<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, 1995
----------------
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 0-16110
THE GROWTH AND GUARANTEE FUND L.P.
----------------------------------
(Exact Name of Registrant as
specified in its charter)
Delaware 13-3407269
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o 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
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(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.
There are no exhibits and no exhibit index filed with this document.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE GROWTH AND GUARANTEE FUND L.P.
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(a Delaware limited partnership)
-------------------------------
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- ------------
<S> <C> <C>
ASSETS
- ------
Equity in commodity futures trading
accounts $8,068,181 $7,626,185
---------- ----------
TOTAL $8,068,181 $7,626,185
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ 117,496 $ 47,628
Administative fees and brokerage
commissions payable 12,852 12,046
---------- ----------
Total liabilities 130,348 59,674
---------- ----------
PARTNERS' CAPITAL:
General Partner (680 and 680 units) 104,016 96,085
Limited Partners (51,883 and
53,537 units) 7,833,817 7,470,426
---------- ----------
Total partners' capital 7,937,833 7,566,511
---------- ----------
TOTAL $8,068,181 $7,626,185
========== ==========
NET ASSET VALUE PER UNIT $152.99 $141.33
======= =======
</TABLE>
See notes to financial statements.
2
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THE GROWTH AND GUARANTEE FUND L.P.
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(a Delaware limited partnership)
-------------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
For the three For the three
Months ended Months ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
REVENUES:
Trading profits:
Realized $ 256,678 $ 162,026
Change in unrealized (238,225) (439,815)
--------- ---------
Total trading results 494,903 (277,789)
--------- ---------
Interest income (Note 2) 161,061 82,740
--------- ---------
Total revenues 655,964 (195,049)
--------- ---------
EXPENSES:
Allocation of new trading profit share
to trading advisors 34,728 37,958
Brokerage commissions 1,625 4,397
--------- ---------
Total expenses 36,353 42,355
--------- ---------
NET (LOSS) INCOME $ 619,611 $(237,404)
========= =========
NET (LOSS) INCOME PER UNIT:
Weighted average number of units
outstanding (Note 5) 53,107 59,838
====== ======
Weighted average net (loss) income per unit $11.67 $(3.97)
====== ======
</TABLE>
See notes to financial statements.
3
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THE GROWTH AND GUARANTEE FUND L.P.
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(a Delaware limited partnership)
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STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
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for the three months ended March 31, 1995 and 1994
--------------------------------------------------
<TABLE>
<CAPTION>
Limited General
Units Partners Partner Total
------- ---------- -------- ----------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
DECEMBER 31, 1993 60,451 $8,650,204 $ 98,410 $8,748,614
Net loss - (234,630) (2,774) (237,404)
Redemptions (2,069) (298,547) - (298,547)
------- ---------- -------- ----------
PARTNERS' CAPITAL,
MARCH 31, 1994 484,481 $8,117,027 $ 95,636 $8,212,663
======= ========== ======== ==========
PARTNERS' CAPITAL,
DECEMBER 31, 1994 53,537 $7,470,426 $ 96,085 $7,566,511
Net loss - (611,680) (7,931) (619,611)
Redemptions (1,654) (248,289) - (248,289)
------- ---------- -------- ----------
PARTNERS' CAPITAL,
MARCH 31, 1995 51,883 $7,833,817 $104,016 $7,937,833
======= ========== ======== ==========
</TABLE>
See notes to financial statements.
4
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
----------------------------------
(a Delaware limited partnership)
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
For the three months ended March 31, 1995 and 1994
--------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The Growth and Guarantee Fund L.P. (the "Partnership") was organized on
January 21, 1987 under the Delaware Revised Uniform Limited Partnership Act
and commenced trading activities on August 5, 1987. The Partnership engages
in the speculative trading of stock index futures and options. ML Futures
Investment Partners Inc. (the "General Partner") (a wholly-owned subsidiary
of Merrill Lynch Group, Inc., which in turn is a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.) invests for its account at least 1% of the total
contributions to the Partnership. The General Partner and each Limited
Partner share in the profits and losses of the Partnership attributable to
the series of units held by them in proportion to the amount of such units
owned by each.
The financial information included herein has been prepared by management
without audit by independent certified public accountants who do not express
an opinion thereon. The statement of financial condition as of December 31,
1994 has been derived from but does not include all the disclosures
contained in the audited financial statements for the year ended December
31, 1994. The information furnished includes all adjustments which are, in
the opinion of management, necessary for a fair statement of results for the
interim period. The results of operations as presented, however, should not
be considered indicative of the results to be expected for the entire year.
Revenue Recognition
-------------------
Commodity futures and option contracts and securities transactions are
recorded on the trade date and open contracts are reflected in the financial
statements at the market value on the last business day of the reporting
period. The difference between the original contract amount and the market
value is reflected in income as unrealized gain or loss. Market value or
fair value is based on quoted market prices. All commodity futures, options
and forward contracts are reflected at fair value in the financial
statements.
U.S. Government Obligations
---------------------------
The Partnership invests a portion of its assets in U.S. Government
obligations. These investments are carried at amortized cost which
approximates market value or fair value.
Fees
----
The Partnership pays a monthly administrative fee to the General Partner
equal to 0.1458 of 1% of the Partnership's month-end net asset value each
month (a 1.75% annual rate). The General Partner pays, at no additional cost
to the Partnership, ongoing quarterly fees of $0.0625 per unit
5
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for offering and organizational costs beginning at the end of the twelfth
full month of operations. Prior to the change discussed below, the General
Partner also paid the following additional fees which were based on the
Partnership's average month-end net assets: (i) monthly advisory fees to
Aetna Capital Management, Inc. ("ACM") totaling, on an annual basis, 0.275
of 1% of the first $100 million and 0.125 of 1% on amounts in excess of $100
million; (ii) monthly consulting fees to Leland O'Brien Rubinstein
Associates Incorporated ("LOR") totalling, on an annual basis, 0.04375 of 1%
of the first $100 million and 0.02 of 1% on amounts in excess of $100
million; and (iii) monthly insurance premiums to The Standard Fire Insurance
Company totalling, on an annual basis, 0.375 of 1%.
The General Partner, at no additional expense to the Partnership, pays all
normal ongoing administrative costs of the Partnership, such as legal,
printing and accounting expenses.
Protected Net Asset Value
-------------------------
The Limited Partnership Agreement provides protection against certain
losses. The maximum permissible decrease in the Net Asset Value per unit, as
of the end of successive Time Horizons (a term defined in the Limited
Partnership Agreement, generally 18 months in duration) is 10% of the Net
Asset Value per unit as of the beginning of each such Time Horizon (the
"Protected Minimum NAV"). The Partnership had entered into an agreement with
Chase Manhattan Bank N.A. ("Chase") whereby a letter of credit issued by
Chase served to ensure the Protected Minimum NAV. The letter of credit was
issued in favor of State Street Bank and Trust Company of Connecticut, N.A.,
which served as the paying agent for the Limited Partners of the
Partnership. The amounts of the letters of credit varied from time to time
as a result of units redeemed, or the occurrence of a New Profit Lock-In, as
defined in the Letter of Credit and Reimbursement Agreement. The Letter of
Credit expired in June 1994 and was not renewed. The Protected Minimum NAV
for the Time Horizon ending November 29, 1995 is guaranteed by the U.S.
Government obligations. The Partnership will also utilize a "downside
protection" strategy which is designed to maximize profits while controlling
the risk of major drawdowns. Avoiding significant losses is of particular
importance to the Partnership's long-term prospects for profitability due to
its "downside protection" feature.
Income Taxes
------------
No provision for income taxes has been made in the accompanying financial
statements as each partner is individually responsible for reporting income
or loss based on their respective share of the Partnership's income and
expenses as reported for income tax purposes.
Dissolution of the Partnership
------------------------------
The Partnership will terminate on December 31, 2007 or at an earlier date if
certain conditions occur, regarding, among other things, a decline in net
assets to less than $250,000, a decline in Net Asset Value to less than $25
or under certain circumstances as defined in the Limited Partnership
Agreement.
Redemptions
-----------
A Limited Partner may require the Partnership to redeem some or all of their
units at 100% of actual Net Asset Value as of the last business day of any
month, and at 100% of actual Net Asset
6
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Value plus any amounts due under the Protected Minimum NAV as of the last
business day of any month which is also the last day of a Time Horizon, upon
ten days' written notice to the General Partner.
2. RELATED PARTY TRANSACTIONS
All of the Partnership's assets except for the U.S. Government obligations
are held by Merrill Lynch Futures Inc. ("MLF") (the commodity broker for the
Partnership), an affiliate of the General Partner, as margin deposits in
respect of the Partnership's futures and options trading. All brokerage
commissions are paid to MLF. MLF pays the Partnership of interest which
approximates the prevailing 91-day U.S. Treasury bill rate on the
Partnership's average daily "available assets". Available assets are all of
the Partnership's assets except for those assets invested in U.S. Government
obligations and excluding the unrealized profit and loss on open forward or
options positions or assets being held by other commodity brokers.
3. WEIGHTED AVERAGE UNITS
Weighted average number of units outstanding was computed for purposes of
disclosing net income per weighted average unit. The weighted average units
are equal to the number of units outstanding at the period end, adjusted
proportionately for units redeemed based on their respective time
outstanding during such period.
4. OFF-BALANCE SHEET RISK
The Partnership trades futures and options contracts. Risk arises from
changes in the value of these contracts (market risk) and the potential
inability of counterparties or brokers to perform under the terms of the
contracts (credit risk). Although numerous factors could have significant
influences on the market risk of these contracts, they are very interest
rate sensitive.
Contract amounts represent the Partnership's extent of involvement in the
particular class of financial instrument, 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 on 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 (except for the Government Obligations) is
MLF.
7
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Item 2: Management's Discussion and Analysis of Financial
- ------- Condition and Results of Operations
-------------------------------------------------
Operational Overview:
---------------------
Due to the nature of the Fund's business, its results of operations
depend on the Trading Manager's ability to recognize and capitalize on trends or
other profit opportunities in futures and forward contracts and related options
in different sectors of the world commodity markets. However, the Trading
Manager's methods are confidential, and therefore the only information that can
be furnished regarding the Fund's results of operations is contained in the
performance record of its trading. Unlike many businesses, general economic or
seasonal conditions will not necessarily affect the profit potential of the
Fund, and its past performance is not necessarily indicative of future results.
Liquidity:
----------
A significant portion of the Partnership's assets were held in U.S.
Treasury strips which, in turn, were used to protect the Net Asset Value and
margin its futures positions and liquidated, as necessary, to pay trading losses
and redemptions when incurred. U.S. Treasury strips are highly liquid.
The Partnership entered into an arrangement with Merrill Lynch Futures
Inc. regarding the maintenance of the Partnership's assets, which eliminates
the interest loss resulting from being unable to invest 100% of the
Partnership's available assets in U.S. Treasury bills. Under the arrangement, a
portion of the Partnership's assets are ordinarily deposited as cash rather than
invested in U.S. Treasury bills and Merrill Lynch Futures Inc. credits the
Partnership with interest as if 100% of its cash assets were continuously
invested in 91-day Treasury bills. As a result, the Partnership is able to earn
a yield on all of its available assets.
The stock index futures contracts in which the Partnership trades may
become illiquid under certain market conditions. "Daily limits," which limit
fluctuations in futures prices during a single day, have been made applicable to
stock index futures contracts, in response to the market turbulence of October
1987. 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. As a result of such limits,
market conditions could prevent the Partnership from promptly liquidating its
stock index futures positions. Although "circuit breaker" trading halts are in
effect, daily limits are applicable to the "cash" market in the stocks on which
the stock indexes on which the futures contracts traded by the Partnership are
based.
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 solely to supply the necessary margin or premiums
for, and to pay any losses incurred in connection with, its investment in stock
index futures contracts and options on stock index futures contracts 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 material impact on the Fund's profitability.
8
<PAGE>
1995:
-----
Total assets of the Partnership and Partnership Capital at March 31, 1995
were $8,068,181 and $7,937,833, respectively. The Partnership permits Units to
be redeemed on a monthly basis. During the first quarter of 1995, 1,654 Units
were redeemed, for an aggregate redemption value of $248,288.
1994:
-----
Total assets of the Partnership and Partnership Capital at March 31, 1994
were $8,351,240 and $8,212,663, respectively. The Partnership permits Units to
be redeemed on a monthly basis. During the first quarter of 1994, 2,069 Units
were redeemed, for an aggregate redemption value of $298,547.
Results of Operations - General:
--------------------------------
Unlike many businesses, 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. In general, markets in which sustained
price trends occur with some frequency tend to be favorable to managed futures
investments, but this is not always the case. It is impossible to predict when
trending markets will occur and the Trading Manager is affected differently by
trends in general and particular types of trends. Consequently, the results of
operations of the Fund are difficult to discuss other than in terms of how it
has performed in the past.
At March 31, 1995, the Net Asset Value per Unit was $152.99, a 8.25%
increase from the Net Asset Value per Unit of $141.33 at December 31, 1994.
During January 1995, the Fund's Net Asset Value for the Series A Units
increased by 2.6%, while the S & P 500 Stock Index also increased by 2.6% for
the month.
During February 1995, the Fund's Net Asset Value for the Series A Units
increased 3.4%, while the S & P 500 Stock Index increased 3.9% for the month.
During March 1995, the Fund's Net Asset Value for the Series A Units
increased 2.1%, while the S & P 500 Stock Index increased 3.0% for the month.
The Partnership's operations were profitable during the first quarter of
1995 with gross trading gains of $494,903 and interest income of $161,061, less
operating expenses of $36,353 (comprised of brokerage commissions of $1,625 and
administrative fees of $34,728), resulting in net income of $619,611.
During the first quarter of 1995, the Fund experienced three profitable
months of trading operations.
The Net Asset Value of a Unit purchased on August 5, 1987 for $100 had
increased to $152.99 as of March 31, 1995.
At March 31, 1994, the Net Asset Value per Unit was $140.67, a 2.8%
increase from the Net Asset Value per Unit of $144.72 at December 31, 1993.
During January 1994, the Fund's Net Asset Value increased 2.8%, while the
S & P 500 Stock Index increased 3.4% for the month.
9
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During February 1994, the Fund's Net Asset Value decreased 2.6%, while
the S & P 500 Stock Index increased 2.7% for the month.
During March 1994, the Fund's Net Asset Value decreased 2.9%, while the
S & P 500 Stock Index decreased 4.4% for the month.
The Partnership's operations were unprofitable during the first quarter
of 1994 with gross trading losses of $277,789 and interest income of $82,740,
less operating expenses of $42,355 (comprised of brokerage commissions of $4,397
and administrative fees of $37,958), resulting in net loss of $237,404.
During the first quarter of 1994, the Fund experienced one profitable
months and two unprofitable months of trading operations.
The Net Asset Value of a Unit purchased on August 5, 1987 for $100 had
increased to $140.67 as of March 31, 1994.
10
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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 quarter of
fiscal 1995.
<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 GROWTH AND GUARANTEE FUND L.P.
By: ML FUTURES INVESTMENT PARTNERS INC.
(General Partner)
Date: May 12, 1994 By /s/JOSEPH A. BOCCUZZI
---------------------
Joseph A. Boccuzzi
Chairman, Chief Executive Officer
and Director
Date: May 12, 1994 By /s/JOHN R. FRAWLEY, JR.
-----------------------
John R. Frawley, Jr.
President, Chief Operating Officer
and Director
Date: May 12, 1994 By /s/JAMES M. BERNARD
-------------------
James M. Bernard
Chief Financial Officer
Treasurer and Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS OF FINANCIAL CONDITION, STATEMENTS OF OPERATIONS, STATEMENTS OF
CHANGES IN PARTNERS' CAPITAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> MAR-31-1995 MAR-31-1994
<CASH> 0 0
<RECEIVABLES> 8,068,181 7,626,185
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 8,068,181 7,626,185
<SHORT-TERM> 0 0
<PAYABLES> 130,348 59,674
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 0 0
<COMMON> 0 0
0 0
0 0
<OTHER-SE> 7,937,833 7,566,511
<TOTAL-LIABILITY-AND-EQUITY> 8,068,181 7,626,185
<TRADING-REVENUE> 494,903 (277,789)
<INTEREST-DIVIDENDS> 161,061 82,740
<COMMISSIONS> 0 0
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 619,611 (237,404)
<INCOME-PRE-EXTRAORDINARY> 619,611 (237,404)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 619,611 (237,404)
<EPS-PRIMARY> 11.67 (3.97)
<EPS-DILUTED> 11.67 (3.97)
</TABLE>
