<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, 1999
or
( ) Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
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 (I.R.S. Employer
incorporation or organization) Identification No.)
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)
Registrant's telephone number, including area code: (609) 282-6996
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: the registrant is a limited partnership; as of February 1, 2000,
limited partnership units with an aggregate value of $77,158,547 were
outstanding and held by non-affiliates.
Documents Incorporated by Reference
The registrant's "1999 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 1999,
is incorporated by reference into Part II, Item 8 and Part IV hereof and filed
as an Exhibit herewith.
<PAGE>
ML GLOBAL HORIZONS L.P.
ANNUAL REPORT FOR 1999 ON FORM 10-K
Table of Contents
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<TABLE>
<CAPTION>
PART I PAGE
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<S> <C> <C>
Item 1. Business............................................................................. 1
Item 2. Properties........................................................................... 5
Item 3. Legal Proceedings.................................................................... 5
Item 4. Submission of Matters to a Vote of Security Holders.................................. 5
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 5
Item 6. Selected Financial Data.............................................................. 6
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 12
Item 8. Financial Statements and Supplementary Data.......................................... 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 16
PART III
--------
Item 10. Directors and Executive Officers of the Registrant................................... 17
Item 11. Executive Compensation............................................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 19
Item 13. Certain Relationships and Related Transactions....................................... 20
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 21
</TABLE>
-i-
<PAGE>
PART I
Item 1: Business
--------
(a) General Development of Business:
-------------------------------
ML Global Horizons L.P. ("the Fund") was organized under the Delaware
Revised Uniform Limited Partnership Act on May 11, 1993 and began trading
operations on January 4, 1994. The Fund trades in the international futures and
forward markets under the direction of multiple independent professional
advisors ("the Advisors") applying proprietary strategies. The Fund's objective
is to achieve, through speculative trading, substantial capital appreciation
over time.
Merrill Lynch Investment Partners Inc. ("MLIP"), organized in 1986,
acts as the general partner of the Fund and allocates the Fund's assets among
Advisors unaffiliated with MLIP, each of which trades independently of the
others. Merrill Lynch Futures Inc. ("MLF") is the Fund's commodity broker. MLIP
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."). MLF is an
indirect wholly-owned subsidiary of ML&Co. ML&Co and its affiliates are herein
sometimes referred to as "Merrill Lynch".
When the Fund is offering its units of limited partnership interest
("Units"), it receives and processes subscriptions, on a continuous basis
throughout each month. Investors whose subscriptions are accepted during, a
month are admitted to the Fund as Limited Partners as of the beginning of the
immediately following month, acquiring Units at the Net Asset Value per Unit as
of the date of admission. Investors' customer securities accounts are debited
in the amount of their subscriptions on a single monthly settlement date within
approximately five business days of the issuance of the Units.
As of December 31, 1999, the capitalization of the Fund was
$79,137,177, and the Net Asset Value per Unit, originally $100 as of January 4,
1994, had risen to $166.54.
Through December 31, 1999, the highest month-end Net Asset Value per
Unit was $169.11 (July 31, 1999) and the lowest $97.36 (February 28, 1994).
(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.
The Fund's assets are allocated and reallocated by MLIP to the trading
management of independent Advisors applying proprietary strategies in numerous
markets.
MLIP may, from time to time, direct certain individual Advisors to
manage their Fund accounts as if they were managing more equity than the actual
capital allocated to them.
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.
-1-
<PAGE>
Use of Proceeds and Interest Income
Subscription Proceeds. MLIP pays from its own funds the selling
---------------------
commissions relating to the sale of the Units. Accordingly, 100% of the proceeds
of Unit sales are received in cash by the Fund and available for use in its
speculative trading. In such trading, the Fund's assets are used as security for
and to pay the Fund's trading losses, as well as any expenses and redemptions.
The primary use of the proceeds of the sale of the Units is to permit the
Advisors to trade on a speculative basis in a wide range of different futures,
forwards and options on futures markets on behalf of the Fund. While being used
for this purpose, the Fund's assets are also generally available to earn
interest, as more fully described below. The Fund's last offering of Units was
through March 31, 1998, for trading effective April 1, 1998.
Market Sectors. The Fund trades in a diversified group of
--------------
markets under the direction of multiple independent Advisors. These Advisors
can, and do, from time to time, materially alter the allocation of their overall
trading commitments among different market sectors. There is, essentially, no
restriction on the commodity interests which may be traded by any Advisor or the
rapidity with which an Advisor may alter its market sector allocations.
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 Fund'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, 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 Fund.
In its exchange of futures for physical ("EFP") trading, the
Fund acquires cash currency positions through banks and dealers,
including Merrill Lynch. The Fund 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.
Custody of Assets. All of the Fund's assets are currently held in
-----------------
customer accounts at Merrill Lynch.
Interest Paid by Merrill Lynch on the Fund's U.S. Dollar and Non-U.S.
---------------------------------------------------------------------
Dollar Assets The Fund's U.S. dollar assets are maintained at MLF. On assets
- -------------
held in U.S. dollars, Merrill Lynch credits the Fund with interest at the
prevailing 91-day U.S. Treasury bill rate. The Fund 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 Fund, from possession of such assets.
-2-
<PAGE>
Merrill Lynch charges the Fund Merrill Lynch's cost of financing
realized and unrealized losses on the Fund's non-U.S. dollar denominated
positions.
____________________________
Charges
The following table summarizes the charges incurred by the Fund during
1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------------------------------------
% of Average % of Average % of Average
Dollar Month-End Dollar Month-End Dollar Month-End
Charges Amount Net Assets Amount Net Assets Amount Net Assets
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Brokerage
Commissions $ 6,790,464 7.43% $ 8,970,371 7.44% $ 7,727,226 7.19%
Administrative Fees 234,154 0.26% 309,323 0.25% 266,456 0.25%
Profit Shares 670,277 0.73% 3,920,850 3.25% 1,666,616 1.55%
Incentive Override 5,555 0.01% 153,883 0.13% 289,162 0.27%
------------------------------------------------------------------------------------------------
Total $ 7,700,450 8.42% $ 13,354,427 11.07% $ 9,949,460 9.26%
================================================================================================
</TABLE>
____________________________
The foregoing table does not reflect the bid-ask spreads paid by the
Fund on its forward trading, or the benefits which may be derived by Merrill
Lynch from the deposit of certain of the Fund's U.S. dollar available assets
maintained at MLF.
The Fund's average month-end Net Assets during 1999, 1998 and 1997
equaled $91,419,778 $120,645,332, and $107,466,882, respectively.
During 1999, 1998 and 1997, the Fund earned 4,451,948, $6,051,782 and
$5,278,840 in interest income, or approximately 4.87% 5.02% and 4.91%, of the
Fund's average month-end Net Assets.
A 7.25% per annum Brokerage Commissions is paid by the Fund to MLF and
a 0.25% per annum Administrative Fee paid by the Fund to MLIP.
-3-
<PAGE>
Description of Current Charges
Recipient Nature of Payment Amount of Payment
- --------- ----------------- -----------------
MLF Brokerage Commissions A flat-rate monthly commission of
0.6041 of 1% of the Fund's
month-end assets (a 7.25% annual
rate).
During 1999, 1998 and 1997, the
round-turn (each purchase and
sale or sale and purchase of a
single futures contract)
equivalent rate of the Fund's
flat-rate Brokerage Commissions
was approximately $106, $62 and
$98, 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 offset accounts.
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.
MLIP Annual Incentive Paid by the Fund as a whole on an
Overrides annual basis and by reduction of
the Net Asset Value of Units when
redeemed. The Incentive Override
equals 10% of any Net New Gain
(as defined). Units may generate
Net New Gain and be subject to
paying an Incentive Override even
though the Net Asset Value per
Unit has declined below the
purchase price of such Units.
Advisors Profit Shares All Advisors can receive
quarterly or annual Profit Shares
ranging from 15% to 25%
(depending on the Advisor) of any
New Trading Profit achieved by
their Fund account. Profit Shares
are also paid upon redemption of
Units and upon the net
reallocation of assets away from
an Advisor. New Trading Profit is
calculated separately in respect
of each Advisor, irrespective of
the overall performance of the
Fund. The Fund may pay
substantial Profit Shares during
periods when it is incurring
significant overall losses.
Advisors Consulting fees MLF currently pays the Advisors
annual Consulting Fees generally
ranging up to 1.75% of the Fund's
average month-end assets
allocated to them for management,
after reduction for a portion of
the brokerage commissions.
MLF; Extraordinary expenses Actual costs incurred; none paid
Others to date.
______________________
-4-
<PAGE>
Regulation
MLIP, the Advisors and MLF 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, and the registration of the Units for
continuous public distribution under the Securities Act of 1933, the Fund 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 Fund has no employees.
(d) Financial Information about Geographic Areas
--------------------------------------------
The Fund trades, from the United States, on a number of foreign
commodity exchanges. The Fund does not engage in the sales of goods or
services.
Item 2: Properties
----------
The Fund does not use any physical properties in the conduct of
its business.
The Fund's only place of business is the place of business of MLIP
(Merrill Lynch Investment Partners, Inc., Princeton Corporate Campus, 800
Scudders Mill Road 2G, Plainsboro, New Jersey, 08536). MLIP performs all
administrative services for the Fund from the MLIP'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 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 Fund has never submitted any matters 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 purchase or redeem Units as of the
end of each month at Net Asset Value, subject to certain early redemption
charges.
(b) Holders:
-------
As of December 31, 1999, there were 2,856 holders of Units, including
MLIP.
-5-
<PAGE>
(c) Dividends:
---------
The Fund has made no distributions since trading commenced, nor does MLIP
presently intend to make any distributions in the future.
Item 5(b)
Not applicable.
Item 6: Selected Financial Data
-----------------------
The following selected financial data has been derived from the audited
financial statements of the Fund:
<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 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
Revenues:
Trading Profits
<S> <C> <C> <C> <C> <C>
Realized Gain $ 8,710,125 $ 17,962,463 $ 6,111,341 $ 20,458,327 $ 17,455,764
Change in Unrealized
(Loss) Gain (3,604,366) (4,718,157) 6,329,441 (3,294,990) 299,233
---------------------------------------------------------------------------------------------------
Total Trading Results 5,105,759 13,244,306 12,440,782 17,163,337 17,754,997
---------------------------------------------------------------------------------------------------
Interest Income 4,451,948 6,051,782 5,278,840 3,978,137 3,786,925
---------------------------------------------------------------------------------------------------
Total Revenues 9,557,707 19,296,088 17,719,622 21,141,474 21,541,922
---------------------------------------------------------------------------------------------------
Expenses:
Brokerage Commissions 6,790,464 8,970,371 7,727,226 6,646,004 5,723,755
Profit Shares 670,277 3,920,850 1,666,616 1,808,020 1,492,857
Administrative Fees 234,154 309,323 266,456 57,091 -
Incentive Override 5,555 153,883 289,162 834,271 965,454
---------------------------------------------------------------------------------------------------
Total Expenses 7,700,450 13,354,427 9,949,460 9,345,386 8,182,066
---------------------------------------------------------------------------------------------------
Net Income $ 1,857,257 $ 5,941,661 $ 7,770,162 $ 11,796,088 $ 13,359,856
===================================================================================================
Balance Sheet Data December 31, 1999 December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------------
Fund Net Asset Value $79,137,177 $ 104,435,611 $ 134,044,365 $ 84,173,541 $ 89,140,493
Net Asset Value per Unit $ 166.54 $ 163.42 $ 153.86 $ 142.95 $ 124.35
===================================================================================================
</TABLE>
*Balance Sheet Data is based on redemption values which differ immaterially from
Net Asset Values as determined under Generally Accepted Accounting Principles
("GAAP") due to the treatment of organizational and initial offering cost
reimbursements.
____________________
-6-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MONTH-END NET ASSET VALUE PER INITIAL 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>
1995 $101.22 $106.76 $116.51 $118.56 $121.04 $120.69 $116.88 $116.54 $115.14 $115.01 $117.18 $124.35
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $125.91 $117.82 $119.43 $128.54 $123.56 $127.71 $123.72 $124.28 $128.97 $138.94 $146.22 $142.95
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $146.53 $151.84 $152.92 $149.41 $146.53 $146.46 $155.70 $148.90 $149.80 $147.06 $148.57 $153.86
- ------------------------------------------------------------------------------------------------------------------------------------
1998 $154.11 $155.99 $156.90 $148.38 $148.82 $148.13 $146.66 $154.13 $157.43 $159.62 $162.62 $163.42
- ------------------------------------------------------------------------------------------------------------------------------------
1999 $162.48 $163.98 $164.50 $167.59 $166.73 $169.02 $169.11 $168.78 $167.51 $161.64 $165.99 $166.54
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Net Asset Value per Unit varies, until December 31, 1995, from how it would
be calculated for purposes of GAAP, due to the amortization of organizational
and initial offering costs.
-7-
<PAGE>
ML GLOBAL HORIZONS L.P.
December 31, 1999
Type of Pool: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"(1)
Inception of Trading: January 4, 1994
Aggregate Subscriptions: $174,343,595
Current Capitalization: $79,137,177
Worst Monthly Drawdown(2): (6.42)% (2/96)
Worst Peak-to-Valley Drawdown(3): (6.52)% (4/98-7/98)
_____________
Net Asset Value per Unit, December 31, 1999: $166.54
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Monthly Rates of Return(4)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Month 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
January (0.58)% 0.16% 2.50% 1.25% (2.74)%
- ------------------------------------------------------------------------------------------------------------
February 0.92 1.22 3.62 (6.42) 5.48
- ------------------------------------------------------------------------------------------------------------
March 0.32 0.58 0.71 1.37 9.13
- ------------------------------------------------------------------------------------------------------------
April 1.88 (5.43) (2.30) 7.63 1.76
- ------------------------------------------------------------------------------------------------------------
May (0.51) 0.30 (1.93) (3.87) 2.09
- ------------------------------------------------------------------------------------------------------------
June 1.37 (0.46) (0.05) 3.35 (0.29)
- ------------------------------------------------------------------------------------------------------------
July 0.06 (0.99) 6.31 (3.12) (3.15)
- ------------------------------------------------------------------------------------------------------------
August (0.20) 5.09 (4.37) 0.45 (0.29)
- ------------------------------------------------------------------------------------------------------------
September (0.75) 2.14 0.60 3.77 (1.21)
- ------------------------------------------------------------------------------------------------------------
October (3.50) 1.39 (1.83) 7.73 (0.11)
- ------------------------------------------------------------------------------------------------------------
November 2.69 1.88 1.03 5.24 1.89
- ------------------------------------------------------------------------------------------------------------
December 0.33 0.49 3.56 (2.24) 6.12
- ------------------------------------------------------------------------------------------------------------
Compound Annual 1.91% 6.22% 7.61% 14.96% 19.48%
Rate of Return
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to applicable CFTC regulations, a "Multi-Advisor" fund
is defined as one that allocates no more than 25% of its trading assets to any
single manager. As the Fund currently allocates more than 25% of its trading
assets to one or more Advisors, it is referred to as a "Selected-Advisor" fund.
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 Fund has no such feature.
(2) Worst Monthly Drawdown represents the largest negative Monthly
Rate of Return experienced since January 1, 1995 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, 1995 from a month-end cumulative Monthly Rate of Return
without such cumulative Monthly Rate of Return being equalled or exceeded as of
a subsequent month-end. For example, if the Monthly Rate of Return was (1)% in
each of January and February, 1% in March and (2)% in April, the Peak-to-Valley
Drawdown would still be continuing at the end of April in the amount of
approximately (3)%, whereas if the Monthly Rate of Return had been approximately
3% in March, the Peak-to-Valley Drawdown would have ended as of the end of
February at approximately the (2)% level.
(4) Monthly Rate of Return is the net performance of the Fund during
the month of determination (including interest income and after all expenses
have been accrued or paid) divided by the total equity of the Fund as of the
beginning of such month.
-8-
<PAGE>
Item 7: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Operational Overview; Advisor Selections
The Fund's results of operations depend on MLIP's ability to select
Advisors and the Advisors' ability to trade profitably. MLIP's selection
procedures, as well as the Advisors' trading methods, are confidential, so that
substantially the only available information relevant to the Fund's results of
operations is its actual performance record to date. However, because of the
speculative nature of its trading, the Fund's past performance is not
necessarily indicative of its future results.
MLIP's decision to terminate or reallocate assets among Advisors is
based on a combination of factors. Advisors are, in general, terminated
primarily for unsatisfactory performance, but other factors -- for example, a
change in MLIP's or an Advisor's market outlook, apparent deviation from
announced risk control policies, excessive turnover of positions, changes in
principals, commitment of resources to other business activities, etc. -- may
also have a role in the termination or reallocation decision. The market
judgment and experience of MLIP's principals is an important factor in its
allocation decisions.
MLIP has no timetable or schedule for making Advisor changes or
reallocations, and generally makes a medium- to long-term commitment to all
Advisors selected. In particular, MLIP has to date made significantly fewer
reallocations of trading assets and adjustments in the Advisor combinations for
the Fund than in the case of many of MLIP's multi-advisor funds. However, there
can be no assurance as to the frequency or number of Advisor changes that may
take place in the future, or as to how long any of the current Advisors will
continue to manage assets for the Fund.
Results of Operations
General. MLIP believes that multi-advisor 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) different Advisors 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 clearing
broker or counterparty to the Fund's trades; it does not advise with respect to,
or direct, any such trading.
MLIP attempts to control the market risk inherent in the Fund's
trading by MLIP's multi-advisor strategy and Advisor selections. MLIP reviews
the positions acquired by the Advisors on a daily basis in an effort to
determine 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, as of the next month-end or quarter-end, adjust the Fund's
Advisor combination and/or allocations so as to attempt to reduce the risk of
such over-concentration occurring in the future.
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.
-9-
<PAGE>
Performance Summary
1999 Total Trading
Results
Interest Rates $ 390,642
Stock Indices (598,587)
Commodities 2,153,572
Currencies 96,120
Energy 4,089,862
Metals (1,025,850)
--------------
$ 5,105,759
==============
ML Global Horizons L.P. finished 1999 with gains in energy,
agriculture, interest rate and currency trading and losses in metals and stock
index trading. Commodities spent 1999 in a transition phase, shifting from
bearishness to a more neutral position. Lack of demand, particularly in Asia,
was the dominant factor in the overall decline in commodity prices. The major
surprise in the oil market in 1999 was OPEC's high level of self-discipline,
resulting in crude oil rallies throughout the year. Interest rate trading was
also profitable for the Fund as the flight to quality in the bond market
reversed during the first half of 1999 and the Federal Reserve raised interest
rates three times during the year.
Energy trading produced the largest gains during 1999. The Fund
profited from heating oil, crude oil and unleaded gas. Short positions in the in
heating oil proved most profitable for the Fund in the first quarter of the year
as prices dropped to its lowest levels in more than a decade. Gains in crude oil
and unleaded gas outweigh losses in natural gas trading as the focus attention
in the natural gas markets declined since the end of the winter. The remainder
of the year saw the Fund profit from long positions in crude oil, gasoil and
unleaded gas positions as OPEC cut production to 1.716 million barrels per day
and this resulted in higher prices for crude. Near the end of the year, there
was a continued upward momentum in crude oil reflecting the tightening between
supply and demand and prices hitting ten year highs.
Trading in agricultural was profitable overall for Fund in 1999.
During the first half of the year gains in coffee, cocoa and live cattle
positions outweigh loss in corn and live hogs. Agricultural commodities were
weak almost across the board as they were saddled with supply/demand imbalances
and unpredictable weather throughout the world. The second half of the year
produced gains through cocoa and corn positions, which offset losses in coffee,
live hogs and soybean. The anticipation of supply/demand imbalance for coffee
from an expected 2000-2001 bumper crop in Brazil pushed prices lower. These
losses were outweighed by short positions in corn and cocoa as excess supply had
speculators selling heavily into the market throughout the fourth quarter.
Interest rate trading was volatile during the year as the Federal
Reserve raised interest rates three times and the Japanese government's
continued desire to keep short-term rates at zero loomed over the markets
throughout the year. The Fund generated gains in Japanese ten-year bonds and
U.S. ten-year Treasury notes that outweighed losses in Eurodollars and German
ten-year bonds. Early in the year, the yield on the Japanese government ten-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. The second half of the year saw
large gains from short positions in U.S. Treasury notes as inflation worries and
fears that the Federal Reserve will continue to tighten rates well into 2000 saw
yields reach new multi-year highs.
Currency trading produced modest gains during 1999 for the Fund. The
first half of the year saw profitable positions in the Japanese yen and Euro
trading, which slightly outweighed losses in the British pound and short
positions in the Australian dollar. The Australian dollar has been feeling the
pinch of commodity price weakness for a few years but rallied back since its low
in August of 1998. The second half of the year produced mixed results, as
profitable trading in the Japanese yen were offset by losses in Euro currency
trading and the British pound. Long Yen positions resulted in strong gains as
the Bank of Japan refused to ease monetary policy and investors added to their
yen exposure, which reached a two-year high during the second half of the year.
Euro currency trading sustained losses as it continued to trade in the same
choppy pattern that has been evident during most of 1999.
Stock index trading was unprofitable throughout the majority of the
year for the Fund as losses in the Hang Seng, Nikki 255, S&P 500 and CAC40
offset slight gains in the DAX and FTSE 100. Stock indices continued there
volatile swings throughout the year as the Dow Jones Industrial Average closed
above the 10,000 and 11,000 marks during the year. Positions in the S&P 500,
Nikkei 225 and Hang Seng during second half of the year resulted in losses as
the markets volatility made the trading environment extremely different.
Metals trading generated the largest losses for the Fund in 1999 as
losses in copper, nickel and silver offset gains in aluminum and gold. Gold had
failed to maintain its status as a safety vehicle and a monetary asset during
the first half of 1999. In early June, gold had reached its lowest level in over
20 years. A major statement from the president of the European Central Bank
stated that the member banks had agreed not to expand their gold lending. This
sent gold prices sharply higher in late September. The Fund held long positions
in gold futures at that time. Gold prices had stabilized in the fourth quarter
following the price surge. Early in the year, burdensome warehouse stocks and
questionable demand prospects weighted on base metals as aluminum fell to a
five-year low and copper fell to nearly an 11-year low. The economic scenario
for Asia, Brazil, Europe and emerging market nations helped to keep copper and
other base metals on the defensive as demand receded with virtually no supply
side response in the second quarter. A substantial increase in Chinese imports
combined with the recovery in the rest of Asia and Europe had significantly
improved demand for aluminum pushing prices higher during December.
1998 Total Trading
Results
Interest Rates $ 13,700,880
Stock Indices (1,850,085)
Commodities (113,534)
Currencies 2,224,110
Energy 4,392,566
Metals (5,109,631)
------------------
$ 13,244,306
==================
Global interest rate markets provided the Fund with its most
profitable positions for the first quarter, 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. In the second quarter, swings in the U.S.
dollar and developments in Japan affected bond markets, causing the Fund's
interest rate trading to result in losses. This was turned around in the third
quarter, as markets worldwide were turned upside down and the Fund's non-
correlation with general equity and debt markets was strongly exhibited, and
trading was particularly profitable in positions in Eurodollars, German and
Japanese bonds, and U.S. Treasury notes and bonds. Global investors staged a
major flight to quality, resulting in a significant widening of credit spreads
on a global basis. In October, investors pushed the yields on U.S. Treasury
bonds to a 31-year low. The long bond yield fell about 75 basis points in 1998
as the world economy slowed more than expected, inflation continued to fall, the
anticipated small U.S. budget deficit turned into substantial surplus, and the
Federal Reserve lowered interest rates.
In energy markets, demand for crude oil in the Middle East was
affected by low oil prices early in the year, and trading resulted in losses.
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. Despite production cuts initiated by OPEC at the end of March, world
oil supplies remained excessive and oil prices stood at relatively low levels
throughout the first half of 1998. Short heating oil positions in the third
quarter proved profitable for the Fund as the market for heating oil prices
dropped to its lowest level in more than a decade. In early December, oil and
natural gas prices dropped sharply, causing continued problems for many emerging
market countries that depend on commodity exports for economic growth and
government financing. These price pressures were mainly due to excessive supply
availability and near-term weather indications that inventories would remain at
more than adequate levels even in the event of a cold Northern Hemisphere
winter. Also, the December U.S. air attack on Iraq failed to cause any damage
to oil pumping and shipping operations, and oil prices fell over 10%.
In currency markets, results early in the year were mixed, although
marginally profitable. During the second quarter, strong gains were realized in
positions in the Japanese yen, which weakened during June to an eight-year low
versus the U.S. dollar. Significant gains from Japanese yen trading continued
into the third quarter, and Japan's problems spread to other sectors of the
global economy, causing commodities prices to decline as demand from the Asian
economies weakened. Japan's deepening recession and credit crunch continued
through the fourth quarter, and the Fund achieved gains from long yen positions.
Gold prices began the year drifting sideways, and continued to weaken
following news in the second quarter of a European Central Bank consensus that
ten to fifteen percent of reserves should be made up of gold bullion, which was
at the low end of expectations. Gold was unable to extend third quarter rallies
or to build any significant upside momentum, resulting in a trendless
environment. This was also the case in the fourth quarter, as gold's cost of
production declined. Also, silver markets remained range-bound, while also
experiencing a significant selloff in November, and aluminum traded at its
lowest levels since 1994, with many aluminum smelters operating at a loss.
Trading results in stock index markets were also mixed in early 1998,
despite a strong first-quarter
-10-
<PAGE>
performance by the U.S. equity market as several consecutive weekly gains were
recorded with most market averages setting new highs. Second quarter results
were profitable as the Asia-Pacific region's equity markets weakened across the
board. In particular, Hong Kong's Hang Seng index trended downward during most
of the second quarter and traded at a three- year low. As U.S. equity markets
declined in July and August, the Fund profited from short positions in the S&P
500, most notably during August, when the index dropped 14.5%. Volatility in
September made for a difficult trading environment in the stock index sector,
and the Fund incurred modest losses, although results remained profitable for
the quarter and the year overall in these markets.
In agricultural commodity markets, 1998 began with strong gains as
live cattle and hog prices trended downward throughout the first quarter. In
the second quarter, although the U.S. soybean crop got off to a good start which
contributed to higher yield expectations and a more burdensome supply outlook,
soybean prices traded in a volatile pattern. Sugar futures maintained mostly a
downtrend, as no major buyers emerged to support the market. Similarly, coffee
prices trended downward, as good weather conditions in Central America and
Mexico increased the prospects of more output from these countries. The third
quarter resulted in losses as the U.S. soybean crop increased relative to the
USDA's production estimate as a result of timely rains, which contributed to
lower prices. These losses continued into the fourth quarter as the Fund was
caught on the short side of the soybean complex, as the soybean supply surplus
became more manageable following the November 10th USDA reports, causing prices
to gain upward momentum.
1997
Total Trading
Results
Interest Rates $ 3,934,415
Stock Indices (59,105)
Commodities 1,154,857
Currencies 6,017,661
Energy (4,302,025)
Metals 5,694,979
------------------
$ 12,440,782
==================
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
-11-
<PAGE>
significantly warmer than normal. By mid-year, the decline in prices reversed
sharply as Saudi Arabia and Iran, together representing about 45% of OPEC's oil
production, joined forces to pressure oil-producing nations to stay within OPEC
production quotas. In December, financial and economic problems in Asia reduced
demand for oil, and, in combination with ample supplies, resulted in crude oil
prices declining once again.
Variables Affecting Performance
- -------------------------------
The principal variables which determine the net performance of the
Fund are gross profitability and interest income. Gross profitability is, in
turn, affected by the percentage of the Fund's assets allocated to trading.
During all periods set forth under "Selected Financial Data," the
interest rates in many countries were at unusually low levels. The low interest
rates in the United States (although higher than in many other countries)
negatively impacted revenues because interest income is typically a major
component of the Fund's profitability. In addition, low interest rates are
frequently associated with reduced fixed income market volatility, and in
static markets the Fund's profit potential generally tends to be diminished. On
the other hand, during periods of higher interest rates, the relative
attractiveness of high risk investment such as the Fund may be reduced as
compared to high yielding and much lower risk fixed, income investments.
The Fund's Brokerage Commissions and Administrative Fees are a constant
percentage of the Fund's assets. The only Fund costs (other than the
insignificant currency trading costs) which are not based on a percentage of the
Fund's assets are the Profit Shares payable to the Advisors on an Advisor-by-
Advisor basis. During periods when Profit Shares are a high percentage of net
trading gains, it is likely that there has been substantial performance non-
correlation among the Advisors (so that the total Profit Shares paid to those
Advisors which have traded profitably are a high percentage, or perhaps even in
excess, of the total profits recognized, as other Advisors have incurred
offsetting losses, reducing overall trading gains but not the Profit Shares paid
to the successful Advisors) -- suggesting the likelihood of generally trendless,
non-consensus markets.
Unlike many investment fields, there is no meaningful distinction in the
operation of the Fund between realized and unrealized profits. Most of the
contracts traded by the Fund are highly liquid and can be closed out at any
time.
Except in unusual circumstances, factors -- regulatory approvals, cost
of goods sold, employee relations and the like -- which often materially affect
an operating business have virtually no impact on the Fund.
Liquidity; Capital Resources
The Fund borrows only to a limited extent and only on a strictly
short-term basis in order to finance losses on a non-U.S. dollar denominated
trading positions pending the conversion of the Fund's dollar deposits. These
borrowings are at a prevailing short-term rate in the relevant currency. They
have been immaterial to the Fund's operation to date and are expected to
continue to be so.
Substantially all of the Fund's assets are held in cash. The Net
Asset Value of the Fund's cash is not affected by inflation. However, changes
in interest rates could cause periods of strong up or down price trends, during
which the Fund's profit potential generally increases. Inflation in commodity
prices could also generate price movements which the strategies might
successfully follow.
Except in very unusual circumstances, the Fund should be able to close
out any or all of its open trading positions and liquidate any or all of its
securities holdings quickly and at market prices. This permits an Advisor to
limit losses as well as reduce market exposure on short notice should its
strategies indicate doing so. In addition, because there is a readily available
market value for the Fund's positions and assets, the Fund's monthly Net Asset
Value calculations are precise, and investors need only wait ten business days
to receive the full redemption proceeds of their Units.
Year 2000 Compliance Initiative
In 1999, Merrill Lynch completed its efforts to address the Year 2000
issue (the "Y2K issue"). The Y2K issue was the result of a widespread
programming technique that caused computer systems to identify a date based on
the last two numbers of a year, with the assumption that the first two numbers
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
issue may have caused serious failures in information technology systems and
other systems.
In 1995, Merrill Lynch established the Year 2000 Compliance
Initiative to address the internal and external risks associated with the Y2K
issue. The initiative consisted of six phases, completed by the millenium:
planning, pre-renovation, renovation, production testing, certification, and
integration testing. Contingency plans were established in the event of any
failures or disruptions.
Through the date of this filing, there have been no material failures
or disruptions of systems or services at Merrill Lynch attributable to the Y2K
issue. Similarly we have not been notified of any material failure or disruption
of systems or services affecting third parties in their capacity to transact
business with Merrill Lynch or in Merrill Lynch's capacity to transact business
with others. Merrill Lynch continues to monitor the performance of its systems
for any possible future failures or disruptions attributable to the Y2K issue.
As of December 31, 1999, the total estimated expenditures of existing
and incremental resources for the entire Year 2000 Compliance Initiative was
approximately $510 million, including $102 million of occupancy, communications,
and other related overhead expenditures, as Merrill Lynch is applying a fully
costed pricing methodology for this project. At December 31, 1999, of the total
estimated expenditures, approximately $12 million, related to continued testing,
contingency planning, risk management, and the wind down of the efforts, had not
yet been spent.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Introduction
Past Results Not Necessarily Indicative of Future Performance
-------------------------------------------------------------
The Fund is a speculative commodity pool. Unlike an operating
company, the risk of market sensitive instruments traded by it is integral, not
incidental, to the Fund's main line of business.
Market movements result in frequent changes in the fair market value
of the Fund's open positions and, consequently, in its earnings and cash flow.
The Fund's market risk is influenced by a wide variety of factors, including the
level and volatility of interest rates, exchange rates, equity price levels, the
market value of financial instruments and contracts, the diversification effects
among the Fund's open positions and the liquidity of the markets in which it
trades.
The Fund, under the direction of its Advisors, rapidly
acquires and liquidates both long and short positions in a wide range of
different markets. Consequently, it is not possible to predict how a possible
future market scenario will affect performance, and the Fund's past performance
is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Fund could
reasonably be expected to lose in a given market sector. However, the inherent
uncertainty of the Fund's speculative trading and the recurrence in the markets
traded by the Fund of market movements far exceeding expectations could result
in actual trading or non-trading losses far beyond the indicated Value at Risk
or the Fund's experience to date (i.e., "risk of ruin"). In light of the
foregoing, as well as the risks and uncertainties intrinsic to all future
projections, the inclusion of the quantification in this section should not be
considered to constitute any assurance or representations that the Fund's losses
in any market sector will be limited to Value at Risk or by the Fund's attempt
to manage market risk.
Quantifying the Fund's Trading Value at Risk
Quantitative Forward-Looking Statements
---------------------------------------
The following quantitative disclosures regarding the Fund's market
risk exposures contain "forward-looking statements" within the meaning of the
safe harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
All quantitative disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor, except for statements of historical
fact.
-12-
<PAGE>
The Fund's risk exposure in the various market sectors traded by the
Advisors is quantified below in terms of Value at Risk. Due to the Fund's mark-
to-market accounting, any loss in the fair value of the Fund's open positions is
directly reflected in the Fund's earnings (realized or unrealized) and cash flow
(at least in the case of exchange-traded contracts in which profits and losses
on open positions are settled daily through variation margin).
Exchange maintenance margin requirements have been used by the Fund as
the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum loss in the fair value of any given
contract incurred in 95% - 99% of the one-day time periods included in the
historical sample (generally approximately one year) researched for purposes of
establishing margin levels. Maintenance margin levels are established by
dealers and exchanges using historical price studies as well as an assessment of
current market volatility and economic fundamentals to provide a probabilistic
estimate of the maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments which are not exchange-
traded (almost exclusively currencies in the case of the Fund), the margin
requirements for the equivalent futures positions have been used as Value at
Risk. In those rare cases in which a futures-equivalent margin is not available,
dealers' margins have been used.
The fair value of the Fund's futures and forward positions does not
have any optionality component. However, certain of the Advisors trade commodity
options. The Value at Risk associated with options is reflected in the
following table as the margin requirement attributable to the instrument
underlying each option.
100% positive correlation in the different positions held in each
market risk category has been assumed. Consequently, the margin requirements
applicable to the open contracts have been aggregated to determine each trading
category's aggregate Value at Risk. The diversification effects resulting from
the fact that the Fund's positions are rarely, if ever, 100% positively
correlated have not been reflected.
-13-
<PAGE>
The Fund's Trading Value at Risk in Different Market Sectors
The following table indicates the average, highest and lowest trading
Value at Risk associated with the Fund's open positions by market category for
the fiscal year 1999. During the fiscal year 1999, the Fund's average
capitalization was approximately $91,419,778. As of December 31,1998, the Fund's
total capitalization was approximately $104,435,611.
<TABLE>
<CAPTION>
December 31, 1999
-----------------
Average % of Average Highest Value Lowest Value
Market Sector Value at Risk Capitalization at Risk at Risk
------------- ------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Interest Rates $ 3,100,694 3.39% 2,953,077 799,566
Currencies 1,324,266 1.45% 1,690,978 1,039,330
Stock Indices 1,377,684 1.51% 2,309,135 423,646
Metals 474,094 0.52% 805,346 327,977
Commodities 533,006 0.58% 1,006,627 359,343
Energy 659,611 0.72% 901,100 633,876
--------------- ------------- ----------- ----------
Total $ 7,469,355 8.17% 9,666,263 3,583,738
=============== ============= =========== ==========
<CAPTION>
December 31, 1998
-----------------
% of Total
Market Sector Value at Risk Capitalization
- ------------- ---------------- --------------
<S> <C> <C>
Interest Rates 1,485,947 1.42%
Currencies 3,022,541 2.90%
Stock Indices 1,788,496 1.71%
Metals 620,947 0.60%
Commodities 492,438 0.47%
Energy 578,300 0.55%
------------- -----------
Total 7,988,669 7.65%
============= ===========
</TABLE>
Average, highest and lowest Value at Risk amounts relate to the
quarter-end amounts for each calendar quarter-end during the fiscal year.
Average Capitalization is the average of the Fund's capitalization at the end of
each calendar quarter of fiscal year 1999.
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Fund is
typically many times the applicable maintenance margin requirement (maintenance
margin requirements generally ranging between approximately 1% and 10% of
contract face value) as well as many times the capitalization of the Fund. The
magnitude of the Fund's open positions creates a "risk of ruin" not typically
found in most other investment vehicles. Because of the size of its positions,
certain market conditions unusual, but historically recurring from time to time
could cause the Fund to incur severe losses over a short period of time. The
foregoing Value at Risk table as well as the past performance of the Fund
gives no indication of this "risk of ruin."
Non-Trading Risk
Foreign Currency Balances; Cash on Deposit with MLF
The Fund has non-trading market risk on its foreign cash balances not
needed for margin. However, these balances (as well as the market risk they
represent) are immaterial.
The Fund also has non-trading market risk on the approximately 90%-95%
of its assets which are held in cash at MLF. The value of this cash is not
interest rate sensitive, but there is cash flow risk in that if interest rates
decline so will the cash flow generated on these monies. This cash flow risk is
immaterial.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Fund's market risk
exposures except for (i) those disclosures that are statements of historical
fact and (ii) the descriptions of how the Fund manages its primary market risk
exposures constitute forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act. The
Fund's primary market risk exposures as well as the strategies used and to be
used by MLIP and the Advisors for managing such exposures are subject to
numerous uncertainties, contingencies and risks, any one of which could cause
the actual results of the Fund's risk controls to differ materially from the
objectives of such strategies. Government interventions, defaults and
expropriations, illiquid markets, the emergence of dominant fundamental factors,
political upheavals, changes in historical price relationships, an influx of new
market participants, increased regulation and many other factors could result in
material losses as well as in material changes to the risk exposures and the
risk management strategies of the Fund. There can be no assurance that the
Fund's current market exposure and/or risk management strategies will not change
materially or that any such strategies will be effective in either the short- or
long-term. Investors must be prepared to lose all or substantially all of their
investment in the Fund.
-14-
<PAGE>
The following were the primary trading risk exposures of the Fund as of December
31, 1999, by market sector.
Interest Rates. Interest rate risk is the principal market exposure of the
--------------
Fund. Interest rate movements directly affect the price of derivative sovereign
bond positions held by the Fund and indirectly the value of its stock index and
currency positions. Interest rate movements in one country as well as relative
interest rate movements between countries materially impact the Fund's
profitability. The Fund's primary interest rate exposure is to interest rate
fluctuations in the United States and the other G-7 countries. However, the
Fund also takes positions in the government debt of smaller nations e.g., New
Zealand and Australia. MLIP anticipates that G-7 interest rates
will remain the primary market exposure of the Fund for the foreseeable future.
Currencies. The Fund trades in a large number of currencies. However, the
----------
Fund's major exposures have typically been in the dollar/yen, dollar/euro and
dollar/pound positions. MLIP does not anticipate that the risk
profile of the Fund's currency sector will change significantly in the future.
The currency trading Value at Risk figure includes foreign margin amounts
converted into U.S. dollars with an incremental adjustment to reflect the
exchange rate risk of maintaining Value at Risk in a functional currency other
than dollars.
Stock Indices. The Fund's primary equity exposure is to G-7 equity index
-------------
price movements. As of December 31, 1999, the Fund's primary exposures were in
the S&P 500, Financial Times (England), Nikkei (Japan) and DAX (Germany) stock
indices. MLIP anticipates little, if any, trading in non-G-7 stock indices. The
Fund is primarily exposed to the risk of adverse price trends or static markets
in the major U.S., European and Asian indices.
Metals. The Fund's primary metals market exposure is to fluctuations in the
------
price of gold and silver. Although certain of the Advisors will from time to
time trade base metals such as aluminum, nickel, copper and tin, the principal
market exposures of the Fund have consistently been in the precious metals, gold
and silver (and, to an extent, platinum). MLIP anticipates that gold and silver
will remain the primary metals market exposure for the Fund.
Commodities. The Fund's primary commodities exposure is to agricultural price
-----------
movements which are often directly affected by severe or unexpected weather
conditions. Soybeans, grains and orange juice accounted for the substantial
bulk of the Fund's commodities exposure as of December 31, 1999. In the past,
the Fund has had material market exposure to live cattle and hogbellies and may
do so again in the future. However, MLIP anticipates that the Advisors will
maintain an emphasis on soybeans, grains and orange juice, in which the Fund has
historically taken its largest positions.
Energy. The Fund's primary energy market exposure is to gas and oil price
------
movements, often resulting from political developments in the Middle East.
Although the Advisors trade natural gas to a limited extent, oil is by far the
dominant energy market exposure of the Fund. Oil prices can be volatile and
substantial profits and losses have been and are expected to continue to be
experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Fund as
of December 31, 1999.
Foreign Currency Balances. The Fund's primary foreign currency
-------------------------
balances are in Japanese yen, British pounds and Euro. The Fund has de minimis
exchange rate exposure on these balances.
U.S. Dollar Balances. The Fund holds its U.S. dollars in cash at MLF.
--------------------
The Fund has immaterial cash-flow, interest-rate risk on its cash on deposit
with MLF in that declining interest rates would cause the income from such cash
to decline.
-15-
<PAGE>
Qualitative Disclosures Regarding Means of Managing Risk Exposure
Trading Risk
MLIP has procedures in place intended to control market risk exposure,
although there can be no assurance that they, in fact, succeed in doing so.
These procedures focus primarily on monitoring the trading of the Advisors
selected from time to time for the Fund, and reviewing outstanding positions for
over-concentrations both on an Advisor-by-Advisor and on an overall Fund
basis. While MLIP does not itself intervene in the markets to hedge or diversify
the Fund's market exposure, MLIP may urge Advisors to reallocate positions, or
itself reallocate Fund 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.
At the Advisor level, each Advisor applies its own risk management
policies to its trading. These policies generally limit the total exposure that
may be taken per "risk unit" of assets under management. In addition, many
Advisors follow diversification guidelines (often formulated in terms of the
maximum margin which they will commit to positions in any one contract or group
of related contracts), as well as imposing "stop-loss" points at which open
positions must be closed out. Occasionally, Advisors will limit the market
exposure of their Fund account through acquiring put or call options which
"collar" the risk of open positions. However, because of the typically high
degree of liquidity in the markets traded by the Fund and the expense of
acquiring options, most Advisors rely simply on stop-loss policies, requiring
the liquidation of positions once losses of a certain magnitude have been
incurred.
Certain Advisors treat their risk control policies as strict rules;
others only as general guidelines for controlling risk.
Non-Trading Risk
The Fund controls the non-trading exchange rate risk of its foreign
currency balances by regularly converting these balances back into dollars (no
less frequently than twice a month, and more frequently if a particular foreign
currency balance becomes unusually high).
The Fund has cash flow interest rate risk on its cash on deposit with
MLF in that declining interest rates would cause the income from such cash to
decline. However, a certain amount of cash or cash equivalents must be held by
the Fund in order to facilitate margin payments and pay expenses and
redemptions. MLIP does not take any steps to limit the cash flow risk on its
cash held on deposit at MLF.
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. MLIP 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 or financial disclosure.
-16-
<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 Fund itself has no officers or
directors and is managed by MLIP. Trading decisions are made by the Advisors on
behalf of the Fund. MLIP promoted the Fund and is its controlling person.
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
Michael L. Pungello Vice President, Chief Financial Officer and Treasurer
Allen N. Jones Director
Stephen G. Bodurtha Director
Michael J. Perini 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.
Michael L. Pungello was born in 1957. Effective May 1, 1999, Mr.
Pungello became 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.
-17-
<PAGE>
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.
Michael J. Perini was born in 1947. Effective May 11, 1999, Mr. Perini
became a Director of MLIP. Since February 1998, Mr. Perini has been First Vice
President and Senior Director of the Defined and Managed Funds Group, which
includes Defined Asset Funds, Special Investments and MLIP. This is part of the
Investment Strategy Product Group of Merrill Lynch Private Client. Previously
Michael Perini was Director of Defined Asset Funds and has held various
management positions since he joined Merrill Lynch in 1970. Mr. Perini attended
St. John's University and New York University as well as The Stanford University
Marketing Management Program. He was elected to the Board of Governors of the
Investment Company Institute in Washington, D.C., and is Chairman of the Unit
Investment Trust Committee of the Institute.
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, 1999, the principals of MLIP owned Units with an
aggregate Net Asset Value of approximately $106,586 and MLIP's general partner
interest in the Fund was valued at approximately $1,481,537.
MLIP acts as general partner to eleven public futures funds whose
units of limited partnership interest are registered under the Securities
Exchange Act of 1934: The Futures Expansion Fund Limited Partnership, ML
Futures Investments II L.P., ML Futures Investments 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 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.
-18-
<PAGE>
(d) Family Relationships:
--------------------
None.
(e) Business Experience:
-------------------
See Items 10 (a) and 10(b) above.
(f) Involvement in Certain Legal Proceedings:
----------------------------------------
None.
(g) Promoters and Control Persons:
------------------------------
Not applicable.
Item 11: Executive Compensation
----------------------
The directors and officers of MLIP are remunerated by MLIP in their
respective positions. The Fund does not itself have any officers, directors or
employees. The Fund pays Brokerage Commissions to an affiliate of MLIP and
Incentive Overrides and Administrative Fees to MLIP. MLIP or its affiliates may
also receive certain economic benefits from holding the Fund's dollar assets in
offset accounts, as described in Item 1(c) above. The directors and officers
receive no "other compensation" from the Fund, and the directors receive
no compensation for serving as directors of MLIP. There are no compensation
plans or arrangements relating to a change in control of either the Fund or
MLIP.
Item 12: Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners:
-----------------------------------------------
As of December 31, 1999, no person or "group" is known to be or have
been the beneficial owner of more than 5% of the Units.
(b) Security Ownership of Management:
--------------------------------
As of December 31, 1999, the following officers of the General Partner
beneficially owned the following number of Units:
Number of Percent
Name of Beneficial Owner Units Owned of Class
------------------------ ----------- --------
John R. Frawley, Jr. 590 Less than 1%
Jeffrey Chandor 50 Less than 1%
As of December 31, 1999, MLIP owned 8,896 Units (unit-equivalent
general partnership interests), which was approximately 1.87% of the total Units
outstanding.
(c) Changes in Control:
------------------
None.
-19-
<PAGE>
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.
(b) Certain Business Relationships:
------------------------------
MLF, an affiliate of MLIP, acts as the principal commodity broker for
the Fund.
In 1999 the Fund expensed: (i) Brokerage Commissions of $6,790,464,
which included $1,174,638 in consulting fees earned by the Advisors; (ii)
Administrative Fees of $234,154 to MLIP; and (iii) Incentive Overrides of $5,555
to MLIP. In addition, MLIP and its affiliates may have derived certain economic
benefits from possession of the Fund's assets, as well as from foreign exchange
and EFP trading.
See Item 1(c), "Narrative Description of Business -- Charges" for a
discussion of other business dealings between MLIP affiliates and the
Partnership.
The fact that MLIP receives incentive compensation from the
Fund (which is an unusual fee arrangement for MLIP) could cause MLIP to
manage the Fund in a more speculative and "risky" fashion than MLIP
otherwise would.
(c) Indebtedness of Management:
--------------------------
The Fund is prohibited from making any loans, to management or
otherwise.
(d) Transactions with Promoters:
---------------------------
Not applicable.
-20-
<PAGE>
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)1. Financial Statements (found in Exhibit 13.01): Page
---------------------------------------------- ----
Independent Auditors' Report 1
Statements of Financial Condition as of December
31, 1999 and 1998 2
For the years ended December 31, 1999, 1998 and 1997:
Statements of Income 3
Statements of Changes in Partners' Capital 4
Notes to Financial Statements 5-9
(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
- ----------- -----------
1.01 Selling Agreement among the Fund, Merrill Lynch Investment
Partners, Inc., Merrill Lynch Futures, the Selling Agent
and the Trading Advisors.
Exhibit 1.01: Is incorporated herein by reference from Exhibit 1.01
- ------------
contained in Amendment No. 1 to the Registration Statement
(File No. 33- 62998) filed on September 10, 1993, on Form
S-1 under the Securities Act of 1933 (the "Registrant's
Registration Statement").
3.01(i) Amended and Restated Certificate of Limited Partnership of
the Registrant, dated August 25, 1994.
Exhibit 3.01(i): Is incorporated herein by reference from Exhibit 3.01(i)
- --------------- contained in the Registrant's Registration Statement.
3.01(ii) Amended and Restated Limited Partnership Agreement of the
Fund.
Exhibit 3.01(ii): Is incorporated herein by reference from Exhibit 3.01(ii)
- ---------------- contained in the Registrant's Registration Statement (as
Exhibit A).
3.02(iii) Amended and Restated Certificate of Limited Partnership of
the Fund, dated July 27, 1995.
Exhibit 3.02(iii): Is incorporated by reference from Exhibit 3.02(iii)
- ----------------- contained in the Registrant's report on Form 10-Q for the
Quarter Ended June 30, 1995.
10.01(d) Form of Advisory Agreement between the Partnership, Merrill
Lynch Investment Partners Inc., Merrill Lynch Futures Inc.
and prospective trading advisors.
Exhibit 10.01(d): Is incorporated by reference from Exhibit 10.01(d)
- ---------------- contained in the Registrant's report on Form 10-Q for the
Quarter Ended June 30, 1995.
-21-
<PAGE>
10.02 Form of Consulting Agreement between each trading advisor,
the Partnership and Merrill Lynch Futures Inc.
Exhibit 10.02: Is incorporated herein by reference from Exhibit 10.02
- ------------- contained in the Registrant's Registration Statement.
10.03 Form of Customer Agreement between the Partnership and
Merrill Lynch Futures Inc.
Exhibit 10.03: Is incorporated herein by reference from Exhibit 10.03
- ------------- contained in the Registrant's Registration Statement.
10.05 Form of Subscription Agreement and Power of Attorney.
Exhibit 10.05: Is incorporated herein by reference from Exhibit 10.05
- ------------- contained the Registrant's Registration Statement (as
Exhibit D).
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 Amendment No. 1 to the Registration Statement.
10.07 Form of Advisory and Consulting Agreement Amendment among
Merrill Lynch Investment Partners Inc., each Advisor, the
Fund and Merrill Lynch Futures Inc.
Exhibit 10.07: Is incorporated herein by reference from Exhibit 10.07
- ------------- contained in the Registrant's report on Form 10-K for the
year ended December 31, 1996.
13.01 1999 Annual Report and Independent Auditors' Report.
Exhibit 13.01: Is filed herewith.
- -------------
28.01 Prospectus of the Fund dated December 6, 1995.
Exhibit 28.01: Is incorporated by reference as filed with the Securities
- ------------- and Exchange Commission pursuant to Rule 424 under the
Securities Act of 1933, Registration Statement (File No.
33-88994) on Form S-1, effective December 6, 1995).
(b) Report on Form 8-K:
------------------
No reports on Form 8-K were filed during the fourth quarter of 1999.
-22-
<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.
ML GLOBAL HORIZONS L.P.
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 30, 2000 by the
following persons on behalf of the Registrant and in the capacities indicated.
Signature Title Date
- --------- ----- ----
/s/ John R. Frawley, Jr. Chairman, Chief Executive Officer, March 30, 2000
- -------------------------- President and Director
John R. Frawley, Jr. (Principal Executive Officer)
/s/ Michael L. Pungello Vice President, Chief Financial March 30, 2000
- -------------------------- Officer, and Treasurer (Principal
Michael L. Pungello Financial and Accounting Officer)
/s/ Jeffrey F. Chandor Senior Vice President, March 30, 2000
- -------------------------- Director of Sales, Marketing
Jeffrey F. Chandor and Research, and Director
/s/ Michael J. Perini Director March 30, 2000
- --------------------------
Michael J. Perini
(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 30, 2000
PARTNERS INC.
By: /s/ John R. Frawley, Jr.
----------------------------
John R. Frawley, Jr.
-23-
<PAGE>
ML GLOBAL HORIZONS L.P.
1999 FORM 10-K
INDEX TO EXHIBITS
-----------------
Exhibit
-------
Exhibit 13.01 1999 Annual Report and Independent Auditors' Report
<PAGE>
EXHIBIT 13.01
ML GLOBAL HORIZONS L.P.
(A Delaware Limited Partnership)
Financial Statements for the years ended
December 31, 1999, 1998 and 1997
And Independent Auditors' Report
[LOGO of Merrill Lynch appears here]
<PAGE>
ML GLOBAL HORIZONS L.P.
(A Delaware Limited Partnership)
------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997:
Statements of Financial Condition 2
Statements of Income 3
Statements of Changes in Partners' Capital 4
Notes to Financial Statements 5-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Partners of
ML Global Horizons L.P.:
We have audited the accompanying statements of financial condition of ML Global
Horizons L.P. (the "Partnership") as of December 31, 1999 and 1998, and the
related statements of income and of changes in partners' capital for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of ML Global Horizons L.P. as of December 31,
1999 and 1998, and the results of its operations and changes in partners'
capital for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
February 4, 2000
<PAGE>
ML GLOBAL HORIZONS L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
ASSETS
Equity in commodity futures trading accounts:
Cash and option premiums $ 80,686,939 $ 106,424,609
Net unrealized profit on open contracts 341,454 3,947,083
Accrued interest (Note 2) 364,959 407,106
------------------ ------------------
TOTAL $ 81,393,352 $ 110,778,798
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Brokerage commissions payable (Note 2) $ 491,752 $ 669,289
Profit Shares payable (Note 3) 344,141 1,197,683
Administrative fees payable (Note 2) 16,957 23,079
Redemptions payable 1,397,770 4,299,253
Incentive Override payable (Note 2) 5,555 153,883
------------------ ------------------
Total liabilities 2,256,175 6,343,187
------------------ ------------------
PARTNERS' CAPITAL:
General Partner (8,896 Units and 8,298 Units) 1,481,537 1,356,079
Limited Partners (466,291 Units and 630,758 Units) 77,655,640 103,079,532
------------------ ------------------
Total partners' capital 79,137,177 104,435,611
------------------ ------------------
TOTAL $ 81,393,352 $ 110,778,798
================== ==================
NET ASSET VALUE PER UNIT
(Based on 475,187 and 639,056 Units Outstanding) $ 166.54 $ 163.42
================== ==================
</TABLE>
See notes to financial statements.
-2-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES:
Trading profit:
Realized $ 8,710,125 $ 17,962,463 $ 6,111,341
Change in unrealized (3,604,366) (4,718,157) 6,329,441
--------------- ---------------- ----------------
Total trading results 5,105,759 13,244,306 12,440,782
Interest income (Note 2) 4,451,948 6,051,782 5,278,840
--------------- ---------------- ----------------
Total revenues 9,557,707 19,296,088 17,719,622
--------------- ---------------- ----------------
EXPENSES:
Brokerage commissions (Note 2) 6,790,464 8,970,371 7,727,226
Profit Shares (Note 3) 670,277 3,920,850 1,666,616
Administrative fees (Note 2) 234,154 309,323 266,456
Incentive Override (Note 2) 5,555 153,883 289,162
--------------- ---------------- ----------------
Total expenses 7,700,450 13,354,427 9,949,460
--------------- ---------------- ----------------
NET INCOME $ 1,857,257 $ 5,941,661 $ 7,770,162
=============== ================ ================
NET INCOME PER UNIT:
Weighted average number of General Partner
and Limited Partner Units outstanding (Note 4) 557,682 797,778 707,741
=============== ================ ================
Net income per weighted average General
Partner and Limited Partner Unit $ 3.33 $ 7.45 $ 10.98
=============== ================ ================
</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 YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Limited Subscriptions
Units Partner Partners Receivable Total
--------------- ----------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
PARTNERS' CAPITAL,
DECEMBER 31, 1996 588,825 $ 1,284,420 $ 82,889,121 - $ 84,173,541
Subscriptions 343,963 177,071 51,177,808 - 51,354,879
Subscriptions receivable (12,807) - _ (1,970,485) (1,970,485)
Redemptions (48,764) - (7,283,732) - (7,283,732)
Net income - 106,948 7,663,214 - 7,770,162
--------------- ----------------- ---------------- ---------------- ------------------
PARTNERS' CAPITAL,
DECEMBER 31, 1997 871,217 1,568,439 134,446,411 (1,970,485) 134,044,365
Subscriptions 43,666 8,766 6,798,138 - 6,806,904
Subscriptions receivable 12,807 - - 1,970,485 1,970,485
Redemptions (288,634) (297,142) (44,030,662) - (44,327,804)
Net income - 76,016 5,865,645 - 5,941,661
--------------- ----------------- ---------------- ---------------- ------------------
PARTNERS' CAPITAL,
DECEMBER 31, 1998 639,056 1,356,079 103,079,532 - 104,435,611
Subscriptions 598 96,663 - 96,663
Redemptions (164,467) - (27,252,354) - (27,252,354)
Net income - 28,795 1,828,462 - 1,857,257
--------------- ----------------- ---------------- ---------------- ------------------
PARTNERS' CAPITAL,
DECEMBER 31, 1999 475,187 $ 1,481,537 $ 77,655,640 $ _ $ 79,137,177
=============== ================= ================ ================ ==================
</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
Organization
------------
ML Global Horizons L.P. (the "Partnership") was organized as an open-end
fund under the Delaware Revised Uniform Limited Partnership Act on May 11,
1993 and commenced trading activities on January 4, 1994. The Partnership
engages in the speculative trading of futures, options on futures and
forward contracts on a wide range of commodities. When available for
investment, the Partnership issues units of limited partnership interest
("Units") at Net Asset Value as of the beginning of each month. Merrill
Lynch Investment Partners Inc. ("MLIP"), a wholly-owned subsidiary of
Merrill Lynch Group, Inc., which, in turn, is a wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("Merrill Lynch"), is the general partner of the
Partnership. Merrill Lynch Futures Inc. ("MLF"), an affiliate of Merrill
Lynch, is the Partnership's commodity broker. MLIP has agreed to maintain a
general partner's interest of at least 1% of the total capital in the
Partnership. MLIP and each Limited Partner share in the profits and losses
of the Partnership in proportion to their respective interests in it.
MLIP selects independent advisors (the "Advisors") to manage the
Partnership's assets, and allocates and reallocates the Partnership's assets
among existing, replacement and additional Advisors.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
-------------------
Commodity futures, options on futures and forward contract transactions are
recorded on the trade date and open contracts are reflected in net
unrealized profit on open contracts in the Statements of Financial Condition
at the difference between the original contract value and the market value
(for those commodity interests for which market quotations are readily
available) or at fair value. The change in unrealized profit on open
contracts from one period to the next is reflected under Trading profit:
Change in unrealized in the Statements of Income.
Foreign Currency Transactions
-----------------------------
The Partnership's functional currency is the U.S. dollar; however, it
transacts business in currencies other than the U.S. dollar. Assets and
liabilities denominated in currencies other than the U.S. dollar are
translated into U.S. dollars at the rates in effect at the dates of the
Statements of Financial Condition. Income and expense items denominated in
currencies other than the U.S. dollar are translated into U.S. dollars at
the rates in effect during the period. Gains and losses resulting from the
translation to U.S. dollars are reported in total trading results currently.
-5-
<PAGE>
Operating Expenses and Selling Commissions
-------------------------------------------
MLIP pays for all routine operating costs (including legal, accounting,
printing, postage and similar administrative expenses) of the Partnership,
including the costs if any, of the ongoing offering of the Units. MLIP
receives an administrative fee as well as a portion of the brokerage
commissions paid to MLF by the Partnership.
No selling commissions have been or are paid directly by Limited Partners.
All selling commissions are paid by MLIP.
Income Taxes
------------
No provision for income taxes has been made in these financial statements as
each Partner is individually responsible for reporting income or loss based
on such Partner's respective share of the Partnership's income and expenses
as reported for income tax purposes.
Distributions
-------------
The Limited Partners are entitled to receive, equally per Unit, any
distributions which may be made by the Partnership. No such distributions
had been made as of December 31, 1999.
Redemptions
-----------
A Limited Partner may redeem some or all of such Partner's Units at Net
Asset Value as of the close of business on the last business day of any
month upon ten calendar days' notice. Units redeemed on or prior to the end
of the twelfth full month after issuance are assessed an early redemption
charge of 3% of their Net Asset Value as of the date of redemption. If an
investor acquires Units at more than one time, such Units are treated on a
"first-in, first-out" basis for purposes of determining whether redemption
charges are applicable. Such redemption charges are substrated from
redemption proceeds and paid to MLIP.
Dissolution of the Partnership
------------------------------
The Partnership will terminate on December 31, 2023 or at an earlier date if
certain conditions occur, as well as under certain other circumstances as
set forth in the Limited Partnership Agreement.
2. RELATED PARTY TRANSACTIONS
The Partnership's U.S. dollar assets are maintained at MLF. On assets held
in U.S. dollars, Merrill Lynch credits the Partnership with interest at the
prevailing 91-day U.S. Treasury bill rate. The Partnership 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 Partnership, from possession of such assets.
Merrill Lynch charges the Partnership Merrill Lynch's cost of financing
realized and unrealized losses on the Partnership's non-U.S. dollar-
denominated positions.
The Partnership pays brokerage commission to MLF at a flat rate of .604 of
1% (a 7.25% annual rate) and the Partnership pays MLIP a monthly
administrative fee of .021 of 1% (a .25% annual rate) of the Partnership's
month-end assets. Month-end assets are not reduced, for purposes of
calculating brokerage commissions and administrative fees, by any accrued
brokerage commissions, administrative fees, Profit Shares, Incentive
Overrides or other fees or charges.
-6-
<PAGE>
MLIP estimates that the round-turn equivalent commission rate charged to the
Partnership during the years ended December 31, 1999, 1998 and 1997 was
approximately $106, $62 and $98, respectively (not including, in calculating
round-turn equivalents, forward contracts on a futures-equivalent basis).
MLF currently pays the Advisors annual Consulting Fees generally ranging up
to 1.75% of the Partnership's average month-end assets allocated to them for
management, after reduction for a portion of the brokerage commissions.
The Partnership paid to MLIP an Incentive Override equal to 10% of the Net
New Gain, as defined, as of December 31, 1999, 1998 and 1997 and will do so
as of each subsequent December 31 in respect of any Net New Gain then
outstanding. Such payments are also made to MLIP from the redemption value
of Units redeemed as of the end of interim months during a year, to the
extent of any Net New Gain attributable to such Units when redeemed.
The methods by which Incentive Overrides are calculated may result in
certain disproportionate allocations of such fees and possible equity
dilution among Partners purchasing Units at different times.
3. AGREEMENTS
The Partnership and the Advisors have each entered into Advisory Agreements.
These Advisory Agreements generally terminate one year after they are
entered into, subject to certain renewal rights exercisable by the
Partnership. The Advisors determine the commodity futures, options on
futures and forward contract trades to be made on behalf of their respective
Partnership accounts, subject to certain trading policies and to certain
rights reserved by MLIP.
Profit Shares, generally ranging from 15% to 25% of any New Trading Profit,
as defined, recognized by each Advisor considered individually, irrespective
of the overall performance of the Partnership, as of either the end of each
calendar quarter or year and upon the net reallocation of assets away from
an Advisor, are paid by the Partnership to each Advisor. Profit Shares are
also paid out in respect of Units redeemed as of the end of interim months,
to the extent of the applicable percentage of any New Trading Profit
attributable to such Units.
The methods by which Profit Shares are calculated may result in certain
disproportionate allocations of such fees and possible equity dilution among
Partners purchasing Units at different times.
4. WEIGHTED AVERAGE UNITS
The weighted average number of Units outstanding was computed for purposes
of disclosing net income per weighted average Unit. The weighted average
number of Units outstanding for the years ended December 31, 1999, 1998 and
1997 equals the Units outstanding as of such date, adjusted proportionately
for Units sold and redeemed based on the respective length of time each was
outstanding during the year.
5. 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, 2000, as amended by SFAS No. 137. This
-7-
<PAGE>
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. MLIP does not believe that the adoption of the
provisions of such Statement had 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 and notional amounts or payment provisions; (2) requires no
initial net investment or a smaller initial net investment than would be
required for other types of contracts that would be expected to have a
similar response to changes in market factors; and, (3) terms that require
or permit net settlement. Generally, derivatives include futures, forwards,
swaps, options or other financial instruments with similar characteristics
such as caps, floors and collars.
Market Risk
-----------
Derivative instruments involve varying degrees of off-balance sheet market
risk. Changes in the level or volatility of interest rates, foreign currency
exchange rates or the market values of the financial instruments or
commodities underlying such derivative instruments frequently result in
changes in the Partnership's net unrealized profit on such derivative
instruments as reflected in the Statements of Financial Condition. The
Partnership's exposure to market risk is influenced by a number of factors,
including the relationships among the derivative instruments held by the
Partnership as well as the volatility and liquidity of the markets in which
the derivative instruments are traded.
MLIP 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, calculating the Net Asset Value of the Partnership as of the close
of business on each day and reviewing outstanding positions for over-
concentrations. While MLIP does not itself intervene in the markets to hedge
or diversify the Partnership's market exposure, MLIP may urge the Advisors
to reallocate positions in an attempt to avoid over-concentrations. However,
such interventions are unusual. Except in cases in which it appears that the
Advisors have begun to deviate from past practice or trading policies or to
be trading erratically, MLIP's basic risk control procedures consist simply
of the ongoing process of advisor monitoring, with the market risk controls
being applied by the Advisors themselves.
Credit Risk
-----------
The risks associated with exchange-traded contracts are typically perceived
to be less than those associated with over-the-counter (non-exchange-traded)
transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases
limited in amount, in some cases not) of the members of the exchange is
pledged to support the financial integrity of the exchange. In over-the-
counter transactions, on the other hand, traders must rely solely on the
credit of their respective individual counterparties. Margins, which may be
subject to loss in the event of a default, are generally required in
exchange trading, and counterparties may also require margin in the
over-the-counter markets.
The credit risk associated with these instruments from counterparty
nonperformance is the net unrealized profit, if any, included in the
Statements of Financial Condition. The Partnership attempts to mitigate
credit risk by dealing exclusively with Merrill Lynch entities as clearing
brokers.
The Partnership, in its normal course of business, enters into various
contracts, with MLF acting as its commodity broker. Pursuant to the
brokerage agreement with MLF (which includes a netting arrangement), to the
extent that such trading results in receivables from and payables to MLF,
these receivables and payables are offset and reported as a net receivable
or payable in the financial statements in the Equity in commodity future in
the Statement of Financial Condition.
-8-
<PAGE>
* * * * * * * * * * * * *
To the best of the knowledge and belief of the
undersigned, the information contained in this
report is accurate and complete.
/s/ Michael L. Pungello
Michael L. Pungello
Chief Financial Officer
Merrill Lynch Investment Partners Inc.
General Partner of
ML Global Horizons L.P.
-9-
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<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 0 0
<RECEIVABLES> 81,393,352 110,778,798
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 81,393,352 110,778,798
<SHORT-TERM> 0 0
<PAYABLES> 2,256,175 6,343,187
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<LONG-TERM> 0 0
0 0
0 0
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<OTHER-SE> 79,137,177 104,435,611
<TOTAL-LIABILITY-AND-EQUITY> 81,393,352 110,778,798
<TRADING-REVENUE> 5,105,759 13,244,306
<INTEREST-DIVIDENDS> 4,451,948 6,051,782
<COMMISSIONS> 6,790,464 8,970,371
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 1,857,257 5,941,661
<INCOME-PRE-EXTRAORDINARY> 1,857,257 5,941,661
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,857,257 5,941,661
<EPS-BASIC> 3.33 7.45
<EPS-DILUTED> 3.33 7.45
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