<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, 1997
--------------
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.
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 10 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,
1997 1996
---- ----
<S> <C> <C>
ASSETS
- ------
Accrued interest $ 39,131 $ 35,182
Equity in commodity futures trading
accounts:
Cash and option premiums 11,041,607 9,669,947
Net unrealized profit on open (77,084) 537,505
contracts
------------ -----------
TOTAL $11,003,654 $10,242,634
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Profit shares payable $ 259,015 $ 206,262
Brokerage commissions payable 87,086 99,580
Redemptions payable 28,351 39,043
Administrative fees payable 2,292 2,133
------------ -----------
Total liabilities 376,744 347,018
------------ -----------
PARTNERS' CAPITAL:
General Partner ( 518 and 518 Units) 146,856 134,829
Limited Partners ( 36,966 and 10,480,054 9,760,787
37,500 Units)
------------ -----------
Total partners' capital 10,626,910 9,895,616
------------ -----------
TOTAL $11,003,654 $10,242,634
============ ===========
NET ASSET VALUE PER UNIT
(Based on 37,484 and 38,018 Units $ 283.51 $ 260.29
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
-------------------------------------
For the three For the three
months ended months ended
March 31, March 31,
1997 1996
-------------- --------------
REVENUES:
Trading Profits (Loss):
Realized $ 1,940,962 $ 193,030
Change in unrealized (614,589) (553,793)
-------------- --------------
Total trading results 1,326,373 (360,763)
-------------- --------------
Interest income 107,619 96,714
-------------- --------------
Total revenues 1,433,992 (264,049)
-------------- --------------
EXPENSES:
Profit shares 259,014 -
Brokerage commissions 283,523 286,615
Administrative fees 6,946 6,140
-------------- --------------
Total expenses 549,483 292,755
-------------- --------------
NET INCOME (LOSS): $ 884,509 $ (556,804)
============== ==============
NET INCOME (LOSS) PER UNIT:
Weighted average number of units
outstanding 37,827 41,370
====== =======
Weighted average net Income (Loss)
per General Partner and $ 23.38 $ (13.46)
Limited Partner Unit ======= =========
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, 1997 and 1996
--------------------------------------------------
<TABLE>
<CAPTION>
Limited General
Units Partners Partner Total
----- -------- ------- -----
<S> <C> <C> <C> <C>
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
============ ============ =========== ============
PARTNERS' CAPITAL,
DECEMBER 31, 1996 38,018 $ 9,760,787 $ 134,829 $ 9,895,616
Net Income - 872,482 12,027 884,509
Redemptions (534) (153,215) - (153,215)
------------ ------------ ----------- ------------
PARTNERS' CAPITAL,
March 31, 1997 37,484 $10,480,054 $ 146,856 $10,626,910
============ ============ =========== ============
</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
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly the
financial position of The Futures Expansion Fund Limited Partnership (the
"Partnership" or the "Fund") as of March 31, 1997 and the results of its
operations for the three months ended March 31, 1997 and 1996. However, the
operating results for the interim periods may not be indicative of the
results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with general accepted accounting
principles have been omitted. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Partnership's Annual Report on
Form 10-K filed with the Securities and Exchange Commission for the year
ended December 31, 1996 (the "Annual Report").
2. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Joint Venture's revenues by reporting category for the three months ended
March 31, 1997 and March 31, 1996 were as follows:
1997 1996
------------ -----------
Interest rate $ 40,459 $(137,674)
Stock indices 55,510 (1,045)
Commodities 126,651 (231,465)
Currencies 1,196,236 203,417
Energy 28,687 46,979
Metals (121,170) (240,975)
------------ -----------
$1,326,373 $(360,763)
============ ===========
Fair Value
----------
The contract/notional values of the Trading Partnership's open derivative
instrument positions as of March 31, 1997 and December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------- --------------------------------------------
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 &
Stock indices $ 5,584,415 $ 80,025,954 $ 44,152,280 $ 7,715,055
Commodities 2,313,436 1,760,798 2,035,313 1,506,581
Currencies 25,124,475 32,998,757 32,144,464 54,783,905
Energy - 877,673 1,991,507 -
Metals 3,027,982 2,842,732 1,725,155 3,277,971
------------------ ----------------- ------------------- -------------------
$ 36,050,308 $ 118,505,914 $ 82,048,719 $ 67,283,512
================== ================= =================== ===================
</TABLE>
5
<PAGE>
The contract/notional value of the Trading Partnership's exchange-traded and
non-exchange-traded derivative instrument positions as of March 31, 1997 and
December 31, 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------- --------------------------------------------
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>
Exchange
traded $ 8,492,011 $ 82,876,825 $ 49,419,307 $ 10,883,476
Non-Exchange
traded 27,558,297 35,629,089 32,629,412 56,400,036
------------------ ----------------- ------------------ -----------------
$ 36,050,308 $ 118,505,914 $ 82,048,719 $ 67,283,512
================== ================= ================== =================
</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, 1997 and the year ended December 31, 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------- --------------------------------------------
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 &
Stock indices $ 25,124,592 $ 43,470,673 $ 34,097,774 $ 25,837,354
Commodities 1,729,131 2,018,849 1,770,860 1,475,802
Currencies 57,561,968 69,652,831 56,150,940 64,659,715
Energy - 1,570,138 2,288,126 621,942
Metals 4,065,799 2,535,801 4,654,430 5,759,826
------------------ ----------------- ------------------ -----------------
$ 88,481,490 $ 119,248,292 $ 98,962,130 $ 98,354,639
================== ================= ================== =================
</TABLE>
As of March 31, 1997 and December 31, 1996, $ 7,227,232 and $7,515,623 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 profit and the net unrealized profit (loss) on the
Partnership's open derivative instrument positions as of March 31, 1997 and
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Profit Profit (Loss) Profit Profit (Loss)
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Exchange
traded $ 536,721 $ 480,761 $ 458,316 $ 325,910
Non-Exchange
traded 250,045 (558,565) 791,431 211,595
------------- --------------- -------------- ---------------
$ 786,766 $ (77,084) $1,249,747 $ 537,505
============= =============== ============== ===============
</TABLE>
6
<PAGE>
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.
Performance Summary
- -------------------
During the three months of 1996, the Fund's average month-end Net
Assets equalled $ 9,758,989, and the Fund recognized gross trading losses of $
360,763 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 .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 a 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 three months of 1997, the Fund's average month-end Net
Assets equalled $ 10,588,175, and the Fund recognized gross trading gains of $
1,326,373 or 12.53% of such average month-end Net Assets. Brokerage commissions
of $ 283,523 or 2.68% and Administrative fees of $ 6,946 or .07% of average
month-end Net Assets were paid. Interest income of $ 107,619 or 1.02% of average
month-end Net Assets resulted in net gain of $ 884,509 or 8.35% of average month
end Net Assets which resulted in a 8.92% increase in the Net Asset Value per
Unit since December 31, 1996.
During the three months of 1997 and 1996, the Fund experienced 4
profitable months and 2 unprofitable months.
MONTH-END NET ASSET VALUE PER UNIT
Jan. Feb. Mar.
------- ------- --------
1996 $252.05 $224.51 $225.51
1997 $277.32 $292.65 $283.51
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
7
<PAGE>
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.
8
<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 three months of
fiscal 1997.
9
<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, 1997 By /s/JOHN R. FRAWLEY, JR.
-----------------------
John R. Frawley, Jr.
President, Chief Executive Officer
and Director
Date: May 13, 1997 By /s/MICHAEL A. KARMELIN
----------------------
Michael A. Karmelin
Chief Financial Officer,
and Director
10
<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>
<CIK> 0000799824
<NAME> FUTURES EXPANSION FUND LTD PARTNERSHIP
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 0 0
<RECEIVABLES> 11,003,654 9,412,074
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 11,003,654 9,412,074
<SHORT-TERM> 0 0
<PAYABLES> 376,744 170,164
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 10,626,910 9,241,910
<TOTAL-LIABILITY-AND-EQUITY> 11,003,654 9,412,074
<TRADING-REVENUE> 1,326,373 (360,763)
<INTEREST-DIVIDENDS> 107,619 96,714
<COMMISSIONS> 549,483 292,755
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 884,509 (556,804)
<INCOME-PRE-EXTRAORDINARY> 884,509 (556,804)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 884,509 (556,804)
<EPS-PRIMARY> 23.38 (13.46)
<EPS-DILUTED> 23.38 (13.46)
</TABLE>
