<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 March 31, 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 0-21112
THE SECTOR STRATEGY FUND/SM/ V L.P.
-------------------------------------
(Exact Name of Registrant as
specified in its charter)
Delaware 13-3674792
- ------------------------------- ---------------------------------
(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)
212-236-4161
--------------------------------------------------
(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 10 pages.
There are no exhibits and no exhibit index filed with this document.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE SECTOR STRATEGY FUND/SM/ V L.P.
-----------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
March 31, December 31,
1997 1996
---- ----
ASSETS
- ------
Accrued interest $ 33,745 $ 42,724
Equity in commodity futures trading
accounts:
Cash and option premiums 7,611,595 10,635,825
Net unrealized profit on open 86,751 56,151
contracts
Investments 6,095,828 3,405,293
Receivable from investments (1,191) 327,498
------------ ------------
TOTAL $13,826,728 $14,467,491
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable 200,929 327,498
Brokerage commissions payable 31,786 58,450
Profit shares payable 63,481 45,748
Administrative fees payable 908 1,499
------------ ------------
Total liabilities 297,104 433,195
------------ ------------
PARTNERS' CAPITAL:
General Partner (2,990 and 2,990 370,837 356,079
units)
Limited Partners (106,097 and 13,158,787 13,678,217
114,856 units)
------------ ------------
Total partners' capital 13,529,624 14,034,296
------------ ------------
TOTAL $13,826,728 $14,467,491
============ ============
NET ASSET VALUE PER UNIT
(Based on 109,087, and 117,846 Units
outstanding) $124.03 $119.09
============ ============
See notes to financial statements.
2
<PAGE>
THE SECTOR STRATEGY FUND/SM/ V L.P.
-------------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF OPERATIONS
------------------------
For the three For the three
months ended months ended
March 31, March 31,
1997 1996
------------- -------------
REVENUES:
Trading profits (loss):
Realized $ 457,233 $ (695,729)
Change in unrealized 30,600 (1,334,913)
------------- -------------
Total trading results 487,833 (2,030,642)
------------- -------------
Interest income 96,869 265,519
Income from investments 157,973 -
Total revenues 742,675 (1,765,123)
------------- -------------
EXPENSES:
Profit shares 63,481 4,590
Brokerage commissions 100,643 457,082
Administrative fees 2,770 11,720
------------- -------------
Total expenses 166,894 473,392
------------- -------------
NET INCOME (LOSS) $ 575,781 $ (2,238,515)
============= =============
NET INCOME (LOSS) PER UNIT:
Weighted average number of units
outstanding 113,934 216,770
======= =======
Weighted average net income (loss)
per General Partner and
Limited Partner Unit $ 5.05 $ (10.33)
====== ========
See notes to financial statements.
3
<PAGE>
THE SECTOR STRATEGY FUND/SM/ V L.P.
-------------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
For the three months ended March 31, 1997 and 1996
---------------------------------------------------
<TABLE>
<CAPTION>
Limited General
Units Partners Partner Total
----- -------- ------- -----
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
DECEMBER 31, 1995 225,594 $ 25,710,675 $ 345,379 $ 26,056,054
Net loss - (2,207,232) (31,283) (2,238,515)
Redemptions (23,870) (2,628,804) - (2,628,804)
----------- ------------- ------------ -------------
PARTNERS' CAPITAL,
March 31, 1996 201,724 $ 20,874,639 $ 314,096 $ 21,188,735
=========== ============= ============ =============
PARTNERS' CAPITAL,
DECEMBER 31, 1996 117,846 $ 13,678,217 $ 356,079 $ 14,034,296
Net Income - 561,023 14,758 575,781
Redemptions (8,759) (1,080,453) - (1,080,453)
----------- ------------- ------------ -------------
PARTNERS' CAPITAL,
MARCH 31, 1997 109,087 $ 13,158,787 $ 370,837 $ 13,529,624
=========== ============= ============ =============
</TABLE>
See notes to financial statements.
4
<PAGE>
THE SECTOR STRATEGY FUND/SM/ V 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/ V L.P. (the "Partnership"
or the "Fund") as of March 31, 1997 and the results of its operations for
the three months ended March 31, 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 March 31, 1997 the Partnership had an investment in the JWH Financials
and Metals Portfolio L.L.C. ("JWH LLC") and effective January 1, 1997 the
Partnership had an additional investment in the ML SJO Prospect Global
Diversified Portfolio L.L.C. ("SJO LLC").
Total revenues and fees with respect to such investments is set forth as
follows:
<TABLE>
<CAPTION>
Total Brokerage Administrative Profit Income from
Revenue Commissions Fees Shares Investments
---------------- ---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
JWH LLC $ 127,970 $ 75,614 $ 2,080 $ 1,021 $ 49,255
SJO LLC 194,001 67,038 1,844 16,401 108,718
---------------- ---------------- ---------------- ---------------- -----------------
Total $ 321,971 $ 142,652 $ 3,924 $ 17,422 $ 157,973
================ ================ ================ ================ =================
</TABLE>
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership's revenues by reporting category for the three months ended
March 31, 1997 and March 31, 1996 were as follows:
1997 1996
---------------- ---------------
Interest rate and Stock Indices $ 43,988 $ (683,534)
Commodities 177,475 (468,567)
Currencies 276,407 93,031
Energy (4,150) (753,941)
Metals (5,887) (217,631)
----------------- ---------------
$ 487,833 $ (2,030,642)
================= ===============
5
<PAGE>
Fair Value
- ----------
The contract/notional values of open derivative instruments as of March 31,
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
and Stock
Indices $ 169,237 $ 38,043,441 $ 14,701,885 $ 883,752
Commodities 1,017,865 82,802 238,375 174,760
Currencies 2,220,893 4,203,789 2,315,661 5,025,340
Energy 0 172,293 129,600 -
Metals 1,092,387 743,849 205,624 652,082
------------------ ------------------ ------------------ ------------------
$ 4,500,382 $ 43,246,174 $ 17,591,145 $ 6,735,934
================== ================== ================== ==================
</TABLE>
Substantially all of the Partnership's derivative instruments outstanding as
of March 31, 1997 expire within one year.
The contract/notional values of exchange-traded and non-exchange-traded open
derivative instrument positions as of March 31, 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 $ 1,870,197 $ 40,900,159 $ 15,736,015 $ 2,928,090
Non-Exchange
Traded 2,630,185 2,346,015 1,855,130 3,807,844
------------------ ------------------ ------------------ ------------------
$ 4,500,382 $ 43,246,174 $ 17,591,145 $ 6,735,934
================== ================== ================== ==================
</TABLE>
The average fair value of the Partnership's derivative instrument positions
which were open as of the end of each calendar month during the three months
ended March 31, 1997 and the year ended 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
and Stock
Indices $ 12,497,673 16,886,912 $ 66,308,080 $ 40,648,741
Commodities 1,193,495 130,436 4,379,786 1,232,126
Currencies 4,134,187 7,847,360 11,852,984 14,288,621
Energy 72,450 385,288 1,947,329 1,377,394
Metals 1,361,634 1,021,978 2,474,297 2,816,658
------------------ ------------------ ------------------ ------------------
$ 19,259,439 26,271,974 $ 86,962,476 $ 60,363,540
================== ================== ================== ==================
</TABLE>
As of March 31, 1997 and December 31, 1996, $6,511,065 and $9,513,010 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 on the Partnership's
open derivative instrument positions as of March 31, 1997 and December 31, 1996
were as follows:
6
<PAGE>
<TABLE>
<CAPTION>
1997 1996
---- ----
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Profit Profit Profit Profit
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Exchange
Traded $ 156,415 $ 28,226 $ 57,600 $ 48,583
Non-Exchange
Traded 29,771 58,525 26,193 7,568
------------- --------------- -------------- ----------------
$ 186,186 $ 86,751 $ 83,793 $ 56,151
============= =============== ============== ================
</TABLE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operation
Operational Overview; Advisor Selections
- ----------------------------------------
Due to the nature of the Fund's business, its results of operations
depend on Merrill Lynch Investment Partners Inc., ("MLIP")'s 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.
As of April 1, 1997, the Partnership's assets were allocated as
follows:
Trading Advisor Sector Allocation
--------------- ------ ----------
John W. Henry & Co., Inc. Diversified 23.61
Sjo, Inc. Financials 20.79
Telesis Diversified 16.60
Rabar Market Research, Inc. Diversified 14.46
Cash 24.54
------
100.00%
MLIP expects to continue to change both allocations and Advisor selections
from time to time without advance notice to existing investors.
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).
7
<PAGE>
Performance Summary
- -------------------
During the first three months of 1996, the Fund's average month-end
Net Assets equalled $23,623,077, and the Fund recognized gross trading losses of
$2,030,642 or 8.60% of such average month-end Net Assets. Brokerage commissions
of $457,082 or 1.93%, Administrative fees of $11,720 or .05%, Profit Shares of
$4,590 or .02% of average month-end Net Assets were paid. Interest income of
$265,519 or 1.12% of average month-end Net Assets resulted in a net loss of
$2,238,515 or 9.48% of average month-end Net Assets, which resulted in a 9.06%
increase in the Net Asset Value per Unit since December 31, 1995.
During the first three months of 1997, the Fund's average month-end Net
Assets equalled $13,810,540, and the Fund recognized gross trading gain of
$487,833 or 3.53% of such average month-end Net Assets. Earning from investments
of $157,973 or 1.14%, brokerage commissions of $100,643 or .729%, Administrative
fees of $2,770 or .02% and Profit Shares of $63,481 or .46% of average month-end
Net Assets were paid. Interest income of $96,869 or .70% of average month-end
Net Assets resulted in net gain of $575,781 or 4.12% of average month-end Net
Assets which resulted in a 4.15% increase in the Net Asset Value per Unit since
December 31, 1996.
During the first three months of 1997 and 1996, the Fund experienced 3
profitable months and 3 unprofitable months.
MONTH-END NET ASSET VALUE PER UNIT
Jan. Feb. Mar.
------- ------- -------
1996 $115.53 $106.85 $105.04
1997 $122.53 $124.41 $124.03
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.)
8
<PAGE>
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending legal 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 24% of the fund's assets committed to trading
as of April 1, 1997. In September 1996, JWH was named as a co-defendant in a
class action lawsuits brought in the California Superior Court, Los Angeles
County and in the New York Supreme Court, New York County. In November, 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
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 three months
of fiscal 1997.
9
<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/ V L.P.
By: MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
Date: May 13, 1997 By /s/JOHN R. FRAWLEY, JR.
-----------------------
John R. Frawley, Jr.
President, Chief Executive Officer
and Director
Date: May 13,1997 By /s/MICHAEL A. KARMELIN
----------------------
Michael A. Karmelin
Chief Financial Officer,
and Director
<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>
<CIK> 0000890015
<NAME> SECTOR STRATEGY FUND V LP
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 0 0
<RECEIVABLES> 13,826,728 22,184,420
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 13,826,728 22,184,420
<SHORT-TERM> 0 0
<PAYABLES> 297,104 995,685
<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> 13,529,624 21,188,735
<TOTAL-LIABILITY-AND-EQUITY> 13,826,728 22,184,420
<TRADING-REVENUE> 487,833 (2,030,642)
<INTEREST-DIVIDENDS> 96,869 265,519
<COMMISSIONS> 166,894 473,392
<INVESTMENT-BANKING-REVENUES> 157,973 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 575,781 (2,238,515)
<INCOME-PRE-EXTRAORDINARY> 575,781 (2,238,515)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 575,781 (2,238,515)
<EPS-PRIMARY> 5.05 (10.33)
<EPS-DILUTED> 5.05 (10.33)
</TABLE>
