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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, 2002
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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 MLIM Alternative Strategies LLC
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
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(a Delaware Limited Partnership)
--------------------------------
AND JOINT VENTURE
-----------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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June 30, December 31,
2002 2001
(unaudited)
--------------------- -------------------
ASSETS
- ------
Equity in commodity futures trading accounts:
Cash and option premiums $ 4,552,130 $ 4,975,783
Net unrealized profit on open contracts 809,522 270,389
Accrued interest 6,836 8,190
--------------------- -------------------
TOTAL $ 5,368,488 $ 5,254,362
===================== ===================
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Profit Shares payable $ 35,114 $ -
Brokerage commissions payable 42,500 41,597
Administrative fees payable 1,119 1,095
--------------------- -------------------
Total liabilities 78,733 42,692
--------------------- -------------------
PARTNERS' CAPITAL:
General Partner (229 and 229 Units) 61,387 56,008
Limited Partners (19,504 and 21,080 Units) 5,228,368 5,155,662
--------------------- -------------------
Total partners' capital 5,289,755 5,211,670
--------------------- -------------------
TOTAL $ 5,368,488 $ 5,254,362
===================== ===================
NET ASSET VALUE PER UNIT
(Based on 19,733 and 21,309 Units outstanding) $ 268.07 $ 244.58
===================== ===================
See notes to consolidated financial statements.
2
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
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(a Delaware Limited Partnership)
--------------------------------
AND JOINT VENTURE
-----------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
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,
2002 2001 2002 2001
-------------- --------------- -------------- ---------------
REVENUES:
Trading profits (loss):
Realized $ (174,905) $ 221,079 $ 152,656 $ 1,143,490
Change in unrealized 886,000 (690,311) 539,118 (1,039,560)
-------------- --------------- -------------- ---------------
Total trading results 711,095 (469,232) 691,774 103,930
-------------- --------------- -------------- ---------------
Interest income 21,156 55,640 41,950 126,903
-------------- --------------- -------------- ---------------
Total revenues 732,251 (413,592) 733,724 230,833
-------------- --------------- -------------- ---------------
EXPENSES:
Profit Shares 35,114 (98,418) 35,114 14,359
Brokerage commissions 117,370 149,145 238,582 302,168
Administrative fees 3,089 3,925 6,279 7,952
-------------- --------------- -------------- ---------------
Total expenses 155,573 54,652 279,975 324,479
-------------- --------------- -------------- ---------------
NET INCOME (LOSS) $ 576,678 $ (468,244) $ 453,749 $ (93,646)
============== =============== ============== ===============
NET LOSS PER UNIT:
Weighted average number of General Partner
and Limited Partner units outstanding 20,082 22,095 20,529 22,236
============== =============== ============== ===============
Net income (loss) per weighted
average Limited Partner and
General Partner Unit $ 28.72 $ (21.19) $ 22.10 $ (4.21)
============== =============== ============== ===============
See notes to consolidated financial statements.
3
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
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(a Delaware Limited Partnership)
--------------------------------
AND JOINT VENTURE
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CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
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For the six months ended June 30, 2002 and 2001
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(unaudited)
General Limited
Units Partner Partners Total
-------------- ---------------- ----------------- -----------------
PARTNERS' CAPITAL,
December 31, 2000 22,442 $ 68,514 $ 6,207,452 $ 6,275,966
Redemptions (513) - (146,033) (146,033)
Net Loss - (1,074) (92,572) (93,646)
-------------- ---------------- ----------------- -----------------
PARTNERS' CAPITAL,
June 30, 2001 21,929 $ 67,440 $ 5,968,847 $ 6,036,287
============== ================ ================= =================
PARTNERS' CAPITAL,
December 31, 2001 21,309 $ 56,008 $ 5,155,662 $ 5,211,670
Redemptions (1,576) - (375,664) (375,664)
Net Income - 5,379 448,370 453,749
-------------- ---------------- ----------------- -----------------
PARTNERS' CAPITAL,
June 30, 2002 19,733 $ 61,387 $ 5,228,368 $ 5,289,755
============== ================ ================= =================
See notes to consolidated financial statements.
4
THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
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(a Delaware Limited Partnership)
--------------------------------
AND JOINT VENTURE
-----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated 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, 2002, and the results of its operations for the three and
six months ended June 30, 2002 and 2001. However, the operating results
for the interim periods may not be indicative of the results for
the full year.
Certain information and footnote disclosures normally included in annual
consolidated financial statements prepared in accordance 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, 2001.
2. FAIR VALUE AND OFF-BALANCE SHEET RISK
The nature of this Partnership has certain risks, which cannot be
presented on the financial statements. The following summarizes some of
those risks.
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 on such derivative
instruments as reflected in the Statements of Financial Condition. The
Partnership's exposure to market risk is influenced by a number of
factors, including the relationships among the derivative instruments held
by the Partnership as well as the volatility and liquidity of the markets
in which the derivative instruments are traded.
The General Partner, MLIM Alternative Strategies LLC ("MLIM AS LLC"), 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.
These 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 or trading
policies or to be trading erratically, MLIM AS LLC's basic risk control
5
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
(non-exchange-traded) transactions, 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 also 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 in the
Consolidated Statements of Financial Condition. The Partnership attempts
to mitigate this risk by dealing exclusively with Merrill Lynch entities
as clearing brokers.
The Partnership, in its normal course of business, enters into various
contracts, with Merrill Lynch Pierce Fenner & Smith Inc. ("MLPF&S") acting
as its commodity broker. Pursuant to the brokerage arrangement with MLPF&S
(which includes a netting arrangement), to the extent that such trading
results in receivables from and payables to MLPF&S, these receivables and
payables are offset and reported as a net receivable or payable and
included in Equity in commodity futures trading accounts in 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.
- ----------------------------------------------------------------------
2001 $280.42 $274.51 $296.42 $282.48 $283.19 $275.27
- ----------------------------------------------------------------------
2002 $248.80 $236.53 $238.62 $227.03 $236.14 $268.07
- ----------------------------------------------------------------------
Performance Summary
JANUARY 1, 2002 to JUNE 30, 2002
- --------------------------------
January 1, 2002 to March 31, 2002
Trading in the energy sector was the most profitable strategy for the
Partnership. Trading was volatile throughout the quarter. In March, there was a
sharp upsurge in energy prices based on expectations of global economic recovery
and trepidation regarding the possible impact of Middle East violence on
6
energy supply. Long positions in crude oil, heating oil, unleaded gasoline,
London gas oil and natural gas were profitable.
The interest sector was up slightly for the quarter. In January, significant
profits on a short position in Japanese ten-year bonds was offset by losses on
short positions in German five and ten-year bonds, British ten-year bonds and
U.S. Treasury five and ten-year notes. In February, interest rates moderated
slightly in the U.S. resulting in profits on long positions in short-term
eurodollar deposits and U.S. Treasury five-year notes. In March, interest rates
in Europe and the U.S. rose as economic activity began to improve. This resulted
in profits on short positions in German five and ten-year bonds and British
ten-year bonds. Long-term interest rates fell in Japan resulting in profits on a
long position in ten-year Japanese bonds.
Metal trading was almost flat for the quarter. In January, small losses were
sustained on long positions in gold, zinc and aluminum. In February, long
positions in copper and aluminum resulted in marginal losses. In March, small
profits on long positions in gold, zinc and copper were offset by a small loss
on a long position in aluminum.
Stock index trading posted losses on difficult market conditions. In January,
gains on short positions in the S&P 500 and Japanese Topix were narrowly
outweighed by losses on long positions in the German DAX, Hong Kong Hang Seng,
NASDAQ 100 and Japanese Nikkei. In February, short positions in the NASDAQ 100
and Hong Kong Hang Seng were profitable but were offset by losses on short
positions in the Japanese Topix and Nikkei. In March, both sides of the Hong
Kong Hang Seng were unprofitable.
Trading in agricultural commodities was unprofitable for the quarter. In
January, a long position in sugar was unprofitable. In February, a long position
in cotton and short positions in coffee and sugar resulted in marginal losses.
In March, short positions in sugar and cotton were unprofitable while a long
position in coffee resulted in a small gain.
Trading in the currencies sector incurred losses for the Partnership. In
January, the U.S. dollar strengthened considerably, particularly versus the
Japanese yen. Short positions in the Japanese yen, Euro and Swiss franc were
profitable early on. In February, the U.S. dollar sold off against major
currencies and losses were sustained on short positions in the Japanese yen,
Euro and Swiss franc. The currency markets presented a volatile and difficult
environment in March. Short positions versus the U.S. dollar in the Swiss franc
and Euro were unprofitable, as were long and short positions of the Japanese
yen.
April 1, 2002 to June 30, 2002
Profits resulting from trading in the currency sector provided the Partnership
with a rate of return of over 17% (on the total net assets of the Partnership)
for the second quarter. The decline in the U.S. dollar continued through June
unabated. Positions versus the U.S. dollar were profitable as were non-U.S.
dollar cross trades involving the Euro.
The interest rate sector was profitable for the Partnership despite its slow
start. The Partnership entered the quarter positioned for rising U.S. and
European interest rates. As rates declined, losses were sustained on short
positions. Positions were corrected in the quarter. Despite the weakening U.S.
dollar, interest rates on U.S. Treasuries fell on concerns about the economic
recovery and declines in the stock market in May and June. Long positions
brought in sizable profits.
7
The trading in stock indices found profits from its short positions in the
NASDAQ 100, German DAX, Hong Kong's Hang Seng, and Japanese Topix index futures.
June was a difficult month for stocks globally. The S&P 500 lost over 7% and the
NASDAQ lost over 9%.
The metals sector sustained slight losses for the quarter. In June, the uptrend
in gold reversed and losses were sustained on a long position eliminating
profits earned earlier in the quarter. Trading activity was also in the zinc,
copper and aluminum markets.
Losses were experienced in the agricultural commodities markets. Long positions
in sugar and short positions in corn futures were mostly to blame.
Energy futures experienced whipsaw markets and trading brought in losses for the
Partnership. The rally in petroleum prices corrected in April and the run up had
completely reversed by May.
JANUARY 1, 2001 to JUNE 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.
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.
8
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 ten-year bonds. The
Federal Reserve continued to cut rates causing losses in short positions in U.S.
Treasury five and ten-year notes and 30-year bonds.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
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
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 2002.
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
(General Partner)
Date: August 15, 2002 By /s/ FABIO P. SAVOLDELLI
-----------------------
Fabio P. Savoldelli
Chairman, Chief Executive Officer and Manager
(Principal Executive Officer)
Date: August 15, 2002 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
11
EXHIBIT 99
Form of Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code
We, Fabio P. Savoldelli and Michael L. Pungello, the chief executive officer and
chief financial officer, respectively, of MLIM Alternative Strategies LLC,
general partner of The Futures Expansion Fund Limited Partnership, certify that
(i) the quarterly report Form 10-Q fully complies with the requirements of
Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 and (ii) the
information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of The Futures
Expansion Fund Limited Partnership.
Date: August 15, 2002 By /s/ FABIO P. SAVOLDELLI
-----------------------
Fabio P. Savoldelli
Chairman, Chief Executive Officer and Manager
(Principal Executive Officer)
Date: August 15, 2002 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
12