<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 September 30, 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)
212-236-5662
------------------------------
(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.
<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>
September 30, December 31,
1997 1996
------------------ ------------------
ASSETS
- ------
<S> <C> <C>
Accrued interest $ 8,548 $ 8,352
Equity in commodity futures trading accounts:
U.S. Government obligations 8,843,349 7,628,080
Cash and options premium 2,101,581 2,042,087
Net unrealized profit (loss) on open contracts 95,850 (136,425)
------------------ ------------------
TOTAL $11,049,328 $9,542,094
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ 26,599 $ 48,061
Administrative fees and brokerage
commissions payable 16,619 14,718
------------------ ------------------
Total liabilities 43,218 62,779
------------------ ------------------
Minority Interest 141,324 57,792
------------------ ------------------
PARTNERS' CAPITAL:
General Partners (680 and 680 Units) 180,876 148,552
Limited Partners (40166 and 42447 Units) 10,683,910 9,272,971
------------------ ------------------
Total partners' capital 10,864,786 9,421,523
------------------ ------------------
TOTAL $11,049,328 $9,542,094
================== ==================
NET ASSET VALUE PER UNIT
(Based on 40846 and 43127 Units outstanding) $265.99 $218.46
================== ==================
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
----------------------------------
(a Delaware limited partnership)
--------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Trading (loss) profit:
Realized:
Options and Futures $480,500 $(123,150) $1,526,850 $258,925
U.S. Government
obligations 40 (947) 4,897 55,397
Change in unrealized:
Options and Futures (25,875) 208,800 232,275 363,000
U.S. Government
obligations 26,918 25,162 6,591 (90,198)
----------------- ----------------- ----------------- -----------------
Total trading results 481,583 109,865 1,770,613 587,124
----------------- ----------------- ----------------- -----------------
Interest income:
Options and Futures 26,991 16,358 74,489 50,056
U.S. Government obligations 128,277 90,121 358,537 271,854
----------------- ----------------- ----------------- -----------------
Total revenues 636,851 216,344 2,203,639 909,034
----------------- ----------------- ----------------- -----------------
EXPENSES:
Brokerage commissions 712 1,025 3,425 2,262
Administrative fees 47,480 38,548 133,591 116,688
----------------- ----------------- ----------------- -----------------
Total expenses 48,192 39,573 137,016 118,950
----------------- ----------------- ----------------- -----------------
NET INCOME BEFORE
MINORITY INTEREST 588,659 176,771 2,066,623 790,084
Minority interest on income (30,238) (2,580) (83,532) (13,403)
----------------- ----------------- ----------------- -----------------
NET INCOME $558,421 $ 174,191 $1,983,091 $776,681
================= ================= ================= =================
NET INCOME PER UNIT:
Weighted average number of units
outstanding 41,063 44,819 41,539 45,397
================= ================= ================= =================
Weighted average net income
per Limited Partner
and General Partner Unit $13.60 $3.89 $47.74 $17.11
================= ================= ================= =================
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
-----------------------------------
(a Delaware limited partnership)
--------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
-------------------------------------------------------
For the nine months ended September 30, 1997 and 1996
-----------------------------------------------------
<TABLE>
<CAPTION>
Units Limited Partners General Partner Total
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
December 31, 1995 46,219 $ 8,496,236 $126,846 $ 8,623,082
Net income - 764,998 11,683 776,681
Redemptions (2,291) (449,323) - (449,323)
----------------- ------------------ ------------------ -----------------
PARTNERS' CAPITAL,
September 30, 1996 43,928 $ 8,811,911 $138,529 $ 8,950,440
================= ================== ================== =================
PARTNERS' CAPITAL,
December 31, 1996 43,127 $ 9,272,971 $148,552 $ 9,421,523
Net income - 1,950,768 32,324 1,983,092
Redemptions (2,281) (539,829) - (539,829)
----------------- ------------------ ------------------ -----------------
PARTNERS' CAPITAL,
September 30, 1997 40,846 $10,683,910 $180,876 $10,864,786
================= ================== ================== =================
See notes to consolidated financial statements.
</TABLE>
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 September 30, 1997 and the results of its operations for
the nine months ended September 30, 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 consolidated
financial statements be read in conjunction with the consolidated 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 respective periods were
as follows:
<TABLE>
<CAPTION>
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Interest rate $ 27,671 $ 25,040 $ 15,088 $(32,939)
Stock indices 453,912 84,825 1,755,525 620,063
------------------- -------------------- ------------------- -------------------
$481,583 $109,865 $1,770,613 $587,124
=================== ==================== =================== ===================
</TABLE>
The contract/notional values of the Partnership's open derivative instrument
positions as of September 30, 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 $10,548,250 - $8,976,550 -
================== ================== ================== ==================
</TABLE>
The contract/notional value of exchange traded open contracts as of September
30, 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 $10,548,250 - $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 nine months ended September 30, 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 $9,334,414 - $7,367,783 -
================== ================== ================== ==================
</TABLE>
At September 30, 1997 and December 31, 1996, $11,037,357 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 September 30, 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 $133,700 $95,850 - $(136,425)
================== ================== ================== =================
</TABLE>
3. RELATED PARTY TRANSACTIONS
Merrill Lynch Investment Partners Inc. ("MLIP") is currently reviewing
certain aspects of the interest arrangements between the Partnership and certain
affiliates of MLIP. The purpose of the review is to confirm that the Partnership
received interest credits as described in its Prospectus. The results of this
review have not been determined.
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 September 30, 1997, the S&P 500
Stock Index (dividends not reinvested) increased a total of 7.04%, whereas the
Net Asset Value per Series A unit increased 5.37%.
Time Horizon
- ------------
On June 13, 1997, the NAV of the Fund increased to $255.45, a level
triggering a "New Profits Lock-in." Based upon the $255.45 per Unit NAV as of
the beginning of the current Time Horizon, which ends at the close of business
on November 30, 1998, the New Protected Minimum NAV is
6
<PAGE>
$229.90 per Unit. The Fund will experience a "New Profits Lock-In" if the NAV
reaches $280.99 per Unit.
Performance Summary
- -------------------
During the first nine months of 1996, the Fund's average month-end Net
Assets equaled $8,809,408, and the Fund recognized gross trading gains of
$587,124 or 6.66% of such average month-end Net Assets. Brokerage commissions
of $2,262 or .03% and Administrative fees of $116,688 or 1.32% of average month-
end Net Assets were paid. Interest income of $321,910 or 3.65% of average
month-end Net Assets resulted in net gain of $776,681 (after deduction of
MLIP's "Minority Interest" of $13,403 in the Trading Partnership) or 8.82% of
average month-end Net Assets which resulted in a 9.21% increase in the Net Asset
Value per Unit since December 31, 1995.
During the first nine months of 1997, the Fund's average month-end Net
Assets equaled $10,023,394 and the Fund recognized gross trading gains of
$1,770,613 or 17.66% of such average month-end Net Assets. Brokerage
commissions of $3,425 or 0.03% and Administrative fees of $133,591 or 1.33% of
average month-end Net Assets were paid. Interest income of $433,026 or 4.32% of
average month-end Net Assets resulted in net gain of $1,983,091(after deduction
of MLIP's "Minority Interest" of $83,532 in the Trading Partnership) or 19.78%
of average month-end Net Assets which resulted in a 21.76% increase in the Net
Asset Value per Unit since December 31, 1996.
During the first nine months of 1997 and 1996, the Fund experienced 14
profitable months and 4 unprofitable months.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER UNIT
Jan. Feb. Mar. Apr May Jun Jul Aug Sep
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $192.60 $192.04 $193.82 $194.68 $198.40 $199.74 $191.34 $193.92 $203.75
- -------------------------------------------------------------------------------------------------------
1997 $230.41 $231.23 $221.77 $231.83 $244.06 $252.44 $269.18 $256.52 $265.99
- -------------------------------------------------------------------------------------------------------
</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, trading losses 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.
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.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending proceedings to which the Partnership or the General
Partner is a party.
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 nine 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: November 14, 1997 By /s/JOHN R. FRAWLEY, JR.
-----------------------
John R. Frawley, Jr.
President, Chief Executive Officer
and Director
Date: November 14, 1997 By /s/MICHAEL A. KARMELIN
----------------------
Michael A. Karmelin
Chief Financial Officer, Vice President
and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 0 0
<RECEIVABLES> 2205979 1831927
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 8843349 7273651
<PP&E> 0 0
<TOTAL-ASSETS> 11049328 9105578
<SHORT-TERM> 0 0
<PAYABLES> 184542 155138
<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> 10864786 8950440
<TOTAL-LIABILITY-AND-EQUITY> 11049328 9105578
<TRADING-REVENUE> 1770613 587124
<INTEREST-DIVIDENDS> 433026 321910
<COMMISSIONS> 220548 132353
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 1983091 776681
<INCOME-PRE-EXTRAORDINARY> 1983091 776681
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1983091 776681
<EPS-PRIMARY> 47.74 17.11
<EPS-DILUTED> 47.74 17.11
</TABLE>
