<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 0-15298
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
----------------------------------------------
(Exact Name of Registrant as
specified in its charter)
Delaware 13-3365950
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o Merrill Lynch Investment Partners Inc.
(formerly ML Futures Investment Partners Inc.)
Merrill Lynch World Headquarters - South Tower, 6th Fl.
World Financial Center New York, New York 10080-6106
-----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
212-236-4161
-----------------------------------------------------
(Registrant's telephone number, including area code)
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
----- -----
This document contains 12 pages.
There are no exhibits and no exhibit index filed with this document.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
----------------------------------------------
(a Delaware limited partnership)
------------------------------
AND JOINT VENTURE
-----------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- -----------
<S> <C> <C>
ASSETS
- ------
Accrued interest (Note 3) $ 31,953 $ 39,699
Equity in commodity futures trading accounts:
Cash and option premiums 9,357,008 9,860,595
Net unrealized gain on open contracts 23,113 576,906
------------ -------------
TOTAL $9,412,074 $10,477,200
============ =============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Administrative expense payable $ 1,961 $ -
Redemptions payable 76,674 7,169
Brokerage commissions payable (Note 3) 91,529 103,775
Profit shares payable - 475,153
------------ -------------
Total liabilities 170,164 586,097
------------ -------------
PARTNERS' CAPITAL:
General Partner (518 and 518 Units) 116,812 123,779
Limited Partners (40,465 and 40,875 9,125,098 9,767,324
Units)
------------ -------------
Total partners' capital 9,241,910 9,891,103
------------ -------------
TOTAL $9,412,074 $10,477,200
============ =============
NET ASSET VALUE PER UNIT $225.51 $238.96
(Based on 40,983 and 41,393 Units outstanding) ============ ===========
</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 OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
For the three For the three
Months ended Months ended
March 31, 1996 March 31, 1995
----------------- ----------------
<S> <C> <C>
REVENUES:
Trading profits (loss):
Realized $ 193,030 $ 994,453
Change in unrealized (553,793) 1,146,486
--------- ---------------
Total trading results (360,763) 2,140,939
--------- ---------------
Interest income (Note 3) 96,714 110,485
--------- ---------------
Total revenues (264,049) 2,251,424
--------- ---------------
EXPENSES:
Profit shares - 394,659
Brokerage commissions (Note 3) 286,615 282,978
Administrative expense 6,140 -
--------- ---------------
Total expenses 292,755 677,637
--------- ---------------
NET (LOSS) INCOME $(556,804) $1,573,787
========= ===============
NET (LOSS) INCOME PER UNIT:
Weighted average number of units
outstanding (Note 4) 41,370 44,647
========= ==========
Weighted average net (loss) income per $(13.46) $35.25
unit ========= ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
----------------------------------------------
(a Delaware limited partnership)
------------------------------
AND JOINT VENTURE
-----------------
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
-------------------------------------------------------
For the three months ended March 31, 1996 and 1995
--------------------------------------------------
<TABLE>
<CAPTION>
Limited General
Units Partners Partner Total
------- ------------ --------- ---------------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
DECEMBER 31, 1994 45,234 $ 8,761,840 $101,500 $ 8,863,340
Net income - 1,555,311 18,476 1,573,787
Redemptions (1,236) (246,686) - (246,686)
-------- ----------- -------- -------------
PARTNERS' CAPITAL,
MARCH 31, 1995 43,998 $10,070,465 $119,976 $10,190,441
======== =========== ======== =============
PARTNERS' CAPITAL,
DECEMBER 31, 1995 41,393 $ 9,767,324 $123,779 $ 9,891,103
Net loss - (549,837) (6,967) (556,804)
Redemptions (410) (92,389) - (92,389)
-------- ----------- -------- -------------
PARTNERS' CAPITAL,
MARCH 31, 1996 40,983 $ 9,125,098 $116,812 $ 9,241,910
======== =========== ======== =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
(A Delaware Limited Partnership) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 and commenced trading activities on January 2, 1987.
The Partnership, through its joint venture, engages in the speculative
trading of futures, options and forward contracts on a wide range of
commodities. Millburn Ridgefield Corporation (the "Trading Manager") is the
trading manager for the Partnership. Merrill Lynch Investment Partners Inc.
(formerly, ML Futures Investment Partners Inc.) ("MLIP" or the "General
Partner"), a wholly-owned subsidiary of Merrill Lynch Group, Inc. ("Merrill
Lynch"), which in turn is a wholly-owned subsidiary of Merrill Lynch & Co.,
Inc., is the general partner of the Partnership, and Merrill Lynch Futures
Inc. ("MLF"), also an affiliate of Merrill Lynch, is its commodity broker.
MLIP 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. MLIP and each Limited Partner share in the profits and losses
of the Partnership in proportion to their respective interests in it.
The financial information included herein has been prepared by management
without audit by independent certified public accountants who do not express
an opinion thereon. The statement of financial condition as of December 31,
1995 has been derived from but does not include all the disclosures contained
in the audited financial statements for the year ended December 31, 1995.
The information furnished includes all adjustments which are, in the opinion
of management, necessary for a fair statement of results for the interim
period. The results of operations as presented, however, should not be
considered indicative of the results to be expected for the entire year.
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, 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.
Estimates
---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
-------------------
Commodity futures, options, and forward contract transactions are recorded on
the trade date and open contracts are reflected in the financial statements
at their fair value on the last business day of the reporting period. The
difference between the original contract amount and fair value is reflected
in income as an unrealized gain or loss. 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
------------------
The General Partner pays for all routine operating cost (including legal,
accounting, printing, postage and similar administrative expenses) of the
Partnership, including the Partnership's share of any such costs incurred by
the Joint Venture (Note 2).
Income Taxes
------------
No provision for income taxes had been made in the accompanying financial
statements as each partner is individually responsible for reporting income
or loss based on such partner's respective share of the Partnership's income
and expenses as reported for income tax purposes.
5
<PAGE>
Distributions
-------------
The Unitholders are entitled to receive, equally per Unit, any distributions
which may be made by the Partnership. No such distributions have been made
as of March 31, 1996.
Redemptions
-----------
A Limited Partner may require the Partnership to redeem some or all of their
Units at the Net Asset Value as of the close of business on the last business
day of any month upon ten calendar days' notice.
Dissolution of the Partnership
------------------------------
The Partnership will terminate on December 31, 2006 or at an earlier date if
certain conditions occur, as well as under certain other circumstances as
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 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, 1996. 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
All of the Joint Venture's assets are deposited with MLF. As a means of
approximating the interest rate which would be earned by the Joint Venture
had 100% of its Net Assets on deposits with MLF been invested in 91-day
Treasury bills, MLF pays the Joint Venture interest on its account equity on
deposit with MLF at a rate of 0.5 of 1% per annum below the prevailing 91-day
Treasury bill rate. In the case of its trading in certain foreign futures
contracts, the Joint Venture deposits margin in foreign currency denominated
instruments or cash and earns interest generally at a rate of 0.5 of 1% per
annum below the prevailing short-term government interest rate in the country
in question. Any additional economic benefit derived from possession of the
Joint Venture's assets accrues to MLF or its affiliates.
The Joint Venture pays brokerage commissions to MLF at a flat rate of .9933
of 1% (an 11.92% annual rate) of the Joint Venture's month-end assets.
Monthly-end assets are not reduced for purposes of calculating brokerage
commissions by any accrued but unpaid brokerage commissions, profit shares or
other fees or charges. Effective January 1, 1996, the brokerage commission
the Joint Venture pays to the Commodity Broker was reduced to .9725% (a
11.67% annual rate), and the Partnership began to pay an administrative fee
to the General Partner of .020833% (a .25% annual rate). MLIP estimates that
the round-turn equivalent commission rate charged to the Joint Venture during
the years ended March 31, 1996 and 1995, was approximately $106 and $33,
respectively (not including, in calculating round-turn equivalents, forward
contracts on a futures-equivalent basis).
MLF pays the Trading Manager annual Consulting Fees of 4% of the Joint
Venture's average month-end assets, after reduction for a portion of the
brokerage commissions.
The Joint Venture trades forward contracts through a Foreign Exchange Desk
(the "F/X Desk") established by MLIP, that contacts at least two
counterparties along with Merrill Lynch International Bank ("MLIB"), for all
of the Partnership's currency trades. All counterparties other than MLIB are
unaffiliated with any Merrill Lynch entity. The F/X Desk charges a service
fee equal (at current exchange rates) to approximately $5.00 to $12.50 on
each purchase or sale of a futures contract equivalent face amount of a
foreign currency. No service fees are charged on any trades awarded to MLIB
(which receives a "bid-ask" spread on such trades). MLIB is awarded trades
only if its price (which includes no service fee) is equal to or better than
the best price (including the service fee) offered by any of the other
counterparties contacted.
6
<PAGE>
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.
Certain of the Joint Venture's currency trades are executed in the form of
"exchange of futures for physical" ("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.
In its EFP trading, the Joint Venture acquires 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 is 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.
The Joint Venture's F/X Desk service fee and EFP differential costs have, to
date, totaled no more than 0.25 of 1% per annum of the Joint Venture's
average month-end Net Assets.
4. WEIGHTED AVERAGE UNITS
The weighted average number of Units outstanding was computed for purposes of
disclosing net income per weighted average Unit. The weighted average number
of Units outstanding at March 31, 1996 and 1995 equals the Units outstanding
as of such date, adjusted proportionately for Units redeemed based on the
respective length of time each was outstanding during the preceding period.
5. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Joint Venture trades futures, options and forward contracts in interest
rates, stock indices, commodities, currencies, energy and metals. The Joint
Venture's revenues by reporting category for the quarter ended March 31, 1996
was as follows:
1996
----------
Interest rate $(137,674)
Stock indices (1,045)
Commodities (231,465)
Currencies 203,417
Energy 46,979
Metals (240,975)
-----------
$(360,763)
===========
Market Risk
-----------
Derivative instruments involve varying degrees of off-balance sheet market
risk, and changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the financial instruments or
commodities underlying such derivative instruments frequently result in
changes in the Partnership's unrealized gain or loss on such derivative
instruments as reflected in the Consolidated Statements of Financial
Condition. The Joint Venture's exposure to market risk is influenced by a
number of factors, including the relationships among the derivative
instruments held by the Joint Venture as well as the volatility and liquidity
of the markets in which the derivative instruments are traded.
The General Partner has procedures in place intended to control market risk,
although there can be no assurance that they will, in fact, succeed in doing
so. These procedures focus primarily on monitoring the trading of the
Trading Manager, calculating the Net Asset Value of the Joint Venture as of
the close of business on each day and reviewing outstanding positions for
over-concentration. While the General Partner will not itself intervene in
the markets to hedge or diversify the Joint Venture's market exposure, the
General Partner may urge the Trading Manager to reallocate positions in an
attempt to avoid over-concentrations. However, such interventions are
unusual. Except in cases in which it appears that the Advisor has begun to
deviate from past practice or trading policies or to be trading erratically,
the General Partner's basic risk control procedures consist simply of the
ongoing process of Trading Manager monitoring, with the market risk controls
being applied by the Trading Manager.
Fair Value
----------
The derivative instruments used in the Joint Venture's trading activities are
marked to market daily with the resulting unrealized gains or losses recorded
in the Consolidated Statements of Financial Condition and the related profit
or loss reflected in trading revenues in the Consolidated
7
<PAGE>
Statements of Income. The contract/notional values of the Trading
Partnership's open derivative instrument positions as of March 31, 1996 and
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- ---------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Purchase (Futures, Purchase (Futures, Purchase (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Interest rate $18,697,221 $28,103,384 $17,631,109 $17,124,189
Stock indices 3,182,975 1,555,257 2,744,799 -
Commodities 2,799,537 376,020 987,392 1,770,746
Currencies 29,849,506 46,379,792 19,188,424 33,984,223
Energy 3,383,554 - 4,266,468 -
Metals 6,406,982 2,675,704 1,106,950 4,593,110
----------- ----------- ----------- -----------
$64,319,775 $79,090,157 $45,925,142 $57,472,268
=========== =========== =========== ===========
</TABLE>
Substantially all of the Joint Venture's derivative instruments outstanding
as of March 31, 1996 expire within one year.
The contract/notional value of the Trading Partnership's exchange-traded and
non-exchange-traded derivative instrument positions as of March 31, 1996 and
December 31, 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- ---------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Purchase (Futures, Purchase (Futures, Purchase (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Exchange traded $31,126,604 $30,034,661 $26,004,588 $21,373,095
Non-Exchanged
traded 33,193,171 49,055,496 19,920,554 36,099,173
----------- ----------- ----------- -----------
$64,319,775 $79,090,157 $45,925,142 $57,472,268
=========== =========== =========== ===========
</TABLE>
The average fair value of the Partnership's derivative instrument positions
which were open as of the end of each calendar month during the quarter ended
March 31, 1996 and the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- ---------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Purchase (Futures, Purchase (Futures, Purchase (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Interest rate $21,637,269 $ 34,833,449 $20,766,056 $ 7,523,452
Stock indices 3,498,781 1,095,509 9,249,690 1,491,066
Commodities 2,837,238 359,663 1,548,022 1,302,572
Currencies 44,003,386 61,048,674 42,383,672 40,767,472
Energy 2,301,521 1,885,871 2,368,843 1,331,304
Metals 4,875,659 4,357,051 2,456,274 3,268,684
----------- ----------- ----------- -----------
$79,153,854 $103,580,217 $78,772,557 $55,684,550
=========== =========== =========== ===========
</TABLE>
A portion of the amounts indicated as off-balance sheet risk reflects
offsetting commitments to purchase and sell the same derivative instrument 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.
Credit Risk
-----------
The risks associated with exchange-traded contracts are typically perceived
to be less than those associated with over-the-counter (non-exchange-traded)
transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases
limited in amount, in some cases not) of the members of the exchange is
pledged to support the financial integrity of the exchange. In over-the-
counter transactions, on the other hand,
8
<PAGE>
traders must rely solely on the credit of their respective individual
counterparties. Margins, which may be subject to loss in the event of a
default, are generally required in exchange trading, and counterparties may
also require margin in the over-the-counter markets.
The fair value amounts in the above tables represent the extent of the Joint
Venture's market exposure in the particular class of derivative instrument
listed, but not the credit risk associated with counterparty nonperformance.
The credit risk associated with these instruments from counterparty
nonperformance is the net unrealized gain, if any, included in the
Consolidated 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.
As of March 31, 1996 and December 31, 1995, $7,220,601 and $7,759,078 of the
Joint Venture's assets, respectively, were held in segregated accounts at MLF
in accordance with Commodity Futures Trading Commission regulations.
The gross unrealized gain and the net unrealized gain on the Partnership's
open derivative instrument positions as of March 31, 1996 and December 31,
1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Gain Gain (Loss) Gain Gain (Loss)
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Exchange traded $452,574 $ 289,859 $ 892,375 $674,608
Non-Exchanged
traded 258,200 (266,746) 205,307 (97,702)
-------- --------- ---------- --------
$710,774 $ 23,113 $1,097,682 $576,906
======== ========= ========== ========
</TABLE>
The Partnership controls credit risk by dealing almost exclusively with
Merrill Lynch entities as brokers and counterparties.
Item 2: Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Operational Overview: Advisor Selections
- ----------------------------------------
Due to the nature of the Fund's business, its results of operations
depend on Trading Advisor's ability to recognize and capitalize on trends and
other profit opportunities in different Sectors of the world commodity markets.
The Trading Advisor's trading methods are confidential, so that substantially
the only information that can be furnished regarding the Fund's results of
operations is contained in the performance record of its trading. Unlike
operating businesses, general economic or seasonal conditions do not directly
affect the profit potential of the Fund, and its past performance is not
necessarily indicative of future results. Because of the speculative nature of
its trading, operational or economic trends have little relevance to the Fund's
results. MLIP believes, however, that there are certain market conditions, for
example, markets with strong price trends, in which the Fund has a better
likelihood of being profitable than in others.
Results of Operations - General
- -------------------------------
Unlike an operating business, MLIP believes that 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 (even over the
nine year operational history of the Fund to date). The Trading Advisor regards
its strategy as long-term in nature.
Markets in which sustained price trends occur with some frequency tend
to be more favorable to managed futures investments than "whipsaw," "choppy"
markets, but (i) this is not always the case, (ii) it is impossible to predict
when trending markets will occur and (iii) the Trading Advisor is affected by
trends in general as well as by particular types of trends.
The Fund controls credit risk in its trading in the derivatives markets
by trading only through Merrill Lynch entities which MLIP believes to be
creditworthy. The Trading Advisor attempts to control the market risk inherent
in derivatives trading by applying multiple trading systems in each market as
well as implementing the basic risk management policies described above under
"Item 1: Business - (c) Narrative Description of Business." However, as a
single-advisor fund, the Partnership must be considered a more speculative
investment than the multi-advisor funds which have become popular in the public
commodity pool markets during approximately the last decade. Millburn
Ridgefield trades a diversified portfolio for the Fund, but with an emphasis on
the currency and financial instrument markets.
9
<PAGE>
Performance Summary
- -------------------
During the first quarter of 1995, the Fund's average month-end Net
Assets equalled $8,948,259, and the Fund recognized gross trading gains of
$2,140,939 or 23.93% of such average month-end Net Assets. Brokerage
commissions of $282,978 or 3.16% and Profit Shares of $394,659 or 4.41% of
average month-end Net Assets were paid. Interest income of $110,485 or 1.24% of
average month-end Net Assets resulted in a net gain of $1,573,787 or 17.59% of
average month-end Net Assets, which resulted in a 18.20% increase in the Net
Asset Value per Unit since December 31, 1994.
During the first quarter of 1996, the Fund's average month-end Net
Assets equalled $9,758,989, and the Fund recognized gross trading losses of
$360,673 or 3.70% of such average month-end Net Assets. Brokerage commissions
of $286,615 or 2.94% and Administrative expense of $6,140 or 0.06% of average
month-end Net Assets were paid. Interest income of $96,714 or 1.00% of average
month-end Net Assets resulted in net loss of $556,804 or 5.71% of average month
end Net Assets which resulted in a 5.63% decrease in the Net Asset Value per
Unit since December 31, 1995.
During the first quarter of 1996 and 1995, the Fund experienced 4
profitable months and 2 unprofitable months.
MONTH-END NET ASSET VALUE PER UNIT
Jan. Feb. Mar.
1995 $189.48 $201.01 $231.61
1996 $252.05 $224.51 $225.51
Importance of Market Factors
- ----------------------------
Comparisons between the Fund's performance in one fiscal year to that
in a prior year are unlikely to be meaningful, given the uncertainty of price
movements in the markets traded by the Fund. In general, MLIP expects that the
Fund is most likely to trade successfully in markets which exhibit strong and
sustained price trends. Millburn Ridgefield's strategy is based on technical
trend analysis (and certain non-trend following technical systems).
Consequently, one would expect that in trendless, "choppy" markets the Fund
would likely be unprofitable, while in markets in which major price movements
occur, the Fund would have its best profit potential (although there could be no
assurance that the Fund would, in fact, trade profitably). However, the Trading
Advisor will not infrequently miss major price movements, and market corrections
can result in rapid and material losses (sometimes as much as 10% in a single
day).
Liquidity
- ---------
Most of the Joint Venture's assets are held as cash which, in turn, is
used to margin its futures positions and earns interest income and is withdrawn,
as necessary, to pay redemptions and fees.
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 to 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 large 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 Joint Venture does not have, nor does it expect to have, any
capital assets and has no material commitments for capital expenditures. The
Joint Venture uses its assets 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.
Inflation is not a significant factor in the Fund's profitability,
although inflationary cycles can give rise to the type of major price movements
which can have a materially favorable or adverse impact on the Fund's
performance.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
---------
There are no exhibits required to be filed as part of this
document.
(b) Reports on Form 8-K.
--------------------
There were no reports on Form 8-K filed during the first quarter
of fiscal 1996.
11
<PAGE>
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.
THE FUTURES EXPANSION FUND
LIMITED PARTNERSHIP
By: MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
Date: May 13, 1996 By /s/JOHN R. FRAWLEY, JR.
-----------------------
John R. Frawley, Jr.
President, Chief Executive Officer
and Director
Date: May 13, 1996 By /s/JAMES M. BERNARD
-------------------
James M. Bernard
Chief Financial Officer,
Treasurer and Senior Vice President
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION, CONSOLIDATED STATEMENTS OF OPERATIONS,
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995
<CASH> 0 0
<RECEIVABLES> 9,412,074 10,747,106
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 9,412,074 10,747,106
<SHORT-TERM> 0 0
<PAYABLES> 170,164 556,665
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 0 0
<COMMON> 0 0
0 0
0 0
<OTHER-SE> 9,241,910 10,190,441
<TOTAL-LIABILITY-AND-EQUITY> 9,412,074 10,747,106
<TRADING-REVENUE> (360,763) 2,140,939
<INTEREST-DIVIDENDS> 96,714 110,485
<COMMISSIONS> 292,775 677,637
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> (556,804) 1,573,787
<INCOME-PRE-EXTRAORDINARY> (556,804) 1,573,787
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (556,804) 1,573,787
<EPS-PRIMARY> (13.46) 35.25
<EPS-DILUTED> (13.46) 35.25
</TABLE>
