10-Q 1 efc5-1199_form10q.txt PRO FUTURES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended March 31, 2005 -------------- Commission File Number 0-25585 ------- PROFUTURES LONG/SHORT GROWTH FUND, L.P. --------------------------------------------------------------- (Exact name of registrant) Delaware 74-2849862 ----------------------- ------------------------------------ (State of Organization) (I.R.S. Employer Identification No.) ProFutures, Inc. 11719 Bee Cave Road Suite 200 Austin, Texas 78738 ------------------------------------------- (Address of principal executive office) Registrant's telephone number (800) 348-3601 ----------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X PART I - FINANCIAL INFORMATION Item 1. Financial Statements. PROFUTURTES LONG/SHORT GROWTH FUND, L.P. STATEMENTS OF FINANCIAL CONDITION March 31, 2005 (Unaudited) and December 31, 2004 (Audited)

See accompanying notes. PROFUTURES LONG/SHORT GROWTH FUND, L.P. CONDENSED SCHEDULES OF INVESTMENTS March 31, 2005 (Unaudited) and December 31, 2004 (Audited)

PROFUTURES LONG/SHORT GROWTH FUND, L.P. STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 2005 and 2004 (Unaudited)

See accompanying notes. PROFUTURES LONG/SHORT GROWTH FUND, L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE) For the Three Month Ended March 31, 2005 and 2004 (Unaudited)

PROFUTURES LONG/SHORT GROWTH FUND, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited) ______________ Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ----------------------------------------------------------- A. General Description of the Partnership ProFutures Long/Short Growth Fund, L.P. (the Partnership) is a Delaware limited partnership which operates as a commodity investment pool. The Partnership engages in the speculative trading of futures contracts and options on futures contracts. B. Regulation As a registrant with the Securities and Exchange Commission, the Partnership is subject to the regulatory requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934. As a commodity investment pool, the Partnership is subject to the regulations of the Commodity Futures Trading Commission, an agency of the U.S. government which regulates most aspects of the commodity futures industry; rules of the National Futures Association, an industry self-regulatory organization; and the requirements of commodity exchanges and Futures Commission Merchants (brokers) through which the Partnership trades. C. Method of Reporting The Partnership's financial statements are presented in accordance with accounting principles generally accepted in the United States of America, which require the use of certain estimates made by the Partnership's management. Transactions are accounted for on the trade date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts (the difference between contract trade price and quoted market price) are reflected in the statement of financial condition as a net gain or loss, as there exists a right of offset of unrealized gains or losses in accordance with Financial Accounting Standards Board Interpretation No. 39 - "Offsetting of Amounts Related to Certain Contracts." Any change in net unrealized gain or loss from the preceding period is reported in the statement of operations. For purposes of both financial reporting and calculation of redemption value, Net Asset Value Per Unit is calculated by dividing Net Asset Value by the total number of units outstanding. D. Brokerage Commissions Brokerage commissions include other trading fees and are charged to expense when contracts are opened. E. Income Taxes The Partnership prepares calendar year U.S. and applicable state information tax returns and reports to the partners their allocable shares of the Partnership's income, expenses and trading gains or losses. F. 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." H. Interim Financial Statements In the opinion of management, the unaudited interim financial statements reflect all adjustments, which were of a normal and recurring nature, necessary for a fair presentation of financial position as of March 31, 2005, and the results of operations for the three months ended March 31, 2005 and 2004. Note 2. GENERAL PARTNER --------------- The General Partner of the Partnership is ProFutures, Inc., which conducts and manages the business of the Partnership. The Limited Partnership Agreement requires the General Partner and/or its principals and affiliates to maintain capital accounts equal to at least 1% of the total capital of the Partnership. At March 31, 2005 and December 31, 2004, the capital accounts of the General Partner and/or its principals and affiliates totaled $569,808 and $608,685, respectively. The Limited Partnership Agreement was amended effective February 16, 1999 and generally requires that the General Partner maintain a net worth of up to $1,000,000. Effective October 22, 2004, ProFutures, Inc. has a callable stock subscription agreement with Man Financial Inc. (MFI), the Partnership's broker, whereby MFI has subscribed to purchase (up to $7,000,000, subject to conditions set forth in the stock subscription agreement dated October 22, 2004) the number of shares of common stock of ProFutures, Inc. necessary to maintain the General Partner's net worth requirements. Prior to October 22, 2004, ProFutures, Inc. had a callable stock subscription agreement with ABN AMRO Incorporated (ABN), the Partnership's prior broker, whereby ABN had subscribed to purchase (up to $7,000,000, subject to the conditions set forth in the stock 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 equal to 1/6 of 1% (2% annually) of month-end Net Assets (as defined in the Limited Partnership Agreement). Total management fees earned by ProFutures, Inc. for the three months ended March 31, 2005 and 2004 were $35,007 and $43,814, respectively. Management fees payable to ProFutures, Inc. as of March 31, 2005 and December 31, 2004 were $11,399 and $12,695, respectively. Note 3. COMMODITY TRADING ADVISORS -------------------------- The Partnership has advisory contracts with several commodity trading advisors to furnish investment management services to the Partnership. Certain advisors receive management fees equal to 1% 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). Total management fees earned by the trading advisors for the three months ended March 31, 2005 and 2004 amounted to $11,855 and $12,687, respectively. Note 4. DEPOSITS WITH BROKER -------------------- The Partnership deposits funds with MFI (ABN prior to October 2004) to act as broker, subject to Commodity Futures Trading Commission regulations and various exchange and broker requirements. The Partnership earns interest income on its assets deposited with the broker. At March 31, 2005 and December 31, 2004, the initial margin requirement of $1,410,561 and $2,049,867, respectively, is satisfied by the deposit of cash with the applicable broker. Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS -------------------------------------------- Investments in the Partnership were made by subscription agreement, subject to acceptance by the General Partner. Effective November 2000, the Partnership is closed to new investment; however, the General Partner may reopen the Partnership to new investments in the future. The Partnership is not required to make distributions, but may do so at the sole discretion of the General Partner. A Limited Partner may require the Partnership to redeem any or all of such Limited Partner's units at Net Asset Value as of the close of business on the last day of any month upon advance written notice to the General Partner. The Limited Partnership Agreement contains a complete description of the Partnership's redemption policies and procedures. Note 6. TRADING ACTIVITIES AND RELATED RISKS ------------------------------------ The Partnership engages in the speculative trading of U.S. and foreign futures contracts and options on U.S. and foreign futures contracts (collectively, "derivatives"). The Partnership is exposed to both market risk, the risk arising from changes in the market value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract. Purchase and sale of futures and options on futures contracts requires margin deposits with the broker. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires a broker to segregate all customer transactions and assets from such broker's proprietary activities. A customer's cash and other property (for example, U.S. Treasury bills) deposited with a broker are considered commingled with all other customer funds subject to the broker's segregation requirements. In the event of a broker's insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than total cash and other property deposited. Open contracts generally mature within three months, however, the Partnership intends to close all contracts prior to maturity. At March 31, 2005, the latest maturity date for open contracts is March 2006. For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Partnership is exposed to a market risk equal to the notional contract value of futures contracts purchased and unlimited liability on such contracts sold short. As both a buyer and seller of options, the Partnership pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Partnership to potentially unlimited liability, and purchased options expose the Partnership to a risk of loss limited to the premiums paid. The Partnership has assets on deposit with a financial institution in connection with its cash management activities. In the event of a financial institution's insolvency, recovery of Partnership assets on deposit may be limited to account insurance or other protection afforded such deposits. The General Partner has established procedures to actively monitor market risk and minimize credit risk, although there can be no assurance that it will, in fact, succeed in doing so. The General Partner's basic market risk control procedures consist of continuously monitoring the trading activity of the various trading advisors, with the actual market risk controls being applied by the advisors themselves. The General Partner seeks to minimize credit risk primarily by depositing and maintaining the Partnership's assets at financial institutions and brokers which the General Partner believes to be creditworthy. The Limited Partners bear the risk of loss only to the extent of the market value of their respective investments and, in certain specific circumstances, distributions and redemptions received. Note 7. GUARANTEES ---------- In the normal course of business, the Partnership enters into contracts and agreements that contain a variety of representations and warranties and which provide general indemnifications. The Partnership's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Partnership that have not yet occurred. The Partnership expects the risk of any future obligation under these indemnifications to be remote. Note 8. FINANCIAL HIGHLIGHTS -------------------- The following information presents per unit operating performance data and other supplemental financial data for the three months ended March 31, 2005 and 2004. This information has been derived from information presented in the financial statements.

Total returns are calculated based on the change in value of a unit during the period. An individual partner's total returns and ratios may vary from the above total returns and ratios based on the timing of 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 period. Total trading gains (losses) 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 total trading gains (losses) per unit due to the timing of trading gains and losses during the period relative to the number of units outstanding. (2) Excludes incentive fees. (3) Not annualized. (4) Annualized. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Reference is made to Item 1, "Financial Statements." The information contained therein is essential to, and should be read in conjunction with, the following analysis. 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 highly liquid, such as cash and open futures and option contracts. It is possible that extreme market conditions or daily price fluctuation limits at exchanges could adversely affect the liquidity of open futures contracts. There are no restrictions on the liquidity of these assets except for amounts on deposit with the broker needed to meet margin requirements on open futures contracts. B. CAPITAL RESOURCES: Since the Partnership's business is the purchase and sale of various commodity interests, it will make few, if any, capital expenditures. The Partnership raises additional capital only through the sale of Units and trading profits (if any) and does not engage in borrowing. The Partnership sells no securities other than the Units. Effective November 2000, the Partnership is closed to new investment; however, the General Partner may reopen the Partnership to new investments in the future. C. RESULTS OF OPERATIONS: The Partnership's net income/net loss for the three months ended March 31, 2005 and 2004 totaled $(470,368) and $154,214, respectively. At March 31, 2005, partners' capital totaled $6,467,366, a net decrease of $(942,221) from December 31, 2004, due to redemptions of Units and a net loss for the three months ended March 31, 2005. At March 31, 2004, partners' capital totaled $8,522,749, a net decrease of $(426,383) from December 31, 2003, due to redemptions of Units exceeding net income for the three months ended March 31, 2004. First Quarter 2005 ----------------------- The first quarter was an especially volatile one for oil prices and for interest rates. Oil prices continue to climb, and then drop. Short-term interest rates climbed as the Fed continued its policy of raising short-term rates. The Partnership had a loss of 3.25% in January. For the month, the Partnership had gains in stock indices, interest rates and certain agricultural commodities. There were large losses in foreign currencies and metals, with smaller losses in energy. The Partnership had a loss of 1.80% in February. For the month, the Partnership had gains in stock indices, metals and energy. These gains were offset by large losses in agricultural commodities and bonds. The Partnership had a loss of 1.47% in March. For the month, the Partnership had large gains in energy, with only marginal gains in interest rates. There were losses in foreign currencies, agricultural commodities and metals. The Partnership ended the quarter with a loss. 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 loss of 1.79% in January 2004. There were gains in stock indexes, metals and energy. These were offset by losses in agricultural commodities, foreign currencies and interest rates. The Partnership had a gain of 1.92% in February 2004. There were large gains in stock indexes, with smaller gains in interest rates, metals, energy and grains. There were some losses in agricultural commodities and foreign currencies. The Partnership had a gain of 1.75% in March 2004. There were gains in metals, interest rates and equities, with smaller gains in certain agricultural commodities. There were some losses in energy and foreign currencies. Overall, the Partnership ended the quarter with a total return of 1.84%. The majority of the trading gains were in equities and metals and the largest loss was in foreign currencies. Market and Credit Risk ---------------------------- The General Partner has established procedures to actively monitor market risk and minimize credit risk, although there can be no assurance that it will, in fact, succeed in doing so. The General Partner's basic market risk control procedures consist of continuously monitoring the trading activity of the various advisors with the actual market risk controls being applied by the advisors themselves. The General Partner seeks to minimize credit risk primarily by depositing and maintaining the Partnership's assets at financial institutions and brokers which the General Partner believes to be creditworthy. 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. Due to the speculative nature of trading derivatives, the Partnership's income or loss from operations may vary widely from period to period. Management cannot predict whether the Partnership's future Net Asset Value per Unit will increase or experience a decline. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. D. POSSIBLE CHANGES: The General Partner reserves the right to terminate certain and/or engage additional trading advisors or change any of the Partnership's clearing arrangements. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable. Item 4. Controls and Procedures ProFutures, Inc., as General Partner of ProFutures Long/Short 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 quarterly 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 II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. (c) Pursuant to the Partnership's Limited Partnership Agreement, partners may redeem their Limited Partnership Units at the end of each calendar month at the then current Net Asset Value per Unit. The redemption of Units has no impact on the value of Units that remain outstanding, and Units are not reissued once redeemed. The following table summarizes the redemptions by partners during the three months ended March 31, 2005: MONTH UNITS REDEEMED NAV PER UNIT ----- -------------- ------------ January 31, 2005 62.1035 1,121.90 February 28, 2005 37.5770 1,101.72 March 31, 2005 332.3717 1,085.47 -------------- TOTAL 432.0522 ============== Item 3. Defaults Upon Senior Securities. Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits Exhibits filed herewith: 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. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PROFUTURES LONG/SHORT GROWTH FUND, L.P. (Registrant) May 13, 2005 By /s/ GARY D. HALBERT ------------ --------------------------------------------------- Date Gary D. Halbert, President and Director ProFutures, Inc. General Partner May 13, 2005 By /s/ DEBI B. HALBERT ------------ -------------------------------------------------- Date Debi B. Halbert, Chief Financial Officer, Treasurer and Director ProFutures, Inc. General Partner

PROFUTURES LONG/SHORT GROWTH FUND LP 10-Q