $9,488,413        $21,154,964         $31,041,936
                           ================== ================== ===================

PARTNERS' CAPITAL,
  December 31, 1999               $8,609,354        $19,033,683         $28,036,376

Redemptions                       (1,149,087)        (2,668,878)         (3,913,750)

Net loss                            (145,924)          (317,175)           (468,823)
                           ------------------ ------------------ -------------------

PARTNERS' CAPITAL,
  June 30, 2000                   $7,314,343        $16,047,630         $23,653,803
                           ================== ================== ===================
</TABLE>

See notes to financial statements.


                                       4
<PAGE>

                      THE SECTOR STRATEGY FUND-SM- II L.P.
                        (a Delaware limited partnership)
                        --------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                                  (unaudited)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   These financial statements have been prepared without audit. In the opinion
   of management, the financial statements contain all adjustments (consisting
   of only normal recurring adjustments) necessary to present fairly the
   financial position of The SECTOR Strategy Fund-SM- II L.P. (the
   "Partnership") as of June 30, 2000, and the results of its operations for the
   three months ended June 30, 2000 and June 30, 1999. However, the operating
   results for the interim periods may not be indicative of the results expected
   for the full year.

   Certain information and footnote disclosures normally included in annual
   financial statements prepared in accordance with generally accepted
   accounting principles have been omitted. It is suggested that these financial
   statements be read in conjunction with the financial statements and notes
   thereto included in the Partnership's Annual Report on Form 10-K filed with
   the Securities and Exchange Commission for the year ended December 31, 1999
   (the "Annual Report").

2.   INVESTMENTS

   As of June 30, 2000 and December 31, 1999, the Partnership had an investment
   in ML Multi Manager Portfolio, LLC ("MM LLC") of $23,653,803 and $28,036,376,
   respectively.

Total revenues and fees with respect to the Partnership's investments are set
forth as follows:


<TABLE>
<CAPTION>
   For the three months       Total          Brokerage       Administrative       Profit          Gain  from
   ended June 30, 2000       Revenue        Commissions           Fees            Shares          Investments
                          --------------   ---------------   ---------------   -------------    ---------------
<S>                       <C>              <C>               <C>               <C>              <C>
SECTOR II UNITS
Investment in MM LLC      $    201,845     $     158,400     $       4,525     $     8,499      $      30,421
                          ==============   ===============   ===============   =============    ===============

SECTOR III UNITS
Investment in MM LLC       $    445,290     $     349,686     $       9,991     $    18,765      $      66,848
                          ==============   ===============   ===============   =============    ===============

Total All UNITS
Investment in MM LLC       $    647,135     $     508,086     $      14,516     $    27,264      $      97,269
                          ==============   ===============   ===============   =============    ===============
</TABLE>

<TABLE>
<CAPTION>
   For the three months       Total          Brokerage       Administrative       Profit           Gain from
   ended June 30, 1999       Revenue        Commissions           Fees            Shares          Investments
                          --------------   ---------------   ---------------   -------------    ---------------
<S>                       <C>              <C>               <C>               <C>              <C>
SECTOR II UNITS
Investment in MM LLC       $    308,811     $     218,485     $       6,242     $    16,879      $      67,205
                          ==============   ===============   ===============   =============    ===============

SECTOR III UNITS
Investment in MM LLC       $    689,868     $     487,863     $      13,939     $    37,861      $     150,205
                          ==============   ===============   ===============   =============    ===============

TOTAL ALL UNITS
Investment in MM LLC       $    998,679     $     706,348     $      20,181     $    54,740      $     217,410
                          ==============   ===============   ===============   =============    ===============
</TABLE>


                                       5
<PAGE>

<TABLE>
<CAPTION>
   For the six months         Total          Brokerage       Administrative       Profit           Loss from
   ended June 30, 2000       Revenue        Commissions           Fees            Shares          Investments
                          --------------   ---------------   ---------------   -------------    ---------------
<S>                       <C>              <C>               <C>               <C>              <C>
SECTOR II UNITS
Investment in MM LLC       $    216,433     $     344,909     $       9,854     $     9,425      $    (147,755)
                          ==============   ===============   ===============   =============    ===============

SECTOR III UNITS
Investment in MM LLC       $    479,880     $     758,039     $      21,658     $    21,251      $    (321,068)
                          ==============   ===============   ===============   =============    ===============

TOTAL ALL UNITS
Investment in MM LLC       $    696,313     $   1,102,948     $      31,512     $    30,676      $    (468,823)
                          ==============   ===============   ===============   =============    ===============
</TABLE>

<TABLE>
<CAPTION>
   For the six months         Total          Brokerage       Administrative       Profit          Gain from
   ended June 30, 1999       Revenue        Commissions           Fees            Shares         Investments
                          --------------   ---------------   ---------------   -------------    ---------------
<S>                       <C>              <C>               <C>               <C>              <C>
SECTOR II UNITS
Investment in MM LLC       $    507,406     $     449,385     $      12,840     $    34,964      $      10,217
                          ==============   ===============   ===============   =============    ===============

SECTOR III UNITS
Investment in MM LLC       $  1,121,737     $     989,306     $      28,265     $    76,713      $      27,453
                          ==============   ===============   ===============   =============    ===============

TOTAL ALL UNITS
Investment in MM LLC       $  1,629,143     $   1,438,691     $      41,105     $   111,677      $      37,670
                          ==============   ===============   ===============   =============    ===============
</TABLE>


                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                MM LLC                       MM LLC
                         ----------------------       ---------------------

                               June 30,                   December 31,
                                 2000                         1999
                              (unaudited)
                         ----------------------       ---------------------
<S>                      <C>                          <C>
Assets                    $         86,299,721         $       100,901,677
                         ======================       =====================

Liabilities               $          2,106,512                 $ 2,906,392
Members' Capital                    84,193,209                  97,995,285
                         ----------------------       ---------------------

Total                     $         86,299,721         $       100,901,677
                         ======================       =====================
</TABLE>

<TABLE>
<CAPTION>
                          For the three months        For the three months       For the six months          For the six months
                           ended June 30, 2000         ended June 30, 1999       ended June 30, 2000         ended June 30, 1999
                               (unaudited)                 (unaudited)              (unaudited)                  (unaudited)
                         ----------------------       ---------------------    ----------------------       ---------------------
<S>                       <C>                          <C>                      <C>                          <C>
Revenues                  $          2,293,884         $         3,525,206      $          2,451,925         $         5,756,093

Expenses                             1,888,994                   2,686,982                 3,986,134                   5,492,766
                         ----------------------       ---------------------    ----------------------       ---------------------

Net Income                $            404,890         $           838,224      $         (1,534,209)        $           263,327
                         ======================       =====================    ======================       =====================
</TABLE>


                                       7
<PAGE>

3.   INCOME PER UNIT

     The profit and loss of the Sector II and Sector III Units for the three
     and six months ended June 30, 2000 and June 30, 1999 are as follows:

<TABLE>
<CAPTION>
                                                         2000                                             1999
                                     ------------------------------------------------ ----------------------------------------------
                                       Sector II      Sector III         Total          Sector II      Sector III         Total
                                         UNITS           UNITS         All Units          UNITS           UNITS         All Units
                                     --------------- --------------- ---------------- --------------- --------------- --------------
                                     For the three   For the three   For the three    For the three   For the three   For the three
                                     months ended    months ended     months ended    months ended    months ended     months ended
                                     June 30, 2000   June 30, 2000    June 30, 2000   June 30, 1999   June 30, 1999    June 30, 1999
                                     --------------- --------------- ---------------- --------------- --------------- --------------
<S>                                  <C>             <C>             <C>              <C>             <C>             <C>
Income (Loss) from investments             $ 30,421        $ 66,848         $ 97,269        $ 67,205       $ 150,205       $ 217,410
                                     --------------- --------------- ---------------- --------------- --------------- --------------

NET INCOME (LOSS)                          $ 30,421        $ 66,848         $ 97,269        $ 67,205       $ 150,205       $ 217,410
                                     =============== =============== ================ =============== =============== ==============

NET INCOME (LOSS) PER UNIT:
    Weighted average number of
       units outstanding                     49,820         104,709          154,529          62,415         132,119         194,264
                                     --------------- --------------- ---------------- --------------- --------------- --------------

    Weighted average net loss
       per General Partner
       and Limited Partner Unit              $ 0.61          $ 0.64           $ 0.63          $ 1.08          $ 1.14          $ 1.12
                                     =============== =============== ================ =============== =============== ==============
</TABLE>

<TABLE>
<CAPTION>
                                                           2000                                                   1999
                                     ------------------------------------------------ ----------------------------------------------
                                       Sector II      Sector III         Total          Sector II      Sector III         Total
                                         UNITS           UNITS         All Units          UNITS           UNITS         All Units
                                     --------------- --------------- ---------------- --------------- --------------- --------------
                                      For the six     For the six     For the six      For the six     For the six     For the six
                                     months ended    months ended     months ended    months ended    months ended     months ended
                                     June 30, 2000   June 30, 2000    June 30, 2000   June 30, 1999   June 30, 1999    June 30, 1999
                                     --------------- --------------- ---------------- --------------- --------------- --------------
<S>                                  <C>             <C>             <C>              <C>             <C>             <C>
Income (Loss) from investments           $ (147,755)     $ (321,068)      $ (468,823)       $ 10,217        $ 27,453        $ 37,670
                                     --------------- --------------- ---------------- --------------- --------------- --------------

NET INCOME (LOSS)                        $ (147,755)     $ (321,068)      $ (468,823)       $ 10,217        $ 27,453        $ 37,670
                                     =============== =============== ================ =============== =============== ==============

NET INCOME (LOSS) PER UNIT:
    Weighted average number of
       units outstanding                     52,053         108,936          160,989          64,216         134,589         198,805
                                     --------------- --------------- ---------------- --------------- --------------- --------------

    Weighted average net loss
       per General Partner
       and Limited Partner Unit             $ (2.84)        $ (2.95)         $ (2.91)         $ 0.16          $ 0.20          $ 0.19
                                     =============== =============== ================ =============== =============== ==============
</TABLE>


                                       8
<PAGE>

4.   FAIR VALUE AND OFF-BALANCE SHEET RISK

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

   MARKET RISK

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

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

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

   CREDIT RISK

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


                                       9
<PAGE>

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

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


Item 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

                  MONTH-END NET ASSET VALUE PER SECTOR II UNIT
<TABLE>
<CAPTION>
-------------------------------------------------------------
        Jan.     Feb.    Mar.     Apr.     May      Jun.
-------------------------------------------------------------
<S>     <C>      <C>     <C>      <C>      <C>      <C>
1999    $156.73  $158.61 $157.90  $159.63  $158.37  $158.96
-------------------------------------------------------------
2000    $157.42  $156.23 $153.51  $153.71  $155.98  $154.07
-------------------------------------------------------------
</TABLE>


                  MONTH-END NET ASSET VALUE PER SECTOR III UNIT

<TABLE>
<CAPTION>
-------------------------------------------------------------
        Jan.     Feb.    Mar.     Apr.     May      Jun.
-------------------------------------------------------------
<S>     <C>      <C>     <C>      <C>      <C>      <C>
1999    $164.61  $166.59 $165.84  $167.65  $166.34  $166.96
-------------------------------------------------------------
2000    $165.34  $164.09 $161.24  $161.44  $163.83  $161.82
-------------------------------------------------------------
</TABLE>

Performance Summary

January 1, 1999 to June 30, 1999
---------------------------------
January 1, 1999 to March 31, 1999

The Partnership profited from trading in crude oil, heating oil, and unleaded
gas. As the year opened, the global oil balance continued to show signs of being
lopsided with estimated year-end 1998 inventories at their highest levels since
1984. During January, petroleum stocks rose by 21 million barrels compared with
a typical gain of 6 to 7 million barrels. Then, on March 23, OPEC ratified new
production cuts totaling 1.716 million barrels per day at its conference. These
new production cuts were scheduled to go into effect on April 1 and proved to be
harbingers of higher prices for crude.

Agricultural trading was also profitable overall, as gains in live hogs and live
cattle offset losses in corn positions. Hog prices plummeted due to a glut of
hogs in the market. At the beginning of the quarter, the corn market continued
to struggle despite a stretch of solid export business. The market's negative
sentiment was deepened by ongoing favorable weather in South America which
continued through February, even though there was a sharp reduction in
Argentina's planted area. Lack of enthusiasm for new crop and less than
spectacular demand continued to depress the corn market throughout the quarter.

Interest rate trading proved profitable for the Partnership as well, as losses
in Japanese 10-year government bonds were offset by gains in 10-year U.S.
Treasury notes and German 10-year bonds. Early in January, the yield on the
Japanese government 10-year bond increased to 1.8%, sharply above the record low
of 0.695% it reached on October 7, 1998. This was triggered by the Japanese
Trust Partnership Bureau's decision to absorb a smaller share of future issues,
leaving the burden of financing future budget deficits to the private sector.


                                       10
<PAGE>

Losses in aluminum overshadowed slight gains in copper during the first quarter.
In January, burdensome warehouse stocks and questionable demand prospects
weighed on base metals as aluminum fell to a 5-year low and copper fell to
nearly an 11-year low. Major surpluses in both metals were expected, keeping
prices down, and there was no supply side response to weak demand and lower
prices. However, the end of March showed copper and aluminum leading a surge in
base metals as prices recovered from multi-year lows.

The Partnership also suffered losses in currency trading during the quarter, as
losses in Japanese yen overpowered gains in Swiss francs. On a trade-weighted
basis, the Swiss franc ended the quarter at close to a seven-month low, mostly
as a result of the stronger U.S. dollar. In January, the yen had advanced by
nearly 35% against the dollar since early in August, and the Bank of Japan
lowered rates to keep the economy sufficiently liquid so as to allow fiscal
spending to restore some growth to the economy and to drive down the surging
yen.

Stock index trading was also unprofitable, as losses were sustained in Hang Seng
and CAC40 positions. 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.

April 1, 1999 to June 30, 1999

The Partnership profited in interest rate trading from short positions in Euro
dollars, U.S. 10-year Treasury notes and U.S. Treasury bonds as the flight to
quality in the bond market reversed during the first half of 1999 and concerns
about higher interest rates continued to rattle the financial markets.

Stock indices trading also resulted in gains overall for the quarter, as
positions in the Hang Seng, Nikkei 225 and Topix Indices all generated profits
as the equity indices rallied worldwide in April and June.

Trading in the agricultural markets also proved profitable for the Partnership.
Gains from live cattle and live hog positions offset losses from short corn
positions. Agricultural commodities, in particular corn, were weak almost across
the board as they were saddled with supply/demand imbalances. In the beginning
of the quarter, continued wetness across the corn belt led to early planting
delays.

The energy sector was profitable as positions in crude oil offset losses from
short positions in natural gas and gas oil trading. The focus of attention in
the natural gas markets since the end of winter was the sharply lower than
year-ago storage injection activity. Crude oil prices rallied much higher and
faster than expected following last quarter's ratification of an OPEC/non-OPEC
agreement to cut production by over 2 million barrels per day. Natural gas
prices also rallied sharply over the quarter, reflecting, in part, growing
concerns about a decline in US natural gas production.

Currency trading resulted in losses for the Partnership. Gains in Euro trading
were offset by losses sustained in British pound trading and from short
positions in the Canadian dollar. After suffering under the weight of lower
commodity prices and the Asian recession, the Canadian dollar underwent a
significant rally in the first half of 1999, moving up about 3 cents from the
end of 1998.

In the metals sector, gains from short gold positions were overshadowed by
losses in copper and nickel trading. Throughout the first half of 1999, gold
prices were in a state of gradual erosion and in early June, prices hit their
lowest levels in over 20 years. Gold continued to show a lack of response to
political and military events such as Kosovo and also lost much of its role as a
monetary asset and flight to safety vehicle. The economic scenario for Asia,
Brazil, emerging market nations and Europe helped keep copper and other base
metals on the defensive as demand receded with virtually no supply side
response.


                                       11
<PAGE>

January 1, 2000 to June 30, 2000
---------------------------------
January 1, 2000 to March 31, 2000

Energy trading was profitable for the quarter due to long crude oil and unleaded
gas positions. Despite the possibility of OPEC increasing oil production by 5%,
crude oil prices continued to rise as such a hike would still leave oil
inventories at levels much below normal during the balance of the year. Prices
began to decline in mid-March as Iran backed down from its position on the point
of "no increase" and again later in the month as OPEC announced a production
increase of 1.716 million barrels per day offsetting some gains from the
previous two months.

Stock Index trading was profitable for the quarter. During the month of January,
the Hang Seng Index found market conditions to be difficult. However stock index
trading returned in February and March with gains in positions in CAC 40 Euro
futures, DAX German Stock Index and long S&P 500 positions resulted in gains as
investors focused more on value stocks near the end of the quarter.

Metals trading alternated from profitable to unprofitable during the quarter. In
January gains in aluminum positions outweighed losses in zinc and copper,
however losses in aluminum and gold positions outweighed gains in nickel
positions during February. In March metals trading was slightly profitable as
gains in silver positions outweighed losses in zinc and copper.

Short Swiss franc and Euro positions launched the quarter with gains after
officials from the Group of Seven met and failed to express concern about the
low levels of the European currency, however the positions were unprofitable in
February offsetting gains in Japanese yen positions. Short Euro positions then
bounced back in March but were outweighed by losses in Japanese yen and British
pound positions.

Agriculture trading resulted in losses for the quarter. In January and February
gains in sugar positions were outweighed by losses in corn positions, however in
March corn positions were profitable as prices rose, but were outweighed by
unprofitable soyoil and sugar positions. Corn prices fluctuated as changes in
weather forecasts occurred throughout the quarter.

Short Eurodollar trading was profitable as the currency continued to decline in
January. The European Union ministers blamed the currency's slide in January on
rapid U.S. growth and fears that the Federal Reserve will increase U.S. interest
rates. These profits were far outweighed by losses in the Japanese 10-year bond,
U.S. 10-year Treasury note positions and long U.S. Treasury positions as the
yield curve fluctuated widely during the quarter.

April 1, 2000 to June 30, 2000

Long natural gas positions proved to be profitable throughout the quarter;
however, crude oil faced whipsaw market conditions. Prices on crude oil declined
early in the quarter in the wake of OPEC's March decision to increase
production; however, prices later rose as the International Energy Agency
reported the need for additional OPEC oil to prevent a shortage in inventory. In
June, long positions of light crude oil resulted in profits despite OPEC's
agreement to raise the production ceiling effective July 1. Prices sustained
their levels because the market was looking for a larger production hike.

Agriculture trading was profitable in the quarter as sugar and live hog
positions outweighed losses from soybean trading. An exporter made the first
sale of U.S. pork to China under a 1999 bilateral agricultural agreement,
providing a new avenue of opportunity for U.S. pork producers. The mid-month
USDA grain crop report projected a 12% rise in soybean inventories from last
season. This resulted in fears of an abundance of supply and therefore, lower
prices for the commodity. Forecasts of reduced Brazilian exports and crop damage
in China and Pakistan combined with greater than expected demand from Russia,
resulted in gains for the Partnership's long sugar positions.

Currency trading proved profitable for the Partnership. Gains from short Euro
currency and long Swiss franc positions outweighed losses sustained in other
currencies. Despite the dramatic interest rate hikes by the Swiss National Bank
("SNB") and the weakness of the Euro, the SNB said it will not keep the Swiss
franc from rising. Short positions in the British pound and Canadian dollar
resulted in gains for the sector during May. The pound was particularly weak in
the wake of the Bank of England's references to "sterling overvaluation." The
Euro rallied to U.S. $0.97 early in the month, but faced profit-taking after
news of some capital outflow from Euroland.

Stock index trading was unprofitable due to losses sustained in Nikkei 225 and
S&P 500 positions early in the quarter. Signs of rising inflation fueled fears
that the Federal Reserve will continue to raise interest rates aggressively to
slow the robust economy. However, the Nikkei 225 trading showed gains at the end
of the quarter as well as did the All Ordinaries Index as the Australian Index
finished higher in June.

In metals trading, short aluminum positions were profitable early in the quarter
as a refinery indicated that it will return to operation this year, adding
supply to the market. During the middle of the quarter, copper trading resulted
in losses for the sector. A Freeport, Indonesia mine announced output cuts would
not be as large as the Indonesian government had forecast, resulting in losses
for the Partnership's long positions. Losses continued through the quarter as
trading in both base and precious metals was unprofitable as losses were
sustained in gold and aluminum positions. As has been the ongoing pattern, gold
showed virtually no response to activities in the financial and equity markets,
including the surge in energy prices.

Interest rate trading results were unprofitable for the quarter. Early on losses
were incurred from U.S. Treasury bond and Euro 10-year bond trading. U.S. bond
yields fell during the month as investors shifted to Treasuries due to increased
volatility in the NASDAQ and other equity markets. The Euro traded higher during
May on reports that the European Central Bank may buy the currency to boost its
value, but finally trading was again unprofitable as losses were incurred in
Euro dollar and Japanese government bond positions. Short positions resulted in
losses as the Euro dollar improved after the European Central Bank's 50 basis
point repo rate hike.


                                       12
<PAGE>

                           PART II - OTHER INFORMATION

Item 1.    Legal Proceedings

           There are no pending proceedings to which the Partnership or the
           General Partner is a party.

Item 2.    Changes in Securities and Use of Proceeds

           (a) None.
           (b) None.
           (c) None.
           (d) None.

Item 3.    Defaults Upon Senior Securities

           None.

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

           None.

Item 5.    Other Information

           None.

Item 6.    Exhibits and Reports on Form 8-K.

           (a)  EXHIBITS

           There are no exhibits required to be filed as part of this report.

           (b)  REPORTS ON FORM 8-K

           There were no reports on Form 8-K filed during the first six months
           of fiscal 2000.


                                       13
<PAGE>

                                   SIGNATURES

Pursuant to the requirements 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)






Date: August 15, 2000                By /s/ JOHN R. FRAWLEY, JR.
                                        ------------------------
                                        John R. Frawley, Jr.
                                        Chairman, Chief Executive Officer,
                                        President and Director



Date: August 15, 2000                By /s/ MICHAEL L. PUNGELLO
                                        -----------------------
                                        Michael L. Pungello
                                        Vice President, Chief Financial Officer
                                        and Treasurer




                                      14