FUTURES EXPANSION FUND LTD PARTNERSHIP - 10-Q Quarterly Report

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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 March 31, 2003
--------------

OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934-

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 Alternative Investments LLC
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
----------------------------------------------

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)

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 THREE MONTHS ENDED MARCH 31, 2003 AND 2002
--------------------------------------------------
(unaudited)

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 March 31,
2003, and the results of its operations for the three months ended March
31, 2003 and 2002. 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, 2002.

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.

Merrill Lynch Alternative Investments LLC ("MLAI LLC"), formerly MLIM
Alternative Strategies LLC, 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. These procedures
focus primarily on monitoring the trading of Millburn Ridgefield
Corporation ("Millburn"), 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 MLAI LLC does not
itself intervene in the markets to hedge or diversify the Partnership's
market exposure, MLAI LLC may urge Millburn to reallocate positions in an
attempt to avoid over-concentrations. However, such interventions are
unusual. Except in cases in which it appears that Millburn has begun to
deviate from past practice or trading policies or to be trading
erratically, MLAI LLC's basic risk control procedures consist

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simply of the ongoing process of advisor monitoring, with the market risk
controls being applied by Millburn 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 from 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

Performance Summary

January 1, 2003 to March 31, 2003

The Partnership experienced gains in the energy and interest rate sectors
and losses in the agricultural commodity, metals, stock index and currency
sectors. Overall, for the quarter, the Partnership experienced trading
gains.

Energy was the best performing sector for the quarter. With the
continuation of the strike in Venezuela, the tensions with Iraq and the
cold winter, long positions in oil and natural gas were profitable in the
beginning of the year. In February, the best performing month, natural
gas prices rose over 40% in a single day citing expected severely cold
weather and supply shortages. The Partnership profited from this event
but the volatility overlay as part of the trading program resulted in a
withdrawal from the market by 75% over the next two days. This helped the
Partnership retain profits as prices declined in crude oil and natural
gas in March.

6

Interest rate futures were the other profitable sector for the quarter.
With inflation under control, the bear market entering its fourth year
and the earnings outlook cloudy, bonds appear to feed an investor
appetite for fixed income investments, which have performed well in
recent years. Safe and liquid government bonds continued to attract
investment, causing rates to drop and bond prices to rise. Although there
was a reversal in the intermediate and long term bond yields, the
Partnership is keeping long positions in the interest rate markets. By
the end of March, bond prices seemed to be more attuned to economic
fundamentals rather than the progress of the war.

Trading in agricultural commodities was flat for the quarter. The
Partnership holds positions in corn, cotton and coffee.

The metals sector had slight losses for the quarter. The Partnership
holds positions in gold and industrial metals such as, copper, aluminum
and zinc.

Trading the stock index futures sustained losses for the quarter. The
Partnership held positions in the S&P 500, NASDAQ 100, German DAX, Hong
Kong's Hang Seng, and the Japanese Nikkei and Topix.

The currency forward and futures trading had the most significant losses
for the quarter. The weakening U.S. dollar was continuing as it has for
over a year, however, significant changes in the international markets
changed the outlooks of some other currencies as well. Many Asian
nations, as part of their monetary policy, try to help their export
markets by trying to keep their currency from appreciating against the
U.S. dollar. This is done by purchasing large amounts of U.S. dollar
securities, a depreciating asset. Many Asian banks are expected to
diversify their holdings from U.S. dollars. Russia announced in February
that it would reduce its U.S. dollar holdings and increase its Euro
holdings.

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 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.

7

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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4. Controls and Procedures

Merrill Lynch Alternative Investments LLC, formerly MLIM Alternative
Strategies LLC, the General Partner of The Futures Expansion Fund Limited
Partnership, with the participation of the General Partner's Chief
Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures with respect to the Partnership within 90 days of the filing
date of this quarterly report, and, based on their evaluation, have
concluded that these disclosure controls and procedures are effective.
Additionally, there were no significant changes in the Partnership's
internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

8

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending proceedings to which the Partnership or MLAI
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

As of February 28, 2003, MLIM Alternative Strategies LLC changed
its name to Merrill Lynch Alternative Investments LLC, as part of
an internal Merrill Lynch reorganization. This change did not
affect the personnel involved in the management of the
Partnership.

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 2003.

9

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 ALTERNATIVE INVESTMENTS
LLC
(General Partner)

Date: May 15, 2003 By /s/ ROBERT M. ALDERMAN
-----------------------
Robert M. Alderman
Chairman, Chief Executive Officer and Manager
(Principal Executive Officer)

Date: May 15, 2003 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)

10

EXHIBIT 99

Form of Certification Pursuant to Section 1350 of Chapter 63
------------------------------------------------------------
of Title 180 of the United States Code
--------------------------------------

I, Robert M. Alderman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Futures Expansion
Fund Limited Partnership;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: May 15, 2003

- -----------------------
By /s/ ROBERT M. ALDERMAN
----------------------
Robert M. Alderman
Chairman, Chief Executive Officer and Manager
(Principal Executive Officer)

11

EXHIBIT 99 (a)

AS ADOPTED TO
-------------
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
---------------------------------------------

In connection with this quarterly report of The Futures Expansion Fund Limited
Partnership on Form 10-Q for the period ended March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof, I, Robert M. Alderman,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant of the
Sarbanes-Oxley Act of 2002, that:

1. This quarterly report fully complies with the requirements of Section 13 or
15(d) of the Securities and Exchange Act of 1934; and

2. The information contained in this quarterly report fairly presents, in all
material respects, the financial condition and results of operations of The
Futures Expansion Fund Limited Partnership.

Date: May 15, 2003

- -----------------------
By /s/ ROBERT M. ALDERMAN
----------------------
Robert M. Alderman
Chairman, Chief Executive Officer and Manager
(Principal Executive Officer)

12

EXHIBIT 99

Form of Certification Pursuant to Section 1350 of Chapter 63
------------------------------------------------------------
of Title 180 of the United States Code
--------------------------------------

I, Michael L. Pungello, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Futures Expansion
Fund Limited Partnership;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: May 15, 2003

- -----------------------
By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)

13

EXHIBIT 99 (a)

AS ADOPTED TO
-------------
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
---------------------------------------------

In connection with this quarterly report of The Futures Expanion Fund Limited
Partnership on Form 10-Q for the period ended March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof, I, Michael L. Pungello,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant of the
Sarbanes-Oxley Act of 2002, that:

1. This quarterly report fully complies with the requirements of Section 13 or
15(d) of the Securities and Exchange Act of 1934; and

2. The information contained in this quarterly report fairly presents, in all
material respects, the financial condition and results of operations of The
Futures Expansion Fund Limited Partnership.

Date: May 15, 2003

- -----------------------
By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)

14