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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, 2000
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-15298
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
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(Exact Name of Registrant as
specified in its charter)
DELAWARE 13-3365950
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o Merrill Lynch Investment Partners Inc.
Princeton Corporate Campus
800 Scudders Mill Road - Section 2G
Plainsboro, New Jersey 08536
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(Address of principal executive offices)
(Zip Code)
609-282-6996
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(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>
June 30, December 31,
2000 1999
(unaudited)
------------------- ------------------
<S> <C> <C>
ASSETS
Equity in commodity futures trading accounts:
Cash and option premiums $ 5,998,014 $ 6,714,860
Net unrealized (loss) profit on open contracts (113,552) 321,369
Accrued interest 29,803 32,088
------------------- ------------------
TOTAL $ 5,914,265 $ 7,068,317
=================== ==================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Profit Shares payable $ 61 $ 5,571
Brokerage commissions payable 46,821 55,913
Redemptions payable 53,703 51,928
Administrative fees payable 1,232 1,471
------------------- ------------------
Total liabilities 101,817 114,883
------------------- ------------------
PARTNERS' CAPITAL:
General Partners (341 and 339 Units) 78,258 88,018
Limited Partners (24,986 and 26,442 Units) 5,734,190 6,865,416
------------------- ------------------
Total partners' capital 5,812,448 6,953,434
------------------- ------------------
TOTAL $ 5,914,265 $ 7,068,317
=================== ==================
NET ASSET VALUE PER UNIT
(Based on 25,327 and 26,781 Units outstanding) $ 229.50 $ 259.64
=================== ==================
</TABLE>
See notes to consolidated financial statements.
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THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND JOINT VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<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,
2000 1999 2000 1999
------------------- --------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
REVENUES:
Trading profits (loss):
Realized $ (174,590) $ 324,052 $ (213,593) $ 603,901
Change in unrealized (138,594) 376,246 (434,970) 157,730
------------------- --------------------- ------------------- --------------------
Total trading results (313,184) 700,298 (648,563) 761,631
------------------- --------------------- ------------------- --------------------
Interest income 90,628 93,216 186,155 186,858
------------------- --------------------- ------------------- --------------------
Total revenues (222,556) 793,514 (462,408) 948,489
------------------- --------------------- ------------------- --------------------
EXPENSES:
Profit Shares 0 137,449 61 148,442
Brokerage commissions 147,011 201,914 309,406 399,881
Administrative fees 3,868 5,313 8,142 10,523
------------------- --------------------- ------------------- --------------------
Total expenses 150,879 344,676 317,609 558,846
------------------- --------------------- ------------------- --------------------
NET INCOME (LOSS) $ (373,435) $ 448,838 $ (780,017) $ 389,643
=================== ===================== =================== ====================
NET INCOME (LOSS) PER UNIT:
Weighted average number of
units outstanding 25,733 29,023 26,122 29,764
=================== ===================== =================== ====================
Weighted average net
income (loss) per Limited Partner
and General Partner Unit $ (14.51) $ 15.46 $ (29.86) $ 13.09
=================== ===================== =================== ====================
</TABLE>
See notes to consolidated financial statements.
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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 SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
General Limited
Units Partner Partners Total
------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
December 31, 1998 30,829 $ 94,122 $ 8,465,489 $ 8,559,611
Redemptions (2,343) - (649,524) (649,524)
Net Income - 4,649 384,994 389,643
------------- ---------------- ----------------- -----------------
PARTNERS' CAPITAL,
June 30, 1999 28,486 $ 98,771 $ 8,200,959 $ 8,299,730
============= ================ ================= =================
PARTNERS' CAPITAL,
December 31, 1999 26,781 $ 88,018 $ 6,865,416 $ 6,953,434
Subscriptions 50 11,475 - 11,475
Redemptions (1,504) (12,427) (360,017) (372,444)
Net Loss (8,808) (771,209) (780,017)
------------- ---------------- ----------------- -----------------
PARTNERS' CAPITAL,
June 30, 2000 25,327 $ 78,258 $ 5,734,190 $ 5,812,448
============= ================ ================= =================
</TABLE>
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THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 and Joint Venture (the "Partnership") as of June 30,
2000, and the results of its operations for the six months ended June 30,
2000 and June 30, 1999. 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, 1999 (the "Annual
Report").
2. FAIR VALUE AND OFF-BALANCE SHEET RISK
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (the "Statement"), effective for
fiscal years beginning after June 15, 2000, as amended by SFAS No. 137.
This Statement supercedes SFAS No. 119 ("Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments") and SFAS
No. 105 ("Disclosure of information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of
Credit Risk") whereby disclosure of average aggregate fair values and
contract/notional values, respectively, of derivative financial
instruments is no longer required for an entity such as the Partnership
which carries its assets at fair value. Such Statement sets forth a much
broader definition of a derivative instrument. The General Partner does
not believe that the application of the provisions of such statement had a
significant effect on the financial statements.
SFAS No. 133 defines a derivative as a financial instrument or other
contract that has all three of the following characteristics (1) one or
more underlyings, notional amounts or payment provisions (2) requires no
initial net investment or a smaller initial net investment than would be
required relative to changes in market factors (3) terms require or permit
net settlement. Generally, derivatives include futures, forwards, swaps
and option contracts, or other financial instruments with similar
characteristics such as caps, floors and collars.
MARKET RISK
Derivative instruments involve varying degrees of off-balance sheet market
risk. 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 net unrealized profit (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 such
derivative instruments held by the Joint Venture as well as the volatility
and liquidity in the markets in which the derivative instruments are
traded.
The General Partner has procedures in place intended to control market
risk exposure, although there can be no assurance that they will, in fact,
succeed in doing so. The 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-concentrations. While the General Partner
does 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 Trading Manager has begun to deviate from
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past practice and 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.
CREDIT RISK
The risks associated with exchange-traded contracts are typically
perceived to be less than those associated with over-the-counter
transactions (non-exchange-traded), 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, 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 require margin in the over-the-counter markets.
The credit risk associated with these instruments from counterparty
nonperformance is the net unrealized profit included on the Consolidated
Statements of Financial Condition.
The Partnership has credit risk in respect of its counterparties and
brokers, but attempts to mitigate this risk by dealing almost exclusively
with Merrill Lynch entities as clearing brokers.
The Partnership, in its normal course of business, enters into various
contracts, with MLF acting as its commodity broker. Pursuant to the
brokerage arrangement with MLF (which includes a netting arrangement), to
the extent that such trading results in receivables from and payables to
MLF, these receivables and payables are offset and reported as a net
receivable or payable and are included in the Consolidated Statements of
Financial Condition under Equity from commodity futures trading accounts.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER UNIT
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------
Jan. Feb. Mar. Apr. May Jun.
------------------------------------------------------------------------------------
1999 $264.44 $272.54 $275.86 $289.39 $279.89 $291.36
------------------------------------------------------------------------------------
2000 $264.16 $258.89 $244.12 $245.36 $240.78 $229.50
------------------------------------------------------------------------------------
</TABLE>
Performance Summary
January 1, 1999 to June 30, 1999
---------------------------------
January 1, 1999 to March 31, 1999
In the first quarter of 1999, currency, interest rate and energy trading was
profitable while losses were incurred in metal and agricultural commodity
trading. A small loss was incurred in stock index futures trading as well.
In currency trading versus the dollar, short positions in European currencies,
particularly the Euro, were quite profitable, notwithstanding the common
knowledge that the new Euro would be a strong currency. These gains outweighed
losses from yen trading.
Energy prices increased in the latter part of the quarter, and gains on long
positions in crude oil, heating oil, unleaded gasoline and London gasoil
substantially exceeded the losses on short positions held earlier in the year.
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Interest rate trading was profitable in the first quarter due to long positions
in European interest rate futures and short positions in U.S. interest rate
futures. These gains outweighed losses on short positions in Japanese government
bond futures which had been very profitable in December. Losses on these short
positions were partially recouped in March by profits on long positions.
In the stock index sector of the portfolio, losses on a short position in the
Hong Kong Hang Seng index outweighed profits on long positions in the Japanese
Nikkei and Topix indices.
In the agricultural commodity markets coffee, sugar and corn trading were
unprofitable.
In the metals sector of the portfolio, losses on industrial metal trading
outweighed a gain on a short position in gold.
April 1, 1999 to June 30, 1999
Interest rates generally rose during the second quarter, and short positions in
Japanese 10-year bonds and short-term Euroyen deposits, U.S. Treasury 10-year
and 5-year notes, and German, French and Italian 10-year bonds were profitable.
In currency trading, profits from short positions versus the dollar in the Euro,
Swiss franc and Danish krone and a long position in the Korean won outweighed
losses on short positions in the yen and Norwegian krone and a long position in
the Singapore dollar. These profits were approximately offset by losses from
non-dollar cross-rate trading.
In the stock index sector of the portfolio, long positions in the Japanese
Nikkei and Topix and the Hong Kong Hang Seng Indices were profitable.
In the energy sector of the portfolio, prices fluctuated, and gains from crude
oil and natural gas outweighed losses from heating oil, London gas oil and
unleaded gasoline.
In the metals sector of the portfolio, profits on a long position in aluminum
and a short position in gold outweighed losses from copper and zinc trading.
In the agricultural commodity sector of the portfolio, long positions in corn,
soybeans, wheat and coffee were unprofitable as was a short position in cotton.
January 1, 2000 to June 30, 2000
--------------------------------
January 1, 2000 to March 31, 2000
Energy trading generated gains on long positions in crude oil and heating oil.
Prices rose sharply in the energy sector as OPEC production cuts pinched
supplies. The quarter ended by giving back some gains on long positions in crude
oil and London gas oil.
Metals trading produced slight losses for the quarter. Profits on positions in
aluminum and zinc outweighed losses on positions in copper and gold. The quarter
ended with losses on a long position in zinc which were offset by gains on short
positions in gold and aluminum.
Agricultural commodity trading produced losses for the quarter. Gains on
tropical commodities were outweighed by losses on grains. Sugar and cotton
positions failed to capture any trends during the period.
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Currency trading produced losses throughout the quarter. Although short
positions versus the U.S. dollar were profitable, they were far outweighed by
losses in non U.S. cross currency trades in both the European and Asian markets.
The interest rate sector had jumped from profitable positions in January to
losses with short positions in U.S. Treasury 5-year and 10-year notes,
short-term Eurodollar deposits, German 5-year and 10-year government bonds and
British gilts and a long position in Japanese 10-year government bonds. In
March, intermediate and long-term interest rates fell in the U.S. and Europe,
leading to profitable long positions in U.S. Treasury 5 and 10-year notes and
30-year bonds, German 5 and 10-year bonds and British 10-year bonds and a short
position in short-term Eurodollar deposits.
Stock index trading was unprofitable for the quarter. The significant worldwide
decline in equity prices early in February resulted in further losses on long
positions in the Hong Kong Hang Seng and the Japanese Nikkei and Topix indices.
The last month of the quarter sustained losses on long positions in the
Australian All Ordinaries, the Hong Kong Hang Seng, the Japanese Topix, the
German DAX, the S&P 500 and the Nasdaq 100 stock indices.
April 1, 2000 to June 30, 2000
In energy trading, after a short decline, there was a price rise in crude oil
and its products providing profits from long positions in crude oil, heating
oil, unleaded gasoline, London gas oil.
In agricultural commodity trading, profitable long positions in sugar and
short positions in coffee outweighed losses from long positions in wheat.
Positions in sugar consistently returned profits throughout the quarter.
Profits on long positions in the S&P 500 and Australian all Ordinaries
indices were offset by losses on short positions in the Japanese Topix,
NASDAQ 100 and German DAX indices and on both sides of the Hong Kong Hang
Seng index.
In metals trading, losses on short positions in aluminum and long positions
in zinc outweighed profits on a short position in gold.
In the interest rates sector, the Partnership was positioned for fluctuating
interest rates throughout the quarter, as losses were sustained on long
positions in U.S. Treasury 5 and 10-year notes and German 5 and 10-year bonds.
The Partnership's profitable positions versus the dollar included short
Danish krone, Canadian dollar and Thai baht and the Euro. Losses prevailed
towards the end of the quarter. In non-dollar cross rate trading, a long
position in the pound versus the Euro fluctuated throughout the period.
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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
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 six months of
fiscal 2000.
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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 15, 2000 By /s/ JOHN R. FRAWLEY, JR.
------------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: August 15, 2000 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
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