<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(x) Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Fee Required)
For the fiscal year ended: December 31, 1994
or
( ) Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
(No Fee Required)
Commission file number: 0-15298
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Delaware 13-3365950
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o ML Futures Investment Partners Inc.
Merrill Lynch World Headquarters
World Financial Center
South Tower, 6th Fl., New York, NY 10080-6106
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(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 236-4161
--------------
Securities registered pursuant
to Section 12(b) of the Act: None
Securities registered pursuant
to Section 12(g) of the Act: Limited Partnership Units
-------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The registrant is a limited partnership and, accordingly, has no voting stock
held by nonaffiliates or otherwise.
Documents Incorporated By Reference
The registrant's "1994 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 1994,
and the registrant's Prospectus dated October 27, 1986 are hereby incorporated
by reference into Parts II and IV, respectively, of this Form 10-K.
<PAGE>
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
Annual Report for 1994 on Form 10-K
Table of Contents
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<TABLE>
<CAPTION>
PART I
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PAGE
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<S> <C> <C>
Item 1. Business 1
Item 2. Properties 3
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Holders 3
PART II
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Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters 3
Item 6. Selected Financial Data 4
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations 4
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 10
PART III
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Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners
and Management 13
Item 13. Certain Relationships and Related Transactions 13
PART IV
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Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 15
</TABLE>
<PAGE>
PART I
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Item 1: Business
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(a) General Development of Business:
-------------------------------
The Futures Expansion Fund Limited Partnership (the "Partnership" or
the "Fund") was organized under the Delaware Revised Uniform Limited Partnership
Act on August 13, 1986. Its initial public offering of units of limited
partnership interest ("Units") commenced on October 27, 1986, and the
Partnership began commodity futures, forwards and options trading on January 2,
1987 through a Joint Venture (the "Joint Venture") with and under the direction
of Millburn Ridgefield Corporation ("Millburn Ridgefield" or the "Trading
Manager"). Millburn Ridgefield is a Delaware corporation registered with the
Commodity Futures Trading Commission ("CFTC") as a commodity trading advisor,
commodity pool operator and futures commission merchant. The Partnership,
through the Joint Venture, engages in the speculative trading of commodity
futures, forward and options contracts on currencies, financial instruments,
stock indices, metals, and energy and agricultural products.
From its inception through January 30, 1990, the Partnership's general
partner was Merrill Lynch Options/Futures Management Inc. Merrill Lynch
Options/Futures Management Inc. changed its name on January 30, 1990 to ML
Futures Investment Partners Inc. References herein to the "General Partner" are
to Merrill Lynch Options/Futures Management Inc. for the period prior to January
30, 1990 and to ML Futures Investment Partners Inc. ("MLFIP") for the period on
or after January 30, 1990. The General Partner is currently a wholly-owned
subsidiary of Merrill Lynch Group Inc., which in turn is a wholly-owned
subsidiary of Merrill Lynch & Co., Inc. The Joint Venture's commodity broker is
Merrill Lynch Futures Inc., (the "Commodity Broker" or "MLF"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc.
The General Partner has invested 1% of the total contributions of the
Partnership as a General Partner and must maintain this balance as long as it
remains General Partner of the Partnership.
(b) Financial Information about Industry Segments:
---------------------------------------------
The Partnership's business constitutes only one segment for financial
reporting purposes, i.e., a speculative "commodity pool."
(c) Narrative Description of Business:
---------------------------------
The Joint Venture Agreement between the Partnership and the Trading
Manager may be terminated by the General Partner, acting on behalf of the
Partnership, under certain circumstances involving, for example, substantial
losses or changes in control of the Trading Manager. The termination of the
Joint Venture Agreement would not terminate the Partnership, but would require
the General Partner to make other advisory arrangements for the Partnership.
The Joint Venture Agreement has been renewed for an additional twelve-month
period and shall terminate on December 31, 1995 unless further renewed.
The Partnership is a speculative commodity pool and, as such, the
success of its operations depends entirely upon the profitability of its trading
1
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as directed by the trading advisor or advisors in charge of managing the
Partnership's assets from time to time. Since the Partnership's inception, the
Trading Manager has served in this capacity.
The Trading Manager's trading method is proprietary and confidential.
This method is technical and systematic in nature and is subject to ongoing
development and adjustment. The Trading Manager also applies certain money
management principles, including limiting trading to markets which it believes
to be adequately liquid, diversifying positions among various different futures
and forward contracts, and limiting the percentage of assets committed to margin
at any one time, generally to within 15% to 45% of overall net assets.
Although the Trading Manager's method is primarily systematic, it
involves the exercise of judgment by its personnel on such matters as which
markets to trade, the size of positions to be taken and the techniques used for
executing trades. In addition, the Trading Manager may engage in "spread and
straddle" trading which may or may not involve the technical trend analysis
basic to the Trading Manager's systematic method.
In connection with trading in foreign currency contracts, the Joint
Venture contracts with a bank or dealer to make or take future delivery of a
specified lot of a particular currency for the Joint Venture's account. Such
forward contracting may involve somewhat less protection against defaults than
trading on domestic commodity exchanges as these contracts are not regulated by
the CFTC and are not guaranteed by an exchange or its clearinghouse.
Consequently, the failure of Merrill Lynch International Bank ("MLIB"), or any
other bank with whom the Joint Venture has forward contracted, would likely
result in a default.
The Trading Manager also engages in trading on commodity exchanges
outside the United States on behalf of the Joint Venture. Trading on such
exchanges is not regulated by any United States government agency and may
involve certain risks not applicable to trading on United States exchanges.
Furthermore, as the Joint Venture determines its Net Asset Value in United
States dollars, with respect to trading on foreign markets the Joint Venture is
subject to the risk of fluctuations in the exchange rate between the local
currency and dollars and to the possibility of exchange controls.
The General Partner, the Trading Manager and Merrill Lynch Futures
Inc. are each subject to regulation by the CFTC and National Futures
Association. Other than in respect of its initial public offering and period
reporting requirements, the Partnership is generally not subject to regulation
by the Securities and Exchange Commission.
(i) through (xii) -- not applicable.
(xiii) The Partnership has no employees.
(d) Financial Information about Foreign and Domestic Operations Export
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Sales:
-----
The Partnership does not engage in material operations in foreign
countries (although it does trade on certain foreign exchanges), nor is a
material portion of the Partnership's revenues derived from customers in foreign
countries.
2
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Item 2: Properties
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The Partnership does not use any physical properties in the conduct of
its business.
The Partnership's principal place of business is the principal place of
business of the General Partner (see Item 10 herein), and the principal place of
business of the Joint Venture, through which the Partnership trades, is in
Ridgefield, Connecticut. The General Partner performs all administrative
services for the Partnership from its offices.
Item 3: Legal Proceedings
-----------------
The General Partner is not aware of any pending legal proceedings to
which the Partnership or the Joint Venture is a party.
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Partnership has never submitted any matters to a vote of its
Limited Partners.
PART II
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Item 5: Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
(a) Market Information:
------------------
There is no established public trading market for the Units, nor
will one develop. Rather, Limited Partners may redeem Units as of the end of
each month at Net Asset Value.
(b) Holders:
-------
As of December 31, 1994, there were 506 holders of Units,
including the General Partner.
(c) Dividends:
---------
The Partnership has made no distributions since trading commenced,
nor does the General Partner presently intend to make any such distributions in
the future.
3
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Item 6: Selected Financial Data
-----------------------
The following is a summary of selected consolidated financial data of
the Partnership:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Realized gain (loss) $2,206,016 $ 369,871 $ 3,222,430 $ (602,041) $7, 889,956
Change in unrealized
(loss) gain (891,323) 1,010,906 (1,250,488) 1,042,707 (664,191)
Interest income 290,482 216,417 266,889 516,060 938,810
---------- ---------- ----------- ----------- -----------
Total revenue 1,605,175 1,597,194 2,238,831 956,726 8,164,575
Expenses:
Brokerage commissions 1,056,436 1,196,550 1,239,484 1,383,678 1,803,295
Allocation of new profit share 119,420 83,410 187,260 -0- 1,132,217
---------- ---------- ----------- ----------- -----------
Total Expenses 1,175,856 1,279,960 1,426,744 1,383,678 2,935,512
---------- ---------- ----------- ----------- -----------
Net income (loss) $ 429,319 $ 317,234 $ 812,087 $ (426,952) $ 5,229,063
========== ========== =========== =========== ===========
Total assets $9,155,701 $9,936,486 $10,627,856 $11,496,970 $15,124,482
Total partners' capital $8,863,340 $9,610,371 $10,291,312 $11,233,427 $13,613,793
Net Asset Value per Unit $195.94 $185.64 $179.60 $164.41 $167.42
</TABLE>
Item 7: Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
--------------------
Operational Overview:
--------------------
Due to the nature of the Fund's business, its results of operations
depend on the Trading Manager's ability to recognize and capitalize on trends or
other profitable opportunities in futures and forward contracts and related
options in different sectors of the world commodity markets. However, the
Trading Manager's methods are confidential, therefore, the only information that
can be furnished regarding the Fund's results of operations is contained in the
performance record of its trading. Unlike many businesses, general economic or
seasonal conditions will not necessarily affect the profit potential of the
Fund, and its past performance is not necessarily indicative of future results.
Liquidity:
---------
From January 1, 1990 to April 30, 1990, substantially all of the
Joint Venture's assets were held in U.S. Treasury bills, which were used to
margin its futures positions and were liquidated, as necessary, to pay trading
losses when incurred. The Partnership has entered into an arrangement with
Merrill Lynch Futures Inc. regarding the maintenance of the Partnership's
assets, which eliminates the interest loss resulting from being unable to invest
100% of the Partnership's available assets in U.S. Treasury bills. Under the
arrangement, the Partnership's assets are ordinarily deposited in cash accounts
rather than invested in U.S. Treasury bills and Merrill Lynch Futures Inc.
credits the Partnership with interest as if 100% of its cash assets were
continuously invested in 91-day U.S. Treasury bills. As a result, the
Partnership is able to earn a yield on all of its available assets. In the event
that the
4
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Partnership's assets are deposited as initial margin at an exchange
clearinghouse, such assets will be invested in U.S. Treasury bills, and any
interest earned on such Treasury bills will be paid to the Partnership.
In respect of its trading on foreign exchanges, the Fund may deposit
margin in the form of short-term sovereign debt instruments issued by the
country where such exchange is located.
The futures contracts in which the Joint Venture trades may become
illiquid under certain market conditions. Commodity exchanges limit
fluctuations in futures prices during a single day by regulations referred to as
"daily limits." During a single day, no trades may be executed at prices beyond
the daily limit. Once the price of a futures contract for a particular
commodity has increased or decreased by an amount equal to the daily limit,
positions in the commodity can generally neither be taken nor liquidated unless
traders are willing to effect trades at or within the limit. Futures contracts
have occasionally moved the daily limit for several consecutive days with little
or no trading. Such market conditions could prevent the Joint Venture from
promptly liquidating its futures (including its options) positions. There are
no limitations on the daily price moves in trading foreign currency forward
contracts through banks, although illiquidity may develop in the forward markets
due to exorbitant spreads between "bid" and "ask" prices quoted. (Forward
contracts are the bank version of currency futures contracts and are not traded
on exchanges.)
Capital Resources:
-----------------
The Fund does not have, nor does it expect to have, any capital assets and
has no material commitments for capital expenditures. The Fund's use of assets
is solely to supply the necessary margin or premiums for, and to pay any losses
incurred in connection with, its trading activity and to pay redemptions and
fees. Due to the nature of the Fund's business, substantially all its assets
will be represented by either cash or futures or forward contract positions.
Inflation is not a significant factor in the Fund's profitability, although
inflationary cycles give rise to the type of major price movements which can
have a material impact on the Fund's profitability.
1994:
----
Total consolidated assets of the Partnership and consolidated partners'
capital at December 31, 1994 were $9,155,701 and $8,863,340, respectively. The
Partnership permits Units to be redeemed on a monthly basis. During 1994, 6,535
Units were redeemed for an aggregate redemption value of $1,176,350.
1993:
----
Total consolidated assets of the Partnership and consolidated partners'
capital at December 31, 1993 were $9,936,486 and $9,610,371, respectively.
During 1993, 5,531 Units were redeemed for an aggregated redemption value of
$998,175.
1992:
----
Total consolidated assets of the Partnership and consolidated partners'
capital at December 31, 1992 were $10,627,856 and $10,291,312, respectively.
During 1992, 11,025 Units were redeemed for an aggregated redemption value of
$1,754,202.
5
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Results of Operations - General:
-------------------------------
Throughout 1994, several of the traditional commodity markets presented
unusual profit opportunities which were offset by a very difficult trading
environment in the global bond and currency markets. For example, while
commodity markets such as coffee, corn and copper experienced dramatic moves,
the determination of the U.S. Federal Reserve to combat inflation by raising
interest rates exacerbated the decline in the U.S. bond market, and a weakened
U.S. dollar resulted in market volatility and uncertainty.
As 1993 drew to a close many research analysts stated that it was a
constructive year for commodities from both a price performance and volume
perspective. For the first time in a long while, strong profit opportunities
were witnessed in the agricultural and metals markets, while the financial
instruments and currency markets, that have historically generated profitable
trends, continued to do so. 1992, however, was a difficult year as choppy
markets were characterized by a lack of any sustained trends.
Unlike many businesses, it is difficult to identify "trends" in the
Fund's operations and virtually impossible to make any predictions regarding
future results based on results to date. In general, markets in which sustained
price trends occur with some frequency tend to be favorable to managed futures
investments, but this is not always the case. It is impossible to predict when
trending markets will occur and the Trading Manager is affected differently by
trends in general and particular types of trends. Consequently, the results of
operations of the Fund are difficult to discuss other than in terms of how it
has performed in the past.
Monthly Performance:
-------------------
Fiscal 1994 was the Partnership's seventh year of operation.
At December 31, 1994, the Net Asset Value per Unit was $195.94, a 5.55%
increase from the Net Asset Value per Unit of $185.64 at December 31, 1993.
During January 1994, the Fund's Net Asset Value decreased 7.9%, as trading
profits generated in the energy and metals sectors were offset by trading losses
in the currencies, interest rates, agriculture and stock indices sectors.
During February 1994, the Fund's Net Asset Value decreased 1.6%, as
trading profits generated in the interest rates, agriculture, stock indices and
metals sectors were offset by trading losses in the currencies and energy
sectors.
During March 1994, the Fund's Net Asset Value increased 6.7%, as trading
profits generated in the interest rates, currencies, stock index and agriculture
sectors were offset by trading losses in the energy and metals sectors.
During April 1994, the Fund's Net Asset Value decreased 2.6%, as trading
profits generated in the interest rates sector were offset by trading losses in
the currencies, metals, agriculture, stock indices and energy sectors.
6
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During May 1994, the Fund's Net Asset Value increased 4.4%, as trading
profits generated in the agriculture, metals, energy, interest rates and stock
indices sectors were offset by trading losses in the currencies sector.
During June 1994, the Fund's Net Asset Value increased 5.1%, as trading
profits generated in the currencies, metals and energy sectors were offset by
trading losses in the interest rates and agriculture sectors.
During July 1994, the Fund's Net Asset Value decreased 3.0%, as trading
profits generated in the energy and metals sectors were offset by trading losses
in the interest rates, currencies, stock indices and agriculture sectors.
During August 1994, the Fund's Net Asset Value decreased 6.2%, as trading
profits generated in the energy sector were offset by trading losses in the
currencies, interest rates, agriculture and stock indices sectors.
During September 1994, the Fund's Net Asset Value increased 3.1%, as
trading profits were generated in all sectors of the Fund: currencies, stock
indices, energy, agriculture, interest rates and metals.
During October 1994, the Fund's Net Asset Value increased 2.4%, as trading
profits generated in the currencies and metals sectors were offset by trading
losses in the interest rates, energy, stock indices and agriculture sectors.
During November 1994, the Fund's Net Asset Value increased 4.4%, as
trading profits generated in the agriculture, metals, interest rates, stock
indices and metals sectors were offset by trading losses in the currency sector.
During December 1994, the Fund's Net Asset Value increased 9.4%, as
trading profits generated in the metals, interest rates, agriculture and energy
sectors were offset by trading losses in the currencies and stock indices
sectors.
The Partnership's overall operations were profitable in 1994 as gross
trading gains of $1,314,693, after operating expenses of $1,175,856 (composed of
brokerage commissions of $1,056,436 and profit shares of $119,420) and interest
income of $290,482, resulted in net income of $429,319.
During the 12 months of 1994, the Fund experienced seven profitable months
and five unprofitable months of trading operations.
The Net Asset Value of a Unit purchased on January 2, 1987 for $100 had
increased to $195.94 as of December 31, 1994.
Fiscal 1993 was the Partnership's seventh year of operation.
At December 31, 1993, the Net Asset Value per Unit was $185.64, a 3.36%
increase from the Net Asset Value per Unit of $179.60 at December 31, 1992.
7
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During January 1993, the Fund's Net Asset Value declined 3.1%, as trading
profits generated in the interest rates sector were offset by trading losses in
the energy and currency sectors.
During February 1993, the Fund's Net Asset Value increased by 5.1%, as
trading profits generated in the interest rates sector were offset by narrowly
unprofitable trading losses in the stock indices and energy sectors.
During March 1993, the Fund's Net Asset Value decreased less than 1%, as
trading profits generated in the sugar, energy and stock indices sectors were
offset by trading losses in grains and interest rates.
During April 1993, the Fund's Net Asset Value increased 5.2%, as trading
profits generated in the currencies and metals sectors were offset by narrowly
unprofitable trading losses in the interest rates and agriculture sectors.
During May 1993, the Fund's Net Asset Value decreased 2.3%, as trading
profits generated in the metals sector were offset by trading losses in the
interest rates, energy, currencies, agriculture and stock indices sectors.
During June 1993, the Fund's Net Asset Value decreased 3.2%, as trading
profits generated in the energy and interest rates sectors were offset by
trading losses in the currencies, stock indices and metals sectors.
During July 1993, the Fund's Net Asset Value increased 4.3%, as trading
profits generated in the currencies, agriculture, interest rate, metals and
energy sectors were offset by essentially flat trading results in the stock
indices sectors.
During August 1993, the Net Asset Value of the Fund decreased 8.2%, as
trading profits generated in the interest rates and stock indices sectors were
offset by trading losses in the currency, metals, energy and agriculture
sectors.
During September 1993, the Net Asset Value of the Fund increased slightly
as trading profits from the currencies, interest rates and metal sectors were
offset by trading losses in the energy and agriculture sectors.
During October 1993, the Net Asset Value of the Fund decreased 1.8%, as
trading profits generated in the interest rates, stock indices and energy
sectors were offset by trading losses in the currencies, metals and agriculture
sectors.
During November 1993, the Net Asset Value of the Fund increased 1.2%, as
trading profits generated in the stock indices, energy and interest rate sectors
were offset by trading losses in the metals and currencies sectors.
During December 1993, the Net Asset Value of the Fund increased 7.7%, as
trading profits were generated in all sectors of the Fund: interest rates,
currencies, metals, energy, agriculture and stock indices.
8
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The Partnership's overall operations were profitable in 1993 as gross
trading gains of $1,380,777, after operating expenses of $1,279,960 (composed of
brokerage commissions of $1,196,550 and profit shares of $83,410) and interest
income of $216,417, resulted in net income of $317,234.
During the 12 months of 1993, the Fund experienced six profitable months
and six unprofitable months of trading operations.
The Net Asset Value of a Unit purchased on January 2, 1987 for $100 had
increased to $185.64 as of December 31, 1993.
Fiscal 1992 was the Partnership's sixth year of operation.
At December 31, 1992, the Net Asset Value per Unit was $179.60, a 9.24%
increase from the Net Asset Value per Unit of $164.41 at December 31, 1991.
During January 1992, the Fund's Net Asset Value decreased 9.3 %, as
trading losses were experienced in the energy, currencies, interest rates,
energy, stock indices and agriculture sectors.
During February 1992, the Fund's Net Asset Value decreased 2.0%, as
trading profits generated in the metals, agriculture and stock indices sectors
were offset by trading losses in the currencies, interest rates and energy
sectors.
During March 1992, the Fund's Net Asset Value decreased 1.2%, as trading
profits generated in the interest rates sector were offset by trading losses in
the agriculture sector.
During April 1992, the Fund's Net Asset Value decreased 1.1%, as trading
profits generated in the energy, agriculture, metals and stock indices sectors
were offset by trading losses in the interest rates and currencies sectors.
During May 1992, the Fund's Net Asset Value remained essentially flat, as
trading profits generated in the currencies and energy sectors were offset by
trading losses in the interest rates, metals, agriculture and stock indices
sectors.
During June 1992, the Fund's Net Asset Value increased 13.7%, as
significant trading profits were generated in the currencies sector.
During July 1992, the Fund's Net Asset Value increased 8.1%, as
significant trading profits were generated in the currencies, interest rates and
metals sectors.
During August 1992, the Net Asset Value of the Fund increased by 6.4%, as
significant trading profits were generated in the currencies sector.
During September 1992, the Net Asset Value of the Fund decreased less than
1%, as trading profits from the energy and metals sectors were offset by trading
losses in the interest rates, stock index and agriculture sectors.
9
<PAGE>
During October 1992, the Net Asset Value of the Fund decreased 4.0%, as
trading profits generated in the metals and agriculture sectors were offset by
trading losses in the currencies, energy and interest rates sectors.
During November 1992, the Net Asset Value of the Fund increased 1.9%, as
trading profits generated in the currency and energy sectors were offset by
trading losses in the interest rates, stock indices, metals and agriculture
sectors.
During December 1992, the Net Asset Value of the Fund decreased 1.3%, as
trading profits in the metals and currencies sectors were offset by trading
losses in the interest rates and stock indices sectors.
The Partnership's overall operations were profitable in 1992 as gross
trading gains of $1,971,942, after operating expenses of $1,426,744 (composed of
brokerage commissions of $1,239,484 and profit shares of $187,260) and interest
income of $266,889, resulted in net income of $812,087.
During the 12 months of 1992, the Fund experienced four profitable months
and seven unprofitable months and one flat month of trading operations.
The Net Asset Value of a Unit purchased on January 2, 1987 for $100 had
increased to $179.60 as of December 31, 1992.
MLFIP anticipates that the Fund will from time to time undergo
unprofitable cycles of comparable, or perhaps even longer, duration, as it has
since the inception of trading and that doing so is not necessarily inconsistent
with the Fund ultimately achieving its long-term goals.
Item 8: Financial Statements and Supplementary Data
-------------------------------------------
The financial statements required by this Item are included on pages E-1
through E-9.
The supplementary financial information ("selected quarterly financial
data" and "information about oil and gas producing activities") specified by
Item 302 of Regulation S-K is not applicable.
Item 9: Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
There were no changes in or disagreements with accountants on accounting
and financial disclosure.
10
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PART III
--------
Item 10: Directors and Executive Officers of the Registrant
--------------------------------------------------
(a,b) Identification of Directors and Executive Officers:
--------------------------------------------------
As a limited partnership, the Partnership itself has no officers or
directors and is managed by the General Partner. Trading decisions are made on
behalf of the Partnership, through the Joint Venture, by the Trading Manager.
ML Futures Investment Partners Inc., a Delaware corporation, was
organized in 1986 in order to serve as the general partner of commodity pools
for which Merrill Lynch, Pierce, Fenner & Smith Incorporated acts as selling
agent. The principal offices of the General Partner are located at Merrill Lynch
World Headquarters, 6th Floor, South Tower, World Financial Center, New York,
New York 10080-6106; telephone (212) 236-4161.
The directors and officers of the General Partner, and their titles as
of December 31, 1994, are as follows:
Joseph A. Boccuzzi Chairman, Chief Executive Officer and Director
John R. Frawley, Jr. President, Chief Operating Officer and Director
James M. Bernard Chief Financial Officer, Treasurer, and Vice
President
William T. Maitland Secretary and Director
Allen N. Jones Director
Joseph A. Boccuzzi was born in 1945. Mr. Boccuzzi is the Chairman, Chief
Executive Officer and a Director of the General Partner. He joined Merrill
Lynch, Pierce, Fenner & Smith Incorporated in 1972 and has served in various
marketing and sales positions with the firm in options, futures and equity
products. Mr. Boccuzzi currently serves on several options and futures advisory
committees for the commodity and securities industry and for various exchanges.
He holds a Bachelor of Science degree in finance from Rider College.
John R. Frawley, Jr. was born in 1943. Mr. Frawley is President, Chief
Operating Officer and a Director of MLFIP. He joined Merrill Lynch, Pierce,
Fenner & Smith in 1966 and has served in various positions, including Retail and
Institutional Sales, Manager of New York Institutional Sales, Director of
Institutional Marketing, Senior Vice President of Merrill Lynch Capital Markets
and Director of International Institutional Sales. Mr. Frawley holds a Bachelor
of Science degree from Canisius College. Since its formation in 1990, Mr.
Frawley has served on the CFTC's Regulatory Coordination Advisory Committee. In
January 1995, Mr. Frawley was elected to a one-year term as Chairman of the
Managed Futures Association, the national trade association of the United States
managed futures industry. Mr. Frawley is also currently a Director of the
Managed Futures Association.
James M. Bernard was born in 1950. Mr. Bernard is Vice-President,
Treasurer and Chief Financial Officer of the General Partner. He joined Merrill
Lynch Futures Inc. in 1983. Prior to such time, he was the Commodity Controller
for Nabisco Brands Inc. from November 1976 to 1982 and a Supervisor in Ernst &
Whinney from 1972 to November 1976. Mr. Bernard is a member of the American
Institute of Certified Public Accountants and holds
11
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a Bachelor of Science degree from St. John's University and Master of Business
Administration degree from Fordham University.
William T. Maitland was born in 1949. From its inception in August 1986
through June 1, 1988, Mr. Maitland was the Secretary and a Director of the
General Partner and, on August 15, 1992, he once again assumed these positions.
Mr. Maitland is the General Counsel for Futures & Options for Merrill Lynch,
Pierce, Fenner & Smith Incorporated, a position he has held since November 1990,
and is a member of the Board of Directors of Merrill Lynch Futures. In 1971, Mr.
Maitland graduated with a Bachelor of Arts degree from Fordham University where
his field of concentration was economics. In 1974, he received his Juris Doctor
degree from Fordham Law School. Mr. Maitland joined Merrill Lynch, Pierce,
Fenner & Smith Incorporated in 1979. Mr. Maitland is a past president of the
Executive Committee of the Law & Compliance Division of the Futures Industry
Association and a member of the Committee on Commodities Regulation of the
Association of the Bar of the City of New York.
Allen N. Jones was born in 1942. Mr. Jones graduated from the University
of Arkansas with a Bachelor of Science, Business Administration degree in 1964.
Since June 1992, Mr. Jones has held the position of Senior Vice President of
MLPF&S. From June 1992 through February 1994, Mr. Jones was the President and
Chief Executive Officer of Merrill Lynch Insurance Group, Inc. ("MLIG") and
remains on the Board of Directors of MLIG and its subsidiary companies. In
February 1994, Mr. Jones became the Director of Individual Financial Services of
the Merrill Lynch Private Client Group. From January 1992 to May 1992, he held
the position of First Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. From January 1990 to June 1992, he held the position of District
Director of Merrill Lynch, Pierce, Fenner & Smith Incorporated. Prior to January
1990, he held the position of Senior Regional Vice President of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
(c) Identification of Certain Significant Employees:
-----------------------------------------------
None. The Trading Manager directs the trading activities of the
Partnership through the Joint Venture.
(d) Family Relationships:
--------------------
None.
(e) Business Experience:
-------------------
See Item 10(a)(b) above.
(f) Involvement in Certain Legal Proceedings:
----------------------------------------
None.
(g) Promoters and Control Persons:
------------------------------
The General Partner is the sole promoter and controlling person of the
Partnership.
12
<PAGE>
Item 11: Executive Compensation
----------------------
The officers of the General Partner are remunerated in their respective
positions. The Partnership does not itself have any officers, directors or
employees. The Partnership pays brokerage commissions to an affiliate of the
General Partner. The directors and officers receive no "other compensation"
from the Partnership, and the directors receive no compensation for serving as
directors of the General Partner. There are no compensation plans or
arrangements relating to a change in control of either the Partnership or the
General Partner.
Item 12: Security Ownership of Certain Beneficial Owners and Management:
--------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners:
-----------------------------------------------
As of December 31, 1994, no person or "group" is known to be or
have been the beneficial owner of more than five percent of the Units. All of
the Partnership's units of general partnership interest are owned by the General
Partner.
(b) Security Ownership of Management:
--------------------------------
As of December 31, 1994, the Trading Manager owned 1,026 Units and
the General Partner owned 518 Unit equivalents. This represents, on a combined
basis, less than 3.5% of the total Units outstanding.
(c) Changes in Control
------------------
None.
Item 13: Certain Relationships and Related Transactions
----------------------------------------------
(a) Transactions with Management and Others:
---------------------------------------
The General Partner performs certain services for the Partnership,
which include selecting a trading manager to make trading decisions for the
Partnership through the Joint Venture, managing the Joint Venture and providing
for all normal ongoing administrative functions of the Partnership, such as
accounting, legal and printing services. The General Partner pays all expenses
relating to such services, including all such expenses of the Joint Venture, at
no cost to the Partnership. The monthly brokerage commission rate paid by the
Joint Venture to the Commodity Broker was 1% (12% annually). This rate was
reduced to 11.92% annually during 1993. The General Partner estimates that the
round-turn equivalent commission rate charged to the Joint Venture during the
years ended December 31, 1994, 1993 and 1992 was approximately $33, $29 and $77,
respectively. The consulting fee rate paid by the commodity broker to the
Trading Manager is 0.33% (4% annually) of the Joint Venture's month-end Net
Assets.
(b) Certain Business Relationships:
------------------------------
Merrill Lynch Futures Inc. ("MLF"), an affiliate of the General
Partner, acts as Commodity Broker for the Joint Venture at the selection of the
General Partner. The General Partner will not negotiate for lower commissions
to be charged to the Joint Venture and the commissions charged to the Joint
Venture have not been negotiated at arms' length between the General Partner and
its affiliate, Merrill Lynch Futures Inc.
13
<PAGE>
In 1994, the Joint Venture paid $1,056,436 in brokerage fees to
Merrill Lynch Futures Inc., which, in turn, paid $354,485 in consulting fees to
the Trading Manager.
The Partnership trades forward contracts through a Foreign Exchange
Desk (the "F/X Desk") that contacts at least two counterparties along with MLIB
for all the Partnership's currency trades. The F/X Desk charges a service fee
of one "pip" (at current exchange rates, no more than approximately $5.00 per
futures contract-equivalent; $7.00 per round-turn trade) on each currency
transaction. No service fee will be charged on any trades awarded to MLIB (on
which MLIB will receive "bid-asked" spreads). MLIB will be awarded trades only
if its price (without the service fee) is equal to or better than the best price
(including the service fee) offered by any of the other counterparties
contacted.
The F/X Desk will trade using credit lines provided by a Merrill Lynch
entity. The Partnership will not be required to margin or otherwise guarantee
the F/X Desk trading.
MLFIP expects that, in the near future, certain of the Fund's currency
trades will begin to be executed in the form of "exchange of futures for
physicals" ("EFP") transactions involving MLIB and MLF. In these transactions,
a spot or forward (collectively referred to as "cash") currency position is
acquired and exchanged for an equivalent futures position on the Chicago
Mercantile Exchange's International Monetary Market ("IMM"). EFP transactions
permit currency trades to be executed at a single price, as well as out of
exchange hours, and converted into IMM contracts. They also give Trading
Advisors flexibility as to whether to liquidate positions in the cash (i.e.,
spot or forward) or in the futures markets.
In its EFP trading with Merrill Lynch, the Fund will acquire cash
currency positions through MLFIP's F/X Desk in the same manner and on the same
terms as in the case of the Fund's other F/X Desk trading. When the Fund
exchanges these positions for futures, there will be a "differential" between
the prices of these two positions. This "differential" reflects, in part, the
different settlement dates of the cash and the futures contracts as well as
prevailing interest rates, but also includes a pricing spread in favor of MLIB
or another Merrill Lynch entity. These spreads are expected to total no more
than 0.15 of 1% of the Fund's average month-end Net Assets on an annual basis.
The Fund, to the extent that it has executed currency EFP transactions
in the past, has both acquired its cash positions and effected the exchange of
positions for futures contracts through brokers other than MLF (to which the
futures positions were ultimately given up to be cleared).
(c) Indebtedness of Management:
--------------------------
The Partnership is prohibited from making any loans.
(d) Transactions with Promoters:
---------------------------
Not applicable.
14
<PAGE>
PART IV
-------
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)1.Financial Statements:
--------------------
The following financial statements are included in the "1994
Annual Report and Independent Auditors' Report," a copy of which is filed
herein.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report E-3
Consolidated Statements of Financial Condition
as of December 31, 1994 and 1993 E-4
For the Years Ended December 31, 1994, 1993 and 1992:
- Consolidated Statements of Operations E-4
- Consolidated Statements of Changes in
Partners' Capital E-5
Notes to Consolidated Financial Statements E-6
</TABLE>
(a)2. Financial Statement Schedules:
-----------------------------
Financial statement schedules not included in this Form 10-K have
been omitted for the reason that they are not required or are not applicable or
that equivalent information has been included in the financial statements or
notes thereto.
(a)3. Exhibits:
--------
The following exhibits are incorporated by reference or are filed
herewith to this Annual Report on Form 10-K:
Designation Description
----------- -----------
1.01 Form of Selling Agreement among the Partnership, the General
Partner, Merrill Lynch Futures Inc., the Trading Manager, and the
Selling Agent
Exhibit 1.01: Is incorporated by reference from Exhibit 1.01 contained in
------------ Amendment No. l to the Registration Statement (File No. 33-8377)
filed on October 21, 1986 on Form S-l under the Securities Act of
1933.
3.01 Amended and Restated Limited Partnership Agreement of the
Partnership
Exhibit 3.01: Is incorporated by reference from Exhibit 3.0l contained in
------------ Amendment No. l to the Registration Statement (File No. 33-8377)
filed on October 21, 1986, on Form S-l under the Securities Act
of 1933.
3.02 Amendment No. 1 to the Amended and Restated Limited Partnership
Agreement dated March 1, 1990
15
<PAGE>
Exhibit 3.02: Is incorporated by reference from Exhibit 3.02 contained in the
------------ Partnership's report on Form 10-K for the fiscal year ended
December 31, 1989.
3.03 Amended and Restated Certificate of Limited Partnership, dated
March 1, 1990
Exhibit 3.03: Is incorporated by reference from Exhibit 3.03 contained in the
------------ Partnership's report on Form 10-K for the fiscal year ended
December 31, 1989.
10.01 Joint Venture Agreement, dated as of April 1, 1987
Exhibit 10.01: Is incorporated by reference from Exhibit 10.0l(a) contained in
------------- the Partnership's Form 10-K of December 31, 1987, filed on March
28, 1988.
10.02 Customer Agreement, dated as of April 1, 1987
Exhibit 10.02: Is incorporated by reference from Exhibit 10.03(a) contained in
------------- the Partnership's Form 10-K of December 31, 1987, filed on March
28, 1988.
10.03 Consulting Agreement, dated as of April 1, 1987
Exhibit 10.03: Is incorporated by reference from Exhibit 10.05(a) contained in
------------- the Partnership's Form 10-K of December 31, 1987 filed on March
28, 1988.
10.04 Amendment No. 2 to the Joint Venture Agreement, dated as of
December 31, 1987
Exhibit 10.04: Is incorporated by reference from Exhibit 10.04 contained in
------------- the Partnership's report on Form 10-K for the fiscal year ended
December 31, 1989.
10.05 Amendment No. 3 to the Joint Venture Agreement, dated as of
December 31, 1988
Exhibit 10.05: Is incorporated by reference from Exhibit 10.05 contained in the
------------- Partnership's report on Form 10-K for the fiscal year ended
December 31, 1989.
10.06 Amendment No. 4 to the Joint Venture Agreement, dated as of
December 31, 1989
Exhibit 10.06: Is incorporated by reference from Exhibit 10.06 contained in the
------------- Partnership's report on Form 10-K for the fiscal year ended
December 31, 1989.
10.07 Amendment No. 5 to the Joint Venture Agreement, dated as of
January 1, 1990
Exhibit 10.07: Is incorporated by reference from Exhibit 10.07 contained in the
------------- Partnership's Form 10-K of December 31, 1990, filed on March 27,
1991.
16
<PAGE>
10.08 Amendment No. 6 to the Joint Venture Agreement, dated as of
January 1, 1992
Exhibit 10.08: Is incorporated by reference from Exhibit 10.08 contained in the
------------- Partnership's report on Form 10-K for the Fiscal Year Ended
December 31, 1991.
10.09 Amendment No. 7 to the Joint Venture Agreement, dated as of
January 1, 1993
Exhibit 10.09: Is incorporated by reference from Exhibit 10.09 contained in the
------------- Partnership's report on Form 10-K for the Fiscal Year Ended
December 31, 1992.
10.10 Amendment No. 8 to the Joint Venture Agreement, dated as of
January 1, 1994
Exhibit 10.10: Is filed herewith.
-------------
13.01 1994 Annual Report and Independent Auditors' Report
Exhibit 13.01: Is filed herewith.
-------------
99.01 Prospectus of the Partnership dated October 27, 1986
Exhibit 99.01: Is incorporated by reference as filed with the Securities and
------------- Exchange Commission pursuant to Rule 424 under the Securities Act
of 1933, as amended, on October 31, 1986.
(b) Reports on Form 8-K:
-------------------
No report on Form 8-K was filed by the Partnership during the fourth
quarter of fiscal 1994.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
By: ML FUTURES INVESTMENT PARTNERS INC.
General Partner
By: /s/Joseph A. Boccuzzi
---------------------
Joseph A. Boccuzzi
Chairman, Chief Executive Officer and
Director (Principal Executive Officer)
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed on March 28, 1995 by the
following persons on behalf of the Registrant and in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/John R. Frawley, Jr. President and Chief Operating Officer March 28, 1995
------------------------- and Director
John R. Frawley, Jr.
/s/James M. Bernard Chief Financial Officer, Treasurer March 28, 1995
------------------------- (Principal Financial and Accounting
James M. Bernard Officer) and Vice President
/s/Joseph A. Boccuzzi Director March 28, 1995
-------------------------
Joseph A. Boccuzzi
/s/William T. Maitland Director March 28, 1995
-------------------------
William T. Maitland
/s/Allen N. Jones Director March 28, 1995
-------------------------
Allen N. Jones
</TABLE>
(Being the principal executive officer, the principal financial and accounting
officer and a majority of the directors of ML Futures Investment Partners Inc.)
ML FUTURES INVESTMENT General Partner of March 28, 1995
PARTNERS INC. Registrant
By:/s/Joseph A. Boccuzzi
---------------------
Joseph A. Boccuzzi
<PAGE>
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
1994 FORM 10-K
INDEX TO EXHIBITS
-----------------
EXHIBIT PAGE
------- ----
Exhibit 13.01 1994 Annual Report and Independent E-1
Auditors' Report
<PAGE>
EXHIBIT 13.01
THE FUTURES EXPANSION FUND
LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND JOINT VENTURE
Consolidated Financial Statements for the
Years Ended December 31, 1994, 1993 and 1992
and Independent Auditors' Report
<PAGE>
To: The Limited Partners of THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
The Futures Expansion Fund Limited Partnership (the "Fund") ended its seventh
fiscal year of trading on December 31, 1994 with a Net Asset Value ("NAV") per
Unit of $195.94, representing an increase of 5.6% from the December 31, 1993 NAV
per Unit of $185.64. During the fiscal year, profits generated in metals,
agriculture, energy and interest rates trading were partially offset by trading
losses in currencies and stock indices.
1994 presented one of the most challenging market environments we have faced
since the inception of ML Futures Investment Partners Inc. in 1986. Although
some of the traditional commodity markets, such as agriculture and energy,
offered exceptional trading opportunities, the currency and financial markets
presented quite another story. The determination of the U.S. Federal Reserve to
combat inflation by raising interest rates, coupled with a surprisingly weak
U.S. dollar, resulted in a high degree of volatility and uncertainty throughout
the year.
Although 1994 presented a difficult market environment, we feel the Fund's
trading results have been encouraging. Please be assured that we, as General
Partner and Trading Manager of the Fund, share your concerns about performance
and are working diligently with the Trading Advisor to meet the Fund's objective
of capital appreciation. We look forward to the new fiscal year and the trading
opportunities it may bring.
Sincerely,
ML FUTURES INVESTMENT PARTNERS INC.
(General Partner)
REPORT OF THE TRADING ADVISOR
Metals, soft commodities and energy trading each produced significant profits
during 1994. Non-currency financials were marginally profitable as well.
Meanwhile, currency trading and grain trading resulted in losses during the
year.
In the metals sector, the industrial metals were boosted significantly by the
economic expansion that encompassed the U.S., Latin America, non-Japan Asia, and
by year-end Western and Eastern Europe. Consequently, copper, aluminum and
nickel were highly profitable. Precious metals prices, however, (much like
currencies) were erratic without sustained trends, and, hence, produced losses
in 1994.
Amongst the soft commodities, coffee trading, in both New York and London, was
profitable. Sugar trading generated good gains, and cotton, an industrial soft
commodity, saw prices boosted by growth worldwide. Meanwhile, cocoa, orange
juice and lumber produced losses.
Interest rate and stock index futures were slightly profitable in 1994. Short
positions in Australian, French, German and U.S. long-term interest-rate futures
were profitable as bond rates
<PAGE>
pushed higher during much of the year. However, short term interest rate trading
produced losses. In stock index trading, small gains in the Standard and Poor's
500(R) Stock Index and Hong Kong Hang Seng index futures were offset by losses
in Japanese Nikkei index futures and the British Financial Times Stock Index.
The Fund's currency trading resulted in losses. The Japanese yen produced the
largest losses as some sharp erratic moves in the first half of the year were
followed by non-trending range trading during the last six months of 1994.
Cross rate trading was also a negative influence on performance last year.
Finally, trading of grains produced some losses. Beans, soybean oil, soybean
meal and corn markets had a negative effect on our results in 1994.
MILLBURN RIDGEFIELD CORPORATION
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. PAST RESULTS
ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE.
<PAGE>
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
(A Delaware Limited Partnership) AND JOINT VENTURE
-------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------------------------------------------------------
<S> <C>
Page
----
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1994, 1993 AND 1992:
Consolidated Statements of Financial Condition 2
Consolidated Statements of Income 3
Consolidated Statements of Changes in Partners' Capital 4
Notes to Consolidated Financial Statements 5-8
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Partners of
The Futures Expansion Fund Limited Partnership
We have audited the accompanying consolidated statements of financial condition
of The Futures Expansion Fund Limited Partnership (a Delaware limited
partnership) and its Joint Venture as of December 31, 1994 and 1993, and the
related consolidated statements of income and changes in partners' capital for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Futures Expansion Fund Limited
Partnership (a Delaware limited partnership) and its Joint Venture as of
December 31, 1994 and 1993, and the results of their operations for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
January 25, 1995
New York, New York
- 1 -
<PAGE>
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
(A Delaware Limited Partnership) AND JOINT VENTURE
-------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1994 AND 1993
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ASSETS
------
Cash on deposit at brokers $ 20,000 $ 20,000
Accrued interest (Note 3) 35,340 17,167
Equity in commodity futures trading accounts:
Cash and options contracts 8,929,212 8,836,847
Net unrealized gain on open contracts 171,149 1,062,472
---------- ----------
TOTAL $9,155,701 $9,936,486
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Brokerage commissions payable (Note 3) $ 90,793 $ 98,626
New profit share payable (Note 2) 122,596 86,588
Redemptions payable 78,972 140,901
---------- ----------
Total liabilities 292,361 326,115
---------- ----------
PARTNERS' CAPITAL:
General Partner (518 and 570 units) 101,500 105,815
Limited Partners (44,716 and 51,199 units) 8,761,840 9,504,556
---------- ----------
Total partners' capital 8,863,340 9,610,371
---------- ----------
TOTAL $9,155,701 $9,936,486
========== ==========
NET ASSET VALUE PER UNIT $195.94 $185.64
======= =======
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE>
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
(A Delaware Limited Partnership) AND JOINT VENTURE
-------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Trading profit (loss):
Realized $2,206,016 $ 369,871 $ 3,222,430
Change in unrealized (891,323) 1,010,906 (1,250,488)
---------- ---------- -----------
Total trading results 1,314,693 1,380,777 1,971,942
Interest income (Note 3) 290,482 216,417 266,889
---------- ---------- -----------
Total revenues 1,605,175 1,597,194 2,238,831
---------- ---------- -----------
EXPENSES:
Brokerage commissions 1,056,436 1,196,550 1,239,484
Allocation of new profit share
to trading manager 119,420 83,410 187,260
---------- ---------- -----------
Total expenses 1,175,856 1,279,960 1,426,744
---------- ---------- -----------
NET INCOME $ 429,319 $ 317,234 $ 812,087
========== ========== ===========
NET INCOME PER UNIT
OF PARTNERSHIP INTEREST:
Weighted average number of units
outstanding (Note 4) 48,226 54,981 62,118
====== ====== ======
Weighted average net
income per unit $8.90 $5.77 $13.07
===== ===== ======
See notes to consolidated financial statements.
</TABLE>
- 3 -
<PAGE>
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
(A Delaware Limited Partnership) AND JOINT VENTURE
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Units of
Partner-
ship Limited General
Interest Partners Partner Total
-------- -------- ------- -----
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
DECEMBER 31, 1991 68,325 $11,107,652 $125,775 $11,233,427
Redemptions (11,025) (1,754,202) - (1,754,202)
Net income - 800,465 11,622 812,087
------- ----------- -------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1992 57,300 10,153,915 137,397 10,291,312
Redemptions (5,531) (961,819) (36,356) (998,175)
Net Income - 312,460 4,774 317,234
------- ----------- -------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1993 51,769 9,504,556 105,815 9,610,371
Redemptions (6,535) (1,166,161) (10,189) (1,176,350)
Net income - 423,445 5,874 429,319
------- ----------- -------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1994 45,234 $ 8,761,840 $101,500 $ 8,863,340
======= ========== ======== ===========
See notes to consolidated financial statements.
</TABLE>
- 4 -
<PAGE>
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
(A Delaware Limited Partnership) AND JOINT VENTURE
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Futures Expansion Fund Limited Partnership (the "Partnership") was
organized under the Delaware Revised Uniform Limited Partnership Act on
August 13, 1986 and commenced activities on January 2, 1987. The
Partnership, through its joint venture, engages in the speculative trading of
commodity futures, options and forward contracts. ML Futures Investment
Partners Inc. (the "General Partner") (a wholly-owned subsidiary of Merrill
Lynch Group, Inc., which in turn is a wholly-owned subsidiary of Merrill
Lynch & Co., Inc.) invests for its account the lesser of $100,000 or 3% of
the total contributions to the Partnership, but in no event less than 1% of
such total contributions. The General Partner and each Limited Partner share
in the profits and losses of the Partnership in proportion to the amount of
Partnership interest owned by each.
The consolidated financial statements include the accounts of the Joint
Venture (the "Joint Venture") to which the Partnership has contributed
substantially all of its available capital (Note 2), representing a current
equity interest in the Joint Venture of approximately 99%. All related
transactions between the Partnership and the Joint Venture are eliminated in
consolidation.
Revenue Recognition
-------------------
Commodity futures, options and forward contract transactions are recorded on
the trade date and open contracts are reflected in the consolidated financial
statements at the market value on the last business day of the reporting
period. The difference between the original contract amount and market value
is reflected in income as an unrealized gain or loss. Market value or fair
value is based on quoted market prices. All commodity futures, options and
forward contracts are reflected at fair value in the financial statements.
Operating Expenses, Organization Costs and Selling Commissions
--------------------------------------------------------------
The General Partner paid all organization costs and provides for all routine
operating expenses of the Partnership, including the Partnership's share of
any such costs incurred by the Joint Venture (Note 2). No selling
commissions were paid by Limited Partners.
Income Taxes
------------
No provision for income taxes has been made in the accompanying consolidated
financial statements as each partner is individually responsible for
reporting income or loss based on their respective share of the Partnership's
income and expenses as reported for income tax purposes.
Redemptions
-----------
A Limited Partner may require the Partnership to redeem some or all of their
units at 100% of Net Asset Value as of the last business day of any month
upon ten days' written notice to the General Partner.
- 5 -
<PAGE>
Dissolution of the Partnership
------------------------------
The Partnership will terminate on December 31, 2006 regardless of its
financial condition at such time.
The Partnership will be dissolved upon a decline in net assets to less than
$250,000, a decline in the Net Asset Value per unit at any month-end to less
than $25, or under certain other circumstances defined in the Limited
Partnership Agreement.
2. JOINT VENTURE AGREEMENT
The Partnership and Millburn Partners entered into a Joint Venture Agreement
whereby Millburn Partners contributed $100,000 to the Joint Venture and the
Partnership contributed all of its available capital (except for an
administrative reserve). Subsequently, Millburn Partners entered into an
assignment with Millburn Ridgefield Corporation (the "Trading Manager"),
assigning its rights and obligations under the Joint Venture Agreement. The
Joint Venture Agreement was renewed for the year ended December 31, 1995.
The General Partner is the manager of the Joint Venture, while the Trading
Manager has sole discretion in determining the commodity futures, options and
forward trades to be made on its behalf, subject to the trading limitations
outlined in the Joint Venture Agreement.
Pursuant to the Joint Venture Agreement, the Trading Manager and the
Partnership share in the profits of the Joint Venture based on equity
ownership after 20% of annual New Trading Profits, as defined, are allocated
to the Trading Manager. Losses are allocated to the Trading Manager and the
Partnership based on equity ownership.
3. RELATED PARTY TRANSACTIONS
Substantially all of the Joint Venture's assets are held by MLF, as margin
deposits in respect of the Joint Venture's futures and options trading. The
Joint Venture pays MLF brokerage commissions at a flat rate equal to 11.92%
of the Joint Venture's month-end Net Assets.
During the years ended December 31, 1994, 1993 and 1992, MLF paid the Joint
Venture approximately $290,000, $216,000 and $267,000 of interest,
respectively, which approximated the prevailing 91 day U.S. Treasury bill
rate on the Joint Venture's average daily "available assets". Available
assets are all of the Joint Venture's assets excluding the unrealized profit
and loss on open forward or options positions. The General Partner estimates
that the round-turn equivalent commission rate charged to the Joint Venture
during the year ended December 31, 1994, 1993 and 1992 was approximately $33,
$29 and $77, respectively.
The Joint Venture trades forward contracts through a Foreign Exchange Desk
(the "F/X Desk"). Through the F/X Desk, the Joint Venture has access to
Merrill Lynch International Bank ("MLIB") and a number of other
counterparties. The F/X Desk contacts at least two counterparties in
addition to MLIB for a price quote on each trade. All counterparties other
than MLIB are unaffiliated with any Merrill Lynch entity. The F/X Desk
charges a service fee (at current exchange rates) of approximately $5.00 to
$7.00 per futures-contract equivalent face amount trade on each purchase or
sale of a currency in the forward markets. No service fee is charged on
trades executed through MLIB (which receives a "bid-ask" spread on such
trades). Trades are executed with MLIB provided that its price (which
includes no service charge) is as good or better than the best price
(including the service charge) quoted by any of the other
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<PAGE>
counterparties contacted. The General Partner estimates the total amount of
these fees at under 0.15 of 1% of the Joint Venture's average month-end Net
Assets during 1994.
The F/X Desk trades on the basis of credit lines provided by a Merrill
Lynch entity. The Joint Venture is not required to margin or otherwise
guarantee its F/X Desk trading.
The General Partner expects that, in the near future, certain of the Joint
Venture's currency trades will begin to be executed in the form of "exchange
of futures for physical" ("EFP") transactions involving Merrill Lynch
International Bank ("MLIB") and Merrill Lynch Futures Inc. ("MLF"). In these
transactions, a spot or forward (collectively referred to as "cash") currency
position is acquired and exchanged for an equivalent futures position on the
Chicago Mercantile Exchange's International Monetary Market ("IMM"). EFP
transactions permit currency trades to be executed at a single price, as well
as out of exchange hours, and converted into IMM contracts. They also give
trading advisors flexibility as to whether to liquidate positions in the cash
(i.e., spot or forward) or in the futures markets.
In its EFP trading with Merrill Lynch, the Joint Venture will acquire cash
currency positions through the F/X Desk in the same manner and on the same
terms as in the case of the Joint Venture's other F/X Desk trading. When the
Joint Venture exchanges these positions for futures, there will be a
"differential" between the prices of these two positions. This
"differential" reflects, in part, the different settlement dates of the cash
and the futures contracts as well as prevailing interest rates, but also
includes a pricing spread in favor of MLIB or another Merrill Lynch entity.
These spreads are expected to total no more than 0.15 of 1% of the Joint
Venture's average month-end Net Assets on an annual basis.
The Joint Venture, to the extent that it has executed currency EFP
transactions in the past, has both acquired its cash positions and effected
the exchange of positions for futures contracts through brokers other than
MLF (to which the futures positions were ultimately given up to be cleared).
4. WEIGHTED AVERAGE UNITS
Weighted average number of units outstanding was computed for purposes of
disclosing net income per weighted average unit. The weighted average units
are equal to the number of units outstanding at the period end, adjusted
proportionately for units redeemed based on their respective time outstanding
during such period.
5. OFF-BALANCE SHEET RISK
The Joint Venture trades futures, options and forward contracts in interest
rates, stock indices, commodities, currencies, energy and metals. Risk
arises from changes in the value of these contracts (market risk) and the
potential inability of counterparties or brokers to perform under the terms
of the contracts (credit risk). Although numerous factors could have
significant influences on the market risk of these contracts, they are very
interest rate sensitive. At December 31, 1994 and 1993, open contracts were:
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<PAGE>
<TABLE>
<CAPTION>
1994 1993
---------------------------------------- ----------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Interest rate
and stock
indices $27,386,268 $23,095,364 $ 94,771,869 $30,319,932
Commodities 2,072,932 579,881 3,617,492 188,233
Currencies 20,133,927 33,508,943 37,973,934 62,863,464
Energy - 1,408,032 - 917,667
Metals 3,336,012 2,369,320 9,045,666 2,640,333
----------- ----------- ------------ -----------
$52,929,139 $60,961,540 $145,408,961 $96,929,629
=========== =========== ============ ===========
</TABLE>
A portion of the amounts indicated as off-balance sheet risk in currencies is
due to offsetting commitments to purchase and to sell the same currency on the
same date in the future. These commitments are economically offsetting but are
not, as a technical matter, offset in the forward market until the settlement
date.
The contract amounts in the above table represent the Joint Venture's extent of
involvement in the particular class of financial instrument, but not the credit
risk associated with counterparty non-performance. The credit risk associated
with these instruments, from counterparty non-performance, is the net unrealized
gain, if any, included on the Statements of Financial Condition. The Joint
Venture also has credit risk because the sole counterparty or broker with
respect to most of the Joint Venture's assets is MLF. At December 31, 1994 and
1993, $1,695,058 and $949,981 of these assets, respectively, were held in
segregated accounts in accordance with Commodity Futures Trading Commissions
regulations.
To the best of the knowledge and belief of the
undersigned, the information contained in this
report is accurate and complete.
James M. Bernard
Chief Financial Officer
ML Futures Investment Partners Inc.
The Futures Expansion Fund Limited Partnership
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