SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1999
------------
Commission File Number 0-18500
------------
Alternative Asset Growth Fund, L.P.
-----------------------------------
(Exact name of registrant)
Delaware 74-2546493
- ----------------------- ------------------------------------
(State of Organization) (I.R.S. Employer Identification No.)
ProFutures, Inc.
11612 Bee Cave Road, Suite 100
Austin, Texas 78733
------------------------------
(Address of principal executive office)
Registrant's telephone number, including area code (512) 264-1100.
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
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ALTERNATIVE ASSET GROWTH FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
March 31, 1999 (Unaudited) and December 31, 1998 (Audited)
-----------
March 31, December 31,
1999 1998
---- ----
ASSETS
Equity in broker trading accounts
Cash $16,528,763 $ 5,103,550
Net option premiums (received) (114,470) (205,586)
Unrealized gain on open contracts 282,357 199,860
----------- -----------
Deposits with brokers 16,696,650 5,097,824
Cash and cash equivalents 121 12,158,374
----------- -----------
Total assets $16,696,771 $17,256,198
=========== ===========
LIABILITIES
Accounts payable $ 7,091 $ 6,060
Advisor incentive fees payable 79,622 354,357
Advisor management fees payable 46,544 46,295
Consultant fee payable 27,580 28,061
General Partner fee payable 27,580 28,061
Trading Manager fee payable 13,790 14,031
Commissions and other trading fees
on open contracts 15,444 13,059
Redemptions payable 706,308 37,796
----------- -----------
Total liabilities 923,959 527,720
----------- -----------
PARTNERS' CAPITAL (Net Asset Value)
General Partner - 323.451 units outstanding at
March 31, 1999 and December 31, 1998 498,399 495,271
Limited Partners - 9,912.787 and 10,601.565
units outstanding at March 31, 1999 and
December 31, 1998 15,274,413 16,233,207
----------- -----------
Total partners' capital
(Net Asset Value) 15,772,812 16,728,478
----------- -----------
$16,696,771 $17,256,198
=========== ===========
See accompanying notes.
ALTERNATIVE ASSET GROWTH FUND, L.P.
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
-----------
Three Months Ended
March 31,
1999 1998
--------- ---------
INCOME
Trading gains (losses)
Realized $ 333,512 $ 933,603
Change in unrealized 82,497 (643,192)
----------- -----------
Gain from trading 416,009 290,411
Interest income 175,605 221,331
----------- -----------
Total income 591,614 511,742
----------- -----------
EXPENSES
Brokerage commissions 114,046 165,618
Advisor incentive fees 79,622 73,231
Advisor management fees 46,544 45,141
Consultant fee 82,984 86,958
General Partner fee 82,984 86,958
Trading Manager fee 41,492 43,479
Operating expenses 40,446 49,782
----------- -----------
Total expenses 488,118 551,167
----------- -----------
NET INCOME (LOSS) $ 103,496 $ (39,425)
=========== ===========
NET INCOME (LOSS) PER GENERAL AND LIMITED PARTNER UNIT
(based on weighted average number of units
outstanding during the period of 10,817 and
12,367, respectively) $ 9.57 $ (3.19)
=========== ===========
INCREASE (DECREASE) IN NET ASSET VALUE
PER GENERAL AND LIMITED PARTNER UNIT $ 9.67 $ (5.35)
=========== ===========
See accompanying notes.
<TABLE>
ALTERNATIVE ASSET GROWTH FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
-----------
<CAPTION>
General Limited
Partner Partners Total
---------------- ------------------ ------------------
Units Amount Units Amount Units Amount
<S> <C> <C> <C> <C> <C> <C>
Balances
at
December 31,
1998 323.451 $495,271 10,601.565 $16,233,207 10,925.016 $16,728,478
Net income
for the
three months
ended
March 31,
1999 3,128 100,368 103,496
Redemptions 0 0 (688.778) (1,059,162) (688.778) (1,059,162)
------- -------- ---------- ----------- ---------- -----------
Balances
at
March 31,
1999 323.451 $498,399 9,912.787 $15,274,413 10,236.238 $15,772,812
======= ======== ========== =========== ========== ===========
Balances
at
December 31,
1997 323.451 $442,903 12,305.985 $16,850,663 12,629.436 $17,293,566
Net (loss)
for the
three months
ended
March 31,
1998 (1,729) (37,696) (39,425)
Redemptions 0 0 (574.117) (811,192) (574.117) (811,192)
------- -------- ---------- ----------- ---------- -----------
Balances
at
March 31,
1998 323.451 $441,174 11,731.868 $16,001,775 12,055.319 $16,442,949
======= ======== ========== =========== ========== ===========
Net asset value
per unit at
December 31, 1997 $ 1,369.31
===========
March 31, 1998 $ 1,363.96
===========
December 31, 1998 $ 1,531.21
===========
March 31, 1999 $ 1,540.88
===========
</TABLE>
See accompanying notes.
ALTERNATIVE ASSET GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
-----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
A. General Description of the Partnership
Alternative Asset Growth Fund, L.P. (the Partnership) is a Delaware
limited partnership which operates as a commodity investment pool.
The Partnership's objective is to achieve appreciation of its assets
through the trading of futures contracts and other financial
instruments.
B. Regulation
As a registrant with the Securities and Exchange Commission, the
Partnership is subject to the regulatory requirements under the
Securities Acts of 1933 and 1934. As a commodity investment pool,
the Partnership is subject to the regulations of the Commodity
Futures Trading Commission, an agency of the United States (U.S.)
government which regulates most aspects of the commodity futures
industry; rules of the National Futures Association, an industry self-
regulatory organization; and the requirements of commodity exchanges
and Futures Commission Merchants (brokers) through which the
Partnership trades.
C. Method of Reporting
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles, which require the
use of certain estimates made by the Partnership's management.
Transactions are accounted for on the trade date. Gains or losses
are realized when contracts are liquidated. Unrealized gains or
losses on open contracts (the difference between contract purchase
price and market price) are reported in the statement of financial
condition as a net gain or loss, as there exists a right of offset
of unrealized gains or losses in accordance with Financial Accounting
Standards Board Interpretation No. 39 - "Offsetting of Amounts
Related to Certain Contracts." Any change in net unrealized gain or
loss from the preceding period is reported in the statement of
operations.
For purposes of both financial reporting and calculation of
redemption value, Net Asset Value per Unit is calculated by dividing
Net Asset Value by the number of outstanding Units.
D. Cash and Cash Equivalents
Cash and cash equivalents includes cash and short-term investments
in fixed income securities.
ALTERNATIVE ASSET GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
-----------------------------------------------------------
E. Brokerage Commissions
Brokerage commissions include other trading fees and are charged
to expense when contracts are opened.
F. Income Taxes
The Partnership prepares calendar year U.S. and state information tax
returns and reports to the partners their allocable shares of the
Partnership's income, expenses and trading gains or losses.
G. Foreign Currency Transactions
The Partnership's functional currency is the U.S. dollar; however, it
transacts business in currencies other than the U.S. dollar. Assets
and liabilities denominated in currencies other than the U.S. dollar
are translated into U.S. dollars at the rates in effect at the date
of the statement of financial condition. Income and expense items
denominated in currencies other than the U.S. dollar are translated
into U.S. dollars at the rates in effect during the period. Gains
and losses resulting from the translation to U.S. dollars are
reported in income currently.
H. Interim Financial Statements
In the opinion of management, the unaudited interim financial
statements reflect all adjustments, which were of a normal and
recurring nature, necessary for a fair presentation of financial
position as of March 31, 1999, and the results of operations for the
three months ended March 31, 1999 and 1998.
Note 2. GENERAL PARTNER
---------------
The General Partner of the Partnership is ProFutures, Inc., which
conducts and manages the business of the Partnership. The Agreement
of Limited Partnership requires the General Partner to contribute to
the Partnership an amount equal to at least the greater of (i) 3% of
aggregate capital contributions of all partners or $100,000,
whichever is less, or (ii) the lesser of 1% of the aggregate capital
contributions of all partners or $500,000. As of March 31, 1999,
$365,900 has been contributed to the Partnership by the General
Partner and its principals.
The Agreement of Limited Partnership also requires that the General
Partner maintain a net worth at least equal to the sum of (i) the
lesser of $250,000 or 15% of the aggregate capital contributions of
any limited partnerships for which it acts as general partner and
which are capitalized at less than $2,500,000; and (ii) 10% of the
aggregate capital contributions of any limited partnerships for which
it acts as general partner and which are capitalized at greater than
$2,500,000.
ALTERNATIVE ASSET GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 2. GENERAL PARTNER (CONTINUED)
---------------------------
ProFutures, Inc. has callable subscription agreements with
Internationale Nederlanden (U.S.) Securities, Futures & Options, Inc.
(ING), the Partnership's primary broker, whereby ING has subscribed
to purchase (up to $14,000,017) the number of shares of common stock
of ProFutures, Inc. necessary to maintain the General Partner's net
worth requirements.
The Partnership pays the General Partner a monthly management fee of
1/6 of 1% (2% annually) of month-end Net Asset Value.
Note 3. COMMODITY TRADING ADVISORS
--------------------------
The Partnership has trading advisory contracts with several unrelated
commodity trading advisors to furnish investment management services
to the Partnership. Certain advisors receive management fees ranging
from 1% to 2% annually of Allocated Net Asset Value (as defined in
the trading advisory contracts). In addition, the trading advisors
receive quarterly incentive fees ranging from 20% to 27.5% of Trading
Profits (as defined).
Note 4. DEPOSITS WITH BROKERS
---------------------
The Partnership deposits funds with brokers subject to Commodity
Futures Trading Commission regulations and various exchange and
broker requirements. Margin requirements are satisfied by the
deposit of cash with such brokers. The Partnership earns interest
income on its assets deposited with the brokers.
Note 5. OTHER FEES
----------
The Partnership employs a Consultant who is paid a monthly fee of 1/6
of 1% (2% annually) of month-end Net Asset Value for administrative
services rendered to the Partnership.
The Partnership's Trading Manager receives a monthly fee of 1/12 of
1% (1% annually) of month-end Net Asset Value for management services
rendered to the Partnership.
Note 6. DISTRIBUTIONS AND REDEMPTIONS
-----------------------------
The Partnership is not required to make distributions, but may do so
at the sole discretion of the General Partner. A Limited Partner may
request and receive redemption of units owned, subject to
restrictions in the Agreement of Limited Partnership.
ALTERNATIVE ASSET GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 7. TRADING ACTIVITIES AND RELATED RISKS
------------------------------------
The Partnership engages in the speculative trading of U.S. and
foreign futures contracts and options on U.S. and foreign futures
contracts (collectively, "derivatives"). These derivatives include
both financial and non-financial contracts held as part of a
diversified trading strategy. The Partnership is exposed to both
market risk, the risk arising from changes in the market value of the
contracts, and credit risk, the risk of failure by another party to
perform according to the terms of a contract.
Purchase and sale of futures and options on futures contracts
requires margin deposits with the brokers. Additional deposits may
be necessary for any loss on contract value. The Commodity Exchange
Act requires a broker to segregate all customer transactions and
assets from such broker's proprietary activities. A customer's cash
and other property (for example, U.S. Treasury bills) deposited with
a broker are considered commingled with all other customer funds
subject to the broker's segregation requirements. In the event of a
broker's insolvency, recovery may be limited to a pro rata share of
segregated funds available. It is possible that the recovered amount
could be less than total cash and other property deposited.
The Partnership has a substantial portion of its assets on deposit
with financial institutions in connection with its cash management
activities. In the event of a financial institution's insolvency,
recovery of Partnership assets on deposit may be limited to account
insurance or other protection afforded such deposits. In the normal
course of business, the Partnership does not require collateral from
such financial institutions.
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Partnership is exposed to a market
risk equal to the value of futures contracts purchased and unlimited
liability on such contracts sold short. As both a buyer and seller
of options, the Partnership pays or receives a premium at the outset
and then bears the risk of unfavorable changes in the price of the
contract underlying the option. Written options expose the
Partnership to potentially unlimited liability, and purchased options
expose the Partnership to a risk of loss limited to the premiums paid.
The fair value of derivatives represents unrealized gains and losses
on open futures contracts and long and short options at market value.
The average fair values of derivatives for the three months ended
March 31, 1999 and 1998 are approximately $436,000 and $363,000,
respectively, and the related fair values as of March 31, 1999 and
December 31, 1998 are approximately $168,000 and $(6,000),
respectively.
Net trading results from derivatives for the months ended March 31,
1999 and 1998 are reflected in the statement of operations and equal
gain (loss) from trading less brokerage commissions. Such trading
results reflect the net gain (loss) arising from the Partnership's
speculative trading of derivatives.
ALTERNATIVE ASSET GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 7. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
------------------------------------------------
Open contracts generally mature within one year, however, the
Partnership intends to close all contracts prior to maturity. At
March 31, 1999 and December 31, 1998, the notional amount of open
contracts is as follows:
March 31, December 31,
1998 1997
-------------------------- --------------------------
Contracts to Contracts to Contracts to Contracts to
Purchase Sell Purchase Sell
------------ ------------ ------------ ------------
Derivatives (excluding
purchased options):
Futures contracts
and written options
thereon:
- Agriculture $ 2,400,000 $ 3,400,000 $ 4,000,000 $ 5,300,000
- Currency and
currency
indices 10,100,000 23,000,000 6,100,000 13,300,000
- Energy 1,400,000 400,000 200,000 400,000
- Equity indices 9,400,000 23,600,000 15,900,000 19,300,000
- Interest rates 46,900,000 19,400,000 50,400,000 22,200,000
- Metals 2,700,000 4,400,000 700,000 2,200,000
Purchased options on:
Futures contracts:
- Agriculture 300,000 0 600,000 0
- Energy 100,000 0 100,000 0
------------ ------------ ------------ ------------
$ 73,300,000 $ 74,200,000 $ 78,000,000 $ 62,700,000
============ ============ ============ ============
The above amounts do not represent the Partnership's risk of loss due
to market and credit risk, but rather represent the Partnership's
extent of involvement in derivatives at the date of the statement of
financial condition.
The General Partner has established procedures to actively monitor
and minimize market and credit risk, although there can be no
assurance that it will, in fact, succeed in doing so. The General
Partner's basic market risk control procedures consist of
continuously monitoring the trading activity of the various trading
advisors, with the actual market risk controls being applied by the
advisors themselves. The General Partner seeks to minimize credit
risk primarily by depositing and maintaining the Partnership's assets
at financial institutions and brokers which the General Partner
believes to be creditworthy. The Limited Partners bear the risk of
loss only to the extent of the market value of their respective
investments and, in certain specific circumstances, distributions and
redemptions received.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
A. LIQUIDITY: Substantially all of the Partnership's assets are
highly liquid, such as cash or cash equivalents, open futures
and option contracts and other financial instruments. It is
possible that extreme market conditions or daily price
fluctuation limits at certain exchanges could adversely affect
the liquidity of open futures and option contracts.
B. CAPITAL RESOURCES: Since the Partnership's business is the
purchase and sale of various commodity interests, it will make
few, if any, capital expenditures.
As of March 31, 1999, 10,236,238 Units are outstanding, including
323,451 General Partner Units, with an aggregate Net Asset Value
of $15,772,812 ($1,540.88 per Unit). This represents a decrease
in Net Asset Value of $955,666 compared with December 31, 1998.
The decrease primarily relates to redemptions of limited partner
Units.
The Partnership's offering of Units of Limited Partnership
Interest terminated in 1991.
C. RESULTS OF OPERATIONS: For the quarter ended March 31, 1999 the
Partnership had net income of $103,496 as compared to a net loss
of $39,425 for the quarter ended March 31, 1998.
The Partnership's net trading gains for the quarter ended
March 31, 1999 resulted primarily from net trading gains in the
interest rate and energy markets, offset by losses in the foreign
currency and metals markets.
The Partnership's losses for the quarter ended March 31, 1998
resulted from February losses in the currencies and U.S. interest
rate markets, March losses in the non-U.S. interest rate and non-
U.S. equity indices as well as the base metals markets. These
losses were largely offset by January gains in the U.S. and non-
U.S. interest rate markets.
The General Partner, directly and/or indirectly through the
Trading Manger, has established procedures to actively monitor
market risk and minimize credit risk, although there can be no
assurance that it will, in fact, succeed in doing so. The
General Partner's basic market risk control procedures consist of
continuously monitoring the trading activity of the various
trading advisors, with the actual market risk controls being
applied by the advisors themselves. The General Partner seeks
to minimize credit risk primarily by depositing and maintaining
the Partnership's assets at financial institutions and brokers
which the General Partner believes to be creditworthy. The
Limited Partners bear the risk of loss only to the extent of the
market value of their respective investments and, in certain
specific circumstances, distributions and redemptions received.
Due to the speculative nature of trading commodity interests, the
Partnership's income or loss from operations may vary widely from
period to period. Management cannot predict whether the
Partnership's future Net Asset Value per Unit will increase or
experience a decline. Inflation is not a significant factor in
the Partnership's operations, except to the extent that inflation
may affect future prices.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
D. POSSIBLE CHANGES: The General Partner reserves the right to
terminate certain and/or engage additional commodity trading
advisors in the future and reserves the right to change any of
the Registrant's clearing arrangements to accommodate any new
commodity trading advisors.
The Year 2000 Problem
- ---------------------
Many existing computer systems use only two digits to refer to a year.
This technique can cause the systems to treat the year 2000 as 1900,
an effect commonly known as the "Year 2000 Problem." The Partnership,
like other financial and business organizations, depends on the smooth
functioning of computer systems and could be adversely affected if the
computer systems on which it relies do not properly process and calculate
date-related information concerning dates on or after January 1, 2000.
The General Partner administers the business of the Partnership through
various systems and processes maintained by the General Partner. The
General Partner's modifications for Year 2000 compliance are proceeding
according to plan and are expected to be completed by June 1999. The
expenses incurred to date by the General Partner in preparing for Year
2000 compliance have not had a material adverse impact on the General
Partner's financial position, and the expenses to be incurred in
becoming fully Year 2000 compliant are not expected to be material.
The Partnership itself has no systems or information technology
applications relevant to its operations and, thus, has no expenses
related to addressing the Year 2000 Problem.
In addition to the General Partner, the Partnership is dependent on the
capability of the Advisors, the various commodity exchanges, the brokers,
and other third parties with whom the Partnership has material
relationships to prepare adequately for the Year 2000 Problem and its
impact on their systems and processes. The Advisors have taken action to
identify any of their computer systems that are Year 2000 vulnerable and
have not reported any problems to the General Partner. Advisors are
expected to notify the General Partner in a timely manner if they
discover a Year 2000 vulnerable system and are unable to correct it by
January 1, 2000. Certain exchanges participated in the Futures Industry
Association Y2K Beta Test during September 1998 and will participate in
the Futures Industry Association Y2K industry-wide test for Year 2000
compliance during the first and second quarters of 1999. The Futures
Industry Association Y2K Tests are to test links with outside entities.
The brokers are addressing their Year 2000 issues and have participated
in Year 2000 testing with various exchanges. The brokers will
participate in the Futures Industry Association Y2K industry-wide test
for Year 2000 compliance during the first and second quarters of 1999.
The General Partner is monitoring the progress of the brokers and
the exchanges in addressing their Year 2000 issues.
The most likely and most significant risk to the Partnership associated
with the lack of Year 2000 readiness is the failure of third parties,
including the Advisors, the brokers, the exchanges and various regulators
to resolve their Year 2000 issues in a timely manner. This risk could
involve the temporary inability to transfer funds electronically or to
determine the Net Asset Value of the Partnership, in which case sales
could be suspended and/or redemption payments delayed until the
Partnership's assets could be valued and/or funds could be transferred.
If the General Partner believes, prior to December 31, 1999, that any of
the Advisors, the brokers or the exchanges have failed to resolve a Year
2000 issue likely to have a material adverse impact on the Partnership,
the General Partner could direct the Advisors to attempt to close any
Partnership positions and to remain out of the market until such issue
is resolved.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
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.
There were no reports filed on Form 8-K.
SIGNATURE
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.
Alternative Asset Growth Fund, L.P.
(Registrant)
/s/ Gary D. Halbert
Gary D. Halbert, President
ProFutures, Inc., General Partner
Alternative Asset Growth Fund, L.P.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 16,528,884
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,696,771
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,696,771
<CURRENT-LIABILITIES> 923,959
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,696,771
<SALES> 0
<TOTAL-REVENUES> 591,614
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 488,118
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 103,496
<INCOME-TAX> 0
<INCOME-CONTINUING> 103,496
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,496
<EPS-PRIMARY> 9.57
<EPS-DILUTED> 9.57
</TABLE>
