Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended: December 31, 1996
--------------
Commission File number: 0-18500
--------------
Alternative Asset Growth Fund, L.P.
-----------------------------------
(Exact name of registrant as specified in charter)
Delaware 74-2546493
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
c/o ProFutures, Inc.,
1310 Highway 620, Suite 200,
Austin, Texas 78734
----------------------------
(Address of principal executive offices)
Registrant's telephone number
(512) 263-3800
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class. Name of each exchange on which registered.
-------------------- ------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of Class)
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
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference
to the price at which the stock was sold, or the average bid and asked prices
of such stock, as of a specified date within 60 days prior to the date of
filing.
None
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Prospectus dated August 31, 1990 and Supplement
thereto dated March 1, 1991 are incorporated herein by
reference in Part I, Part III and Part IV
PART I
Item 1. Business.
(a) General Development of Business
-------------------------------
Alternative Asset Growth Fund, L.P. ("Registrant") was organized on
April 28, 1989 under the Delaware Revised Uniform Limited Partnership
Act. The General Partner and Commodity Pool Operator of the
Partnership is ProFutures, Inc. (a Texas Corporation). The General
Partner's address is 1310 Highway 620, Suite 200, Austin, Texas 78734
and its telephone numbers are 1-800-348-3601 and (512) 263-3800.
The Registrant filed a registration statement with the U.S. Securities and
Exchange commission for the sale of a minimum of $4,000,000 and maximum
of $50,000,000 in Units of Limited Partnership Interest at $1,000 each,
which registration statement was effective on September 26, 1989. On
March 6, 1990 the requisite $4,000,000 level of subscriptions was
exceeded and the subscription funds were transferred to the Registrant's
account. On March 7, 1990 the Registrant commenced trading activity and
continued the offering of Units until the expiration of the offering
period.
The Unit selling price during the initial offering period was $1,000,
plus a $120 account opening fee per investor. After the commencement
of trading, Unit purchasers acquired Units at the month-end Net Asset
Value per Unit (as defined in the limited partnership agreement) plus
a pro rata portion of unamortized organization and offering expenses.
The Registrant later continued the offering and sale of Units on August 31,
1990, pursuant to a post-effective amendment dated July 16, 1990 and
Prospectus dated August 31, 1990. This offering terminated on May 30,
1991. The Registrant issued an aggregate of 32,516.437 Units of Limited
Partnership Interest for total contributions of $36,976,906 exclusive
of account opening fees. Offering costs of $261,069 and $6,984 were
charged against partners' capital in 1990 and 1991 respectively.
(b) Trading Activity
----------------
The General Partner administers the business and affairs of the
Registrant exclusive of its trading operations. Trading decisions are
made by independent Commodity Trading Advisors chosen by ATA Research
Inc., its Trading Manager. At December 31, 1996 there are eight
Commodity Trading Advisors: Fundamental Futures, Inc.; Wizard Trading,
Inc.; Rainbow Trading Corporation; Willowbridge Associates, Inc.;
Rabar Market Research, Inc.; Dominion Capital Management, Inc.; Atlas
Capital Management, Inc. and Hampton Investors Inc.
ProFutures, Inc., a Texas corporation, is a guaranteed Introducing
Broker of Internationale Nederlanden (U.S.) Derivatives Clearing, Inc.
(ING). It is also registered with the Commodity Futures Trading
Commission (CFTC) as a Commodity Trading Advisor and Commodity Pool
Operator and is a member of the National Futures Association (NFA).
Gary D. Halbert is the Chairman, President and principal stockholder of
ProFutures, Inc., which was incorporated and began operation in
December 1984 and specializes in speculative managed futures accounts.
ATA Research, Inc., the Registrant's Trading Manager, is a Texas
corporation whose sole Director, Officer and stockholder is Aladin T.
Abguhazaleh. Organized in 1985 to perform research and consulting
services associated with monitoring performance of Commodity Trading
Advisors, ATA Research, Inc. now monitors, for its own use and that of
its clients, performance data for more than 100 Trading Advisors. It
also acts as General Partner of two commodity pools and as Trading
Manager of other commodity pools.
The Registrant operates as a commodity investment pool, whose purpose I
to buy, hold and trade in futures and option contracts, forward and
option contracts on foreign currencies and other commodity interests.
The Registrant's objective is appreciation of assets through speculative
trading. It ordinarily maintains open positions for a relatively short
period of time. The Registrant's ability to make a profit depends
largely on the success of the Advisors in identifying market trends and
price movements and buying or selling accordingly.
The Registrant's Trading Policies are set forth on pages 77-78 of the
Prospectus dated August 31, 1990, which is incorporated herein by
reference. Material changes in the Trading Policies as described in
the Prospectus must be approved by a vote of a majority of the
outstanding Units of Limited Partnership Interest. A change in
contracts traded will not be deemed to be a material change in the
Trading Policies.
(c) Trading Methods and Advisors
----------------------------
Futures traders basically rely on either or both of two types of
analysis for their trading decisions, "technical" or "fundamental".
Technical analysis uses the theory that a study of the markets will
provide a means of anticipating price changes. Technical analysis
generally will include a study of actual daily, weekly and monthly price
fluctuations, volume variations and changes in open interest, utilizing
charts and/or computers for analysis of these items. Fundamental
analysis, on the other hand, relies on a study and evaluation of
external factors which affect the price of a futures contract in order
to predict prices. These include political and economic events,
weather, supply and demand and changes in interest rates.
The respective Advisors' trading strategies attempt to detect trends in
price movements for the commodities monitored by them. They normally
seek to establish positions and maintain such positions while the
particular market moves in favor of the position and to exit the
particular market and/or establish reverse positions when the favorable
trend either reverses or does not materialize. These trading strategies
are not normally successful if a particular market is moving in an
erratic and non-trending manner.
Because of the nature of the commodities markets, prices frequently
appear to be trending when a particular market is, in fact, without a
trend. In addition, the trading strategies may identify a particular
market as trending favorably to a position even though actual market
performance thereafter is the reverse of the trend identified.
The General Partner and Trading Manager on behalf of the Registrant have
entered into advisory contracts respectively with Fundamental Futures,
Inc. ("FFI"), Wizard Trading, Inc. ("WTI"), Rainbow Trading Corporation
("RTC"), Willowbridge Associates, Inc. ("WAI"), Rabar Market Research,
Inc. ("RMR"), Dominion Capital Management, Inc. ("DCM"), Atlas Capital
Management, Inc. ("ACM") and Hampton Investors Inc. ("HII") as the
Trading Advisors for the Registrant (collectively, the Advisors). The
contracts provide that the portion of the Registrant's assets allocated to
each Advisor will be traded in accordance with the Advisor's
instruction unless the General Partner or the Trading Manager determine
that the Registrant's trading policies have been violated. The Trading
Manager, upon mutual consultation and agreement with the General
Partner, has the authority to allocate or reallocate assets among its
current Advisors or any others it may select in the future.
Notional Funding Note: As of December 31, 1996, the Registrant has
allocated notional funds to Advisors equal to approximately 7.9% of the
Registrant's cash and/or other margin - qualified assets. Of course,
this percentage may be higher or lower over any given 12 month period.
The management fees paid to an Advisor, if any, are a percentage of the
nominal account size of the account if an account had been notionally
funded. The nominal account size is equal to a specific amount of funds
initially allocated to an Advisor which increases by profits and
decreases by losses in the account, but not by additions to or
withdrawals of actual funds from the account. Some, but not all,
Advisors are expected to be allocated notional funds, and not all of the
Advisors allocated notional funds are expected to be paid management
fees. Further, the amount of cash and/or other margin-qualified assets
in an account managed by an Advisor will vary greatly at various times
in the course of the Registrant's business, depending on the General
Partner's general allocation strategy and pertinent margin requirements
for the trading strategies undertaken by an Advisor.
None of the Advisors or their respective principals own any Units of the
Registrant. The Registrant's Advisors are independent Commodity Trading
Advisors and are not affiliated with the General Partner; however, all
are also Advisors to other commodity pools with which the General
Partner and Trading Manager, respectively, are currently associated.
Each Advisor is registered with the CFTC and is a member in such
capacity with the NFA. Because of their confidential nature,
proprietary trading records of the Advisors and their respective
principals are not available for inspection by the Limited Partners
of the Registrant.
The current Advisors are the following:
Fundamental Futures, Inc. ("FFI")
---------------------------------
FFI is an Oregon corporation organized in April 1984 whose principal
office is located at 9669 Jourdan Way, Dallas, Texas 75230. FFI has
established a branch office located at 8950 Northwest 62nd Street,
Johnston, Iowa 50131. The books and records for FFI are kept at the
principal office in Dallas. Steve DeCook has been the President and a
principal shareholder of FFI since its inception. Malinda Goldsmith has
been the Vice President/Secretary and a principal shareholder of FFI
since its inception.
Wizard Trading, Inc. ("WTI")
----------------------------
WTI is an Indiana corporation, the mailing address for which is 201 North
Illinois, Suite 2100, Indianapolis, Indiana 46204. Jack Schwager and
Louis Lukac are equal shareholders of WTI.
Rainbow Trading Corporation ("RTC")
-----------------------------------
RTC is a Texas corporation organized in November 1990; Stanford C.
Finney, Jr. is its President. Its main business office is located at
8201 Preston Road, Suite 520, Dallas, Texas 75225.
Rabar Market Research, Inc. ("RMR")
-----------------------------------
RMR's offices are located at 10 Bank Street, Suite 830, White Plains,
New York 10606-1933 and Paul Rabar is its President.
Willowbridge Associates Inc. ("WAI")
------------------------------------
WAI is a Delaware corporation organized on January 29, 1988. WAI's
main business address is 315 Enterprise Drive, Suite 102, Plainsboro,
New Jersey 08536. Philip L. Yang is the sole shareholder, Director and
President; Michael Y. Gan the Executive Vice President and Theresa C.
Morris the Vice President.
Dominion Capital Management, Inc. ("DCM")
-----------------------------------------
DCM is an Illinois corporation organized in May 1994. Its offices are
located at 555 West Jackson Boulevard, Chicago, Illinois 60661. Scott
Foster is President and Tracey Wills-Zapata is Executive-Vice President.
Atlas Capital Management, Inc. ("ACM")
--------------------------------------
ACM is a New Jersey Corporation. Its offices are located at 17 Canoe
Brook Drive, Princeton, New Jersey 08550. Michael Tepper is President.
Hampton Investors Inc. ("HII")
------------------------------
HII's offices are located at 2519 Avenue U., Brooklyn, New York 11229,
Charles Mizrahi is President.
(d) Fees, Compensation and Expenses
-------------------------------
The descriptions and definitions contained in "Fees, Compensation and
Expenses" on Pages 36- 38 of the Prospectus dated August 31, 1990 are
incorporated herein by reference.
The General Partner, for its services, receive a monthly administrative
fee equal to 1/6 of 1% of month-end Net Asset Value (approximately 2%
annually). In addition, during the offering period the General Partner
received a one-time account set-up fee (unless waived) of $120 per
Limited Partner, regardless of the number of Units purchased by a Limited
Partner.
The Trading Manager, for its services, receives a monthly management fee
equal to 1/12 of 1% of the month-end Net Asset Value (approximately 1%
annually).
The Consultant, for its administrative services to the Registrant,
receives a monthly consulting fee equal to 1/6 of 1% of the month-end
Net Asset Value (approximately 2% annually).
Five of the eight Trading Advisors receive monthly management fees
calculated on their respective month-end Allocated Net Asset Value
i.e., that portion of the Registrant's aggregate nominal assets each
manages (paid quarterly). The monthly management fees for such Advisors,
irrespective of profits, are as follows: FFI and WAI receive
approximately .1667 of 1% (approximately 2% annually); RTC, DCM and
RMR receive .0833 of 1% (approximately 1% annually); WTI, ACM and HII
do not receive a management fee. The Advisors receive quarterly
incentive fees ranging from 20% to 27.5% of Trading Profits (as
defined). The quarterly incentive fees are payable only on cumulative
profits achieved by the respective Advisor. For example, if one of the
Advisors to the Registrant experiences a loss after an incentive fee
payment is made, that Advisor will retain such payments but will receive
no further incentive fees until such Advisor has recovered the loss and
then generated subsequent Trading Profits (as defined). Consequently, an
incentive fee may be paid to one Advisor but the Registrant may
experience no change or a decline in its Net Asset Value because of the
performance of other Advisor(s). The Trading Manager, upon mutual
consultation and agreement with the General Partner, may allocate or
reallocate the Registrant's assets at any time among the current Advisors
or any others that may be selected. Upon termination of the present
Advisors' contracts or at any other time in the discretion of the Trading
Manager or General Partner, the Registrant may employ other advisor
services whose compensation may be calculated without regard to the
losses which may be incurred by the present Advisors. Similarly, the
Registrant may renew its relationship with each Advisor on the same or
different terms.
(e) Brokerage Arrangements
----------------------
The General Partner, among other responsibilities, has the duty to select
the brokerage firms through which the Registrant's trading will be
executed. The General Partner selected Internationale Nederlanden (U.S.)
Derivatives Clearing, Inc. (ING) as the Registrant's primary clearing
broker. ING is located at 209 South LaSalle St., Chicago, Illinois 60604.
ING is registered with the CFTC as a Futures Commission Merchant. It is a
member of the NFA and a clearing member of the Chicago Board of Trade and
the International Monetary Market of the Chicago Mercantile Exchange.
(f) Financial Information About Industry Segments
---------------------------------------------
The Registrant operates in only one industry segment, that of the
speculative trading of futures, options and forward contracts and other
commodity interests.
(g) Narrative Description of Business
---------------------------------
See discussion under Item 1(a) above. See also "Description of Futures
Trading", pages 81 to 84 of the Prospectus dated August 31, 1990, which
is incorporated herein by reference.
(h) Regulation
----------
The U.S. futures markets are regulated under the Commodity Exchange Act,
which is administered by the Commodity Futures Trading Commission (CFTC),
a federal agency created in 1974. The CFTC licenses and regulates
commodity exchanges, commodity brokerage firms (referred to in the
industry as "futures commission merchants"), commodity pool operators,
commodity trading advisors and others. The General Partner is
registered by the CFTC as a commodity pool operator and each Advisor is
registered as a commodity trading advisor. Futures professionals such as
the General Partner and the Advisors are also regulated by the National
Futures Association, a self-regulatory organization for the futures
industry that supervises the dealings between futures professionals and
their customers. If the pertinent CFTC registrations or NFA memberships
were to lapse, be suspended or be revoked, the General Partner would be
unable to act as the Registrant's commodity pool operator, and the
respective Advisors as a commodity trading advisor, to the Registrant.
The CFTC has adopted disclosure, reporting and recordkeeping requirements
for commodity pool operators (such as the General Partner) and disclosure
and recordkeeping requirements for commodity trading advisors. The
reporting rules require pool operators to furnish to the participants in
their pools a monthly statement of account, showing the pool's income or
loss and change in Net Asset Value and an annual financial report,
audited by an independent certified public accountant.
The CFTC and the exchanges have pervasive powers over the futures
markets, including the emergency power to suspend trading and order
trading for liquidation only (i.e., traders may liquidate existing
positions but not establish new positions). The exercise of such powers
could adversely affect the Registrant's trading.
For additional information refer to "Regulation", Pages 82-83 of the
Prospectus dated August 31, 1990, which is incorporated herein by
reference.
(i) Competition
-----------
The Registrant may experience increased competition for the same commodity
futures contracts. The Advisors may recommend similar or identical
trades to other accounts they manage. Thus the Registrant may be in
competition with such accounts for the same or similar positions.
Competition may also increase due to widespread utilization of
computerized trading methods similar to the methods used by some of the
Advisors. The Registrant may also compete with other funds organized by
the General Partner.
(j) Financial Information About Foreign and Domestic Operations and Export
Sales.
----------------------------------------------------------------------
The Registrant does not expect to engage in any operations in foreign
countries nor does it expect to earn any portion of the Registrant's
revenue from customers in foreign countries.
Item 2. Properties.
The Registrant does not own and does not expect to own any physical
properties.
Item 3. Legal Proceedings.
The Registrant is not aware of any pending legal proceedings to which the
Registrant is a party or to which any of its assets are subject.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during
the fiscal year ended December 31, 1996.
PART II
Item 5. Market for Registrant's Securities and Related Security Holder
Matters
(a) Market Information
------------------
There is no market for the Registrant's Units of Limited Partnership
Interest.
A Limited Partner (or any assignee of units) may withdraw some or all of
his capital contribution and undistributed profits, if any, by requiring
the Registrant to redeem any or all of his Units at Net Asset Value per
Unit. Redemptions shall be effective as of the end of any month after
10 days written notice to the General Partner. Redemptions shall be
paid within 15 business days after the month end, provided that all
liabilities, contingent or otherwise, of the Registrant, except any
liability to partners on account of their capital contributions, have
been paid and there remains property of the Registrant sufficient to
pay them.
(b) Holders
-------
The number of holders of record of Units of Partnership Interest as of
December 31, 1996 was:
General Partner's Capital 2
Limited Partners' Capital 1,111
At the commencement of trading on March 7, 1990 there were 290 Limited
Partners holding 4338.5360 Units of Limited Partner Interest and one
General Partner holding 46 Units of General Partner Interest. At
December 31, 1996 there were 1,111 Limited Partners holding 14,757.410
Units, and 323.451 General Partner Units held by the General Partner
and its principals.
(c) Dividends
---------
Distributions of profits to partners are made at the discretion of the
General Partner and will depend, among other factors, on earnings and
the financial condition of the Registrant. No such distributions have
been made to date.
Item 6. Selected Financial Data.
Following is a summary of certain financial information for the
Registrant for the periods April 28, 1989 (inception) through
December 31, 1989, and calendar years 1991, 1992, 1993, 1994, 1995
and 1996.
1996
----
Realized Gains (Losses) $ 3,478,456
Change in Unrealized Gains (Losses)
on Open Contracts (1,019,712)
Interest Income 1,020,487
Management Fees 1,257,031
Incentive Fees 542,057
Net Income (Loss) 833,088
General Partner Capital 404,722
Limited Partner Capital 18,465,411
Partnership Capital 18,870,133
Net Income (Loss) Per Limited and
General Partner Unit* 49.25
Net Asset Value Per Unit At
End of Year 1,251.26
1995
----
Realized Gains (Losses) $ 1,431,928
Change in Unrealized Gains (Losses)
on Open Contracts 120,604
Interest Income 1,292,216
Management Fees 1,475,692
Incentive Fees 720,621
Net Income (Loss) (985,673)
General Partner Capital 386,084
Limited Partner Capital 21,640,976
Partnership Capital 22,027,060
Net Income (Loss) Per Limited and
General Partner Unit* (49.66)
Net Asset Value Per Unit At
End of Year 1,193.64
1994
----
Realized Gains (Losses) $ 4,055,418
Change in Unrealized Gains (Losses)
on Open Contracts (552,120)
Interest Income 1,125,990
Management Fees 1,777,968
Incentive Fees 1,303,019
Net Income (Loss) 98,340
General Partner Capital 400,028
Limited Partner Capital 25,844,617
Partnership Capital 26,244,645
Net Income (Loss) Per Limited and
General Partner Unit* 4.31
Net Asset Value Per Unit At
End of Year 1,236.75
1993
----
Realized Gains (Losses) $ 4,118,919
Change in Unrealized Gains (Losses)
on Open Contracts 1,152,364
Interest Income 992,807
Management Fees 2,102,440
Incentive Fees 935,090
Net Income (Loss) 2,433,194
General Partner Capital 396,657
Limited Partner Capital 29,451,023
Partnership Capital 29,847,680
Net Income (Loss) Per Limited and
General Partner Unit* 93.83
Net Asset Value Per Unit At
End of Year 1,226.33
1992
----
Realized Gains (Losses) $ 3,590,436
Change in Unrealized Gains (Losses)
on Open Contracts (3,073,910)
Interest Income 1,193,907
Management Fees 2,162,211
Incentive Fees 609,339
Net Income (Loss) (1,846,137)
General Partner Capital 365,830
Limited Partner Capital 30,972,746
Partnership Capital 31,338,576
Net Income (Loss) Per Limited and
General Partner Unit* (62.91)
Net Asset Value Per Unit At
End of Year 1,134.53
1991
----
Realized Gains (Losses) $ (1,079,816)
Change in Unrealized Gains (Losses)
on Open Contracts 3,593,826
Interest Income 1,517,051
Management Fees 1,632,446
Incentive Fees 829,195
Net Income (Loss) 1,046,330
General Partner Capital 384,506
Limited Partner Capital 36,458,906
Partnership Capital 36,843,412
Net Income (Loss) Per Limited and
General Partner Unit* 42.85
Net Asset Value Per Unit At
End of Year 1,192.45
1990
----
Realized Gains (Losses) $ 1,171,249
Change in Unrealized Gains (Losses)
on Open Contracts 22,528
Interest Income 525,404
Management Fees 375,994
Incentive Fees 253,897
Net Income (Loss) 911,948
General Partner Capital 125,015
Limited Partner Capital 12,225,120
Partnership Capital 12,350,135
Net Income (Loss) Per Limited and
General Partner Unit* 131.88
Net Asset Value Per Unit At
End of Year 1,124.41
1989
----
Realized Gains (Losses) $ 0
Change in Unrealized Gains (Losses)
on Open Contracts 0
Interest Income 120
Management Fees 0
Incentive Fees 0
Net Income (Loss) (636)
General Partner Capital 682
Limited Partner Capital 682
Partnership Capital 1,364
Net Income (Loss) Per Limited and
General Partner Unit* (318.00)
Net Asset Value Per Unit At
End of Year 682.00
----------------
* Based on weighted average units outstanding
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(a) Liquidity
---------
All of the Registrant's assets at December 31, 1996 were in cash or near
cash investments.
Most United States exchanges (but generally not foreign exchanges,
or banks or broker-dealer firms in the case of foreign currency
forward contracts) limit by regulations the amount of fluctuation
in commodity futures contract prices during a single trading day.
The regulations specify what are referred to as "daily price
fluctuation limits". The daily limits establish the maximum amount
the price of a futures contract may vary either up or down from the
previous day's settlement price at the end of the trading session.
Once the "daily limit" has been reached in a particular commodity, no
trades may be made at a price beyond the limit. Positions in the
commodity could then be taken or liquidated only if traders are willing
to effect trades at or within the limit during the period for trading.
Because the "daily limit" rule only governs price movement for a
particular trading day, it does not limit losses and may in fact
substantially increase losses because it may prevent the liquidation
of unfavorable positions. Commodity futures prices have occasionally
moved the daily limit for several consecutive trading days and thereby
prevented prompt liquidation of futures positions on one side of the
market, subjecting those commodity futures traders to substantial
losses.
(b) Capital Resources
-----------------
The Registrant is currently not offering its Units for sale (See Item 1
above.) Since the Registrant's business is the purchase and sale of
various commodity interests, it will make few, if any, capital
expenditures. Except as it impacts the commodity markets, inflation is
not a significant factor in the Registrant's profitability.
(c) Results of Operations
---------------------
The General Partner has established procedures to actively monitor and
minimize the market and credit risk of the Registrant. ATA Research,
Inc. (ATA), in its capacity as Trading Manager of the Registrant, manages
market risk through the monitoring of the Registrant's advisors and their
trading in the various commodity markets. The General Partner seeks to
minimize credit risk primarily by keeping only minimal amounts of
excess cash at the brokers, with excess cash being maintained in
custodial or other accounts providing credit protection. Additionally,
the General Partner monitors risk based on its current knowledge of the
brokers' credit worthiness.
Due to the speculative nature of trading commodity interests, the
Registrant's income or loss from operations may vary widely from period
to period. Management cannot predict whether the Registrant's future
Net Asset Value per Unit will increase or experience a decline.
Inflation is not a significant factor in the Registrant's operations,
except to the extent that inflation may affect future prices.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Year Ended December 31, 1996
----------------------------
1996 was the seventh year of the Registrant's operation. Net income for
the year was $833,088 or $49.25 per Unit. At December 31, 1996,
partners' capital totaled $18,870,133, a decrease of $3,156,927 from
December 31, 1995. Net Asset Value per Unit at December 31, 1996
amounted to $1,251.26, as compared to $1,193.64 at December 31, 1995,
an increase of 4.8%.
The Registrant's income for 1996 resulted from substantial gains in the
foreign interest rate markets for most of the year as well as gains
in the energy and metals markets. These gains were slightly offset by
early losses in the bond and interest rate markets.
Year Ended December 31, 1995
----------------------------
In 1995, a net loss of $985,673, or $49.66 per Unit was incurred. At
December 31, 1995, partners' capital totalled $22,027,060, a decrease
of $4,217,585 from December 31, 1994. Net Asset Value per Unit at
December 31, 1995 amounted to $1,193.64, as compared to $1,236.75
at December 31, 1994, a decrease of 3.5%.
The Registrant's overall flat performance was the result of early year
losses in several markets, including the currency markets which were
offset later in the year with significant gains in the agricultural,
global bond and energy markets.
Year Ended December 31, 1994
----------------------------
At December 31, 1994 partners' capital totalled $26,244,645, a decrease
of $3,603,035 from December 31, 1993. Net income for the year was
$98,340, or $4.31 per Unit. At December 31, 1994, Net Asset Value per
Unit amounted to $1,236.75, as compared with $1,226.33 per Unit at
December 31, 1993, an increase of .85%.
During 1994, the Registrant profited from agricultural markets such as
wheat, soybeans, cotton and coffee. In addition, the industrial metals
were profitable overall. These gains were offset primarily by losses
in the currency markets during early 1994.
(d) Possible Changes
----------------
The General Partner reserves the right to terminate Commodity Trading
Advisors (see Prospectus) and/or engage additional Commodity Trading
Advisors in the future. Furthermore, the General Partner reserves the
right to change any of the Registrant's clearing arrangements to
accommodate any new Commodity Trading Advisors.
Item 8. Financial Statements and Supplementary Data.
Financial statements meeting the requirements of Regulation S-X are
listed following this report. The Supplementary Financial Information
specified by item 302 of Regulation S-K is not applicable.
Item 9. Disagreements on Accounting and Financial Disclosures.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Registrant has no directors or executive officers. The General
Partner of the Registrant is ProFutures, Inc., which administers and
manages the Registrant's affairs.
Gary D. Halbert, age 44, is the Chairman, President, Director and a
principal shareholder of ProFutures, Inc. Debi Halbert, age 41, is the
Treasurer, Director and a minority shareholder of ProFutures, Inc.
There have been no material administrative, civil or criminal
proceedings against Gary D. Halbert, Debi Halbert or ProFutures, Inc.
Item 11. Executive Compensation.
The General Partner receives, as compensation for its services, monthly
Administration Management Fees equal to 1/6 of 1% of month-end Net Asset
Value (approximately 2% of the average month-end Net Assets per year),
which aggregated $405,867 for 1996. The General Partner also received an
account opening fee of $120 per Limited Partner (prior to the termination
of the offering as of May 30, 1991).
Item 12. Security Ownership of Certain Beneficial Owners.
(a) Security Ownership of Certain Beneficial Owners
-----------------------------------------------
The Registrant knows of no one person who beneficially owns more than
5% of the Units of Limited Partnership Interest.
(b) Security Ownership of Management
--------------------------------
Under the terms of the Limited Partnership Agreement, the General
Partner exclusively manages the Registrant's affairs. As of December 31,
1996 the General Partner and its principals owned 323.451 Units of
General Partnership Interest.
(c) Changes in Control
------------------
None.
Item 13. Certain Relationships and Related Transactions.
See Prospectus dated August 31, 1990, pages 24-27, which is
incorporated herein by reference, for information concerning
relationships and transactions between the General Partner, the
Trading Manager, the Commodity Broker and the Registrant.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements
See index to Financial Statements
The Financial Statements begin on Page F-1
(a) 2. Financial Statement Schedules.
Not applicable, not required, or information included in financial
statements.
(a) 3. Exhibits.
Incorporated by reference - previously filed:
Form S-1 and Prospectus dated September 26, 1989 and exhibits
thereto.
Post-effective amendment No.1 dated July 19, 1990.
Prospectus dated August 31, 1990.
March 1, 1991 Supplement to Prospectus dated August 31, 1990.
*1.1 Form of Selling Agreement between the Registrant and
ProFutures Financial Group, Inc.
*1.2 Form of Additional Selling Agents Agreement between
ProFutures Financial Group, Inc. and certain
Additional Selling Agents.
*3.1 Agreement of Limited Partnership (attached to the 4.1
Prospectus as Exhibit A).
*3.2 Subscription Agreement and Power of Attorney
(attached to the Prospectus as Exhibit B).
*3.3 Request for Redemption Form (attached to the
Prospectus as Exhibit C).
*5.1 Opinion of Counsel as to the legality of the Units.
*8.1 Tax Opinion of Counsel
*10.1 Form of Escrow Agreement among the Registrant, the
General Partner and First National Bank of Chicago,
the Escrow Agent.
*10.2(a) Form of Brokerage Agreement between the Registrant and
Balfour Maclaine Futures, Inc., the Clearing Broker.
*10.2(b) Form of Customer Agreements between Registrant and
Balfour Maclaine Futures, Inc., the Clearing Broker.
*10.2(c) Form of Brokerage Agreement dated August 15, 1990
between the Registrant and Virginia Trading division
of Quantum Financial Services, Inc.
*10.3(a) Form of Advisory Agreement between the Registrant and
Fundamental Futures, Inc.
*10.3(a)(1) Third Amendment dated March 31, 1994 to Advisory
Contract between the Registrant and Fundamental
Futures, Inc.
*10.3(b) Form of Representations Letter of Fundamental Futures,
Inc.
*10.3(c) Form of Advisory Agreement between the Registrant and
LDL International, Inc.
*10.3(d) Form of Representations Letter of LDL International,
Inc.
*10.3(e) Form of Advisory Agreement between the Registrant and
Sunrise Commodities, Inc.
*10.3(f) Form of Representations Letter of Sunrise Commodities,
Inc.
*10.3(g) Form of Advisory Agreement between the Registrant and
Visioneering Research and Development Company.
*10.3(h) Form of Representations Letter of Visioneering
Research and Development Company.
*10.3(i) Form of Advisory Agreement between Registrant and D.J.
Mackenzie & Co., Inc.
*10.3(j) Form of Representation Letter of D.J. Mackenzie & Co.,
Inc.
*10.3(k) Advisory Contract among and between ATA Research, Inc.,
ProFutures, Inc. and Bishop Enderby Corporation dated
July 30, 1991.
*10.3(l) Advisory Contract among and between ATA Research, Inc.,
ProFutures, Inc. and Red Oak Advisors, Inc. dated
July 29, 1991.
*10.3(m) Advisory Contract among and between ATA Research, Inc.
ProFutures, Inc. and Heritage Commodity Consultants,
Inc. dated October 14, 1991.
*10.3(n) Advisory contract between the Registration and Insight
Enterprises, Inc. dated February 26, 1992.
*10.3(o) Advisory contract between the Registrant and Luck
Trading Company, Inc. dated March 11, 1992.
*10.3(o)(1) Amendment dated November 30, 1993 to Advisory Contract
between the Registrant and Luck Trading Company, Inc.
dated March 11, 1992.
*10.3(p) Advisory contract between the Registrant and Trinity
Money Management, Inc. dated October 5, 1992.
*10.3(q) Advisory contract between the Registrant and Range
Wise, Inc. dated October 15, 1992.
*10.3(q)(1) Second Amendment dated March 31, 1994 to Advisory
Contract between the Registrant and Range Wise, Inc.
*10.3(r) Advisory contract between the Registrant and
Hollingsworth Trading Company, Inc. dated March 1,
1991.
*10.3(s) Advisory contract between the Registrant and FX 500
Ltd. dated January 22, 1993.
*10.3(s)(1) Second Amendment dated March 31, 1994 to Advisory
Contract between the Registrant and FX 500 Ltd.
*10.3(t) Advisory contract between the Registrant and Hawksbill
Capital Management dated June 24, 1993.
*10.3(u) Advisory contract between the Registrant and Wizard
Trading, Inc. dated December 3, 1993.
*10.3(u)(1) First Amendment dated March 31, 1994 to Advisory
Contract between the Registrant and Wizard Trading,
Inc.
*10.3(v) Advisory contract between the Registrant and Classic
Capital, Inc. dated December 3, 1993.
*10.3(v)(1) First Amendment dated March 31, 1994 to Advisory
Contract between the Registrant and Classic Capital,
Inc.
*10.3(w) Advisory Contract between the Registrant and
Willowbridge Associates, Inc.
*10.3(x) Advisory Contract between the Registrant and Rowayton
Capital Management Inc.
*10.3(y) Advisory Contract between the Registrant and Rainbow
Trading Corporation.
*10.3(z) Advisory Contract between the Registrant and Zack
Hampton Bacon, III.
*10.3(a)(a) Advisory Contract between the Registrant and Highline
Trading Corporation.
*10.3(a)(b) Advisory Contract between the Registrant and Considine
Trading Corp.
*10.3(a)(c) Advisory Contract between the Registrant and Rabar
Market Research, Inc.
*10.3(a)(d) Advisory Contract between the Registrant and
Niederhoffer Investments, Inc.
*10.3(a)(e) Advisory Contract between the Registrant and Riverfront
Trading Advisors, Inc.
*10.3(a)(f) Advisory Contract between the Registrant and Sheridan
Investments, Inc.
*10.4(a) Form of Trading Manager Agreement between the
Registrant and ATA Research, Inc.
*10.4(b) Form of Consulting Agreement between Registrant and
Business Marketing Group, Inc.
*10.4(c) Form of Stock Subscription Agreement between
ProFutures, Inc. and Balfour Maclaine Futures, Inc.
*10.4(d) Form of Stock Subscription Agreement between
ProFutures, Inc. and Virginia Trading Corporation dated
April 15, 1990.
*10.4(e) Form of Stock Subscription Agreement between
ProFutures, Inc. and Virginia Trading Corporation,
dated August 15, 1990.
*10.4(f) Form of notice by Quantum Financial Services, Inc.
dated July 10, 1991 assuming contractual
responsibilities of Virginia Trading Corporation.
*24.1 Consent of Counsel
*24.2 Consent of Certified Public Accountants
- -----------------------
* Previously filed in the June 13, 1989 Registration Statement; the
September 1, 1989 Pre-effective amendment No.1 thereto; the July 16,
1990 post-effective amendment thereto; Form 10-Q for the quarter ended
September 30, 1991; Forms 10-Q for the quarters ended March 31, 1992 and
September 30, 1992; and Forms 10-Q for the quarters ended March 31,
June 30 and September 30, 1993. Form 10-K for the year 1994; and Forms
10-Q for the quarters ended March 31, June 30 and September 30, 1994.
Form 10-Q for the quarter ended March 31, 1995.
(b) Reports on Form 8-K
-------------------
None.
(c) Exhibits
--------
Filed herein:
None
(d) Financial Statement Schedules
-----------------------------
Not Applicable, not required, or information included in financial
statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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)
By
- ---------------------------- ---------------------------------------
Date Gary D. Halbert, President and Director
ProFutures, Inc.
General Partner
By
- ---------------------------- ---------------------------------------
Date Debi Halbert, Treasurer and Director
ProFutures, Inc.
General Partner
ALTERNATIVE ASSET GROWTH FUND, L.P.
Index to Financial Statements
Independent Auditor's Report for the years ended
December 31, 1996, 1995 and 1994 F-1
Statements of Financial Condition
December 31, 1996 and 1995 F-2
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 F-3
Statements of Changes in Partners' Capital
(Net Asset Value) for the years ended
December 31, 1996, 1995 and 1994 F-4
Notes to Financial Statements F-5 - F-9
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ALTERNATIVE ASSET GROWTH FUND, L.P
DECEMBER 31, 1996 AND 1995
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Partners
Alternative Asset Growth Fund, L.P.
We have audited the accompanying statements of financial condition of
Alternative Asset Growth Fund, L.P. as of December 31, 1996 and 1995, and
the related statements of operations and changes in partners' capital (net
asset value) for the years ended December 31, 1996, 1995 and 1994. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alternative Asset Growth
Fund, L.P. as of December 31, 1996 and 1995, and the results of its operations
and the changes in its net asset values for the years ended December 31, 1996,
1995 and 1994, in conformity with generally accepted accounting principles.
January 29, 1997
F-1
ALTERNATIVE ASSET GROWTH FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
December 31, 1996 and 1995
------------
1996 1995
---- ----
ASSETS
Equity in broker trading accounts
Cash $ 4,604,066 $ 6,212,851
Net option premiums (received) (209,880) (114,576)
Unrealized gain on open contracts 243,580 1,263,292
----------- -----------
Deposits with brokers 4,637,766 7,361,567
Cash and cash equivalents 14,799,051 15,220,226
----------- -----------
Total assets $19,436,817 $22,581,793
=========== ===========
LIABILITIES
Accounts payable $ 6,611 $ 13,010
Advisor incentive fees payable 193,468 190,408
Advisor management fees payable 61,072 53,752
Consultant fee payable 32,125 37,157
General Partner fee payable 32,125 37,157
Trading Manager fee payable 16,062 18,578
Commissions and other trading fees
on open contracts 24,710 30,677
Redemptions payable 200,511 173,994
----------- -----------
Total liabilities 566,684 554,733
----------- -----------
PARTNERS' CAPITAL (Net Asset Value)
General Partner - 323.451 units
outstanding at December 31, 1996
and 1995 404,722 386,084
Limited Partners - 14,757.410 and
18,130.272 units outstanding at
December 31, 1996 and 1995 18,465,411 21,640,976
----------- -----------
Total partners' capital
(Net Asset Value) 18,870,133 22,027,060
----------- -----------
$19,436,817 $22,581,793
=========== ===========
See accompanying notes.
F-2
ALTERNATIVE ASSET GROWTH FUND, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
------------
1996 1995 1994
---- ---- ----
INCOME
Trading gains (losses)
Realized $ 3,478,456 $ 1,431,928 $ 4,055,418
Change in unrealized (1,019,712) 120,604 (552,120)
----------- ----------- -----------
Gain from trading 2,458,744 1,552,532 3,503,298
Interest income 1,020,487 1,292,216 1,125,990
----------- ----------- -----------
Total income 3,479,231 2,844,748 4,629,288
----------- ----------- -----------
EXPENSES
Brokerage commissions 639,973 1,377,649 1,196,462
Advisor incentive fees 542,057 720,621 1,303,019
Advisor management fees 242,364 313,000 416,788
Consultant fee 405,867 465,077 544,472
General Partner fee 405,867 465,077 544,472
Trading Manager fee 202,933 232,538 272,236
Operating expenses 207,082 256,459 253,499
----------- ----------- -----------
Total expenses 2,646,143 3,830,421 4,530,948
----------- ----------- -----------
NET INCOME (LOSS) $ 833,088 $ (985,673) $ 98,340
=========== =========== ===========
NET INCOME (LOSS) PER GENERAL
AND LIMITED PARTNER UNIT
(based on weighted average
number of units outstanding
during the year) $ 49.25 $ (49.66) $ 4.31
=========== =========== ===========
INCREASE (DECREASE) IN NET
ASSET VALUE PER GENERAL AND
LIMITED PARTNER UNIT $ 57.62 $ (43.11) $ 10.42
=========== =========== ===========
See accompanying notes.
F-3
ALTERNATIVE ASSET GROWTH FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Years Ended December 31, 1996, 1995 and 1994
------------
Total Partners' Capital
Number of ------------------------------------
Units General Limited Total
--------- -------- ----------- -----------
Balances at
December 31,
1993 24,339.097 $396,657 $29,451,023 $29,847,680
Net income for
the year ended
December 31,
1994 3,371 94,969 98,340
Redemptions (3,118.420) 0 (3,701,375) (3,701,375)
----------- -------- ----------- -----------
Balances at
December 31,
1994 21,220.677 400,028 25,844,617 26,244,645
Net (loss) for
the year ended
December 31,
1995 (13,944) (971,729) (985,673)
Redemptions (2,766.954) 0 (3,231,912) (3,231,912)
----------- -------- ----------- -----------
Balances at
December 31,
1995 18,453.723 $386,084 $21,640,976 $22,027,060
Net income for
the year ended
December 31,
1996 18,638 814,450 833,088
Redemptions (3,372.862) 0 (3,990,015) (3,990,015)
----------- -------- ----------- -----------
Balances at
December 31,
1996 15,080.861 $404,722 $18,465,411 $18,870,133
========== ======== =========== ===========
Net Asset Value Per Unit
-------------------------------------
December 31,
1996 1995 1994
---- ---- ----
$1,251.26 $1,193.64 $1,236.75
========= ========= =========
See accompanying notes.
F-4
ALTERNATIVE ASSET GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
------------
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.
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. Gains or losses are realized when contracts are
liquidated. Net unrealized gain or loss on open contracts (the
difference between contract purchase price and market price) is
reported in the statement of financial condition in accordance
with Financial Accounting Standards Board Interpretation No. 39
- "Offsetting of Amounts Relating to Certain Contracts." Any
change in net unrealized gain or loss from the preceding period
is reported in the statement of operations.
D. Cash and Cash Equivalents
Cash and cash equivalents includes cash and short-term
investments in fixed income securities.
E. Brokerage Commissions
Brokerage commissions include other trading fees and are charged
to expense when contracts are opened.
F-5
ALTERNATIVE ASSET GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
------------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
-----------------------------------------------------------
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.
Note 2. GENERAL PARTNER
---------------
The General Partner of the Partnership is ProFutures, Inc., which
conducts and manages the business of the Partnership. The General
Partner is required by the Agreement of Limited Partnership to
contribute to the Partnership an amount equal to at least 1% of the
aggregate capital contributions of all partners, but not less than
$100,000. As of December 31, 1996, $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, at all times after the Partnership commences trading and
so long as it remains General Partner of the Partnership, maintain
a net worth not less than 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 a General Partner if such
contributions are equal to or less than $2,500,000; and (ii) 10% of
the aggregate capital contributions of any limited partnerships for
which it shall act as a General Partner if such contributions
exceed $2,500,000.
ProFutures, Inc. has callable subscription agreements with
Internationale Nederlanden (U.S.) Derivatives Clearing, Inc. (ING),
whereby ING agrees to purchase or subscribe to (up to $19,000,090)
the number of shares of common stock of ProFutures, Inc. necessary
to maintain the General Partner net worth requirements.
F-6
ALTERNATIVE ASSET GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
------------
Note 2. GENERAL PARTNER (CONTINUED)
---------------------------
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 .2% to 2.8% annually of allocated Net
Asset Value. In addition, the trading advisors receive quarterly
incentive fees ranging from 20% to 29% of Trading Profits (as
defined in the trading advisory contracts) on that portion of the
Partnership's assets which they direct.
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.
F-7
ALTERNATIVE ASSET GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
------------
Note 7. TRADING ACTIVITIES AND RELATED RISKS
------------------------------------
The Partnership engages in the speculative trading of U.S. and
foreign futures contracts, options on U.S. and foreign futures
contracts, forward contracts and options on forward 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 and forward contracts and long and short options at
market value. The average fair value of derivatives during 1996 and
1995 was approximately $610,000 and $670,000, respectively, and the
related year end fair values are approximately $34,000 and
$1,149,000, respectively.
F-8
ALTERNATIVE ASSET GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
------------
Note 7. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
------------------------------------------------
Net trading results from derivatives for the years ended
December 31, 1996, 1995 and 1994 are reflected in the statement
of operations and equal gain from trading less brokerage
commissions. Such trading results reflect the net gain arising
from the Partnership's speculative trading of futures contracts,
options on futures contracts, forward contracts and options on
forward contracts.
Open contracts generally mature within one year, however, the
Partnership intends to close all contracts prior to maturity. At
December 31, 1996 and 1995, the notional amount of open contracts
is as follows:
1996 1995
---- ----
Contracts to Contracts to Contracts to Contracts to
Purchase Sell Purchase Sell
------------ ------------ ------------ ------------
Derivatives
(excluding
purchased
options):
Futures
contracts and
written options
thereon:
- Agriculture $ 11,800,000 $ 6,000,000 $ 11,900,000 $ 3,600,000
- Currency and
currency
indices 3,800,000 12,200,000 2,100,000 10,300,000
- Energy 200,000 700,000 2,200,000 300,000
- Equity indices 48,300,000 28,900,000 6,200,000 23,300,000
- Interest rates 76,000,000 15,300,000 170,400,000 19,300,000
- Metals 5,400,000 9,300,000 10,300,000 13,800,000
- Other 700,000 0 200,000 900,000
Purchased
options on:
Futures Contracts:
- Agriculture 1,100,000 0 1,000,000 0
- Currency and
currency
indices 2,700,000 0 0 0
- Equity indices 1,500,000 21,300,000 0 0
- Interest rates 0 0 0 2,400,000
- Metals 1,900,000 0 2,300,000 0
------------ ------------ ------------ ------------
$153,400,000 $ 93,700,000 $206,600,000 $ 73,900,000
============ ============ ============ ============
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. 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.
F-9