-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DxxcDcTHypEPuX0RsEuSOLtXugaz3ay6nQMByoEuV3Cvojw8oI1HzNQl3hLg2D9V fJd03VX8CHSVUu6dFF4wRw== 0000945227-98-000004.txt : 19980324 0000945227-98-000004.hdr.sgml : 19980324 ACCESSION NUMBER: 0000945227-98-000004 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980323 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALTERNATIVE ASSET GROWTH FUND L P CENTRAL INDEX KEY: 0000851998 STANDARD INDUSTRIAL CLASSIFICATION: OIL ROYALTY TRADERS [6792] IRS NUMBER: 742546493 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-18500 FILM NUMBER: 98570794 BUSINESS ADDRESS: STREET 1: 1310 HIGHWAY 620 #200 STREET 2: C/O PROFUTURES, INC CITY: AUSTIN STATE: TX ZIP: 78734 BUSINESS PHONE: 5122641100 MAIL ADDRESS: STREET 1: 1310 HIGHWAY 620 STREET 2: STE 200 CITY: AUSTIN STATE: TX ZIP: 78734 10-K/A 1 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 For the fiscal year ended: December 31, 1997 -------------- 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, 1997 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.) Securities, Futures & Options 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 is 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, 1997, the Registrant has allocated notional funds to Advisors equal to approximately 9.7% 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.) Securities, Futures & Options Inc. (ING) as the Registrant's primary clearing broker. ING is located at 233 South Wacker Drive, Suite 5200, Chicago, Illinois 60606. 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. Year 2000 - --------- The General Partner is in the process of evaluating the effect of Year 2000 issues on the Partnership. The internal software of the General Partner is Year 2000 compliant. The General Partner anticipates no internal operational problems with respect to the Partnership related to the Year 2000. The General Partner continues to evaluate the effect of the Year 2000 issue with respect to the Partnership's outside service providers and advisors. It is anticipated that any costs incurred in connection with internal operating problems relating to Year 2000 issues will be borne by the General Partner. 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, 1997. 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, 1997 was: General Partner's Capital 2 Limited Partners' Capital 982 At the commencement of trading on March 7, 1990 there were 290 Limited Partners holding 4,338.536 Units of Limited Partner Interest and one General Partner holding 46 Units of General Partner Interest. At December 31, 1997 there were 982 Limited Partners holding 12,305.985 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, 1996 and 1997. 1997 ---- Realized Gains (Losses) $ 2,996,442 Change in Unrealized Gains (Losses) on Open Contracts 515,373 Interest Income 984,111 Management Fees 1,135,594 Incentive Fees 768,675 Net Income (Loss) 1,716,744 General Partner Capital 442,903 Limited Partner Capital 16,850,663 Partnership Capital 17,293,566 Net Income (Loss) Per Limited and General Partner Unit* 121.38 Net Asset Value Per Unit At End of Year 1,369.31 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, 1997 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, 1997 ---------------------------- Net income for the year was $1,716,744, or $121.38 per Unit. At December 31, 1997, partners' capital totaled $17,293,566, a decrease of $1,576,567 from December 31, 1996. The Net Asset Value per Unit at December 31, 1997 amounted to $1,369.31 as compared to $1,251.26 at December 31, 1996, an increase of 9.4%. The Registrant's gains came mostly in the financials, including currencies, stocks, and debt instruments. Strong gains were also achieved in the agricultural commodities, including the food and fiber sector and the grains. 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. (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 45, is the Chairman, President, Director and a principal shareholder of ProFutures, Inc. Debi Halbert, age 42, 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 $375,215 for 1997. 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, 1997 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, 1997, 1996 and 1995 F-1 Statements of Financial Condition December 31, 1997 and 1996 F-2 Statements of Operations for the years ended December 31, 1997, 1996 and 1995 F-3 Statements of Changes in Partners' Capital (Net Asset Value) for the years ended December 31, 1997, 1996 and 1995 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 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, 1997 and 1996, and the related statements of operations and changes in partners' capital (net asset value) for the years ended December 31, 1997, 1996 and 1995. 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, 1997 and 1996, and the results of its operations and the changes in its net asset values for the years ended December 31, 1997, 1996 and 1995, in conformity with generally accepted accounting principles. Arthur F. Bell, Jr. & Associates, L.L.C. Lutherville, Maryland January 16, 1998 F-1 ALTERNATIVE ASSET GROWTH FUND, L.P. STATEMENTS OF FINANCIAL CONDITION December 31, 1997 and 1996 ------------ 1997 1996 ---- ---- ASSETS Equity in broker trading accounts Cash $ 5,878,013 $ 4,604,066 Net option premiums (received) (88,935) (209,880) Unrealized gain on open contracts 758,953 243,580 ----------- ----------- Deposits with brokers 6,548,031 4,637,766 Cash and cash equivalents 11,605,060 14,799,051 ----------- ----------- Total assets $18,153,091 $19,436,817 =========== =========== LIABILITIES Accounts payable $ 5,301 $ 6,611 Advisor incentive fees payable 98,172 193,468 Advisor management fees payable 47,263 61,072 Consultant fee payable 29,945 32,125 General Partner fee payable 29,945 32,125 Trading Manager fee payable 14,972 16,062 Commissions and other trading fees on open contracts 35,382 24,710 Redemptions payable 598,545 200,511 ----------- ----------- Total liabilities 859,525 566,684 ----------- ----------- PARTNERS' CAPITAL (Net Asset Value) General Partner - 323.451 units outstanding at December 31, 1997 and 1996 442,903 404,722 Limited Partners - 12,305.985 and 14,757.410 units outstanding at December 31, 1997 and 1996 16,850,663 18,465,411 ----------- ----------- Total partners' capital (Net Asset Value) 17,293,566 18,870,133 ----------- ----------- $18,153,091 $19,436,817 =========== =========== See accompanying notes. F-2 ALTERNATIVE ASSET GROWTH FUND, L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, 1997, 1996 and 1995 ------------ 1997 1996 1995 ---- ---- ---- INCOME Trading gains (losses) Realized $ 2,996,442 $ 3,478,456 $ 1,431,928 Change in unrealized 515,373 (1,019,712) 120,604 ----------- ----------- ----------- Gain from trading 3,511,815 2,458,744 1,552,532 Interest income 984,111 1,020,487 1,292,216 ----------- ----------- ----------- Total income 4,495,926 3,479,231 2,844,748 ----------- ----------- ----------- EXPENSES Brokerage commissions 695,621 639,973 1,377,649 Advisor incentive fees 768,675 542,057 720,621 Advisor management fees 197,557 242,364 313,000 Consultant fee 375,215 405,867 465,077 General Partner fee 375,215 405,867 465,077 Trading Manager fee 187,607 202,933 232,538 Operating expenses 179,292 207,082 256,459 ----------- ----------- ----------- Total expenses 2,779,182 2,646,143 3,830,421 ----------- ----------- ----------- NET INCOME (LOSS) $ 1,716,744 $ 833,088 $ (985,673) =========== =========== =========== NET INCOME (LOSS) PER GENERAL AND LIMITED PARTNER UNIT (based on weighted average number of units outstanding during the year) $ 121.38 $ 49.25 $ (49.66) =========== =========== =========== INCREASE (DECREASE) IN NET ASSET VALUE PER GENERAL AND LIMITED PARTNER UNIT $ 118.05 $ 57.62 $ (43.11) =========== =========== =========== 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, 1997, 1996 and 1995 ------------ Total Partners' Capital Number of ------------------------------------ Units General Limited Total --------- -------- ----------- ----------- 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 income for the year ended December 31, 1997 38,181 1,678,563 1,716,744 Redemptions (2,451.425) 0 (3,293,311) (3,293,311) ----------- -------- ----------- ----------- Balances at December 31, 1997 12,629.436 $442,903 $16,850,663 $17,293,566 ========== ======== =========== =========== Net Asset Value Per Unit ------------------------------------- December 31, 1997 1996 1995 ---- ---- ---- $1,369.31 $1,251.26 $1,193.64 ========= ========= ========= 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 Related 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, 1997, $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.) Securities, Futures & Options 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 1997, 1996 and 1995 was approximately $690,000, $610,000 and $670,000, respectively, and the related fair values as of December 31, 1997 and 1996 are approximately $670,000 and $34,000, 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, 1997, 1996 and 1995 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, 1997 and 1996, the notional amount of open contracts is as follows: 1997 1996 ---- ---- Contracts to Contracts to Contracts to Contracts to Purchase Sell Purchase Sell ------------ ------------ ------------ ------------ Futures contracts and written options thereon: - Agriculture $ 5,300,000 $ 5,400,000 $ 11,800,000 $ 6,000,000 - Currency and currency indices 1,900,000 13,300,000 3,800,000 12,200,000 - Energy 200,000 2,200,000 200,000 700,000 - Equity indices 13,900,000 11,000,000 48,300,000 28,900,000 - Interest rates 128,000,000 55,800,000 76,000,000 15,300,000 - Metals 13,800,000 16,500,000 5,400,000 9,300,000 - Other 100,000 0 700,000 0 Purchased options on futures contracts: - Agriculture 0 0 1,100,000 0 - Currency and currency indices 0 2,000,000 2,700,000 0 - Equity indices 0 0 1,500,000 21,300,000 - Interest rates 6,400,000 0 0 0 - Metals 900,000 0 1,900,000 0 ------------ ------------ ------------ ------------ $170,500,000 $106,200,000 $153,400,000 $ 93,700,000 ============ ============ ============ ============ The above amounts do not represent the Partnership's risk of loss due to market and credit risk, but rather represent the Partnership's extent of involvement in derivatives at the date of the statement of financial condition. The General Partner has established procedures to actively monitor and minimize market and credit risk. 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 EX-27 2 ARTICLE 5 FDS FOR YEAR ENDED 1997
5 1 12-MOS DEC-31-1997 DEC-31-1997 11,605,060 0 0 0 0 18,153,091 0 0 18,153,091 859,525 0 0 0 0 0 18,153,091 0 4,495,926 0 0 2,779,182 0 0 1,716,744 0 1,716,744 0 0 0 1,716,744 121.38 121.38
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