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 11719 Bee Cave Road, Suite 200, 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, 2004 there were three Commodity Trading Advisors: Campbell & Co., Inc., Meyer 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, 2004, the Partnership has allocated notional funds to Advisors equal to approximately 31% 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 Partnership pays the General Partner a monthly management fee of 1/6 of 1% (2% annually) of month-end Net Asset Value. Effective October 16, 2004, the Partnership pays the General Partner an additional
monthly management fee of .0625% (.75% annually) of the Partnership's month-end Net Asset Value for consulting services rendered to the Partnership.
On October 25, 2004, the Partnership entered into a consulting agreement effective November 1, 2004, with Altegris Investments, Inc. (Altegris), whereby Altegris will recommend the selection and termination of the Partnership's Advisors and the allocation and reallocation of the Partnership's assets. Pursuant to the consulting agreement, Altegris receives a monthly consulting fee equal to .0208% (.25% annually) of the Partnership's month-end net asset value.
Prior to November 1, 2004, Kenmar Global Strategies Inc. (Kenmar) assisted the General Partner in making decisions about which Advisors to hire, the allocations among the Advisors and the day-to-day monitoring and risk management of the Partnership's trading activities. Kenmar received a monthly management fee of 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 Partnership deposits funds with Man Financial Inc. 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.
(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, 2004, 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, 2004 was:
General Partner's Capital 1 Limited Partners' Capital 325
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, 2004, there were 325 Limited Partners holding 3,829 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 2004, 2003, 2002, 2001 and 2000.
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Realized Gains (Losses) $ 1,074,617 Change in Unrealized Gains (Losses) on Open Contracts (179,219) Interest Income 73,410 Management Fees 386,530 Incentive Fees 230,216 Net Income (Loss) 46,481 General Partner Capital 139,224 Limited Partner Capital 5,255,409 Partnership Capital 5,394,633 Net Income (Loss) Per Limited and General Partner Unit* 11.16 Net Asset Value Per Unit At
End of Year 1,372.69
----
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
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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
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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
* 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, 2004 and 2003 consisted of the following:
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, 2004 ----------------------------
2004 had net income of $46,481 or $11.16 per Unit. At December 31, 2004, partners' capital totaled $5,394,633, a net decrease of $645,030 from December 31, 2003 including capital redemptions of $693,807. Net Asset Value per Unit at December 31, 2004 amounted to $1,372.69, as compared to $1,359.96 at December 31, 2003, an increase of 0.94%.
The net income for 2004 resulted primarily from trading gains in the energy and interest rates market sectors, offset by losses in the agricultural and metals market sectors.
Fourth Quarter 2004 -------------------
The fourth quarter continued to be volatile for the markets, especially the commodity markets. Oil and currencies were especially volatile. Many believe the commodity markets will continue to be volatile due in part to increasing demands on commodities from rapidly growing economies in China and India.
The Partnership had a gain of 1.38% in October. The Partnership had gains in interest rates, foreign currencies and energy, with smaller gains in stock indices. There were losses in base metals, with smaller losses in agricultural commodities.
The Partnership had a gain of 8.43% in November. The Partnership had significant gains in interest rates, stock indices, foreign currencies (the dollar plunged) and metals. The Partnership experienced small losses in energy and certain agricultural commodities.
The Partnership had a gain of 1.70% in December. The Partnership achieved significant gains in the stock index markets, with smaller gains in foreign currencies and interest rates. Losses were in energy, metals and certain agricultural commodities.
The Partnership ended the year with a small gain.
Third Quarter 2004 ------------------
The economy continued to grow in the third quarter of 2004, though at a slower pace. The economic news was a little more mixed, with both good news and not-so-good news. Overall though, the growth is continuing, though rising oil prices, trading above $50 a barrel, could put a damper on things in the coming months.
The Partnership had a loss of 3.29% in July 2004. It was once again a very difficult month in the markets, especially for trend followers. The Partnership had large gains in energy, with smaller gains in agricultural commodities and metals. However, these gains were offset by losses in equities, foreign currencies and interest rates.
The Partnership had a gain of 0.66% in August 2004. The Partnership started out strong in August, but some of the gains were lost as some of the trends reversed. The Partnership had large gains in bonds and interest rates, with smaller gains in precious metals. There were losses mainly in foreign currencies and agricultural commodities.
The Partnership had a gain of 1.80% in September 2004. The Partnership took advantage of rising oil prices and had large gains in energy, along with large gains in base metals, with smaller gains in foreign currencies. There were losses in agricultural commodities, equities, interest rates and precious metals.
Overall, the Partnership had a total return of (0.89)% for the quarter and (9.71)% for the nine months ended September 30, 2004. For the third quarter 2004, the majority of the Partnership's trading gains were in the energy, interest rates and metals market sectors, offset with large losses in the equities and foreign currency market sectors.
Second Quarter 2004 -------------------
The economic recovery continued in the second quarter of 2004, and most economic news was positive, though there was a little slowdown in June. The futures markets were again volatile, especially in energy, interest rates and currencies.
The Partnership had a loss of 10.16% in April. The Partnership had large losses in metals, interest rates, equities and foreign currencies, as well as smaller losses in agriculture. The only bright spot was energy, where there were some modest gains.
The Partnership had a loss of 2.06% in May. The Partnership had gains in energy, foreign currencies and metals. There were losses in agriculture, equities and interest rates. Campbell and Winton, our main trend-followers were essentially flat in May.
The Partnership had a loss of 6.58% in June. The Partnership had losses in nearly all sectors. Losses were especially large in foreign currencies and energy.
Overall, the Partnership had a total return of (17.80)% for the quarter and (8.90)% for the six months ended June 30, 2004. For the second quarter 2004, the majority of the Partnership's gains were in the energy sector and the largest loss was in interest rates.
First Quarter 2004 ------------------
The economy continued to improve in the first quarter of 2004, and most economic news was positive. The futures markets continued to be volatile, especially energy and currencies.
The Partnership had a gain of 0.76% in January 2004. There were gains in stock indexes, metals and interest rates. There were small losses in energy, agricultural commodities and foreign currencies.
The Partnership had a gain of 10.13% in February 2004. The largest gains were in foreign currencies and interest rates, with smaller gains in energy, agricultural commodities, metals and stock indexes.
The Partnership had a loss of 0.12% in March 2004. There were some gains in interest rates and certain agricultural commodities. However, these were mostly offset by losses in foreign currencies, equities and energy.
Overall, the Partnership ended the quarter with a total return of 10.83%. The largest trading gains were in the interest rate and metals sectors.
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 indices, 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 indices, 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 indices, 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 indices 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 indices 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 indices. 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 indices. 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 indices 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 indices 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 indices 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 indices 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 indices. 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 indices 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 indices 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 indices. 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.
(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 received monthly management fees which aggregated $119,300 for 2004.
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, 2004, the General Partner owned 101 Units, having an aggregate value of $139,244, which is approximately 2.6% 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:
2004 2003 -------------- -------------- Audit Fees (1) $ 40,967 $ 33,021 Audit-Related Fees (2) $ 32,825 $ 22,729 Tax Fees (3) $ 6,498 $ 3,881 All Other Fees (4) $ 3,000 $ 2,600
(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 elated 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 and Financial Statement Schedules.
(a) 1. Financial Statements
The following are included with the 2004 Report of Independent Registered Public Accounting Firm, a copy of which is filed herewith as Exhibit 13.01
Affirmation of ProFutures, Inc. Report of Independent Registered Public Accounting Firm Statements of Financial Condition Condensed Schedules of Investments Statements of Operations Statements of Changes in Partners' Capital Notes to Financial Statements
(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) Exhibits --------
13.1 2004 Report of Independent Registered Public Accounting Firm.
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.
(c) 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 30, 2005 By /s/ GARY D. HALBERT - ---------------------------- --------------------------------------- Date Gary D. Halbert, President and Director ProFutures, Inc. General Partner
March 30, 2005 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 30, 2005 By /s/ GARY D. HALBERT - ---------------------------- --------------------------------------- Date Gary D. Halbert, President and Director ProFutures, Inc. General Partner
March 30, 2005 By /s/ DEBI B. HALBERT - ---------------------------- --------------------------------------- Date Debi B. Halbert, Chief Financial Officer, Treasurer and Director ProFutures, Inc. General Partner