-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G7TRBDQWvnJSfkP+iRv3W3WWeNc7ZcgQ09LNCnQr219VQoAktTT37rS+HJJxNQ1P tMRA4WrDrugHwfMScOhogg== 0000912057-01-539643.txt : 20020410 0000912057-01-539643.hdr.sgml : 20020410 ACCESSION NUMBER: 0000912057-01-539643 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FUTURES EXPANSION FUND LTD PARTNERSHIP CENTRAL INDEX KEY: 0000799824 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133365950 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15298 FILM NUMBER: 1788561 BUSINESS ADDRESS: STREET 1: WORLD FINANCIAL CTR S TWR 6TH FLR STREET 2: C/O ML FUTURES INVESTMENT PARTNERS INC CITY: NEW YORK STATE: NY ZIP: 10080 BUSINESS PHONE: 2122364161 MAIL ADDRESS: STREET 1: MERRILL LYNCH & CO STREET 2: WORLD FINANCIAL CTR, SOUTH TOWER, 6TH FL CITY: NEW YORK STATE: NY ZIP: 10080-6106 10-Q 1 a2060819z10-q.txt 10-Q 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 September 30, 2001 ------------------ 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 MLIM Alternative Strategies LLC (formerly Merrill Lynch Investment Partners, Inc.) Princeton Corporate Campus 800 Scudders Mill Road - Section 2G Plainsboro, New Jersey 08536 ---------------------------- (Address of principal executive offices) (Zip Code) 609-282-6996 --------------------------------------------- (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 --- --- 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
SEPTEMBER 30, DECEMBER 31, 2001 2000 (UNAUDITED) ------------- ------------- ASSETS Equity in commodity futures trading accounts: Cash and option premiums $ 5,586,049 $ 5,413,422 Net unrealized profit on open contracts 12,040 1,181,558 Accrued interest 15,321 29,316 ------------- ------------- TOTAL $ 5,613,410 $ 6,624,296 ============= ============= LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Profit Shares payable $ 61 $ 52,441 Brokerage commissions payable 44,439 154,404 Administrative fees payable 1,169 1,380 Redemptions payable 12,727 140,105 ------------- ------------- Total liabilities 58,396 348,330 ------------- ------------- PARTNERS' CAPITAL: General Partner (245 and 245 Units) 62,359 68,514 Limited Partners (21,580 and 22,197 Units) 5,492,655 6,207,452 ------------- ------------- Total partners' capital 5,555,014 6,275,966 ------------- ------------- TOTAL $ 5,613,410 $ 6,624,296 ============= ============= NET ASSET VALUE PER UNIT (Based on 21,825 and 22,442 Units outstanding) $ 254.53 $ 279.65 ============= =============
See notes to consolidated financial statements. 2 THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP (A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 2000 ------------- ------------- ------------- ------------- REVENUES: Trading profits (loss): Realized $ (249,045) $ (65,387) $ 894,445 $ (278,980) Change in unrealized (130,082) 8,839 (1,169,642) (426,131) ------------- ------------- ------------- ------------- Total trading results (379,127) (56,548) (275,197) (705,111) ------------- ------------- ------------- ------------- Interest income 50,490 92,769 177,393 278,924 ------------- ------------- ------------- ------------- Total revenues (328,637) 36,221 (97,804) (426,187) ------------- ------------- ------------- ------------- EXPENSES: Profit Shares (13,195) -- 1,164 61 Brokerage commissions 135,632 135,122 437,800 444,528 Administrative fees 3,569 3,556 11,521 11,698 ------------- ------------- ------------- ------------- Total expenses 126,006 138,678 450,485 456,287 ------------- ------------- ------------- ------------- NET LOSS $ (454,643) $ (102,457) $ (548,289) $ (882,474) ============= ============= ============= ============= NET LOSS PER UNIT: Weighted average number of General Partner and Limited Partner Units outstanding 21,894 24,804 22,123 25,683 ============= ============= ============= ============= Net loss per weighted average General Partner and Limited Partner Unit $ (20.77) $ (4.13) $ (24.78) $ (34.36) ============= ============= ============= =============
See notes to consolidated financial statements. 3 THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP (A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (unaudited)
GENERAL LIMITED UNITS PARTNER PARTNERS TOTAL ----------- ----------- ----------- ----------- PARTNERS' CAPITAL, December 31, 1999 26,781 $ 88,018 $ 6,865,416 $ 6,953,434 Net Loss -- (10,826) (871,648) (882,474) Redemptions (3,342) (388) (791,354) (791,742) ----------- ----------- ----------- ----------- PARTNERS' CAPITAL, September 30, 2000 23,439 $ 76,804 $ 5,202,414 $ 5,279,218 =========== =========== =========== =========== PARTNERS' CAPITAL, December 31, 2000 22,442 $ 68,514 $ 6,207,452 $ 6,275,966 Net Loss -- (6,155) (542,134) (548,289) Redemptions (617) -- (172,663) (172,663) ----------- ----------- ----------- ----------- PARTNERS' CAPITAL, September 30, 2001 21,825 $ 62,359 $ 5,492,655 $ 5,555,014 =========== =========== =========== ===========
See notes to consolidated financial statements. 4 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 September 30, 2001, and the results of its operations for the three and nine months ended September 30, 2001 and 2000. 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 conformity with accounting principles generally accepted in the United States of America 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, 2000 (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. SFAS No. 133 is further amended by SFAS No. 138, which clarifies issues surrounding interest risk, foreign currency denominated items, normal purchases and sales and net hedging. 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 application of the provisions of SFAS no. 133, as amended by SFAS No. 137 and SFAS No. 138, did not have a significant effect on the consolidated 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 5 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, MLIM Alternative Strategies LLC, ("MLIM AS LLC") (formerly Merrill Lynch Investment Partners, Inc.), 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 Millburn Ridgefield Corporation (the "Trading Manager"), calculating the Net Asset Value of the Partnership as of the close of business on each day and reviewing outstanding positions for over-concentrations. While MLIM AS LLC does not itself intervene in the markets to hedge or diversify the Partnership's market exposure, MLIM AS LLC 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 past practice and trading policies or to be trading erratically, MLIM AS LLC's basic risk control procedures consist simply of the ongoing process of advisor monitoring, with the market risk controls being applied by the Trading Manager itself. 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, if any, included on the Consolidated Statements of Financial Condition. The Partnership 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 Merrill Lynch Futures ("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 Equity from commodity futures trading accounts the Consolidated Statements of Financial Condition. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MONTH-END NET ASSET VALUE PER UNIT
JAN. FEB. MAR. APR. MAY JUN. JUL. AUG. SEP. 2000 $264.16 $258.89 $244.12 $245.36 $240.78 $229.50 $225.87 $231.34 $225.23 2001 $280.42 $274.51 $296.42 $282.48 $283.19 $275.27 $257.47 $264.20 $254.53
Performance Summary JANUARY 1, 2001 TO SEPTEMBER 30, 2001 - -------------------------------------- January 1, 2001 to March 31, 2001 Trading in the currency sector was the most profitable for the Partnership. Short Japanese yen positions were profitable in January. In March, long positions in the strengthened U.S. dollar versus the Japanese yen, Thai Baht, Singapore dollar, Euro, Swiss franc and Canadian dollar resulted in gains. 6 Interest rate trading was profitable during the quarter. As interest rates generally declined, the Partnership's long positions in the Japanese and German ten-year bonds and U.S. Treasury five and ten-year notes were profitable. Stock index trading was moderately profitable on short positions in the S&P 500, DAX German Stock Index and Japanese Nikkei and Topix indices. Trading in agricultural commodities was slightly profitable. The gains were realized from the Partnership's short positions in cotton and sugar. Trading in the metals market was close to flat. Slight losses were incurred from both long and short positions of aluminum and gold. The Partnership realized losses in the energy market. As energy prices rallied in January, short positions in crude oil, heating oil, unleaded gas and natural gas were unprofitable. In March, both long and short positions in heating oil and London gas oil sustained losses April 1, 2001 to June 30, 2001 Energy trading was the sole successful trading strategy for the Partnership. Substantial gains were generated on short positions in natural gas. Losses were sustained on several long positions in crude oil and London gas oil. Trading in the metals markets was moderately unsuccessful. Long and short positions in gold had mixed results. Several short positions in aluminum were unprofitable. Trading in agricultural commodities was slightly unprofitable. Losses on both sides of sugar outweighed gains on short positions in cotton. Coffee trading was flat throughout the quarter. Currency trading produced losses throughout the quarter. The downtrend in the Japanese yen and Euro reversed in April, leading to losses in short positions. Non U.S. dollar cross rate trading was unprofitable. Stock index trading was unprofitable. Losses were sustained on long and short positions in all markets, particularly in the Japanese Topix, German Dax, Hong Kong Hang Seng and NASDAQ indices. The Partnership realized losses in the interest rate sector. Declines in rates in Japan led to losses on short positions in Japanese 10-year bonds. The Federal Reserve continued to cut rates causing losses in short positions in U.S. Treasury 5 and 10-year notes and 30-year bonds. July 1, 2001 to September 30, 2001 Stock index trading was profitable throughout the quarter. Global equity markets were weak prior to the September 11 terrorist attacks and dropped substantially thereafter. Short positions in the German Dax, Hong Kong Hang Seng, Japanese Topix and NASDAQ 100 indices were all profitable. Trading in the interest rate sector was profitable after a slow start for the quarter. Short and long positions of Japanese 10-year bonds were unprofitable. Interest rates declined in the U.S. and Europe in August resulting in profits on long futures positions in U.S. Treasury 5 and 10-year notes, short-term Eurodollar deposits and British 10-year bonds. U.S. interest rates dropped after September 11 as the U.S. Federal Reserve reduced rates, flooding the system with liquidity. This benefited the Partnership's various long positions. Metals trading was also successful. Short aluminum positions were profitable as the perception of imminent recession hurt industrial commodities. A long position in gold in September was profitable as investors flocked to gold for safety in the aftermath of the terrorist attacks. Trading in agricultural commodities was slightly unprofitable. Small losses offset small gains as commodity prices were generally weak. Losses were sustained in the currency markets. The Euro staged a significant comeback in July, resulting in losses in short Euro positions versus the U.S. dollar and British pound. The Bank of Japan intervened vigorously in an effort to avert Japanese yen appreciation versus the U.S. dollar and Euro, leading to losses in long Japanese yen and Euro positions. Trading in the energy markets was unprofitable. Losses were sustained in July on various short positions when the energy markets rallied on OPEC's decision to curtail production. The Partnership had several long positions when the September 11 attacks occurred. The initial reaction to the attacks was an upward spike in price, but this promptly gave way to a perception that recession would reduce energy demand. Prices dropped sharply, resulting in losses on long positions in crude oil, heating oil, London gas oil and unleaded gasoline. JANUARY 1, 2000 TO SEPTEMBER 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. 7 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. 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 and 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 U.S. 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 British pound versus the Euro fluctuated throughout the period. July 1, 2000 to September 30, 2000 Energy trading was slightly profitable for the Partnership during the quarter. Energy markets, which had sold off in July, resumed their uptrend with a strong rally in August and continued into September. Due to the volatility in this sector, the Partnership reduced its positions in this sector by mid quarter. The Partnership had slight losses in agriculture mainly due to positions in sugar, cotton and coffee. Interest rate trading was unprofitable early in the quarter as positions in 10 year British and German bonds and 5 year German bonds sustained losses. Interest rates, which have presented a difficult trading 8 environment since February, returned to profitability in August on long positions in U.S. Treasury 5 and 10 year notes, 30 year bonds as well as short term Euro deposits. Although Japan abandoned its zero interest rate policy in August, September incurred losses in a short position in Japanese Government Bonds when the rise in Japanese long-term interest rates reversed. Stock index futures, which were in a difficult trading environment in the first half of the year, returned to profitability in July and remained so throughout the quarter. In July and August, currency trading versus the U.S. dollar was profitable. The Euro hit all time lows against the U.S. dollar and Japanese yen in early September, so the Partnership's short Euro positions had additional gains despite central bank intervention late in the quarter. Notwithstanding these gains, the currency trading as a whole sustained losses as a long position in the Japanese yen, a long position in the Euro versus the British pound and both sides of the pound/yen cross were unprofitable. In spite of gains in long positions in copper, metals trading was unprofitable during the quarter as losses were incurred from long positions in aluminum and gold as well as both sides of zinc. 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings There are no pending proceedings to which the Partnership or MLIM AS LLC 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 31, 2001, Merrill Lynch Investment Partners Inc. ("MLIP"), a Delaware corporation and General Partner of the Partnership, converted to a Delaware limited liability company. In connection with the conversion, MLIP's name was changed to MLIM Alternative Strategies LLC ("MLIM AS LLC"). This step was taken in connection with the ongoing reorganization of the various alternative investment groups under the Merrill Lynch Investment Managers umbrella. Effective August 14, 2001, Merrill Lynch Group, Inc. contributed all of the issued and outstanding shares of MLIM AS LLC to its affiliate Merrill Lynch Investment Managers in a tax free reorganization. The changes had no impact on the Partnership's investors. All of the officers of MLIP continue in their former roles with MLIM AS LLC, except that also effective May 31, 2001, Ronald S. Rosenberg, formerly Chief Executive Officer of MLIP, became President of MLIM AS LLC and Fabio P. Savoldelli, formerly President of MLIP, became Chairman and Chief Executive Officer of MLIM AS LLC. In addition, each of the four directors of MLIP now serve on the board of managers of MLIM AS LLC. 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 nine months of fiscal 2001. 10 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: MLIM ALTERNATIVE STRATEGIES LLC (formerly Merrill Lynch Investment Partners, Inc.) (General Partner) Date: November 15, 2001 By /s/ FABIO P. SAVOLDELLI ----------------------- Fabio P. Savoldelli Chairman, Chief Executive Officer and Manager Date: November 15, 2001 By /s/ MICHAEL L. PUNGELLO ----------------------- Michael L. Pungello Vice President, Chief Financial Officer and Treasurer 11 -----END PRIVACY-ENHANCED MESSAGE-----