<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 June 30, 1998
-------------
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)
212-236-5662
--------------------------------------------------------------
(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_____
-----
<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>
June 30, December 31,
1998 1997
--------------- -----------------
<S> <C> <C>
ASSETS
Accrued interest $ 36,565 $ 44,081
Equity in commodity futures trading accounts:
Cash and options premiums 8,935,118 9,715,506
Net unrealized profit on open contracts (19,940) 435,225
--------------- -----------------
TOTAL $ 8,951,743 $ 10,194,812
=============== =================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Profit Shares payable $ 423 $ 278,351
Brokerage commissions payable 70,865 80,591
Redemptions payable 73,524 193,011
Administrative fees payable 1,865 2,121
--------------- -----------------
Total liabilities 146,677 554,074
--------------- -----------------
PARTNERS' CAPITAL:
General Partner (339 and 518 Units) 90,636 142,826
Limited Partners (32594 and 34447 Units) 8,714,430 9,497,912
--------------- -----------------
Total partners' capital 8,805,066 9,640,738
--------------- -----------------
TOTAL $ 8,951,743 $ 10,194,812
=============== =================
NET ASSET VALUE PER UNIT
(Based on 32933 and 34965 Units outstanding) $ 267.36 $ 275.73
=============== =================
</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 For the six For the six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
----------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Trading profits (loss):
Realized $ (8,189) $ (238,618) $ 378,200 $ 1,702,344
Change in unrealized (280,210) 102,942 (455,165) (511,647)
----------------- ----------------- -------------- ---------------
Total trading results (288,399) (135,676) (76,965) 1,190,697
----------------- ----------------- -------------- ---------------
Interest income 111,659 126,782 235,994 234,401
----------------- ----------------- -------------- ---------------
Total revenues (176,740) (8,894) 159,029 1,425,098
----------------- ----------------- -------------- ---------------
EXPENSES:
Profit Shares (42,239) (28,311) 423 230,703
Brokerage commissions 212,986 252,070 445,656 535,593
Administrative fees 5,605 6,633 11,728 13,579
----------------- ----------------- -------------- ---------------
Total expenses 176,352 230,392 457,807 779,875
----------------- ----------------- -------------- ---------------
NET (LOSS) INCOME $ (353,092) $ (239,286) $ (298,778) $ 645,223
================= ================= ============== ===============
NET (LOSS) INCOME PER UNIT:
Weighted average number of units
outstanding 33,904 37,344 34,362 37,585
================= ================= ============== ===============
Weighted average net (loss) income
per Limited Partner
and General Partner Unit $ (10.41) $ (6.41) $ (8.70) $ 17.17
================= ================= ============== ===============
</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 six months ended June 30, 1998 and 1997
-----------------------------------------------
<TABLE>
<CAPTION>
Units Limited Partners General Partner Total
---------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
December 31, 1996 38,018 $ 9,760,787 $ 134,829 $ 9,895,616
Redemptions (1,064) (299,866) - (299,866)
Net income - 636,500 8,723 645,223
---------------- ----------------- ----------------- ----------------
PARTNERS' CAPITAL,
June 30, 1997 36,954 $ 10,097,421 $ 143,552 $ 10,240,973
================ ================= ================= ================
PARTNERS' CAPITAL,
December 31, 1997 34,965 $ 9,497,912 $ 142,826 $ 9,640,738
Redemptions (2,032) (489,452) (47,442) (536,894)
Net loss - (294,030) (4,748) (298,778)
---------------- ----------------- ----------------- ----------------
PARTNERS' CAPITAL,
June 30, 1998 32,933 $ 8,714,430 $ 90,636 $ 8,805,066
================ ================= ================= ================
</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 consolidated 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 June 30, 1998 and the results of its
operations for the six months ended June 30, 1998 and 1997. 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
consolidated financial statements prepared in accordance with generally
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, 1997 (the "Annual
Report").
2. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership's total trading results by reporting category for the
respective periods are as follows:
<TABLE>
<CAPTION>
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
---------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Interest rate &
Stock indices $ (218,152) $ 126,438 $ (314,859) $ 222,407
Commodities 201,971 207,637 175,654 334,288
Currencies (328,210) (45,486) (225,447) 1,150,750
Energy 39,923 (247,472) 251,339 (218,785)
Metals 16,069 (176,793) 36,348 (297,963)
---------------- ---------------- --------------- --------------
$ (288,399) $ (135,676) $ (76,965) $ 1,190,697
================ ================ =============== ==============
</TABLE>
5
<PAGE>
The contract/notional values of the Partnership's open derivative instrument
positions as of June 30, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------- -------------------------------------------
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 $ 40,637,375 $ 14,464,134 $ 33,617,268 $ 16,297,078
Commodities 1,168,960 954,470 1,853,301 1,608,555
Currencies 35,276,528 44,557,183 16,123,114 24,881,223
Energy 822,010 1,418,063 - 2,919,411
Metals - 2,389,092 921,166 3,847,958
------------------- ------------------- ------------------ -------------------
$ 77,904,873 $ 63,782,942 $ 52,514,849 $ 49,554,225
=================== =================== ================== ===================
</TABLE>
The contract/notional values of the Trading Partnership's exchange-traded and
non-exchange traded derivative instrument positions as of June 30, 1998 and
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------- -------------------------------------------
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 $ 34,482,881 $ 46,264,995 $ 36,346,629 $ 21,506,634
Non-Exchange
traded 43,421,992 17,517,947 16,168,220 28,047,591
------------------- ------------------- ------------------ -------------------
$ 77,904,873 $ 63,782,942 $ 52,514,849 $ 49,554,225
=================== =================== ================== ===================
</TABLE>
The average fair values, based on contract/notional values, of the Partnership's
derivative instrument positions which were open as of the end of each calendar
month during the six months ended June 30, 1998 and the year ended December 31,
1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------- -------------------------------------------
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 $ 27,431,881 $ 19,839,052 $ 41,346,354 $ 24,621,142
Commodities 1,011,990 1,977,396 1,878,924 1,911,620
Currencies 40,710,356 44,907,577 51,748,337 57,472,839
Energy 778,200 1,433,040 2,157,602 1,639,384
Metals 3,424,842 3,960,553 4,407,862 4,749,545
------------------- ------------------- ------------------ ------------------
$ 73,357,269 $ 72,117,618 $ 101,539,079 $ 90,394,530
=================== =================== ================== ==================
</TABLE>
6
<PAGE>
The gross unrealized profit and the net unrealized profit on the Partnership's
open derivative instrument positions as of June 30, 1998 and December 31, 1997
were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------- ------------------------------------
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Profit Profit Profit Profit
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Exchange
traded $ 280,178 $ 96,184 $ 492,147 $ 398,368
Non-Exchange
traded 572,291 (116,124) 394,483 36,857
-------------- -------------- -------------- --------------
$ 852,469 $ (19,940) $ 886,630 $ 435,225
============== ============== ============== ==============
</TABLE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Jan. Feb. Mar. Apr May Jun
- --------------------------------------------------------------------
1997 $277.32 $292.65 $283.51 $274.35 $277.52 $277.13
- --------------------------------------------------------------------
1998 $281.99 $274.64 $277.27 $254.92 $265.04 $267.36
- --------------------------------------------------------------------
Performance Summary
January 1, 1997 to June 30, 1997
January 1, 1997 to March 31, 1997
In the currency markets, the U.S. dollar rallied and started 1997 on a strong
note, rising to a four-year high versus the Japanese yen and two-and-a-half year
highs versus the Deutsche mark and the Swiss franc. Currency trading was
profitable in January and February.
Global interest rate markets began the year on a volatile note, as investors
evaluated economic data for signs of inflation. Gains were apparent in interest
rate trading during February and March.
In the energy markets, a slump in crude oil prices was characteristic of its
lackluster performance from the beginning of the year. Energy trading proved
profitable in February; losses, however, occurred in January and March.
April 1, 1997 to June 30, 1997
In the currency markets, the dollar underwent a significant correction in the
Spring against the Japanese yen due to the G7 finance ministers' determination
that a further dollar advance would be counter-productive to their current
goals. Currency trading was unprofitable for the quarter.
Global interest rate and stock indices trading provided profitable results for
the quarter. During April, U.S. bond prices moved in a directionless pattern,
as investors remained concerned over inflation and its impact on further
increases in interest rates by the U.S. Federal Reserve. World stock markets
generally rose in June, and long positions in Japanese Nikkei and Topix indices,
the Hong Kong Hang Seng index and the Australian All Ordinaries index was
profitable.
Energy trading was unprofitable for the quarter. In June crude oil trended
downward during the beginning of the month, before a sudden price reversal
occurred amid speculation that Iraq exports could be delayed until August.
Price movement of heating oil and unleaded gas proved to be trendless.
7
<PAGE>
January 1, 1998 to June 30, 1998
January 1, 1998 to March 31, 1998
The principal feature of the currency markets in the first quarter was U.S.
dollar strength. Short positions versus the dollar in the Japanese yen, Swiss
franc, German mark and Spanish peseta were profitable. Swiss franc and German
mark puts were profitable as well.
In the energy markets, short positions in crude oil, heating oil, London gas oil
and unleaded gasoline and a long position in natural gas were profitable.
Stock index futures trading was unprofitable in the first quarter due primarily
to losses on short positions in the Japanese Nikkei and Topix, the Hong Kong
Hang Seng and the Standard & Poor's 500(R) Stock indices.
Losses were also sustained in agricultural commodity trading. Short positions
in cotton and both sides of London cocoa and coffee were unprofitable. Short
positions in sugar and corn were profitable.
Interest rates were flat, with gains on French, German, Italian and Spanish 10-
year government bonds and short-term Eurodollar deposits offset by losses in
Australian, Japanese and Canadian 10-year government bonds and short-term
Euroyen deposits.
Metals were also flat in the first quarter, with gains in nickel and aluminum
offset by losses in gold, copper and silver.
April 1, 1998 to June 30, 1998
In the currency sector of the portfolio, profits from short positions in the
Japanese yen were outweighed by losses from European currency trading against
the U.S. dollar. Non-dollar cross rate trading was narrowly profitable.
In the interest rate sector of the portfolio, long positions in the Japanese 10-
year government bonds were profitable but these gains were outweighed by losses
from U.S., European, Canadian and Australian interest rate futures trading.
In the stock index sector of the portfolio, a short position in the Hong Kong
Hang Seng index and both sides of the Standard & Poor's 500(R) Stock Index were
profitable. Small losses were sustained in Australian and Japanese stock index
futures trading.
In the energy sector of the portfolio, profits from short positions in London
aluminum and zinc outweighed losses on short positions in gold and copper.
In agricultural commodities, short positions in sugar and coffee were quite
profitable, as was a long position in cotton. Small losses were sustained in
trading cocoa and orange juice.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending proceedings to which the Partnership or the General
Partner is a party.
Item 2. Changes in Securities and Use of Proceeds
(a) None.
(b) None.
(c) None.
(d) None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Effective May 11, 1998, Jo Ann Di Dario became a Vice President, Treasurer
and Chief Financial Officer of Merrill Lynch Investment Partners Inc. (AMLIP@).
Ms. Di Dario was born in 1946. Before joining MLIP, she was self-employed for
one year. From February 1996 to May 1997, she worked as a consultant for Global
Asset Management, an international mutual fund organizer and operator
headquartered in London, where she offered advice on restructuring the back
office operations. From May 1992 to January 1996, Ms. Di Dario served as Vice
President of Meridian Bank Corporation, a regional bank holding company. She
was responsible for managing the treasury operations of the bank holding company
and its wholly-owned subsidiary, Meridian Investment Company Inc. Ms. Di Dario
managed the domestic treasury operation of First Fidelity Bank, a regional bank,
from September 1991 to May 1992. From 1985 until December 1990, Ms. Di Dario
was Vice President, Secretary and Controller of Caxton Corporation, a commodity
pool operator and commodity trading advisor. Her background includes seven
years of public accounting experience. She graduated with high honors from
Stockton State College with a Bachelor of Science Degree in Accounting.
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 six months of
fiscal 1998.
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: August 11, 1998 By:/s/ JOHN R. FRAWLEY, JR.
------------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: August 11, 1998 By:/s/ JO ANN DI DARIO
-------------------
Jo Ann Di Dario
Vice President, Chief Financial Officer
and Treasurer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 0 0
<RECEIVABLES> 8,951,743 10,194,812
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 8,951,743 10,194,812
<SHORT-TERM> 0 0
<PAYABLES> 146,677 554,074
<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> 8,805,066 9,640,738
<TOTAL-LIABILITY-AND-EQUITY> 8,951,743 10,194,812
<TRADING-REVENUE> (76,965) 1,190,697
<INTEREST-DIVIDENDS> 235,994 234,401
<COMMISSIONS> 457,807 779,875
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> (298,778) 645,223
<INCOME-PRE-EXTRAORDINARY> (298,778) 645,223
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (298,778) 645,223
<EPS-PRIMARY> (8.70) 17.17
<EPS-DILUTED> (8.70) 17.17
</TABLE>
