<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, 1998
                                      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 or 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, NEW YORK, NY  10080
                  ------------------------------------------
                   (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

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 common equity held by non-
affiliates of the registrant:  the registrant is a limited partnership; as of
February 1, 1999, limited partnership units with an aggregate value of
$8,007,171 were outstanding and held by non-affiliates.

                      DOCUMENTS INCORPORATED BY REFERENCE

The registrant's "1998 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 1998,
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 1998 ON FORM 10-K

                               Table of Contents
                               -----------------

<TABLE>
<CAPTION>
                                          PART I                                                  PAGE
                                          ------                                                  ----
<S>                                                                                               <C>
Item 1.   Business...............................................................................   1

Item 2.   Properties.............................................................................   6

Item 3.   Legal Proceedings......................................................................   6

Item 4.   Submission of Matters to a Vote of Security Holders....................................   6


                                          PART II
                                          -------

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters..................   6

Item 6.   Selected Financial Data................................................................   7

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations..  11

Item 7A.  Quantitative and Qualitative Disclosures About Market Risks............................  15

Item 8.   Financial Statements and Supplementary Data............................................  15

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...  15


                                          PART III
                                          --------

Item 10.  Directors and Executive Officers of the Registrant.....................................  16

Item 11.  Executive Compensation.................................................................  18

Item 12.  Security Ownership of Certain Beneficial Owners and Management.........................  18

Item 13.  Certain Relationships and Related Transactions.........................................  18


                                          PART IV
                                          -------

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K........................  20
</TABLE>

                                   -i-     
<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 single public offering of units of
limited partnership interest ("Units") commenced on October 27, 1986, and the
Partnership began 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. The Partnership, through the
Joint Venture, engages in the speculative trading of commodity futures, options
on futures, and forward contracts on currencies, financial instruments, stock
indices, metals, energy and agricultural products. The Fund's objective is to
achieve, through speculative trading, substantial capital appreciation over
time.

               Merrill Lynch Investment Partners Inc. (the "General Partner" or
"MLIP"), organized in 1986, 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. ("ML&Co."). The Commodity Broker is an indirect 
wholly-owned subsidiary of ML&Co. (ML&Co. and its affiliates are herein
sometimes referred to as "Merrill Lynch.")

               As of December 31, 1998, the capitalization of the Fund was
$8,559,611, and the Net Asset Value per Unit, originally $100 as of January 2,
1987, had risen to $277.65. 

               Through December 31, 1998, the highest month-end Net Asset Value
per Unit through December 31, 1998 was $295.54 (July 31, 1997) and the lowest
$100.05 (September 30, 1987).

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

               The Partnership's business constitutes only one segment for
financial reporting purposes, i.e., a speculative "commodity pool." The
Partnership does not engage in sales of goods or services.

          (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 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, 1999 Millburn Ridgefield was managing approximately $900 million of client
and proprietary capital in these markets. As of such date, Millburn Ridgefield
and its affiliates were also managing over $1 billion 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 two to three times or less during a year in any
given market). The early determination 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
          -----------------------------------

          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 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. Substantially all of the Fund's off-exchange trading
takes place in the highly liquid, institutionally-based currency forward
markets.

          Many of the Partnership's currency trades are executed in the spot and
forward foreign exchange markets (the "FX Markets") where there are no direct
execution costs. Instead, the participants, banks and dealers, including Merrill
Lynch International Bank ("MLIB"), in the FX Markets take a "spread" between the
prices at which they are prepared to buy and sell a particular currency and such
spreads are built into the pricing of the spot or forward contracts with the
Partnership. The General Partner anticipates that some of the Partnership's
foreign currency trades will be executed through MLIB, an affiliate of the
General Partner. MLIB has discontinued the operation of the foreign exchange
service desk, which included seeking multiple quotes from counterparties
unrelated to MLIB for a service fee and trade execution.

          In its exchange of futures for physical ("EFP") trading, the
Partnership acquires cash currency positions through banks and dealers,
including Merrill Lynch. The Partnership pays a spread when it exchanges these
positions for futures. This spread reflects, in part, the different settlement
dates of the cash and the futures contracts, as well as prevailing interest
rates, but also includes a pricing spread in favor of the banks and dealers,
which may include a Merrill Lynch entity.

          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's financial statements contain information relating to the
types of markets traded by the Fund. There can, however, be no assurance as to
which markets the Fund may trade or as to how 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.

          Interest Paid by Merrill Lynch on the Fund's U.S. Dollar and Non-U.S.
          ---------------------------------------------------------------------
Dollar Assets. The Joint Venture's U.S. dollar assets are maintained at MLF. On
-------------
assets held in U.S. dollars, Merrill Lynch credits the Joint Venture with
interest at the prevailing 91-day U.S. Treasury bill rate. The Joint Venture is
credited with interest on any of its net gains actually held by Merrill Lynch in
non-U.S. dollar currencies at a prevailing local rate received by Merrill Lynch.
Merrill Lynch may derive certain economic benefit, in excess of the interest
which Merrill Lynch pays to the Joint Venture, from possession of such assets.

          Merrill Lynch charges the Joint Venture Merrill Lynch's cost of
financing realized and unrealized losses on the Joint Venture's non-U.S. dollar-
denominated positions.

                                      -3-
<PAGE>
 
          CHARGES

          The following table summarizes the charges incurred by the Fund during
1998, 1997 and 1996.

<TABLE> 
<CAPTION>
                                 1998                                 1997                              1996
                      -------------------------------------------------------------------------------------------------------------
                                       % of Average                       % of Average                        % of Average
                        Dollar           Month-End           Dollar        Month-End              Dollar       Month-End
  Charges               Amount          Net Assets           Amount        Net Assets             Amount        Average
-----------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>              <C>                 <C>            <C>                   <C>           <C>                  
Brokerage          
Commissions           $  860,552           9.67%           $ 1,022,449       10.05%             $ 1,120,320       11.94%         
Administrative Fees       22,646           0.25%                26,392        0.26%                  24,001        0.26%
Profit Shares            118,954           1.34%               278,351        2.73%                 206,261        2.20%
                      -------------------------------------------------------------------------------------------------
Total                 $1,002,152          11.26%           $ 1,327,192       13.04%             $ 1,350,582       14.40%
                      ================================================================================================= 
</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 assets maintained at
MLF.

          The Fund's average month-end Net Assets during 1998, 1997 and 1996
equaled $8,895,563, $10,177,610, and $9,384,974, respectively.

          During 1998, 1997 and 1996 the Fund earned $433,501, $470,192 and
$382,717 in interest income, or approximately 4.87%, 4.62% and 4.08% of the
Fund's average month-end Net Assets.

          Effective 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 11.67% to 9.50% per annum.

                                      -4-
<PAGE>
 
                        DESCRIPTION OF CURRENT CHARGES

RECIPIENT           NATURE OF PAYMENT        AMOUNT OF PAYMENT
---------           -----------------        -----------------
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 1998, 1997, and 1996, 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 $105,
                                             $84 and $102, respectively.

MLF                 Use of Fund assets       Merrill Lynch may derive an
                                             economic benefit from the deposit
                                             of certain of the Fund's U.S.
                                             dollar assets in accounts
                                             maintained at MLF.

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; Other         Bid-ask spreads          Bid-ask spreads on forward and
Counterparties                               related trades.

Millburn            Profit Share             20% of any New Trading Profit
Ridgefield                                   achieved by the Fund as of the end
                                             of each calendar year and upon
                                             redemption of Units.

Millburn            Consulting Fees          MLF originally paid the Advisor
Ridgefield                                   annual consulting fees of .333 of
                                             1% (a 4% annual rate) of the Joint
                                             Venture's month-end assets after
                                             reduction for a portion of the
                                             brokerage commissions. Effective
                                             January 1, 1997, the annual
                                             consulting fees were reduced to
                                             .167 of 1% (a 2% annual rate) of
                                             the Joint Venture's month-end
                                             assets after reduction for a
                                             portion of the brokerage
                                             commissions.

MLF;                Extraordinary expenses   Actual costs incurred; none paid 
 Others                                      to date.


               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 Geographic Areas:
               --------------------------------------------

               The Partnership trades, from the United States, on a number of
foreign commodity exchanges. The Partnership does not engage in the sales of
goods or services.

                                      -5-
<PAGE>
 
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 (Merrill Lynch World Headquarters, World Financial Center,
South Tower, New York, New York, 10080). 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 predicted 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.


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

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


                                    PART II

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

          Item 5(a)

          (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, 1998, there were 392 holders of Units,
including the General Partner.

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

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

          Item 5(b)

               Not applicable.

                                      -6-
<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             1998                1997                1996                1995                1994           
-------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>                 <C>                 <C>                 <C>                 <C> 
Revenues:                     

Trading Profits (Loss)
  Realized Gain               $  761,007          $  1,551,671        $  1,800,104        $  2,689,922        $  2,206,016
  Change in Unrealized
  (Loss) Gain                   (176,383)             (102,280)            (39,401)            405,757            (891,323)
                              --------------------------------------------------------------------------------------------
  Total Trading Results          584,624             1,449,391           1,760,703           3,095,679           1,314,693
                              --------------------------------------------------------------------------------------------

Interest Income                  433,501               470,192             382,717             468,023             290,482
                              --------------------------------------------------------------------------------------------

  Total Revenues               1,018,125             1,919,583           2,143,420           3,563,702           1,605,175
                              --------------------------------------------------------------------------------------------

Expenses: 
  Brokerage Commissions          860,552             1,022,449           1,120,320           1,208,671           1,056,436
  Administrative Fees             22,646                26,392              24,001                   -                   -  
  Profit Shares                  118,954               278,351             206,261             471,976             119,420
                              --------------------------------------------------------------------------------------------
  Total Expenses               1,002,152             1,327,192           1,350,582           1,680,647           1,175,856
                              -------------------------------------------------------------------------------------------- 

Net Income                    $   15,973          $    592,391        $    792,838        $  1,883,055        $    429,319
                              ============================================================================================
</TABLE> 


<TABLE> 
<CAPTION> 
                             DECEMBER 31,         DECEMBER 31,        DECEMBER 31,        DECEMBER 31,        DECEMBER 31,
BALANCE SHEET DATA              1998                 1997                1996                1995                  1994   
--------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                  <C>                 <C>                 <C>                 <C>        
Fund Net Asset Value         $ 8,559,611          $  9,640,738        $  9,895,616        $  9,891,103        $  8,863,340
Net Asset Value per Unit     $    277.65          $     275.73        $     260.29        $     238.96        $     195.94
                             --------------------------------------------------------------------------------------------- 
</TABLE> 

                                      -7-
<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>    
  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
------------------------------------------------------------------------------------------------------------------------------------

  1998   $281.99   $274.64    $277.27   $254.92    $265.04    $267.36   $250.99    $268.54   $282.27   $275.27  $271.62   $277.65
------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 

Pursuant to CFTC policy, monthly performance is presented from January 1, 1994,
even though the Units were outstanding prior to such date.

                                      -8-
<PAGE>
 
                THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP
                               December 31, 1998

  Type of Pool:  Single Advisor/Publicly-Offered/Non-"Principal Protected"(1)
                    Inception of Trading:  January 2, 1987
                    Aggregate Subscriptions:   $56,741,035
                     Current Capitalization:   $8,559,611
                  Worst Monthly Drawdown(2):  (10.92)%  (2/96)
           Worst Peak-to-Valley Drawdown(3):  (15.08)%  (8/97-7/98)
                                 _____________

            New Asset Value per Unit, December 31, 1998:   $277.65

<TABLE> 
<CAPTION> 
         ---------------------------------------------------------------------------------
                                   MONTHLY RATES OF RETURN(4)
         ---------------------------------------------------------------------------------
         MONTH           1998           1997            1996         1995         1994
         ---------------------------------------------------------------------------------
         <S>            <C>            <C>            <C>            <C>          <C> 
         January         2.27%          6.54%           5.48%        (3.30)%        (7.91)%
         ---------------------------------------------------------------------------------
         February       (2.61)          5.53          (10.92)         6.09          (1.56) 
         ---------------------------------------------------------------------------------
         March           0.96          (3.12)           0.44         15.22           6.67  
         ---------------------------------------------------------------------------------
         April          (8.06)         (3.23)           4.87          3.81          (2.70) 
         ---------------------------------------------------------------------------------
         May             3.97           1.16           (7.17)        (1.88)          4.53  
         ---------------------------------------------------------------------------------
         June            0.88          (0.14)           3.66          0.68           5.06  
         ---------------------------------------------------------------------------------
         July           (6.12)          6.64            1.14         (3.10)         (3.03) 
         ---------------------------------------------------------------------------------
         August          6.99          (8.41)          (2.37)         0.57          (6.21) 
         ---------------------------------------------------------------------------------
         September       5.11           0.88            2.45         (2.29)          3.12  
         ---------------------------------------------------------------------------------
         October        (2.48)         (2.42)           9.27         (0.60)          2.41  
         ---------------------------------------------------------------------------------
         November       (1.33)         (0.51)           2.78         (0.20)          4.39  
         ---------------------------------------------------------------------------------
         December        2.22           4.00            0.67          6.50           1.89  
         ---------------------------------------------------------------------------------
         Compound Annual                                                                   
         Rate of Return  0.69%          5.93%           8.93%        21.95%          5.55%  
         ---------------------------------------------------------------------------------
</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, 1994 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, 1994 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

                                      -9-
<PAGE>
 
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.

                                     -10-
<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 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

          1998


                                                       Total Trading
                                                          Results
                                                                            
              Interest Rates and Stock Indices         $   874,177
              Commodities                                  (76,779)
              Currencies                                  (434,481)
              Energy                                       428,384
              Metals                                      (206,677)
                                                       -----------
                                                       $   584,624
                                                       ===========
            

          In 1998, interest rate futures trading was quite profitable,
particularly the Japanese 10-year government bond or "JGB." The long side of the
bond was profitable earlier in the year as interest rates fell to record low
levels and the short side was profitable in the latter part of the year as
interest rates moved back up. Long positions in European interest rate futures
were also profitable. Profitable long positions included German, French, Spanish
and Italian 10-year government

                                      -11-
<PAGE>
 
bonds. Short-term Eurodollar trading and U.S. 10-year Treasury note trading were
also profitable.

          Currency trading against the U.S. dollar and non-dollar cross-rate
trading were both somewhat unprofitable in 1998. Yen trading was quite
profitable but the gains were outweighed by losses from European currency
trading.

          Stock index futures trading was also unprofitable in 1998 with losses
from Japanese stock indices outweighing gains from the Hong Kong Hang Seng and
S&P 500 indices.

          Metal trading was unprofitable in 1998, primarily due to losses in
copper.

          Energy trading was profitable in 1998 due to short positions in crude
oil, heating oil, London gasoil and unleaded gasoline. Natural gas trading was
somewhat unprofitable.

          Agricultural commodity trading was narrowly unprofitable with gains
from sugar and corn trading outweighed by losses from coffee, cocoa and cotton
trading.

          1997


                                                       Total Trading
                                                          Results
                                                                            
              Interest Rates and Stock Indices         $   679,273
              Commodities                                   (8,456)
              Currencies                                 1,280,992 
              Energy                                        42,962
              Metals                                      (545,380)
                                                       -----------
                                                       $ 1,449,391
                                                       ===========


          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

                                      -12-
<PAGE>
 
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.

          1996


                                                  Total Trading
                                                     Results

          Interest Rates and Stock Indices        $    640,339
          Commodities                                 (465,306) 
          Currencies                                   846,362
          Energy                                       845,777
          Metals                                      (106,469) 
                                                  ------------
                                                  $  1,760,703
                                                  ============

 
          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.

     LIQUIDITY; 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 the Trading Advisor.

          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 the
Advisor 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.

     YEAR 2000 COMPLIANCE INITIATIVE

          As the millennium approaches, Merrill Lynch has undertaken initiatives
to address the Year 2000 problem (the "Y2K problem"). The Y2K problem is the
result of a widespread programming technique that causes computer systems to
identify a date based on the last two numbers of a year, with the assumption
that the first two numbers of the year are "19". As a result, the year 2000
would be stored as "00," causing computers to incorrectly interpret the year as
1900. Left uncorrected, the Y2K problem may cause information technology systems
(e.g., computer databases) and non-information technology systems (e.g.,
elevators) to produce incorrect data or cease operating completely.

                                      -13-
<PAGE>
 
          Merrill Lynch believes that it has identified and evaluated its
internal Y2K problem and that it is devoting sufficient resources to renovating
technology systems that are not already Year 2000 compliant. The resource-
intensive renovation phase (as further discussed) of Merrill Lynch's Year 2000
efforts was approximately 95% completed as of January 31, 1999. Merrill Lynch
will focus primarily on completing its renovation and testing and on integration
of the Year 2000 programs of recent acquisitions during the remainder of 1999.
In order to focus attention on the Y2K problem, management has deferred certain
other technology projects: however, this deferral is not expected to have a
material adverse effect on the company's business, results of operations, or
financial condition.

          The failure of Merrill Lynch's technology systems relating to a Y2K
problem would likely have a material adverse effect on the company's business,
results of operations, and financial condition. This effect could include
disruption of normal business transactions, such as the settlement, execution,
processing, and recording of trades in securities, commodities, currencies, and
other assets. The Y2K problem could also increase Merrill Lynch's exposure to
risk and its need for liquidity.

          In 1995, Merrill Lynch established the Year 2000 Compliance
Initiative, which is an enterprisewide effort to address the risks associated
with the Y2K problem, both internal and external. The Year 2000 Compliance
Initiative's efforts to address the risks associated with the Y2K problem have
been organized into six phases: planning, pre-renovation, renovation, production
testing, certification, and integration testing.

          The planning phase involved defining the scope of the Year 2000
Compliance Initiative, including its annual budget and strategy, and determining
the level of expert knowledge available within Merrill Lynch regarding
particular systems or applications. The pre-renovation phase involved developing
a detailed enterprisewide inventory of applications and systems, identifying the
scope of necessary renovations to each application system, and establishing a
conversion schedule. During the renovation phase, source code is actually
converted, date fields are expanded or windowed (windowing is used on an
exception basis only), test data is prepared, and each system or application is
tested using a variety of Year 2000 scenarios. The production testing phase
validates that a renovated system is functionally the same as the existing
production version, that renovation has not introduced defects, and that
expanded or windowed date fields continue to handle current dates properly. The
certification phase validates that a system can run successfully in a Year 2000
environment. The integration testing phase, which will occur throughout 1999,
validates that a system can successfully interface with both internal and
external systems. Finally, as Merrill Lynch continues to implement new systems,
they are also being tested for Year 2000 readiness.

          In 1996 and 1997, as part of the planning and pre-renovation phases,
both plans and funding of plans for inventory, preparation, renovation, and
testing of computer systems for the Y2K problem were approved. All plans for
both mission-critical and non-mission-critical systems are tracked and
monitored. The work associated with the Year 2000 Compliance Initiative has been
accomplished by Merrill Lynch employees, with the assistance of consultants
where necessary.

          As part of the production testing and certification phases, Merrill
Lynch has performed, and will continue to perform, both internal and external
Year 2000 testing intended to address the risks from the Y2K problem. As of
January 31, 1999, production testing was approximately 93% completed. In July
1998, Merrill Lynch participated in an industrywide Year 2000 systems test
sponsored by the Securities Industry Association ("SIA"), in which selected
firms tested their computer systems in mock stock trades that simulated dates in
December 1999 and January 2000. Merrill Lynch will participate in further
industrywide testing sponsored by the SIA, currently scheduled for March and
April 1999, which will involve an expanded number of firms, transactions, and
conditions. Merrill Lynch also participated in various other domestic and
international industry tests during 1998.

          Merrill Lynch continues to survey and communicate with third parties
whose Year 2000 readiness is important to the company. Information technology
and non-information technology vendors and service providers are contacted in
order to obtain their Year 2000 compliance plans. Based on the nature of the
response and the importance of the product or service involved, Merrill Lynch
determines if additional testing is needed. The results of these efforts are
maintained in a database that is accessible throughout the firm. Third parties
that have been contacted include transactional counterparties, exchanges, and
clearinghouses; a process to access and rate their responses has been developed.
This information as well as other Year 2000 readiness information on particular
countries and their political subdivisions will be used by Merrill Lynch to
manage risk resulting from the Y2K problem. Management is unable at this point
to ascertain whether all significant third parties will successfully address the
Y2K problem. Merrill Lynch will continue to monitor third parties' Year 2000
readiness to determine if additional or alternative measures are necessary. In
connection with information technology and non-information technology products
and services, contingency plans, which are developed at the business

                                      -14-
<PAGE>
 
unit level, may include selection of alternative vendors or service providers
and changing business practices so that a particular system is not needed. In
the case of securities exchanges and clearinghouses, risk mitigation could
include the re-routing of business. In light of the interdependency of the
parties in or serving the financial markets, however, there can be no assurance
that all Y2K problems will be identified and remediated on a timely basis or
that all remediation will be successful. The failure of exchanges, clearing
organizations, vendors, service providers, counterparties, regulators, or others
to resolve their own processing issues in a timely manner could have a material
adverse effect on Merrill Lynch's business, results of operations, and financial
condition.

          At year-end 1998, the total estimated expenditures for the entire Year
2000 Compliance Initiative were approximately $425 million, of which
approximately $125 million was remaining. The majority of these remaining
expenditures are expected to cover testing, risk management, and contingency
planning. There can be no assurance that the costs associated with such
remediation efforts will not exceed those currently anticipated by Merrill
Lynch, or that the costs associated with the remediation efforts or the possible
failure of such remediation efforts would not have a material adverse effect on
Merrill Lynch's business, results of operations, or financial condition.

     EUROPEAN ECONOMIC AND MONETARY UNION ("EMU") INITIATIVE

          As of January 1, 1999, the "euro" was adopted as the common legal
currency of participating member states of the EMU. As a consequence of the
introduction of and conversion to the euro, Merrill Lynch was required to make
significant changes to nearly 200 global business systems in order to reflect
the substitution of the euro for the 11 member national currencies and the
European currency unit. The introduction of the euro brings about fundamental
changes in the structure and nature of European financial markets, including the
creation of a unified, more liquid capital market in Europe. As financial
markets in EMU member states converge and local barriers are removed,
competition is expected to increase.

          The introduction of the euro affects all Merrill Lynch facilities that
transact, distribute, or provide custody or recordkeeping for securities or cash
denominated in the currency of a participating member state. Merrill Lynch's
systems or procedures that handle such securities or cash were modified in order
to implement the conversion to the euro. The implementation phase is continuing
into the first quarter of 1999 to resolve any post-conversion issues. The
success of Merrill Lynch's euro conversion efforts was dependent on the euro-
compliance of third parties, such as trading counterparties, financial
intermediaries (e.g., securities and commodities exchanges, depositories,
clearing organizations, and commercial banks), and vendors.

          As of the end of the 1998 fiscal year, the total estimated
expenditures associated with the introduction of and conversion to the euro were
approximately $79 million, of which $1 million is remaining to be spent during
the first quarter of 1999 on compliance efforts and project administration.
Management believes that it has identified and evaluated all of the systems and
operational modifications necessary for the conversion to the euro. On January
4, 1999 and since then, Merrill Lynch has conducted normal business operations,
having successfully completed its conversion program. Management does not expect
the introduction of the euro to have a negative effect on its future business,
currency risk, or competitive positioning in the European markets.

ITEM 7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
          ----------------------------------------------------------

          Not applicable.

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. The General Partner promoted the
Fund and is its controlling person.

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

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

                                      -15-
<PAGE>
 
                                   PART III

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

     10(a) and 10(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 and their respective
business backgrounds are as follows:

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

JO ANN DI DARIO          Vice President, Chief Financial Officer and Treasurer,
                         through April 30, 1999

MICHAEL L. PUNGELLO      Vice President, Chief Financial Officer and Treasurer,
                         effective May 1, 1999

JOSEPH H. MOGLIA         Director

ALLEN N. JONES           Director

STEPHEN G. BODURTHA      Director

STEVEN B. OLGIN          Vice President, Secretary and
                         Director of Administration

          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 has served four consecutive one-year terms 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 currently serves as a member
of the CFTC's Global Markets Advisory Committee.

          Jeffrey F. Chandor was born in 1942. Mr. Chandor is Senior Vice
President, 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. Mr. Chandor is serving a 
two-year term as a director of the Managed Funds Association.

          Jo Ann Di Dario was born in 1946. Ms. Di Dario is, through April 30,
1999, Vice President, Chief Financial Officer and Treasurer of MLIP. Before
joining MLIP in May 1998, she was self-employed for one year. From February 1996
to May 1997, she worked as a consultant for Global Asset Management, an
international mutual fund organizer and operator headquartered in London, where
she offered advice on restructuring their back-office operations. From May 1992
to January 1996, she served as a Vice President of Meridian Bank Corporation, a
regional bank holding company. She was responsible for managing the treasury
operations of Meridian Bank Corporation including its wholly-owned subsidiary,
Meridian Investment Company Inc. From September 1991 to May 1992, Ms. Di Dario
managed the Domestic Treasury Operations of First Fidelity Bank, a regional
bank. From January 1991 to September 1991, Ms. Di Dario was self-employed. For
the previous five years, Ms. Di Dario was Vice President, Secretary and
Controller of Caxton Corporation, a Commodity Pool Operator and Commodity
Trading Advisor. Her background includes seven years of public accounting
experience, and she graduated with high honors from Stockton State College with
a Bachelor of Science degree in Accounting.

          Michael L. Pungello was born in 1957. Effective May 1, 1999, Mr.
Pungello will become Vice President, Chief Financial Officer and Treasurer of
MLIP. He was First Vice President and Senior Director of Finance for Merrill
Lynch's Operations, Services and Technology Group from January 1998 to March
1999. Prior to that, Mr. Pungello spent over 18 years with Deloitte & Touche
LLP, and was a partner in their Financial Services practice from June 1990 to
December 1997. He graduated from Fordham University in 1979 with a Bachelor of
Science degree in accounting and received his Master of Business Administration
degree in Finance from New York University in 1987.


                                      -16-
<PAGE>
 
          Joseph H. Moglia was born in 1949. Mr. Moglia 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 Income 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 also 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 magna cum laude from Wesleyan University,
Middletown, Connecticut with a Bachelor of Arts degree in Government. 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 to 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 the Structured Investments Group of MLPF&S since 1995.

          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.

          As of December 31, 1998, the principals of MLIP had no investment in
the Fund, and MLIP's general partner interest in the Fund was valued at $94,122.

          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 (SM) 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., 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.

                                      -17-
<PAGE>
 
          (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 possession of the Fund's dollar assets. 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:
               -----------------------------------------------

                                                Amount of  
   Title                Name of                 nature of   
   of                   beneficial              beneficial         Percent 
   class                owner                   ownership          of class
   -----                -----                   ---------          --------

   Limited              Elizabeth Waterman      1,500              5.03%
   Partnership          c/o James Waterman
   Units                472 North Maple Ave
                        Greenwich, CT 06830



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

               As of December 31, 1998, the Trading Advisor owned 1,026 Units
and the General Partner owned 339 Units (Unit-equivalent general partnership
interest), which was less than 4.5% of the total Units outstanding.

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

               None.

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

          (a)  Transactions Between Merrill Lynch and the Fund
               -----------------------------------------------

               All of the service providers to the Fund, other than the
Advisors, are affiliates of Merrill Lynch. Merrill Lynch negotiated with the
Advisors over the level of its advisory fees and Profit Share. However, none of
the fees paid by the Fund to any Merrill Lynch party were negotiated, and they
are higher than would have been obtained in arm's-length bargaining.

     The Fund pays Merrill Lynch substantial Brokerage Commissions and
Administrative Fees as well as bid-ask spreads on forward currency trades. The
Fund also pays MLF interest on short-term loans extended by MLF to cover losses
on foreign currency positions.

     Within the Merrill Lynch organization, MLIP is the direct beneficiary of
the revenues received by different Merrill Lynch entities from the Fund. MLIP
controls the management of the Fund and serves as its promoter. Although MLIP
has not sold any assets, directly or indirectly, to the Fund, MLIP makes
substantial profits from the Fund due to the foregoing revenues.

     No loans have been, are or will be outstanding between MLIP or any of its
principals and the Fund.

     MLIP pays substantial selling commissions and trailing commissions to
MLPF&S for distributing the Units. MLIP is ultimately paid back for these
expenditures from the revenues it receives from the Fund.

                                      -18-
<PAGE>
 
     (b)  Certain Business Relationships:
          ------------------------------

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

          In 1998 the Partnership expensed: (i) Brokerage Commissions of
$860,552 to the Commodity Broker, which included $181,205 in consulting fees
earned by the Trading Advisors; and (ii) Administrative Fees of $22,646 to MLIP.
In addition, MLIP and its affiliates may have derived certain economic benefits
from possession of a portion of the Fund's assets, as well as from foreign
exchange and EFP trading.

          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.

                                      -19-
<PAGE>
 
                                    PART IV

ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
          --------------------------------------------------------------- 

<TABLE> 
<CAPTION> 
          (a)1.  Financial Statements (found in Exhibit 13.01):                          Page:
                 --------------------------------------------                            -----
                 <S>                                                                     <C>                        
                 Independent Auditors' Report                                               1
 
                 Consolidated Statements of Financial Condition as of 
                 December 31, 1998 and 1997                                                 2
 
                 For the years ended December 31, 1998, 1997 and 1996:
                         Consolidated Statements of Income                                  3
                         Consolidated Statements of Changes in Partners' Capital            4
 
                 Notes to Consolidated Financial Statements                              5-12
</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.

          (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.
                    

                                      -20-
<PAGE>
 
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.

13.01               1998 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 herein 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
               1998.

                                      -21-
<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, 1999 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 Director   March 25, 1999
---------------------------        (Principal Executive Officer)
John R. Frawley, Jr.               
 
/s/ Jo Ann Di Dario                Vice President, Chief Financial Officer, and Treasurer      March 25, 1999
---------------------------        (Principal Financial and Accounting Officer)
Jo Ann Di Dario                    
 
/s/ Jeffrey F. Chandor             Senior Vice President, Director of Sales,                   March 25, 1999
---------------------------        Marketing and Research, and Director
Jeffrey F. Chandor                 
 
/s/ Allen N. Jones                 Director                                                    March 25, 1999
---------------------------
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.)

MERRILL LYNCH INVESTMENT     General Partner of Registrant       March 25, 1999
 PARTNERS INC.

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

                                      -22-
<PAGE>
 
                THE FUTURES EXPANSION FUND LIMITED PARTNERSHIP

                                1998 FORM 10-K

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

                    Exhibit
                    -------

Exhibit 13.01       1998 Annual Report and Independent Auditors' Report

                                      -23-