<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-23240
ML GLOBAL HORIZONS L.P.
----------------------------
(Exact Name of Registrant as
specified in its charter)
DELAWARE 13-3716393
- ------------------------------ ------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o Merrill Lynch Investment Partners Inc.
Princeton Corporate Campus
800 Scudders Mill Road - Section 2G
Plainsboro, New Jersey 08536
----------------------------
(Address of principal executive offices)
(Zip Code)
609-282-6996
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(unaudited)
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<S> <C> <C>
ASSETS
Equity in commodity futures trading accounts:
Cash and option premiums $ 73,161,208 $ 80,686,939
Net unrealized profit on open contracts (27,386) 341,454
Accrued interest 371,431 364,959
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TOTAL $ 73,505,253 $ 81,393,352
------------------- -------------------
------------------- -------------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Profit Shares payable $ 72,453 $ 344,141
Brokerage commissions payable 444,094 491,752
Incentive override payable - 5,555
Redemptions payable 4,014,844 1,397,770
Administrative fees payable 15,313 16,957
------------------- -------------------
Total liabilities 4,546,704 2,256,175
------------------- -------------------
PARTNERS' CAPITAL:
General Partner (4,996 and 8,896 Units) 822,298 1,481,537
Limited Partners (413,967 and 466,291 Units) 68,136,251 77,655,640
------------------- -------------------
Total partners' capital 68,958,549 79,137,177
------------------- -------------------
TOTAL $ 73,505,253 $ 81,393,352
------------------- -------------------
------------------- -------------------
NET ASSET VALUE PER UNIT
(Based on 418,963 and 475,187 Units outstanding) $ 164.59 $ 166.54
------------------- -------------------
------------------- -------------------
See notes to financial statements.
</TABLE>
2
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ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, March 31,
2000 1999
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<S> <C> <C>
REVENUES:
Trading profits (loss):
Realized $ 24,460 $ 4,105,146
Change in unrealized (370,113) (2,358,087)
------------------- ---------------------
Total trading results (345,653) 1,747,059
Interest income 1,087,534 1,160,228
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Total revenues 741,881 2,907,287
------------------- ---------------------
EXPENSES:
Profit Shares 82,836 340,238
Brokerage commissions 1,405,172 1,858,806
Administrative fees 48,454 64,097
------------------- ---------------------
Total expenses 1,536,462 2,263,141
------------------- ---------------------
NET INCOME (LOSS) $ (794,581) $ 644,146
------------------- ---------------------
------------------- ---------------------
NET INCOME (LOSS) PER UNIT:
Weighted average number of
units outstanding 459,512 621,437
------------------- ---------------------
------------------- ---------------------
Weighted average net
income (loss) per General
Partner and Limited Partner Unit $ (1.73) $ 1.04
------------------- ---------------------
------------------- ---------------------
</TABLE>
See notes to financial statements.
3
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ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31,1999
(unaudited)
<TABLE>
<CAPTION>
General Limited
Units Partners Partner Total
------------ --------------- -------------- ---------------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
December 31, 1998 639,056 $ 1,356,079 $ 103,079,532 $ 104,435,611
Net income - 8,963 635,183 644,146
Redemptions (59,412) - (9,727,282) (9,727,282)
------------ --------------- -------------- ---------------
PARTNERS' CAPITAL,
March 31, 1999 579,644 $ 1,365,042 $ 93,987,433 $ 95,352,475
------------ --------------- -------------- ---------------
------------ --------------- -------------- ---------------
PARTNERS' CAPITAL,
December 31, 1999 475,187 $ 1,481,537 $ 77,655,640 $ 79,137,177
Net (loss) - (1,933) (792,648) (794,581)
Redemptions (56,224) (657,306) (8,726,741) (9,384,047)
------------ --------------- -------------- ---------------
PARTNERS' CAPITAL,
March 31, 2000 418,963 $ 822,298 $ 68,136,251 $ 68,958,549
------------ --------------- -------------- ---------------
------------ --------------- -------------- ---------------
</TABLE>
See notes to financial statements.
4
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared without audit. In the
opinion of management, the financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present
fairly the financial position of ML Global Horizons L.P. (the
"Partnership" or the "Fund") as of March 31, 2000, and the results of its
operations for the three months ended March 31, 2000 and March 31, 1999.
However, the operating results for the interim periods may not be
indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial statements
and notes thereto included in the Partnership's Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the year ended
December 31, 1999 (the "Annual Report").
2. FAIR VALUE AND OFF-BALANCE SHEET RISK
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (the "Statement"), effective for
fiscal years beginning after June 15, 2000, as amended by SFAS
No. 137. This Statement supercedes SFAS No. 119 ("Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments")
and SFAS No. 105 ("Disclosure of information about Financial Instruments
with Off-Balance Sheet Risk and Financial Instruments with Concentrations
of Credit Risk") whereby disclosure of average aggregate fair values and
contract/notional values, respectively, of derivative financial
instruments is no longer required for an entity such as the Partnership
which carries its assets at fair value. Such Statement sets forth a much
broader definition of a derivative instrument. The General Partner does
not believe that the application of the provisions of such statement 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, notional amounts or payment provisions (2) requires no
initial net investment or a smaller initial net investment than would be
required relative to changes in market factors (3) terms require or permit
net settlement. Generally, derivatives include futures, forwards, swaps or
option contracts, 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 (loss) on such
derivative instruments as reflected in the Statements of Financial
Condition. The Partnership's exposure to market risk is influenced by a
number of factors, including the relationships among derivative
instruments held by the Partnership as well as the volatility and
liquidity of the markets in which such derivative instruments are traded.
The General Partner has procedures in place intended to control market
risk exposure, although there can be no assurance that they will, in fact,
succeed in doing so. These procedures focus primarily on monitoring the
trading of the Advisors, 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 the General Partner
does not itself intervene in the markets to hedge or diversify the
Partnership's market exposure, the General Partner may urge Advisors to
reallocate positions in an attempt to avoid over-concentrations. However,
such interventions are unusual. Except in cases in which it appears that
an Advisor has begun to deviate from past practice or trading policies or
to be trading erratically, the General Partner's basic risk control
procedures consist simply of the ongoing process of Advisor monitoring,
with the market risk controls being applied by the Advisors themselves.
5
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CREDIT RISK
The risks associated with exchange-traded contracts are typically
perceived to be less than those associated with over-the-counter
(non-exchange-traded) transactions, because exchanges typically (but not
universally) provide clearinghouse arrangements in which the collective
credit (in some cases limited in amount, in some cases not) of the members
of the exchange is pledged to support the financial integrity of the
exchange. In over-the-counter transactions, on the other hand, traders
must rely solely on the credit of their respective individual
counterparties. Margins, which may be subject to loss in the event of a
default, are generally required in exchange trading, and counterparties
may require margin in the over-the-counter markets.
The credit risk associated with these instruments from counterparty
nonperformance is the net unrealized profit, if any, included on 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 arrangement 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 and are included in the Statement of Financial
Condition under Equity from commodity futures trading accounts.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER UNIT
----------------------------------
Jan. Feb. Mar.
----------------------------------
<S> <C> <C> <C>
1999 $162.48 $163.98 $164.50
----------------------------------
2000 $168.83 $168.54 $164.59
----------------------------------
</TABLE>
Performance Summary
JANUARY 1, 1999 TO MARCH 31, 1999
Agricultural trading was profitable overall, as gains in coffee and live cattle
offset losses in corn and live hogs positions. Hog prices plummeted due to a
glut of hogs in the market. At the beginning of the quarter, the corn market
continued to struggle despite a stretch of solid export business. The market's
negative sentiment was deepened by ongoing favorable weather in South America
which continued through February, even though there was a sharp reduction in
Argentina's planted area. Lack of enthusiasm for new crop and less than
spectacular demand continued to depress the corn market throughout the quarter.
The Fund also profited from trading in crude oil, heating oil, and unleaded gas.
As the year opened, the global oil balance continued to show signs of being
lopsided with estimated year-end 1998 inventories at their highest levels since
1984. During January, petroleum stocks rose by 21 million barrels compared with
a typical gain of 6 to 7 million barrels. Then, on March 23, OPEC ratified new
production cuts totaling 1.716 million barrels per day at its conference. These
new production cuts were scheduled to go into effect on April 1 and proved to be
harbingers of higher prices for crude.
Interest rate trading proved profitable for the Fund as well, as gains in
Japanese government bonds and 10-year U.S. Treasury notes offset losses in
German 10-year bonds. Early in January, the yield on the Japanese government
10-year bond increased to 1.8%, sharply above the record low of 0.695% it
reached on October 7, 1998. This was triggered by the Japanese Trust Fund
Bureau's decision to absorb a smaller share of future issues, leaving the burden
of financing future budget deficits to the private sector.
Stock index trading was unprofitable, as losses were sustained in Hang Seng and
CAC40 positions. Also of note, the Dow Jones Industrial Average closed above the
10,000 mark for the first time ever at the end of March, setting a record for
the index.
The Fund also suffered losses in currency trading during the quarter, as losses
in Japanese yen overpowered gains in German marks. In January, the yen had
advanced by nearly 35% against the dollar since early in August, and the Bank of
Japan lowered rates to keep the economy sufficiently liquid so as to allow
fiscal spending to restore some growth to the economy and to drive down the
surging yen.
Losses in aluminum and gold overshadowed gains in copper during the first
quarter. In January, burdensome warehouse stocks and questionable demand
prospects weighed on base metals as aluminum fell to a 5-year low and copper
fell to nearly an 11-year low. Major surpluses in both metals were expected,
keeping prices down, and there was no supply side response to weak demand and
lower prices. However, the end of March showed copper and aluminum leading a
surge in base metals as prices recovered from multi-year lows. In precious
metals, gold failed to sustain a rally, and gold's role as a flight to safety
vehicle has clearly been greatly diminished as has its role as a monetary asset.
January 1, 2000 to March 31, 2000
Energy trading was profitable for the quarter due to long crude oil and unleaded
gas positions. Despite the possibility of OPEC increasing oil production by 5%,
crude oil prices continued to rise as such a hike would still leave oil
inventories at levels much below normal during the balance of the year. Prices
began to decline in mid-March as Iran backed down from its position on the point
of "no increase" and again later in the month as OPEC announced a production
increase of 1.716 million barrels per day offsetting some gains from the
previous two months.
Metals trading alternated from profitable to unprofitable, however, the sector
ended the quarter on the upside. Prices rose during the period in base metals as
concerns over higher interest rates and the decline in stock prices globally
created defensive tones in the market. High aluminum inventories caused prices
to decline on the LME. Late in the quarter, copper prices rose over rumors of
increased demand from China, having an adverse effect on the short positions
held.
The agriculture commodity sector produced profits for the quarter due to gains
in feeder cattle, coffee and cocoa which outpaced losses in short corn positions
due to dry conditions in Argentina, which led to high corn prices.
In currency trading, the euro declined against the dollar as officials from the
Group of Seven met and failed to express concern about the low levels of the
European currency. Some other contributing factors to the decline of the euro
include the slow pace of microeconomic reform in Europe, plans for a European
withholding tax and the scale of direct investment flows outside of Europe. In
Asia, the yen has been strong resulting in losses for the Fund's short
positions.
During the quarter, profitable positions in the MIB 30 (Milan) and Hang Seng
Indices were outweighed by losses in CAC 40 Euro futures and the FTSE Financial
Times Stock Index. Long MIB Index futures positions were profitable as private
consumption and improved labor flexibility are supporting growth in Italy.
Volatile market conditions led to unprofitable positions in the S&P 500 and the
FTSE - Financial Times Index.
Short Eurodollar trading was profitable as the currency continued to decline in
January. The European Union ministers blamed the currency's slide in January on
rapid U.S. growth and fears that the Federal Reserve will increase U.S. interest
rates. These profits were far outweighed by losses in the Japanese 10-year bond,
U.S. 10-year Treasury note positions and long U.S. Treasury positions as the
yield curve fluctuated widely during the quarter.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending proceedings to which the Partnership or the
General Partner is a party.
Item 2. Changes in Securities and Use of Proceeds
(a) None.
(b) None.
(c) None.
(d) None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
There are no exhibits required to be filed as part of this report.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the first three months
of fiscal 2000.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ML GLOBAL HORIZONS L.P.
By: MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
Date: May 15, 2000 By /s/ JOHN R. FRAWLEY, JR.
------------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: May 15, 2000 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 0 0
<RECEIVABLES> 73,505,253 100,496,765
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 73,505,253 100,496,765
<SHORT-TERM> 0 0
<PAYABLES> 4,546,704 5,144,290
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 68,958,549 95,352,475
<TOTAL-LIABILITY-AND-EQUITY> 73,505,253 100,496,765
<TRADING-REVENUE> (345,653) 1,747,059
<INTEREST-DIVIDENDS> 1,087,534 1,160,228
<COMMISSIONS> 1,536,462 2,263,141
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> (794,581) 644,146
<INCOME-PRE-EXTRAORDINARY> (794,581) 644,146
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (794,581) 644,146
<EPS-BASIC> (1.73) 1.04
<EPS-DILUTED> (1.73) 1.04
</TABLE>
