<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 0-16110
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)
212-236-9757
----------------------------------------------------
(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 GROWTH AND GUARANTEE FUND L.P.
----------------------------------
(a Delaware limited partnership)
--------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------- ---------------
ASSETS
- ------
<S> <C> <C>
Accrued interest $9,893 $9,255
U.S. Government obligations 9,478,788 8,775,472
Equity in commodity futures trading accounts:
Cash and options premium 1,910,756 2,309,206
Net unrealized profit (loss) on open contracts 606,425 (100,288)
--------------- ---------------
TOTAL $12,005,862 $10,993,645
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $123,031 $65,958
Administrative fees and brokerage
commissions payable 18,594 16,777
--------------- ---------------
Total liabilities 141,625 82,735
--------------- ---------------
Minority Interest 240,167 148,295
--------------- ---------------
PARTNERS' CAPITAL:
General Partner (680 and 680 Units) 203,061 183,819
Limited Partners (38246 and 39134 Units) 11,421,009 10,578,796
--------------- ---------------
Total partners' capital 11,624,070 10,762,615
--------------- ---------------
TOTAL $12,005,862 $10,993,645
=============== ===============
NET ASSET VALUE PER UNIT
(Based on 38926 and 39814 Units outstanding) $298.62 $270.32
=============== ===============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
----------------------------------
(a Delaware limited partnership)
--------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
For the three For the three
months ended months ended
March 31, March 31,
1998 1997
--------------- ---------------
REVENUES:
Trading profit (loss):
Realized:
Options and Futures $423,650 $620,250
U.S. Government obligations 26,564 8,434
Change in unrealized:
Options and Futures 706,713 (522,350)
U.S. Government obligations (45,176) (45,583)
--------------- ---------------
Total trading results 1,111,751 60,751
--------------- ---------------
Interest income:
Options and Futures 33,036 24,537
U.S. Government obligations 119,215 112,171
--------------- ---------------
Total revenues 1,264,002 197,459
--------------- ---------------
EXPENSES:
Brokerage commissions 1,706 1,600
Administrative fees 49,721 42,099
--------------- ---------------
Total expenses 51,427 43,699
--------------- ---------------
NET INCOME BEFORE
MINORITY INTEREST 1,212,575 153,760
Minority interest on income (91,873) 1,559
--------------- ---------------
NET INCOME $1,120,702 $155,319
=============== ===============
NET INCOME PER UNIT:
Weighted average number of units
outstanding 39,645 42,175
=============== ===============
Weighted average net income
per Limited Partner
and General Partner Unit $28.27 $3.68
=============== ===============
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, 1998 and 1997
--------------------------------------------------
<TABLE>
<CAPTION>
Units Limited Partners General Partner Total
---------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
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
================ ================= ================= ==================
PARTNERS' CAPITAL,
December 31, 1997 39,814 $10,578,796 $183,819 $10,762,615
Net income - 1,101,460 19,242 1,120,702
Redemptions (888) (259,247) - (259,247)
---------------- ----------------- ----------------- ------------------
PARTNERS' CAPITAL,
March 31, 1998 38,926 $11,421,009 $203,061 $11,624,070
================ ================= ================= ==================
</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 consolidated financial statements have been prepared without audit.
In the opinion of management, the consolidated 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, 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
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, 1997 (the "Annual
Report").
2. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership's total trading results by reporting category for the respective
periods were as follows:
For the three For the three
months ended months ended
March 31, March 31,
1998 1997
-------------------- ---------------------
Interest rate $- $(35,399)
Stock indices 1,111,751 96,150
-------------------- ---------------------
$1,111,751 $60,751
==================== =====================
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 Sell Purchase Sell
(Futures & Options) (Futures & Options) (Futures & Options) (Futures & Options)
------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Stock Indices $11,446,150 $ - $10,573,450 $ -
=================== ================== ================== ==================
</TABLE>
5
<PAGE>
The contract/notional values of exchange traded open contracts as of March 31,
1998 and December 31, 1997 were as follows (the Partnership does not trade
non-exchange-traded derivative instruments):
<TABLE>
<CAPTION>
1998 1997
------------------------------------------- -------------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase Sell Purchase Sell
(Futures & Options) (Futures & Options) (Futures & Options) (Futures & Options)
------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Exchange
traded $11,446,150 $ - $10,573,450 $ -
=================== ================== ================== ===================
</TABLE>
The average fair values, based on contract notional values, of the derivative
instruments held or issued 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 Sell Purchase Sell
(Futures & Options) (Futures & Options) (Futures & Options) (Futures & Options)
------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Stock Indices $10,515,008 $ - $9,593,706 $ -
=================== ================== =================== ===================
</TABLE>
The gross unrealized profit and the net unrealized profit (loss) on open
contracts 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 Profit Loss
-------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Exchange
traded $646,900 $606,425 $ - $(100,288)
==================== =================== =================== ====================
</TABLE>
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
- ---------------------
During the first 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%.
During the first 3 months of trading ending March 31, 1998 the S&P 500
Stock Index (dividends not reinvested) increased a total of 13.53%, whereas the
Net Asset Value per Series A unit increased 10.47%.
On February 10, 1998, the NAV of the Fund increased to $282.15, a level
triggering a "New Profits Lock-in." Based upon the $282.15 per Unit NAV as of
the beginning of the current Time Horizon, which ends at the close of business
on July 31, 1999, the New Protected Minimum NAV is $253.94 per Unit. The Fund
will experience a "New Profits Lock-In" if the NAV reaches $310.37 per Series A
Unit.
6
<PAGE>
Performance Summary
- -------------------
During the first three months of 1997, the Fund's average month-end Net
Assets equaled $9,521,632 and the Fund recognized gross trading gains of $60,751
or 0.64% of such average month-end Net Assets. Brokerage commissions of $1,600
or 0.02% and Administrative fees of $42,099 or 0.44% 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 Merrill Lynch
Investment Partners Inc. ("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 Series A Unit since December 31,
1996.
During the first three months of 1998, the Fund's average month-end Net
Assets equaled $11,261,780, and the Fund recognized gross trading gains of
$1,111,751 or 9.87% of such average month-end Net Assets. Brokerage commissions
of $1,706 or .02% and Administrative fees of $49,721 or 0.44% of average
month-end Net Assets were paid. Interest income of $152,251 or 1.35% of average
month-end Net Assets resulted in net income of $1,120,702 (after deduction of
MLIP's "Minority Interest" of $91,873 in the Trading Partnership) or 9.95% of
average month-end Net Assets which resulted in a 10.47% increase in the Net
Asset Value per Unit since December 31, 1997.
MONTH-END NET ASSET VALUE PER UNIT
-----------------------------------
Jan. Feb. Mar.
-----------------------------------
1997 $230.41 $231.23 $221.77
-----------------------------------
1998 $273.20 $287.07 $298.62
-----------------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
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 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 MLIP, has announced that he will resign from MLIP effective
April 15, 1998 to pursue other business opportunities. MLIP expect to announce
his successor in the near future.
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.
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 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> 2,527,074 1,301,431
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 9,478,788 8,010,821
<PP&E> 0 0
<TOTAL-ASSETS> 12,005,862 9,312,252
<SHORT-TERM> 0 0
<PAYABLES> 381,792 102,402
<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> 11,624,070 9,209,850
<TOTAL-LIABILITY-AND-EQUITY> 12,005,862 9,312,252
<TRADING-REVENUE> 1,111,751 60,751
<INTEREST-DIVIDENDS> 152,251 136,708
<COMMISSIONS> 143,210 42,140
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 1,120,702 155,319
<INCOME-PRE-EXTRAORDINARY> 1,120,702 155,319
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,120,702 155,319
<EPS-PRIMARY> 28.27 3.61
<EPS-DILUTED> 28.27 3.61
</TABLE>
