10-Q 1 mar02-10q.txt Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: ProFutures Long/Short Growth Fund, L.P. Commission File Number 0-25585 Dear Sirs: This filing contains Form 10-Q for the quarter ended March 31, 2002. Very truly yours, PROFUTURES LONG/SHORT GROWTH FUND, L.P. 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, 2002 -------------- Commission File Number 0-25585 ------- 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 78738 --------------------------------------- (Address of principal executive office) Registrant's telephone number (800) 348-3601 -------------- 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 March 31, 2002 (Unaudited) and December 31, 2001 (Audited) ------------- March 31, December 31, 2002 2001 ---- ---- ASSETS Equity in broker trading accounts Cash $11,799,525 $12,119,461 Net option premiums (received) (355,200) (291,200) Unrealized gain on open contracts 536,671 373,755 ----------- ----------- Deposits with broker 11,980,996 12,202,016 Cash 11,446 11,652 ----------- ----------- Total assets $11,992,442 $12,213,668 =========== =========== LIABILITIES Accounts payable $ 14,682 $ 17,680 Commissions and other trading fees on open contracts 10,552 9,065 Incentive fees payable 202,226 53,703 Management fees payable 49,844 51,559 Redemptions payable 216,669 142,989 ----------- ----------- Total liabilities 493,973 274,996 ----------- ----------- PARTNERS' CAPITAL (Net Asset Value) General Partner - 61 units outstanding at March 31, 2002 and December 31, 2001 58,079 56,537 Limited Partners - 12,103 and 12,913 units outstanding at March 31, 2002 and December 31, 2001 11,440,390 11,882,135 ----------- ----------- Total partners' capital (Net Asset Value) 11,498,469 11,938,672 ----------- ----------- $11,992,442 $12,213,668 =========== =========== See accompanying notes. PROFUTURES LONG/SHORT GROWTH FUND, L.P. CONDENSED SCHEDULE OF INVESTMENTS March 31, 2002 ------------ LONG FUTURES CONTRACTS ---------------------- % of Net Description Value Asset Value ----------- ----- ----------- Agricultural $ 65,110 0.57% Currency 47,480 0.41% Energy 27,834 0.24% Interest rate (40,038) (0.35)% Metal 112,428 0.98% Stock index 4,774 0.04% ---------- ----- Total long futures contracts $ 217,588 1.89% ---------- ----- SHORT FUTURES CONTRACTS ----------------------- Agricultural $ 78,671 0.68% Currency 28,325 0.25% Interest rate 33,588 0.29% ---------- ----- Total short futures contracts $ 140,584 1.22% ---------- ----- Total futures contracts $ 358,172 3.11% ========== ===== WRITTEN OPTIONS ON FUTURES CONTRACTS ------------------------------------ % of Net Description Value Asset Value ----------- ----- ----------- Stock Index Options (premium received - $355,200) $ (176,700) (1.54)% ========== ===== See accompanying notes. PROFUTURES LONG/SHORT GROWTH FUND, L.P. STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 2002 and 2001 (Unaudited) ------------- Three months ended March 31, 2002 2001 ---- ---- INCOME Trading gains Realized $ 512,131 $ 608,831 Change in unrealized 162,916 608,408 ------------ ------------ Gain from trading 657,047 1,217,239 Interest income 51,345 160,710 ------------ ------------ Total income 726,392 1,377,949 ------------ ------------ EXPENSES Brokerage commissions 74,763 67,492 Incentive fees 202,226 212,346 Management fees 90,454 98,710 Operating expenses 32,176 41,195 ------------ ------------ Total expenses 399,619 419,743 ------------ ------------ NET INCOME $ 326,773 $ 958,206 ============ ============ NET INCOME PER GENERAL AND LIMITED PARTNER UNIT (based on weighted average number of units outstanding during the period of 12,674 and 14,594, respectively) $ 25.78 $ 65.66 ============ ============ INCREASE IN NET ASSET VALUE PER GENERAL AND LIMITED PARTNER UNIT $ 25.10 $ 65.82 ============ ============ See accompanying notes. PROFUTURES LONG/SHORT GROWTH FUND, L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE) For the Three Months Ended March 31, 2002 and 2001 (Unaudited) ------------- Total Partners' Capital Number of ---------------------------------- Units General Limited Total --------- -------- ----------- ----------- Balances at December 31, 2001 12,974 $ 56,537 $11,882,135 $11,938,672 Net income for the three months ended March 31, 2002 1,542 325,231 326,773 Redemptions (810) 0 (766,976) (766,976) ------ -------- ----------- ----------- Balances at March 31, 2002 12,164 $ 58,079 $11,440,390 $11,498,469 ====== ======== =========== =========== Balances at December 31, 2000 14,773 $ 52,762 $12,633,367 $12,686,129 Net income for the three months ended March 31, 2001 4,044 954,162 958,206 Redemptions (523) 0 (469,255) (469,255) ------ -------- ----------- ----------- Balances at March 31, 2001 14,250 $ 56,806 $13,118,274 $13,175,080 ====== ======== =========== =========== Net asset value per unit at December 31, 2000 $ 858.74 =========== March 31, 2001 $ 924.56 =========== December 31, 2001 $ 920.18 =========== March 31, 2002 $ 945.28 =========== See accompanying notes. PROFUTURES LONG/SHORT GROWTH FUND, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited) ------------- 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 futures and option contracts. B. Regulation As a registrant with the Securities and Exchange Commission, the Partnership is subject to the regulatory requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934. As a commodity investment pool, the Partnership is subject to the regulations of the Commodity Futures Trading Commission, an agency of the 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 accounting principles generally accepted in the United States of America, 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 trade price and quoted market price) are reflected 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 total number of units outstanding. D. Brokerage Commissions Brokerage commissions include other trading fees and are charged to expense when contracts are opened. PROFUTURES LONG/SHORT GROWTH FUND, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) ------------- Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ----------- E. Income Taxes The Partnership prepares calendar year U.S. and applicable 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. 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. 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." I. 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, 2002, and the results of operations for the three months ended March 31, 2002 and 2001. PROFUTURES LONG/SHORT GROWTH FUND, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) ------------- Note 2. GENERAL PARTNER --------------- The General Partner of the Partnership is ProFutures, Inc., which conducts and manages the business of the Partnership. The Limited Partnership Agreement 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 March 31, 2002 and December 31, 2001, the capital accounts of the General Partner and/or its principals and affiliates totaled $506,023 and $498,903, respectively. The Limited Partnership Agreement was amended effective February 16, 1999 and generally requires that the General Partner maintain a net worth of up to $1,000,000. ProFutures, Inc. has callable subscription agreements with ABN AMRO Incorporated (ABN), the Partnership's broker, whereby ABN has subscribed to purchase (up to $14,000,000) the number of shares of common stock of ProFutures, Inc. necessary to maintain the General Partner net worth requirements. The Partnership pays the General Partner a monthly management fee equal to 1/6 of 1% (2% annually) of month-end Net Assets (as defined in the Limited Partnership Agreement). Total management fees earned by ProFutures, Inc. for the three months ended March 31, 2002 and 2001 were $60,168 and $65,688, respectively. Management fees payable to ProFutures, Inc. as of March 31, 2002 and December 31, 2001 were $19,558 and $20,170, respectively. Note 3. COMMODITY TRADING ADVISORS -------------------------- The Partnership has trading advisory contracts with several trading advisors to furnish investment management services to the Partnership. Each advisor is paid a monthly management fee of 1/12 of 1% (1% annually) of Allocated Net Asset Value (as defined in each respective advisory agreement). In addition, each advisor receives a quarterly incentive fee of 20% of Trading Profits (as defined). Note 4. DEPOSITS WITH BROKER -------------------- The Partnership deposits funds with ABN 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 March 31, 2002 and December 31, 2001, the initial margin requirement of $3,231,719 and $1,706,987, respectively, is satisfied by the deposit of cash with such broker. PROFUTURES LONG/SHORT GROWTH FUND, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) ------------- Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS -------------------------------------------- Investments in the Partnership were made by subscription agreement, subject to acceptance by the General Partner. Effective November 2000, the Partnership is closed to new investment; however, the General Partner may reopen the Partnership to new investments in the future. 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 U.S. and foreign futures contracts and options on futures contracts (collectively "derivatives"). 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 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. Open contracts generally mature within three months, however, the Partnership intends to close all contracts prior to maturity. At March 31, 2002, the latest maturity date for open contracts is June 2003, and at December 31, 2001, the latest maturity date for open contracts is March 2003. 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 notional contract 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. 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 a financial institution 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. 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 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. PROFUTURES LONG/SHORT GROWTH FUND, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) ------------- Note 7. FINANCIAL HIGHLIGHTS -------------------- The following information presents per unit operating performance data and other supplemental financial data for the three months ended March 31, 2002 and 2001. This information has been derived from information presented in the financial statements. Three months ended March 31, 2002 2001 (Unaudited) (Unaudited) ----------- ----------- Per Unit Performance (for a unit outstanding throughout the entire period) ----------------------------------------------------- Net asset value per unit at December 31, 2001 and 2000 $920.18 $858.74 ------- ------- Income (loss) from operations: Net investment (loss) (1), (3) (21.58) (13.12) Net realized and change in unrealized gain from trading (2), (3) 46.68 78.94 ------- ------- Total income from operations 25.10 65.82 ------- ------- Net asset value per unit at March 31, 2002 and 2001 $945.28 $924.56 ======= ======= Total Return (4) 2.73% 7.66% ======= ====== Supplemental Data Ratios to average net asset value: (5) Expenses prior to incentive fees (6) (4.16)% (4.34)% Incentive fees (6.85)% (6.59)% ------ ------- Total expenses (1) (11.01)% (10.93)% ======= ======= Net investment (loss) (1) (9.27)% (5.94)% ======= ======= -------------------- (1) Excludes brokerage commissions and other trading fees. (2) Includes brokerage commissions and other trading fees. (3) The net investment (loss) per unit is calculated by dividing the net investment (loss) by the average number of units outstanding during the period. The net realized and change in unrealized gain from trading is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information. (4) Not annualized. (5) Annualized. (6) Excludes brokerage commissions, other trading fees and incentive fees. 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 and open futures and option contracts. It is possible that extreme market conditions or daily price fluctuation limits at exchanges could adversely affect the liquidity of open futures contracts. There are no restrictions on the liquidity of these assets except for amounts on deposit with the broker needed to meet margin requirements on open futures 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. The Partnership raises additional capital only through the sale of Units and trading profits (if any) and does not engage in borrowing. The Partnership sells no securities other than the Units. Effective November 2000, the Partnership is closed to new investment; however, the General Partner may reopen the Partnership to new investments in the future. C. RESULTS OF OPERATIONS: For the three months ended March 31, 2002, the Partnership had net income of $326,773, as compared to net income of $958,206 for the three months ended March 31, 2001. The futures markets remained choppy in the first quarter of 2002. While the economy was showing some signs of improvement, there were also some negative signs that caused uncertainty. The troubles in the Middle East lead to large increases in oil and gas prices. Gold prices also moved higher early in the quarter, but gave back some of their gains at the end of the quarter. In January 2002, the Partnership gained a modest 0.99%. There were large gains in stock index, along with some smaller gains in energy and foreign currencies. These were mostly offset by losses in interest rates, agricultural commodities and precious metals. In February 2002, there was another gain of 4.34%. This resulted from gains in stock index, once again. There were also gains in interest rates and agricultural commodities. There were some losses incurred in energy and foreign currencies. In March 2002, the Partnership incurred a loss of 2.51%. Again there were profits in the stock indexes. These however were offset by losses in foreign currencies, interest rates and agricultural commodities. Coffee and Eurodollar futures incurred the largest losses. For the first quarter 2002, the majority of the Partnership's gains came from profits in options on S&P 500 Index futures. The largest loss for the quarter was from coffee. At March 31, 2002, partners' capital totaled $11,498,469, a net decrease of $440,203 from December 31, 2001, due to redemptions of limited partner units exceeding first quarter net income. The Partnership's Trading Advisors were able to profit during the first quarter of 2001, even though many markets were relatively trendless, by using very short-term trading strategies in the stock index futures and writing options on the S&P 500. The decision in late 2000 to expand the Partnership's focus beyond stock indexes by allocating part of the assets to a more diversified program proved helpful, with additional gains coming in markets such as foreign currencies, agricultural commodities, short-term interest rates and metals. The first quarter ended with a gain of 7.66%. 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 trading activity of the various 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. Due to the speculative nature of trading derivatives, 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. 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 trading advisors or change any of the Partnership's clearing arrangements. 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. 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