<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 0-16110
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.
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
----------------------------------------------
March 31, December 31,
1997 1996
---- ----
ASSETS
- ------
Accrued interest $ 7,467 $ 8,352
U.S. Government obligations 8,010,821 7,628,080
Equity in commodity futures trading
accounts:
Cash and options premium 1,952,739 2,042,087
Net unrealized profit on open
contracts (658,775) (136,425)
----------- -------------
TOTAL $9,312,252 $ 9,542,094
=========== =============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ 31,935 $ 48,061
Administrative fees and brokerage
commissions payable 14,234 14,718
----------- -------------
Total liabilities 46,169 62,779
----------- -------------
Minority interest 56,233 57,792
----------- -------------
PARTNERS' CAPITAL:
General Partner (680 and 680 Units) 150,803 148,552
Limited Partners (40,849 and 42,447
Units) 9,059,047 9,272,971
----------- -------------
Total partners' capital 9,209,850 9,421,523
----------- -------------
TOTAL $9,312,252 $ 9,542,094
=========== =============
NET ASSET VALUE PER UNIT
(Based on 41,529 and 43,127 Units
outstanding) $ 221.77 $ 218.46
=========== =============
See notes to consolidated financial statements.
2
<PAGE>
THE GROWTH AND GUARANTEE FUND 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 (loss) profit:
Realized:
Options and Futures $ 620,250 $ 165,075
U.S. Government obligations 8,434 57,894
Change in unrealized:
Options and Futures (522,350) 165,300
U.S. Government obligations (45,583) (118,142)
------------- -------------
Total trading results 60,751 270,127
------------- -------------
Interest income:
Options and Futures 24,537 17,176
U.S. Government obligations 112,171 92,745
------------- -------------
Total revenues 197,459 380,048
------------- -------------
EXPENSES:
Administrative fees 42,099 38,908
Brokerage commissions 1,600 738
------------- -------------
Total expenses 43,699 39,646
------------- -------------
NET INCOME BEFORE
MINORITY INTEREST 153,760 340,402
Minority interest on income 1,559 (5,939)
------------- -------------
NET INCOME $ 155,319 $ 334,463
============= =============
NET INCOME PER UNIT:
Weighted average number of units
outstanding 42,175 46,055
====== ======
Weighted average net income per
General Partner and Limited
Partner Unit $ 3.61 $ 7.26
====== ======
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 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 46,219 $ 8,496,236 $ 126,846 $ 8,623,082
Net income - 329,536 4,927 334,463
Redemptions (510) (98,441) - (98,441)
----------- ------------ ----------- -------------
PARTNERS' CAPITAL,
MARCH 31 1996 45,709 $ 8,727,331 $ 131,773 $ 8,859,104
=========== ============ =========== =============
PARTNERS' CAPITAL,
DECEMBER 31, 1996 43,127 $ 9,272,971 $ 148,552 $ 9,421,523
Net income - 153,068 2,251 155,319
Redemptions (1,598) (366,992) (366,992)
----------- ------------ ----------- -------------
PARTNERS' CAPITAL,
MARCH 31, 1997 41,529 $ 9,059,047 $ 150,803 $ 9,209,850
=========== ============ =========== =============
</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" 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. 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 rates $ (35,399) $(59,710)
Stock indices 96,150 329,837
------------ -----------
$ 60,751 $ 270,127
============ ===========
Fair Value
- ----------
The contract/notional values of open contracts 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>
Stock
Indices $ 8,437,850 - $ 8,976,550 -
================== ================= ================== =================
</TABLE>
The contract/notional value of exchange traded open contracts as of March 31,
1997 and December 31, 1996 were as follows (the Partnership does not trade non-
exchange-traded derivative instruments):
<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 $ 8,437,850 - $ 8,976,550 -
================== ================= ================== =================
</TABLE>
5
<PAGE>
The average fair value of the derivative instruments held or issued 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>
Stock indices $ 9,031,058 - $ 7,367,783 -
================== ================= ================== =================
</TABLE>
At March 31, 1997 and December 31, 1996, $9,277,005 and $ 9,525,064 of these
assets, respectively, were held in segregated accounts.
The gross unrealized profit and the net unrealized profit (loss) on open
contracts as of March 31, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Profit Profit (Loss) Profit Profit (Loss)
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Exchange
traded $ 9,650 $ (658,775) -- $ (136,425)
============= =============== =============== ==============
</TABLE>
6
<PAGE>
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 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 3 months of trading ending March 31, 1997, the S&P 500 Stock
Index (dividends not reinvested) increased a total of 2.69%, whereas the Net
Asset Value per Series A unit increased 1.52%.
Performance Summary
- -------------------
During the first quarter of 1996, the Fund's average month-end Net Assets
equalled $8,837,005, and the Fund recognized gross trading gains of $270,127 or
3.06% of such average month-end Nest Assets. Brokerage commissions of $738 or
0.01% and Administrative fees of $39,908 or 0.45% of average month-end Net
Assets were paid. Interest income of $109,921 or 1.24% of average month-end Net
Assets resulted in net income of $334,463 (after deduction of MLIP's "Minority
Interest" in the Trading Partnership) or 3.78% of average month-end Net Assets
which resulted in a 3.89% increase in the Net Asset Value per Units since
December 31, 1995.
During the first three months of 1997, the Fund's average month-end Net
Assets equalled $9,521,632 and the Fund recognized gross trading gains of
$60,751 or .64% of such average month-end Net Assets. Brokerage commissions of
$1,600 or .02% and Administrative fees of $42,099 or .44% of average month-end
Net Assets were paid. Interest income of $136,708 or 1.44% of average month-end
Net Assets resulted in net income of $155,319 (after adding back MLIP's
"Minority Interest" loss of $1,559 in the Trading Partnership) or 1.63% of
average month-end Net Assets which resulted in a 1.52% increase in the Net Asset
Value per Units since December 31, 1996.
During the first three months of 1997 and 1996, the Fund experienced 4
profitable months and 2 unprofitable month.
MONTH-END NET ASSET VALUE PER UNIT
Jan. Feb. Mar.
------- ------- -------
1996 $192.60 $192.04 $193.82
1997 $230.41 $231.23 $221.77
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.
7
<PAGE>
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.
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 three months
of fiscal 1997.
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: 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
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>
<CIK> 0000812188
<NAME> GROWTH & GUARANTEE FUND 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-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 0 0
<RECEIVABLES> 1,301,431 1,639,564
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 8,010,821 7,310,630
<PP&E> 0 0
<TOTAL-ASSETS> 9,312,252 8,950,194
<SHORT-TERM> 0 0
<PAYABLES> 102,402 91,090
<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> 9,209,850 8,859,104
<TOTAL-LIABILITY-AND-EQUITY> 9,312,252 8,950,194
<TRADING-REVENUE> 60,751 270,127
<INTEREST-DIVIDENDS> 136,708 109,921
<COMMISSIONS> 42,140 45,585
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 155,319 334,463
<INCOME-PRE-EXTRAORDINARY> 155,319 334,463
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 155,319 334,463
<EPS-PRIMARY> 3.61 7.26
<EPS-DILUTED> 3.61 7.26
</TABLE>
