<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, 1996
--------------
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/ IV L.P.
--------------------------------------
(Exact Name of Registrant as
specified in its charter)
Delaware 13-3648784
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o Merrill Lynch Investment Partners Inc.
(formerly ML Futures 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)
212-236-4161
----------------------------------------------------
(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 12 pages.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE SECTOR STRATEGY FUND/SM/ IV L.P.
--------------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
- ------
Accrued interest $ 22,277 $ 32,078
Equity in commodity futures trading accounts
Cash and option premiums 5,687,165 7,732,274
Net unrealized gain on open contracts 141,019 320,748
------------- ------------
TOTAL $5,850,461 $8,085,100
============= ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ 399,748 $ 312,195
Brokerage commissions payable (Note 2) 42,312 56,042
Profit shares payable 857 9,701
Administrative expense payable (Note 2) 1,109 -
------------ ------------
Total liabilities 444,026 377,938
------------ ------------
PARTNERS' CAPITAL:
General Partner:
(671 and 671 Series A Units outstanding) 74,821 79,108
(214 and 214 Series B Units outstanding) 25,277 26,769
Limited Partners:
(38,555 and 48,856 Series A Units outstanding) 4,301,599 5,762,501
( 8,520 and 14,723 Series B Units outstanding) 1,004,738 1,838,784
------------ ------------
Total partners' capital 5,406,435 7,707,162
------------ ------------
TOTAL $5,850,461 $8,085,100
============ ============
NET ASSET VALUE PER UNIT
SERIES A $111.57 $117.95
======= =======
SERIES B $117.93 $124.89
======= =======
</TABLE>
See notes to financial statements.
2
<PAGE>
THE SECTOR STRATEGY FUND/SM/ IV L.P.
--------------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Trading profits (loss):
Realized $103,980 $1,093,215 $( 53,146) $1,791,248
Change in unrealized (10,200) (687,560) (179,729) (611,312)
----------- ------------ ----------- ------------
Total trading results 93,780 405,655 (232,875) 1,179,936
----------- ------------ ----------- ------------
Interest income 73,020 130,923 153,771 275,382
----------- ------------ ----------- ------------
Total revenues 166,800 536,578 ( 79,104) 1,455,318
----------- ------------ ----------- ------------
EXPENSES:
Profit shares 857 47,123 3,194 82,529
Brokerage commissions (Note 2) 139,422 211,974 298,302 442,485
Administrative expense (Note 2) 3,664 - 7,849 -
----------- ------------ ----------- ------------
Total expenses 143,943 259,097 309,345 525,014
----------- ------------ ----------- ------------
NET INCOME (LOSS) $ 22,857 $ 277,481 $(388,449) $ 930,304
=========== ============ =========== ============
NET INCOME (LOSS) PER UNIT:
Weighted average number of units
outstanding 56,133 86,343 $59,220 93,650
======= ======= ======== =======
Weighted average net income
(loss) per unit $ .41 $3.21 $(6.56) $9.93
====== ====== ======= ======
</TABLE>
See notes to financial statements.
3
<PAGE>
THE SECTOR STRATEGY FUND/SM/ IV L.P.
----------------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
For the six months ended June 30, 1996 and 1995
-----------------------------------------------
<TABLE>
<CAPTION>
Units Limited Partners General Partner
--------- ---------------- ---------------
Series A Series B Series A Series B Series A Series B Total
-------- -------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
PARTNERS' CAPITAL,
DECEMBER 31, 1994 79,651 25,053 $8,427,977 $2,751,817 $130,084 $41,743 $11,351,621
Net income - - 656,128 258,601 11,186 4,389 930,304
Redemptions (16,320) (6,655) (1,835,810) (789,184) - - (2,624,994)
---------- ---------- ------------- ------------ ------------ ---------- -------------
PARTNERS' CAPITAL,
JUNE 30, 1995 63,331 18,398 $7,248,295 $2,221,234 $141,270 $46,132 $9,656,931
======== ========== ============= ============ ============ ========== =============
PARTNERS' CAPITAL,
DECEMBER 31, 1995 49,527 14,937 $5,762,501 $1,838,784 $ 79,108 $26,769 $ 7,707,162
Net loss - - (294,857) (87,813) (4,287) (1,492) (388,449)
Redemptions (10,301) (6,203) (1,166,045) (746,233) - - (1,912,278)
--------- --------- ------------- ------------ ------------ ---------- -------------
PARTNERS' CAPITAL,
JUNE 30, 1996 39,226 8,734 $4,301,599 $1,004,738 $ 74,821 $25,277 $ 5,406,435
========= ========= ============ ============ ============ ========== =============
</TABLE>
See notes to financial statements.
4
<PAGE>
THE SECTOR STRATEGY FUND/TM/ IV 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/ IV L.P. (the
"Partnership") as of June 30, 1996 and the results of its operations for
the six months ended June 30, 1996 and 1995. 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, 1995 (the "Annual Report").
2. RELATED PARTY TRANSACTIONS
The Partnership pays brokerage commissions to MLF at a flat rate of 0.833
of 1% on the Series A Units (a 10% annual rate) and 0.75 of 1% on the
Series B Units (a 9% annual rate) of the Partnership's month-end assets.
Effective January 1, 1996, the Partnership began to pay Administrative Fee
to the General Partner of .020833% (a .25% annual rate). The General
Partner estimates that the round-turn equivalent commission rates charged
to the Partnership during the six months ended June 30, 1996 and 1995 was
approximately $71 and $20, respectively (not including, in calculating
round-turn equivalents, forward contracts on a futures-equivalent basis).
MLF pays the Advisors annual Consulting Fees ranging from 3% to 4% of the
Partnership's average month-end assets after reduction for a portion of the
brokerage commissions.
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership trades futures, options and forward contracts in financial
instruments, stock indices, commodities, currencies, energy and metals. The
Partnership's revenues by reporting category for the six months ended June
30, 1996 were as follows:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Interest Rates $(510,017)
Stock indices 10,172
Commodities (2,997)
Currencies 231,805
Energy 4,090
Metals 34,072
----------------
$(232,875)
================
</TABLE>
Market Risk
-----------
Derivative instruments involve varying degrees of off-balance sheet market
risk, and 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 unrealized gain or loss on such derivative
instruments as reflected in the Statements of Financial Condition. 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 as well as the volatility and liquidity of the markets in which
the derivative instruments are traded.
The General Partner has procedures in place intended to control market
risk, although there can be no assurance that they will, in fact, succeed
in doing so. These procedures focus primarily on
5
<PAGE>
monitoring the trading of the Advisors selected from time to time for the
Partnership, adjusting the percentage of the Partnership's total assets
allocated to trading, calculating the Net Asset Value of the Advisors'
respective Partnership accounts as of the close of business on each day and
reviewing outstanding positions for over-concentration-both on an
Advisor-by-Advisor and on an overall Partnership basis. While the General
Partner will not itself intervene in the markets to hedge or diversify the
Partnership's market exposure (although the General Partner does adjust the
percentage of the Partnership's total assets allocated to trading), the
General Partner may urge Advisors to reallocate positions, or itself
reallocate Partnership assets among Advisors (although typically only as of
the end of a month) in an attempt to avoid over-concentrations. However,
such interventions are unusual. Except in cases in which it appears that an
Advisor has begun to deviate from past practice or trading policies or to
be trading erratically, the General Partner'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.
Fair Value
----------
The derivative instruments used in the Partnership's trading activities are
marked to market daily with the resulting unrealized gains or losses
recorded in the Statement of Financial Condition and the related profit
loss reflected in trading revenues in the Statements of Operations. The
contract/notional values of the Partnership's open derivative instrument
positions as of June 30, 1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------- -----------------------------------------------
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 rates $19,666,305 $ 8,740,856 $60,423,117 $12,775,061
Stock indices 1,178,984 430,716 1,298,009 -
Commodities 440,809 109,175 2,371,584 314,641
Currencies 3,181,371 4,853,285 1,809,197 4,175,157
Energy 515,211 - 1,253,705 649,123
Metals 274,675 2,085,259 1,122,026 1,094,973
--------------- ---------------- ---------------- ----------------
$25,257,355 $16,219,291 $68,277,638 $19,008,955
=============== ================ ================ ================
</TABLE>
Substantially all of the Partnership's derivative instruments outstanding
as of June 30, 1996 expire within one year.
The contract/notional value of the Trading Partnership's exchange-traded
and non-exchange-traded derivative instrument positions as of June 30, 1996
and December 31, 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------- -----------------------------------------------
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 $22,767,260 $12,324,164 $65,942,066 $14,598,247
Non-Exchange
traded 2,490,095 3,895,127 2,335,572 4,410,708
------------- --------------- --------------- ---------------
$25,257,355 $16,219,291 $68,277,638 $19,008,955
============= =============== =============== ===============
</TABLE>
6
<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 six months ended
June 30, 1996 and the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------ -----------------------------------------------
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 rates $20,290,446 $27,397,329 $45,598,130 $ 8,975,238
Stock indices 1,669,189 286,137 1,268,891 666,144
Commodities 1,317,764 212,194 1,356,870 248,020
Currencies 4,889,026 8,371,325 9,023,216 8,502,644
Energy 372,084 529,411 643,850 483,785
Metals 973,398 1,307,848 1,493,806 1,852,858
-------------- ---------------- ---------------- ---------------
$29,511,907 $38,104,244 $59,384,763 $20,728,689
============== =============== =============== ===============
</TABLE>
A portion of the amounts indicated as off-balance sheet risk reflects
offsetting commitments to purchase and sell the same derivative instrument
on the same date in the future. These commitments are economically
offsetting but are not, as a technical matter, offset in the forward market
until the settlement 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 also require margin in the over-
the-counter markets.
The fair value amounts in the above tables represent the extent of the
Partnership's market exposure in the particular class of derivative
instrument listed, but not the credit risk associated with counterparty
nonperformance. The credit risk associated with these instruments from
counterparty nonperformance is the net unrealized gain, if any, included in
the Statements of Financial Condition. The Partnership also has credit risk
because the sole counterparty or broker with respect to most of the
Partnership's assets is MLF.
As of June 30, 1996 and December 31, 1995, $5,647,078 and $5,355,684 of the
Partnership's assets, respectively, were held in segregated accounts at MLF
in accordance with Commodity Futures Trading Commission regulations.
The gross unrealized gain and the net unrealized gain (loss) on the
Partnership's open derivative instrument positions as of June 30, 1996 and
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Gain Gain (Loss) Gain Gain (Loss)
---- ----------- ------ -----------
<S> <C> <C> <C> <C>
Exchange
traded $148,894 $106,060 $456,205 $338,056
Non-Exchange
traded 113,461 34,959 46,430 (17,308)
----------- ----------- ----------- -----------
$262,355 $141,019 $502,635 $320,748
=========== =========== =========== ===========
</TABLE>
The Partnership controls credit risk by dealing almost exclusively with Merrill
Lynch entities as brokers and counterparties.
7
<PAGE>
7. NET INCOME PER SERIES
The profit and loss of the Series A and Series B units for the quarters
ended June 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- ----------------------
Series A Series B Series A Series B
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Trading profits (loss):
Realized 79,425 24,555 $ 793,455 $ 299,760
Change in unrealized (6,440) (3,760) (498,651) (188,909)
-------- -------- ---------- ----------
Total trading results 72,985 20,795 294,804 110,851
Interest income 57,169 15,851 100,579 30,344
-------- -------- ---------- ----------
Total revenues 130,154 36,646 395,383 141,195
-------- -------- ---------- ----------
EXPENSES:
Profit shares 316 541 32,399 14,724
Brokerage commissions 108,914 30,508 157,673 54,301
Administrative expense 2,792 872 - -
-------- -------- ---------- ----------
Total expenses 112,022 31,921 190,072 69,025
-------- -------- ---------- ----------
NET INCOME 18,132 4,725 $ 205,311 $ 72,170
======== ======== ========== ==========
NET INCOME PER UNIT:
Weighted average number of
units outstanding 44,466 11,667 66,777 19,566
--------- -------- ---------- ----------
Weighted average net
income per unit $.41 $.41 $3.07 $3.69
===== ===== ====== ======
</TABLE>
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 MLIP's ability to select Advisors and determine the appropriate
percentage of each series' 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 July 1, 1996, the Partnership's assets were allocated as follows:
SERIES A UNITS:
--------------
<TABLE>
<CAPTION>
%
TRADING ADVISOR SECTOR ALLOCATION
--------------- ------- ----------
<S> <C> <C>
John W. Henry & Co., Inc. Financial/
Metals 27.07
Chesapeake Capital Corporation Diversified 27.47
SJO. Inc. Financials 34.22
Cash 11.24
------
100.00%
</TABLE>
SERIES B UNITS:
--------------
<TABLE>
<CAPTION>
%
TRADING ADVISOR SECTOR ALLOCATION
--------------- ------ ----------
<S> <C> <C>
John W. Henry & Co., Inc. Financial/
Metals 33.29
Chesapeake Capital Corporation Diversified 33.61
SJO. Inc. Financials 33.10
------
100.00%
</TABLE>
MLIP expects to continue to change both allocations and Advisor
selections from time to time without advance notice to existing investors.
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
- -------------------
SERIES A UNITS:
--------------
During the first six months of 1995, the Fund's average month-end Net
Assets equalled $7,192,170, and the Fund recognized gross trading gains of
$839,883 or 11.68% of such average month-end Net Assets. Brokerage commissions
of $325,363 or 4.52% and Profit Shares of $56,780 or .79% of average month-end
Net Assets were paid. Interest income of $209,575 or 2.91% of average month-end
Net Assets resulted in a net gain of $667,316 or 9.28% of average month-end Net
Assets, which resulted in a 8.60% increase in the Net Asset Value per Unit since
December 31, 1994.
During the first six months of 1996, the Fund's average month-end Net
Assets equalled $5,219,078, and the Fund recognized gross trading losses of
$181,039 or 3.47% of such average month-end Net Assets. Brokerage commissions of
$229,984 or 4.41%, Administrative expenses of $5,897 or .11% and Profit Shares
of $1,324 or .03% of average month-end Net Assets were paid. Interest income of
$119,100 or 2.28% of average month-end Net Assets resulted in a net loss of
$299,145 or 5.73% of average month-end Net Assets, which resulted in a 5.41%
decrease in the Net Asset Value per Unit since December 31, 1995.
9
<PAGE>
During the first six months of 1996 and 1995, the Fund experienced 7
profitable months and 5 unprofitable months.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES A UNIT
------------------------------------------------------------
Jan. Feb. Mar. April May June
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $105.35 $109.07 $113.74 $115.03 $121.12 $116.68
------------------------------------------------------------
1996 $121.53 $113.75 $111.26 $113.45 $111.14 $111.57
------------------------------------------------------------
</TABLE>
SERIES B UNITS:
--------------
During the first six months of 1995, the Fund's average month-end Net
Assets equalled $2,280,925, and the Fund recognized gross trading gains of
$340,053 or 14.91% of such average month-end Net Assets. Brokerage commissions
of $117,122 or 5.13% and Profit Shares of $25,749 or 1.13% of average month-end
Net Assets were paid. Interest income of $65,807 or 2.89% of average month-end
Net Assets resulted in net income of $262,988 or 11.53% of average month-end Net
Assets, which resulted in a 10.52% increase in the Net Asset Value per Unit
since December 31, 1994.
During the first six months of 1996, the Fund's average month-end Net
Assets equalled $1,491,882, and the Fund recognized gross trading losses of
$51,836 or 3.47% of such average month-end Net Assets. Brokerage commissions of
$68,318 or 4.58%, Administrative expenses of $1,952 or .13% and Profit Shares of
$1,870 or .13% of average month-end Net Assets were paid. Interest income of
$34,671 or 2.32% of average month-end Net Assets resulted in a net loss of
$89,304 or 6.00% of average month-end Net Assets, which resulted in a 5.58%
decrease in the Net Asset Value per Unit since December 31, 1995.
During the first six months of 1996 and 1995, the Fund experienced 7
profitable months and 5 unprofitable months.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES B UNIT
------------------------------------------------------------
Jan. Feb. Mar. April May June
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $108.73 $113.56 $119.63 $121.28 $129.15 $123.24
------------------------------------------------------------
1996 $129.52 $120.41 $117.49 $120.07 $117.44 $117.93
------------------------------------------------------------
</TABLE>
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.
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.
10
<PAGE>
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 attributable to various series of Units 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
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
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
There are no exhibits required to be filed as part of this document.
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during the first six months of
fiscal 1996.
11
<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/ IV L.P.
By: MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
Date: August 9, 1996 By /s/JOHN R. FRAWLEY, JR.
-----------------------
John R. Frawley, Jr.
President, Chief Executive Officer
and Director
Date: August 9, 1996 By /s/JAMES M. BERNARD
-------------------
James M. Bernard
Chief Financial Officer,
Treasurer and Senior Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION, CONSOLIDATED STATEMENTS OF OPERATIONS,
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 0 0
<RECEIVABLES> 5,850,461 10,043,275
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 5,850,461 10,043,275
<SHORT-TERM> 0 0
<PAYABLES> 444,026 386,344
<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> 5,406,435 9,656,931
<TOTAL-LIABILITY-AND-EQUITY> 5,850,461 10,043,275
<TRADING-REVENUE> (232,875) 1,179,936
<INTEREST-DIVIDENDS> 153,771 275,382
<COMMISSIONS> 309,345 525,014
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> (388,449) 930,304
<INCOME-PRE-EXTRAORDINARY> (388,449) 930,304
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (388,449) 930,304
<EPS-PRIMARY> (6.56) 9.93
<EPS-DILUTED> (6.56) 9.93
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