<PAGE>
 
                ML Global Horizons L.P.
                (A Delaware Limited Partnership)
                
                Financial Statements for the years ended December 31, 1996, 1995
                and the period from January 4, 1994 (commencement of operations)
                to December 31, 1994 and Independent Auditors' Report
<PAGE>
 
To:        The Limited Partners of ML Global Horizons L.P.

ML Global Horizons L.P. (the "Fund" or the "Partnership") ended its third fiscal
year of trading on December 31, 1996 with a Net Asset Value ("NAV") per Unit of
$142.95, representing an increase of 14.96% from the December 31, 1995 NAV per
Unit of $124.35. During the fiscal year, trading profits were generated in the
interest rate, currency, energy and metals sectors while losses were incurred in
the stock index and agriculture sectors.

In 1996, strong price trends prevailed in several key markets enabling the
Fund's Trading Advisors to trade profitably for the Fund. Although trading in
stock index and agricultural commodity markets may have been lackluster, the
global bond and currency markets offered substantial trading opportunities.
Interest rate and currency price trends resulted in profitable trading
opportunities in these markets throughout the year.

As the new year began, the U.S. dollar rallied throughout most of January, after
being locked in a tight trading range for the two prior months. However, the
dollar weakened against major currencies in February, and returned to a
relatively narrow trading range. In March, crude oil prices rose throughout most
of the month, as unusually cold weather in the U.S. and Europe resulted in an
extended period of strong demand and oil talks between the United Nations and
Iraq were suspended.

During April, grain and soybean prices rallied to new highs, sometimes daily, as
adverse weather conditions and strong demand affected prices. Difficult trading
conditions in many markets prevailed and a lack of clear price trends in key
markets negatively impacted the Fund's performance in May and June. For example,
U.S. bond markets remained trendless as continued volatility, reflected investor
confusion over conflicting reports on the direction of the economy.

As the third quarter of 1996 began, it was the U.S. stock market that
experienced increased volatility coupled with sharp declines in July. In the
currency markets, the U.S. dollar posted its biggest one-day gain against the
Deutsche mark in almost four months on August 14, after comments from the
Bundesbank's chief economist encouraged expectations for lower German interest
rates. In September, crude oil prices continued, as they had during the summer,
to trend upward throughout most of the month.

Despite continued price volatility during the final quarter of 1996, the Fund's
Trading Advisors were able to single out trends in key markets, such as the
world's major bond markets which rallied into October and November.
Additionally, price trends prevailed in several major foreign currency markets,
for instance, the British pound extended its rally into November, as it soared
to a 4-year high against the U.S. dollar and a 29-month high against the
Deutsche mark on November 20. In December, however, the world's major bond
market rallies came to an abrupt halt early in the month. Specifically, U.S.
Treasury prices dropped on reports of strength in the economy, as well as a
weaker dollar which further encouraged investor selling of treasury securities.
<PAGE>
 
1996 proved to be a profitable year for the Fund. As General Partner of the
Fund, we believe that the strategy of focused diversification positioned the
Fund to profit from a variety of trading opportunities during the year. We
continue to work diligently with the Trading Advisors to meet the Fund's
objective of achieving, through speculative trading, substantial capital
appreciation over time. We look forward to 1997 and the trading opportunities it
may bring.

                              Sincerely,
                              John R. Frawley, Jr.
                              President and Chief Executive Officer
                              Merrill Lynch Investment Partners Inc.
                              (General Partner)

FOR THE EXCLUSIVE USE OF INVESTORS IN ML GLOBAL HORIZONS L.P. THIS ANNUAL REPORT
IS NOT AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. AN
OFFER CAN ONLY BE MADE BY THE PROSPECTUS WHICH CONTAINS IMPORTANT INFORMATION
CONCERNING RISK FACTORS, PERFORMANCE AND OTHER MATERIAL ASPECTS OF THE FUND,
TOGETHER WITH RECENT MONTHLY AND ANNUAL REPORTS FOR THE FUND. THE PROSPECTUS
MUST BE READ CAREFULLY BEFORE ANY DECISION WHETHER TO INVEST IS MADE. THIS
ANNUAL REPORT MUST NOT BE REPRODUCED OR DISTRIBUTED IN ANY MANNER. FUTURES
TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. PAST PERFORMANCE IS
NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
<PAGE>
 
ML GLOBAL HORIZONS L.P.
(A Delaware Limited Partnership)
 ------------------------------


TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                            Page
                                                                            ----

<S>                                                                         <C> 
INDEPENDENT AUDITORS' REPORT                                                   1
                                                           
FINANCIAL STATEMENTS FOR THE YEARS ENDED                   
  DECEMBER 31, 1996 AND 1995 AND THE PERIOD FROM           
  JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS)             
  TO DECEMBER 31, 1994:                                    
                                                           
  Statements of Financial Condition                                            2
                                                            
  Statements of Income                                                         3
                                                           
  Statements of Changes in Partners' Capital                                   4
                                                           
  Notes to Financial Statements                                             5-11
</TABLE> 
<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. (a Delaware limited partnership; the "Partnership") as of December
31, 1996 and 1995, and the related statements of income and of changes in
partners' capital for the years ended December 31, 1996 and 1995 and the period
January 4, 1994 (commencement of operations) to December 31, 1994. 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, these financial statements present fairly, in all material
respects, the financial position of ML Global Horizons L.P. as of December 31,
1996 and 1995, and the results of its operations for the years ended December
31, 1996 and 1995 and the period January 4, 1994 (commencement of operations) to
December 31, 1994, in conformity with generally accepted accounting principles.


DELOITTE & TOUCHE LLP

February 3, 1997
New York, New York

                                      -1-
<PAGE>
 
ML GLOBAL HORIZONS L.P.
(A Delaware Limited Partnership)
 ------------------------------

STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
<TABLE> 
<CAPTION> 
-----------------------------------------------------------------------------------------------------------------------------------

                                                                                       1996                         1995
                                                                                       ----                         ----
ASSETS
------

<S>                                                                          <C>                          <C> 
Accrued interest (Note 2)                                                               $   349,232                    $   357,496
Equity in commodity futures trading accounts:
    Cash and option premiums                                                             87,463,878                     85,254,980
    Net unrealized profit on open contracts                                               2,335,799                      5,630,789
                                                                             -------------------------    -------------------------

                TOTAL                                                                   $90,148,909                    $91,243,265
                                                                             =========================    =========================


LIABILITIES AND PARTNERS' CAPITAL
---------------------------------

LIABILITIES:
    Redemptions payable                                                                 $ 3,143,328                    $   674,724
    Profit shares payable (Note 3)                                                        1,434,200                      -
    Incentive override payable (Note 2)                                                     834,271                        855,796
    Brokerage commissions payable (Note 2)                                                  544,798                        551,853
    Administrative fees payable (Note 2)                                                     18,771                      -
    Organization and initial offering costs payable (Note 1)                              -                                 20,399
                                                                             -------------------------    -------------------------

            Total liabilities                                                             5,975,368                      2,102,772
                                                                             -------------------------    -------------------------

PARTNERS' CAPITAL:
    General Partner (8,985 Units and 8,530 Units)                                         1,284,420                      1,052,896
    Limited Partners (579,840 Units and 737,413 Units)                                   82,889,121                     91,708,172
    Subscriptions receivable (0 Units and 29,116 Units)                                   -                            (3,620,575)
                                                                             -------------------------    -------------------------

            Total partners' capital                                                      84,173,541                     89,140,493
                                                                             -------------------------    -------------------------

                TOTAL                                                                   $90,148,909                    $91,243,265
                                                                             =========================    =========================

NET ASSET VALUE PER UNIT                                                                    $142.95                        $124.35
                                                                             =========================    =========================
</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, 1996 AND 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
<TABLE> 
<CAPTION> 
-----------------------------------------------------------------------------------------------------------------------------


                                                            1996                    1995                      1994
                                                            ----                    ----                      ----
REVENUES:                                         
    Trading profits (losses):                     
<S>                                                  <C>                      <C>                       <C> 
        Realized                                          $20,458,327               $17,455,764               $  453,726
        Change in unrealized                               (3,294,990)                  299,233                5,331,556
                                                     -------------------      ------------------        ------------------
                                                  
            Total trading results                          17,163,337                17,754,997                5,785,282
                                                     -------------------      ------------------        ------------------
                                                  
    Interest income (Note 2)                                3,978,137                 3,786,925                1,972,722
                                                     -------------------      ------------------        ------------------
                                                  
            Total revenues                                 21,141,474                21,541,922                7,758,004
                                                     -------------------      ------------------        ------------------
                                                  
EXPENSES:                                         
    Profit shares (Note 3)                                  1,808,020                 1,492,857                1,103,649
    Brokerage commissions (Note 2)                          6,646,004                 5,723,755                3,859,267
    Incentive override (Note 2)                               834,271                   965,454                   41,867
    Administrative fees (Note 2)                               57,091                   -                        -
                                                     -------------------      ------------------        ------------------
                                                  
            Total expenses                                  9,345,386                 8,182,066                5,004,783
                                                     -------------------      ------------------        ------------------
                                                  
NET INCOME                                                $11,796,088               $13,359,856               $2,753,221
                                                     ===================      ==================        ==================
                                                  
NET INCOME PER UNIT:                              
    Weighted average number of Units              
      outstanding (Note 4)                                    695,455                   663,663                  523,953
                                                     ===================      ==================        ==================
                                                  
     Net income per weighted average General      
       Partner and Limited Partner Unit                        $16.96                    $20.13                    $5.25
                                                     ===================      ==================        ==================
</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, 1996 AND 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
<TABLE> 
<CAPTION> 
------------------------------------------------------------------------------------------------------------------------

                                                           Limited              General       Subscriptions
                                       Units              Partners              Partner         Receivable          Total
                                       -----              --------              -------         ----------          -----

<S>                             <C>               <C>                    <C>                  <C>                  <C> 
Initial offering                       358,350            $35,467,300           $  367,700      $     -             $35,835,000

Organization and initial
  offering costs                         -                   (442,366)              (4,634)           -                (447,000)

Subscriptions                          317,083             31,598,577              275,531            -              31,874,108

Redemptions                            (30,914)            (3,162,070)              -                 -              (3,162,070)

Net income                               -                  2,722,238               30,983            -               2,753,221
                                ----------------  ---------------------  -------------------  -------------------  --------------

PARTNERS' CAPITAL,
  DECEMBER 31, 1994                    644,519             66,183,679              669,580            -              66,853,259

Subscriptions                          298,294             35,021,556              244,397            -              35,265,953

Subscription receivable                (29,116)                 -                   -                (3,620,575)     (3,620,575)

Redemptions                           (196,870)           (22,718,000)              -                 -             (22,718,000)

Net income                               -                 13,220,937              138,919            -              13,359,856
                                ----------------  ---------------------  -------------------  -------------------  --------------
PARTNERS' CAPITAL,
  DECEMBER 31, 1995                    716,827             91,708,172            1,052,896           (3,620,575)     89,140,493

Subscriptions                          135,271             13,149,821               56,936            3,620,575      16,827,332

Redemptions                           (263,273)           (33,590,372)              -                  -            (33,590,372)

Net income                               -                 11,621,500              174,588             -             11,796,088
                                ----------------  ---------------------  -------------------  -------------------  --------------
PARTNERS' CAPITAL,
  DECEMBER 31, 1996                    588,825            $82,889,121           $1,284,420     $       -             $84,173,541
                                ================  =====================  ===================  ===================  ==============
</TABLE> 

See notes to financial statements.

                                      -4-
<PAGE>
 
ML GLOBAL HORIZONS L.P.
(A Delaware Limited Partnership)
 ------------------------------

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994

--------------------------------------------------------------------------------

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. The Partnership issues
      new units of limited partnership interest ("Units") at Net Asset Value as
      of the beginning of each month. Merrill Lynch Investment Partners Inc.
      (formerly, ML Futures Investment Partners Inc.) ("MLIP or the "General
      Partner"), 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, and Merrill
      Lynch Futures Inc. ("MLF"), also an affiliate of Merrill Lynch, is its
      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" or the "Trading
      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 (loss) on open contracts in the Statements of Financial
      Condition at the difference between the original contract amount and the
      fair value. The change in net unrealized profit (loss) on open contracts
      from one period to the next is reflected in change in unrealized in the
      Statements of Income. Fair value is based on quoted market prices on the
      exchange or market on which the contract is traded.

      Organization and Initial Offering Costs; Operating Expenses and Selling 
      -----------------------------------------------------------------------
      Commissions
      -----------

      MLIP advanced all organization and initial offering costs related to the
      Partnership. The Partnership reimbursed MLIP for such costs over a
      two-year period in 24 equal monthly 

                                      -5-
<PAGE>
 
      installments. For financial reporting purposes, the Partnership deducted
      the total organization and initial offering costs of $447,000 from
      Partners' capital at inception. For all other purposes, including
      determining the Net Asset Value per Unit for redemption purposes, the
      Partnership deducted organization and initial offering cost reimbursements
      only as actually paid.

      MLIP pays for all routine operating costs (including legal, accounting,
      printing, postage and similar administrative expenses) of the Partnership,
      including the costs 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 as reimbursement for the foregoing expenses.

      No selling commissions have been or are paid by Limited Partners.

      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 Unitholders 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, 1996.

      Redemptions
      -----------

      A Limited Partner may require the Partnership to 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.

      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-denominated assets are held at MLF in cash
       or short-term Treasury bills. The Partnership receives all interest paid
       on such Treasury bills. On the cash held at MLF, the Partnership receives
       interest from Merrill Lynch at rates ranging from .50 of 1% per annum
       below the prevailing 91-day Treasury bill rate up to the full prevailing
       91-day Treasury bill rate. Merrill Lynch may derive certain economic
       benefits, in excess of the interest which Merrill Lynch pays to the
       Partnership, from possession of such cash.

       Merrill Lynch credits the Partnership with interest on the Partnership's
       non-U.S. dollar-denominated available assets based on local short-term
       rates. Merrill Lynch charges the 

                                      -6-
<PAGE>
 
       Partnership Merrill Lynch's cost of financing realized and unrealized
       losses on the Partnership's non-U.S. dollar-denominated positions.

      The Partnership paid brokerage commissions to MLF at a flat monthly rate
      of .625 of 1% (a 7.5% annual rate) of the Partnership's month-end assets
      allocated to trading. Effective October 1, 1996, this percentage was
      reduced to .604 of 1% (a 7.25% annual rate) of the Partnership's month-end
      assets allocated to trading, and the Partnership began to pay MLIP a
      monthly administrative fee of .021 of 1% (a .25% annual rate) of the
      Partnership's month-end assets allocated to trading (this
      recharacterization had no economic effect on the Partnership). Month-end
      assets are not reduced, for purposes of calculating brokerage commissions
      or administrative fees, by any accrued brokerage commissions,
      administrative fees, profit shares, Incentive Overrides or other fees or
      charges.

      MLIP estimates that the round-turn equivalent commission rate charged to
      the Partnership during the years ended December 31, 1996, 1995 and 1994
      was approximately $74, $88 and $13 respectively (not including, in
      calculating round-turn equivalents, forward contracts on a
      futures-equivalent basis).

      MLF pays the Advisors annual Consulting Fees ranging up to 4% of the
      Partnership's average month-end assets, 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, 1996, 1995 and 1994 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. Prior
      to December 31, 1994, the Partnership retained any accrued Incentive
      Overrides reflected as a reduction in the Net Asset Value of Units when
      redeemed.

      The Partnership trades forward contracts through a Foreign Exchange
      Service Desk (the "F/X Desk") established by MLIP that contacts at least
      two counterparties along with Merrill Lynch International Bank ("MLIB")
      for all of the Partnership's currency trades. All counterparties other
      than MLIB are unaffiliated with any Merrill Lynch entity. The F/X Desk
      charges a service fee equal (at current exchange rates) to approximately
      $5.00 to $12.50 on each purchase or sale of a futures contract equivalent
      face amount of a foreign currency. No service fees are charged on trades
      awarded to MLIB (which receives a "bid-ask" spread on such trades). MLIB
      is awarded trades only if its price (which includes no service fee) is
      equal to or better than the best price (including the service fee) offered
      by any of the other counterparties contacted.

      The F/X Desk trades using credit lines provided by a Merrill Lynch entity.
      The Partnership is not required to margin or otherwise guarantee its F/X
      Desk trading.

      Certain of the Partnership's currency trades are executed in the form of
      "exchange of futures for physical" ("EFP") transactions involving MLIB and
      MLF. In these transactions, a spot or forward (collectively referred to as
      "cash") currency position is acquired and exchanged for an equivalent
      futures position on the Chicago Mercantile Exchange's International
      Monetary Market. In its EFP trading, the Partnership acquires cash
      currency positions through the F/X Desk in the same manner and on the same
      terms as in the case of the Partnership's other F/X Desk trading. When the
      Partnership exchanges these positions for futures, there is a
      "differential" between the prices of these two positions. This
      "differential" reflects, in part, the different settlement dates of the
      cash 

                                      -7-
<PAGE>
 
      and the futures contracts as well as prevailing interest rates, but also
      includes a pricing spread in favor of MLIB or another Merrill Lynch
      entity.

      The Partnership's F/X Desk service fee and EFP differential costs, have to
      date, totaled no more than .25 of 1% per annum of the Partnership's
      average month-end Net Assets.

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 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 the end
      of each calendar quarter, 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 during a calendar quarter to the extent of the
      applicable percentage of any New Trading Profit attributable to such
      Units.

      The methods by which profit shares and the Incentive Override 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 at December 31, 1996, 1995 and 1994 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 preceding period.

5.    FAIR VALUE AND OFF-BALANCE SHEET RISK

      The Partnership trades futures, options on futures and forward contracts
      in interest rates, stock indices, commodities, currencies, energy and
      metals. The Partnership's trading results by reporting category were as
      follows:
<TABLE> 
<CAPTION> 

                                                                 Total Trading Results
                                               ---------------------------------------------------------
                                                         1996                             1995
                                               ------------------------         ------------------------

      <S>                                      <C>                              <C> 
      Interest Rates                                      $ 9,760,028                      $11,850,333
      Stock Indices                                        (2,898,534)                       1,309,308
      Commodities                                          (1,260,126)                      (2,344,653)
      Currencies                                            6,729,908                        9,620,327
      Energy                                                3,648,527                        1,362,895
      Metals                                                1,183,534                       (4,043,213)
                                               ------------------------         ------------------------

                                                          $17,163,337                      $17,754,997
                                               ========================         ========================
</TABLE> 

                                      -8-
<PAGE>
 
       Market Risk
       -----------

       Derivative instruments involve varying degrees of off-balance sheet
       market risk, and changes in the level or volatility of interest rates,
       foreign currency exchange rates or market values of the financial
       instruments or commodities underlying such derivative instruments
       frequently result in changes in the Partnership's 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 the financial instruments are
       traded.

       The General Partner has procedures in place intended to control market
       risk, although there can be no assurance that they will, in fact, succeed
       in doing so. The procedures focus primarily on monitoring the trading of
       the Advisors selected from time to time by the Partnership, calculating
       the Net Asset Value of the Advisors' respective Partnership accounts as
       of the close of business on each day and reviewing outstanding positions
       for over-concentrations--both on an Advisor-by-Advisor and on an overall
       Partnership basis. While the General Partner will not itself intervene in
       the markets to hedge or diversify the Partnership's market exposure, the
       General Partner may urge Advisors to reallocate positions, or itself
       reallocate Partnership assets among Advisors (although typically only as
       of the end of a month) in an attempt to avoid over-concentrations.
       However, such interventions are unusual. Except in cases in which it
       appears that an Advisor has begun to deviate from past practice or
       trading policies or to be trading erratically, the General Partner's
       basic risk control procedures consist simply of the ongoing process of
       Advisor monitoring and selection, with the market risk controls being
       applied by the Advisors themselves.

       Fair Value
       ----------

       The derivative instruments used in the Partnership's trading activities
       are marked to market daily with the resulting unrealized profit (loss)
       recorded in the Statements of Financial Condition and the related profit
       (loss) reflected in trading revenues in the Statements of Income. The
       contract/notional values of open contracts as of December 31, 1996 and
       1995 were as follows:
<TABLE> 
<CAPTION> 

                                                  1996                                                    1995
                          -----------------------------------------------------    -----------------------------------------------
                              Commitment to                Commitment to               Commitment to               Commitment to
                           Purchase (Futures,             Sell (Futures,            Purchase (Futures,            Sell (Futures,
                           Options & Forwards)          Options & Forwards)         Options & Forwards)         Options & Forwards)
                           ------------------           ------------------          ------------------          ------------------

     <S>                   <C>                        <C>                          <C>                       <C> 
     Interest Rates              $163,675,871                 $ 19,289,797                 $366,794,659               $115,962,614
     Stock Indices                  2,370,250                       -                         5,256,825                    -
     Commodities                   15,801,477                   20,321,987                   43,376,228                 13,773,026
     Currencies                    98,847,573                   98,585,409                   31,823,922                113,887,626
     Energy                         9,062,561                       -                        28,209,814                    -
     Metals                         8,173,590                   36,875,178                    7,101,823                 23,355,741
                           ----------------------     ---------------------        ---------------------     ----------------------

                                 $297,931,322                 $175,072,371                 $482,563,271               $266,979,007
                           ======================     =====================        =====================     ======================
</TABLE> 


Substantially all of the Partnership's derivative instruments outstanding at
December 31, 1996 expire within one year.

                                      -9-
<PAGE>
 
    The contract/notional values of the Partnership's open exchange-traded and
    non-exchange-traded derivative instrument positions as of December 31, 1996
    and 1995 were as follows:

<TABLE> 
<CAPTION> 
                                                  1996                                                    1995
                          -----------------------------------------------------    -----------------------------------------------
                              Commitment to                Commitment to               Commitment to               Commitment to
                           Purchase (Futures,             Sell (Futures,            Purchase (Futures,            Sell (Futures,
                           Options & Forwards)          Options & Forwards)         Options & Forwards)         Options & Forwards)
                           ------------------           ------------------          ------------------          ------------------
     <S>                   <C>                        <C>                          <C>                       <C> 
     Exchange
       Traded                    $222,862,462                 $120,557,546                $451,632,138                $210,729,655
     Non-                                                                                                            
       Exchange                                                                                                      
       Traded                      75,068,860                   54,514,825                  30,931,133                  56,249,352
                           ----------------------     ---------------------        ---------------------     ----------------------

                                 $297,931,322                 $175,072,371                $482,563,271                $266,979,007
                           ======================     =====================        =====================     ======================
</TABLE> 


    The average fair value of the Partnership's derivative instrument positions
    which were open as of the end of each calendar month during the years ended
    December 31, 1996 and 1995 were as follows:

<TABLE> 
<CAPTION> 
                                                  1996                                                    1995
                          -----------------------------------------------------    -----------------------------------------------
                              Commitment to                Commitment to               Commitment to               Commitment to
                           Purchase (Futures,             Sell (Futures,            Purchase (Futures,            Sell (Futures,
                           Options & Forwards)          Options & Forwards)         Options & Forwards)         Options & Forwards)
                           ------------------           ------------------          ------------------          ------------------
      <S>                 <C>                        <C>                           <C>                      <C> 
      Interest Rates             $375,821,929                $235,768,354                $392,684,358                $ 52,525,025
      Stock Indices                18,182,219                   6,017,446                  11,263,970                   4,597,664
      Commodities                  31,215,320                  16,934,584                  23,210,531                  11,584,575
      Currencies                  129,897,769                 155,721,135                  96,987,577                  95,012,878
      Energy                       10,495,884                     828,215                   8,271,275                   6,430,540
      Metals                       16,886,459                  41,387,905                  12,245,216                  31,011,275
                          ----------------------     -----------------------       ---------------------    -----------------------
                                 $582,499,580                $456,657,639                $544,662,927                $201,161,957
                          ======================     =======================       =====================    =======================
</TABLE> 

    A portion of the amounts indicated as off-balance sheet risk reflects
    offsetting commitments to purchase and to sell the same instrument on the
    same date in the future. These commitments are economically offsetting but
    are not, as a technical matter, offset in the forward market until the
    settlement date.

    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 

                                      -10-
<PAGE>
 
    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 fair value amounts in the above tables represent the extent of the
    Partnership's market exposure in the particular class of derivative
    instrument listed, but not the credit risk associated with counterparty
    nonperformance. 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 also has credit
    risk because the sole counterparty or broker with respect to most of the
    Partnership's assets is MLF.

    As of December 31, 1996 and 1995, $55,365,300 and $71,297,472 of the
    Partnership's assets, respectively, were held in segregated accounts at MLF
    in accordance with Commodity Futures Trading Commission regulations.

    The gross unrealized profit and net unrealized profit (loss) on the
    Partnership's open derivative instrument positions as of December 31, 1996
    and 1995 were as follows:
<TABLE> 
<CAPTION> 

                                                   1996                                              1995
                          --------------------------------------------------- --------------------------------------------------
 
 <S>                      <C>                       <C>                       <C>                      <C>  
                               Gross Unrealized           Net Unrealized           Gross Unrealized           Net Unrealized
                                    Profit                Profit (Loss)                 Profit                Profit (Loss)
                          ------------------------- ------------------------- ------------------------ -------------------------
 Exchange-Traded                      $3,583,032                $2,072,327                 $7,029,085               $5,952,033
 Non-Exchange Traded                   1,075,337                   263,472                    338,067                 (321,244)
                          ------------------------- ------------------------- ------------------------ -------------------------
                                                                                                             
                                      $4,658,369                $2,335,799                 $7,367,152               $5,630,789
                          ========================= ========================= ======================== =========================
</TABLE> 


The Partnership controls credit risk by dealing almost exclusively with Merrill
Lynch entities as brokers and counterparties.

The Partnership, through its normal course of business, enters into various
contracts with MLF acting as its commodity broker. Pursuant to the brokerage
arrangement with MLF, 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.

                 To the best of the knowledge and belief of the
                 undersigned, the information contained in this
                        report is accurate and complete.


                                James M. Bernard
                             Chief Financial Officer
                     Merrill Lynch Investment Partners Inc.
                               General Partner of
                             ML Global Horizons L.P.

                                      -11-