<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-23240
ML GLOBAL HORIZONS L.P.
----------------------------
(Exact Name of Registrant as
specified in its charter)
Delaware 13-3716393
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o Merrill Lynch Investment Partners Inc.
Princeton Corporate Campus
800 Scudders Mill Road - Section 2G
Plainsboro, New Jersey 08536
----------------------------------------
(Address of principal executive offices)
(Zip Code)
609-282-6996
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML GLOBAL HORIZONS L.P.
(a Delaware limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Equity in commodity futures trading accounts:
Cash and option premiums $ 98,521,117 $106,424,609
Net unrealized profit on open contracts 1,588,996 3,947,083
Accrued interest 386,652 407,106
------------ ------------
TOTAL $100,496,765 $110,778,798
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Profit Shares payable $ 331,799 $ 1,197,683
Brokerage commissions payable 607,168 669,289
Incentive override payable -- 153,883
Redemptions payable 4,184,386 4,299,253
Administrative fees payable 20,937 23,079
------------ ------------
Total liabilities 5,144,290 6,343,187
------------ ------------
PARTNERS' CAPITAL:
General Partner (8,298 and 8,298 Units) 1,365,042 1,356,079
Limited Partners (571,346 and 630,758 Units) 93,987,433 103,079,532
------------ ------------
Total partners' capital 95,352,475 104,435,611
------------ ------------
TOTAL $100,496,765 $110,778,798
============ ============
NET ASSET VALUE PER UNIT
(Based on 579,644 and 639,056 Units outstanding) $ 164.50 $ 163.42
============ ============
</TABLE>
See notes to financial statements.
2
<PAGE>
ML GLOBAL HORIZONS L.P.
(a Delaware limited partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Trading profits (loss):
Realized $ 4,105,146 $ 9,647,557
Change in unrealized (2,358,087) (4,789,484)
----------- -----------
Total trading results 1,747,059 4,858,073
Interest income 1,160,228 1,737,293
----------- -----------
Total revenues 2,907,287 6,595,366
----------- -----------
EXPENSES:
Profit Shares 340,238 1,184,507
Incentive override -- 106,890
Brokerage commissions 1,858,806 2,524,126
Administrative fees 64,097 87,039
----------- -----------
Total expenses 2,263,141 3,902,562
----------- -----------
NET INCOME $ 644,146 $ 2,692,804
=========== ===========
NET INCOME PER UNIT:
Weighted average number of
units outstanding 621,437 884,437
=========== ===========
Weighted average net
income per Limited Partner
and General Partner Unit $ 1.04 $ 3.04
=========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE>
ML GLOBAL HORIZONS L.P.
(a Delaware limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the three months ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Limited General Subscriptions
Units Partners Partner Receivable Total
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
PARTNERS' CAPITAL,
December 31, 1997 871,217 $ 134,446,411 $ 1,568,439 $ (1,970,485) $ 134,044,365
Net income -- 2,661,598 31,206 -- 2,692,804
Subscriptions 36,741 3,702,015 8,938 1,970,485 5,681,438
Redemptions (46,229) (7,209,685) -- -- (7,209,685)
------------- ------------- ------------- ------------- -------------
PARTNERS' CAPITAL,
March 31, 1998 861,729 $ 133,600,339 $ 1,608,583 $ -- $ 135,208,922
============= ============= ============= ============= =============
PARTNERS' CAPITAL,
December 31, 1998 639,056 $ 103,079,532 $ 1,356,079 $ -- $ 104,435,611
Net income -- 635,183 8,963 -- 644,146
Redemptions (59,412) (9,727,282) -- -- (9,727,282)
------------- ------------- ------------- ------------- -------------
PARTNERS' CAPITAL,
March 31, 1999 579,644 $ 93,987,433 $ 1,365,042 $ -- $ 95,352,475
============= ============= ============= ============= =============
</TABLE>
See notes to financial statements.
4
<PAGE>
ML GLOBAL HORIZONS L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly the
financial position of ML Global Horizons L.P. (the "Partnership" or the
"Fund") as of March 31, 1999 and December 31, 1998, and the results of its
operations for the three months ended March 31, 1999 and 1998. However, the
operating results for the interim periods may not be indicative of the
results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial statements
and notes thereto included in the Partnership's Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the year ended
December 31, 1998 (the "Annual Report").
2. FAIR VALUE AND OFF-BALANCE SHEET RISK
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (the "Statement"), effective for fiscal
years beginning after June 15, 1999. This Statement supercedes SFAS No. 119
("Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments") and SFAS No. 105 ("Disclosure of information about
Financial Instruments with Off-Balance Sheet Risk and Financial Instruments
with Concentrations of Credit Risk") whereby disclosure of average
aggregate fair values and contract/notional values, respectively, of
derivative financial instruments is no longer required for an entity such
as the Partnership which carries its assets at fair value. Such Statement
sets forth a much broader definition of a derivative instrument. The
General Partner does not believe that the application of the provisions of
such statement has a significant effect on the financial statements.
SFAS No. 133 defines a derivative as a financial instrument or other
contract that has all three of the following characteristics (1) one or
more underlyings, notional amounts or payment provisions (2) requires no
initial net investment or a smaller initial net investment than would be
required relative to changes in market factors (3) terms require or permit
net settlement. Generally, derivatives include a future, forward, swap or
option contract, or other financial instrument with similar characteristics
such as caps, floors and collars.
Market Risk
Derivative instruments involve varying degrees of off-balance sheet market
risk, and changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the financial instruments
or commodities underlying such derivative instruments frequently result in
changes in the Partnership's net unrealized profit (loss) on such
derivative instruments as reflected in the Statements of Financial
Condition. The Partnership's exposure to market risk is influenced by a
number of factors, including the relationships among derivative
instruments held by the Partnership as well as the volatility and
liquidity of the markets in which such derivative instruments are traded.
The General Partner has procedures in place intended to control market
risk exposure, although there can be no assurance that they will, in fact,
succeed in doing so. These procedures focus primarily on monitoring the
trading of the Advisors selected from time to time by the Partnership,
calculating the Net Asset Value of the Advisors' respective Partnership
accounts as of the close of business on each day and reviewing outstanding
positions for over-concentrations both on an Advisor-by-Advisor and on an
overall Partnership basis. While the General Partner does not itself
intervene in the markets to hedge or diversify the Partnership's market
exposure, the General Partner may urge Advisors to reallocate positions,
or itself reallocate Partnership assets among Advisors (although typically
only as of the end of a month) in an attempt to avoid over-concentrations.
However, such interventions are unusual. Except in cases in which it
appears that an Advisor has begun to deviate from past practice or trading
policies or to be trading erratically, the General Partner's basic risk
control procedures consist simply of the ongoing process of Advisor
monitoring and selection, with the market risk controls being applied by
the Advisors themselves.
5
<PAGE>
Credit Risk
The risks associated with exchange-traded contracts are typically perceived
to be less than those associated with over-the-counter
(non-exchange-traded) transactions, because exchanges typically (but not
universally) provide clearinghouse arrangements in which the collective
credit (in some cases limited in amount, in some cases not) of the members
of the exchange is pledged to support the financial integrity of the
exchange. In over-the-counter transactions, on the other hand, traders must
rely solely on the credit of their respective individual counterparties.
Margins, which may be subject to loss in the event of a default, are
generally required in exchange trading, and counterparties may require
margin in the over-the-counter markets.
The credit risk associated with these instruments from counterparty
nonperformance is the net unrealized profit included on the Statements of
Financial Condition.
The Partnership has credit risk in respect of its counterparties and
brokers, but attempts to control this risk by dealing almost exclusively
with Merrill Lynch entities as counterparties and brokers.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MONTH-END NET ASSET VALUE PER UNIT
<TABLE>
<CAPTION>
--------------------------------------
Jan. Feb. Mar.
--------------------------------------
<S> <C> <C> <C>
1998 $154.11 $155.99 $156.90
--------------------------------------
1999 $162.48 $163.98 $164.50
--------------------------------------
</TABLE>
Performance Summary
January 1, 1998 to March 31, 1998
The Fund's most profitable positions during the quarter were in the global
interest rate markets, particularly in European bonds where an extended bond
market rally continued despite an environment of robust growth in the United
States, Canada and the United Kingdom, as well as a strong pick-up in growth in
continental Europe. Specifically, strong gains were recorded in French and
German bonds.
For the quarter, positions in gold resulted in losses, while positions in
crude oil resulted in gains. Gold prices drifted sideways and lower as Asian
demand continued to slow and demand in the Middle East was affected by low oil
prices. Initially buoyed on concerns about a U.S.-led military strike against
Iraq, crude oil fell to a nine year low, as the globally warm winter, the return
of Iraq as a producer and the Asian economic crisis added to OPEC's supply glut
problems.
Trading results in stock index markets were mixed, but marginally
profitable, despite a strong first-quarter performance by the U.S. equity market
as several consecutive weekly gains were recorded with most market averages
setting new highs. Results in currency trading were also mixed, but marginally
unprofitable. Gains were realized in positions on the Swiss franc, which
weakened versus the U.S. dollar, while trading losses resulted from positions in
the Japanese yen and the Australian dollar.
Agricultural commodity markets provided profitable trading results overall.
Live cattle and hog prices trended downward throughout the quarter resulting in
strong gains. Cotton prices moved mostly upward during the quarter, but prices
dropped off sharply at the end of March causing losses.
January 1, 1999 to March 31, 1999
Agricultural trading was profitable overall, as gains in coffee and live
cattle offset losses in corn and live hogs positions. Hog prices plummeted due
to a glut of hogs in the market. At the beginning of the quarter, the corn
market continued to struggle despite a stretch of solid export business. The
market's negative sentiment was deepened by ongoing favorable weather in South
America which continued through February, even though there was a sharp
reduction in Argentina's planted area. Lack of enthusiasm for new crop and less
than spectacular demand continued to depress the corn market throughout the
quarter.
The Fund also profited from trading in crude oil, heating oil, and unleaded
gas. As the year opened, the global oil balance continued to show signs of being
lopsided with estimated year-end 1998 inventories at their highest levels since
1984. During January, petroleum stocks rose by 21 million barrels compared with
a typical gain of 6 to 7 million barrels. Then, on March 23, OPEC ratified new
production cuts totaling 1.716 million barrels per day at its conference. These
new production cuts were scheduled to go into effect on April 1 and proved to be
harbingers of higher prices for crude.
Interest rate trading proved profitable for the Fund as well, as gains in
Japanese government bonds and 10-year U.S. Treasury notes offset losses in
German 10-year bonds. Early in January, the yield on the Japanese government
10-year bond increased to 1.8%, sharply above the record low of 0.695% it
reached on October 7, 1998. This was triggered by the Japanese Trust Fund
Bureau's decision to absorb a smaller share of future issues, leaving the burden
of financing future budget deficits to the private sector.
Stock index trading was unprofitable, as losses were sustained in Hang Seng
and CAC40 positions. Also of note, the Dow Jones Industrial Average closed above
the 10,000 mark for the first time ever at the end of March, setting a record
for the index.
The Fund also suffered losses in currency trading during the quarter, as
losses in Japanese yen overpowered gains in German marks. In January, the yen
had advanced by nearly 35% against the dollar since early in August, and the
Bank of Japan lowered rates to keep the economy sufficiently liquid so as to
allow fiscal spending to restore some growth to the economy and to drive down
the surging yen.
Losses in aluminum and gold overshadowed gains in copper during the first
quarter. In January, burdensome warehouse stocks and questionable demand
prospects weighed on base metals as
7
<PAGE>
aluminum fell to a 5-year low and copper fell to nearly an 11-year low. Major
surpluses in both metals were expected, keeping prices down, and there was no
supply side response to weak demand and lower prices. However, the end of March
showed copper and aluminum leading a surge in base metals as prices recovered
from multi-year lows. In precious metals, gold failed to sustain a rally, and
gold's role as a flight to safety vehicle has clearly been greatly diminished as
has its role as a monetary asset.
THE YEAR 2000 COMPUTER ISSUE
As the Year 2000 approaches, Merrill Lynch has undertaken initiatives to address
the Year 2000 problem (the "Y2K problem"), as more fully described in the
Partnership's 1998 Form 10-K. 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 legal liability and its need for liquidity.
The renovation phase of Merrill Lynch's Year 2000 efforts, as described in the
Partnership's 1998 Form 10-K, was approximately 99.7% completed as of April 16,
1999, and production testing was approximately 99.1% completed as of that date.
In March and April 1999, Merrill Lynch continued its participation in U.S.
industrywide testing sponsored by the Securities Industry Association. These
tests involved an expanded number of firms, transactions, and conditions
compared with those previously conducted.
In light of the interdependency of the parties in or serving the financial
markets, there can be no assurance that all Y2K problems will be identified and
remedied on a timely basis or that all remediation will be successful.
Disruption or suspension of activity in the world's financial markets is also
possible. In some non-U.S. markets in which Merrill Lynch does business, the
level of awareness and remediation efforts relating to the Y2K problem are
thought to be less advanced than in the U.S. 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. The
failure of exchanges, clearing organizations, vendors, service providers,
clients and 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.
As of March 26, 1999, the total estimated expenditures for the Year 2000
compliance initiative are approximately $520 million. This estimate includes
$104 million of occupancy, communications, and other related overhead
expenditures as Merrill Lynch is applying a fully costed pricing methodology for
this project. Of the total estimated expenditures, approximately $157 million
remains to be spent, primarily on continued testing, contingency planning, and
risk management. There can be no assurance that the costs associated with
remediation efforts will not exceed those currently anticipated by Merrill
Lynch, or that the possible failure of such remediation efforts will not have a
material adverse effect on Merrill Lynch's business, results of operations, or
financial condition.
8
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following table indicates the trading Value at Risk associated with the
Fund's open positions by market category as of March 31, 1999 and December 31,
1998, and the average of the three months for January 1999 through March 1999.
As of March 31, 1999 and December 31, 1998, the Fund's total capitalization was
approximately $95 million and $104 million, all, of which was allocated to
trading.
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
----------------------------------------- ----------------------------------------
% OF TOTAL % OF TOTAL
MARKET SECTOR VALUE AT RISK CAPITALIZATION VALUE AT RISK CAPITALIZATION
- ------------- ------------------ ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Interest Rates $ 2,010,937 2.11% $ 1,485,947 1.42%
Currencies 1,690,978 1.77 3,022,541 2.90
Stock Indices 2,275,645 2.39 1,788,496 1.71
Metals 367,121 .38 620,947 .60
Commodities 1,006,627 1.06 492,438 .47
Energy 666,000 .70 578,300 .55
------------------ ------------------- ------------------ -------------------
$ 8,017,308 8.41% $ 7,988,669 7.65%
================== =================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Average month-end
For the Period
January 1999 through March 1999
----------------------------------------
% OF TOTAL
MARKET SECTOR VALUE AT RISK CAPITALIZATION
- ------------- ------------------ -------------------
<S> <C> <C>
Interest Rates $ 7,171,249 7.28%
Currencies 1,779,980 1.81
Stock Indices 2,371,453 2.41
Metals 480,497 .49
Commodities 648,728 .66
Energy 525,165 .53
------------------ -------------------
$ 12,977,072 13.18%
================== ===================
</TABLE>
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending proceedings to which the Partnership or the General
Partner is a party.
Item 2. Changes in Securities and Use of Proceeds
(a) None.
(b) None.
(c) None.
(d) None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
There are no exhibits required to be filed as part of this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the first three months of
fiscal 1999.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ML GLOBAL HORIZONS L.P.
By: MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
Date: November 11, 1998 By /s/ JOHN R. FRAWLEY, JR.
------------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: November 11, 1998 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 0 0
<RECEIVABLES> 100,496,765 141,153,675
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 100,496,765 141,153,675
<SHORT-TERM> 0 0
<PAYABLES> 5,144,290 5,944,753
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 95,352,475 135,208,922
<TOTAL-LIABILITY-AND-EQUITY> 100,496,765 141,153,675
<TRADING-REVENUE> 1,747,059 4,858,073
<INTEREST-DIVIDENDS> 1,160,228 1,737,293
<COMMISSIONS> 2,263,141 3,902,562
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 644,146 2,692,804
<INCOME-PRE-EXTRAORDINARY> 644,146 2,692,804
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 644,146 2,692,804
<EPS-PRIMARY> 1.04 3.04
<EPS-DILUTED> 1.04 3.04
</TABLE>
