<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C.  20549

                                   FORM 10-K

               (x) Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                 For the fiscal year ended:  December 31, 1997
                                       or
                 (  ) Transition Report Pursuant to Section 13
                or 15(d) of the Securities Exchange Act of 1934

                        Commission file number:  0-15298

                 THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
                 ----------------------------------------------
             (Exact name of registrant as specified in its charter)

         DELAWARE                                            13-3365950
-------------------------------                          ------------------    
(State of other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                           Identification No.)

                  C/O MERRILL LYNCH INVESTMENT PARTNERS INC.
                        MERRILL LYNCH WORLD HEADQUARTER
                            WORLD FINANCIAL CENTER
               SOUTH TOWER, 6TH FLOOR, NEW YORK, NY  10080-6106
               ------------------------------------------------
                    (Address of principal executive offices)

      Registrant's telephone number, including area code:  (212) 236-5662
                                                           --------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:  None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: 

                                                   Limited Partnership  Units   
                                                  ----------------------------- 
                                                         (Title of Class)  

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 
                                                         -----          -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Aggregate market value of the voting and non-voting stock held by non-affiliates
of the registrant:  the registrant is a limited partnership; as of February 1,
1998, limited partnership units with an aggregate value of $9,171,054 were
outstanding and held by  non-affiliates.

                      DOCUMENTS INCORPORATED BY REFERENCE

The registrant's "1997 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 1997,
is incorporated by reference into Part II, Item 8, and Part IV hereof and filed
as an Exhibit herewith.
<PAGE>
 
                 THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP

                      ANNUAL REPORT FOR 1997 ON FORM 10-K

                               Table of Contents
                               -----------------
<TABLE>
<CAPTION> 
                                              PART I                                              PAGE
                                              ------                                              ----
<S>        <C>                                                  <C>
Item 1.    Business...............................................................................  1
 
Item 2.    Properties.............................................................................  7
 
Item 3.    Legal Proceedings......................................................................  7
 
Item 4.    Submission of Matters to a Vote of Security Holders....................................  7
 
</TABLE>
                                    PART II
                                    -------
<TABLE>
<CAPTION>
 
<S>         <C>                                                                                    <C>
Item 5.     Market for Registrant's Common Equity and Related Stockholder Matters................   8
 
Item 6.     Selected Financial Data..............................................................   9
 
Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations  12
 
Item 7A.    Quantitative and Qualitative Disclosures About Market Risks..........................  14
 
Item 8.     Financial Statements and Supplementary Data..........................................  15
 
Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.  15
 
</TABLE>
                                    PART III
                                    --------
<TABLE>
<CAPTION>
 
<S>         <C>                                                             <C>
Item 10.    Directors and Executive Officers of the Registrant...................................  15
 
Item 11.    Executive Compensation...............................................................  17
 
Item 12.    Security Ownership of Certain Beneficial Owners and Management.......................  17
 
Item 13.    Certain Relationships and Related Transactions.......................................  18
 
</TABLE>
                                    PART IV
                                    -------
<TABLE> 
<CAPTION> 
<S>                                                                                               <C>  
Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K......................  18
</TABLE> 

                                     -ii-
<PAGE>
 
                                     PART I

ITEM 1:   BUSINESS
          --------

     (a)  General Development of Business:
          ------------------------------- 

          The Futures Expansion Fund Limited Partnership (the "Partnership" or
the "Fund") was organized under the Delaware Revised Uniform Limited Partnership
Act on August 13, 1986. Its sole public offering of units of limited partnership
interest ("Units") commenced on October 27, 1986, and the Partnership began
commodity futures, forwards and options trading on January 2, 1987 through a
Joint Venture (the "Joint Venture") with and under the direction of Millburn
Ridgefield Corporation ("Millburn Ridgefield" or the "Trading Advisor").
Millburn Ridgefield has been the Fund's sole Trading Advisor since inception.
Partnership, through the Joint Venture, engages in the speculative trading of
commodity futures, forward and options contracts on currencies, financial
instruments, stock indices, metals, energy and agricultural products. The Fund's
objective is achieving, through speculative trading, substantial capital
appreciation over time.

          Merrill Lynch Investment Partners Inc. (the "General Partner" or
"MLIP") acts as the general partner of the Partnership.  Merrill Lynch Futures
Inc. (the "Commodity Broker" or "MLF") is the Partnership's commodity broker.
The General Partner is a wholly-owned subsidiary of Merrill Lynch Group Inc.,
which in turn is a wholly-owned subsidiary of Merrill Lynch & Co., Inc.  The
Commodity Broker is an indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc.  (ML&Co. and its affiliates are herein sometimes referred to as "Merrill
Lynch.")

          The initial capitalization of the Fund was $56,741,035. Units were
sold only as of a single closing, January, 2, 1987.  Through December 31, 1997,
Units with an aggregate Net Asset Value of $64,158,120  had been redeemed
(including December 31, 1997 redemptions which were not actually paid out until
January 1998).  As of December 31, 1997, the capitalization of the Fund was
$9,640,738, and the Net Asset Value per Unit, originally $100 as of January 2,
1987, had risen to $275.73.  As of December 31, 1997, the Fund had 389 Limited
Partners.

     Through December 31, 1997, the net gain in the Net Asset Value per Unit was
175.73%.  The highest month-end Net Asset Value per Unit through December 31,
1997 was $295.54 (July, 1997) and the lowest $100.05 (September, 1987).

     (b)  Financial Information about Industry Segments:
          --------------------------------------------- 

          The Partnership's business constitutes only one segment for financial
reporting purposes, i.e., a speculative "commodity pool."

     (c)  Narrative Description of Business:
          --------------------------------- 

          GENERAL

          The Fund trades in the international futures, options on futures and
forward markets with the objective of achieving substantial capital appreciation
over time.

          One of the objectives of the Fund is to provide diversification for a
limited portion of the risk segment of the Limited Partners' portfolios.
Commodity pool performance has historically often demonstrated a low degree of
performance correlation with traditional stock and bond holdings.  Since it
began trading, the Fund's returns have, in fact, frequently been significantly
non-correlated (not, however, negatively correlated) with the United States
stock and bond markets.

          The Joint Venture Agreement between the Partnership and the Trading
Advisor may be terminated by the General Partner, acting on behalf of the
Partnership, under certain circumstances involving, for example, substantial
losses or changes in control of the Trading Advisor.  The termination of the
Joint Venture Agreement would not necessarily terminate the Partnership, but
would require the General Partner to make other advisory arrangements for the
Joint Venture.

                                      -1-
<PAGE>
 
          MILLBURN RIDGEFIELD

          Millburn Ridgefield is one of the longest operating of all active
managed futures advisors.  Principals of Millburn Ridgefield have been managing
client assets in the futures and forward markets since 1972, and as of January
1, 1998 Millburn Ridgefield was managing approximately $798 million of client
and proprietary capital in these markets.  As of such date, Millburn Ridgefield
and its affiliates were also managing over $625 million in other disciplines.

          Millburn Ridgefield uses a highly systematic trend-following approach
which relies primarily on technical, market-related information.  Millburn
Ridgefield regards its strategies as long-term in nature, and gives substantial
emphasis to risk management -- through, for example, analysis of leverage,
implementation of "stop-loss" liquidation points on all open positions and
ongoing rebalancing of portfolio commitments based on volatility risk
assessments of the different markets traded.

          Millburn Ridgefield implements multiple systems (generally, at least
three) in analyzing each market which it trades.  Only if all systems
implemented in a market generate a positive trading signal will a "full
position" be taken.  A "full position" represents the maximum exposure that the
risk control overlay in the trading system will allow in a given market based on
account equity, market volatility and other factors.  Because Millburn
Ridgefield utilizes multiple trading systems, a negative signal in one system
may be offset by positive signals in the other systems. Partial positions may be
taken if one or more trading systems generate a neutral or negative trading
signal while the other system(s) generate positive signal(s).  This multi-system
approach is intended to help to filter out the "whipsaw" effect which short-term
"noise" price fluctuations and reversals can otherwise have on trend-following
systems -- resulting in the dissipation of account equity through the frequent
acquisition and liquidation of positions.  The use of multiple evaluative models
gives Millburn Ridgefield's strategy a degree of internal diversification which
has the potential to increase its risk control capabilities.

          As is the case with most trend-following systems, Millburn Ridgefield
seeks to achieve cumulative profitability through capturing sustained price
trends of significant duration and magnitude.  Such trends tend to be relatively
infrequent (often occurring only 2 to 3 times or less during a year in any given
market).  The early determina  tion of the beginning and end of such major
trends is an important feature of successful trading.  Millburn Ridgefield's
technical trading systems are designed with the objective that they will
generate a trading signal when market conditions indicate a trend is likely to
occur.  If the trend is not subsequently confirmed or quickly reverses itself,
positions are closed out in an attempt to limit capital losses.  Positions which
are profitable are maintained until the trading systems indicate that the trend
has ended.

          The money management principles, computer assisted research into
historical trading data, and experience of the principals of Millburn Ridgefield
are factors upon which decisions concerning the percentage of assets to be used
for each market traded and the size of positions taken or maintained are based.
From time to time decisions to increase or decrease the size of a position, long
or short, may be made.  Such decisions also require the exercise of judgment and
may include consideration of the volatility of the particular market; the
pattern of price movements, both inter-day and intra-day; open interest; volume
of trading; changes in spread relationships between various forward contracts;
and overall portfolio balance and risk exposure.

          With respect to the execution of trades, Millburn Ridgefield may rely
to an extent upon the judgment of others, including dealers, bank traders and
floor brokers.  No assurance is given that it will be possible to execute trades
regularly at or near the desired buy or sell point.

          The trading method, systems and money management principles utilized
by Millburn Ridgefield are proprietary and confidential.  The foregoing
description is general and is not intended to be complete.

                                      -2-
<PAGE>
 
          USE OF PROCEEDS AND INTEREST INCOME

          General.  The Fund's assets are used as security for and to pay the
          -------                                                            
Partnership's speculative trading losses as well as any expenses and
redemptions.  The primary use of the Fund's capital is to permit the Advisor to
trade on a speculative basis in a wide range of different futures, forwards and
options markets.  While being used for this purpose, the Partnership's assets
are also generally available to earn interest, as more fully described below
under "-- Available Assets."

          Market Sectors.  The Partnership trades in a diversified group of
          --------------                                                   
markets under the direction of the Trading Advisor.  The Trading Advisor can,
and does, from time to time materially alter the allocation of its overall
trading commitments among different market sectors.   There is essentially no
restriction on the commodity interests which may be traded by Millburn
Ridgefield or the rapidity with which Millburn Ridgefield may alter its market
sector allocations.

          The Fund's financial statements contain information relating to the
market sectors traded by the Fund. There can, however, be no assurance as to
which markets may be included in the Fund's portfolio or as to in which market
sectors the Fund's trading may be concentrated at any one time or over time.

          Market Types.  The Fund trades on a variety of United States and
          ------------                                                    
foreign futures exchanges. Applicable exchange rules differ significantly among
different countries and exchanges.  Substantially all of the Fund's off-exchange
trading takes place in the highly liquid, institutionally-based currency forward
markets.  The forward markets are generally unregulated, and in its forward
trading the Fund does not deposit margin with respect to its positions.  The
Partnership's forward currency trading is executed exclusively through the
Foreign Exchange Service Desk (the "F/X Desk") operated by MLIP and certain of
its affiliates, with MLF as the "back-to-back" intermediary to the ultimate
counterparties, which include Merrill Lynch International Bank  ("MLIB") with
which the Advisor trades on behalf of the Fund.

          As in the case of its market sector allocations, the Fund's
commitments to different types of markets -- U.S. and non-U.S., regulated and
unregulated -- differ substantially from time to time as well as over time.  The
Fund has no policy restricting its relative commitments to any of these
different types of markets.

          The Fund's financial statements contain information relating to the
types of markets traded by the Fund.  There can, however, be no assurance as to
in which markets the Fund may trade or the Fund's trading may be concentrated at
any one time or over time.

          Custody of Assets.  All of the Fund's assets are currently held in
          -----------------                                                 
CFTC-regulated customer accounts at MLF.

          Available Assets.  The Fund earns interest, as described below, on its
          ----------------                                                      
"Available Assets,"  which can be generally described as the cash actually held
by the Fund.  Available Assets are held primarily in U.S. dollars, and to a
lesser extent in foreign currencies, and are comprised of the following:  (a)
the Fund's cash balance in the offset accounts (as described below) -- which
includes "open trade equity" (unrealized gains and losses on open positions) on
United States futures contracts, which is paid into or out of the Fund's account
on a daily basis; and (b) the Fund's cash balance in foreign currencies derived
from its trading in non-U.S. dollar denominated futures and options contracts,
which includes open trade equity on those exchanges which settle gains and
losses on open positions in such contracts prior to the closing out of such
positions.  Available Assets do not include, and the Fund does not earn interest
on, the Fund's gains or losses on its open forward, commodity option and certain
foreign futures positions since such gains or losses are not collected or paid
until such positions are closed out.

          The Partnership's Available Assets may be greater than, less than or
equal to the Fund's Net Asset Value (on which the redemption value of the Units
is based) primarily because Net Asset Value reflects all gains and losses on
open positions as well as accrued but unpaid expenses.

                                      -3-
<PAGE>
 
          The interest income arrangements for the Partnership's U.S. dollar
Available Assets differ from those applicable to its non-U.S. dollar Available
Assets.  Interest income, once accrued by the Fund, is subject to the risk of
trading losses.


          Interest Earned on the Fund's U.S. Dollar Available Assets.  The
          ----------------------------------------------------------      
Fund's U.S. dollar Available Assets are held in cash in offset accounts and in
short-term Treasury bills purchased from dealers unaffiliated with Merrill
Lynch.  Offset accounts are non-interest bearing demand deposit accounts
maintained with banks unaffiliated with Merrill Lynch.  An integral feature of
the offset arrangements is that the participating banks specifically acknowledge
that the offset accounts are MLF customer accounts, not subject to any Merrill
Lynch liability.

          MLF credits the Partnership, as of the end of each month, with
interest at the effective daily 91-day Treasury bill rate on the average daily
U.S. dollar Available Assets held in the offset accounts during such month.  The
Fund receives all interest paid on the short-term Treasury bills in which it
invests.

          The use of the offset account arrangements for the Partnership's U.S.
dollar Available Assets may be discontinued by Merrill Lynch whether or not
Merrill Lynch otherwise continues to maintain its offset arrangements. The
offset arrangements are dependent on the banks' continued willingness to make
overnight credits available to Merrill Lynch, which, in turn, is dependent on
the credit standing of ML&Co.  If Merrill Lynch were to determine that the
offset arrangements had ceased to be practicable (either because ML&Co. credit
lines at participating banks were exhausted or for any other reason), Merrill
Lynch would thereafter attempt to invest all of the Fund's U.S. dollar Available
Assets to the maximum practicable extent in short-term Treasury bills.  All
interest earned on the U.S. dollar Available Assets so invested would be paid to
the Fund, but MLIP would expect the amount of such interest to be less than that
available to the Fund under the offset account arrangements.  The remaining U.S.
dollar Available Assets of the Fund would be kept in cash to meet variation
margin payments and pay expenses, but would not earn interest for the Fund.

          The banks at which the offset accounts are maintained make available
to Merrill Lynch interest-free overnight credits, loans or overdrafts in the
amount of  the Fund's U.S. dollar Available Assets held in the offset accounts,
charging Merrill Lynch a small fee for this service.  The economic benefits
derived by Merrill Lynch -- net of the interest credits paid to the Fund and the
fee paid to the offset banks -- from the offset accounts have not exceeded  3/4
of 1% per annum of the Fund's average daily U.S. dollar Available Assets held in
the offset accounts. These revenues to Merrill Lynch are in addition to the
Brokerage Commissions and Administrative Fees paid by the Fund to MLF and MLIP,
respectively.

          Interest Paid by Merrill Lynch on the Fund's Non-U.S. Dollar Available
          ----------------------------------------------------------------------
Assets.  Under the single currency margining system implemented for the
------                                                                 
Partnership, the Partnership itself does not deposit foreign currencies to
margin trading in non-U.S. dollar denominated futures contracts and options. MLF
provides the necessary margin, permitting the Fund to retain the monies which
would otherwise be required for such margin as part of the Fund's U.S. dollar
Available Assets.  Consequently, the Fund does not earn interest on foreign
margin deposits provided by MLF. The Fund does, however, earn interest on its
non-U.S. dollar Available Assets.  Specifically, the Fund is credited by Merrill
Lynch with interest at the local short-term rate on realized and unrealized
gains on non-U.S. dollar denominated positions for such gains actually held in
cash by the Fund.  Merrill Lynch charges the Fund Merrill Lynch's cost of
financing realized and unrealized losses on such positions.

          In order to avoid the expense of daily currency conversions, the Fund
holds foreign currency gains and finances foreign currency losses on an interim
basis until converted into U.S. dollars and either paid into or out of the
Fund's U.S. dollar Available Assets.  Foreign currency gains or losses on open
positions are not converted into U.S. dollars until the positions are closed.
Assets of the Fund while held in foreign currencies are subject to exchange rate
risk.

                              ------------------

                                      -4-
<PAGE>
 
          The General Partner has determined that there may have been a
miscalculation in the interest credited to the Fund for a period prior to
November 1996.  Accordingly, Merrill Lynch has credited certain amounts to the
Fund's investors (directly, not by crediting the Fund itself).  For current
Merrill Lynch clients, this credit, which includes compounded interest, appeared
on the December 1997 account statements.  The total amount of the adjustment is
approximately $502,000.

          CHARGES

          The following table summarizes the charges incurred by the Fund during
1995, 1996 and 1997.

<TABLE>
<CAPTION>
                             1995                      1996                      1997
                    ----------------------    ----------------------    ----------------------
                               % OF AVERAGE                  % OF                      % OF
                    DOLLAR     MONTH-END        DOLLAR      AVERAGE       DOLLAR      AVERAGE
COST                AMOUNT      NET ASSETS      AMOUNT     MONTH-END      AMOUNT     MONTH-END
----                ------     ------------     ------     NET ASSETS     ------     NET ASSETS
                                                           ----------                ---------- 
<S>               <C>          <C>            <C>         <C>           <C>         <C>           
Brokerage
Commissions       $1,208,671    12.27%        $1,120,320   11.94%        $1,022,449   10.05%
 
Administrative             -        -             24,001    0.26             26,392    0.26
Fees  

Profit Shares        471,976     4.79            206,261    2.20            278,351    2.73
                     -------     ----            -------    ----            -------    ----

  Total           $1,680,647    17.06%        $1,350,582   14.40%        $1,327,192   13.04%
                  ==========    ======        ==========   ======        ==========   ======
</TABLE>
____________

                          ____________________________

          The foregoing table does not reflect the bid-ask spreads paid by the
Fund on its forward trading, or the benefits which may be derived by Merrill
Lynch from the deposit of certain of the Fund's U.S. dollar Available Assets in
offset accounts.  See Item 1(c), "Narrative Description of Business -- Use of
Proceeds and Interest Income."

          The Fund's average month-end Net Assets during 1995, 1996 and 1997
equaled $9,852,663, $9,384,974 and $10,177,610, respectively.

          During 1995, and 1996 and 1997 the Fund earned $468,023 , $382,717 and
$470,192 in interest income, or approximately  4.75%, 4.08%,  and 4.62% of the
Fund's average month-end Net Assets.

          As of January 1, 1996, the 11.92% per annum Brokerage Commissions paid
by the Fund to MLF were recharacterized as 11.67% per annum Brokerage
Commissions and a 0.25% per annum Administrative Fee paid by the Fund to MLIP.
This recharacterization had no economic effect on the Fund.

          Effective February 1, 1997, the Brokerage Commissions paid by the Fund
were reduced from 11.92% to 9.50% per annum.


                                      -5-
<PAGE>
 
                        ______________________________

                        DESCRIPTION OF CURRENT CHARGES

<TABLE>
<CAPTION>
 
RECIPIENT           NATURE OF PAYMENT       AMOUNT OF PAYMENT
---------           -----------------       ---------------------------------------------------------
<S>                 <C>                     <C>
 
MLF                 Brokerage Commissions   A flat-rate monthly commission of 0.7917 of 1% of the
                                            Fund's month-end assets (a 9.50% annual rate).
 
                                            During 1995, 1996, and 1997, the round-turn (each purchase 
                                            and sale or sale and purchase of a single futures contract) 
                                            equivalent rate of the Fund's flat-rate Brokerage Commissions 
                                            was approximately $120, $102 and $84, respectively. The 
                                            round-turn rates for 1995 and 1996 reflect Brokerage 
                                            Commissions at the rate of 11.92% per annum. As of
                                            February 1, 1997, this rate was reduced to 9.50%.

MLF                 Use of Fund assets      Merrill Lynch may derive an economic benefit from
                                            the deposit of certain of the Fund's U.S. dollar
                                            Available Assets in offset accounts; such benefit to
                                            date has not exceeded  3/4 of 1% of such average daily
                                            U.S. dollar Available Assets.

MLIP                Administrative Fees     The Fund pays MLIP a monthly Administrative Fee
                                            equal to 0.020833 of 1% of the Fund's month-end
                                            assets (0.25% annually).   MLIP pays all of the Fund's
                                            routine administrative costs.

MLIB                Bid-ask spreads         Under MLIP's F/X Desk arrangements, MLIB receives
                                            bid-ask spreads on the forward trades it executes with
                                            the Fund.

Other               Bid-ask spreads         The counterparties other than MLIB with which the
  Counterparties                            F/X Desk deals also each receive bid-ask spreads on
                                            the forward trades executed with the Fund.
 
MLIP                F/X Desk service fees   Under the F/X Desk arrangements, MLIP or another
                                            Merrill Lynch entity receives a service fee equal, at
                                            current exchange rates, to approximately $5.00 to
                                            $12.50 on each purchase or sale of each futures
                                            contract-equivalent forward contract executed with
                                            counterparties other than MLIB.
 
MLIB                EFP differentials       MLIB or an affiliate receives a differential spread for
                                            exchanging the Fund's spot currency positions (which
                                            are acquired through the F/X Desk, as described
                                            above) for equivalent futures positions.

Millburn            Profit Share            20% of any New Trading Profit achieved by the Fund
Ridgefield                                  as of the end of each calendar year and upon
                                            redemption of Units.
 
MLF;                Extraordinary expenses  Actual costs incurred; none paid to date, and expected
  Others                                    to be negligible.
</TABLE>

                              ------------------

                                      -6-
<PAGE>
 
          REGULATION

          The General Partner, Millburn Ridgefield and the Commodity Broker are
each subject to regulation by the Commodity Futures Trading Commission (the
"CFTC") and the National Futures Association.  Other than in respect of its
periodic reporting requirements under the Securities Exchange Act of 1934, the
Partnership itself is generally not subject to regulation by the Securities and
Exchange Commission.  However, MLIP itself is registered as an "investment
adviser" under the Investment Advisers Act of 1940.

          (i) through (xii) -- not applicable.

          (xiii)  The Partnership has no employees.

     (d)  Financial Information about Foreign and Domestic Operations and Export
          ----------------------------------------------------------------------
          Sales:
          ----- 

          The Partnership does not engage in material operations in foreign
countries, nor is a material portion of the Partnership's revenues derived from
customers in foreign countries.  The Partnership does, however, trade, from the
United States, on a number of foreign commodity exchanges.

ITEM 2:   PROPERTIES
          ----------

          The Partnership does not use any physical properties in the conduct of
its business.

          The Partnership's only place of business is the place of business of
the General Partner (see Item 10 herein).  The General Partner performs all
administrative services for the Partnership from the General Partner's offices.

ITEM 3:   LEGAL PROCEEDINGS
          -----------------

          ML&Co. -- the sole stockholder of Merrill Lynch Group, Inc. (which is
the sole stockholder of MLIP) -- as well as certain of its subsidiaries and
affiliates have been named as defendants in civil actions, arbitration
proceedings and claims arising out of their respective business activities.
Although the ultimate outcome of these actions cannot be ascertained at this
time and the results of legal proceedings cannot be predicted with certainty, it
is the opinion of management that the result of these matters will not be
materially adverse to the business operations or the financial condition of MLIP
or the Fund.

          MLIP itself has never been the subject of any material litigation.

          On June 24, 1997, the CFTC accepted an Offer of Settlement from MLF
and others, in a matter captioned "In the Matter of Mitsubishi Corporation and
Merrill Lynch Futures Inc., et al.," CFTC Docket No. 97-10, pursuant to which
MLF, without admitting or denying the allegations against it, consented to a
finding by the Commission that MLF had violated Section 4c(a)(A) of the
Commodity Exchange Act, relating to wash sales (the CFTC alleged that the
customer entered nearly simultaneous orders without the intent to engage in a
bona fide trading transaction), and CFTC Regulation 1.37(a), relating to
recordkeeping requirements.  MLF agreed to cease and desist from violating
Section 4c(a)(A) of the Act and Regulation 1.37(a), and to pay a civil monetary
penalty of $175,000.

ITEM 4:   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
          ---------------------------------------------------

          The Partnership has never submitted any matters to a vote of its
Limited Partners.

                                      -7-
<PAGE>
 
                                    PART II

ITEM 5:   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
          ---------------------------------------------------------------------

     (a)  Market Information:
          ------------------ 

          There is no established public trading market for the Units, nor will
one develop.  Rather, Limited Partners may redeem Units as of the end of each
month at Net Asset Value.

     (b)  Holders:
          ------- 

          As of December 31, 1997, there were 390 holders of Units, including
the General Partner.

     (c)  Dividends:
          --------- 

          The Partnership has made no distributions since trading commenced, nor
does the General Partner presently intend to make any distributions in the
future.

                                      -8-
<PAGE>
 
ITEM 6:   SELECTED FINANCIAL DATA
          -----------------------

          The following selected financial data has been derived from the
audited financial statements of the Partnership.

<TABLE>
<CAPTION>
                                          FOR THE YEAR    FOR THE YEAR    FOR THE YEAR   FOR THE YEAR    FOR THE YEAR
                                              ENDED           ENDED           ENDED          ENDED           ENDED
                                           DECEMBER 31,    DECEMBER 31,    DECEMBER 31,   DECEMBER 31,    DECEMBER 31,

INCOME STATEMENT DATA                          1997            1996           1995            1994           1993
---------------------                     --------------  --------------  -------------  --------------  -------------
<S>                                       <C>             <C>             <C>            <C>             <C> 
Revenues:
 
Trading Profits (Loss)

      Realized Gain                          $1,551,671      $1,800,104      $2,689,922     $2,206,016      $  369,871

      Change in Unrealized (Loss) Gain         (102,280)        (39,401)        405,757       (891,323)      1,010,906
                                             ----------      ----------      ----------     ----------      ----------
 
         Total Trading Results                1,449,391       1,760,703       3,095,679      1,314,693       1,380,777
 
Interest Income                                 470,192         382,717         468,023        290,482         216,417
                                             ----------      ----------      ----------     ----------      ----------
 
         Total Revenues                       1,919,583       2,143,420       3,563,702      1,605,175       1,597,194
                                             ----------      ----------      ----------     ----------      ----------
 
Expenses:

   Brokerage Commissions                      1,022,449       1,120,320       1,208,671      1,056,436       1,196,550

   Administrative Fees                           26,392          24,001               -              -               -

   Profit Shares                                278,351         206,261         471,976        119,420          83,410
                                             ----------      ----------      ----------     ----------      ----------
 
        Total Expenses                        1,327,192       1,350,582       1,680,647      1,175,856       1,279,960
                                             ----------      ----------      ----------     ----------      ----------
 
      Net Income                             $  592,391      $  792,838      $1,883,055     $  429,319      $  317,234
                                             ==========      ==========      ==========     ==========      ==========
 
                                            DECEMBER 31,    DECEMBER 31,    DECEMBER 31,   DECEMBER 31,    DECEMBER 31,
BALANCE SHEET DATA                              1997            1996            1995           1994            1993
------------------                           ----------      ----------      ----------     ----------      ----------
 
Fund Net Asset Value                         $9,640,738      $9,895,616      $9,891,103     $8,863,340      $9,610,371

Net Asset Value per Unit                        $275.73         $260.29         $238.96        $195.94         $185.64
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -9-
<PAGE>
 
<TABLE>
<CAPTION>
                                        MONTH-END NET ASSET VALUE PER UNIT
------------------------------------------------------------------------------------------------------------------
         JAN.     FEB.     MAR.     APR.      MAY     JUNE     JULY     AUG.     SEPT.    OCT.     NOV.     DEC.
------------------------------------------------------------------------------------------------------------------
<S>     <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
 1993   $174.03  $182.97  $181.37  $190.86  $186.44  $180.53  $188.27  $172.77  $173.34  $170.26  $172.38  $185.64
------------------------------------------------------------------------------------------------------------------
 1994   $170.96  $168.29  $179.52  $174.67  $182.59  $191.83  $186.02  $174.47  $179.91  $184.24  $192.32  $195.94
------------------------------------------------------------------------------------------------------------------
 1995   $189.48  $201.01  $231.61  $240.44  $235.91  $237.51  $230.15  $231.47  $226.17  $224.81  $224.36  $238.96
------------------------------------------------------------------------------------------------------------------
 1996   $252.05  $224.51  $225.51  $236.49  $219.53  $227.57  $230.17  $224.71  $230.21  $251.56  $258.55  $260.29
------------------------------------------------------------------------------------------------------------------
 1997   $277.32  $292.65  $283.51  $274.35  $277.52  $277.13  $295.54  $270.69  $273.08  $266.48  $265.12  $275.73
------------------------------------------------------------------------------------------------------------------
</TABLE>


          Pursuant to CFTC policy, monthly performance is presented from January
1, 1993, even though the Units were outstanding prior to such date.

                                      -10-
<PAGE>
 
                 THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
                               DECEMBER 31, 1997

 Type of Pool:  Single Advisor/Publicly-Offered/Non-"Principal Protected"/(1)/
                     Inception of Trading:  January 2, 1987
                    Aggregate Subscriptions:    $56,741,035
                      Current Capitalization:   $9,640,738
                 Worst Monthly Drawdown/(2)/:  (10.92)% (2/96)
           Worst Peak-to-Valley Drawdown/(3)/:  (12.90)%  (2/96-5/96)
                                 _____________

             Net Asset Value per Unit, December 31, 1997:   $275.73

<TABLE>
<CAPTION>
------------------------------------------------------------
                MONTHLY RATES OF RETURN/(4)/
------------------------------------------------------------
      MONTH         1997    1996     1995     1994     1993
------------------------------------------------------------
<S>                <C>     <C>      <C>      <C>      <C>
January             6.54%    5.48%   (3.30)%  (7.91)%  (3.10)%
------------------------------------------------------------
February            5.53   (10.92)    6.09    (1.56)    5.14
------------------------------------------------------------
March              (3.12)    0.44    15.22     6.67    (0.87)
------------------------------------------------------------
April              (3.23)    4.87     3.81    (2.70)    5.23
------------------------------------------------------------
May                 1.16    (7.17)   (1.88)    4.53    (2.32)
------------------------------------------------------------
June               (0.14)    3.66     0.68     5.06    (3.17)
------------------------------------------------------------
July                6.64     1.14    (3.10)   (3.03)    4.29
------------------------------------------------------------
August             (8.41)   (2.37)    0.57    (6.21)   (8.23)
------------------------------------------------------------
September           0.88     2.45    (2.29)    3.12     0.33
------------------------------------------------------------
October            (2.42)    9.27    (0.60)    2.41    (1.77)
------------------------------------------------------------
November           (0.51)    2.78    (0.20)    4.39     1.24
------------------------------------------------------------
December            4.00     0.67     6.50     1.89     7.69
------------------------------------------------------------
Compound Annual     5.93%    8.93%   21.95%    5.55%    3.36%
Rate of Return
------------------------------------------------------------
</TABLE>


          (1)  Certain funds, including funds sponsored by MLIP, are structured
so as to guarantee to investors that their investment will be worth no less than
a specified amount (typically, the initial purchase price) as of a date certain
after the date of investment.  The CFTC refers to such funds as "principal
protected."  The Partnership has no such feature.

          (2)  Worst Monthly Drawdown represents the largest negative Monthly
Rate of Return experienced since January 1, 1993 by the Fund; a drawdown is
measured on the basis of month-end Net Asset Value only, and does not reflect
intra-month figures.

          (3)  Worst Peak-to-Valley Drawdown represents the greatest percentage
decline since January 1, 1993 from a month-end cumulative Monthly Rate of Return
without such cumulative Monthly Rate of Return being equaled or exceeded as of a
subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in
each of January and February, 1% in March and (2)% in April, the Peak-to-Valley
Drawdown would still be continuing at the end of April in the amount of
approximately (3)%, whereas if the Monthly Rate of Return had been approximately
3% in March, the Peak-to-Valley Drawdown would have ended as of the end of
February at approximately the (2)% level.

          (4)  Monthly Rate of Return is the net performance of the Fund during
the month of determination (including interest income and after all expenses
have been accrued or paid) divided by the total equity of the Fund as of the
beginning of such month.

                                      -11-
<PAGE>
 
ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         -----------------------------------------------------------------------
         OF OPERATIONS
         -------------

   OPERATIONAL OVERVIEW

         The Fund's success depends on Millburn Ridgefield's ability to
recognize and capitalize on trends and other profit opportunities in different
sectors of the world economy.  Millburn Ridgefield's trading methods are
confidential, so that substantially the only information that can be furnished
regarding the Fund's results of operations is its performance record, as set
forth above. Unlike most operating businesses, general economic or seasonal
conditions have no direct effect on the profit potential of the Fund, while, at
the same time, its past performance is not necessarily indicative of future
results.  Because of the speculative nature of its trading, operational or
economic trends have little relevance to the Fund's results.  Millburn
Ridgefield believes, however, that there are certain market conditions -- for
example, markets with strong price trends -- in which the Fund has a better
opportunity of being profitable than in others.

   RESULTS OF OPERATIONS

         General.  MLIP believes that futures funds should be regarded as
         -------                                                         
medium- to long-term (i.e., three to five year) investments, but it is difficult
to identify trends in the Fund's operations and virtually impossible to make any
predictions regarding future results based on the results to date.  An
investment in the Fund may be less successful over a longer than a shorter
period.

         Markets with sustained price trends tend to be more favorable to
managed futures investments than whipsaw, choppy markets, but (i) this is not
always the case, (ii) it is impossible to predict when price trends will occur
and (iii) Millburn Ridgefield's systems are affected differently by trending
markets as well as by particular types of trends.

         MLIP attempts to control credit risk in the Fund's futures, forward and
options trading (the Fund does not trade derivatives other than futures and
forward contracts and options thereon) by trading only through MLF.  MLF acts
solely as a broker or counterparty to the Fund's trades; it does not advise with
respect to, or direct, any such trading.

         MLIP relies primarily on Millburn Ridgefield's risk management policies
and strategies to control the market risk inherent in the Fund's trading.  MLIP
reviews the positions acquired by Millburn Ridgefield on a daily basis in an
effort to determine whether such policies and strategies are being followed and
whether the overall positions of the Fund may have become what MLIP analyzes as
being excessively concentrated in a limited number of markets -- in which case
MLIP may discuss the possibility of rebalancing or deleveraging the Fund's
portfolio with Millburn Ridgefield.  To date, however, MLIP has not intervened
so as to require any rebalancing or deleveraging of Millburn Ridgefield's
trading.

         MLIP may consider making distributions to investors under certain
circumstances (for example, if substantial profits are recognized); however,
MLIP has not done so to date and does not presently intend to do so.

   PERFORMANCE SUMMARY

         1995

         In 1995, prevailing price trends in several key markets enabled
Millburn Ridgefield to trade profitably for the Fund. Although trading in many
of the traditional commodity markets may have been lackluster, the currency and
financial markets offered exceptional trading conditions.  After months
characterized by very difficult trading environments, solid price trends across
many markets (including U.S. Treasury and non-dollar bond markets) began to
emerge during the first quarter of 1995.  In the second quarter, market
volatility once again began to affect trading, as many previously strong price
trends began to weaken and, in some cases, reverse.  The U.S. dollar hit new
lows versus the Japanese yen and Deutschemark before rebounding sharply.  In
addition, there were strong indications that the U.S. economy was slowing which,
when coupled with a failure of the German Central Bank to lower interest rates,
stalled a rally in the German bond market.  During the third quarter, there was
a correction in U.S. bond prices after several months of a strong uptrend.
Throughout August and into September, the U.S. dollar rallied sharply against
the Japanese yen and the Deutschemark as a result of the coordinated
intervention by major central banks and widespread recognition of the growing
banking crisis in Japan.  Despite continued price volatility during the final
quarter of 1995, the Trading Advisors were able to identify several trends in
key markets.  U.S. Treasury bond prices continued their strong move upward
throughout November, due both to weak economic data and optimism on federal
budget talks.  As the year ended, the yield on the 30-year Treasury bond was
pushed to its lowest level in more than two years.

                                      -12-
<PAGE>
 
         1996

         1996 began with the East Coast blizzard, continuing difficulties in
federal budget talks and an economic slowdown having a negative impact on many
markets.  The Fund was profitable in January due to strong profits in currency
trading as the U.S. dollar reached a 23-month high against the Japanese yen.  In
February, however, the Fund incurred its worst monthly loss due to the sudden
reversals in several strong price trends and considerable volatility in the
currency and financial markets.  During March, large profits were taken in the
crude oil and gasoline markets as strong demand continued and talks between the
United Nations and Iraq were suspended.  This trend continued into the second
quarter, during which strong gains were also recognized in the agricultural
markets as a combination of drought and excessive rain drove wheat and grain
prices to historic highs.  In the late summer and early fall months, the Fund
continued to trade profitably as trending prices in a number of key markets
favorably impacted the Fund's performance.  In September heating oil hit a five-
year high on soaring prices in Europe, and the Fund was also able to capitalize
on downward trends in the metals markets.  Strong trends in the currency and
global bond markets produced significant gains in October and November, but the
year ended with declining performance as December witnessed the reversal of
several strong upward trends and increased volatility in key markets.

         1997

         Trend reversals and extreme market volatility, affected by such factors
as the Asian flu and El Nino, were characteristic of most of 1997.  However, the
year proved to be a profitable one overall for the Fund as trends in several key
markets enabled the Trading Advisors to profit despite the significant
obstacles.  Although trading results in several sectors may have been
lackluster, the global currency and bond markets offered noteworthy trading
opportunities, which resulted in significant profits in these markets during the
year.  Additionally, the currency and interest rate sectors of the Fund's
portfolio represented its largest percentage of market commitments.

         In currency markets, the U.S. dollar rallied and started 1997 on a
strong note, rising to a four-year high versus the Japanese yen and two-and-a-
half year highs versus the Deutsche mark and the Swiss franc.  However, the
dollar underwent two significant corrections during the year.  The first
correction occurred in the Spring against the Japanese yen, due to the G7
finance ministers' determination that a further dollar advance would be counter-
productive to their current goals.  From August through mid-November, the dollar
corrected against the Eurocurrencies in advance of a well-advertised tightening
by the Bundesbank.  By mid-December the dollar had bounced back to new highs
against the yen and was rallying against the mark.

         Global interest rate markets began the year on a volatile note, as
investors evaluated economic data for signs of inflation.  By the middle of the
year, economic data in key countries was positive indicating lower inflation and
igniting a worldwide rally in the bond markets.  Specifically, investor
sentiment was particularly strong in the U.S., where prices on the 30-year
Treasury bond and 10-year Treasury note rose to their highest levels in over two
years.  This followed a largely positive economic report delivered by Federal
Reserve Chairman Greenspan in testimony before Congress.  Effects of the plunge
in the Hong Kong stock market in late October spread rapidly throughout the
world's financial markets, including global bond markets.  After continued
volatility in subsequent months made trading difficult, 1997 interest rate
trading ended on a positive note when U.S. and Japanese bond markets rallied as
a flight to safety from plunging stock markets around the world occurred in
December.

         In energy markets, a slump in crude oil prices was characteristic of
its lackluster performance from the beginning of the year.  Early in 1997,
volatility returned in the energy markets, reflecting the impact of a winter
significantly warmer than normal. By mid-year, the decline in prices reversed
sharply as Saudi Arabia and Iran, together representing about 45% of OPEC's oil
production, joined forces to pressure oil-producing nations to stay within OPEC
production quotas.  In December, financial and economic problems in Asia reduced
demand for oil, and in combination with ample supplies, resulted in crude oil
prices declining once again.

   PERFORMANCE OVERVIEW

         The principal variables which determine the net performance of the
Partnership are gross profitability and interest income.  During all periods set
forth under "Selected Financial Data," the interest rates in many countries were
at unusually low levels. This negatively impacted revenues because interest
income is typically a major component of commodity pool profitability.  In
addition, low interest rates are frequently associated with reduced fixed-income
market volatility, and in static markets the Fund's profit potential generally
tends to be diminished.  On the other hand, during periods of higher interest
rates, the relative attractiveness of a high risk investment such as the
Partnership may be reduced as compared to high yielding and much lower risk
fixed-income investments.

                                      -13-
<PAGE>
 
         The Partnership's Brokerage Commissions and the Fund's Administrative
Fees are a constant percentage of assets charge.  The only Fund costs (other
than the insignificant F/X Desk service fees and EFP differentials as well as
bid-ask spreads on forward contracts) which are not based on a percentage of the
Fund's assets are the Profit Shares payable to the Trading Advisor.

         The events that primarily determine the Fund's profitability are those
that produce sustained and major price movements.  The Trading Advisor is
generally more likely to be able to profit from sustained trends, irrespective
of their direction, than from static markets.  During the course of the
Partnership's performance to date, such events have ranged from Federal Reserve
Board reductions in interest rates, the apparent refusal of Iraq to arrive at a
settlement which would permit it to sell oil internationally, the inability of
the U.S. government to agree upon a federal budget and a combination of drought
and excessive rain negatively impacting U.S. agricultural harvesting as well as
planting.  While these events are representative of the type of circumstances
which materially affect the Fund, the specific events which will do so in the
future cannot be predicted or identified.

         Unlike many investment fields, there is no meaningful distinction in
the operation of the Fund between realized and unrealized profits.  Most of the
contracts traded by the Fund are highly liquid and can be closed out at any
time.  Furthermore, the profits on many open positions are effectively realized
on a daily basis through the payment of variation margin.

         Except in unusual circumstances, factors -- regulatory approvals, cost
of goods sold, employee relations and the like -- which often materially affect
an operating business have virtually no impact on the Fund.

   LIQUIDITY AND CAPITAL RESOURCES

         The Fund's costs are generally proportional to its asset base, and,
within broad ranges of capitalization, the Trading Advisor's trading positions
(and the resulting gains and losses) should increase or decrease in approximate
proportion to the size of the Fund account managed by each of them,
respectively.

         Inflation per se is not a significant factor in the Fund's
profitability, although inflationary cycles can give rise to the type of major
price movements that can have a materially favorable or adverse impact on the
Fund's performance.

         In its trading to date, the Fund has from time to time had substantial
unrealized gains and losses on its open positions. These gains or losses are
received or paid on a periodic basis as part of the routine clearing cycle on
exchanges or in the over-the-counter markets (the only over-the-counter market
in which the Fund trades is the inter-bank forward market in currencies).  In
highly unusual circumstances, market illiquidity could make it difficult for
certain Advisors to close out open positions, and any such illiquidity could
expose the Fund to significant losses, or cause it to be unable to recognize
unrealized gains.  However, in general, there is no meaningful difference
between the Fund's realized and unrealized gains.

   THE YEAR 2000 COMPUTER ISSUE

         Merrill Lynch's modifications for Year 2000 systems compliance are
proceeding according to plan and are expected to be completed in early 1999.
Based on information currently available, the remaining expenditures are
estimated at $200 million and will cover hardware and software upgrades, systems
consulting, and computer maintenance.  These expenditures are not expected to
have a material adverse impact on Merrill Lynch's financial position, results of
operations, or cash flows in future periods.  However, the failure of Merrill
Lynch's securities exchanges, clearing organizations, vendors, clients, or
regulators to resolve their own processing issues in a timely manner could
result in a material financial risk.  Merrill Lynch is devoting necessary
resources to address all Year 2000 issues in a timely manner.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
         -----------------------------------------------------------

         Not Applicable.

                                      -14-
<PAGE>
 
ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
         -------------------------------------------

         The financial statements required by this Item are included in Exhibit
13.01.

         The supplementary financial information ("selected quarterly financial
data" and "information about oil and gas producing activities") specified by
Item 302 of Regulation S-K is not applicable.

ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         ---------------------------------------------------------------
         FINANCIAL DISCLOSURE
         --------------------

         There were no changes in or disagreements with accountants on
accounting and financial disclosure.


                                    PART III

ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

   (a,b) Identification of Directors and Executive Officers:
         -------------------------------------------------- 

         As a limited partnership, the Partnership itself has no officers or
directors and is managed by the General Partner. Trading decisions are made by
Millburn Ridgefield on behalf of the Partnership.

         The directors and executive officers of MLIP as of February 1, 1998 and
their respective business backgrounds are as follows.
<TABLE>
<CAPTION>
<S>                                     <C> 
John R. Frawley, Jr.                    Chairman, Chief Executive Officer,
                                        President and Director

Jeffrey F. Chandor                      Senior Vice President, Director of
                                        Sales, Marketing and Research and
                                        Director
 
Joseph H. Moglia                        Director
 
Allen N. Jones                          Director
 
Stephen G. Bodurtha                     Director
 
Michael A. Karmelin                     Chief Financial Officer, Vice
                                        President and Treasurer
 
Steven B. Olgin                         Vice President, Secretary and Director
                                        of Administration
</TABLE>

         John R. Frawley, Jr. was born in 1943.  Mr. Frawley is Chairman, Chief
Executive Officer,  President and a Director of MLIP and Co-Chairman of MLF.  He
joined Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") in 1966 and
has served in various positions, including Retail and Institutional Sales,
Manager of New York Institutional Sales, Director of Institutional Marketing,
Senior Vice President of Merrill Lynch Capital Markets and Director of
International Institutional Sales.  Mr. Frawley holds a Bachelor of Science
degree from Canisius College.  Mr. Frawley served on the CFTC's Regulatory
Coordination Advisory Committee from its formation in 1990 through its
dissolution in 1994.  Mr. Frawley is currently serving his fourth consecutive
one-year term as Chairman of the Managed Funds Association (formerly, the
Managed Futures Association), a national trade association that represents the
managed futures, hedge funds and fund of funds industry. Mr. Frawley is also a
Director of that organization.  Mr. Frawley currently serves on a  panel created
by the Chicago Mercantile Exchange and The Board of Trade of the City of Chicago
to study cooperative efforts related to electronic trading, common clearing and
the issues regarding a potential merger.

                                      -15-
<PAGE>
 
          Jeffrey F. Chandor was born in 1942.  Mr. Chandor is Senior Vice
President, the Director of Sales, Marketing and Research and a Director of MLIP.
He joined MLPF&S in 1971 and has served as the Product Manager of International
Institutional Equities, Equity Derivatives and Mortgage-Backed Securities as
well as Managing Director of International Sales in the United States, and
Managing Director of Sales in Europe.  Mr. Chandor holds a Bachelor of Arts
degree from Trinity College, Hartford, Connecticut.

          Joseph H. Moglia was born in 1949.  He is a director of MLIP.  In
1971, he graduated from Fordham University with a Bachelor of Arts degree in
Economics.  He later received his Master of Science degree from the University
of Delaware.  He taught at the high school and college level for sixteen years.
Mr. Moglia joined MLPF&S in 1984, and has served in a number of senior roles,
including Director of New York Fixed Income Institutional Sales, Director of
Global Fixed Institutional Sales, and Director of the Municipal Division.  He is
currently Senior Vice President and Director of the Investment Strategy and
Product Group in Merrill Lynch Private Client, and Director of Middle Markets.

          Allen N. Jones was born in 1942.  Mr. Jones is a Director of MLIP and,
from July 1995 until January 1998, Mr. Jones was Chairman of the Board of
Directors of MLIP.  Mr. Jones graduated from the University of Arkansas with a
Bachelor of Science, Business Administration degree in 1964.  Since June 1992,
Mr. Jones has held the position of Senior Vice President of MLPF&S.  From June
1992 through February 1994, Mr. Jones was the President and Chief Executive
Officer of Merrill Lynch Insurance Group, Inc. ("MLIG") and remains on the Board
of Directors of MLIG and its subsidiary companies. From February 1994 to April
1997, Mr. Jones was the Director of Individual Financial Services of the Merrill
Lynch Private Client Group.  In April 1997, Mr. Jones became the Director of
Private Client marketing.

          Stephen G. Bodurtha was born in 1958.  Mr. Bodurtha is a Director of
MLIP.  In 1980, Mr. Bodurtha graduated from Wesleyan University, Middletown,
Connecticut with a Bachelor of Arts degree in Government, magna cum laude.  From
1980 to 1983, Mr. Bodurtha worked in the Investment Banking Division of Merrill
Lynch.  In 1985, he was awarded his Master of Business Administration degree
from Harvard University, where he also served as Associates Fellow (1985-1986).
From 1986 to 1989, Mr. Bodurtha held the positions of Associate and Vice
President with Kidder, Peabody & Co., Incorporated where he worked in their
Financial Futures & Options Group.  Mr. Bodurtha joined MLPF&S in 1989 and has
held the position of First Vice President since 1995.  He has been the Director
in charge of MLPF&S's Structured Investments Group since 1995.

          Michael A. Karmelin was born in 1947.  Mr. Karmelin is Chief Financial
Officer, Vice President and Treasurer of MLIP.  Prior to joining MLIP in April
1997, Mr. Karmelin was Chief Financial Officer of Merrill Lynch, Hubbard Inc.
("ML Hubbard"), a sponsor of real estate limited partnerships.  Mr. Karmelin
joined ML Hubbard in January 1994 and was a Vice President of ML Hubbard.  From
May 1994 to April 1997, he was the Chief Financial Officer of ML Hubbard,
responsible for its accounting, treasury and tax functions.  Prior to joining ML
Hubbard, Mr. Karmelin held several senior financial positions with ML&Co and
MLPF&S from December 1985 to December 1993, including Vice President/Senior
Financial Officer Corporate Real Estate and Purchasing, Manager Commitment
Control/Capital Budgeting, and Senior Project Manager/Project Analysis.  Prior
to joining ML&Co., Mr. Karmelin was employed at Avco Corporation for 17 years,
where he held a variety of financial positions.  Mr. Karmelin holds a B.B.A.
degree in Accounting from Baruch College, C.U.N.Y. and a Master of Business
Administration degree in Corporate Strategy and Finance from New York
University.  Mr. Karmelin passed the Certified Public Accounting examination in
1974 and is a member of the Treasury Management Association, the Institute of
Management Accountants and The Strategic Leadership Forum.

          Steven B. Olgin was born in 1960.  Mr. Olgin is Vice President,
Secretary and the Director of Administration of MLIP.  He joined MLIP in July
1994 and became a Vice President in July 1995.  From 1986 until July 1994, Mr.
Olgin was an associate of the law firm of Sidley & Austin.  In 1982, Mr. Olgin
graduated from The American University with a Bachelor of Science degree in
Business Administration and a Bachelor of Arts degree in Economics.  In 1986, he
received his Juris Doctor degree from The John Marshall Law School.  Mr. Olgin
is a member of the Managed Funds Association's Government Relations Committee
and has served as an arbitrator for the NFA.  Mr. Olgin is also a member of the
Committee on Futures Regulation of the Association of the Bar of the City of New
York.

          Messrs. Moglia and Bodurtha became Directors in January 1998.
 
          As of December 31, 1997, the principals of MLIP had no investment in
the Fund, and MLIP's general partner interest in the Fund was valued at
$142,826.

                                      -16-
<PAGE>
 
          MLIP acts as general partner to twelve public futures funds whose
units of limited partnership interest are registered under the Securities
Exchange Act of 1934:  The Growth and Guarantee Fund L.P., ML Futures
Investments L.P., ML Futures Investments II L.P., John W. Henry & Co./Millburn
L.P., The S.E.C.T.O.R. Strategy Fund L.P., The SECTOR Strategy Fund/SM/ II L.P.,
The SECTOR Strategy Fund/SM/ V L.P., The SECTOR Strategy Fund/SM/ VI L.P., ML
Global Horizons L.P., ML Principal Protection L.P. (formerly, ML Principal
Protection Plus L.P.), ML JWH Strategic Allocation Fund L.P. and the Fund.
Because MLIP serves as the sole general partner of each of these funds, the
officers and directors of MLIP effectively manage them as officers and directors
of such funds.

     (c)  Identification of Certain Significant Employees:
          ----------------------------------------------- 

          None.

     (d)  Family Relationships:
          -------------------- 

          None.

     (e)  Business Experience:
          ------------------- 

          See Item 10(a)(b) above.

     (f)  Involvement in Certain Legal Proceedings:
          ---------------------------------------- 

          None.

     (g)  Promoters and Control Persons:
          ----------------------------- 

          Not applicable.

ITEM 11:  EXECUTIVE COMPENSATION
          ----------------------

          The directors and officers of the General Partner are remunerated by
the General Partner in their respective positions.  The Partnership does not
itself have any officers, directors or employees.  The Partnership pays
Brokerage Commissions to an affiliate of the General Partner and Administrative
Fees to the General Partner.  The General Partner or its affiliates may also
receive certain economic benefits from holding the Fund's dollar Available
Assets in offset accounts, as described in Item 1(c) above.  The directors and
officers receive no "other compensation" from the Partnership, and the directors
receive no compensation for serving as directors of the General Partner.  There
are no compensation plans or arrangements relating to a change in control of
either the Partnership or the General Partner.

ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          --------------------------------------------------------------

     (a)  Security Ownership of Certain Beneficial Owners:
          ----------------------------------------------- 

          As of December 31, 1997, no person or "group" is known to be or have
been the beneficial owner of more than five percent of the Units.

     (b)  Security Ownership of Management:
          -------------------------------- 

          As of December 31, 1997, the Trading Advisor owned 1,026 Units and the
General Partner owned 518 Units (unit-equivalent general partnership interests),
which was less than 2% of the total Units outstanding.

     (c)  Changes in Control:
          ------------------ 

          None.

                                      -17-
<PAGE>
 
ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

     (a)  Transactions with Management and Others:
          --------------------------------------- 

          The General Partner acts as administrative and trading manager of the
Fund.  The General Partner provides all  normal ongoing administrative functions
of the Partnership, such as accounting, legal and printing services.  The
General Partner, which receives the Administrative Fees, pays all expenses
relating to such services.

     (b)  Certain Business Relationships:
          ------------------------------ 

          MLF, an affiliate of the General Partner, acts as the principal
commodity broker for the Partnership.

          In 1997 the Partnership accrued:  (i) Brokerage Commissions of
$1,022,449 to the Commodity Broker, which included $211,173 in consulting fees
accrued by the Commodity Broker to the Trading Advisors;  and (ii)
Administrative Fees of $26,392 to MLIP.  In addition, MLIP and its affiliates
may have derived certain economic benefits from maintaining a portion of the
Fund's assets in "offset accounts," as described under Item 1(c), "Narrative
Description of Business -- Use of Proceeds and Interest Income -- Interest
Earned on the Fund's U.S. Dollar Available Assets" and Item 11, "Executive
Compensation" herein.

          See Item 1(c), "Narrative Description of Business -- Charges" and "--
Description of Current Charges" for a discussion of other business dealings
between MLIP affiliates and the Partnership.

     (c)  Indebtedness of Management:
          -------------------------- 

          The Partnership is prohibited from making any loans, to management or
otherwise.

     (d)  Transactions with Promoters:
          --------------------------- 

          Not applicable.


                                    PART IV

ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
          ---------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                             <C>    
(a)1.     Financial Statements (found in Exhibit 13.01):         Page:
          -----------------------------------------------------  -----

 
          Independent Auditors' Report                             1
 
          Consolidated Statements of Financial Condition as of
          December 31, 1997 and 1996                               2
 
          For the years ended December 31, 1997, 1996 and 1995:
          Consolidated Statements of Income                        3
          Consolidated Statements of Changes in Partners' Capital  4
 
          Notes to Consolidated Financial Statements            5-11
</TABLE>
(a)2.     Financial Statement Schedules:
          ----------------------------- 

          Financial statement schedules not included in this Form 10-K have been
          omitted for the reason that they are not required or are not
          applicable or that equivalent information has been included in the
          financial statements or notes thereto.

                                      -18-
<PAGE>
 
(a)3.     Exhibits:
          -------- 

          The following exhibits are incorporated by reference or are filed
          herewith to this Annual Report on Form 10-K:

Designation    Description
-----------    -----------

3.01           Amended and Restated Limited Partnership Agreement of the
               Partnership.

Exhibit 3.01:  Is incorporated herein by reference from Exhibit 3.01 contained
------------                                                                    
               in Amendment No. 1 to the Registration Statement (File No. 33-
               8377) filed on October 21, 1986, on Form S-1 under the Securities
               Act of 1933 (the "Registrant's Registration Statement").

3.02           Amendment No. 1 to the Amended and Restated Limited Partnership
               Agreement dated March 1, 1990.

Exhibit 3.02   Is incorporated by reference from Exhibit 3.02 contained in the
------------                                                                   
               Partnership's report on Form 10-K for the fiscal year ended
               December 31, 1989.

3.04           Amended and Restated Certificate of Limited Partnership of the
               Registrant, dated July 27, 1995.

Exhibit 3.04:  Is incorporated herein by reference from Exhibit 3.04 contained
------------                                                                    
               in the Partnership's Report on Form 10-Q for the Quarter ended
               September 30, 1995.

10.01          Joint Venture Agreement between the Partnership, Merrill Lynch
               Investment Partners Inc. and Millburn Ridgefield Corporation.

Exhibit 10.01: Is incorporated herein by reference from Exhibit 10.01
-------------                                                           
               contained in the Registrant's Registration Statement.

10.03          Customer Agreement between the Joint Venture and Merrill Lynch
               Futures Inc.

Exhibit 10.03: Is incorporated hereby by reference from Exhibit 10.03
-------------                                                           
               contained in the Registrant's Registration Statement.

10.05          Form of Consulting Agreement between Millburn Ridgefield
               Corporation and the Partnership.

Exhibit 10.05: Is incorporated herein by reference from Exhibit 10.05(a)
-------------                                                              
               contained in the Partnership's Report on Form 10-K of December
               31, 1987, filed on March 28, 1988.

10.06          Foreign Exchange Desk Service Agreement, dated July 1, 1993 among
               Merrill Lynch International Bank, Merrill Lynch Investment
               Partners Inc., Merrill Lynch Futures Inc. and the Fund.

Exhibit 10.06: Is incorporated herein by reference from Exhibit 10.06
-------------                                                           
               contained in the Registrant's report on Form 10-K for the year
               ended December 31, 1996.

10.07(a)       Form of Advisory and Consulting Agreement Amendment among Merrill
               Lynch Investment Partners Inc., Millburn Ridgefield Corporation,
               the Fund and Merrill Lynch Futures.

Exhibit 10.07(a): Is incorporated herein by reference from Exhibit 10.07(a)  
----------------  contained in the Registrant's report on Form 10-K for the year
                  ended December 31, 1996.                                   
                  
10.07(b)       Form of Amendment to the Customer Agreement among the Partnership
               and MLF.

Exhibit 10.07(b): Is incorporated herein by reference from Exhibit 10.07(b)     
----------------  contained in the Registrant's report on Form 10-K for the year
                  ended December 31, 1996. 
                                                                              
                                                                              

                                      -19-
<PAGE>
 
13.01          1997 Annual Report and Independent Auditors' Report.

Exhibit 13.01: Is filed herewith.
-------------                                                   

28.01          Prospectus of the Partnership dated October 27, 1986.

Exhibit 28.01: Is incorporated by reference as filed with the Securities and
-------------                                                                  
               Exchange Commission pursuant to Rule 424 under the Securities Act
               of 1933, Registration Statement (File No. 33-8377) on Form S-1,
               on October 31, 1986.


     (b)  Report on Form 8-K:
          ------------------ 

          No reports on Form 8-K were filed during the fourth quarter of 1997.

                                      -20-
<PAGE>
 
                                   SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) 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

                              By: /s/ John R. Frawley, Jr.
                                  ------------------------
                                  John R. Frawley, Jr.
                                  Chairman, Chief Executive Officer, President
                                    and Director (Principal Executive Officer)


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed on March 25, 1998 by the
following persons on behalf of the Registrant and in the capacities indicated.
<TABLE>
<CAPTION>
Signature                  Title                                                    Date
---------                  -----                                                    ----
<S>                        <C>                                                      <C>
 
/s/John R. Frawley, Jr.    Chairman, Chief Executive Officer, President and         March 25, 1998
-----------------------
John R. Frawley, Jr.       Director (Principal Executive Officer)
 
/s/Michael A. Karmelin     Vice President, Chief Financial Officer, and             March 25, 1998
----------------------
Michael A. Karmelin        Treasurer (Principal Financial and Accounting Officer)
 
/s/Jeffrey F. Chandor      Senior Vice President, Director of Sales,                March 25, 1998
---------------------
Jeffrey F. Chandor         Marketing and Research, and Director
 
/s/Allen N. Jones          Director                                                 March 25, 1998
-----------------
Allen N. Jones
</TABLE>


(Being the principal executive officer, the principal financial and accounting
officer and a majority of the directors of Merrill Lynch Investment Partners
Inc.)

<TABLE> 
<CAPTION> 
<S>                                                                                 <C> 
MERRILL LYNCH INVESTMENT   General Partner of Registrant                            March 25, 1998
 PARTNERS INC.
</TABLE> 


By: /s/John R. Frawley, Jr.
    -----------------------
       John R. Frawley, Jr.

                                      -21-
<PAGE>
 
                 THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP

                                 1997 FORM 10-K

                               INDEX TO EXHIBITS
                               -----------------


                  Exhibit
                  -------

Exhibit 13.01     1997 Annual Report and Independent Auditors' Report

                                      -22-