<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, 1998
--------------
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)
212-236-9757
-------------------------------------------------------------
(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/ V L.P.
---------------------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------- -------------------
ASSETS
- ------
<S> <C> <C>
Accrued interest $ 13,985 $ 15,390
Equity in commodity futures trading accounts:
Cash and options premiums 3,183,257 3,396,218
Net unrealized profit on open contracts 97,590 17,058
Investments 8,098,186 8,871,133
Receivable from investments 105,708 155,372
------------------- -------------------
TOTAL $11,498,726 $12,455,171
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ 149,399 $ 215,502
Profit Shares payable 5,635 3,352
Brokerage commissions payable 25,159 24,892
Administrative fees payable 683 711
------------------- -------------------
Total liabilities 180,876 244,457
------------------- -------------------
PARTNERS' CAPITAL:
General Partner (2990 and 2990 Units) 383,751 395,313
Limited Partners (85193 and 89367 Units) 10,934,099 11,815,401
------------------- -------------------
Total partners' capital 11,317,850 12,210,714
------------------- -------------------
TOTAL $11,498,726 $12,455,171
=================== ===================
NET ASSET VALUE PER UNIT
(Based on 88183 and 92357 Units outstanding) $128.35 $132.21
=================== ===================
</TABLE>
See notes to financial statements.
2
<PAGE>
THE SECTOR STRATEGY FUND/SM/ V L.P.
-----------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, March 31,
1998 1997
----------------- -----------------
<S> <C> <C>
REVENUES:
Trading (loss) profits:
Realized $ (13,322) $457,233
Change in unrealized 80,532 30,600
----------------- -----------------
Total trading results 67,210 487,833
----------------- -----------------
Interest income 41,777 96,869
Less (income) from investments (380,310) 157,973
----------------- -----------------
Total revenues (271,323) 742,675
----------------- -----------------
EXPENSES:
Profit shares 5,635 63,481
Brokerage commissions 71,650 100,643
Administrative fees 2,047 2,770
----------------- -----------------
Total expenses 79,332 166,894
----------------- -----------------
NET (LOSS) INCOME $(350,655) $575,781
================= =================
NET (LOSS) INCOME PER UNIT:
Weighted average number of units
outstanding 90,534 113,934
================= =================
Weighted average net (loss) income
per Limited Partner
and General Partner Unit $(3.87) $5.05
================= =================
</TABLE>
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, 1998 and 1997
--------------------------------------------------
<TABLE>
<CAPTION>
Units Limited Partners General Partner Total
---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
December 31, 1996 117,846 $13,678,217 $356,079 $14,034,296
Redemptions (8,759) (1,080,453) - (1,080,453)
Net Income - 561,023 14,758 575,781
---------------- ----------------- ----------------- ----------------
PARTNERS' CAPITAL,
March 31, 1997 109,087 $13,158,787 $370,837 $13,529,624
================ ================= ================= ================
PARTNERS' CAPITAL,
December 31, 1997 92,357 $11,815,401 $395,313 $12,210,714
Redemptions (4,174) (542,209) - (542,209)
Net Loss - (339,093) (11,562) (350,655)
---------------- ----------------- ----------------- ----------------
PARTNERS' CAPITAL,
March 31, 1998 88,183 $10,934,099 $383,751 $11,317,850
================ ================= ================= ================
</TABLE>
See notes to financial statements.
4
<PAGE>
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, 1998 and the results of its operations for the
three months ended March 31, 1998 and 1997. 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, 1997
(the "Annual Report").
2. INVESTMENTS
As of March 31, 1998 and December 31, 1997, the Partnership had investments
in the ML JWH Financial and Metals Portfolio L.L.C. ("JWH LLC") and the ML Sjo
Prospect L.L.C. ("SJO LLC") as follows:
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
<S> <C> <C>
JWH LLC $4,712,604 $5,408,273
SJO LLC 3,385,582 3,462,860
------------------- -------------------
Total $8,098,186 $8,871,133
=================== ===================
</TABLE>
Total revenues and fees with respect to such investments is set forth as
follows:
<TABLE>
<CAPTION>
For the three months Total Brokerage Administrative Profit Income (loss) from
ended March 31, 1998 Revenue Commissions Fees Shares Investments
------------------- ---------------- ------------------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
JWH LLC $(351,935) $109,329 $3,123 $ - $(464,387)
SJO LLC 174,693 77,646 2,219 10,751 84,077
------------------- ---------------- ------------------- ----------------------------------------
Total $(177,242) $186,975 $5,342 $10,751 $(380,310)
=================== ================ =================== ============== =====================
For the three months Total Brokerage Administrative Profit Income from
ended March 31, 1997 Revenue Commissions Fees Shares Investments
------------------- ---------------- ------------------- -------------- --------------------
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>
5
<PAGE>
Condensed statements of financial condition as of March 31, 1998 and December
31, 1997 and statements of operations for the three months ended March 31,
1998 and 1997 are set forth as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------- ------------------------------------
JWH SJO JWH SJO
LLC LLC LLC LLC
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Assets $54,294,178 $19,174,586 $62,481,438 $21,240,207
================ =================== ================ ================
Liabilities $ 431,357 $ 568,783 $ 1,122,533 $ 2,058,617
Members' Capital 53,862,821 18,605,803 61,358,905 19,181,590
---------------- ------------------- ---------------- ----------------
Total $54,294,178 $19,174,586 $62,481,438 $21,240,207
================ =================== ================ ================
Revenues $(4,026,600) $ 972,284 $ 2,281,696 $ 1,409,347
Expenses 1,342,197 503,557 1,487,835 619,328
---------------- ------------------- ---------------- ----------------
Net (Loss) Income $(5,368,797) $ 468,727 $ 793,861 $ 790,019
================ =================== ================ ================
</TABLE>
6
<PAGE>
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership's total trading results by reporting category for the
respective periods were as follows:
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, March 31,
1998 1997
------------------- -------------------
<S> <C> <C>
Interest rate & Stock indices $243,270 $ 43,988
Commodities (47,998) 177,475
Currencies (46,545) 276,407
Energy (39,549) (4,150)
Metals (41,968) (5,887)
------------------- -------------------
$ 67,210 $487,833
=================== ===================
</TABLE>
The contract/notional values of the Partnership's open derivative instrument
positions as of March 31, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------- --------------------------------------------
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 $ 9,048,987 $ - $5,191,446 $3,605,481
Commodities - 930,581 - 577,742
Currencies 8,053,275 8,690,639 2,688,064 3,771,760
Energy 100,880 - - 70,560
Metals 971,213 838,125 366,525 628,125
------------------ ------------------ ------------------ ------------------
$18,174,355 $10,459,345 $8,246,035 $8,653,668
================== ================== ================== ==================
</TABLE>
7
<PAGE>
The contract/notional values of the Partnership's exchange-traded and non-
exchange-traded open derivative instrument positions as of March 31, 1998 and
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------- --------------------------------------------
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 $ 9,149,868 $ 930,581 $5,191,446 $4,253,783
Non-Exchange
traded 9,024,487 9,528,764 3,054,589 4,399,885
------------------ ------------------ ------------------ ------------------
$18,174,355 $10,459,345 $8,246,035 $8,653,668
================== ================== ================== ==================
</TABLE>
The average fair values, based on contract/notional values, 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, 1998 and the year ended December
31, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------- --------------------------------------------
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 $13,655,028 $ - $10,943,098 $10,638,175
Commodities 130,464 536,611 646,831 267,468
Currencies 4,696,952 4,959,685 3,882,292 5,239,264
Energy 100,880 109,519 105,153 247,775
Metals 856,354 894,381 1,058,720 1,014,697
------------------ ------------------ ------------------ ------------------
$19,439,678 $6,500,196 $16,636,094 $17,407,379
================== ================== ================== ==================
</TABLE>
The gross unrealized profit and the net unrealized profit (loss) on the
Partnership's open derivative instrument positions as of March 31, 1998 and
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------- ----------------------------------------------
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Profit Profit (Loss) Profit Profit (Loss)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Exchange
traded $120,307 $103,569 $34,125 $ 30,870
Non-Exchange
traded 161,878 (5,979) 48,885 (13,812)
------------------- ------------------- ------------------- -------------------
$282,185 $ 97,590 $83,010 $ 17,058
=================== =================== =================== ===================
</TABLE>
8
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
MONTH-END NET ASSET VALUE PER UNIT
Jan. Feb. Mar.
----------------------------------------
1997 $122.53 $124.41 $124.03
----------------------------------------
1998 $130.73 $129.48 $128.35
----------------------------------------
Performance Summary
January 1,1997 to March 31, 1997
In currency markets, the U.S. dollar rallied and started 1997 on a strong note,
rising to a four-year high versus the Japanese yen and two-and-a-half year highs
versus the Deutsche mark and the Swiss franc. January and February proved
profitable for currency trading; March, however, was unprofitable.
Global interest rate markets began the year on a volatile note, as investors
evaluated economic data for signs of inflation. Trading in interest rates
proved profitable in January; losses were experienced in February and March.
In energy markets, a slump in crude oil prices was characteristic of its
lackluster performance from the beginning of the year. Early in 1997,
volatility returned in the energy markets, reflecting the impact of a winter
significantly warmer than normal. January and March saw losses in energy
positions; February, however, proved profitable.
Agricultural commodity trading proved profitable in February and March. Soybean
prices reached their highest level in over eight years, on continued demand and
fears that inventories could fall to critically low levels before the next
harvest.
January 1, 1998 to March 31, 1998
The Fund's most profitable positions during the quarter were in the global
interest rate markets. In Europe, an extended bond market rally continued
despite an environment of robust growth in the United States, Canada and the
United Kingdom, as well as a strong pick-up in growth in continental Europe.
Gold prices drifted sideways and lower as Asian demand continued to slow and
demand in the Middle East was affected by low oil prices. Initially buoyed on
concerns about a U.S.-led military strike against Iraq, crude oil fell to a nine
year low, as the globally warm winter, the return of Iraq as a producer and the
Asian economic crisis added to OPEC's supply glut problems.
Trading results in stock index markets were mixed, but marginally unprofitable,
despite a strong first-quarter performance by the U.S. equity market as several
consecutive weekly gains were recorded with most market averages setting new
highs. Results in currency trading were also mixed, but unprofitable. In
particular, the Swiss franc weakened versus the U.S. dollar.
Agricultural commodity markets provided profitable trading results overall.
Live cattle and hog prices trended downward throughout the quarter. Cotton
prices moved mostly upward during the quarter, but prices dropped off sharply at
the end of March.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
9
<PAGE>
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.
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
Mr. Michael A. Karmelin, Chief Financial Officer, Vice President and
Treasurer of Merrill Lynch Investment Partners Inc. ("MLIP"), has announced
that he will resign from MLIP effective April 15, 1998 to pursue other
business opportunities. MLILP expects to announce his successor in the near
future.
The Fund will consolidate its trading accounts with those of certain
other MLIP sponsored multi-advisor funds effective June 1, 1998.
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 three months
of fiscal 1998.
10
<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 11, 1998 By /s/JOHN R. FRAWLEY, JR.
-----------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: May 11, 1998 By /s/SERGIO M. PAVONE
-------------------
Sergio M. Pavone
Vice President and Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 0 0
<RECEIVABLES> 11,498,726 13,826,728
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 11,498,726 13,826,728
<SHORT-TERM> 0 0
<PAYABLES> 180,876 297,104
<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> 11,317,850 13,529,624
<TOTAL-LIABILITY-AND-EQUITY> 11,498,726 13,826,728
<TRADING-REVENUE> 67,210 487,833
<INTEREST-DIVIDENDS> 41,777 96,869
<COMMISSIONS> 79,332 166,894
<INVESTMENT-BANKING-REVENUES> (380,310) 157,973
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> (350,655) 575,781
<INCOME-PRE-EXTRAORDINARY> (350,655) 575,781
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (350,655) 575,781
<EPS-PRIMARY> (3.87) 5.05
<EPS-DILUTED> (3.87) 5.05
</TABLE>
