ML GLOBAL HORIZONS LP - 10-Q Quarterly Report

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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 September 30, 2002
------------------

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 MLIM Alternative Strategies LLC
Princeton Corporate Campus
800 Scudders Mill Road - Section 2G
Plainsboro, New Jersey 08536
----------------------------
(Address of principal executive offices)
(Zip Code)

609-282-6996
----------------------------------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)

STATEMENTS OF FINANCIAL CONDITION

See notes to financial statements.

2

ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)

STATEMENTS OF OPERATIONS
(unaudited)

See notes to financial statements.

3

ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(unaudited)

See notes to financial statements.

4

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") as of
September 30, 2002, and the results of its operations for the three and nine
months ended September 30, 2002 and 2001. However, the operating results for
the interim periods may not be indicative of the results for the full year.

Certain information and footnote disclosures normally included in annual
financial statements prepared in conformity with accounting principles
generally accepted in the United States of America 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, 2001.

2. FAIR VALUE AND OFF-BALANCE SHEET RISK

The nature of this Partnership has certain risks, which cannot be presented
on the financial statements. The following summarizes some of those risks.

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 the derivative instruments held by the
Partnership as well as the volatility and liquidity of the markets in which
the derivative instruments are traded.

The General Partner, MLIM Alternative Strategies LLC ("MLIM AS LLC"), 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 MLIM AS LLC does not itself intervene in the
markets to hedge or diversify the Partnership's market exposure, MLIM AS LLC
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, MLIM AS LLC'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

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 this
risk by dealing exclusively with Merrill Lynch entities as clearing brokers.

The Partnership, in its normal course of business, enters into various
contracts, with Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S") acting as
its commodity broker. Pursuant to the brokerage agreement with MLPF&S (which
includes a netting arrangement), to the extent that such trading results in
receivables from and payables to MLPF&S, these receivables and payables are
offset and reported as a net receivable or payable and included in the
Statements of Financial Condition under Equity in commodity futures trading
accounts.

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

MONTH-END NET ASSET VALUE PER UNIT

Performance Summary

JANUARY 1, 2002 TO SEPTEMBER 30, 2002

January 1, 2002 to March 31, 2002

Trading in the energy markets was the only profitable strategy for the
Partnership in the quarter. Natural gas short positions benefited from mild
weather in the United States. Large gains were posted in March on fears of
increased conflict in the Middle East potentially causing a shortage of oil
supply.

Losses were sustained in the metals sector. Short positions in base metals
and long positions in precious metals suffered losses. Base metals prices
soared on the hope that an economic recovery in the United States would boost
demand. Precious metals declined as the U.S. economy showed signs of
stabilizing and inflation concerns waned.

Stock index trading was unprofitable. Long equity exposures resulted in
losses from choppy market conditions as profit forecasts fell short and
concern over the Enron accounting scandal continued to grow. Large price
swings in the U.S. equity markets created a whipsaw environment, causing the
Advisors to flip exposures numerous times, yielding an end result of negative
performance. Global equity markets appreciated in March, notably Japan,
Germany and France, generating losses on short positioning.

6

Losses were realized in the interest rate markets. Conflicting economic
reports prompted the Advisors to alternate exposures from long to short in
most major international bond markets. European fixed income exposures posted
losses under particularly direction-less markets. Global bond prices declined
on growing optimism for a stronger economic outlook for the remainder of 2002.

Trading in the agricultural commodities resulted in losses. Uncertainty in
the global marketplace prevailed, making for extremely difficult trading
conditions. Most of the losses for the sector were attributed to short coffee
positions. During January and February, coffee had been in a downward trend.
This trend sharply reversed in March as Mexico and Central America reduced
exports, causing lower inventories of exchange-approved soybeans in U.S.
warehouses. Coffee futures rallied from 46.71 cents per pound to 58.48 cents
per pound.

Currency trading also sustained losses. With the exception of the Canadian
dollar, all of the futures traded currencies appreciated against the U.S.
dollar. The momentum in the U.S. dollar and Japanese yen trade reversed,
generating significant losses. Relative volatility continued for the G-7
currencies in March.

April 1, 2002 to June 30, 2002

Profits resulting from trading in the currency sector provided the
Partnership with the majority of its gains in the second quarter. The decline
in the U.S. dollar continued through June unabated fueled by the decline in
the U.S. equity markets.

The interest rate sector was profitable for the Partnership despite its slow
start. Yields on major debt-instruments continued to decline. U.S. fixed
income markets have rallied sharply due to the flight-to-safety effect as
well as the conviction that the U.S. Federal Reserve will raise rates later
rather than sooner.

The trading in stock indices found profits from its short positions. The
strength of U.S. economic data continued to surprise on the upside, pointing
toward a stronger recovery than expected, but the equity markets have
remained weak.

The agricultural commodities sector posted small gains for the quarter.
Strong gains were posted in livestock and grains in April as prices trended
downward. Some of the gains were lost in June as livestock prices began to
rise. The continued weakness in the U.S. dollar and low stockpiles in grains
and soybeans should aid in sustaining a price rally in the summer months.

The metals sector sustained slight losses for the quarter. In June, the
uptrend in gold and silver reversed and losses were sustained on long
positions eliminating profits earned earlier in the quarter.

Energy futures experienced whipsaw markets and trading brought in losses for
the Partnership. The market was volatile during the quarter due to continued
turmoil in the Middle East.

July 1, 2002 to September 30, 2002

Results from the interest rate sector provided solid positive performance for
the Partnership. The yield curve on major debt instruments declined
throughout the quarter. This market environment was supported by the
increased risk aversion, the continued U.S. stock market decline and the
conflicting reports regarding the pace of the U.S. economic recovery. The
economic news from Europe also pointed to a weak recovery overseas.

7

Metals produced gains this quarter citing declines in precious and base
metals throughout the quarter due to liquidation pressures in the market.
Gold, however, had a weak rally during the second half of the quarter.

Stock index futures also brought positive returns for the quarter. The
downward trending market created a good environment for short positions.
Investors in the equity markets are still liquidating equity exposure.

Agriculture commodities also had gains. Grains and soybeans rallied to due
weather and supply concerns. The summer drought produced expectations of a
reduced harvest this season. The sector returned some gains later in
September, as recent harvests were not as bad as was feared.

The energy sector pulled in positive performance despite choppy market
conditions throughout the quarter. Crude oil led the gains as continued talk
of military action against Iraq builds a risk premium into prices.

Currency trading was the only sector with overall losses. The sector was
choppy throughout the quarter making it difficult for any of the trend
following traders to lock onto a market trend.

The Partnership, as a member of a class of plaintiffs, received a settlement
payment in August relating to certain copper trades made by a number of
investors, including the Partnership, during a period in the mid-1990s.
Members of the class were those who purchased or sold Comex copper futures or
options contracts between June 24, 1993 and June 15, 1996. The amount of the
settlement for the Partnership was $1,346,688, which is included in the
realized profit of the Partnership. The effect of the settlement payment was
included in the Partnership's performance in August.

JANUARY 1, 2001 TO SEPTEMBER 30, 2001

January 1, 2001 to March 31, 2001

Trading in the interest rates market was profitable for the Partnership. Long
positions in the eurodollar resulted in gains. Eurodollar futures contracts
rose dramatically as the U.S. economy weakened and the Federal Reserve cut
interest rates. Japanese ten-year bond and Euro-bund cross futures trading
was also profitable.

Currency trading was profitable as gains from short Japanese yen positions
offset losses from the Euro and Australian dollar. The Euro fell from a high
near 96 cents back to the 90-cent level, resulting in losses for the
Partnership's long positions.

Stock index trading was profitable as gains were realized from the
Partnership's short positions in the S&P 500, Nikkei 225 and German DAX stock
indices.

Trading in agricultural commodities was profitable during the quarter. The
sector continued to face weak grain and oilseed prices. Excellent growing
weather in the U.S., Argentina and Brazil, concerns about U.S. export
potential and inventories at historically high levels have kept these markets
on the defensive. Short cotton positions were profitable as the market sank
to a 15-year low on poor demand and a possible planting increase.

8

Metals trading was moderately profitable. Short silver trading profited as
prices declined in a generally weak market. March proved to be a volatile
trading month for gold, but in the end short positions realized gains as
another attempted gold rally failed.

Trading in the energy sector was the only unprofitable strategy during the
quarter. Natural gas prices pulled back in January after rallying the past
few months. With low inventories and stagnant production priced into the
market, warmer than normal weather became the dominant variable adversely
affecting prices.

April 1, 2001 to June 30, 2001

Profits were realized in agricultural commodities even though trading in
general displayed a lackluster tone with few inflationary implications.
Although demand for commodities has not been favorable, short cotton and corn
positions and long soymeal and wheat positions were profitable.

Trading in the energy markets was profitable. Short natural gas positions
accounted for most of the gains as prices declined over 60 percent form last
year's peak. The sector as a whole faced downside pressure from the slowing
global economy, inventory surplus and OPEC's decision to leave production
levels unchanged.

The metals sector performed poorly. Weakness in the Euro, a decline in the
Australian dollar to all time lows and producer and Central Bank selling sent
gold prices lower. Silver trading was volatile, as China's silver exports
were high due to poor domestic demand. Demand restraints and a lack of
momentum weighed heavily on the sector.

Trading in the stock market indices was unprofitable as losses were sustained
in the German DAX, Nikkei 225 and S&P 500 positions.

Currency trading was unprofitable on losses from Euro and Japanese yen
positions. The further weakening of the Euro and Japanese yen displayed how
the world economy is not immune to the economic slowdown of the U.S. The
markets remained concerned with the risk of a hard landing for the Japanese
economy.

Trading in the interest rate markets was significantly unprofitable on losses
from U.S. Treasury Bond, Euro Bond and three-month Euribor futures positions.

July 1, 2001 to September 30, 2001

Trading in the interest rate sector was very successful as significant gains
were realized throughout the quarter on Euro dollar positions. These gains
more than offset losses on U.S. Treasury and Japanese ten-year bonds.

Stock index trading was also successful as the Partnership's various short
positions were profitable. Major indices in the world markets fell as
corporate earnings, in general, were poor and the global economic slump would
worsen as a result of the terrorist attacks.

Metals trading was profitable throughout the quarter. Positions in aluminum,
copper, silver and nickel produced profits. Long gold positions were
profitable as investors flocked to gold for safety in the aftermath of the
terrorist attacks.

9

Trading in the energy sector was moderately unsuccessful. The sector
continued to face downside pressure as in the prior months. Natural gas
prices fell as the heat wave in the Northeast dissipated. Oil prices sank, as
traders feared the attacks would not only cripple the airline industry (a
major consumer of oil), but would also trigger a global economic recession,
cutting the demand for oil.

Agricultural trading was unprofitable during the quarter. Early gains from
coffee failed to outpace losses from corn and soy positions. Grain prices
rose in July on concerns that hot and dry weather would cause lower 2001
production. Soybeans fell on fears of larger than expected crop outputs.
Cotton fell to a 15-year low due to abundant crops. Cattle fell to a one-year
low on demand concerns.

Trading in the currency markets was unprofitable. Losses were sustained from
Japanese yen, Canadian dollar and Swiss franc positions early on. However, in
September, long Swiss franc positions appreciated versus the U.S. dollar as
investors were attracted to Switzerland's neutral status and concerns over
the negative economic implications from the September 11 terrorist attacks.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4. Controls and Procedures

MLIM Alternative Strategies LLC, the General Partner of ML Global Horizons
L.P., with the participation of the General Partner's Chief Executive Officer
and the Chief Financial Officer, has evaluated the effectiveness of the
design and operation of its disclosure controls and procedures with respect
to the Partnership within 90 days of the filing date of this quarterly
report, and, based on their evaluation, have concluded that these disclosure
controls and procedures are effective. Additionally, there were no
significant changes in the Partnership's internal controls or in other
factors that could significantly affect these controls subsequent to the date
of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

10

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending proceedings to which the Partnership or MLIM AS
LLC 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 nine months
of fiscal 2002.

11

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: MLIM ALTERNATIVE STRATEGIES LLC
(General Partner)

Date: November 14, 2002 By /s/ FABIO P. SAVOLDELLI
-----------------------
Fabio P. Savoldelli
Chairman, Chief Executive Officer and Manager
(Principal Executive Officer)

Date: November 14, 2002 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)

12

EXHIBIT 99

FORM OF CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63
OF TITLE 180 OF THE UNITED STATES CODE

I, Fabio P. Savoldelli, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ML Global Horizons
L.P.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, is made known to us by others
within those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
board of directors (or persons performing the equivalent function):

a) all significant deficiencies, if any, in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

By /s/ FABIO P. SAVOLDELLI
- --------------------------
Fabio P. Savoldelli
Chairman, Chief Executive Officer and Manager
(Principal Executive Officer)

13

EXHIBIT 99

FORM OF CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63
OF TITLE 180 OF THE UNITED STATES CODE

I, Michael L. Pungello, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ML Global Horizons
L.P.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, is made known to us by others
within those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
board of directors (or persons performing the equivalent function):

a) all significant deficiencies, if any, in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

By /s/ MICHAEL L. PUNGELLO
- --------------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)

14