<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, 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.
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(a Delaware limited partnership)
--------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- ----------------
<S> <C> <C>
ASSETS
Equity in commodity futures trading accounts:
Cash and options premium $ 1,994,194 $ 1,339,093
Net unrealized profit (loss) on open contracts 446,625 633,300
Government Securities
(Cost: $9,349,121 and $10,001,269, respectively) 9,878,680 10,095,662
Accrued interest 7,668 3,883
---------------- ---------------
TOTAL $ 12,327,167 $ 12,071,938
================ ===============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable $ 33,610 $ 86,465
Administrative fees and brokerage
commissions payable 18,972 18,192
---------------- ---------------
Total liabilities 52,582 104,657
---------------- ---------------
Minority Interest 45,510 33,888
---------------- ---------------
PARTNERS' CAPITAL:
General Partner (390 and 390 Units) 131,080 123,521
Limited Partners (35,995 and 37,288 Units) 12,097,995 11,809,872
---------------- ---------------
Total partners' capital 12,229,075 11,933,393
---------------- ---------------
TOTAL $ 12,327,167 $ 12,071,938
================ ===============
NET ASSET VALUE PER UNIT
(Based on 36,385 and 37,678 Units outstanding) $ 336.10 $ 316.72
================ ===============
</TABLE>
See notes to consolidated financial statements.
2
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THE GROWTH AND GUARANTEE FUND L.P.
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(a Delaware limited partnership)
--------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<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,
1999 1998 1999 1998
--------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Trading profit (loss):
Realized:
Options and Futures $ (6,138) $ 574,525 $ 783,137 $ 998,175
U.S. Government obligations 7,895 (235) 10,679 26,329
Change in unrealized:
Options and Futures 487,913 (494,088) (187,175) 212,625
U.S. Government obligations (27,163) 14,027 (71,978) (31,149)
-------------- -------------- ------------- ----------------
Total trading results 462,507 94,229 534,663 1,205,980
-------------- -------------- ------------- ----------------
Interest income: 151,343 155,763 298,065 308,014
-------------- -------------- ------------- ----------------
Total revenues 613,850 249,992 832,728 1,513,994
-------------- -------------- ------------- ----------------
EXPENSES:
Brokerage commissions 1,263 1,438 2,213 3,144
Administrative fees 53,288 50,835 105,828 100,556
-------------- -------------- ------------- ----------------
Total expenses 54,551 52,273 108,041 103,700
-------------- -------------- ------------- ----------------
INCOME BEFORE
MINORITY INTEREST 559,299 197,719 724,687 1,410,294
Minority interest on income (9,314) 19,034 (11,621) (72,839)
-------------- -------------- ------------- ----------------
NET INCOME $ 549,985 $ 216,753 $ 713,066 $ 1,337,455
============== ============== ============= ================
NET INCOME PER UNIT:
Weighted average number of units
outstanding 36,946 38,707 37,262 39,178
============== ============== ============= ================
Weighted average net income
per Limited Partner
and General Partner Unit $ 14.89 $ 5.60 $ 19.14 $ 34.14
============== ============== ============= ================
</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, 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 - 1,317,129 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
================ ================== ================= ===================
PARTNERS' CAPITAL,
December 31, 1998 37,678 $ 11,809,872 $ 123,521 $ 11,933,393
Net income - 705,507 7,559 713,066
Redemptions (1,293) (417,384) - (417,384)
---------------- ------------------ ----------------- -------------------
PARTNERS' CAPITAL,
June 30, 1999 36,385 $ 12,097,995 $ 131,080 $ 12,229,075
================ ================== ================= ===================
</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, 1999, and the results of its
operations for the three and six month periods ended June 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.
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. 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.
3. SUBSEQUENT EVENT
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.
6
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
MONTH-END NET ASSET VALUE PER UNIT
Jan. Feb. Mar. Apr. May Jun.
- -----------------------------------------------------------------------
1998 $273.20 $287.07 $298.62 $300.27 $294.72 $304.29
- -----------------------------------------------------------------------
1999 $324.09 $312.19 $321.09 $330.55 $321.03 $336.10
- -----------------------------------------------------------------------
Results of Operations
- ---------------------
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%.
During the 3 months of trading ending June 30, 1999, the S&P 500 Stock Index
(dividends not reinvested) increased a total of 6.11%, whereas the Net Asset
Value per Series A unit increased 4.67%.
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 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.
During the first six months of 1999, the Fund's average month-end Net Assets
equaled $12,007,394, and the Fund recognized gross trading gains of $534,663 or
4.45% of such average month-end Net Assets. Brokerage commissions of $2,213 or
0.02% and Administrative fees of $105,828 or 0.88% of average month-end Net
Assets were paid. Interest income of $298,065 or 2.48% of average month-end Net
Assets resulted in net income of $713,066 (after deduction of MLIP's "Minority
Interest" of $11,621 in the Trading Partnership) or 5.94% of average month-end
Net Assets which resulted in a 6.12% increase in Net Asset Value per Unit since
December 31, 1998.
7
<PAGE>
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
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.
The renovation phase of Merrill Lynch's Year 2000 system efforts, as described
in the Partnership's 1998 Form 10-K, 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 tests
throughout the world.
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. Public
uncertainty regarding successful remediation of the Y2K problem may cause a
reduction in activity in the financial markets. 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. 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.
As of June 25, 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 $80 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 six 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: August 10, 1999 By /s/ JOHN R. FRAWLEY, JR.
------------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: August 10, 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> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 0 0
<RECEIVABLES> 2,448,487 1,976,276
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 9,878,680 10,095,662
<PP&E> 0 0
<TOTAL-ASSETS> 12,327,167 12,071,938
<SHORT-TERM> 0 0
<PAYABLES> 98,092 138,545
<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> 12,229,075 11,933,393
<TOTAL-LIABILITY-AND-EQUITY> 12,327,167 12,071,938
<TRADING-REVENUE> 534,663 1,205,980
<INTEREST-DIVIDENDS> 298,065 308,014
<COMMISSIONS> 119,662 176,539
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 713,066 1,337,455
<INCOME-PRE-EXTRAORDINARY> 713,066 1,337,455
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 713,066 1,337,455
<EPS-BASIC> 19.14 34.14
<EPS-DILUTED> 19.14 34.14
</TABLE>
