<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 September 30, 1997
------------------
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 0-18702
THE SECTOR STRATEGY FUND/SM/ L.P.
---------------------------------------------
(Exact Name of Registrant as
specified in its charter)
Delaware 13-3568563
- --------------------------------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o Merrill Lynch Investment Partners Inc.
Merrill Lynch World Headquarters - South Tower, 6th Fl.
World Financial Center New York, New York 10080-6106
-----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
212-236-5662
--------------------------------------------------------------
(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_____
-----
This document contains 13 pages.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE SECTOR STRATEGY FUND/SM/ L.P.
---------------------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------- ----------------
<S> <C> <C>
ASSETS
- ------
Accrued interest $ 86,515 $ 89,553
Equity in commodity futures trading accounts:
Cash and option premiums 19,571,362 20,280,086
Net unrealized profit on open contracts 777,282 598,158
Investment 6,864,100 7,321,993
Receivable from outside investments 72,049 4,251,647
----------- ----------
TOTAL $27,371,308 $32,541,437
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ 282,856 $ 229,669
Profit shares payable 73,780 205,317
Brokerage commissions payable 149,066 153,046
Administrative fees payable 4,259 4,373
----------- -----------
Total liabilities 509,961 592,405
----------- -----------
PARTNERS' CAPITAL:
General Partners (2518 and 2518 Units) 472,295 489,672
Limited Partners (140691 and 161771 Units) 26,389,052 31,459,360
----------- -----------
Total partners' capital 26,861,347 31,949,032
----------- -----------
TOTAL $27,371,308 $32,541,437
=========== ===========
NET ASSET VALUE PER UNIT
(Based on 143209 and 164289 Units
outstanding) $187.57 $194.47
=========== ===========
See notes to financial statements.
</TABLE>
2
<PAGE>
THE SECTOR STRATEGY FUND/SM/ L.P.
---------------------------------------------
(a Delaware limited partnership)
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
REVENUES:
Trading profits (loss):
Realized $(1,092,510) $ 273,646 $ (890,624) $2,201,775
Change in unrealized 872,842 443,877 179,124 29,796
------------------ ------------------ ------------------ ------------------
Total trading results (219,668) 717,523 (711,500) 2,231,571
------------------ ------------------ ------------------ ------------------
Interest income 276,530 347,961 863,737 1,108,016
Income from investment 851,792 - 484,712 -
------------------ ------------------ ------------------ ------------------
Total revenues 908,654 1,065,484 636,949 3,339,587
------------------ ------------------ ------------------ ------------------
EXPENSES:
Profit shares 21,972 81,807 120,779 252,673
Brokerage commissions 464,567 670,437 1,500,621 2,160,611
Administrative fees 13,274 19,156 42,875 61,732
------------------ ------------------ ------------------ ------------------
Total expenses 499,813 771,400 1,664,275 2,475,016
------------------ ------------------ ------------------ ------------------
NET INCOME (LOSS) $ 408,841 $ 294,084 $(1,027,326) $ 864,571
================== ================== ================== ==================
NET INCOME (LOSS) PER UNIT:
Weighted average number of units
outstanding 148,099 173,739 154,410 186,053
================== ================== ================== ==================
Weighted average net income (loss)
per Limited Partner
and General Partner Unit $2.76 $1.69 $(6.65) $4.65
================== ================== ================== ==================
See notes to financial statements.
</TABLE>
3
<PAGE>
THE SECTOR STRATEGY FUND/SM/ L.P.
---------------------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
For the nine months ended September 30, 1997 and 1996
-----------------------------------------------------
<TABLE>
<CAPTION>
Units Limited Partners General Partner Total
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
December 31, 1995 200,460 $34,248,684 $435,363 $34,684,047
Net Income - 852,573 11,998 864,571
Redemptions (30,009) (5,244,059) - (5,244,059)
----------------- ------------------ ------------------ -----------------
PARTNERS' CAPITAL,
September 30, 1996 170,451 $29,857,198 $447,361 $30,304,559
================= ================== ================== =================
PARTNERS' CAPITAL,
December 31, 1996 164,289 $31,459,360 $489,672 $31,949,032
Net Loss - (1,009,949) (17,377) (1,027,326)
Redemptions (21,080) (4,060,359) - (4,060,359)
----------------- ------------------ ------------------ -----------------
PARTNERS' CAPITAL,
September 30, 1997 143,209 $26,389,052 $472,295 $26,861,347
================= ================== ================== =================
See notes to financial statements.
</TABLE>
4
<PAGE>
THE SECTOR STRATEGY FUND/SM/ L.P.
(A Delaware Limited Partnership)
------------------------------
NOTES TO FINANCIAL STATEMENTS
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/ L.P. (the "Partnership"or
the "Fund") as of September 30, 1997 and the results of its operations for
the nine months ended September 30, 1997 and 1996. 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 general 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, 1996
(the "Annual Report").
2. INVESTMENT
At September 30, 1997, the Partnership had an investment in the ML JWH
Financials and Metals Portfolio L.L.C. ("JWH LLC").
Total revenues and fees with respect to such investment is set forth as
follows:
<TABLE>
<CAPTION>
For the three months Total Brokerage Administrative Profit Income from
ended September 30, 1997 Revenue Commissions Fees Shares Investments
-------------- ----------------- ----------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
JWH LLC $1,051,170 $156,754 $ 4,478 $38,146 $851,792
============== ================= ================= ============== ===================
For the nine months Total Brokerage Administrative Profit Income from
ended September 30, 1997 Revenue Commissions Fees Shares Investments
-------------- ----------------- ----------------- -------------- -------------------
JWH LLC $ 995,812 $458,411 $13,097 $39,592 $484,712
============== ================= ================= ============== ===================
</TABLE>
5
<PAGE>
As a significant investee, income statement information for JWH LLC is set
forth as follows:
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
September 30, September 30,
1997 1997
--------------------- ----------------------
<S> <C> <C>
REVENUES:
Trading profits (loss):
Realized $6,666,871 $3,199,095
Change in unrealized 1,824,620 3,394,200
--------------------- ----------------------
Total trading results 8,491,491 6,593,295
--------------------- ----------------------
Interest income 788,805 2,312,273
--------------------- ----------------------
Total revenues 9,280,296 8,905,568
--------------------- ----------------------
EXPENSES:
Profit shares 389,699 406,321
Brokerage commissions 1,446,028 4,088,876
Administrative fees 39,632 110,113
--------------------- ----------------------
Total expenses 1,875,359 4,605,310
--------------------- ----------------------
NET INCOME $7,404,937 $4,300,258
===================== ======================
</TABLE>
6
<PAGE>
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership's revenues by reporting category for the respective periods
were as follows:
<TABLE>
<CAPTION>
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Interest rate &
Stock indices $ 901,570 $ 453,229 $ 189,616 $ (110,843)
Commodities (730,816) 215,732 6,701 691,307
Currencies 433,134 (469,298) 616,821 603,930
Energy 251,295 512,972 (467,817) 951,999
Metals (1,074,851) 4,888 (1,056,821) 95,178
---------------------- ---------------------- ---------------------- ----------------------
$ (219,668) $ 717,523 $ (711,500) $2,231,571
====================== ====================== ====================== ======================
</TABLE>
The contract/notional values of the Partnership's open derivative instrument
positions as of September 30, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------- ---------------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Interest rate &
Stock indices $138,236,650 $11,981,429 $42,735,419 $ 6,385,831
Commodities 1,945,652 5,004,880 904,420 3,430,113
Currencies 18,490,501 30,513,779 19,592,956 23,538,327
Energy 5,808,578 - 3,032,640 -
Metals 6,119,413 9,157,398 1,911,070 4,170,523
------------------ ------------------ ------------------ ------------------
$170,600,794 $56,657,486 $68,176,505 $37,524,794
================== ================== ================== ==================
</TABLE>
The contract/notional value of the Partnership's exchange-traded and non-
exchange-traded open derivative instrument positions as of September 30, 1997
and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------- ---------------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Exchange
traded $150,038,648 $34,012,118 $52,198,423 $15,604,964
Non-Exchange
traded 20,562,146 22,645,368 15,978,082 21,919,830
------------------ ------------------ ------------------ ------------------
$170,600,794 $56,657,486 $68,176,505 $37,524,794
================== ================== ================== ==================
</TABLE>
7
<PAGE>
The average fair value of the Partnership's derivative instrument positions
which were open as of the end of each calendar month during the nine months
ended September 30, 1997 and the year ended December 31, 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- ---------------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Interest rate &
Stock indices $ 77,674,907 $31,175,462 $ 71,153,009 $ 40,875,010
Commodities 4,447,814 3,185,950 7,364,336 2,460,805
Currencies 18,162,929 26,636,270 43,682,609 47,984,354
Energy 3,645,480 1,978,672 2,998,134 1,830,883
Metals 6,296,269 7,106,430 4,032,918 8,151,036
------------------ ------------------ ------------------ ------------------
$110,227,399 $70,082,784 $129,231,006 $101,302,088
================== ================== ================== ==================
</TABLE>
As of September 30, 1997 and December 31, 1996, $14,590,575 and $15,919,987 of
the Partnership's assets, respectively, were held in segregated accounts at MLF
in accordance with Commodity Futures Trading Commission regulations.
The gross unrealized profit and the net unrealized profit (loss) on the
Partnership's open derivative instrument positions as of September 30, 1997 and
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------- -----------------------------------------
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Profit Profit (Loss) Profit Profit (Loss)
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Exchange
traded $1,028,579 $693,789 $621,352 $481,708
Non-Exchange
traded 797,336 83,493 361,146 116,450
------------------- ------------------- ------------------- -------------------
$1,825,915 $777,282 $982,498 $598,158
=================== =================== =================== ===================
</TABLE>
4. RELATED PARTY TRANSACTIONS
MLIP is currently reviewing certain aspects of the interest arrangements
between the Partnership and certain affiliates of MLIP. The purpose of the
review is to confirm that the Partnership received interest credits as described
in its Prospectus. The results of this review have not been determined.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operational Overview: Advisor Selections
- ----------------------------------------
Due to the nature of the Fund's business, its results of operations
depend on Merrill Lynch Investment Partners Inc.'s, ("MLIP") ability to select
Advisors and determine the appropriate percentage of assets to allocate to them
for trading, as well as the Advisors' ability to recognize and capitalize on
trends and other profit opportunities in different sectors of the world
commodity markets. MLIP's Advisor selection procedure and leveraging analysis,
as well as the Advisors' trading methods, are confidential, so that
substantially the only information that can be furnished regarding the Fund's
results of operations is contained in the performance record of its trading.
Unlike operating businesses, general economic or seasonal conditions do not
directly affect the profit potential of the Fund, and its past performance is
not necessarily indicative of future results. Because of the speculative nature
of its trading, operational or economic trends have little relevance to the
Fund's results. MLIP believes, however, that there are certain market
conditions, for example, markets with strong price trends, in which the Fund has
a better likelihood of being profitable than in others.
8
<PAGE>
As of October 1, 1997, the Partnership's assets were allocated as
follows:
<TABLE>
<CAPTION>
TRADING ADVISOR SECTOR % ALLOCATION
- -------------------------------------- ----------------- -------------
<S> <C> <C>
John W. Henry & Company, Inc. Financials\Metals 25.47
Graham Capital Management, L.P. Diversified 17.47
AIS Futures Management, Inc. Diversified 16.44
Meridian Capital Management Diversified 15.51
Allied Irish Capital Management Ltd. Financials 6.66
Telesis Management Inc. Diversified 18.45
------
100.00%
</TABLE>
MLIP expects to continue to change both allocations and Advisor
selections from time to time without advance notice to existing investors.
MLIP expects to continue to change both allocations and Advisors from
time to time without advance notice to existing investors.
MLIP's Advisor Selections
- -------------------------
MLIP has no timetable or schedule for making Advisor changes or
reallocations, and generally intends to make a medium- to long-term commitment
to all Advisors selected. However, there can be no assurance as to the
frequency or number of the Advisor changes which may take place in the future,
or as to how long any of the current Advisors will continue to manage assets for
the Fund.
Results of Operations - General
- -------------------------------
MLIP believes that multi-Advisor futures funds should be regarded as
medium- to long-term investments but, unlike an operating business, it is
difficult to identify "trends" in the Fund's operations and virtually impossible
to make any predictions regarding future results based on results to date.
Markets in which sustained price trends occur with some frequency tend
to be more favorable to managed futures investments than "whipsaw," "choppy"
markets, but (i) this is not always the case, (ii) it is impossible to predict
when trending markets will occur and (iii) different Advisors are affected
differently by trends in general as well as by particular types of trends.
The Fund controls credit risk in its trading in the derivatives markets
by trading only through Merrill Lynch entities which MLIP believes to be
creditworthy. The Fund attempts to control the market risk inherent in its
derivatives trading by utilizing a multi-advisor, multi-strategy structure.
This structure purposefully attempts to diversify the Fund's Advisor group among
different strategy types and market sectors in an effort to reduce risk
(although the Fund's portfolio currently emphasizes technical and trend-
following approaches).
Performance Summary
- -------------------
During the first nine months of 1996, the Fund's average month-end Net
Assets equaled
$32,251,253, and the Fund recognized gross trading gains of $2,231,571 or 6.91%
of such average month-end Net Assets. Brokerage commissions of $2,160,611 or
6.70%, Administrative expenses of $61,732 or .19% and Profit shares of $252,673
or .78% of average month-end Net Assets were paid. Interest income of
$1,108,016 or 3.44% of average month-end Net Assets resulted in net income of
$864,571 or 2.68% of average month-end Net Assets, which resulted in a 2.76%
increase in the Net Asset Value per Unit since December 31, 1995.
During the first nine months of 1997, the Fund's average month-end Net
Assets equaled
$29,463,983, and the Fund recognized gross trading losses of $711,500 or 2.42%
of such average month-end Net Assets. Brokerage commissions of $ 1,500,621 or
5.09%, Administrative expenses of $42,875 or .15% and Profit shares of
$120,779 or .41% of average month-end Net Assets were paid. Interest income of
$863,737 or 2.93% and Gain from Investments of $484,712 or 1.65% of average
month-end Net Assets resulted in a net loss of $1,027,327 or 3.49% of average
month-end Net Assets which resulted in a 3.55% decrease in the Net Asset Value
per Unit since December 31, 1996.
During the first nine months of 1997 and 1996, the Fund experienced 11
profitable months and 7 unprofitable months.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER UNIT
Jan. Feb. Mar. April May June July Aug. Sep.
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $181.96 $170.88 $173.16 $175.80 $173.86 $176.00 $171.33 $175.62 $177.79
- ----------------------------------------------------------------------------------------------------------
1997 $198.92 $199.62 $198.24 $192.04 $184.00 $184.90 $196.21 $184.18 $187.57
- ----------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Importance of Market Factors
- ---------------------------
Comparisons between the Fund's performance in a given period in one
fiscal year to the same period in a prior year are unlikely to be meaningful,
given the uncertainty of price movements in the markets traded by the Fund. In
general, MLIP expects that the Fund is most likely to trade successfully in
markets which exhibit strong and sustained price trends. The current Advisor
group emphasizes technical and trend-following methods. Consequently, one would
expect that in trendless, "choppy" markets the Fund would likely be
unprofitable, while in markets in which major price movements occur, the Fund
would have its best profit potential (although there could be no assurance that
the Fund would, in fact, trade profitably). However, trend-followers not
infrequently will miss major price movements, and market corrections can result
in rapid and material losses (sometimes as much as 5% in a single day).
Although MLIP monitors market conditions and Advisor performance on an ongoing
basis in overseeing the Fund's trading, MLIP does not attempt to "market
forecast" or to "match" trading styles with predicted market conditions.
Rather, MLIP concentrates on quantitative and qualitative analysis of
prospective Advisors, as well as on statistical studies of the historical
performance parameters of different Advisor combinations in selecting Advisors
and allocating and reallocating Fund assets among them.
Because managed futures advisors' strategies are proprietary and
confidential and market movements unpredictable, selecting advisors to implement
speculative trading strategies involves considerable uncertainty. Furthermore,
the concentration of the Fund's current Advisor portfolio, both in terms of the
number of managers retained and the common emphasis of their strategies on
technical and trend-following methods, increases the risk that unexpectedly bad
performance, turbulent market conditions or a combination of the two will result
in significant losses.
Liquidity
- ---------
Most of the Partnership's assets are held as cash which, in turn, is
used to margin its futures positions and earns interest income and is withdrawn,
as necessary, to pay redemptions and fees.
The futures contracts in which the Partnership trades may become illiquid
under certain market conditions. Commodity exchanges limit fluctuations in
futures prices during a single day by regulations referred to as "daily limits."
During a single day no trades may be executed at prices beyond the daily limit.
Once the price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
generally neither be taken nor liquidated unless traders are willing to effect
trades at or within the limit. Futures contracts have occasionally moved to the
daily limit for several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly liquidating its futures
(including its options) positions. There are no limitations on the daily price
moves in trading foreign currency forward contracts through banks, although
illiquidity may develop in the forward markets due to large spreads between
"bid" and "ask" prices quoted. (Forward contracts are the bank version of
currency futures contracts and are not traded on exchanges.)
Capital Resources
- -----------------
The Partnership does not have, nor does it expect to have, any capital
assets and has no material commitments for capital expenditures. The
Partnership uses its assets to supply the necessary margin or premiums for, and
to pay any losses incurred in connection with, its trading activity and to pay
redemptions and fees.
Inflation is not a significant factor in the Fund's profitability,
although inflationary cycles can give rise to the type of major price movements
which can have a materially favorable or adverse impact on the Fund's
performance.
Changes in the level of prevailing interest rates (a factor generally
associated with inflation) could have a material effect on the percentage of the
total capital which is committed to trading, as interest rates affect the
calculation of the discounted minimum Net Asset Value per Unit which Merrill
Lynch & Co., Inc. has guaranteed to investors.
10
<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.
John W. Henry & Company, Inc. ("JWH") is one of the Advisors retained by
the Fund, managing approximately 25.47% of the Fund's assets committed to
trading October 1, 1997. In September 1996, JWH was named as a co-defendant in
a class action lawsuit brought in the California Superior Court, Los Angeles
County and in the New York Supreme Court, New York County. In November 1996,
JWH was named as a co-defendant in a class action complaint filed in Superior
Court of the State of Delaware for Newcastle County that contained the same
allegations as the New York and California complaints. The actions, which seek
unspecified damages, purport to be brought on behalf of investors in certain
Dean Witter, Discover & Co. ("Dean Witter") commodity pools, some of which are
advised by JWH, and are primarily directed at Dean Witter's alleged fraudulent
selling practices in connection with the marketing of those pools. JWH is
essentially alleged to have aided and abetted or directly participated with Dean
Witter in those practices. JWH believes the allegations against it are without
merit; it intends to contest these allegations vigorously, and is convinced that
it will be shown to have acted properly and in the best interest of the
investors.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Effective October 1, 1997, the Fund restarted its trading program for an
additional "time horizon" of two years' duration, with a new Principal Assurance
Date of September 30, 1999. The minimum assured NAV per Unit for the third
Principal Assurance Date was set at $150.06 (80% of the September 30, 1997 NAV
per Unit of $187.57), a level which will permit 100% of the Fund's assets to be
allocated to trading. This new minimum NAV Per Unit will be guaranteed only in
respect of Units outstanding as of the September 30, 1999 Principal Assurance
Date. Unitholders who redeem prior to such date will not be entitled to any
benefits under this guarantee.
In all other respects, the current business terms of the Fund will continue
unchanged during its third "time horizon." No new redemption charges will be
imposed, and the Fund's brokerage commissions will continue to be calculated on
the same basis as they have to date.
As in the case of the Fund's first two Principal Assurance Dates, the
guarantee of a minimum NAV per Unit as of the Fund's third Principal Assurance
Date is not a guarantee of profit. If the NAV per Unit as of the third
Principal Assurance Date is not more than the guaranteed minimum NAV per Unit,
Unitholders will not only have lost 20% of the value of their investment on
September 30, 1997, but also the entire use of the invested funds for
approximately two years.
Effective August 11, 1997, Jonathan Bren joined Graham Capital Management
L.P. ("Graham") as Managing Director and as a principal of the firm. Mr. Bren
will be responsible for all aspects of business development and client relations
at Graham. Mr. Bren was previously a Managing Director of Alpha Investment
Management where he was involved in all aspects of the alternative investment
business since September 1990. Prior to joining Alpha, from March 1988 to
August 1990, Mr. Bren worked for Asher Edelman's hedge funds which specialized
in event-driven investing. From January 1985 to February 1988, Mr. Bren worked
in corporate finance at Drexel Burnham Lambert, specializing in the origination
of convertible bonds for small companies. From May 1983 to December 1984, Mr.
Bren was a corporate finance analyst at Allen and Company, Inc. Mr. Bren
graduated from Franklin and Marshall College with a BA in Economics in 1982.
11
<PAGE>
Ms. Eilene Nicoll is the vice president of trading administration and a member
of the Investment Policy Committee of John W. Henry & Company, Inc. ("JWH").
Prior to joining JWH in July 1997, Ms. Nicoll was a vice president beginning in
January 1997 at Commercial Materials, L.L.C., a newly organized corporation
which has not yet begun operations. She was a vice president and director at
West Course Capital, Inc., a CTA, from January 1994 until it dissolved in
December 1996. At West Course Capital, Inc., Ms. Nicoll was responsible for
operations and administration. Prior to joining West Course Capital, Inc., she
was a vice president at REFCO, Inc. from May 1991 to December 1993. While at
REFCO, Inc., she was also a principal of Nikkhah & Nicoll Asset Management,
Inc., a CPO. Ms. Nicoll was at Shearson Lehman Brothers from January 1987 to
December 1990 as vice president-futures, and subsequently, from January 1991 to
May 1991, at Moore Capital Management, Inc. where she was involved in all
aspects of the commodity trading advisor business, including administration,
marketing, and allocation of proprietary capital. From 1984 through 1986, she
was an independent discretionary trader. Ms. Nicoll was employed at
Commodities Corporation (USA) N.V. from 1978 to 1984 where she was an assistant
vice president. Ms. Nicoll received her B.A. in psychology from Brooklyn
College.
Ms. Glenda G. Twist and Mr. John A. Ford are no longer principals of JWH
effective August 1, 1997 and August 31, 1997, respectively.
On August 11, 1997, AIS Futures Management, Inc. relocated to Connecticut and
changed its form of organization from a corporation to a limited liability
company for various corporate and tax reasons. The principals and management of
the advisor remain the same in the newly-created limited liability company, AIS
Futures Management LLC.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
There are no exhibits required to be filed with this document.
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during the first nine months of
fiscal 1997.
12
<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/ L.P.
By: MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
Date: November 14, 1997 By /s/JOHN R. FRAWLEY, JR.
-----------------------
John R. Frawley, Jr.
President, Chief Executive Officer
and Director
Date: November 14, 1997 By /s/MICHAEL A. KARMELIN
----------------------
Michael A. Karmelin
Chief Financial Officer, Vice President
and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 0 0
<RECEIVABLES> 27,371,308 30,837,211
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 27,371,308 30,837,211
<SHORT-TERM> 0 0
<PAYABLES> 509,961 532,652
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 26,861,347 30,304,559
<TOTAL-LIABILITY-AND-EQUITY> 27,371,308 30,837,211
<TRADING-REVENUE> (711,500) 2,231,571
<INTEREST-DIVIDENDS> 863,737 1,108,016
<COMMISSIONS> 1,664,275 2,475,016
<INVESTMENT-BANKING-REVENUES> 484,712 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> (1,027,326) 864,571
<INCOME-PRE-EXTRAORDINARY> (1,027,326) 864,571
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,027,326) 864,571
<EPS-PRIMARY> (6.65) 4.65
<EPS-DILUTED> (6.65) 4.65
</TABLE>
