<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, 1999
------------------
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.
Princeton Corporate Campus
800 Scudders Mill Road - Section 2G
Plainsboro, New Jersey 08536
----------------------------
(Address of principal executive offices)
(Zip Code)
609-282-6996
--------------------------------------------------
(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>
August 9, December 31,
1999 1998
-------------- -------------
<S> <C> <C>
ASSETS
- ------
Equity in commodity futures trading accounts:
Cash and options premium $ - $ 1,339,093
Net unrealized profit (loss) on open contracts - 633,300
Government Securities
(Cost: $0 and $10,001,269, respectively) - 10,095,662
Accrued interest - 3,883
-------------- -------------
TOTAL $ - $ 12,071,938
============== =============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ - $ 86,465
Administrative fees and brokerage
commissions payable - 18,192
-------------- -------------
Total liabilities - 104,657
-------------- -------------
Minority Interest - 33,888
-------------- -------------
PARTNERS' CAPITAL:
General Partner (0 and 390 Units) - 123,521
Limited Partners (0 and 37,288 Units) - 11,809,872
-------------- -------------
Total partners' capital - 11,933,393
-------------- -------------
TOTAL $ - $ 12,071,938
============== =============
NET ASSET VALUE PER UNIT
(Based on 0 and 37,678 Units outstanding) $ - $ 316.72
============== =============
</TABLE>
See notes to consolidated financial statements.
2
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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,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Trading (loss) profit:
Realized
Options and Futures $ 694,500 $ (621,325) $ 1,477,638 $ 376,850
U.S. Government obligations 22,322 (8,642) 23,877 17,687
Change in unrealized:
Options and Futures (445,563) (300,675) (632,738) (88,050)
U.S. Government obligations (22,416) 141,228 (94,394) 110,079
------------- ------------- ------------- -------------
Total trading results 248,843 (789,414) 774,383 416,566
------------- ------------- ------------- -------------
Interest income:
Options and Futures 30,531 318,198 71,258 380,618
U.S. Government obligations 18,924 (165,574) 285,385 80,020
------------- ------------- ------------- -------------
Total revenues 298,298 (636,790) 1,131,026 877,204
------------- ------------- ------------- -------------
EXPENSES:
Brokerage commissions 1,250 2,550 3,463 5,694
Administrative fees 5,203 48,440 111,030 148,996
------------- ------------- ------------- -------------
Total expenses 6,453 50,990 114,493 154,690
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE
MINORITY INTEREST 291,845 (687,780) 1,016,533 722,514
Minority interest on income (5,248) 14,053 (16,869) (58,786)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 286,597 $ (673,727) $ 999,664 $ 663,728
============= ============= ============= =============
NET INCOME (LOSS) PER UNIT:
Weighted average number of units
outstanding 36,385 38,241 37,136 38,863
============= ============= ============= =============
Weighted average net income (loss)
per Limited Partner
and General Partner Unit $ 7.88 $ (17.62) $ 26.92 $ 17.08
============= ============= ============= =============
</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 PARTNER' CAPITAL
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For the nine months ended September 30, 1999 and 1998
-----------------------------------------------------
<TABLE>
<CAPTION>
Units Limited Partners General Partner Total
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
December 31, 1997 39,814 $ 10,578,796 $ 183,819 $ 10,762,615
Net income - 650,268 13,460 663,728
Redemptions (1,713) (417,689) (85,469) (503,158)
--------------- ---------------- --------------- ----------------
PARTNERS' CAPITAL,
September 30, 1998 38,101 $ 10,811,375 $ 111,810 $ 10,923,185
=============== ================ =============== ================
PARTNERS' CAPITAL,
December 31, 1998 37,678 $ 11,809,872 $ 123,521 $ 11,933,393
Net income - 989,033 10,631 999,664
Redemptions (37,678) (12,798,905) (134,152) (12,933,057)
--------------- ---------------- --------------- ----------------
PARTNERS' CAPITAL,
September 30, 1999 - $ - $ - $ -
=============== ================ =============== ================
</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 September 30, 1999, and the results of its
operations for the three and nine month periods ended September 30,
1999 and 1998. 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, 1998 (the
"Annual Report").
2. FAIR VALUE AND OFF-BALANCE SHEET RISK
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (the
"Statement"), effective for fiscal years beginning after June 15,
2000, however, the Fund has adopted the Statement effective January 1,
1999. This Statement supercedes SFAS No. 119 ("Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments") and SFAS No. 105 ("Disclosure of information about
Financial Instruments with Off-Balance Sheet Risk and Financial
Instruments with Concentrations of Credit Risk") whereby disclosure of
average aggregate fair values and contract/notional values,
respectively, of derivative financial instruments is no longer
required for an entity such as the Partnership which carries its
assets at fair value. Such Statement sets forth a much broader
definition of a derivative instrument. The General Partner does not
believe that the application of the provisions of such statement has a
significant effect on the financial statements.
SFAS No. 133 defines a derivative as a financial instrument or other
contract that has all three of the following characteristics (1) one
or more underlyings, notional amounts or payment provisions (2)
requires no initial net investment or a smaller initial net investment
than would be required relative to changes in market factors (3) terms
require or permit net settlement. Generally, derivatives include a
future, forward, swap or option contract, or other financial
instrument with similar characteristics such as caps, floors and
collars.
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
net unrealized profit on such derivative instruments as reflected in
the Statements of Financial Condition. The Trading Partnership's
exposure to market risk is influenced by a number of factors which
affect the S&P 500 Stock Index.
Credit Risk
-----------
The risks associated with exchange-traded contracts are typically
perceived to be less than those associated with over-the-counter (non-
exchange-traded) transactions, 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. 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.
Because the Trading Partnership trades only exchange-traded
instruments, it has no counterparty risk.
5
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3. SUBSEQUENT EVENTS
During the first quarter of 1999, the General Partner had determined
that the Partnership will cease trading effective on the earliest to
occur (i) the next New Profits Lock-In or (ii) July 31, 1999 (the date
on which the Partnership's Trading Consultant will cease operations).
On July 9, 1999, the Partnership reached a New Profits Lock-In and the
General Partner began the process to dissolve the Partnership.
Effective July 12, 1999, the Company suspended all trading operations
and began the formal liquidation of the Company. All commodity
positions were liquidated or offset and no other trading occcurred. In
accordance with the liquidation, the Company's Advisory Agreement
terminated and Members redeemed their capital. Liquidation was
completed on August 9, 1999.
6
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER UNIT
- --------------------------------------------------------------------------------
Jan. Feb. Mar. Apr. May. Jun. Jul.
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 $273.20 $287.07 $298.62 $300.27 $294.72 $304.29 $302.20
- --------------------------------------------------------------------------------
1999 $324.09 $312.19 $321.09 $330.55 $321.03 $336.10 $0
- --------------------------------------------------------------------------------
</TABLE>
Results of Operations
- --------------------
Effectively July 31, 1999, the Fund's Trading Consultant, Leland O'Brien
Rubinstein Associates Incorporated, will cease operations. As a result, and
because of the decline in the Fund's assets over the years due to redemptions,
the General Partner has determined that the Fund will cease trading effective on
the earliest to occur of (i) the next new Profits Lock-In or (ii) July 31, 1999.
On July 9, 1999, the Fund reached a New Profits Lock-In and began liquidation.
Investors will receive a credit to their Merrill Lynch customer securities
account in August 1999, equal to the Net Asset Value per Unit as of the close of
business on the last day of trading.
Performance Summary
- -------------------
During the first nine months of 1998, the Fund's average month-end Net Assets
equaled $11,279,616, and the Fund recognized gross trading gains of $416,566 or
3.69% of such average month-end Net Assets. Brokerage commissions of $5,694 or
.05% and Administrative fees of $148,996 or 1.32% of average month-end Net
Assets were paid. Interest income of $460,638 or 4.08% of average month-end Net
Assets resulted in net income of $663,728 (after deduction of MLIP's "Minority
Interest" of $58,786 in the Trading Partnership) or 5.88% of average month-end
Net Assets which resulted in a 6.06% increase in the Net Asset Value per Unit
since December 31, 1997.
YEAR 2000 COMPLIANCE
As the Year 2000 approaches, Merrill Lynch has undertaken initiatives to address
the Year 2000 problem (the "Y2K problem"), as more fully described in the 1998
Annual Report. The failure of Merrill Lynch's technology systems relating to a
Y2K problem would likely have a material adverse effect on the company's
business, results of operations, and financial condition. This effect could
include disruption of normal business transactions, such as the settlement,
execution, processing, and recording of trades in securities, commodities,
currencies, and other assets. The Y2K problem could also increase Merrill
Lynch's exposure to risk and legal liability and its need for liquidity.
The renovation phase of Merrill Lynch's Year 2000 system efforts, as described
in the 1998 Annual Report, was 100% completed as of June 30, 1999, and
production testing was 100% completed as of that date. In March and April 1999,
Merrill Lynch successfully participated in U.S. industrywide testing sponsored
by the Securities Industry Association. These tests involved an expanded number
of firms, transactions, and conditions compared with those previously conducted.
Merrill Lynch has participated in and continues to participate in numerous
industry tests throughout the world.
Merrill Lynch's business units have developed and tested contingency plans. The
plans identify critical processes, potential Y2K problems, and personnel,
processes, and available resources needed to maintain operations. However, the
failure of exchanges, clearing organizations, vendors, service providers,
clients and counterparties, regulators, or others to resolve their own
processing issues in a timely manner could have a material adverse effect on
Merrill Lynch's business, results of operations, and financial condition.
In light of the interdependency of the parties in or serving the financial
markets, there can be no assurance that all Y2K problems will be identified and
remedied on a timely basis or that all remediation and contingency planning will
be successful. Public uncertainty regarding successful remediation of the Y2K
problem may cause a reduction in activity in the financial markets. This could
result in reduced liquidity as well as increased volatility. Disruption or
suspension of activity in the world's financial markets is also possible. In
some non-U.S. markets in which Merrill Lynch does business, the level of
awareness and remediation efforts relating to the Y2K problem are thought to be
less advanced than in the U.S. Management is unable at this point to ascertain
whether all significant third parties will successfully address the Y2K problem.
Merrill Lynch will continue to monitor third parties' Year 2000 readiness to
determine if additional or alternative measures are necessary. Contingency plans
have been established for all business units. Merrill Lynch's year-end balance
sheet levels will depend on Y2K risks and many other factors, including business
opportunites and customer demand.
7
<PAGE>
As of September 24, 1999, the total estimated expenditures of existing and
incremental resources for the Year 2000 compliance initiative are approximately
$520 million. This estimate includes $104 million of occupancy, communications,
and other related overhead expenditures, as Merrill Lynch is applying a fully
costed pricing methodology for this project. Of the total estimated
expenditures, approximately $40 million, related to continued testing,
contingency planning, and risk management. There can be no assurance that the
costs associated with such efforts will not exceed those currently anticipated
by Merrill Lynch, or that the possible failure of such efforts will not have a
material adverse effect on Merrill Lynch's business, results of operations, or
financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
8
<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
None.
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 nine months
of fiscal 1999.
9
<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 12, 1999 By /s/ JOHN R. FRAWLEY, JR.
----------------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: November 12, 1999 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 0 0
<RECEIVABLES> 12,571,633 1,976,276
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 10,095,662
<PP&E> 0 0
<TOTAL-ASSETS> 12,571,633 12,071,938
<SHORT-TERM> 0 0
<PAYABLES> 12,571,633 138,545
<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> 0 11,933,393
<TOTAL-LIABILITY-AND-EQUITY> 12,571,633 12,071,938
<TRADING-REVENUE> 774,383 416,566
<INTEREST-DIVIDENDS> 356,643 460,638
<COMMISSIONS> 131,362 213,476
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 999,664 663,728
<INCOME-PRE-EXTRAORDINARY> 999,664 663,728
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 999,664 663,728
<EPS-BASIC> 34.61 17.08
<EPS-DILUTED> 34.61 17.08
</TABLE>
