<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, 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)
212-236-5662
------------------------------------------------------
(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
----- -----
<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,
1998 1997
------------------ ------------------
<S> <C> <C>
ASSETS
------
Accrued interest $ 8,688 $ $ 9,255
U.S. Government obligations 9,476,703 8,775,472
Equity in commodity futures trading accounts:
Cash and options premium 2,138,750 2,309,206
Net unrealized profit (loss) on open contracts 113,150 (100,288)
------------------ ------------------
TOTAL $ 11,737,291 $ 10,993,645
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
----------------------------------
LIABILITIES:
Redemptions payable $ 38,341 $ 65,958
Administrative fees and brokerage
commissions payable 18,447 16,777
------------------ ------------------
Total liabilities 56,788 82,735
------------------ ------------------
Minority Interest 29,134 148,295
------------------ ------------------
PARTNERS' CAPITAL:
General Partner (390 and 680 Units) 118,675 183,819
Limited Partners (37900 and 39134 Units) 11,532,694 10,578,796
------------------ ------------------
Total partners' capital 11,651,369 10,762,615
------------------ ------------------
TOTAL $ 11,737,291 $ 10,993,645
================== ==================
NET ASSET VALUE PER UNIT
(Based on 38290 and 39814 Units outstanding) $ 304.29 $ 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
---------------------------------
<TABLE>
<CAPTION>
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
REVENUES:
Trading profit (loss):
Realized:
Options and Futures $ 574,525 $ 426,100 $ 998,175 $ 1,046,350
U.S. Government obligations (235) (3,577) 26,329 4,857
Change in unrealized:
Options and Futures (494,088) 780,500 212,625 258,150
U.S. Government obligations 14,027 25,256 (31,149) (20,327)
------------------ ----------------- ----------------- ------------------
Total trading results 94,229 1,228,279 1,205,980 1,289,030
------------------ ----------------- ----------------- ------------------
Interest income:
Options and Futures 29,384 22,961 62,420 47,498
U.S. Government obligations 126,379 118,089 245,594 230,260
------------------ ----------------- ----------------- ------------------
Total revenues 249,992 1,369,329 1,513,994 1,566,788
------------------ ----------------- ----------------- ------------------
EXPENSES:
Brokerage commissions 1,438 1,113 3,144 2,713
Administrative fees 50,835 44,012 100,556 86,111
------------------ ----------------- ----------------- ------------------
Total expenses 52,273 45,125 103,700 88,824
------------------ ----------------- ----------------- ------------------
INCOME BEFORE
MINORITY INTEREST 197,719 1,324,204 1,410,294 1,477,964
Minority interest on income 19,034 (54,854) (72,839) (53,294)
------------------ ----------------- ----------------- ------------------
NET INCOME $ 216,753 $ 1,269,350 $ 1,337,455 $ 1,424,670
================== ================= ================= ==================
NET INCOME PER UNIT:
Weighted average number of units
outstanding 38,707 41,380 39,178 41,779
================== ================= ================= ==================
Weighted average net income
per Limited Partner
and General Partner Unit $ 5.60 $ 30.68 $ 34.14 $ 34.10
================== ================= ================= ==================
</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, 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 - 1,401,562 23,108 1,424,670
Redemptions (1,911) (441,564) - (441,564)
-------------- -------------------- ------------- ------------------
PARTNERS' CAPITAL,
June 30, 1997 41,216 $ 10,232,969 $ 171,660 $ 10,404,629
============== ==================== ============ ==================
PARTNERS' CAPITAL,
December 31, 1997 39,814 $ 10,578,796 $ 183,819 $ 10,762,615
Net income - 1,317,129 20,326 1,337,455
Redemptions (1,524) (363,231) (85,470) (448,701)
-------------- -------------------- ------------ ------------------
PARTNERS' CAPITAL,
June 30, 1998 38,290 $ 11,532,694 $ 118,675 $ 11,651,369
============== ==================== ============ ==================
</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 June 30, 1998 and the results of its
operations for the six months ended June 30, 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 generally 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:
<TABLE>
<CAPTION>
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Interest rate $ (4,820) $ 22,816 $ (4,820) $ (12,583)
Stock indices 99,049 1,205,463 1,210,800 1,301,613
----------------- ----------------- ---------------- ----------------
$ 94,229 $ 1,228,279 $ 1,205,980 $ 1,289,030
================= ================= ================ ================
</TABLE>
The contract/notional values of the Partnership's open derivative instrument
positions as of June 30, 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 $ 11,173,850 - $ 10,573,450 -
=================== ================== ================== ==================
</TABLE>
5
<PAGE>
The contract/notional values of the Partnership's open derivative instrument
positions as of June 30, 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>
Exchange
traded $ 11,173,850 - $ 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 six
months ended June 30, 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 $ 10,715,531 - $ 9,593,706 -
=================== ================== =================== ===================
</TABLE>
The gross unrealized profit and the net unrealized profit (loss) on open
contracts as of June 30, 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 $ 138,750 $ 113,150 - $ (100,288)
=============== =============== =============== =================
</TABLE>
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
- ----------------------
During the 3 months of trading ending June 30, 1997, the S&P 500 Stock Index
(dividends not reinvested) increased a total of 15.43%, whereas the Net Asset
Value per Series A unit increased 15.55%.
During the 3 months of trading ending June 30, 1998 the S&P 500 Stock Index
(dividends not reinvested) increased a total of 2.96%, whereas the Net Asset
Value per Series A unit increased 1.90%.
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 six months of 1997, the Fund's average month-end Net Assets
equaled $9,671,439 and the Fund recognized gross trading gains of $1,289,030 or
13.33% of such average month-end Net Assets. Brokerage commissions of $2,713 or
0.03% and Administrative fees of $86,111 or 0.89% of average month-end Net
Assets were paid. Interest income of $277,758 or 2.87% of average month-end Net
Assets resulted in net income of $1,424,670 (after deduction of Merrill Lynch
Investment Partners Inc. ("MLIP's) "Minority Interest" of $53,294 in the Trading
Partnership) or 14.73% of average month-end Net Assets which resulted in a
15.55% increase in the Net Asset Value per Series A Unit since December 31,
1996.
During the first six months of 1998, the Fund's average month-end Net Assets
equaled $11,326,553, and the Fund recognized gross trading gains of $1,205,980
or 10.65% of such average month-end Net Assets. Brokerage commissions of $3,144
or .03% and Administrative fees of $100,556 or 0.89% of average month-end Net
Assets were paid. Interest income of $308,014 or 2.72% of average month-end Net
Assets resulted in net income of $1,337,455 (after deduction of MLIP's "Minority
Interest" of $72,839 in the Trading Partnership) or 11.81% of average month-end
Net Assets which resulted in a 12.57% increase in the Net Asset Value per Unit
since December 31, 1997.
Jan. Feb. Mar. Apr May Jun
----------------------------------------------------------
1997 $230.41 $231.23 $221.77 $231.83 $244.06 $252.44
- ------------------------------------------------------------------
1998 $273.20 $287.07 $298.62 $300.27 $294.72 $304.29
- ------------------------------------------------------------------
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
Effective May 11, 1998, Jo Ann Di Dario became a Vice President, Treasurer
and Chief Financial Officer of Merrill Lynch Investment Partners Inc. (AMLIP@).
Ms. Di Dario was born in 1946. Before joining MLIP, she was self-employed for
one year. From February 1996 to May 1997, she worked as a consultant for Global
Asset Management, an international mutual fund organizer and operator
headquartered in London, where she offered advice on restructuring the back
office operations. From May 1992 to January 1996, Ms. Di Dario served as Vice
President of Meridian Bank Corporation, a regional bank holding company. She
was responsible for managing the treasury operations of the bank holding company
and its wholly-owned subsidiary, Meridian Investment Company Inc. Ms. Di Dario
managed the domestic treasury operation of First Fidelity Bank, a regional bank,
from September 1991 to May 1992. From 1985 until December 1990, Ms. Di Dario
was Vice President, Secretary and Controller of Caxton Corporation, a commodity
pool operator and commodity trading advisor. Her background includes seven
years of public accounting experience. She graduated with high honors from
Stockton State College with a Bachelor of Science Degree in Accounting.
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 six 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: August 11,1998 By:/s/ JOHN R. FRAWLEY, JR.
------------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: August 11,1998 By:/s/ JO ANN DI DARIO
-------------------
Jo Ann Di Dario
Vice President, Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 0 0
<RECEIVABLES> 2,260,588 2,218,173
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 9,476,703 8,775,472
<PP&E> 0 0
<TOTAL-ASSETS> 11,737,291 10,993,645
<SHORT-TERM> 0 0
<PAYABLES> 85,922 231,030
<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> 11,651,369 10,762,615
<TOTAL-LIABILITY-AND-EQUITY> 11,737,291 10,993,645
<TRADING-REVENUE> 1,205,980 1,289,030
<INTEREST-DIVIDENDS> 308,014 277,758
<COMMISSIONS> 176,539 142,118
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 1,337,455 1,424,670
<INCOME-PRE-EXTRAORDINARY> 1,337,455 1,424,670
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,337,455 1,424,670
<EPS-PRIMARY> 34.14 34.10
<EPS-DILUTED> 34.14 34.10
</TABLE>
