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 June 30, 1999
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Commission File Number 0-25585
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PROFUTURES LONG/SHORT GROWTH FUND, L.P.
- ---------------------------------------
(Exact name of registrant)
Delaware 74-2849862
- ----------------------- -----------------------------------
(State of Organization) (I.R.S.Employer Identification No.)
ProFutures, Inc.
11612 Bee Cave Road
Suite 100
Austin, Texas 78733
- ----------------------------------------
(Address of principal executive offices)
Registrant's telephone number
(800) 348-3601
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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.
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
June 30, 1999 (Unaudited) and December 31, 1998 (Audited)
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June 30, December 31,
1999 1998
---- ----
ASSETS
Equity in broker trading account
Cash $37,254,395 $15,444,073
United States government securities 496,594 3,406,808
Unrealized gain (loss) on open contracts 0 1,163,250
------------ -----------
Deposits with broker 37,750,989 20,014,131
Cash 2,226,918 10,415
Subscriptions receivable 273,712 0
----------- -----------
Total assets $40,251,619 $20,024,546
=========== ===========
LIABILITIES
Accounts payable $ 32,158 $ 12,215
Commissions and other trading fees
on open contracts 0 771
General Partner management fee 93,737 46,529
Advisor incentive fee 293,116 1,400,060
Redemption payable 57,000 10,000
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Total liabilities 476,011 1,469,575
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PARTNERS' CAPITAL (Net Asset Value)
General Partner - 61.4461 units
outstanding at June 30, 1999 and
December 31, 1998 120,989 116,671
Limited Partners - 20,139.1426 and
9,710.7200 units outstanding at
June 30, 1999 and December 31, 1998 39,654,619 18,438,300
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Total partners' capital
(Net Asset Value) 39,775,608 18,554,971
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$40,251,619 $20,024,546
=========== ===========
See accompanying notes.
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1999 and 1998
(Unaudited)
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Six months ended
June 30,
1999 1998
---- ----
INCOME
Trading gains (losses)
Realized $ 2,636,969 $ 975,789
Change in unrealized (1,163,250) (2,175)
----------- -----------
Gain from trading 1,473,719 973,614
Interest income 617,092 115,348
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Total income 2,090,811 1,088,962
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EXPENSES
Brokerage commissions 8,138 2,333
General Partner management fee 388,423 63,807
Advisor incentive fee 293,116 171,310
Operating expenses 48,551 27,673
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Total expenses 738,228 265,123
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NET INCOME $ 1,352,583 $ 823,839
=========== ===========
NET INCOME PER GENERAL AND LIMITED PARTNER UNIT
(based on weighted average number of
units outstanding during the period of
13,491.9490 and 3,650.5036, respectively) $ 100.25 $ 225.68
=========== ===========
INCREASE IN NET ASSET VALUE PER GENERAL
AND LIMITED PARTNER UNIT $ 70.27 $ 256.26
=========== ===========
See accompanying notes.
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 1999 and 1998
(Unaudited)
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Three months ended
June 30,
1999 1998
---- ----
INCOME
Trading gains (losses)
Realized $ 1,058,064 $ 346,326
Change in unrealized 541,475 (280,000)
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Gain from trading 1,599,539 66,326
Interest income 385,859 69,217
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Total income 1,985,398 135,543
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EXPENSES
Brokerage commissions 5,030 1,617
General Partner management fee 244,418 37,700
Advisor incentive fee 293,116 12,942
Operating expenses 34,808 12,717
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Total expenses 577,372 64,976
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NET INCOME $ 1,408,026 $ 70,567
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NET INCOME PER GENERAL AND LIMITED PARTNER UNIT
(based on weighted average number of
units outstanding during the period of
17,035.6881 and 4,114.7685, respectively) $ 82.65 $ 17.15
=========== ===========
INCREASE IN NET ASSET VALUE PER GENERAL
AND LIMITED PARTNER UNIT $ 73.66 $ 23.28
=========== ===========
See accompanying notes.
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Six Months Ended June 30, 1999 and 1998
(Unaudited)
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Total Partners' Capital
Number of ----------------------------------
Units General Limited Total
---------- -------- ----------- -----------
Balances at
December 31, 1998 9,772.1661 $116,671 $18,438,300 $18,554,971
Net income for the
six months ended
June 30, 1999 4,318 1,348,265 1,352,583
Additions 10,809.8386 0 20,599,942 20,599,942
Redemptions (381.4160) 0 (731,888) (731,888)
----------- -------- ----------- -----------
Balances at
June 30, 1999 20,200.5887 $120,989 $39,654,619 $39,775,608
=========== ======== =========== ===========
Balances at
December 31, 1997 3,044.2642 $ 29,313 $ 2,885,423 $ 2,914,736
Net income for the
six months ended
June 30, 1998 8,334 815,505 823,839
Additions 3,102.0846 36,931 3,678,879 3,715,810
Redemptions (79.1017) 0 (90,494) (90,494)
----------- -------- ----------- -----------
Balances at
June 30, 1998 6,067.2471 $ 74,578 $ 7,289,313 $ 7,363,891
=========== ======== =========== ===========
Net asset value
per unit at
December 31, 1997 $ 957.45
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June 30, 1998 $ 1,213.71
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December 31, 1998 $ 1,898.76
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June 30, 1999 $ 1,969.03
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See accompanying notes.
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
A. General Description of the Partnership
ProFutures Long/Short Growth Fund, L.P. (the Partnership) is a
Delaware limited partnership which operates as a commodity
investment pool. The Partnership engages in the speculative
trading of stock index futures contracts. It 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.
The Partnership was organized on August 21, 1997 under the name
ProFutures Bull & Bear Fund, L.P. and commenced trading on
November 20, 1997. On December 8, 1998, the Partnership changed
its name from ProFutures Bull & Bear Fund, L.P. to ProFutures
Long/Short Growth Fund, L.P.
B. 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 June 30, 1999, and the results of operations for
the six and three months ended June 30, 1999 and 1998.
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. United States government securities are stated at
cost plus accrued interest, which approximates market value.
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 total number of units outstanding.
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
-----------
D. Brokerage Commissions
Brokerage commissions include other trading fees and are charged to
expense when contracts are opened.
E. 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.
F. Organizational Charge
The General Partner pays all organizational and offering costs of
the Partnership. As reimbursement for such costs, the General
Partner (or the Distributor, ProFutures Financial Group, Inc., a
broker/dealer affiliate of the General Partner) receives an
organizational charge of 1% of the subscription amount of each
subscriber to the Partnership. Additions are reflected in the
statement of changes in partners' capital (net asset value) net
of such organizational charge totaling $205,999 and $109,252 for the
six and three months ended June 30, 1999 and $37,158 and $30,961 for
the six and three months ended June 30, 1998.
G. Statements of Cash Flows
The Partnership has elected not to provide statements of cash flows
as permitted by Statement of Financial Accounting Standards No. 102
- "Statement of Cash Flows - Exemption of Certain Enterprises and
Classification of Cash Flows from Certain Securities Acquired for
Resale."
Note 2. GENERAL PARTNER
---------------
The General Partner of the Partnership is ProFutures, Inc., which
conducts and manages the business of the Partnership. Prior to
June 1, 1998, the Limited Partnership Agreement required the General
Partner to maintain a capital account equal to at least 1% of the
total capital of the Partnership. Effective June 1, 1998, the
Limited Partnership Agreement was amended and requires the General
Partner and/or its principals and affiliates to maintain capital
accounts equal to at least 1% of the total capital of the
Partnership. At June 30, 1999 and December 31, 1998, the capital
accounts of the General Partner and/or its principals and affiliates
totaled $735,470 and $506,005, respectively.
The General Partner is paid a monthly management fee equal to 1/4 of
1% (3% annually) of month-end Net Assets (as defined in the Limited
Partnership Agreement).
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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Note 3. COMMODITY TRADING ADVISOR
-------------------------
The Partnership has an advisory contract with Hampton Investors,
Inc. (Hampton), pursuant to which the Partnership pays a quarterly
incentive fee equal to 20% of New Trading Profits (as defined in the
advisory contract).
Note 4. DEPOSITS WITH BROKER
--------------------
The Partnership deposits funds with Internationale Nederlanden
(U.S.) Securities, Futures & Options Inc. (ING) to act as broker
subject to Commodity Futures Trading Commission regulations and
various exchange and broker requirements. The Partnership earns
interest income on its assets deposited with the broker.
At June 30, 1999 and December 31, 1998, the initial margin
requirement of $0 and $1,586,250, respectively, is satisfied
by the deposit of cash and U.S. government securities with
such broker.
Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
--------------------------------------------
Investments in the Partnership are made by subscription agreement,
subject to acceptance by the General Partner. The subscriptions
receivable at June 30, 1999 of $273,712 were received by the
Partnership on or before July 1, 1999.
The Partnership is not required to make distributions, but may do so
at the sole discretion of the General Partner. A Limited Partner
may require the Partnership to redeem any or all of such Limited
Partner's units at Net Asset Value as of the close of business on
the last day of any month upon advance written notice to the General
Partner. The Limited Partnership Agreement contains a complete
description of the Partnership's redemption policies and procedures.
Note 6. TRADING ACTIVITIES AND RELATED RISKS
------------------------------------
The Partnership engages in the speculative trading of stock index
futures contracts ("derivatives") on U.S. exchanges. 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 contracts requires margin deposits with
the broker. 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.
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
------------------------------------------------
The Partnership has 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.
The fair value of derivatives represents unrealized gains and losses
on open futures contracts. The average fair value of derivatives
during the six months ended June 30, 1999 and 1998 was approximately
$(485,200) and $166,400, respectively, and the related fair values at
June 30, 1999 and December 31, 1998 are approximately $0 and
$1,163,000, respectively.
Net trading results from derivatives for the six and three months
ended June 30, 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 futures
contracts.
Open contracts generally mature within three months, however, the
Partnership intends to close all contracts prior to maturity. At
June 30, 1999, there are no open contracts, and at December 31, 1998,
the maturity date for all open contracts is March 1999.
At June 30, 1999 and December 31, 1998, the notional amount of
open contracts to purchase totaled approximately $0 and $28,100,000,
respectively, and there were no open contracts to sell. These 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
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 Hampton's trading activity with the actual
market risk controls being applied by Hampton itself. 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.
Note 7. Registration of Additional Limited Partnership Units
----------------------------------------------------
The General Partner registered $60,000,000 of additional Limited
Partnership Units with the Securities and Exchange Commission under
the Securities Act of 1933. The Registration Statement on Form S-1
became effective February 16, 1999.
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
contracts and other financial instruments. It is possible that
extreme market conditions or daily price fluctuation limits at
exchanges could adversely affect the liquidity of open futures
contracts.
B. CAPITAL RESOURCES: Since the Partnership's business is purchase
and sale of futures contracts, it will make few, if any, capital
expenditures. The Partnership has filed a Registration Statement
with the Securities and Exchange Commission for the sale of
$60,000,000 Units of Limited Partnership Interest which became
effective February 16, 1999.
As of June 30, 1999, 20,200.5887 Units are outstanding, including
61.4461 General Partner Units, with an aggregate Net Asset Value
of $39,775,608 ($1,969.03 per Unit). This represents an increase
in Net Asset Value of $21,220,637 compared with December 31, 1998.
The increase primarily relates to sales of limited partnership
interests.
C. RESULTS OF OPERATIONS: For the three months ended June 30, 1999,
the Partnership had net income of $1,408,026, as compared to net
income of $70,567 for the three months ended June 30, 1998. For
the six months ended June 30, 1999, the Partnership had net income
of $1,352,583, as compared to net income of $823,839 for the six
months ended June 30, 1998. The Partnership engages in the
speculative trading of stock index futures contracts on U.S.
exchanges; therefore, operating results will fluctuate from period
to period.
The General Partner 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 Advisor's trading activity with the
actual market risk controls being applied by the Advisor itself.
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.
D. POSSIBLE CHANGES: The General Partner reserves the right to
terminate certain and/or engage additional trading advisors or
change any of the Partnership's clearing arrangements.
E. 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 were substantially
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 Advisor, the commodity exchange, the
broker, 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 Advisor
has taken action to identify any of its computer systems that are
Year 2000 vulnerable and has not reported any problems to the
General Partner. The Advisor is expected to notify the General
Partner in a timely manner if it discovers a Year 2000 vulnerable
system and is unable to correct it by January 1, 2000. The exchange
participated in the Futures Industry Association Y2K Beta Test
during September 1998 and also participated 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
broker is addressing its Year 2000 issues and has participated
in Year 2000 testing with various exchanges. The broker
participated 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 Advisor, the broker, the exchange 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 the Advisor, the broker
or the exchange have failed to resolve a Year 2000 issue likely
to have a material adverse impact on the Partnership, the General
Partner could direct the Advisor 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.
The General Partner registered $60,000,000 of additional Limited
Partnership Units with the Securities and Exchange Commission
under the Securities Act of 1933. The Registration Statement
on Form S-1 became effective February 16, 1999. The offering
commenced immediately following the effective date of the
Registration Statement. The proceeds from the sale of 10,810
Limited Partnership Units totaled $20,599,942 through June 30,
1999 and are available to support the Partnership trading
activity. The offering of Limited Partnership Units is
continuing. The General Partner pays all offering costs and
receives 1% of the subscription price of each unit as
reimbursement. Such reimbursement of offering costs totaled
$205,999 through June 30, 1999.
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.
Exhibits filed herewith:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PROFUTURES LONG/SHORTH GROWTH FUND, L.P.
(Partnership)
By /s/ Gary D. Halbert
---------------------------------
Gary D. Halbert, President
ProFutures, Inc., General Partner