<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(x) Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 1997
or
( ) Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
Commission file number: 0-23240
ML GLOBAL HORIZONS L.P.
-----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3716393
------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
C/O MERRILL LYNCH INVESTMENT PARTNERS INC.
MERRILL LYNCH WORLD HEADQUARTERS
WORLD FINANCIAL CENTER
SOUTH TOWER, 6TH FLOOR, NEW YORK, NY 10080-6106
------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 236-5662
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Limited Partnership
-------------------
Units
- -----
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting and non-voting stock held by non-
affiliates: the registrant is a limited partnership; as of February 1, 1998,
limited partnership units with an aggregate value of $134,270,083 were
outstanding and held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's "1997 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 1997,
is incorporated by reference into Part II, Item 8, and Part IV hereof and filed
as an Exhibit herewith.
1
<PAGE>
ML GLOBAL HORIZONS L.P.
ANNUAL REPORT FOR 1997 ON FORM 10-K
Table of Contents
-----------------
PART I PAGE
------ ----
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1... Business........................................... 1
Item 2... Properties......................................... 6
Item 3... Legal Proceedings.................................. 6
Item 4... Submission of Matters to a Vote of Security Holders 7
<CAPTION>
PART II
-------
<S> <C> <C>
Item 5.... Market for Registrant's Common Equity and Related
Stockholder Matters................................ 7
Item 6.... Selected Financial Data............................ 8
Item 7.... Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 11
Item 7A... Quantitative and Qualitative Disclosures About
Market Risk........................................ 14
Item 8.... Financial Statements and Supplementary Data........ 14
Item 9.... Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............. 14
<CAPTION>
PART III
--------
<S> <C> <C>
Item 10... Directors and Executive Officers of the Registrant. 14
Item 11... Executive Compensation............................. 16
Item 12... Security Ownership of Certain Beneficial Owners
and Management..................................... 16
Item 13... Certain Relationships and Related Transactions..... 17
<CAPTION>
PART IV
-------
Item 14... Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................ 18
</TABLE>
-ii-
<PAGE>
PART I
ITEM 1: BUSINESS
--------
(a) General Development of Business:
-------------------------------
ML Global Horizons L.P. (the "Partnership" or the "Fund") was
organized under the Delaware Revised Uniform Limited Partnership Act on May 11,
1993 and began trading operations on January 4, 1994. The Partnership trades in
the international futures and forward markets under the direction of multiple
independent professional advisors (the "Trading Advisors" or the "Advisors")
applying proprietary strategies. The Fund's objective is achieving, through
speculative trading, substantial capital appreciation over time.
Merrill Lynch Investment Partners Inc. (the "General Partner" or
"MLIP") acts as the general partner of the Partnership and selects and allocates
the Fund's assets among a "concentrated" group of Advisors unaffiliated with
MLIP, each of which trades independently of the others. Merrill Lynch Futures
Inc. (the "Commodity Broker" or "MLF") is the Partnership's commodity broker.
The General Partner is a wholly-owned subsidiary of Merrill Lynch Group Inc.,
which in turn is a wholly-owned subsidiary of Merrill Lynch & Co., Inc. The
Commodity Broker is an indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. (Merrill Lynch & Co., Inc. and its affiliates are herein sometimes
referred to as "Merrill Lynch").
The Fund offers its units of limited partnership interest ("Units"),
and receives and processes subscriptions, on a continuous basis throughout each
month. Investors whose subscriptions are accepted during a month are admitted
to the Fund as Limited Partners as of the beginning of the immediately following
month, acquiring Units at the Net Asset Value per Unit as of the date of
admission. Investors' customer securities accounts are debited in the amount of
their subscriptions on a single monthly settlement date within approximately
five business days of the issuance of the Units.
The initial capitalization of the Fund was $35,835,000 . A total of an
additional $133,351,779 was invested in the Units through December 31, 1997, and
Units with an aggregate Net Asset Value of $66,754,173 had been redeemed
(including December 31, 1997 redemptions which were not actually paid out until
January 1998). As of December 31, 1997, the capitalization of the Fund was
$134,044,365, and the Net Asset Value per Unit, originally $100 as of January 4,
1994, had risen to $153.86. As of December 31, 1997, the Fund had 4,479 Limited
Partners.
Through December 31, 1997, the highest month-end Net Asset Value per
Unit was $155.70 (July, 1997) and the lowest $97.36 (February, 1994).
(b) Financial Information about Industry Segments:
---------------------------------------------
The Partnership's business constitutes only one segment for financial
reporting purposes, i.e., a speculative "commodity pool."
(c) Narrative Description of Business:
---------------------------------
GENERAL
The Fund trades in the international futures, options on futures and
forward markets with the objective of achieving substantial capital appreciation
over time.
The Fund's assets are allocated and reallocated by MLIP to the trading
management of independent Trading Advisors applying proprietary strategies in
numerous markets.
During its first 2 1/2 years of operation, the Fund retained only
three Advisors at any one time. Two of these Advisors remained as "core"
Advisors to the Fund as of January 1, 1997. In July 1996, MLIP began allocating
a portion of the Fund's assets (9%) to two non-core Advisors, and MLIP added a
third non-core Advisor as of January 1, 1997; however, as of January 1, 1997,
approximately 74.5% of the Fund's assets were being traded by only three
Advisors. (Core Advisors is the term used by MLIP to identify Advisors
allocated 10% or more of the Fund's assets for management.)
1
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MLIP may from time to time direct certain individual Advisors to
manage their Fund accounts as if they were managing up to 50% more equity than
the actual capital allocated to them. This additional leverage is subject to
the condition that the Fund as a whole will not trade as if it had in excess of
20% more equity than actual capital.
One of the objectives of the Fund is to provide diversification for a
limited portion of the risk segment of the Limited Partners' portfolios.
Commodity pool performance has historically often demonstrated a low degree of
performance correlation with traditional stock and bond holdings. Since it
began trading, the Fund's returns have, in fact, frequently been significantly
non-correlated (not, however, negatively correlated) with the United States
stock and bond markets.
USE OF PROCEEDS AND INTEREST INCOME
Subscription Proceeds. MLIP pays from its own funds the selling
---------------------
commissions relating to the sale of the Units. Accordingly, 100% of the
proceeds of Unit sales are received in cash by the Partnership and available for
use in its speculative trading. In such trading, the Fund's assets are used as
security for and to pay the Partnership's trading losses as well as any expenses
and redemptions. The primary use of the proceeds of the sale of the Units is to
permit the Advisors to trade on a speculative basis in a wide range of different
futures, forwards and options on futures markets on behalf of the Partnership.
While being used for this purpose, the Partnership's assets are also generally
available to earn interest, as more fully described below under "-- Available
Assets."
Market Sectors. The Partnership trades in a diversified group of
--------------
markets under the direction of multiple independent Advisors. These Advisors
can, and do, from time to time materially alter the allocation of their overall
trading commitments among different market sectors. Except in the case of
certain trading programs which are purposefully limited in the markets which
they trade, there is essentially no restriction on the commodity interests which
may be traded by any Advisor or the rapidity with which an Advisor may alter its
market sector allocations.
The Fund's financial statements contain information relating to the
market sectors traded by the Fund. There can, however, be no assurance as to
which markets may be included in the Fund's portfolio or as to in which market
sectors the Fund's trading may be concentrated at any one time or over time.
Market Types. The Fund trades on a variety of United States and
------------
foreign futures exchanges. Applicable exchange rules differ significantly among
different countries and exchanges. Substantially all of the Fund's off-exchange
trading takes place in the highly liquid, institutionally-based currency forward
markets. The forward markets are generally unregulated, and in its forward
trading the Fund does not deposit margin with respect to its positions. The
Partnership's forward currency trading is executed exclusively through the
Foreign Exchange Service Desk (the "F/X Desk") operated by MLIP and certain of
its affiliates, with MLF as the "back-to-back" intermediary to the ultimate
counterparties, which include Merrill Lynch International Bank ("MLIB") with
which the Advisors trade on behalf of the Fund.
As in the case of its market sector allocations, the Fund's
commitments to different types of markets -- U.S. and non-U.S., regulated and
unregulated -- differ substantially from time to time as well as over time. The
Fund has no policy restricting its relative commitments to any of these
different types of markets, although generally the bulk of the Fund's trading
takes place on regulated exchanges.
The Fund's financial statements contain information relating to the
types of markets traded by the Fund. There can, however, be no assurance as to
in which markets the Fund may trade or the Fund's trading may be concentrated at
any one time or over time.
Custody of Assets. All of the Fund's assets are currently held in
-----------------
customer accounts at Merrill Lynch.
Available Assets. The Fund earns interest, as described below, on its
----------------
"Available Assets," which can be generally described as the cash actually held
by the Fund. Available Assets are held primarily in U.S. dollars, and to a
lesser extent in foreign currencies, and are comprised of the following: (a)
the Fund's cash balance in the offset accounts (as described below) -- which
includes "open trade equity" (unrealized gains and losses on open positions) on
United States futures contracts, which is paid into or out of the Fund's account
on a daily basis; and (b) the Fund's cash balance in foreign currencies derived
from its trading in non-U.S. dollar denominated futures and options contracts,
which includes open trade equity on those exchanges which settle gains and
2
<PAGE>
losses on open positions in such contracts prior to the closing out of such
positions. Available Assets do not include, and the Fund does not earn interest
on, the Fund's gains or losses on its open forward, commodity option and certain
foreign futures positions since such gains or losses are not collected or paid
until such positions are closed out.
The Partnership's Available Assets may be greater than, less than or
equal to the Fund's Net Asset Value (on which the redemption value of the Units
is based) primarily because Net Asset Value reflects all gains and losses on
open positions as well as accrued but unpaid expenses.
The interest income arrangements for the Partnership's U.S. dollar
Available Assets differ from those applicable to its non-U.S. dollar Available
Assets. Interest income, once accrued by the Fund, is subject to the risk of
trading losses.
Interest Earned on the Fund's U.S. Dollar Available Assets. The
----------------------------------------------------------
Fund's U.S. dollar Available Assets are held in cash in offset accounts and in
short-term Treasury bills purchased from dealers unaffiliated with Merrill
Lynch. Offset accounts are non-interest bearing demand deposit accounts
maintained with banks unaffiliated with Merrill Lynch. An integral feature of
the offset arrangements is that the participating banks specifically acknowledge
that the offset accounts are MLF customer accounts, not subject to any Merrill
Lynch liability.
MLF credits the Partnership, as of the end of each month, with
interest at the effective daily 91-day Treasury bill rate on the daily U.S.
dollar Available Assets held in the offset accounts during such month. The Fund
receives all interest paid on the short-term Treasury bills in which it invests.
The use of the offset account arrangements for the Partnership's U.S.
dollar Available Assets may be discontinued by Merrill Lynch whether or not
Merrill Lynch otherwise continues to maintain its offset arrangements. The
offset arrangements are dependent on the banks' continued willingness to make
overnight credits available to Merrill Lynch, which, in turn, is dependent on
the credit standing of ML&Co. If Merrill Lynch were to determine that the
offset arrangements had ceased to be practicable (either because ML&Co. credit
lines at participating banks were exhausted or for any other reason), Merrill
Lynch would thereafter attempt to invest all of the Fund's U.S. dollar Available
Assets to the maximum practicable extent in short-term Treasury bills. All
interest earned on the U.S. dollar Available Assets so invested would be paid to
the Fund, but MLIP would expect the amount of such interest to be less than that
available to the Fund under the offset account arrangements. The remaining U.S.
dollar Available Assets of the Fund would be kept in cash to meet variation
margin payments and pay expenses, but would not earn interest for the Fund.
The banks at which the offset accounts are maintained make available
to Merrill Lynch interest-free overnight credits, loans or overdrafts in the
amount of the Fund's U.S. dollar Available Assets held in the offset accounts,
charging Merrill Lynch a small fee for this service. The economic benefits
derived by Merrill Lynch -- net of the interest credits paid to the Fund and the
fee paid to the offset banks -- from the offset accounts have not exceeded 3/4
of 1% per annum of the Fund's average daily U.S. dollar Available Assets held in
the offset accounts. These revenues to Merrill Lynch are in addition to the
Brokerage Commissions and Administrative Fees paid by the Fund to MLF and MLIP,
respectively.
Interest Paid by Merrill Lynch on the Fund's Non-U.S. Dollar Available
----------------------------------------------------------------------
Assets. Under the single currency margining system implemented for the
- ------
Partnership, the Partnership itself does not deposit foreign currencies to
margin trading in non-U.S. dollar denominated futures contracts and options. MLF
provides the necessary margin, permitting the Fund to retain the monies which
would otherwise be required for such margin as part of the Fund's U.S. dollar
Available Assets. The Fund does not earn interest on foreign margin deposits
provided by MLF. The Fund does, however, earn interest on its non-U.S. dollar
Available Assets. Specifically, the Fund is credited by Merrill Lynch with
interest at the local short-term rate on realized and unrealized gains on non-
U.S. dollar denominated positions for such gains actually held in cash by the
Fund. Merrill Lynch charges the Fund Merrill Lynch's cost of financing realized
and unrealized losses on such positions.
In order to avoid the expense of daily currency conversions, the Fund
holds foreign currency gains and finances foreign currency losses on an interim
basis until converted into U.S. dollars and either paid into or out of the
Fund's U.S. dollar Available Assets. Foreign currency gains or losses on open
positions are not converted into U.S. dollars until the positions are closed.
Assets of the Fund while held in foreign currencies are subject to exchange rate
risk.
____________________________
3
<PAGE>
The General Partner has determined that there may have been a
miscalculation in the interest credited to the Fund for a period prior to
November 1996. Accordingly, Merrill Lynch has credited certain amounts to the
Fund's investors (directly, not by crediting the Fund itself). For current
Merrill Lynch clients, this credit, which includes compounded interest, appears
on the December 1997 account statements. The total amount of the adjustment is
approximately $1,003,000.
CHARGES
The following table summarizes the charges incurred by the Fund during
1995, 1996 and 1997.
<TABLE>
<CAPTION>
1995 1996 1997
---------------------- --------------------- ---------------------
% OF AVERAGE % OF AVERAGE % OF AVERAGE
DOLLAR MONTH-END DOLLAR MONTH-END DOLLAR MONTH-END
COST AMOUNT NET ASSETS AMOUNT NET ASSETS AMOUNT NET ASSETS
- ------ ---------- ----------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Brokerage
Commissions $5,723,755 7.72% $6,646,004 7.55% $7,727,226 7.19%
Administrative
Expenses -- -- 57,091 0.06 266,456 0.25
Profit Shares 1,492,857 2.01 1,808,020 2.05 1,666,616 1.55
Incentive Override 965,454 1.30 834,271 0.95 289,162 0.27
---------- ----- ---------- ----- ---------- ----
Total $8,182,066 11.03% $9,345,386 10.61% $9,949,460 9.26%
========== ===== ========== ===== ========== ====
</TABLE>
____________________________
The Fund reimbursed MLIP for a total of $447,000 of organizational and
offering costs over the first 24 months of operations (ending December 31,
1995).
The foregoing table does not reflect the bid-ask spreads paid by the
Fund on its forward trading, or the benefits which may be derived by Merrill
Lynch from the deposit of certain of the Fund's U.S. dollar available assets in
offset accounts. See Item 1(c). "Narrative Description of Business -- Use of
Proceeds and Interest Income."
The Fund's average month-end Net Assets during 1995, 1996 and 1997
equaled $74,120,244, $87,987,052 and $107,466,882, respectively.
During 1995, 1996 and 1997, the Fund earned $3,786,925, $3,978,137,
and $5,278,840 in interest income, or approximately 5.11%, 4.52% and 4.91% of
the Fund's average month-end Net Assets.
As of October 1, 1996, the 7.50% per annum Brokerage Commissions paid
by the Fund to MLF were recharacterized as 7.25% per annum Brokerage Commissions
and a 0.25% per annum Administrative Fee paid by the Fund to MLIP. This
recharacterization had no economic effect on the Fund.
4
<PAGE>
DESCRIPTION OF CURRENT CHARGES
<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- ------------------ ---------------------- ---------------------------------------------------------
<S> <C> <C>
MLF Brokerage Commissions A flat-rate monthly commission of 0.6041 of 1% of the
Fund's month-end assets (a 7.25% annual rate).
During 1995, 1996 and 1997, the round-turn (each
purchase and sale or sale and purchase of a single
futures contract) equivalent rate of the Fund's flat-rate
Brokerage Commissions was approximately $88, $74
and $98, respectively.
MLF Use of Fund assets Merrill Lynch may derive an economic benefit from the
deposit of certain of the Fund's U.S. dollar Available
Assets in offset accounts; such benefit to date has not
exceeded 3/4 of 1% of such average daily U.S. dollar
Available Assets.
MLIP Administrative Fees The Fund pays MLIP a monthly Administrative Fee
equal to 0.020833 of 1% of the Fund's month-end
assets (0.25% annually). MLIP pays all of the Fund's
routine administrative costs.
MLIB Bid-ask spreads Under MLIP's F/X Desk arrangements, MLIB receives
bid-ask spreads on the forward trades it executes with
the Fund.
Other Bid-ask spreads The counterparties other than MLIB with which the
Counterparties F/X Desk deals also each receive bid-ask spreads on
the forward trades executed with the Fund.
MLIP F/X Desk service fees Under the F/X Desk arrangements, MLIP or another
Merrill Lynch entity receives a service fee equal, at
current exchange rates, to approximately $5.00 to
$12.50 on each purchase or sale of each futures
contract-equivalent forward contract executed with
counterparties other than MLIB.
MLIB EFP differentials MLIB or an affiliate receives a differential spread for
exchanging the Fund's spot currency positions (which
are acquired through the F/X Desk, as described above)
for equivalent futures positions.
MLIP Annual Incentive Paid by the Fund as a whole on an annual basis and by
Overrides reduction of the Net Asset Value of Units when
redeemed. The Incentive Override equals 10% of any
Net New Gain (as defined). Units may generate Net
New Gain and be subject to paying an Incentive
Override even though the Net Asset Value per Unit has
declined below the purchase price of such Units.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Trading Advisors Profit Shares Prior to January 1, 1997, all Advisors received
quarterly Profit Shares ranging from 15% to 25%
(depending on the Trading Advisor) of any New
Trading Profit achieved by their Fund account. As of
January 1, 1997, a number of Advisors agreed to
receive only annual Profit Shares. Profit Shares are
also paid upon redemption of Units. New Trading
Profit is calculated separately in respect of each
Advisor, irrespective of the overall performance of the
Fund. The Fund may pay substantial Profit Shares
during periods when it is incurring significant overall
losses.
MLF; Extraordinary expenses Actual costs incurred; none paid to date, and expected
Others to be negligible.
</TABLE>
REGULATION
The General Partner, the Trading Advisors and the Commodity Broker are each
subject to regulation by the Commodity Futures Trading Commission (the "CFTC")
and the National Futures Association. Other than in respect of its periodic
reporting requirements under the Securities Exchange Act of 1934, and the
registration of the Units for continuous public distribution under the
Securities Act of 1933, the Partnership itself is generally not subject to
regulation by the Securities and Exchange Commission. However, MLIP itself is
registered as an "investment adviser" under the Investment Advisers Act of 1940.
(i) through (xii) -- not applicable.
(xiii) The Partnership has no employees.
(d) Financial Information about Foreign and Domestic Operations and Export
----------------------------------------------------------------------
Sales:
- -----
The Partnership does not engage in material operations in foreign countries,
nor is a material portion of the Partnership's revenues derived from customers
in foreign countries. The Partnership does, however, trade, from the United
States, on a number of foreign commodity exchanges.
ITEM 2: PROPERTIES
----------
The Partnership does not use any physical properties in the conduct of its
business.
The Partnership's only place of business is the place of business of the
General Partner (see Item 10 herein). The General Partner performs all
administrative services for the Partnership from the General Partner's offices.
ITEM 3: LEGAL PROCEEDINGS
-----------------
ML&Co. -- the sole stockholder of Merrill Lynch Group, Inc. (which is the sole
stockholder of MLIP) -- as well as certain of its subsidiaries and affiliates
have been named as defendants in civil actions, arbitration proceedings and
claims arising out of their respective business activities. Although the
ultimate outcome of these actions cannot be ascertained at this time and the
results of legal proceedings cannot be predicted with certainty, it is the
opinion of management that the result of these matters will not be materially
adverse to the business operations of financial condition of MLIP or the Fund.
MLIP itself has never been the subject of any material litigation.
6
<PAGE>
On June 24, 1997, the CFTC accepted an Offer of Settlement from MLF and others,
in a matter captioned "In the Matter of Mitsubishi Corporation and Merrill Lynch
Futures Inc., et al.," CFTC Docket No. 97-10, pursuant to which MLF, without
admitting or denying the allegations against it, consented to a finding by the
Commission that MLF had violated Section 4c(a)(A) of the Commodity Exchange Act,
relating to wash sales (the CFTC alleged that the customer entered nearly
simultaneous orders without the intent to engage in a bona fide trading
transaction), and CFTC Regulation 1.37(a), relating to recordkeeping
requirements. MLF agreed to cease and desist from violating Section 4c(a)(A) of
the Act and Regulation 1.37(a), and to pay a civil monetary penalty of $175,000.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Partnership has never submitted any matters to a vote of its Limited
Partners.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
(a) Market Information:
------------------
There is no public trading market for the Units, nor will one develop.
Rather, Limited Partners may purchase or redeem Units as of the end of
each month at Net Asset Value, subject to certain early redemption
charges.
(b) Holders:
-------
As of December 31, 1997, there were 4,480 holders of Units, including
the General Partner.
(c) Dividends:
---------
The Partnership has made no distributions since trading commenced, nor
does the General Partner presently intend to make any distributions in
the future.
7
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
-----------------------
The following selected financial data has been derived from the audited
financial statements of the Partnership.
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1, 1996 JANUARY 1, JANUARY 4,
1997 TO 1995 1994
TO DECEMBER 31, TO TO
DECEMBER 31, 1996 DECEMBER 31, DECEMBER 31,
1997 1995 1994
- -------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
- ---------------------
<S> <C> <C> <C> <C>
Revenues:
Trading Profits (Loss)
Realized Gain $ 6,111,341 $20,458,327 $17,455,764 $ 453,726
Change in Unrealized Gain (Loss) 6,329,441 (3,294,990) 299,233 5,331,556
------------ ----------- ----------- -----------
Total Trading Results 12,440,782 17,163,337 17,754,997 5,785,282
Interest Income 5,278,840 3,978,137 3,786,925 1,972,722
------------ ----------- ----------- -----------
Total Revenues 17,719,622 21,141,474 21,541,922 7,758,004
------------ ----------- ----------- -----------
Expenses:
Brokerage Commissions 7,727,226 6,646,004 5,723,755 3,859,267
Administrative Fees 266,456 57,091 -- --
Profit Shares 1,666,616 1,808,020 1,492,857 1,103,649
Incentive Override 289,162 834,271 965,454 41,867
------------ ----------- ----------- -----------
Total Expenses 9,949,460 9,345,386 8,182,066 5,004,783
------------ ----------- ----------- -----------
Net Income $ 7,770,162 $11,796,088 $13,359,856 $ 2,753,221
============ =========== =========== ===========
BALANCE SHEET DATA* DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994
--------------- --------------- --------------- ---------------
Fund Net Asset Value $134,044,365 $84,173,541 $89,140,493 $67,078,533
Net Asset Value per Unit $153.86 $142.95 $124.35 $104.08
</TABLE>
* Balance Sheet Data is based on redemption values, which differ immaterially
from Net Asset Values as determined under Generally Accepted Accounting
Principles ("GAAP") due to the treatment of organizational and initial
offering cost reimbursements.
8
<PAGE>
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER UNIT
- ------------------------------------------------------------------------------------------------------------------
JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $ 98.60 $ 97.36 $ 98.60 $ 98.99 $102.25 $104.98 $102.64 $100.63 $102.16 $104.27 $103.89 $104.08
- ------------------------------------------------------------------------------------------------------------------
1995 $101.22 $106.76 $116.51 $118.56 $121.04 $120.69 $116.88 $116.54 $115.14 $115.01 $117.18 $124.35
- ------------------------------------------------------------------------------------------------------------------
1996 $125.91 $117.82 $119.43 $128.54 $123.56 $127.71 $123.72 $124.28 $128.97 $138.94 $146.22 $142.95
- ------------------------------------------------------------------------------------------------------------------
1997 $146.53 $151.84 $152.92 $149.41 $146.53 $146.46 $155.70 $148.90 $149.80 $147.06 $148.57 $153.86
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The Net Asset Value per Unit varies, until December 31, 1994, from how
it would be calculated for purposes of GAAP due to the amortization of
organizational and initial offering costs.
9
<PAGE>
ML GLOBAL HORIZONS L.P.
DECEMBER 31, 1997
Type of Pool: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"/(1)/
Inception of Trading: January 4, 1994
Aggregate Subscriptions: $165,566,205
Current Capitalization: $134,044,365
Worst Monthly Drawdown/(2)/: (6.42)% (2/96)
Worst Peak-to-Valley Drawdown/(3)/: (6.42)% (2/96)
_____________
Net Asset Value per Unit, December 31, 1997: $153.86
<TABLE>
<CAPTION>
MONTHLY RATES OF RETURN /(4)/
- -------------------------------------------------
MONTH 1997 1996 1995 1994
- -------------------------------------------------
<S> <C> <C> <C> <C>
January 2.50% 1.25% (2.74)% (1.40)%
- -------------------------------------------------
February 3.62 (6.42) 5.48 (1.26)
- -------------------------------------------------
March 0.71 1.37 9.13 1.28
- -------------------------------------------------
April (2.30) 7.63 1.76 0.40
- -------------------------------------------------
May (1.93) (3.87) 2.09 3.29
- -------------------------------------------------
June (0.05) 3.35 (0.29) 2.67
- -------------------------------------------------
July 6.31 (3.12) (3.15) (2.23)
- -------------------------------------------------
August (4.37) 0.45 (0.29) (1.96)
- -------------------------------------------------
September 0.60 3.77 (1.21) 1.52
- -------------------------------------------------
October (1.83) 7.73 (0.11) 2.06
- -------------------------------------------------
November 1.03 5.24 1.89 (0.37)
- -------------------------------------------------
December 3.56 (2.24) 6.12 0.18
- -------------------------------------------------
Compound 7.61% 14.96% 19.48% 4.08%
Annual
Rate of Return
- -------------------------------------------------
</TABLE>
(1) Pursuant to applicable CFTC regulations, a "Multi-Advisor" fund
is defined as one that allocates no more than 25% of its trading assets to any
single manager. As the Fund currently allocates more than 25% of its trading
assets to one or more Advisors, it is referred to as a "Selected-Advisor" fund.
Certain funds, including funds sponsored by MLIP, are structured so as to
guarantee to investors that their investment will be worth no less than a
specified amount (typically, the initial purchase price) as of a date certain
after the date of investment. The CFTC refers to such funds as "principal
protected." The Fund has no such feature.
(2) Worst Monthly Drawdown represents the largest negative Monthly
Rate of Return experienced by the Fund; a drawdown is measured on the basis of
month-end Net Asset Value only, and does not reflect intra-month figures.
(3) Worst Peak-to-Valley Drawdown represents the greatest percentage
decline from a month-end cumulative Monthly Rate of Return without such
cumulative Monthly Rate of Return being equalled or exceeded as of a subsequent
month-end. For example, if the Monthly Rate of Return was (1)% in each of
January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown
would still be continuing at the end of April in the amount of approximately
(3)%, whereas if the Monthly Rate of Return had been approximately 3% in March,
the Peak-to-Valley Drawdown would have ended as of the end of February at
approximately the (2)% level.
(4) Monthly Rate of Return is the net performance of the Fund during
the month of determination (including interest income and after all expenses
have been accrued or paid) divided by the total equity of the Fund as of the
beginning of such month.
10
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
OPERATIONAL OVERVIEW; ADVISOR SELECTIONS
The Fund's results of operations depend on MLIP's ability to select
Advisors and the Advisors' ability to trade profitably. MLIP's selection
procedures, as well as the Advisors' trading methods, are confidential, so that
substantially the only available information relevant to the Fund's results of
operations is its actual performance record to date. However, because of the
speculative nature of its trading, the Fund's past performance is not
necessarily indicative of its future results.
MLIP's decision to terminate or reallocate assets among Trading
Advisors is based on a combination of numerous factors. Advisors are, in
general, terminated primarily for unsatisfactory performance, but other factors
- -- for example, a change in MLIP's or an Advisor's market outlook, apparent
deviation from announced risk control policies, excessive turnover of positions,
changes in principals, commitment of resources to other business activities,
etc. -- may also have a role in the termination or reallocation decision. The
market judgment and experience of MLIP's principals is an important factor in
its allocation decisions.
MLIP has no timetable or schedule for making Advisor changes or
reallocations, and generally makes a medium-to long-term commitment to all
Advisors selected. In particular, MLIP has to date made significantly fewer
reallocations of trading assets and adjustments in the Advisor combinations for
the Fund than in the case of many of MLIP's multi-advisor funds. However, there
can be no assurance as to the frequency or number of Advisor changes that may
take place in the future, or as to how long any of the current Advisors will
continue to manage assets for the Partnership.
RESULTS OF OPERATIONS
General. MLIP believes that multi-advisor futures funds should be
-------
regarded as medium- to long-term (i.e., three to five year) investments, but it
is difficult to identify trends in the Fund's operations and virtually
impossible to make any predictions regarding future results based on the results
to date. An investment in the Fund may be less successful over a longer than a
shorter period.
Markets with sustained price trends tend to be more favorable to
managed futures investments than whipsaw, choppy markets, but (i) this is not
always the case, (ii) it is impossible to predict when price trends will occur
and (iii) different Advisors are affected differently by trending markets as
well as by particular types of trends.
MLIP attempts to control credit risk in the Fund's futures, forward
and options trading (the Fund does not trade derivatives other than futures and
forward contracts and options thereon) by trading only through MLF. MLF acts
solely as a broker or counterparty to the Fund's trades; it does not advise with
respect to, or direct, any such trading.
MLIP attempts to control the market risk inherent in the Fund's
trading by MLIP multi-advisor strategy and Trading Advisor selections. The
market risk to the Fund is, in any event, limited by its multi-advisor strategy.
MLIP reviews the positions acquired by the Advisors on a daily basis in an
effort to determine whether the overall positions of the Fund may have become
what MLIP analyzes as being excessively concentrated in a limited number of
markets -- in which case MLIP may, as of the next month-end or quarter-end,
adjust the Fund's Advisor combination and/or allocations so as to attempt to
reduce the risk of such over-concentration occurring in the future.
MLIP may consider making distributions to investors under certain
circumstances (for example, if substantial profits are recognized); however,
MLIP has not done so to date and does not presently intend to do so.
PERFORMANCE SUMMARY
1995
In 1995, prevailing price trends in several key markets enabled the
Advisors to trade profitably for the Fund. Although trading in many of the
traditional commodity markets may have been lackluster, the currency and
financial markets offered exceptional trading conditions. After months
characterized by very difficult trading environments, solid price trends across
many markets (including U.S. Treasury and non-dollar bond markets) began to
emerge during the first quarter of 1995. In the second quarter, market
volatility once again began to affect trading, as many previously strong price
trends began to weaken and, in some cases, reverse. The U.S. dollar hit new
lows versus the Japanese yen and Deutschemark before rebounding sharply. In
addition, there were strong indications that the U.S. economy was slowing
11
<PAGE>
which, when coupled with a failure of the German Central Bank to lower interest
rates, stalled a rally in the German bond market. During the third quarter,
there was a correction in U.S. bond prices after several months of a strong
uptrend. Despite exposure to the global interest-rate markets, the Fund's long
positions in Treasury bonds had a negative impact on the Fund. Throughout
August and into September, the U.S. dollar rallied sharply against the Japanese
yen and the Deutschemark as a result of the coordinated intervention by major
central banks and widespread recognition of the growing banking crisis in Japan.
Despite continued price volatility during the final quarter of 1995, the Trading
Advisors were able to identify several trends in key markets. U.S. Treasury
bond prices continued their strong move upward throughout November, due both to
weak economic data and optimism on federal budget talks. As the year ended, the
yield on the 30-year Treasury bond was pushed to its lowest level in more than
two years.
1996
1996 began with the East Coast blizzard, continuing difficulties in
federal budget talks and an economic slowdown having a negative impact on many
markets. The Fund was profitable in January due to strong profits in currency
trading as the U.S. dollar reached a 23-month high against the Japanese yen. In
February, however, the Fund incurred its worst monthly loss due to the sudden
reversals in several strong price trends and considerable volatility in the
currency and financial markets. During March, large profits were taken in the
crude oil and gasoline markets as strong demand continued and talks between the
United Nations and Iraq were suspended. This trend continued into the second
quarter, during which strong gains were also recognized in the agricultural
markets as a combination of drought and excessive rain drove wheat and grain
prices to historic highs. In the late summer and early fall months, the Fund
continued to trade profitably as trending prices in a number of key markets
favorably impacted the Fund's performance. In September heating oil hit a five-
year high on soaring prices in Europe, and the Fund was also able to capitalize
on downward trends in the metals markets. Strong trends in the currency and
global bond markets produced significant gains in October and November, but the
year ended with declining performance as December witnessed the reversal of
several strong upward trends and increased volatility in key markets.
1997
Trend reversals and extreme market volatility, affected by such
factors as the Asian flu and El Nino, were characteristic of most of 1997.
However, the year proved to be a profitable one overall for the Fund as trends
in several key markets enabled the Trading Advisors to profit despite the
significant obstacles. Although trading results in several sectors may have
been lackluster, the global currency and bond markets offered noteworthy trading
opportunities, which resulted in significant profits in these markets during the
year. Additionally, the currency and interest rate sectors of the Fund's
portfolio represented its largest percentage of market commitments.
In currency markets, the U.S. dollar rallied and started 1997 on a
strong note, rising to a four-year high versus the Japanese yen and two-and-a-
half year highs versus the Deutsche mark and the Swiss franc. However, the
dollar underwent two significant corrections during the year. The first
correction occurred in the Spring against the Japanese yen, due to the G7
finance ministers' determination that a further dollar advance would be counter-
productive to their current goals. From August through mid-November, the dollar
corrected against the Eurocurrencies in advance of a well-advertised tightening
by the Bundesbank. By mid-December the dollar had bounced back to new highs
against the yen and was rallying against the mark.
Global interest rate markets began the year on a volatile note, as
investors evaluated economic data for signs of inflation. By the middle of the
year, economic data in key countries was positive indicating lower inflation and
igniting a worldwide rally in the bond markets. Specifically, investor
sentiment was particularly strong in the U.S., where prices on the 30-year
Treasury bond and 10-year Treasury note rose to their highest levels in over two
years. This followed a largely positive economic report delivered by Federal
Reserve Chairman Greenspan in testimony before Congress. Effects of the plunge
in the Hong Kong stock market in late October spread rapidly throughout the
world's financial markets, including global bond markets. After continued
volatility in subsequent months made trading difficult, 1997 interest rate
trading ended on a positive note when U.S. and Japanese bond markets rallied as
a flight to safety from plunging stock markets around the world occurred in
December.
In energy markets, a slump in crude oil prices was characteristic of
its lackluster performance from the beginning of the year. Early in 1997,
volatility returned in the energy markets, reflecting the impact of a winter
significantly warmer than normal. By mid-year, the decline in prices reversed
sharply as Saudi Arabia and Iran, together representing about 45% of OPEC's oil
production, joined forces to pressure oil-producing nations to stay within OPEC
production quotas. In December, financial and economic problems in Asia reduced
demand for oil, and, in combination with ample supplies, resulted in crude oil
prices declining once again.
12
<PAGE>
PERFORMANCE OVERVIEW
The principal variables which determine the net performance of the
Partnership are gross profitability and interest income. During all periods set
forth under "Selected Financial Data," the interest rates in many countries were
at unusually low levels. This negatively impacted revenues because interest
income is typically a major component of commodity pool profitability. In
addition, low interest rates are frequently associated with reduced fixed-income
market volatility, and in static markets the Fund's profit potential generally
tends to be diminished. On the other hand, during periods of higher interest
rates, the relative attractiveness of a high risk investment such as the
Partnership may be reduced as compared to high yielding and much lower risk
fixed-income investments.
The Partnership's Brokerage Commissions and Administrative Fees are a
constant percentage of assets charge. The only Fund costs (other than the
insignificant F/X Desk service fees and EFP differentials, as well as bid-ask
spreads on forward contracts) which are not based on a percentage of the Fund's
assets are the Profit Shares payable to the Trading Advisors on an Advisor-by-
Advisor basis and the Incentive Override payable to MLIP on the basis of overall
Fund performance. During periods when Profit Shares are a high percentage of
net trading gains, it is likely that there has been substantial performance non-
correlation among the Advisors (so that the total Profit Shares paid to those
Advisors which have traded profitably are a high percentage, or perhaps even in
excess, of the total profits recognized, as other Advisors have incurred
offsetting losses, reducing overall trading gains but not the Profit Shares paid
to the successful Advisors) -- suggesting the likelihood of generally trendless,
non-consensus markets.
The events that primarily determine the Fund's profitability are those
that produce sustained and major price movements. The Advisors are generally
more likely to be able to profit from sustained trends, irrespective of their
direction, than from static markets. During the course of the Partnership's
performance to date, such events have ranged from Federal Reserve Board
reductions in interest rates, the apparent refusal of Iraq to arrive at a
settlement which would permit it to sell oil internationally, the inability of
the U.S. government to agree upon a federal budget and a combination of drought
and excessive rain negatively impacting U.S. agricultural harvesting as well as
planting. While these events are representative of the type of circumstances
which materially affect the Fund, the specific events which will do so in the
future cannot be predicted or identified.
Unlike many investment fields, there is no meaningful distinction in
the operation of the Fund between realized and unrealized profits. Most of the
contracts traded by the Fund are highly liquid and can be closed out at any
time. Furthermore, the profits on many open positions are effectively realized
on a daily basis through the payment of variation margin.
Except in unusual circumstances, factors -- regulatory approvals, cost
of goods sold, employee relations and the like -- which often materially affect
an operating business have virtually no impact on the Fund.
LIQUIDITY AND CAPITAL RESOURCES
The amount of capital raised for the Fund should not, except at
extremely high levels of capitalization, have a significant impact on its
operations. The Fund's costs are generally proportional to its asset base, and,
within broad ranges of capitalization, the Advisors' trading positions (and the
resulting gains and losses) should increase or decrease in approximate
proportion to the size of the Fund account managed by each of them,
respectively.
The Partnership raises additional capital only through the
offering of its Units.
Inflation per se is not a significant factor in the Fund's
profitability, although inflationary cycles can give rise to the type of major
price movements that can have a materially favorable or adverse impact on the
Fund's performance.
In its trading to date, the Fund has from time to time had substantial
unrealized gains and losses on its open positions. These gains or losses are
received or paid on a periodic basis as part of the routine clearing cycle on
exchanges or in the over-the-counter markets (the only over-the-counter market
in which the Fund trades is the inter-bank forward market in currencies). In
highly unusual circumstances, market illiquidity could make it difficult for
certain Advisors to close out open positions, and any such illiquidity could
expose the Fund to significant losses, or cause it to be unable to recognize
unrealized gains. However, in general, there is no meaningful difference
between the Fund's realized and unrealized gains.
13
<PAGE>
THE YEAR 2000 COMPUTER ISSUE
Merrill Lynch's modifications for Year 2000 systems compliance are
proceeding according to plan and are expected to be completed in early 1999.
Based on information currently available, the remaining expenditures are
estimated at $200 million and will cover hardware and software upgrades, systems
consulting, and computer maintenance. These expenditures are not expected to
have a material adverse impact on Merrill Lynch's financial position, results of
operations, or cash flows in future periods. However, the failure of Merrill
Lynch's securities exchanges, clearing organizations, vendors, clients, or
regulators to resolve their own processing issues in a timely manner could
result in a material financial risk. Merrill Lynch is devoting necessary
resources to address all Year 2000 issues in a timely manner.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The financial statements required by this Item are included in
Exhibit 13.01.
The supplementary financial information ("selected quarterly financial
data" and "information about oil and gas producing activities") specified by
Item 302 of Regulation S-K is not applicable.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
There were no changes in or disagreements with accountants on
accounting or financial disclosure.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
---------------------------------------------------
(a,b) Identification of Directors and Executive Officers:
--------------------------------------------------
As a limited partnership, the Partnership itself has no officers or
directors and is managed by the General Partner. Trading decisions are made by
the Trading Advisors on behalf of the Partnership.
The directors and executive officers of MLIP as of February 1, 1998
and their respective business backgrounds are as follows.
John R. Frawley, Jr. Chairman, Chief Executive Officer,
President and Director
Jeffrey F. Chandor Senior Vice President, Director of
Sales, Marketing and Research and
Director
Joseph H. Moglia Director
Allen N. Jones Director
Stephen G. Bodurtha Director
Michael A. Karmelin Chief Financial Officer, Vice
President and Treasurer
Steven B. Olgin Vice President, Secretary and Director
of Administration
John R. Frawley, Jr. was born in 1943. Mr. Frawley is Chairman, Chief
Executive Officer, President and a Director of MLIP and Co-Chairman of MLF. He
joined Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") in 1966 and
has served in various positions, including Retail and Institutional Sales,
Manager of New
14
<PAGE>
York Institutional Sales, Director of Institutional Marketing, Senior Vice
President of Merrill Lynch Capital Markets and Director of International
Institutional Sales. Mr. Frawley holds a Bachelor of Science degree from
Canisius College. Mr. Frawley served on the CFTC's Regulatory Coordination
Advisory Committee from its formation in 1990 through its dissolution in 1994.
Mr. Frawley is currently serving his fourth consecutive one-year term as
Chairman of the Managed Funds Association (formerly, the Managed Futures
Association), a national trade association that represents the managed futures,
hedge funds and fund of funds industry. Mr. Frawley is also a Director of that
organization. Mr. Frawley currently serves on a panel created by the Chicago
Mercantile Exchange and The Board of Trade of the City of Chicago to study
cooperative efforts related to electronic trading, common clearing and the
issues regarding a potential merger.
Jeffrey F. Chandor was born in 1942. Mr. Chandor is Senior Vice
President, the Director of Sales, Marketing and Research and a Director of MLIP.
He joined MLPF&S in 1971 and has served as the Product Manager of International
Institutional Equities, Equity Derivatives and Mortgage-Backed Securities as
well as Managing Director of International Sales in the United States, and
Managing Director of Sales in Europe. Mr. Chandor holds a Bachelor of Arts
degree from Trinity College, Hartford, Connecticut.
Joseph H. Moglia was born in 1949. He is a director of MLIP. In
1971, he graduated from Fordham University with a Bachelor of Arts degree in
Economics. He later received his Master of Science degree from the University
of Delaware. He taught at the high school and college level for sixteen years.
Mr. Moglia joined MLPF&S in 1984, and has served in a number of senior roles,
including Director of New York Fixed Income Institutional Sales, Director of
Global Fixed Institutional Sales, and Director of the Municipal Division. He is
currently Senior Vice President and Director of the Investment Strategy and
Product Group in Merrill Lynch Private Client, and Director of Middle Markets.
Allen N. Jones was born in 1942. Mr. Jones is a Director of MLIP and,
from July 1995 until January 1998, Mr. Jones was Chairman of the Board of
Directors of MLIP. Mr. Jones graduated from the University of Arkansas with a
Bachelor of Science, Business Administration degree in 1964. Since June 1992,
Mr. Jones has held the position of Senior Vice President of MLPF&S. From June
1992 through February 1994, Mr. Jones was the President and Chief Executive
Officer of Merrill Lynch Insurance Group, Inc. ("MLIG") and remains on the Board
of Directors of MLIG and its subsidiary companies. From February 1994 to April
1997, Mr. Jones was the Director of Individual Financial Services of the Merrill
Lynch Private Client Group. In April 1997, Mr. Jones became the Director of
Private Client marketing.
Stephen G. Bodurtha was born in 1958. Mr. Bodurtha is a Director of
MLIP. In 1980, Mr. Bodurtha graduated from Wesleyan University, Middletown,
Connecticut with a Bachelor of Arts degree in Government, magna cum laude. From
1980 to 1983, Mr. Bodurtha worked in the Investment Banking Division of Merrill
Lynch. In 1985, he was awarded his Master of Business Administration degree
from Harvard University, where he also served as Associates Fellow (1985-1986).
From 1986 to 1989, Mr. Bodurtha held the positions of Associate and Vice
President with Kidder, Peabody & Co., Incorporated where he worked in their
Financial Futures & Options Group. Mr. Bodurtha joined MLPF&S in 1989 and has
held the position of First Vice President since 1995. He has been the Director
in charge of MLPF&S's Structured Investments Group since 1995.
Michael A. Karmelin was born in 1947. Mr. Karmelin is Chief Financial
Officer, Vice President and Treasurer of MLIP. Prior to joining MLIP in April
1997, Mr. Karmelin was Chief Financial Officer of Merrill Lynch, Hubbard Inc.
("ML Hubbard"), a sponsor of real estate limited partnerships. Mr. Karmelin
joined ML Hubbard in January 1994 and was a Vice President of ML Hubbard. From
May 1994 to April 1997, he was the Chief Financial Officer of ML Hubbard,
responsible for its accounting, treasury and tax functions. Prior to joining ML
Hubbard, Mr. Karmelin held several senior financial positions with ML&Co and
MLPF&S from December 1985 to December 1993, including Vice President/Senior
Financial Officer Corporate Real Estate and Purchasing, Manager Commitment
Control/Capital Budgeting, and Senior Project Manager/Project Analysis. Prior
to joining ML&Co., Mr. Karmelin was employed at Avco Corporation for 17 years,
where he held a variety of financial positions. Mr. Karmelin holds a B.B.A.
degree in Accounting from Baruch College, C.U.N.Y. and a Master of Business
Administration degree in Corporate Strategy and Finance from New York
University. Mr. Karmelin passed the Certified Public Accounting examination in
1974 and is a member of the Treasury Management Association, the Institute of
Management Accountants and The Strategic Leadership Forum.
Steven B. Olgin was born in 1960. Mr. Olgin is Vice President,
Secretary and the Director of Administration of MLIP. He joined MLIP in July
1994 and became a Vice President in July 1995. From 1986 until July 1994, Mr.
Olgin was an associate of the law firm of Sidley & Austin. In 1982, Mr. Olgin
15
<PAGE>
graduated from The American University with a Bachelor of Science degree in
Business Administration and a Bachelor of Arts degree in Economics. In 1986, he
received his Juris Doctor degree from The John Marshall Law School. Mr. Olgin is
a member of the Managed Funds Association's Government Relations Committee and
has served as an arbitrator for the NFA. Mr. Olgin is also a member of the
Committee on Futures Regulation of the Association of the Bar of the City of New
York.
Messrs. Moglia and Bodurtha became Directors in January 1998.
As of December 31, 1997, the principals of MLIP owned Units with an
aggregate Net Asset Value of approximately $98,470, and MLIP's general partner
interest in the Fund was valued at approximately $1.5 million.
MLIP acts as general partner to twelve public futures funds whose
units of limited partnership interest are registered under the Securities
Exchange Act of 1934: The Futures Expansion Fund Limited Partnership, The
Growth and Guarantee Fund L.P., ML Futures Investments II L.P., ML Futures
Investments L.P., John W. Henry & Co./Millburn L.P., The S.E.C.T.O.R. Strategy
Fund/sm/ L.P., The SECTOR Strategy Fund/sm/ II L.P.,The SECTOR Strategy Fund/sm/
V L.P., The SECTOR Strategy Fund/sm/ VI L.P., ML Principal Protection L.P.
(formerly, ML Principal Protection Plus L.P.), ML JWH Strategic Allocation Fund
L.P. and the Fund. Because MLIP serves as the sole general partner of each of
these funds, the officers and directors of MLIP effectively manage them as
officers and directors of such funds.
(c) Identification of Certain Significant Employees:
-----------------------------------------------
None.
(d) Family Relationships:
--------------------
None.
(e) Business Experience:
-------------------
See Item 10 (a)(b) Above
(f) Involvement in Certain Legal Proceedings:
----------------------------------------
None.
(g) Promoters and Control Persons:
------------------------------
Not applicable.
ITEM 11: EXECUTIVE COMPENSATION
----------------------
The directors and officers of the General Partner are remunerated by the
General Partner in their respective positions. The Partnership does not itself
have any officers, directors or employees. The Partnership pays Brokerage
Commissions to an affiliate of the General Partner and Incentive Overrides and
Administrative Fees to the General Partner. The General Partner or its
affiliates may also receive certain economic benefits from holding the Fund's
dollar Available Assets in offset accounts, as described in Item 1(c) above.
The directors and officers receive no "other compensation" from the Partnership,
and the directors receive no compensation for serving as directors of the
General Partner. There are no compensation plans or arrangements relating to a
change in control of either the Partnership or the General Partner.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT
---------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners:
-----------------------------------------------
As of December 31, 1997, no person or "group" is known to be or have been
the beneficial owner of more than five percent of the Units.
16
<PAGE>
(b) Security Ownership of Management:
--------------------------------
As of December 31, 1997, the following officers of the General Partner
beneficially owned the following number of units:
Number of Percent
Name of Beneficial Owner Units Owned of Class
- -------------------------- ----------- ------------
John R. Frawley, Jr. 590 Less than 1%
Jeffrey Chandor 50 Less than 1%
As of December 31, 1997, the General Partner owned 10,194 Units (unit-
equivalent general partnership interests), which was less than 2% of the total
Units outstanding.
(c) Changes in Control:
------------------
None.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
(a) Transactions with Management and Others:
---------------------------------------
The General Partner acts as administrative and trading manager of the
Fund. The General Partner provides all normal ongoing administrative functions
of the Partnership, such as accounting, legal and printing services. The General
Partner, which receives the Administrative Fees, pays all expenses relating to
such services.
(b) Certain Business Relationships:
------------------------------
MLF, an affiliate of the General Partner, acts as the principal
commodity broker for the Partnership.
In 1997 the Partnership accrued: (i) Brokerage Commissions of
$7,727,226 to the Commodity Broker, which included $2,047,264 in consulting fees
accrued by the Commodity Broker to the Trading Advisors; (ii) Administrative
Fees of $266,456 to MLIP (the Administrative Fees only began to be paid as of
October 1, 1996); and (iii) Incentive Overrides of $289,162 to MLIP. In
addition, MLIP and its affiliates may have derived certain economic benefits
from maintaining a portion of the Fund's assets in "offset accounts," as
described under Item 1(c), "Narrative Description of Business -- Use of Proceeds
and Interest Income -- Interest Earned on the Fund's U.S. Dollar Available
Assets" and "-- Description of Current Charges" and Item 11, "Executive
Compensation" herein.
See Item 1(c), "Narrative Description of Business -- Charges" for a
discussion of other business dealings between MLIP affiliates and the
Partnership.
The fact that MLIP receives incentive compensation from the
Partnership (which is an unusual fee arrangement for MLIP) could cause MLIP to
manage the Partnership in a more speculative and "risky" fashion than MLIP
otherwise would.
(c) Indebtedness of Management:
--------------------------
The Partnership is prohibited from making any loans, to management or
otherwise.
(d) Transactions with Promoters:
---------------------------
Not applicable.
17
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
(a)1. Financial Statements (found in Exhibit 13.01): Page
----------------------------------------------------- ----
Independent Auditors' Report 1
Statements of Financial Condition as of December 31, 1997 and 1996 2
For the years ended December 31, 1997, 1996 and 1995:
Statements of Income 3
Statements of Changes in Partners' Capital 4
Notes to Financial Statements 5-12
</TABLE>
(a)2. Financial Statement Schedules:
-----------------------------
Financial statement schedules not included in this Form 10-K have been
omitted for the reason that they are not required or are not applicable or that
equivalent information has been included in the financial statements or notes
thereto.
(a)3. Exhibits:
--------
The following exhibits are incorporated by reference or are filed
herewith to this Annual Report on Form 10-K:
Designation Description
- ----------- -----------
1.01 Selling Agreement among the Partnership, the General Partner,
Merrill Lynch Futures, the Selling Agent and the Trading
Advisors.
Exhibit 1.01: Is incorporated herein by reference from Exhibit 1.01
- ------------ contained in Amendment No. 1 to the Registration Statement
(File No. 33-62998) filed on September 10, 1993, on Form S-1
under the Securities Act of 1933 (the "Registrant's
Registration Statement.")
3.01(i) Amended and Restated Certificate of Limited Partnership of
the Registrant, dated August 25, 1994.
Exhibit 3.01(i): Is incorporated herein by reference from Exhibit 3.01(i)
- --------------- contained in the Registrant's Registration Statement.
3.01(ii) Amended and Restated Limited Partnership Agreement of the
Partnership.
Exhibit 3.01(ii): Is incorporated herein by reference from Exhibit 3.01(ii)
- ---------------- contained in the Registrant's Registration Statement (as
Exhibit A).
3.02(iii) Amended and Restated Certificate of Limited Partnership of
the Partnership, dated July 27, 1995.
Exhibit 3.02(iii): Is incorporated by reference from Exhibit 3.02(iii) contained
- ----------------- in the Registrant's report on Form 10-Q for the Quarter Ended
June 30, 1995.
10.01(d) Form of Advisory Agreement between the Partnership, Merrill
Lynch Investment Partners Inc., Merrill Lynch Futures Inc.
and prospective trading advisors.
Exhibit 10.01(d): Is incorporated by reference from Exhibit 10.01(d) contained
- ---------------- in the Registrant's report on Form 10-Q for the Quarter Ended
June 30, 1995.
18
<PAGE>
10.02 Form of Consulting Agreement between each trading advisor,
the Partnership and Merrill Lynch Futures Inc.
Exhibit 10.02: Is incorporated herein by reference from Exhibit 10.02
- ------------- contained in the Registrant's Registration Statement.
10.03 Form of Customer Agreement between the Partnership and
Merrill Lynch Futures Inc.
Exhibit 10.03: Is incorporated herein by reference from Exhibit 10.03
- ------------- contained in the Registrant's Registration Statement.
10.05 Form of Subscription Agreement and Power of Attorney.
Exhibit 10.05: Is incorporated herein by reference from Exhibit 10.05
- ------------- contained the Registrant's Registration Statement (as Exhibit
D).
10.06 Foreign Exchange Desk Service Agreement, dated July 1, 1993
among Merrill Lynch International Bank, Merrill Lynch
Investment Partners Inc., Merrill Lynch Futures Inc. and the
Fund.
Exhibit 10.06: Is incorporated herein by reference from Exhibit 10.06
- ------------- contained in Amendment No. 1 to the Registration Statement.
10.07 Form of Advisory and Consulting Agreement Amendment among
Merrill Lynch Investment Partners Inc., each Advisor, the
Fund and Merrill Lynch Futures Inc.
Exhibit 10.07: Is incorporated herein by reference from Exhibit 10.07
- ------------- contained in the Registrant's report on Form 10-K for the
year ended December 31, 1996.
13.01 1997 Annual Report and Independent Auditors' Report.
Exhibit 13.01: Is filed herewith.
- -------------
28.01 Prospectus of the Partnership dated December 6, 1995.
Exhibit 28.01: Is incorporated by reference as filed with the Securities and
Exchange Commission pursuant to Rule 424 under the Securities
Act of 1933, Registration Statement (File No. 33-88994) on
Form S-1, effective December 6, 1995).
(b) Report on Form 8-K:
------------------
No reports on Form 8-K were filed during the fourth quarter of 1997.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ML GLOBAL HORIZONS L.P.
By: MERRILL LYNCH INVESTMENT PARTNERS INC.
General Partner
By: /s/ John R. Frawley, Jr.
------------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer, President
and Director (Principal Executive Officer)
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed on March 25, 1998 by the
following persons on behalf of the Registrant and in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
/s/ John R. Frawley, Jr. Chairman, Chief Executive Officer, President March 25, 1998
- -------------------------- and Director (Principal Executive Officer)
John R. Frawley, Jr.
/s/ Michael A. Karmelin Vice President, Chief Financial Officer, and March 25, 1998
- --------------------------
Michael A. Karmelin Treasurer (Principal Financial and Accounting Officer)
/s/ Jeffrey F. Chandor Senior Vice President, Director of Sales, March 25, 1998
- --------------------------
Jeffrey F. Chandor Marketing and Research, and Director
/s/ Allen N. Jones Director March 25, 1998
- --------------------------
Allen N. Jones
</TABLE>
(Being the principal executive officer, the principal financial and accounting
officer and a majority of the directors of Merrill Lynch Investment Partners
Inc.)
<TABLE>
<CAPTION>
<S> <C> <C>
MERRILL LYNCH INVESTMENT General Partner of Registrant March 25, 1998
PARTNERS INC.
By: /s/ John R. Frawley, Jr.
----------------------------
John R. Frawley, Jr.
</TABLE>
20
<PAGE>
ML GLOBAL HORIZONS L.P.
1997 FORM 10-K
INDEX TO EXHIBITS
-----------------
Exhibit
-------
Exhibit 13.01 1997 Annual Report and Independent Auditors' Report
21
<PAGE>
ML Global Horizons, L.P.
(A Delaware Limited Partnership)
Financial Statements for the years ended
December 31, 1997, 1996 and 1995
and Independent Auditors' Report
<PAGE>
To: The Limited Partners of ML GLOBAL HORIZONS L.P.
ML Global Horizons L.P. (the "Fund" or "Partnership") ended its fourth fiscal
year of trading on December 31, 1997 with a Net Asset Value ("NAV") per Unit of
$153.86, representing an increase of 7.63% from the December 31, 1996 NAV per
Unit of $142.95. During 1997, trading profits were generated in the metals,
currency, interest rate and agriculture markets while losses were incurred in
energy and stock index trading.
Trend reversals and extreme market volatility, affected by such factors as the
Asian flu and El Nino, were characteristic of most of 1997. However, the year
proved to be a profitable one overall for the Fund as trends in several key
markets enabled the Trading Advisors to profit despite the significant
obstacles. Although trading results in several sectors may have been lackluster,
the global currency and bond markets offered noteworthy trading opportunities,
which resulted in significant profits in these markets during the year.
Additionally, the currency and interest rate sectors of the Fund's portfolio
represented its largest percentage of market commitments.
In currency markets, the U.S. dollar rallied and started 1997 on a strong note,
rising to a four-year high versus the Japanese yen and two-and-a-half year highs
versus the Deutsche mark and the Swiss franc. However, the dollar underwent two
significant corrections during the year. The first correction occurred in the
Spring against the Japanese yen, due to the G7 finance ministers' determination
that a further dollar advance would be counter-productive to their current
goals. From August through mid-November, the dollar corrected against the
Eurocurrencies in advance of a well-advertised tightening by the Bundesbank. By
mid-December the dollar had bounced back to new highs against the yen and was
rallying against the mark.
Global interest rate markets began the year on a volatile note, as investors
evaluated economic data for signs of inflation. By the middle of the year,
economic data in key countries was positive indicating lower inflation and
igniting a worldwide rally in the bond markets. Specifically, investor
sentiment was particularly strong in the U.S., where prices on the 30-year
Treasury bond and 10-year Treasury note rose to their highest levels in over two
years. This followed a largely positive economic report delivered by Federal
Reserve Chairman Greenspan in testimony before Congress. Effects of the plunge
in the Hong Kong stock market in late October spread rapidly throughout the
world's financial markets, including global bond markets. After continued
volatility in subsequent months made trading difficult, 1997 interest rate
trading ended on a positive note when U.S. and Japanese bond markets rallied as
a flight to safety from plunging stock markets around the world occurred in
December.
In energy markets, a slump in crude oil prices was characteristic of its
lackluster performance from the beginning of the year. Early in 1997,
volatility returned in the energy markets, reflecting the impact of a winter
significantly warmer than normal. By mid-year, the decline in prices reversed
sharply as Saudi Arabia and Iran, together representing about 45% of OPEC's oil
production, joined forces to pressure oil-producing nations to stay within OPEC
production quotas. In December, financial and economic problems in Asia reduced
demand for oil, and in combination with ample supplies, resulted in crude oil
prices declining once again.
<PAGE>
Although the overall return for the Fund might have paled in comparison to some
of the popular market indices during 1997, a significant observation is worth
noting. From the time the Dow Jones industrial average hit its high of 8259.31
in August through the end of the year, it declined 4.25% with a continued
increase in volatility. Conversely, the Fund, which has been designed with the
objective of producing returns non-correlated to traditional debt and equity
markets, steadily improved performance during the same time period. We
appreciate your continued investment in the Fund and look forward to 1998 and
the trading opportunities it may bring.
Sincerely,
John R. Frawley, Jr.
President
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, AS SUPPLEMENTED, WHICH
CONTAINS IMPORTANT INFORMATION CONCERNING RISK FACTORS, PERFORMANCE AND OTHER
MATERIAL ASPECTS OF THE FUND, TOGETHER WITH SUMMARY FINANCIAL INFORMATION
CURRENT WITHIN 60 DAYS. 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>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995:
Statements of Financial Condition 2
Statements of Income 3
Statements of Changes in Partners' Capital 4
Notes to Financial Statements 5-12
</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, 1997 and 1996, and the related statements of income and of changes in
partners' capital for each of the three years in the period ended December 31,
1997. 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,
1997 and 1996, and the results of its operations for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
February 6, 1998
New York, New York
<PAGE>
ML GLOBAL HORIZONS L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------- ----------------
<S> <C> <C>
ASSETS
Accrued interest (Note 2) $ 572,654 $ 349,232
Equity in commodity futures trading accounts:
Cash and option premiums 127,759,932 87,463,878
Net unrealized profit on open contracts 8,665,240 2,335,799
------------------- ----------------
TOTAL $ 136,997,826 $ 90,148,909
=================== ================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable $ 612,978 $ 3,143,328
Profit Shares payable (Note 3) 1,196,823 1,434,200
Incentive Override payable (Note 2) 289,162 834,271
Brokerage commissions payable (Note 2) 825,958 544,798
Administrative fees payable (Note 2) 28,540 18,771
------------------- ----------------
Total liabilities 2,953,461 5,975,368
------------------- ----------------
PARTNERS' CAPITAL:
General Partner (10,194 Units and 8,985 Units) 1,568,439 1,284,420
Limited Partner (873,830 Units and 579,840 Units) 134,446,411 82,889,121
Subscriptions receivable (12,807 Units and 0 Units) (1,970,485) -
------------------- ----------------
Total partners' capital 134,044,365 84,173,541
------------------- ----------------
TOTAL $ 136,997,826 $ 90,148,909
=================== ================
NET ASSET VALUE PER UNIT
(Based on 871,217 and 588,825 Units Outstanding) $ 153.86 $ 142.95
=================== ================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES:
Trading profits (losses):
Realized $ 6,111,341 $ 20,458,327 $ 17,455,764
Change in unrealized 6,329,441 (3,294,990) 299,233
--------------- ---------------- ----------------
Total trading results 12,440,782 17,163,337 17,754,997
Interest income (Note 2) 5,278,840 3,978,137 3,786,925
--------------- ---------------- ----------------
Total revenues 17,719,622 21,141,474 21,541,922
--------------- ---------------- ----------------
EXPENSES:
Profit Shares (Note 3) 1,666,616 1,808,020 1,492,857
Brokerage commissions (Note 2) 7,727,226 6,646,004 5,723,755
Incentive Override (Note 2) 289,162 834,271 965,454
Administrative fees (Note 2) 266,456 57,091 --
--------------- ---------------- ----------------
Total expenses 9,949,460 9,345,386 8,182,066
--------------- ---------------- ----------------
NET INCOME $ 7,770,162 $ 11,796,088 $ 13,359,856
=============== ================ ================
NET INCOME PER UNIT:
Weighted average number of Units
outstanding (Note 4) 707,741 695,455 663,663
=============== ================ ================
Net income per weighted average General
Partner and Limited Partner Unit $ 10.98 $ 16.96 $ 20.13
=============== ================ ================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Limited General Subscriptions
Units Partners Partner Receivable Total
------------- ------------------ ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
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
Subscriptions 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
Subscriptions 343,963 51,177,808 177,071 -- 51,354,879
Subscriptions receivable (12,807) -- -- (1,970,485) (1,970,485)
Redemptions (48,764) (7,283,732) -- -- (7,283,732)
Net income -- 7,663,214 106,948 -- 7,770,162
------------- ------------------ ---------------- ---------------- -----------------
PARTNERS' CAPITAL,
DECEMBER 31, 1997 871,217 $134,446,411 $ 1,568,439 $ (1,970,485) $ 134,044,365
============= ================== ================ ================ =================
</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, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
ML Global Horizons L.P. (the "Partnership") was organized as an open-end fund
under the Delaware Revised Uniform Limited Partnership Act on May 11, 1993 and
commenced trading activities on January 4, 1994. The Partnership engages in the
speculative trading of futures, options on futures and forward contracts on a
wide range of commodities. When available for investment, the Partnership
issues 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 on open contracts in the Statements of Financial Condition at the
difference between the original contract value 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.
- 5 -
<PAGE>
Operating Expenses and Selling Commissions
- ------------------------------------------
MLIP pays for all routine operating costs (including legal, accounting,
printing, postage and similar administrative expenses) of the Partnership,
including the costs 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, 1997.
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 assets are held at MLF in cash. On the cash held
at MLF, the Partnership receives interest from Merrill Lynch at the prevailing
91-day U.S. 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 assets based on local short-term rates. Merrill Lynch
charges the Partnership Merrill Lynch's cost of financing realized and
unrealized losses on the Partnership's non-U.S. dollar-denominated positions.
- 6 -
<PAGE>
The General Partner has determined that there may have been a miscalculation in
the interest credited to the Partnership for a period prior to November 1996
(such period may extend prior to that covered by these financial statements).
Accordingly, the General Partner credited current and former investors who
maintained a Merrill Lynch customer account in December 1997 with interest which
was compounded. Former investors who do not maintain a Merrill Lynch customer
account will be credited as their response forms are processed. The total
amount of the adjustment is approximately $1,003,000. Since this amount was
paid directly to investors by the General Partner, it is not reflected in these
financial statements. The General Partner has determined that interest has
been calculated appropriately since November 1996.
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 and 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, 1997, 1996 and 1995 was
approximately $98, $74 and $88 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, 1997, 1996 and 1995 and will do so
as of each subsequent December 31 in respect of any Net New Gain then
outstanding. Such payments are also made to MLIP from the redemption value of
Units redeemed as of the end of interim months during a year, to the extent of
any Net New Gain attributable to such Units when redeemed.
The Partnership trades forward contracts through a foreign exchange service desk
(the "F/X Desk") established by MLIP. The F/X Desk gives the Partnership access
to counterparties in addition to (but also including ) Merrill Lynch
International Bank ("MLIB"). MLIP or another Merrill Lynch entity charges a
service fee equal to, at current exchanges rates, approximately $5.00 to $12.50
on each purchase or sale (not round-turn) of a futures contract-equivalent face
amount of a given currency traded in the forward markets. No service fees are
charged on trades awarded to MLIB (which receives bid-ask spreads on such
trades).
In its exchange of futures for physical ("EFP") trading with Merrill Lynch, the
Partnership acquires spot or forward (collectively, "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 the two
positions. This differential reflects, in part, the different settlement dates
of the cash and the futures contracts and prevailing interest rates, but also
includes a pricing spread in favor of MLIB or another Merrill Lynch entity. The
Advisors, to date, have made little use of EFPs.
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
assets.
- 7 -
<PAGE>
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 either the end
of each calendar quarter or year, are paid by the Partnership to each Advisor.
Profit Shares are also paid out in respect of Units redeemed as of the end of
interim months to the extent of the applicable percentage of any New Trading
Profit attributable to such Units.
The methods by which Profit Shares 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, 1997, 1996 and 1995 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.
- 8 -
<PAGE>
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 total trading results by reporting category for the
years ended December 31, 1997, 1996 and 1995 were as follows:
Total Trading Results
---------------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
Interest Rates $ 3,934,415 $ 9,760,028 $ 11,850,333
Stock Indices (59,105) (2,898,534) 1,309,308
Commodities 1,154,857 (1,260,126) (2,344,653)
Currencies 6,017,661 6,729,908 9,620,327
Energy (4,302,025) 3,648,527 1,362,895
Metals 5,694,979 1,183,534 (4,043,213)
--------------- --------------- ---------------
$ 12,440,782 $ 17,163,337 $ 17,754,997
=============== =============== ===============
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 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 derivative 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 does not itself intervene in the markets to hedge or diversify the
Partnership's market exposure, the General Partner may urge Advisors to
reallocate positions, or itself reallocate Partnership assets among Advisors
(although typically only as of the end of a month) in an attempt to avoid over-
concentrations. However, such interventions are unusual. Except in cases in
which it appears that an Advisor has begun to deviate from past practice or
trading policies or to be trading erratically, the General Partner's basic risk
control procedures consist simply of the ongoing process of Advisor monitoring
and selection, with the market risk controls being applied by the Advisors
themselves.
- 9 -
<PAGE>
Fair Value
- ----------
The derivative instruments traded by the Partnership are marked to market daily
with the resulting unrealized profit 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, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------- ---------------------------------------
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 $ 361,262,091 $ 216,261,891 $ 163,675,871 $ 19,289,797
Stock Indices 3,671,625 9,837,452 2,370,250 --
Commodities 32,721,460 39,980,310 15,801,477 20,321,987
Currencies 71,377,618 290,360,085 98,847,573 98,585,409
Energy -- 12,218,655 9,062,561 --
Metals 28,496,076 51,889,407 8,173,590 36,875,178
--------------- --------------- --------------- ---------------
$ 497,528,870 $ 620,547,800 $ 297,931,322 $ 175,072,371
=============== =============== =============== ===============
</TABLE>
Substantially all of the Partnership's derivative instruments outstanding at
December 31, 1997 expire within one year.
The contract/notional values of the Partnership's open exchange-traded and non-
exchange-traded derivative instrument positions as of December 31, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------- ---------------------------------------
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 $ 435,918,287 $ 484,549,200 $ 222,862,462 $ 120,557,546
Non-Exchange-Traded 61,610,583 135,998,600 75,068,860 54,514,825
--------------- --------------- --------------- ---------------
$ 497,528,870 $ 620,547,800 $ 297,931,322 $ 175,072,371
=============== =============== =============== ===============
</TABLE>
- 10 -
<PAGE>
The average fair values, based on contract/notional values, of the Partnership's
derivative instrument positions which were open as of the end of each calendar
month during the years ended December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------ -----------------------------------------
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 $ 355,706,292 $ 163,790,120 $ 375,821,929 $ 235,768,354
Stock Indices 16,261,720 10,889,808 18,182,219 6,017,446
Commodities 35,250,135 19,213,817 31,215,320 16,934,584
Currencies 93,524,652 185,718,360 129,897,769 155,721,135
Energy 5,554,722 5,244,100 10,495,884 828,215
Metals 30,160,151 39,147,176 16,886,459 41,387,905
----------------- ----------------- ---------------- ----------------
$ 536,457,672 $ 424,003,381 $ 582,499,580 $ 456,657,639
================= ================= ================ ================
</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 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.
- 11 -
<PAGE>
The gross unrealized profit and net unrealized profit on the
Partnership's open derivative instrument positions as of December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------- -----------------------------------
Gross Unrealized Net Unrealized Gross Unrealized Net Unrealized
Profit Profit Profit Profit
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exchange-Traded $ 10,018,862 $ 7,627,618 $ 3,583,032 $ 2,072,327
Non-Exchange Traded 2,824,800 1,037,622 1,075,337 263,472
-------------- ------------- ------------ -------------
$ 12,843,662 $ 8,665,240 $ 4,658,369 $ 2,335,799
============== ============= ============ =============
</TABLE>
The Partnership controls credit risk by dealing almost exclusively with Merrill
Lynch entities as brokers and counterparties.
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, 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.
/s/ Michael A. Karmelin
Michael A. Karmelin
Chief Financial Officer
Merrill Lynch Investment Partners Inc.
General Partner of
ML Global Horizons L.P.
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 0 0
<RECEIVABLES> 136,997,826 90,148,909
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 136,997,826 90,148,909
<SHORT-TERM> 0 0
<PAYABLES> 2,953,461 5,975,368
<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> 134,044,365 84,173,541
<TOTAL-LIABILITY-AND-EQUITY> 136,997,826 90,148,909
<TRADING-REVENUE> 12,440,782 17,163,337
<INTEREST-DIVIDENDS> 5,278,840 3,978,137
<COMMISSIONS> 7,727,226 6,646,004
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 7,770,162 11,796,088
<INCOME-PRE-EXTRAORDINARY> 7,770,162 11,796,088
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,770,162 11,796,088
<EPS-PRIMARY> 10.98 16.96
<EPS-DILUTED> 10.98 16.96
</TABLE>
