<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 0-16110
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 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 9 pages.
There are no exhibits and no exhibit index filed with this document.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE GROWTH AND GUARANTEE FUND L.P.
----------------------------------
(a Delaware limited partnership)
------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
- ------
Accrued Interest $ 5,705 $ 4,940
U.S. Government obligations 7,266,255 6,820,462
Equity in commodity futures trading accounts:
Cash and options premium 1,521,853 1,985,376
Net unrealized gain on open contracts 260,000 (105,800)
------------ -------------
TOTAL $9,053,813 $8,704,978
============ =============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ - $ 39,739
Administrative fees and brokerage
commissions payable (Note 2) 13,907 13,215
------------ -------------
Total liabilities 13,907 52,954
------------ -------------
Minority interest 39,764 28,942
------------ -------------
PARTNERS' CAPITAL:
General Partner (680 and 680 Units) 135,802 126,846
Limited Partners (44,379 and 45,539 Units) 8,864,340 8,496,236
------------ -------------
Total partners' capital 9,000,142 8,623,082
------------ -------------
TOTAL $9,053,813 $8,704,978
============ =============
NET ASSET VALUE PER UNIT
(Based on 45,059 and 46,219 Units outstanding) $199.74 $186.57
======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
THE GROWTH AND GUARANTEE FUND 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 profit (loss):
Realized:
Options and Futures $217,000 $398,611 $382,075 $ 656,452
U.S. Government obligations (1,550) (21,507) 56,344 (22,670)
Change in unrealized:
Options and Futures (11,100) 203,458 154,200 376,400
U.S. Government obligations 2,782 85,147 (115,360) 150,430
-------------- -------------- -------------- ----------------
Total trading results 207,132 665,709 477,259 1,160,612
-------------- -------------- -------------- ----------------
Interest income:
Options and Futures 16,522 12,406 33,698 25,507
U.S. Government obligations 88,988 32,828 181,733 180,788
-------------- -------------- -------------- ----------------
Total revenues 312,642 710,943 692,690 1,366,907
-------------- -------------- -------------- ----------------
EXPENSES:
Administrative fees 39,232 36,058 78,140 70,786
Brokerage commissions 499 974 1,237 2,599
-------------- -------------- -------------- ----------------
Total expenses 39,731 37,032 79,377 73,385
-------------- -------------- -------------- ----------------
NET INCOME BEFORE
MINORITY INTEREST 272,911 673,911 613,313 1,293,522
Minority interest on income (4,884) (1,437) (10,823) (1,437)
-------------- --------------- -------------- ----------------
NET INCOME $268,027 $672,474 $602,490 $1,292,085
============== =============== ============== ================
NET INCOME PER UNIT:
Weighted average number of units
outstanding 45,316 50,731 45,686 51,919
======= ======= ======= =======
Weighted average net income per unit $5.91 $13.26 $13.19 $24.89
====== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
----------------------------------
(a Delaware limited partnership)
------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
-------------------------------------------------------
For the six months ended June 30, 1996 and 1995
-----------------------------------------------
<TABLE>
<CAPTION>
Limited General
Units Partners Partner Total
----- -------- ------- -----
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
DECEMBER 31, 1994 53,537 $7,470,426 $ 96,085 $7,566,511
Net income - 1,275,157 16,928 1,292,085
Redemptions (4,899) (773,694) - (773,694)
------------ ------------ ------------ ------------
PARTNERS' CAPITAL,
JUNE 30, 1995 48,638 $7,971,889 $113,013 $8,084,902
============ ============ ============ ============
PARTNERS' CAPITAL,
DECEMBER 31, 1995 46,219 $8,496,236 $126,846 $8,623,082
Net income - 593,534 8,956 602,490
Redemptions (1,160) (225,430) - (225,430)
------------ ------------ ------------ ------------
PARTNERS' CAPITAL,
JUNE 30, 1996 45,059 $8,864,340 $135,802 $9,000,142
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
----------------------------------
(a Delaware limited partnership)
------------------------------
NOTES TO CONSOLIDATED 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 Growth and Guarantee Fund 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 MLF brokerage commissions of $25.00 per each round-turn,
which includes exchange clearing and NFA fees, on U.S. futures transactions
executed by the Partnership.
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership trades futures and options on stock indices. The Partnership's
revenues by reporting category for the six months ended June 30, 1996 were as
follows:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Interest rate $(57,978)
Stock indices 535,237
--------------
$477,259
==============
</TABLE>
Market Risk
- -----------
Derivative instruments involve varying degrees of off-balance sheet market risk,
and changes in the level or volatility of interest rates or the S&P 500 Stock
Index will result in changes in the Partnership's unrealized gain or loss on
such derivative instruments as reflected in the Statements of Financial
Condition as of the end of the period. The Partnership's exposure to market
risk is influenced by a number of factors which affect stock index levels.
Fair Value
- ----------
The derivative instruments traded by the Trading Partnership are marked to
market daily with the resulting unrealized gains or losses recorded in the
Statements of Financial Condition and the related income or loss reflected in
trading revenues in the Statements of Operations. The contract/notional values
of open contracts as of June 30, 1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------ ----------------------------------------
Commitment Commitment Commitment Commitment
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Stock
Indices $7,054,300 -- $6,052,025 --
=================== =================== =================== ===================
</TABLE>
The majority of the Partnership's derivative financial instruments outstanding
at June 30, 1996, mature within one year.
5
<PAGE>
The contract/notional value of exchange traded and open contracts as of June 30,
1996 and December 31, 1995 were as follows (the Partnership does not trade non-
exchange-traded derivative instruments):
<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 $7,054,300 -- $6,052,025 --
================== ================== ================== ==================
</TABLE>
The average fair value of the derivative instruments held or issued as of the
end of each calendar month during the six months ended June 30, 1996 and the
year ended 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>
Stock indices $6,597,888 -- $5,341,896 $156,385
================== ================== ================== ==================
</TABLE>
Credit Risk
- -----------
The risks associated with exchange-traded contracts are typically perceived to
be less than those associated with over-the-counter transactions (non-exchange-
traded), 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, whereas 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
require margin in the over-the-counter markets. The Partnership does not trade
off-exchange instruments.
The contract amounts in the above tables represent the extent of the Trading
Partnership's market exposure in the relevant class of derivative instruments.
Because the Partnership trades only exchange-traded instruments, it has no
counterparty risk. The Partnership also has credit risk because the sole broker
with respect to the Partnership is MLF. At June 30, 1996 and December 31, 1995,
$9,034,411 and $8,697,334 of these assets, respectively, were held in segregated
accounts.
The gross unrealized gain and the net unrealized gain (loss) on open contracts
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 $74,500 $260,000 -- $(105,800)
================ ================ ================ ================
</TABLE>
The Partnership controls credit risk by dealing almost exclusively with Merrill
Lynch entities as brokers and counterparties.
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 the Trading Advisor's ability to optimize the extent to which the Fund
participates in the significant upward movement in stock index levels. The
Trading Advisor's Dynamic Asset Allocation Risk Management Strategies 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
6
<PAGE>
results. However, the Fund is dependent upon significant upward movement in
stock index levels for profitability.
Results of Operations - General
- -------------------------------
The Fund is materially different from most other futures funds in that it
does not attempt to achieve speculative profits from taking long or short
positions in a variety of markets. Rather, the Fund's objective is to capture a
substantial portion of significant upside movements in the S&P 500 Stock Index
(dividends not reinvested) while providing the protection of a maximum loss
which can be incurred during any 18 month Time Horizon. The Fund's ability to
capture upside S&P 500 Stock Index movements is based on a call options
strategy, and is path dependent - i.e., the extent to which the Fund is able to
capture upside movements in the S&P 500 depends on the patterns in which such
movements occur. For example, if the S&P 500 increased during a Time Horizon by
a total of 25%, but did so after incurring a 15% drop, it is likely that the
Fund would recognize little or none of the upward movement, because it would
have lost all that it had available to lose during the Time Horizon in question
during the course of the 15% drop.
During the past 6 months of trading ending June 30 1996, the S&P 500 Stock
Index (dividends not reinvested) increased a total of 8.04%, whereas the Net
Asset Value per Series A unit increased 13.17%.
Performance Summary
- -------------------
During the first six months of 1995, the Fund's average month-end Net
Assets equalled $7,902,932 and the Fund recognized gross trading gains of
$1,160,612 or 14.69% of such average month-end Net Assets. Brokerage commissions
of $2,599 or .03% and Administrative expenses of $70,786 or .90% of average
month-end Net Assets were paid. Interest income of $206,295 or 2.61% of average
month-end Net Assets resulted in a net income of $1,292,085 (after deduction of
MLIP's "Minority Interest" in the Trading Partnership) or 16.35% of average
month-end Net Assets, which resulted in a 17.62% 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 $8,879,996 and the Fund recognized gross trading gains of
$477,259 or 5.37% of such average month-end Net Assets. Brokerage commissions of
$1,237 or .01% and Administrative expenses of $78,140 or .88% of average month-
end Net Assets were paid. Interest income of $215,431 or 2.43% of average month-
end Net Assets resulted in net income of $602,490 (after deduction of MLIP's
"Minority Interest" in the Trading Partnership) or 6.78% of average month-end
Net Assets which resulted in a 7.06% increase in the Net Asset Value per Units
since December 31, 1995.
During the first six months of 1996 and 1995, the Fund experienced 11
profitable months and 1 unprofitable month.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER UNIT
- ------------------------------------------------------------
Jan. Feb. Mar. April May June
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $144.95 $149.87 $152.99 $157.25 $163.05 $166.23
- ------------------------------------------------------------
1996 $192.60 $192.04 $193.82 $194.68 $198.40 $199.74
- ------------------------------------------------------------
</TABLE>
Importance of Market Factors
- ----------------------------
Comparisons between the Fund's performance in one fiscal year to the prior
year are unlikely to be meaningful, given the uncertainty of price movements in
the markets traded by the Fund.
Liquidity
- ---------
A significant portion of the Partnership's assets were held in U.S.
Treasury STRIPS which, in turn, generate the protected minimum Net Asset Value.
The U.S. STRIPS are highly liquid but are acquired by the Fund on a buy-and-hold
basis for the course of a Time Horizon, except to the extent liquidated to fund
a portion of redemptions. A portion of the Partnership's assets are also held as
cash which, in turn, is used to margin its stock index futures positions and is
withdrawn, as necessary, to pay a portion of redemptions and fees.
The stock index futures contracts in which the Partnership trades may
become illiquid under certain market conditions. Stock Index futures contracts
in the U.S. are subject to "circuit breakers" which require the suspension of
trading after certain market movements. However, these "circuit breakers" have
rarely been "triggered," and because the Fund buys rather than sells options, it
is generally not exposed to risk of not being able to close out positions
against which the market is moving as a result of illiquidity.
7
<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 (i) assure the investors the protected minimum
Net Asset Values as of the end of the Time Horizons and (ii) 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 stock index futures markets in which the Funds trades
exclusively. The Fund cannot be profitable during a Time Horizon unless the S&P
500 Stock Index market rises.
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.
8
<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: 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
9
<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> 1,787,558 1,611,177
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 7,266,255 6,660,720
<PP&E> 0 0
<TOTAL-ASSETS> 9,053,813 8,271,897
<SHORT-TERM> 0 0
<PAYABLES> 53,671 186,995
<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> 9,000,142 8,084,902
<TOTAL-LIABILITY-AND-EQUITY> 9,053,813 8,271,897
<TRADING-REVENUE> 477,259 1,160,612
<INTEREST-DIVIDENDS> 215,431 206,295
<COMMISSIONS> 90,200 74,822
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 602,490 1,292,085
<INCOME-PRE-EXTRAORDINARY> 602,490 1,292,085
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 602,490 1,292,085
<EPS-PRIMARY> 13.19 24.89
<EPS-DILUTED> 13.19 24.89
</TABLE>
