Item 1. Business.
(a) General Development of Business -------------------------------
Alternative Asset Growth Fund, L.P. (the "Partnership") 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 11612 Bee Cave Road, Suite 100, Austin, Texas 78738 and its telephone numbers are 1-800-348-3601 and (512) 263-3800.
The Partnership 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 Partnership's account. On March 7, 1990 the Partnership 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. 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 Partnership 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 Partnership issued an aggregate of 32,516.437 Units of Limited Partnership Interest for total contributions of $36,976,906 exclusive of account opening fees.
(b) General Description of the Business -----------------------------------
ProFutures, Inc. a Texas corporation, is the General Partner of the Partnership which administers the business and affairs of the Partnership exclusive of its trading operations. Trading decisions are made by independent Commodity Trading Advisors chosen by the General Partner. As of December 31, 2003 there were four Commodity Trading Advisors: Campbell & Co., Inc., Conquest Capital LLC, Stratford Capital Management, Inc. and Winton Capital Management Limited (collectively, the "Advisors").
ProFutures, Inc. is 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.
The Partnership operates as a commodity investment pool, whose objective is to achieve appreciation of its assets through the speculative trading of futures contracts and interbank forward currency contracts. It ordinarily maintains open positions for a relatively short period of time. The Partnership'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 Partnership'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, on behalf of the Partnership, has entered into advisory contracts which provide that the portion of the Partnership's assets allocated to each Advisor will be traded in accordance with the Advisor's instruction unless the General Partner determines that the Partnership's trading policies have been violated. The General Partner allocates or reallocates assets among its current Advisors or any others it may select in the future.
Notional Funding Note: As of December 31, 2003, the Partnership has allocated notional funds to Advisors equal to approximately 28% of the Partnership'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 Partnership'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 Partnership. The Partnership's Advisors are independent Commodity Trading Advisors and are not affiliated with the General Partner; however, they also may be Advisors to other commodity pools with which the General Partner is 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 Partnership.
(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, receives a monthly management fee equal to 1/6 of 1% (2% annually) of month-end Net Asset Value.
Kenmar Global Strategies Inc. (Kenmar) assists the General Partner in making decisions about which commodity trading advisors to hire, the allocations among the Advisors and the day-to-day monitoring and risk management of the Partnership's trading activities. Kenmar receives a monthly management fee equal to 1/12 of 1% (1% annually) of month-end Net Asset Value.
A Consultant, for its administrative services to the Partnership, receives a monthly consulting fee equal to 1/6 of 1% (2% annually) of month-end Net Asset Value.
The current Trading Advisors receive management fees ranging from 1% to 2% annually of Allocated Net Asset Value (as defined in the trading advisory contracts). In addition, each Advisor receives a quarterly incentive fee ranging from 20% to 25% 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 Partnership 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 Partnership may experience no change or a decline in its Net Asset Value because of the performance of other Advisors. The General Partner may allocate or reallocate the Partnership'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 General Partner, the Partnership may employ other advisors whose compensation may be calculated without regard to the losses which may be incurred by the present Advisors. Similarly, the Partnership 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 Partnership's trading will be executed. The General Partner has selected ABN AMRO Incorporated (ABN) as the Partnership's primary clearing broker. ABN 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 Partnership operates in only one industry segment, that of the speculative trading of futures contracts and other financial instruments. See also "Description of Futures Trading", pages 81 to 84 of the Prospectus dated August 31, 1990, which is incorporated herein by reference.
(g) 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 with 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 Partnership's commodity pool operator, and the respective Advisors as commodity trading advisors, to the Partnership.
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 Partnership's trading.
For additional information refer to "Regulation", Pages 82-83 of the Prospectus dated August 31, 1990, which is incorporated herein by reference.
(h) Competition -----------
The Partnership 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 Partnership 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 Partnership may also compete with other funds organized by the General Partner.
(i) Financial Information About Foreign and Domestic Operations -----------------------------------------------------------
The Partnership does not expect to engage in any operations in foreign countries nor does it expect to earn any portion of the Partnership's revenue from customers in foreign countries.
(j) Available Information ---------------------
The Partnership is an electronic filer with the Securities and Exchange Commission (SEC). The SEC maintains an Internet Site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (http://www.sec.gov). The General Partner will voluntarily provide electronic or paper copies of this filing free of charge upon request.
Item 2.
Item 2. Properties.
The Partnership does not own or lease any real property. The General Partner currently provides all necessary office space at no additional charge to the Partnership.
Item 3.
Item 3. Legal Proceedings.
The Partnership is not aware of any material pending legal proceedings to which it is a party or to which any of its assets are subject.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
During the fourth quarter of the fiscal year ended December 31, 2003, no matters were submitted to a vote of the holders of Units of Limited Partnership Interest ("Units") through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for Partnership's Securities and Related Security Holder Matters
(a) Market Information ------------------
There is no established public trading market for the Partnership'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 Partnership 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 Partnership, except any liability to partners on account of their capital contributions, have been paid and there remains property of the Partnership sufficient to pay them.
(b) Holders -------
The number of holders of record of Units of Partnership Interest as of December 31, 2003 was:
General Partner's Capital 1 Limited Partners' Capital 377
At the commencement of trading on March 7, 1990 there were 290 Limited Partners holding 4,339 Units of Limited Partner Interest and one General Partner holding 46 Units of General Partner Interest. At December 31, 2003, there were 377 Limited Partners holding 4,340 Units and 101 Units held by the General Partner.
(c) Distributions -------------
The Partnership does not anticipate making any distributions to investors.
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 Partnership. No such distributions have been made to date.
Item 6.
Item 6. Selected Financial Data.
Following is a summary of certain financial information for the Partnership for the calendar years 2003, 2002, 2001, 2000 and 1999.
----
Realized Gains (Losses) $ 1,118,717 Change in Unrealized Gains (Losses) on Open Contracts (55,181) Interest Income 68,362 Management Fees 445,653 Incentive Fees 206,692 Net Income (Loss) 200,542 General Partner Capital 137,933 Limited Partner Capital 5,901,730 Partnership Capital 6,039,663 Net Income (Loss) Per Limited and General Partner Unit* 42.20 Net Asset Value Per Unit At End of Year 1,359.96
----
Realized Gains (Losses) $ 1,445,228 Change in Unrealized Gains (Losses) on Open Contracts 170,409 Interest Income 99,567 Management Fees 457,829 Incentive Fees 238,951 Net Income (Loss) 696,481 General Partner Capital 133,611 Limited Partner Capital 6,225,842 Partnership Capital 6,359,453 Net Income (Loss) Per Limited and General Partner Unit* 137.24 Net Asset Value Per Unit At End of Year 1,317.35
----
Realized Gains (Losses) $ 879,553 Change in Unrealized Gains (Losses) on Open Contracts (242,447) Interest Income 255,465 Management Fees 536,862 Incentive Fees 139,705 Net Income (Loss) (155,163) General Partner Capital 106,803 Limited Partner Capital 6,225,137 Partnership Capital 6,331,940 Net Income (Loss) Per Limited and General Partner Unit* (25.52) Net Asset Value Per Unit At End of Year 1,164.33
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Realized Gains (Losses) $ (1,534,607) Change in Unrealized Gains (Losses) on Open Contracts (173,707) Interest Income 573,187 Management Fees 648,717 Incentive Fees 248,648 Net Income (Loss) (2,558,071) General Partner Capital 109,373 Limited Partner Capital 7,840,545 Partnership Capital 7,949,918 Net Income (Loss) Per Limited and General Partner Unit* (320.22) Net Asset Value Per Unit At End of Year 1,192.34
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Realized Gains (Losses) $ 270,179 Change in Unrealized Gains (Losses) on Open Contracts 496,473 Interest Income 666,712 Management Fees 934,591 Incentive Fees 348,829 Net Income (Loss) (469,685) General Partner Capital 479,238 Limited Partner Capital 12,824,661 Partnership Capital 13,303,899 Net Income (Loss) Per Limited and General Partner Unit* (47.22) Net Asset Value Per Unit At End of Year 1,481.64
---------------- * Based on weighted average units outstanding during the year.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Management believes that the estimates utilized in preparing the financial statements are reasonable and prudent; however, actual results could differ from those estimates. The Partnership's significant accounting policies are described in detail in Note 1 to the Financial Statements.
The Partnership records all investments at fair value in its financial statements, with changes in fair value reported as a component of realized and change in unrealized trading gain (loss) in the Statements of Operations. Generally, fair values are based on market prices; however, in certain circumstances, estimates are involved in determining fair value in the absence of an active market closing price (e.g. swap and forward contracts which are traded in the inter-bank market).
(a) Liquidity ---------
Substantially all of the Partnership's assets are held in cash or cash equivalents. 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.
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 Partnership is currently not offering its Units for sale (See Item 1 above.) Since the Partnership'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 Partnership's profitability.
(c) Results of Operations ---------------------
The Partnership's net income (loss) for each quarter of the years ended December 31, 2003 and 2002 consisted of the following:
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 2003 2003 2003 2003 ----------- --------- ---------- ---------
Gain (loss) from trading $ 594,832 $ 75,005 $ (132,415) $ 369,543 Net investment (loss) (257,167) (129,031) (150,289) (169,936) Net income (loss) 337,665 (54,026) (282,704) 199,607
Net income (loss) per Unit 69.96 (11.25) (59.66) 42.97 Increase (decrease) in Net Asset Value per Unit 69.95 (11.40) (59.64) 43.70
Net Asset Value per Unit at end of period 1,387.30 1,375.90 1,316.26 1,359.96
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 2002 2002 2002 2002 ----------- --------- ---------- ---------
Gain (loss) from trading $ (352,476) $ 391,218 $1,328,179 $ 38,819 Net investment (loss) (113,140) (104,950) (332,816) (158,353) Net income (loss) (465,616) 286,268 995,363 (119,534)
Net income (loss) per Unit (86.37) 56.09 201.55 (24.55) Increase (decrease) in Net Asset Value per Unit (84.80) 59.74 201.45 (23.37)
Net Asset Value per Unit at end of period 1,079.53 1,139.27 1,340.72 1,317.35
Due to the speculative nature of trading commodity interests, the Partnership's income or loss from operations may vary widely from period to period. Management cannot predict whether the Partnership's future Net Asset Value per Unit will increase or experience a decline.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Year Ended December 31, 2003 ----------------------------
2003 had net income of $200,542 or $42.20 per Unit. At December 31, 2003, partners' capital totaled $6,039,663, a net decrease of $319,790 from December 31, 2002 including capital redemptions of $520,332. Net Asset Value per Unit at December 31, 2003 amounted to $1,359.96, as compared to $1,317.35 at December 31, 2002, an increase of 3.23%.
The net income for 2003 resulted primarily from trading gains in the foreign currencies, equities and metals market sectors, partially offset by losses in the agricultural and interest rates market sectors.
Fourth Quarter 2003 -------------------
The economy continued to grow in the fourth quarter, though at a slower pace than the third quarter. The futures markets were very volatile, with many trends underway that the traders were able to capitalize on.
The Partnership had a loss of 1.32% in October 2003. The Partnership had large gains in stock indexes, with smaller gains in agricultural commodities and base metals. These gains were offset by losses in interest rates and energy.
The Partnership had a loss of 0.24% in November 2003. The Partnership had some gains in foreign currencies, with smaller gains in precious metals. These gains were offset by losses in most other sectors.
The Partnership had a gain of 4.96% in December 2003. The Partnership had gains in foreign currencies and stock indexes, with smaller gains in energy and metals. There were small losses in interest rates and certain agricultural commodities.
The Partnership had a total return of 3.32% for the quarter and 3.23% for the year ended December 31, 2003. For the fourth quarter 2003, the majority of the Partnership's trading gains were in equities and the largest loss was in interest rates.
Third Quarter 2003 ------------------
The economy continued to improve in the third quarter. The equity markets were mostly up. Most analysts expect the economy to continue to improve for the remainder of the year.
The Partnership had a loss of 3.70% in July. The Partnership had losses in bonds and other interest rate contracts and foreign currencies. There were gains in stock indexes, metals, energy and certain agricultural commodities.
In August 2003, the Partnership had a gain of 0.81%. The Partnership had gains in foreign currencies, energy, stock indexes and metals. There were losses in bonds and certain agricultural commodities.
In September 2003, the Partnership had a loss of 1.46%. The Partnership had gains in foreign currencies, which were offset by losses in energy. The other sectors were generally flat.
The Partnership had a total return of (4.33)% for the quarter and (0.08)% for the nine months ended September 30, 2003. For the third quarter 2003, the majority of the Partnership's trading gains were in stock indexes and the largest loss was in energy. In September 2003, one new trader, Conquest Capital, was added to the Partnership.
Second Quarter 2003 -------------------
Futures were somewhat more stable in the second quarter as compared to the first. The war with Iraq ended, and the stock markets began a steady climb that lasted through the end of the quarter.
In April 2003, the Partnership had a loss of 0.09%. There were gains in currencies, primarily because of the falling dollar. However, these gains were mostly offset by losses in nearly all of the other sectors.
In May 2003, the Partnership gained 4.80%. The Partnership had gains in interest rates, especially bonds. There were also gains in currencies, metals and stock indexes. There were some losses in energy and certain agricultural commodities.
In June 2003, the Partnership had a loss of 5.28%. There were losses in interest rates, especially bonds. There were also losses in energy, metals and certain agricultural commodities. Most other sectors were basically flat.
At the beginning of June 2003, notional funds were added back to trading, as the leverage was increased back to 150%. This is about the same level as before the notional funds were temporarily eliminated several months ago.
The Partnership had a total return of (0.82)% for the quarter and 4.44% for the six months ended June 30, 2003. For the second quarter 2003, the majority of the Partnership's trading gains were in foreign currencies and the largest loss was in metals.
First Quarter 2003 ------------------
The futures markets were quite volatile in the first quarter of 2003. The looming war with Iraq caused energy prices to skyrocket. Many other markets were choppy due to this uncertainty. Consumer confidence dropped dramatically. The traders were able to capitalize on the volatility in the markets.
In January 2003, the Partnership gained 6.01%. There were large gains in foreign currencies and energy, with smaller gains in interest rates, precious and base metals and stock indexes. There were small losses in grains.
In February 2003, the Partnership gained 5.66%. There were large gains in energy, with smaller gains in interest rates and currencies. These were offset by losses in stock indexes and metals. Most other sectors were basically flat.
In February 2003, the Partnership eliminated any notional funding and traded at 100% of assets, rather than 150% of assets (with notional funding). One advisor, Campbell & Company, also scaled back their open positions. These changes were made due to the uncertainty of the pending war with Iraq.
In March 2003, the Partnership lost 5.98%. There were large losses in most sectors, especially energy, after oil prices dropped. Some of the gains from the previous two months were reversed in March.
Also in March 2003, Quay Capital Management had a change of its top management, resulting in the departure of one of the principals responsible for trading the account. As a result, they were terminated as one of the Advisors in the Partnership. No replacement Advisor was selected by month-end.
Overall, the Partnership had a total return of 5.31% for the three months ended March 31, 2003. The majority of the Partnership's trading gains were in energy and foreign currencies and the largest loss was in stock index futures.
Year Ended December 31, 2002 ----------------------------
2002 had net income of $696,481 or $137.24 per Unit. At December 31, 2002, partners' capital totaled $6,359,453, a net increase of $27,513 from December 31, 2001 including capital redemptions of $678,968. Net Asset Value per Unit at December 31, 2002 amounted to $1,317.35, as compared to $1,164.33 at December 31, 2001, an increase of 13.14%.
The net income for 2002 resulted primarily from trading gains in the foreign currencies, interest rates and energy market sectors, partially offset by losses in the agricultural, equities and metals market sectors.
Fourth Quarter 2002 -------------------
The futures markets continued to be very volatile in the fourth quarter of 2002. The ongoing threat of war with Iraq, and its impact on the energy markets, caused much of the volatility. Gold prices soared in part due to this uncertainty, as well as uncertainty over economic prospects for the future. The equity markets were up, for the most part, at the end of the quarter.
In October, the Partnership lost 6.92%. There were very large losses in interest rates, energy and foreign currencies. There were also smaller losses in other sectors.
In November, the Partnership lost another 3.20%. There were gains in base metals but these were offset by losses in interest rates, energy and precious metals.
In December, the Partnership had a gain of 9.05%. There were gains in foreign currencies, energy and interest rates which offset the losses in the equities, base metals and agricultural sectors.
The Partnership finished the year with a gain of 13.14%. The volatility in the futures markets allowed some traders to capitalize on trends in various markets.
Third Quarter 2002 ------------------
The futures markets continued to be volatile in the third quarter of 2002. The equity markets suffered losses during the quarter, which significantly impacted the commodities markets. The looming threat of war with Iraq also had an impact on the markets, especially oil and gas futures.
In July, the Partnership gained 8.13%. There were gains in interest rates and stock indexes along with gains in certain agricultural commodities. Those gains were partially offset by losses in the energy complex and metals.
In August, the Partnership gained another 3.42%. Again, there were gains in interest rate markets. There were also gains in energy, precious metals, grains and livestock. There were losses in foreign currencies, stock index futures, and base metals.
In September, the Partnership had another gain of 5.24%. There were gains in interest rates along with additional gains in stock indexes and energy. There were losses in precious metals.
The Partnership had a total return of 17.68% for the quarter and 15.15% for the nine months ended September 30, 2002. For the third quarter 2002, the majority of the Partnership's trading gains were in interest rate futures and stock index futures and the largest loss was in foreign currencies.
Second Quarter 2002 -------------------
The futures markets continued to be volatile in the second quarter of 2002, though there was a surge at the end of the quarter. The extreme volatility of the equity markets, mainly on the downside, had a major impact on the commodities markets. Many of the US and overseas stock indexes and foreign currencies were very active. Some of this was the result of the corporate scandals that continue to rock the markets.
In April, the Partnership lost 5.15%. Although there were gains in Swiss Francs, natural gas, and Euros, they were more than offset by losses in the German Stock Index, the Japanese Yen, Euribor futures, the NASDAQ 100, and various bond futures.
In May, the Partnership was essentially flat, with a loss of .17%. There were gains in foreign currencies due to the drop of the U.S. dollar. There were also gains in precious metals and agricultural commodities. The gains were offset by losses in the energy complex, interest rates and some metals.
In June, the Partnership had a gain of 11.46%. There were gains in Euro futures and the Swiss Franc, and also a gain in EuroDollar futures. There were also gains in various stock and bond indexes. There were losses in British Pounds, the Nikkei Stock Index, and Gold, but these were more than offset by the gains.
The Partnership had a total return of 5.53% for the quarter and (2.15)% for the six months ended June 30, 2002. For the second quarter 2002, the majority of the Partnership's trading gains were in foreign currencies and the largest loss was in the energy markets.
First Quarter 2002 ------------------
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 lost 5.00%. There were large losses in stock indexes and agricultural commodities. Large losses were also incurred in interest rates and metals. Many of the other sectors were essentially flat.
In February 2002, the Partnership lost 6.74%. The Partnership once again experienced losses in stock indexes and interest rates. In addition, there were also losses in the energy complex and foreign currencies. There were some gains in agricultural commodities and precious metals. These however, were not enough to offset the losses for the month.
In March 2002, the Partnership managed to gain 4.66%. There were gains in the energy complex, including Brent Crude Oil and Unleaded Gas. There were also some gains in bonds and stock indexes. There were losses in currencies, including the Japanese Yen and the Swiss Franc. There were also some small losses in cotton and aluminum. These losses however were not enough to offset the gains.
For the first quarter 2002, the Partnership's losses overall were primarily due to currencies and stock index futures.
Year Ended December 31, 2001 ----------------------------
2001 had a net loss of $(155,163) or $(25.52) per Unit. At December 31, 2001, partners' capital totaled $6,331,940, a net decrease of $1,617,978 from December 31, 2000. Net Asset Value per Unit at December 31, 2001 amounted to $1,164.33, as compared to $1,192.34 at December 31, 2000, a decrease of 2.35%.
The net loss for 2001 resulted primarily from trading losses in the agricultural, foreign currencies and energy market sectors, offset largely by gains in the equities, metals and interest rate market sectors. Partners' capital was further reduced by redemptions of $1,462,815 during 2001.
Fourth Quarter 2001 -------------------
The fourth quarter of 2001 was marked by very volatile markets in the aftermath of the events of September 11th, especially in terms of interest rates. The Fund had a 9.58% gain in October. This was mostly attributed to large gains in long-term interest rates, especially Euro Bond Futures and U.S. Treasury Bond Futures. The Fund also had significant gains in short-term interest rates, and medium-term interest rates.
In November, many of the October gains were reversed. There was a loss of 12.19%. The losses were mainly in short, medium and long-term interest rates. There were also some losses in currencies. The Fed's continued aggressive rate cutting policy resulted in very volatile markets for interest rate futures.
In December, the Fund had a small loss of 1.87%. Although there were large gains in currencies, especially Japanese Yen contracts, these gains were offset by losses in interest rate futures. There were also losses in agriculture, metals and energy.
Third Quarter 2001 ------------------
The Partnership's net trading gains for the quarter ended September 30, 2001 resulted from gains in the agricultural, equities, metals and interest rates market sectors, offset slightly by losses in the energies and foreign currencies markets.
The quarter ended September 30, 2001 started out with gains in July in base metals, precious metals, stock index futures and short-term interest rates. The Fed's continuing loose monetary policy kept both short-term and long-term interest rates somewhat volatile. August brought large gains in interest rates and smaller gains in the base metals.
September 2001 was a very volatile month for the Fund due to the events of September 11th. Although the U.S. markets were closed for the remainder of the week, most overseas markets remained open, and significant gains were made during this period. The Fund had significant profits in short-term interest rate futures (mostly overseas). There were also large gains made in medium-term interest rates, which were partially offset by losses in long- term interest rates. There were also some significant gains in base metals and losses in energy, which was especially volatile after the attacks on the World Trade Center and the Pentagon. The Fund was able to end the quarter with a profit of 7.57% and 3.41% for the nine months ended September 30, 2001.
Second Quarter 2001 -------------------
Those sectors which gained in March of 2001 showed losses of similar magnitude in April 2001. A large part of the loss was a direct result of a sudden and unexpected cut in U.S. interest rates by the Federal Reserve on April 18th. This caused stock indexes as well as other markets to sharply reverse their previous trends. May brought a small gain from a variety of markets.
As of June 1, 2001, the General Partner made two significant changes to the Fund. First, Gamma Capital Management was terminated as a Trading Advisor and was replaced with Winton Capital Management, Ltd. Second, the Fund's leverage was increased through the use of notional funds to approximately 150% of assets. The General Partner instructed Winton to move into the market in stages during the month of June rather than establish all positions at once. The Fund ended the second quarter 2001 with a loss of 6.68% and the first half of 2001 was a loss of 3.87%.
First Quarter 2001 ------------------
The dominant economic force in the first quarter of 2001 was a series of interest rate cuts by the U.S. Federal Reserve. This proved helpful in some markets and created difficulty in others, yielding a relatively flat period for the Fund early in 2001. The Fund's Trading Advisors had small losses during January and February. March 2001 was a much more active month, and the Advisors were able to show gains in almost all market sectors, particularly foreign currencies, stock indexes, and interest rates. The only negative sector in March was energy. For the first quarter of 2001, the Fund's net result was a gain of 3.02%.
(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 Partnership's clearing arrangements to accommodate any new Commodity Trading Advisors.
Item 8.
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 included in Item 7(c), Results of Operations.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
None.
Item 9A.
Item 9A. Controls and Procedures.
ProFutures, Inc., as General Partner of Alternative Asset Growth Fund, L.P., with the participation of the General Partner's President and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) with respect to the Partnership as of the end of the period covered by this annual report. Based on their evaluation, the President and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in the General Partner's internal control over financial reporting applicable to the Partnership identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting applicable to the Partnership.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Partnership.
The Partnership is a limited partnership and therefore does not have any directors or officers. The Partnership's General Partner, ProFutures, Inc., administers and manages the affairs of the Partnership.
The Board of Directors of ProFutures, Inc., in its capacity as the audit committee for the Partnership, has determined that Debi B. Halbert qualifies a an "audit committee financial expert" in accordance with the applicable rules and regulations of the Securities and Exchange Commission. She is not independent of management.
The Partnership has adopted a Code of Ethics that applies to the Partnership and its affiliates as well as the Executive Officers of ProFutures, Inc. The Partnership's Code of Ethics is attached hereto as an Exhibit.
Item 11.
Item 11. Executive Compensation.
As discussed above, the Partnership does not have any officers, directors or employees. The General Partner receives, as compensation for its services, a monthly management fee equal to 1/6 of 1% (2% annually) of month-end Net Asset Value, which aggregated $130,545 for 2003.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners.
(a) Security Ownership of Certain Beneficial Owners -----------------------------------------------
The Partnership 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 Partnership's affairs. As of December 31, 2003, the General Partner owned 101 Units, having an aggregate value of $137,933, which is approximately 2.3% of the Net Asset Value of the Partnership.
(c) Changes in Control ------------------
None.
Item 13.
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 Consultant, the Commodity Broker and the Partnership.
Item 14.
Item 14. Principal Accounting Fees and Services.
Arthur F. Bell, Jr. & Associates, L.L.C. billed the Partnership aggregate fees for services rendered to the Partnership for the last two fiscal years as follows:
2003 2002 ---------- ----------
Audit Fees (1) $ 33,021 $ 29,586 Audit-Related Fees (2) $ 22,729 $ 20,628 Tax Fees (3) $ 3,881 $ 4,148 All Other Fees (4) $ 2,600 $ 2,400
(1) Audit fees relate to the annual audit, quarterly reviews, and assistance with and review of documents filed with the Securities and Exchange Commission.
(2) Audit-Related Fees relate to the monthly recalculation of net asset value and net asset value per unit, from information provided by the General Partner, and consultation on the preparation of month-end account statements provided to each partner.
(3) Tax Fees relate to the preparation of the U.S. Partnership and applicable state information tax returns.
(4) All Other Fees relate to the preparation of performance records and related footnotes for the Partnership and each Advisor.
The Board of Directors of ProFutures, Inc., in its capacity as the audit committee for the Partnership, approved all of the services described above. The audit committee has determined that the payments made to its independent accountant for non-audit services are compatible with maintaining such auditor's independence.
The audit committee explicitly pre-approves all audit and non-audit services and all engagement fees and terms, except as otherwise permitted by regulation.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements
See Index to Financial Statements on Page.
The Financial Statements begin on Page.
(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 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.
*10.4(b) Form of Consulting Agreement between Registrant and Business Marketing Group, Inc.
*10.5 Form of Consulting Agreement between the Registrant and Kenmar Global Strategies Inc.
*10.7 Form of Amended and Restated Stock Subscription Agreement by and between ABN AMRO Incorporated and ProFutures, Inc.
- ----------------------- * 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; and/or Form 10-Q for the quarter ended September 30, 1991; and/or Forms 10-Q for the quarters ended March 31,1992 and September 30, 1992; and/or Forms 10-Q for the quarters ended March 31, June 30 and September 30, 1993; and/or Form 10-K for the year 1994; and/or Forms 10-Q for the quarters ended March 31, June 30 and September 30, 1994; and/or Form 10-Q for the quarter ended March 31, 1995; and/or Form 10-K for the year 2001; and/or Form 10-Q for the quarter ended June 30, 2002. Accordingly, such exhibits are incorporated herein by reference and notified herewith.
(b) Reports on Form 8-K -------------------
None.
(c) Exhibits --------
14.1 Code of Ethics.
31.01 Certification of Gary D. Halbert, President, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
31.02 Certification of Debi B. Halbert, Chief Financial Officer, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
32.01 Certification of Gary D. Halbert, President, pursuant to 18 U.S.C. Section 1350 as enacted by Section 906 of The Sarbanes-Oxley Act of 2002.
32.02 Certification of Debi B. Halbert, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as enacted by Section 906 of The Sarbanes-Oxley Act of 2002.
(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 Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALTERNATIVE ASSET GROWTH FUND, L.P. (Partnership)
March 26, 2004 By /s/ GARY D. HALBERT - ---------------------------- ----------------------------------------- Date Gary D. Halbert, President and Director ProFutures, Inc. General Partner
March 26, 2004 By /s/ DEBI B. HALBERT - ---------------------------- ----------------------------------------- Date Debi B. Halbert, Chief Financial Officer, Treasurer and Director ProFutures, Inc. General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
March 26, 2004 By /s/ GARY D. HALBERT - -------------------------- ----------------------------------------- Date Gary D. Halbert, President and Director ProFutures, Inc. General Partner
March 26, 2004 By /s/ DEBI B. HALBERT - -------------------------- ----------------------------------------- Date Debi B. Halbert, Chief Financial Officer, Treasurer and Director ProFutures, Inc. General Partner
ALTERNATIVE ASSET GROWTH FUND, L.P.
----------------- -----------------
Independent Auditor's Report
Financial Statements
Statements of Financial Condition
Condensed Schedule of Investments
Statements of Operations
Statements of Changes in Partners' Capital (Net Asset Value)
Notes to Financial Statements -
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, 2003 and 2002, including the December 31, 2003 condensed schedule of investments, and the related statements of operations and changes in partners' capital (net asset value) for the years ended December 31, 2003, 2002 and 2001. 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 auditing standards generally accepted in the United States of America. 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, 2003 and 2002, and the results of its operations and the changes in its net asset values for the years ended December 31, 2003, 2002 and 2001, in conformity with accounting principles generally accepted in the United States of America.
/s/ ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Hunt Valley, Maryland January 20, 2004
ALTERNATIVE ASSET GROWTH FUND, L.P. STATEMENTS OF FINANCIAL CONDITION December 31, 2003 and 2002 ------------
2003 2002 ---- ---- ASSETS Equity in broker trading accounts Cash $ 5,199,101 $ 6,052,289 Unrealized gain on open contracts 372,991 450,588 ----------- -----------
Deposits with broker 5,572,092 6,502,877
Cash 3,339 2,919 Cash deposits in forward trading collateral accounts 787,636 0 Unrealized gain on open forward contracts 22,416 0 ----------- -----------
Total assets $ 6,385,483 $ 6,505,796 =========== ===========
LIABILITIES Accounts payable $ 14,206 $ 22,383 Commissions and other trading fees on open contracts 7,187 8,471 Incentive fees payable 47,603 28,982 Management fees payable 55,583 70,135 Redemptions payable 221,241 16,372 ----------- -----------
Total liabilities 345,820 146,343 ----------- -----------
PARTNERS' CAPITAL (Net Asset Value) General Partner - 101 units outstanding at December 31, 2003 and 2002 137,933 133,611 Limited Partners - 4,340 and 4,726 units outstanding at December 31, 2003 and 2002 5,901,730 6,225,842 ----------- -----------
Total partners' capital (Net Asset Value) 6,039,663 6,359,453 ----------- -----------
$ 6,385,483 $ 6,505,796 =========== ===========
See accompanying notes.
ALTERNATIVE ASSET GROWTH FUND, L.P. CONDENSED SCHEDULE OF INVESTMENTS December 31, 2003 ------------
LONG FUTURES CONTRACTS - ----------------------
% of Net Description Value Asset Value ----------- ----- -----------
Agricultural $ 7,743 0.13 % Currency 99,904 1.66 % Energy 36,223 0.60 % Interest rate 29,036 0.48 % Metal 100,416 1.66 % Stock index 107,513 1.78 % -------- -------
Total long futures contracts $380,835 6.31 % -------- -------
SHORT FUTURES CONTRACTS - ----------- -----------
Agricultural $ 2,672 0.04 % Currency (8,313) (0.13)% Interest rate (3,673) (0.06)% Stock index 1,470 0.02 % -------- -------
Total short futures contracts $ (7,844) (0.13)% -------- -------
Total futures contracts $372,991 6.18 % ======== =======
FORWARD CURRENCY CONTRACTS - ----------- --------------
% of Net Description Value Asset Value ----------- ----- -----------
Long forward currency contracts $(52,165) (0.86)% Short forward currency contracts 74,581 1.23 % -------- -------
Total forward currency contracts $ 22,416 0.37 % ======== =======
See accompanying notes.
ALTERNATIVE ASSET GROWTH FUND, L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, 2003, 2002 and 2001 ------------
2003 2002 2001 ---- ---- ---- TRADING GAINS (LOSSES) Gain (loss) from futures trading Realized $ 1,130,674 $ 1,445,228 $ 879,553 Change in unrealized (77,597) 170,409 (242,447) Brokerage commissions (156,571) (209,897) (269,574) ----------- ----------- -----------
Gain from futures trading 896,506 1,405,740 367,532 ----------- ----------- -----------
Gain (loss) from forward trading Realized (11,957) 0 0 Change in unrealized 22,416 0 0 ----------- ----------- -----------
Gain from forward trading 10,459 0 0 ----------- ----------- -----------
Total trading gains 906,965 1,405,740 367,532 ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) Income Interest income 68,362 99,567 255,465 ----------- ----------- -----------
Expenses Incentive fees 206,692 238,951 139,705 Management fees 445,653 457,829 536,862 Operating expenses 122,440 112,046 101,593 ----------- ----------- -----------
Total expenses 774,785 808,826 778,160 ----------- ----------- -----------
Net investment (loss) (706,423) (709,259) (522,695) ----------- ----------- -----------
NET INCOME (LOSS) $ 200,542 $ 696,481 $ (155,163) =========== =========== ===========
NET INCOME (LOSS) PER GENERAL AND LIMITED PARTNER UNIT (based on weighted average number of units outstanding during the year of 4,752, 5,075 and 6,079, respectively $ 42.20 $ 137.24 $ (25.52) =========== =========== ===========
INCREASE (DECREASE) IN NET ASSET VALUE PER GENERAL AND LIMITED PARTNER UNIT $ 42.61 $ 153.02 $ (28.01) =========== =========== ===========
See accompanying notes.
ALTERNATIVE ASSET GROWTH FUND, L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE) For the Years Ended December 31, 2003, 2002 and 2001 ------------
Total Partners' Capital Number of ------------------------------------ Units General Limited Total --------- --------- ----------- -----------
Balances at December 31, 2000 6,667 $ 109,373 $ 7,840,545 $ 7,949,918
Net (loss) for the year ended December 31, 2001 (2,570) (152,593) (155,163)
Redemptions (1,229) 0 (1,462,815) (1,462,815) -------- --------- ----------- -----------
Balances at December 31, 2001 5,438 106,803 6,225,137 6,331,940
Net income for the year ended December 31, 2002 16,808 679,673 696,481
Additions 10 10,000 0 10,000
Redemptions (621) 0 (678,968) (678,968) -------- --------- ----------- -----------
Balances at December 31, 2002 4,827 133,611 6,225,842 6,359,453
Net income for the year ended December 31, 2003 4,322 196,220 200,542
Redemptions (386) 0 (520,332) (520,332) -------- --------- ----------- -----------
Balances at December 31, 2003 4,441 $ 137,933 $ 5,901,730 $ 6,039,663 ======= ========= =========== ===========
Net Asset Value Per Unit -------------------------------------
December 31, 2003 2002 2001 ---- ---- ----
$1,359.96 $1,317.35 $1,164.33 ========= ========= =========
See accompanying notes.
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. The Partnership engages in the speculative trading of futures contracts and interbank forward currency 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 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, Futures Commission Merchants (brokers) and interbank market makers 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 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.
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.
ALTERNATIVE ASSET GROWTH FUND, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) ------------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) -----------------------------------------------------------
F. 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.
G. Statements of Cash Flows
The Partnership has elected not to provide statements of cash flows as permitted by Statement of Financial Accounting Standards No. 102 - "Statement of Cash Flows - Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale."
Note 2. GENERAL PARTNER ---------------
The General Partner of the Partnership is ProFutures, Inc., which conducts and manages the business of the Partnership. The Agreement of Limited Partnership requires the General Partner to contribute to the Partnership an amount equal to at least the greater of (i) 3% of aggregate capital contributions of all partners or $100,000, whichever is less, or (ii) the lesser of 1% of the aggregate capital contributions of all partners or $500,000.
The Agreement of Limited Partnership also requires that the General Partner maintain a net worth at least equal to the sum of (i) the lesser of $250,000 or 15% of the aggregate capital contributions of any limited partnerships for which it acts as general partner and which are capitalized at less than $2,500,000; and (ii) 10% of the aggregate capital contributions of any limited partnerships for which it acts as general partner and which are capitalized at greater than $2,500,000.
ProFutures, Inc. has callable subscription agreements with ABN AMRO Incorporated (ABN), the Partnership's broker, whereby ABN has subscribed to purchase (up to $7,000,000 subject to conditions set forth in the subscription agreement as amended effective May 20, 2002) the number of shares of common stock of ProFutures, Inc. necessary to maintain the General Partner's net worth requirements.
The Partnership pays the General Partner a monthly management fee of 1/6 of 1% (2% annually) of month-end Net Asset Value.
Total management fees earned by ProFutures, Inc. for the years ended December 31, 2003, 2002 and 2001 were $130,545, $118,743 and $145,866, respectively. Management fees payable to ProFutures, Inc. as of December 31, 2003 and 2002 were $10,478 and $10,671, respectively.
ALTERNATIVE ASSET GROWTH FUND, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) ------------
Note 3. COMMODITY TRADING ADVISORS --------------------------
The Partnership has trading advisory contracts with several commodity trading advisors to furnish investment management services to the Partnership. Certain advisors receive management fees ranging from 1% to 2% annually of Allocated Net Asset Value (as defined in each respective trading advisory contract). In addition, the trading advisors receive quarterly incentive fees ranging from 20% to 25% 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. Margin requirements are satisfied by the deposit of cash with such broker. The Partnership earns interest income on its assets deposited with the broker.
Note 5. OTHER MANAGEMENT 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. Total fees earned by this consultant for the years ended December 31, 2003, 2002 and 2001 were $130,545, $118,743 and $145,866, respectively.
Kenmar Global Strategies Inc. (Kenmar) assists the General Partner in making decisions about which commodity trading advisors to hire, the allocations among the advisors and the day-to-day monitoring and risk management of the Partnership's trading activities. Kenmar receives a monthly management fee of 1/12 of 1% (1% annually) of month-end Net Asset Value. Fees earned by Kenmar totaled $65,272, $59,371 and $72,933 for the years ended December 31, 2003, 2002 and 2001, respectively.
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.
Note 7. TRADING ACTIVITIES AND RELATED RISKS ------------------------------------
The Partnership is not required to make distributions, but may do so at the sole discretion of the General Partner. A Limited Partner may request and receive redemption of units owned, subject to restrictions in the Agreement of Limited Partnership.
ALTERNATIVE ASSET GROWTH FUND, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) ------------
Note 7. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED) ------------------------------------------------
Purchase and sale of futures contracts requires margin deposits with the broker. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires a broker to segregate all customer transactions and assets from such broker's proprietary activities. A customer's cash and other property (for example, U.S. Treasury bills) deposited with a broker are considered commingled with all other customer funds subject to the broker's segregation requirements. In the event of a broker's insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than total cash and other property deposited.
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 and forward contracts purchased and unlimited liability on such contracts sold short.
The Partnership has a portion of its assets on deposit with a financial institution in connection with its trading of forward contracts and 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. Since these forward contracts are traded in unregulated markets between principals, the Partnership also assumes the risk of loss from counterparty nonperformance.
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 commodity trading advisors, with the actual market risk controls being applied by Kenmar, as a consultant, and 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.
ALTERNATIVE ASSET GROWTH FUND, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) ------------
Note 8. FINANCIAL HIGHLIGHTS --------------------
The following information contains per unit operating performance data and other supplemental financial date for the years ended December 31, 2003, 2002 and 2001. This information has been derived from information presented in the financial statements.
2003 2002 2001 ---- ---- ---- Per Unit Performance (for a unit outstanding throughout the entire year) ----------------------------------
Net asset value per unit at beginning of year $1,317.35 $1,164.33 $1,192.34 --------- --------- ---------
Income (loss) from operations: Total trading gains (1) 191.25 292.77 57.97 Net investment (loss) (1) (148.64) (139.75) (85.98) --------- --------- ---------
Total income from operations 42.61 153.02 (28.01) --------- --------- ---------
Net asset value per unit at end of year $1,359.96 $1,317.35 $1,164.33 ========= ========= =========
Total Return 3.23 % 13.14 % (2.35)% ======== ======== ========
Supplemental Data
Ratios to average net asset value: Expenses prior to incentive fees 8.80 % 9.73 % 8.86 % Incentive fees 3.20 % 4.08 % 1.94 % -------- -------- --------
Total expenses 12.00 % 13.81 % 10.80 % ======== ======== ========
Net investment (loss) (2) (7.74)% (8.03)% (5.32)% ======== ======== ========
Total returns are calculated based on the change in value of a unit during the year. An individual partner's total returns and ratios may vary from the above total returns and ratios based on the timing of additions and redemptions.
--------------- (1) The net investment (loss) per unit is calculated by dividing the net investment (loss) by the average number of units outstanding during the year. Total trading gains is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information. Such balancing amount may differ from the calculation of net trading gain per unit due to the timing of trading gains and losses during the year relative to the number of units outstanding. (2) Excludes incentive fees.
EXHIBIT 14.1 CODE OF ETHICS --------------
This Code of Ethics (the "Code") covers the ProFutures companies, including ProFutures, Inc., ProFutures Financial Group, Inc., ProFutures Capital Management, Inc., as well as the public funds offered, including ProFutures Diversified Fund, L.P., Alternative Asset Growth Fund, L.P. and ProFutures Long/Short Growth Fund, L.P. Collectively they will be referred to as "ProFutures". It applies to the Executive Officers (the "Covered Officers") of ProFutures for the purpose of promoting:
Honest and ethical conduct, which includes the ethical handling of conflicts of interest between personal and professional relationships;
Full, fair, accurate and timely disclosure in reports and documents that ProFutures files with, or submits to the Securities and Exchange Commission and in other public communications made by ProFutures;
Compliance with applicable laws and governmental rules and regulations;
Prompt internal reporting of violations of the Code to appropriate personnel; and
Accountability for adherence to the Code.
Covered Officers should follow a high standard of business ethics and should be sensitive to situations that may be potential conflicts of interest.
A conflict of interest occurs when a Covered Officer's private interest interferes with the interests of the Fund. Each Covered Officer must not:
Use his/her personal influence or personal relationships improperly to influence investment decisions or financial reporting by ProFutures whereby the Covered Officer would benefit personally (directly or indirectly) to the detriment of ProFutures;
Cause ProFutures to take action or fail to take action, for the individual personal benefit of the Covered Officer, rather than the benefit of ProFutures;
Use material non-public knowledge of portfolio transactions made or contemplated for any Funds to trade personally or have others trade in anticipation of the market effect of such transactions.
Each Covered Officer should become familiar with this Code, and any questions with any of the provisions should be directed to the Board of Directors, the Compliance Officer, or legal counsel. In addition, each Covered Officer:
Must affirm in writing that he/she has read and understands the Code;
Must annually thereafter affirm to the Board that he/she has complied with the requirements of the Code;
Must not retaliate against any other Covered Officer, other officer, or employee of ProFutures for reports of potential violations made in good faith;
Must notify the Board of Directors, the Compliance Officer, or legal counsel promptly if he/she knows or suspects of any violation of this Code.
All reports and records for this Code will be considered confidential. The Code is intended solely for internal use by ProFutures, and does not constitute an admission, by or on behalf of ProFutures, as to any fact, circumstance or legal conclusion.
EXHIBIT 31.01 CERTIFICATION -------------
I, Gary D. Halbert, certify that:
1. I have reviewed this report on Form 10-K of Alternative Asset Growth Fund, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 26, 2004 ----------------------------------
/s/ Gary D. Halbert - ----------------------------------------- Gary D. Halbert, President ProFutures, Inc., General Partner
EXHIBIT 31.02 CERTIFICATION -------------
I, Debi B. Halbert, certify that:
1. I have reviewed this report on Form 10-K of Alternative Asset Growth Fund, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 26, 2004 ----------------------------------
/s/ Debi B. Halbert - ----------------------------------------- Debi B. Halbert, Chief Financial Officer ProFutures, Inc., General Partner
EXHIBIT 32.01 CERTIFICATION -------------
I, Gary D. Halbert, the President of ProFutures, Inc., as general partner of Alternative Asset Growth Fund, L.P., certify that (i) the Form 10-K for the year ended December 31, 2003 of Alternative Asset Growth Fund, L.P. fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-K for the year ended December 31, 2003 fairly presents, in all material respects, the financial condition and results of operations of Alternative Asset Growth Fund, L.P.
ALTERNATIVE ASSET GROWTH FUND, L.P. By: ProFutures, Inc., general partner
By: /s/ Gary D. Halbert --------------------------------- Gary D. Halbert President March 26, 2004
EXHIBIT 32.02 CERTIFICATION -------------
I, Debi B. Halbert, the Chief Financial Officer of ProFutures, Inc., as general partner of Alternative Asset Growth Fund, L.P., certify that (i) the Form 10-K for the year ended December 31, 2003 of Alternative Asset Growth Fund, L.P. fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-K for the year ended December 31, 2003 fairly presents, in all material respects, the financial condition and results of operations of Alternative Asset Growth Fund, L.P.
ALTERNATIVE ASSET GROWTH FUND, L.P. By: ProFutures, Inc., general partner
By: /s/ Debi B. Halbert --------------------------------- Debi B. Halbert Chief Financial Officer March 26, 2004