<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, 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)
212-236-9757
--------------------------------------------------
(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
--- ---
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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,
1998 1997
------------ -------------
<S> <C> <C>
ASSETS
- ------
Accrued interest $41,433 $44,081
Equity in commodity futures trading accounts:
Cash and options premiums 9,435,677 9,715,506
Net unrealized profit on open contracts 260,270 435,225
------------ -------------
TOTAL $9,737,380 $10,194,812
============ =============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Profit Shares payable $42,662 $278,351
Brokerage commissions payable 77,085 80,591
Redemptions payable 20,795 193,011
Administrative fees payable 2,029 2,121
------------ -------------
Total liabilities 142,571 554,074
------------ -------------
PARTNERS' CAPITAL:
General Partner (518 and 518 Units) 143,624 142,826
Limited Partners (34087 and 34447 Units) 9,451,185 9,497,912
------------ -------------
Total partners' capital 9,594,809 9,640,738
------------ -------------
TOTAL $9,737,380 $10,194,812
============ =============
NET ASSET VALUE PER UNIT
(Based on 34605 and 34965 Units outstanding) $277.27 $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 INCOME
For the three For the three
months ended months ended
March 31, March 31,
1998 1997
------------- -------------
REVENUES:
Trading profits (loss):
Realized $386,389 $1,940,962
Change in unrealized (174,955) (614,589)
------------- -------------
Total trading results 211,434 1,326,373
------------- -------------
Interest income 124,335 107,619
------------- -------------
Total revenues 335,769 1,433,992
------------- -------------
EXPENSES:
Profit shares 42,662 259,014
Brokerage commissions 232,670 283,523
Administrative fees 6,123 6,946
------------- -------------
Total expenses 281,455 549,483
------------- -------------
NET INCOME $54,314 $884,509
============= =============
NET INCOME PER UNIT:
Weighted average number of units
outstanding 34,817 37,827
============= =============
Weighted average net income
per Limited Partner
and General Partner Unit $1.56 $23.38
============= =============
See notes to consolidated financial statements.
3
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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, 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 (534) (153,215) - (153,215)
Net income - 872,482 12,027 884,509
---------------- ----------------- ----------------- ----------------
PARTNERS' CAPITAL,
March 31, 1997 37,484 $10,480,054 $146,856 $10,626,910
================ ================= ================= ================
PARTNERS' CAPITAL,
December 31, 1997 34,965 $9,497,912 $142,826 $9,640,738
Redemptions (360) (100,243) - (100,243)
Net income - 53,516 798 54,314
---------------- ----------------- ----------------- ----------------
PARTNERS' CAPITAL,
March 31, 1998 34,605 $9,451,185 $143,624 $9,594,809
================ ================= ================= ================
</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 March 31, 1998
and the results of its operations for the three months ended March 31,
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 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, 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:
For the three For the three
months ended months ended
March 31, March 31,
1998 1997
------------------- --------------------
Interest rate &
Stock indices $(96,707) $95,969
Commodities (26,317) 126,651
Currencies 102,763 1,196,236
Energy 211,416 28,687
Metals 20,279 (121,170)
------------------- --------------------
$211,434 $1,326,373
=================== ====================
5
<PAGE>
The contract/notional values of the Partnership's open derivative instrument
positions as of March 31, 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 $21,975,587 $30,094,736 $33,617,268 $16,297,078
Commodities 2,045,753 1,699,775 1,853,301 1,608,555
Currencies 14,480,147 26,259,871 16,123,114 24,881,223
Energy 1,370,438 729,011 - 2,919,411
Metals 1,672,318 2,530,209 921,166 3,847,958
----------------- ----------------- ----------------- -----------------
$41,544,243 $61,313,601 $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 March 31, 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 $26,630,973 $32,897,506 $36,346,629 $21,506,634
Non-Exchange
traded 14,913,270 28,416,095 16,168,220 28,047,591
----------------- ----------------- ----------------- -----------------
$41,544,243 $61,313,601 $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 three months ended March 31, 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 $25,236,756 $22,096,602 $41,346,354 $24,621,142
Commodities 1,214,642 2,551,315 1,878,924 1,911,620
Currencies 37,366,663 44,234,026 51,748,337 57,472,839
Energy 1,091,394 1,456,456 2,157,602 1,639,384
Metals 2,557,409 3,668,566 4,407,862 4,749,545
----------------- ----------------- ----------------- -----------------
$67,466,864 $74,006,965 $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 March 31, 1998 and December 31, 1997
were as follows:
1998 1997
----------------------------- -----------------------------
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Profit Profit Profit Profit
-------------- -------------- -------------- --------------
Exchange
traded $225,915 $47,696 $492,147 $398,368
Non-Exchange
traded 520,262 212,574 394,483 36,857
-------------- -------------- -------------- --------------
$746,177 $260,270 $886,630 $435,225
============== ============== ============== ==============
Item 2: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
MONTH-END NET ASSET VALUE PER UNIT
----------------------------------------
Jan. Feb. Mar.
----------------------------------------
1997 $277.32 $292.65 $283.51
----------------------------------------
1998 $281.99 $274.64 $277.27
----------------------------------------
Performance Summary
January 1, 1997 to March 31, 1997
In 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 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.
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.
7
<PAGE>
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
Mr. Michael A. Karmelin, Chief Financial Officer, Vice President and
Treasurer of Merrill Lynch Investment Partners Inc. ("MLIP"), has announced that
he will resign from MLIP effective April 15, 1998 to pursue other business
opportunities. MLIP expects to announce his successor in the near future.
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 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: May 11, 1998 By /s/ JOHN R. FRAWLEY, JR.
------------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: May 11, 1998 By /s/ SERGIO M. PAVONE
--------------------
Sergio M. Pavone
Vice President and Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 0 0
<RECEIVABLES> 9,737,380 11,003,654
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 9,737,380 11,003,654
<SHORT-TERM> 0 0
<PAYABLES> 142,571 376,744
<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> 9,594,809 10,626,910
<TOTAL-LIABILITY-AND-EQUITY> 9,737,380 11,003,654
<TRADING-REVENUE> 211,434 1,326,373
<INTEREST-DIVIDENDS> 124,335 107,619
<COMMISSIONS> 281,455 549,483
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 54,314 884,509
<INCOME-PRE-EXTRAORDINARY> 54,314 884,509
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 54,314 884,509
<EPS-PRIMARY> 1.56 23.38
<EPS-DILUTED> 1.56 23.38
</TABLE>
