<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, 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
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(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,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Equity in commodity futures trading accounts:
Cash and options premium $ 2,064,311 $ 1,339,093
Net unrealized profit (loss) on open contracts (41,788) 633,300
Government Securities 10,041,468 10,095,662
(Cost: $9,605,889 and $10,001,269)
Accrued interest 6,975 3,883
------------ ------------
TOTAL $ 12,070,966 $ 12,071,938
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable $ 37,568 $ 86,465
Administrative fees and brokerage
commissions payable 18,811 18,192
------------ ------------
Total liabilities 56,379 104,657
------------ ------------
Minority Interest 36,195 33,888
------------ ------------
PARTNERS' CAPITAL:
General Partner (390 and 390 Units) 125,228 123,521
Limited Partners (36,915 and 37,288 Units) 11,853,164 11,809,872
------------ ------------
Total partners' capital 11,978,392 11,933,393
------------ ------------
TOTAL $ 12,070,966 $ 12,071,938
============ ============
NET ASSET VALUE PER UNIT
(Based on 37,305 and 37,678 Units outstanding) $ 321.09 $ 316.72
============ ============
</TABLE>
See notes to consolidated financial statements.
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
months ended months ended
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Trading profit (loss) :
Realized:
Options and Futures $ 789,276 $ 423,650
U.S. Government obligations 2,783 26,564
Change in unrealized:
Options and Futures (675,088) 706,713
U.S. Government obligations (44,815) (45,176)
----------- -----------
Total trading results 72,156 1,111,751
Interest income 146,722 152,251
----------- -----------
Total revenues 218,878 1,264,002
----------- -----------
EXPENSES:
Brokerage commissions 950 1,706
Administrative fees 52,539 49,721
----------- -----------
Total expenses 53,489 51,427
----------- -----------
INCOME BEFORE
MINORITY INTEREST 165,389 1,212,575
Minority interest on income (2,307) (91,873)
----------- -----------
NET INCOME $ 163,082 $ 1,120,702
=========== ===========
NET INCOME PER UNIT:
Weighted average number of units
outstanding 37,576 39,645
=========== ===========
Weighted average net income
per Limited Partner
and General Partner Unit $ 4.34 $ 28.27
=========== ===========
</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 three months ended March 31, 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 -- 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
============ ============ ============ ============
PARTNERS' CAPITAL,
December 31, 1998 37,678 $ 11,809,872 $ 123,521 $ 11,933,393
Net income -- 161,375 1,707 163,082
Redemptions (373) (118,083) -- (118,083)
------------ ------------ ------------ ------------
PARTNERS' CAPITAL,
March 31, 1999 37,305 $ 11,853,164 $ 125,228 $ 11,978,392
============ ============ ============ ============
</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, 1999 and December
31, 1998, and the results of its operations for the three months ended
March 31, 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, 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 (loss) on such derivative instruments as relfected in the
Consolidated 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.
5
<PAGE>
Credit Risk
The risks associated with exchange-traded contracts are typically perceived
to be less than those associated with over-the-counter transactions, (non-
exchange-traded) 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, whereas 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. The Trading Partnership does not trade over-the-counter
instruments.
Because the Trading Partnership trades only exchange-traded instruments, it
has no counterparty risk.
6
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
MONTH-END NET ASSET VALUE PER UNIT
<TABLE>
<CAPTION>
------------------------------------------
Jan. Feb. Mar.
------------------------------------------
<S> <C> <C> <C>
1998 $273.20 $287.07 $298.62
------------------------------------------
------------------------------------------
1999 $324.09 $312.19 $321.09
------------------------------------------
</TABLE>
Results of Operations
During the 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%.
During the 3 months of trading ending March 31, 1999 the S&P 500 Stock
Index (dividends not reinvested) increased a total of 4.98%, whereas the Net
Asset Value per Series A unit increased 1.38%.
Effective 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.
The Fund will then begin liquidation and investors will receive a credit to
their Merrill Lynch customer securities account 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 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.
During the first three months of 1999, the Fund's average month-end Net
Assets equaled $11,944,524, and the Fund recognized gross trading gains of
$72,156 or .60% of such average month-end Net Assets. Brokerage commissions of
$950 or .01% and Administrative Fees of $52,539 or .44% of average month-end Net
Assets were paid. Interest income of $146,722 or 1.23% of average month-end Net
Assets resulted in net income of $163,082 (after deduction of MLIP's Minority
Interest in the Trading Partnership of $2,307) or 1.37% of average month-end Net
Assets, which resulted in a 1.38% increase in the Net Asset Value per Unit.
THE YEAR 2000 COMPUTER ISSUE
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
Partnership's 1998 Form 10-K. 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.
7
<PAGE>
The renovation phase of Merrill Lynch's Year 2000 efforts, as described in the
Partnership's 1998 Form 10-K, was approximately 99.7% completed as of April 16,
1999, and production testing was approximately 99.1% completed as of that date.
In March and April 1999, Merrill Lynch continued its participation 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.
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 will be successful.
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. 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.
As of March 26, 1999, the total estimated expenditures 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 $157 million
remains to be spent, primarily on continued testing, contingency planning, and
risk management. There can be no assurance that the costs associated with
remediation efforts will not exceed those currently anticipated by Merrill
Lynch, or that the possible failure of such remediation 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 three 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: May 11,1999 By /s/ JOHN R. FRAWLEY, JR.
----------------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: May 11,1999 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> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 0 0
<RECEIVABLES> 2,029,498 2,527,074
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 10,041,468 9,478,788
<PP&E> 0 0
<TOTAL-ASSETS> 12,070,966 12,005,862
<SHORT-TERM> 0 0
<PAYABLES> 92,574 381,792
<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> 11,978,392 11,624,070
<TOTAL-LIABILITY-AND-EQUITY> 12,070,966 12,005,862
<TRADING-REVENUE> 72,156 1,111,751
<INTEREST-DIVIDENDS> 146,722 152,251
<COMMISSIONS> 55,796 143,210
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 163,082 1,120,702
<INCOME-PRE-EXTRAORDINARY> 163,082 1,120,702
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 163,082 1,120,702
<EPS-PRIMARY> 4.34 28.27
<EPS-DILUTED> 4.34 28.27
</TABLE>
