**Exhibit 13.01(a)**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
| *** *** | *** *** | ***GLOBAL  HORIZONS I L.P.***             |
|--------------|--------------|-------------------------------------------|
| *** *** | *** *** | ***(A  Delaware Limited Partnership)***   |
|         |         |                                      |
|         |         | Financial Statements  for the years ended |
|         |         | December 31, 2005, 2004  and 2003         |
|         |         | And Report of  Independent Registered     |
|         |         | Public Accounting Firm                    |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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GLOBAL HORIZONS I L.P.

(A Delaware LimitedPartnership)

 

 

TABLE OF CONTENTS

 
|                                                                                                  |   | **Page** |
|-------------------------------------------------------------------------------------------------------|--------|----------|
|                                                                                                  |   |     |
| REPORT OF INDEPENDENT  REGISTERED PUBLIC ACCOUNTING FIRM                                              |   | 1        |
|                                                                                                  |   |     |
| FINANCIAL STATEMENTS:                                                                                 |   |     |
|                                                                                                  |   |     |
| Statements of Financial  Condition as of December 31, 2005 and 2004                                   |   | 2        |
|                                                                                                  |   |     |
| Statements of  Operations for the years ended December 31, 2005, 2004 and 2003                        |   | 3        |
|                                                                                                  |   |     |
| Statements of Changes  in Partners’ Capital for the years ended December 31, 2005, 2004 and 2003 |   | 4        |
|                                                                                                  |   |     |
| Financial Data  Highlights for the year ended December 31, 2005                                       |   | 5        |
|                                                                                                  |   |     |
| Notes to Financial  Statements                                                                        |   | 6-14     |

 

 

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REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM

 

 

 

 

To the Partners of

  Global Horizons I L.P.:

 

We have audited theaccompanying statements of financial condition of Global Horizons I L.P. (the “Partnership”)as of December 31, 2005 and 2004, and the related statements of operationsand changes in partners’ capital for each of the three years in the periodended December 31, 2005 and the financial data highlights for the year endedDecember 31, 2005. These financial statements and financial data highlights arethe responsibility of the Partnership’s management.  Our responsibility is to express an opinionon these financial statements and financial data highlights based on ouraudits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audits to obtain reasonable assuranceabout whether the financial statements and financial data highlights are freeof material misstatement.  ThePartnership is not required to have nor were we engaged to perform, an audit ofits internal control over financial reporting. Our audits includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of thePartnership’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, such financialstatements and financial data highlights present fairly, in all materialrespects, the financial position of Global Horizons I L.P. as ofDecember 31, 2005 and 2004, and the results of its operations, changes inits partners’ capital and financial data highlights for each of the periodspresented in conformity with accounting principles generally accepted in the UnitedStates of America.

 

 

 

 

 
| /s/ Deloitte &  Touche LLP |   |
|--------------------------------|--------|
|                           |
| New York, New York             |
| March 6, 2006                  |

 

 

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GLOBAL HORIZONS I L.P.

(A Delaware LimitedPartnership)

 

STATEMENTS OF FINANCIALCONDITION

DECEMBER 31, 2005 AND 2004

 

 
| ** **                                                                | ** ** | **2005**    | ** **  | **2004**    | ** ** |
|---------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| **ASSETS:**                                                               | ** ** | ** **  | ** **  | ** **  | ** ** |
| Equity in commodity futures trading accounts:                             |       |        |        |        |       |
| Cash                                                                      |       | $           | 274,496,535 |        | $          | 148,295,862 |   |
| Net unrealized  profit on open contracts                                  |       | 4,986,310   |        | 3,149,341   |       |
| Accrued interest and other assets                                         |       | 992,410     |        | 238,759     |       |
|                                                                      |       |        |        |        |       |
| **TOTAL  ASSETS**                                                         | ** ** | $           | 280,475,255 |        | $          | 151,683,962 |   |
| ** **                                                                | ** ** | ** **  |        |        |       |
| ** **                                                                | ** ** | ** **  |        |        |       |
| **LIABILITIES AND PARTNERS' CAPITAL LIABILITIES:**                        | ** ** | ** **  | ** **  | ** **  | ** ** |
| ** **                                                                | ** ** | ** **  | ** **  | ** **  | ** ** |
| Administrative  fees payable                                              |       | $           | 56,411      |        | $          | 1,107,931 |   |
| Brokerage  commissions payable                                            |       | 1,624,549   |        | 862,605     |       |
| Redemptions  payable                                                      |       | 9,945,759   |        | 331,608     |       |
| Profit Shares  payable                                                    |       | 117,551     |        | 31,446      |       |
| Due to affiliate                                                          |       | 145,118     |        | —      |       |
|                                                                      |       |        |        |        |       |
| Total  liabilities                                                        |       | 11,889,388  |        | 2,333,590   |       |
|                                                                      |       |        |        |        |       |
| **PARTNERS' CAPITAL:**                                                    | ** ** | ** **  | ** **  | ** **  | ** ** |
| ** **                                                                | ** ** | ** **  | ** **  | ** **  | ** ** |
| General Partner  (2,012,396 Units and 756,618 Units)                      |       | 2,297,491   |        | 1,215,470   |       |
| Limited Partners—Unitized  (175,502,197 Units and 108,712,438 Units) |       | 201,750,316 |        | 148,134,902 |       |
| Limited Partners—Non-unitized                                        |       | 64,538,060  |        | —      |       |
|                                                                      |       |        |        |        |       |
| Total partners'  capital                                                  |       | 268,585,867 |        | 149,350,372 |       |
|                                                                      |       |        |        |        |       |
| **TOTAL  LIABILITIES AND PARTNERS' CAPITAL**                              | ** ** | $           | 280,475,255 |        | $          | 151,683,962 |   |

 

**NETASSET VALUE PER UNIT (Note 6)**

** **

See notes to financialstatements.

 

 

2

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GLOBAL HORIZONS I L.P.

(A Delaware LimitedPartnership)

 

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDEDDECEMBER 31, 2005, 2004 AND 2003

 

 
| ** **                                                                        | ** ** | **2005**    | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------|------------|------------|------------|------------|------------|
| **TRADING  PROFITS (LOSSES):**                                                    | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Realized                                                                          |       | $           | 680,616    |       | $          | 8,179,826  |       | $ | 13,824,221 |   |
| Change in  unrealized                                                             |       | 1,837,104   |       | (700,154   | )          | (44,489    | )          |
|                                                                              |       |        |       |       |       |       |       |
| Total trading  profits                                                            |       | 2,517,720   |       | 7,479,672  |       | 13,779,732 |       |
|                                                                              |       |        |       |       |       |       |       |
| **INVESTMENT  INCOME:**                                                           | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest income                                                                   |       | 8,910,897   |       | 1,297,826  |       | 496,656    |       |
|                                                                              |       |        |       |       |       |       |       |
| **EXPENSES:**                                                                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Brokerage  commissions                                                            |       | 17,973,653  |       | 5,725,678  |       | 3,601,088  |       |
| Profit Shares                                                                     |       | 1,266,141   |       | 1,581,140  |       | 1,998,129  |       |
| Administrative  fees                                                              |       | 622,238     |       | 205,144    |       | 124,175    |       |
| Incentive  Override                                                               |       | —      |       | —     |       | 805,634    |       |
|                                                                              |       |        |       |       |       |       |       |
| Total expenses                                                                    |       | 19,862,032  |       | 7,511,962  |       | 6,529,026  |       |
|                                                                              |       |        |       |       |       |       |       |
| **NET  INVESTMENT LOSS**                                                          |       | (10,951,135 | )          | (6,214,136 | )          | (6,032,370 | )          |
| ** **                                                                        |       |        |       |       |       |       |       |
| **NET  INCOME (LOSS)**                                                            | ** ** | $           | (8,433,415 | )          | $          | 1,265,536  |       | $ | 7,747,362 |   |
| ** **                                                                        | ** ** |        |       |       |       |       |       |
| **NET  INCOME (LOSS) PER UNIT:**                                                  | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                        | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Weighted average  number of General Partner and Limited Partner Units outstanding |       |        |       |       |       |       |       |
| Series A                                                                          |       | 158,164,103 |       | 41,739,953 |       | n/a        |       |
| Series F                                                                          |       | 186,537     |       | 199,814    |       | 222,625    |       |
| Series I                                                                          |       | 8,007,483   |       | 970,488    |       | n/a        |       |
|                                                                              |       |        |       |       |       |       |       |
| Net income  (loss) per weighted average General Partner and Limited Partner Unit* |       |        |       |       |       |       |       |
| Series A                                                                          |       | $           | (0.0268    | )          | $          | 0.0413     |       | n/a |   |
| Series F                                                                          |       | $           | (8.65      | )          | $          | (3.12      | )          | $ | 34.80 |   |
| Series I                                                                          |       | $           | (0.0061    | )          | $          | 0.1689     |       | n/a |   |

 

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| * |   | Calculation of net  income (loss) per weighted average general partner and limited partner unit  excludes

net loss  allocated to non-unitized interests for the year ended December 31, 2005. |
|---|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

See notes to financialstatements.

 

 

3

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GLOBAL HORIZONS I L.P.

(A Delaware LimitedPartnership)

 

STATEMENTS OF CHANGES INPARTNERS’ CAPITAL

FOR THE YEARS ENDEDDECEMBER 31, 2005, 2004 AND 2003

 

 

 

 
| ** **                            | ** ** | ** **  | ** ** | ** **          | ** ** | **Limited  Partners** | ** ** | ** **       | ** ** |
|---------------------------------------|------------|-------------|------------|---------------------|------------|-----------------------|------------|------------------|------------|
| ** **                            | ** ** | **Units**   | ** ** | **General Partner** | ** ** | **Unitized**          | ** ** | **Non-unitized** | ** ** | **Total** | ** ** |
| ** **                            | ** ** | ** **  | ** ** | ** **          | ** ** | ** **            | ** ** | ** **       | ** ** | ** ** | ** ** |
| PARTNERS'  CAPITAL, DECEMBER 31, 2002 |       | 236,509     |       | $                   | 499,969    |                  | $          | 46,442,308       |       | $ | — |   | $ | 46,942,277 |   |
|                                  |       |        |       |                |       |                  |       |             |       |   |   |
| Net income                            |       | —      |       | 87,257              |       | 7,660,105             |       | —           |       | 7,747,362 |   |
|                                  |       |        |       |                |       |                  |       |             |       |   |   |
| Redemptions                           |       | (27,795     | )          | (90,451             | )          | (5,943,916            | )          | —           |       | (6,034,367 | ) |
|                                  |       |        |       |                |       |                  |       |             |       |   |   |
| PARTNERS'  CAPITAL, DECEMBER 31, 2003 |       | 208,714     |       | 496,775             |       | 48,158,497            |       | —           |       | 48,655,272 |   |
|                                  |       |        |       |                |       |                  |       |             |       |   |   |
| Additions                             |       | 109,835,116 |       | 698,374             |       | 102,941,546           |       | —           |       | 103,639,920 |   |
|                                  |       |        |       |                |       |                  |       |             |       |   |   |
| Net income                            |       | —      |       | 20,321              |       | 1,245,215             |       | —           |       | 1,265,536 |   |
|                                  |       |        |       |                |       |                  |       |             |       |   |   |
| Redemptions                           |       | (574,774    | )          | —              |       | (4,210,356            | )          | —           |       | (4,210,356 | ) |
|                                  |       |        |       |                |       |                  |       |             |       |   |   |
| PARTNERS'  CAPITAL, DECEMBER 31, 2004 |       | 109,469,056 |       | 1,215,470           |       | 148,134,902           |       | —           |       | 149,350,372 |   |
|                                  |       |        |       |                |       |                  |       |             |       |   |   |
| Additions                             |       | 92,064,612  |       | 1,153,893           |       | 84,724,425            |       | 97,084,491       |       | 182,962,809 |   |
|                                  |       |        |       |                |       |                  |       |             |       |   |   |
| Net loss                              |       | —      |       | (30,294             | )          | (5,865,971            | )          | (2,537,150       | )          | (8,433,415 | ) |
|                                  |       |        |       |                |       |                  |       |             |       |   |   |
| Redemptions                           |       | (24,019,075 | )          | (41,578             | )          | (25,243,040           | )          | (30,009,281      | )          | (55,293,899 | ) |
|                                  |       |        |       |                |       |                  |       |             |       |   |   |
| PARTNERS'  CAPITAL, DECEMBER 31, 2005 |       | 177,514,593 |       | $                   | 2,297,491  |                  | $          | 201,750,316      |       | $ | 64,538,060 |   | $ | 268,585,867 |   |

 

See notes to financialstatements.

 

 

4

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GLOBAL HORIZONS I L.P.

(A Delaware LimitedPartnership)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE YEAR ENDEDDECEMBER 31, 2005

 

The following per Unitdata and ratios have been derived from information provided in the financialstatements.

 
| **Per  Unit Operating Performance:** | ** ** | **Series A** | ** ** | **Series F** | ** ** | **Series I** | ** ** | **Non-unitized** | ** ** |
|--------------------------------------|------------|--------------|------------|--------------|------------|--------------|------------|------------------|------------|
| ** **                           | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** | ** **       | ** ** |
| Net asset value, beginning of year   |       | $            | 0.9615     |         | $          | 230.10       |       | $                | 0.9478     |   | n/a |   |
|                                 |       |         |       |         |       |         |       |             |       |
| Realized trading profit              |       | 0.0002       |       | 0.06         |       | 0.0005       |       | n/a              |       |
| Change in unrealized                 |       | 0.0051       |       | 1.20         |       | 0.0052       |       | n/a              |       |
| Interest income                      |       | 0.0289       |       | 6.94         |       | 0.0290       |       | n/a              |       |
| Expenses                             |       | (0.0693      | )          | (16.49       | )          | (0.0440      | )          | n/a              |       |
|                                 |       |         |       |         |       |         |       |             |       |
| Net asset value, end of year         |       | $            | 0.9264     |         | $          | 221.81       |       | $                | 0.9385     |   | n/a |   |
|                                 |       |         |       |         |       |         |       |             |       |
|                                 |       |         |       |         |       |         |       |             |       |
| **Total Return:**                    | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** | ** **       | ** ** |
| ** **                           | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** | ** **       | ** ** |
| Total return before Profit Shares    |       | -3.12        | %          | -3.12        | %          | -0.31        | %          | -2.47            | %          |
| Profit Shares                        |       | -0.55        | %          | -0.50        | %          | -0.68        | %          | -0.31            | %          |
| Total return                         |       | -3.65        | %          | -3.60        | %          | -0.98        | %          | -2.77            | %          |
|                                 |       |         |       |         |       |         |       |             |       |
| **Ratios to Average Net Assets:**    | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** | ** **       | ** ** |
| ** **                           | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** | ** **       | ** ** |
| Expenses (before Profit Shares)      |       | 7.22         | %          | 6.95         | %          | 4.18         | %          | 6.46             | %          |
| Profit Shares                        |       | 0.51         | %          | 0.51         | %          | 0.67         | %          | 0.34             | %          |
| Expenses                             |       | 7.73         | %          | 7.46         | %          | 4.85         | %          | 6.80             | %          |
|                                 |       |         |       |         |       |         |       |             |       |
| Net investment loss                  |       | -4.40        | %          | -4.33        | %          | -1.60        | %          | -3.48            | %          |

 

 

See notes to financialstatements.

 

 

5

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GLOBAL HORIZONS I L.P.

(A Delaware LimitedPartnership)

 
|   |   | NOTES TO FINANCIAL  STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
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| 1.     |   | SUMMARY OF SIGNIFICANT  ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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|   |   | Organization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|   |   | Global Horizons I L.P.  (the “Partnership”), formerly ML Global Horizons, LP,  was organized as an open-end fund under the  Delaware Revised Uniform Limited Partnership Act on May 11, 1993 and  commenced trading activities on January 4, 1994.  The Partnership engages in the speculative  trading of futures, options on futures and forward contracts on a wide range  of commodities.  The Partnership issues  units of limited partnership interest (“Units”) at Net Asset Value as of the  beginning of each month. Effective December 1, 2005 Merrill Lynch Alternative  Investments LLC (“MLAI”) became the general partner of the Partnership.  Prior to December 1, 2005, Merrill Lynch  Investment Managers LLC (“MLIM LLC”) was the general partner of the  Partnership.  MLAI is a wholly-owned  subsidiary of Merrill Lynch Investment Managers LP (“MLIM”), which in turn,  is an indirect wholly-owned subsidiary of Merrill Lynch & Co. Inc.  (“Merrill Lynch”).  Trading authority  is delegated to independent trading advisors (the “Advisors”) by MLIM.  Merrill Lynch, Pierce, Fenner & Smith  Incorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch, is  the Partnership’s commodity broker.   MLAI has agreed to maintain a general partner’s interest of at least  1% of the total capital of the unitized series in the Partnership.  MLAI and each Limited Partner share in the  profits and losses of the Partnership in proportion to their respective interests  in the Partnership. |
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|   |   | Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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|   |   | The preparation of  financial statements in conformity with accounting principles generally  accepted in the United States of America 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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|   |   | Revenue  Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|   |   | Commodity futures,  options on futures and forward contract transactions are recorded on trade  date and open contracts are reflected in Net unrealized profit on open  contracts in the Statements of Financial Condition as the difference between  the original contract value and the market value (for those commodity  interests for which market quotations are readily available).  The change in unrealized profit on open  contracts from one period to the next is reflected in Change in unrealized in  the Statements of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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|   |   | Foreign Currency  Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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|   |   | The Partnership’s  functional currency is the U.S. dollar; however, it transacts business in  currencies other than the U.S. dollar.   Assets and liabilities denominated in currencies other than the U.S.  dollar are translated into U.S. dollars at the rates in effect at the dates  of the Statements of Financial Condition.   Income and expense items denominated in currencies other than the U.S.  dollar are translated into U.S. dollars at the rates in effect during the  period.  Gains and losses resulting  from the translation to U.S. dollars are reported in Realized in the  Statements of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

 

6

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|   |   | Cash at Broker                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | A portion of the assets  maintained at MLPF&S is restricted to meet maintenance margin requirements.  Typically, margin requirements range from 1%  to 10% of the face value of the derivatives traded.                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | Operating  Expenses, Ongoing Offering Costs and Selling Commissions                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | MLAI pays for all  routine operating costs (including legal, accounting, printing, postage and  similar administrative expenses) of the Partnership, including the costs, if  any, of the ongoing offering of the Units.   MLAI receives an administrative fee as well as a portion of the  brokerage commissions paid to MLPF&S by the Partnership.                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | No selling commissions  have been or are paid directly by Limited Partners.  All selling commissions are paid by MLAI.                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | No provision for income  taxes has been made in these financial statements as each Partner is  individually responsible for reporting income or loss based on such Partner’s  respective share of the Partnership’s income and expenses as reported for  income tax purposes.                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | Distributions                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | The Limited Partners  are entitled to receive, equally per Unit, any distributions which may be  made by the Partnership.  No such  distributions have been declared for the years ended December 31, 2005, 2004  or 2003.                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | Subscriptions                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | Units are offered as of  the close of business at the end of each month.  Units are purchased as of the first  business day of any month at Net Asset Value, but the subscription request  must be submitted at least ten calendar days before the end of the preceding  month.  Subscriptions submitted less  than ten days before the end of a month will be applied to Unit subscriptions  as of the beginning of the second month after receipt, unless revoked by  MLAI. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | Redemptions                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | A Limited Partner may  redeem some or all of such Partner’s Units at Net Asset Value as of the close  of business on the last business day of any calendar month upon ten calendar  days’ notice.  Units redeemed on or  prior to the end of the twelfth full month after purchase are assessed an  early redemption charge of 3% of their Net Asset Value as of the date of  redemption.                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | 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.                                                                                                                                                                                                                                                                               |

 

 

7

----

 
|   |   | Indemnifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   | In the normal course of  business, the Partnership enters into contracts and agreements that contain a  variety of representations and warranties and which provide general  indemnifications.  The Partnership’s  maximum exposure under these arrangements is unknown, as this would involve  future claims that may be made against the Partnership that have not yet  occurred.  The Partnership expects the  risk of any future obligation under these indemnifications to be remote. |

 

 

8

----

 
| 2. |   | CONDENSED SCHEDULES OF  INVESTMENTS |
|----|--------|-------------------------------------|

 

The Partnership’sinvestments, defined as Net unrealized profit on open contracts on theStatements of Financial Condition, as of December 31, 2005, and 2004, are asfollows:

 

 

 
| **2005**                       | ** ** | ** **               | ** ** | ** **                    | ** ** | ** **                  | ** ** | ** **               | ** ** | ** **                    | ** ** |
|--------------------------------|------------|--------------------------|------------|-------------------------------|------------|-----------------------------|------------|--------------------------|------------|-------------------------------|------------|
| ** **                     | ** ** | ** **               | ** ** | **Long  Positions**           | ** ** | ** **                  | ** ** | ** **               | ** ** | **Short  Positions**          | ** ** |
| **Commodity  Industry Sector** | ** ** | **Number  of Contracts** | ** ** | **Unrealized  Profit (Loss)** | ** ** | **Percent  of  Net Assets** | ** ** | **Number  of Contracts** | ** ** | **Unrealized  Profit (Loss)** | ** ** |
| Agriculture                    |       | 1,762                    |       | $                             | 2,241,726  |                        | 0.83       | %                        | (1,675     | )                             | $          | (946,375 | ) |
| Currencies                     |       | 1,693,056                |       | (834,923                      | )          | -0.31                       | %          | (3,494,929               | )          | 1,560,017                     |       |
| Energy                         |       | 58                       |       | (40,250                       | )          | -0.01                       | %          | (142                     | )          | (209,978                      | )          |
| Interest rates                 |       | 4,464                    |       | 760,732                       |       | 0.28                        | %          | (7,621                   | )          | (869,250                      | )          |
| Metals                         |       | 1,315                    |       | 4,529,763                     |       | 1.69                        | %          | (358                     | )          | (1,407,519                    | )          |
| Stock indices                  |       | 1,339                    |       | 209,188                       |       | 0.08                        | %          | (239                     | )          | (6,821                        | )          |
|                           |       |                     |       |                          |       |                        |       |                     |       |                          |       |
| Total                          |       |                     |       | $                             | 6,866,236  |                        | 2.56       | %                        |       |                          | $          | (1,879,926 | ) |

 
| **2005**                       | ** ** | ** **                  | ** ** | ** **                            | ** ** | ** **                  | ** ** | ** **               | ** **               |
|--------------------------------|------------|-----------------------------|------------|---------------------------------------|------------|-----------------------------|------------|--------------------------|--------------------------|
| ** **                     | ** ** | ** **                  | ** ** | **Net Unrealizied**                   | ** ** | ** **                  | ** ** | ** **               | ** **               |
| **Commodity  Industry Sector** | ** ** | **Percent  of  Net Assets** | ** ** | **Profit  (Loss)  on Open Positions** | ** ** | **Percent  of  Net Assets** | ** ** | **Maturity  Dates**      | ** **               |
| Agriculture                    | ** ** | -0.35                       | %          | $                                     | 1,295,351  |                        | 0.48       | %                        | January 06 - December 07 | ** ** |
| Currencies                     | ** ** | 0.58                        | %          | 725,094                               |       | 0.27                        | %          | January 06 - December 06 | ** **               |
| Energy                         | ** ** | -0.08                       | %          | (250,228                              | )          | -0.09                       | %          | January 06 - March 06    | ** **               |
| Interest rates                 | ** ** | -0.32                       | %          | (108,518                              | )          | -0.04                       | %          | January 06 - December 07 |                     |
| Metals                         | ** ** | -0.51                       | %          | 3,122,244                             |       | 1.18                        | %          | January 06 - April 06    |                     |
| Stock indices                  | ** ** | 0.00                        | %          | 202,367                               |       | 0.08                        | %          | January 06 - March 06    |                     |
|                           | ** ** |                        |       |                                  |       |                        |       |                     |                     |
| Total                          | ** ** | -0.68                       | %          | $                                     | 4,986,310  |                        | 1.88       | %                        |                     |   |

 

 
| **2004**                       | ** ** | ** **               | ** ** | ** **                    | ** ** | ** **                  | ** ** | ** **               | ** ** | ** **                    | ** ** |
|--------------------------------|------------|--------------------------|------------|-------------------------------|------------|-----------------------------|------------|--------------------------|------------|-------------------------------|------------|
| ** **                     | ** ** | ** **               | ** ** | **Long  Positions**           | ** ** | ** **                  | ** ** | ** **               | ** ** | **Short  Positions**          | ** ** |
| **Commodity  Industry Sector** | ** ** | **Number  of Contracts** | ** ** | **Unrealized  Profit (Loss)** | ** ** | **Percent  of  Net Assets** | ** ** | **Number  of Contracts** | ** ** | **Unrealized  Profit (Loss)** | ** ** |
| Agriculture                    |       | 543                      |       | $                             | 444,685    |                        | 0.30       | %                        | (914       | )                             | $          | (220,473 | ) |
| Currencies                     |       | 6,483,273                |       | 3,673,444                     |       | 2.46                        | %          | (8,601,780               | )          | (2,712,818                    | )          |
| Energy                         |       | 26                       |       | (119,651                      | )          | -0.08                       | %          | (175                     | )          | 170,020                       |       |
| Interest rates                 |       | 3,809                    |       | 222,329                       |       | 0.15                        | %          | (4,491                   | )          | 640,930                       |       |
| Metals                         |       | 1,113                    |       | 1,227,276                     |       | 0.82                        | %          | (715                     | )          | (978,357                      | )          |
| Stock indices                  |       | 955                      |       | 830,596                       |       | 0.56                        | %          | (6                       | )          | (28,640                       | )          |
|                           |       |                     |       |                          |       |                        |       |                     |       |                          |       |
| Total                          |       |                     |       | $                             | 6,278,679  |                        | 4.21       | %                        |       |                          | $          | (3,129,338 | ) |

 
| **2004**                       | ** ** | ** **                  | ** ** | ** **                            | ** ** | ** **                  | ** ** | ** **             | ** **               |
|--------------------------------|------------|-----------------------------|------------|---------------------------------------|------------|-----------------------------|------------|------------------------|--------------------------|
| ** **                     | ** ** | ** **                  | ** ** | **Net  Unrealizied**                  | ** ** | ** **                  | ** ** | ** **             | ** **               |
| **Commodity  Industry Sector** | ** ** | **Percent  of  Net Assets** | ** ** | **Profit  (Loss)  on Open Positions** | ** ** | **Percent  of  Net Assets** | ** ** | **Maturity  Dates**    | ** **               |
| Agriculture                    | ** ** | -0.15                       | %          | $                                     | 224,212    |                        | 0.15       | %                      | January 05 - December 06 | ** ** |
| Currencies                     | ** ** | -1.82                       | %          | 960,626                               |       | 0.64                        | %          | January 05 - March 05  | ** **               |
| Energy                         | ** ** | 0.11                        | %          | 50,369                                |       | 0.03                        | %          | January 05 - April 05  | ** **               |
| Interest rates                 | ** ** | 0.43                        | %          | 863,259                               |       | 0.58                        | %          | March 05 - December 06 |                     |
| Metals                         | ** ** | -0.65                       | %          | 248,919                               |       | 0.17                        | %          | January 05 - March 05  |                     |
| Stock indices                  | ** ** | -0.02                       | %          | 801,956                               |       | 0.54                        | %          | January 05 - March 05  |                     |
|                           | ** ** |                        |       |                                  |       |                        |       |                   |                     |
| Total                          | ** ** | -2.10                       | %          | $                                     | 3,149,341  |                        | 2.11       | %                      |                     |   |

 

 

No individual contract’sunrealized gain or loss comprised greater than 5% of the Partner’s capital asof December 31, 2005 or 2004.

 

 

9

----

 
| 3.     |   | RELATED PARTY  TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | The Partnership’s U.S.  dollar assets are maintained at MLPF&S.   On assets held in U.S. dollars, Merrill Lynch credits the Partnership  with interest at the prevailing 91-day U.S. Treasury bill rate. The  Partnership is credited with interest on any of its net gains actually held  by MLPF&S in non-U.S. dollar currencies at a prevailing local rate  received by Merrill Lynch.  Merrill  Lynch may derive certain economic benefit, in excess of the interest which  Merrill Lynch pays to the Partnership, from possession of such assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | Merrill Lynch charges  the Partnership Merrill Lynch’s cost of financing realized and unrealized  losses on the Partnership’s non-U.S. dollar denominated positions.  Such amounts are netted against interest  income due to the insignificance of such amounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | As of February 1, 2004,  the Partnership was made available for new investment.  Series A and F units pay brokerage  commissions to MLPF&S at a flat monthly rate of .583 of 1% (a 7.00%  annual rate) of the Series’ month-end trading assets. Series I pays brokerage  commissions to MLPF&S at a flat monthly rate of .333 of 1% (a 4.00%  annual rate) of the Series’ month-end trading assets. The Partnership pays  MLAI a monthly administrative fee of .021 of 1% (a 0.25% annual rate) of the  Partnership’s month-end trading assets.   Month-end trading assets are not reduced, for purposes of calculating  brokerage commissions and administrative fees, by any accrued brokerage  commissions, administrative fees, Profit Shares or other fees or  charges.  Prior to February 1, 2004 the  brokerage commissions on Series F was a monthly rate of .604 of 1% (a 7.25%  annual rate).  Brokerage commissions  for the non-unitized series range from .604 of 1% (a 7.25% annual rate) to  .729 of 1% (a 8.75% annual rate). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | MLAI estimates that the  round-turn equivalent commission rate charged to the Partnership by  MLPF&S during the years ended December 31, 2005, 2004 and 2003 was  approximately $39, $90 and $84, respectively (not including, in calculating  round-turn equivalents, forward contracts on a futures-equivalent basis).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | MLPF&S pays the  Advisors annual consulting fees ranging up to 2.00% of the Partnership’s  average month-end assets allocated to them for management, after reduction  for a portion of the brokerage commissions accrued with respect to such  assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | Prior to January 1,  2004, the Partnership paid to MLIM LLC an Incentive Override equal to 10% of  the Net New Gain, as defined.  Such  payments were also made to MLIM LLC 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.  For the year ended December 31, 2003, an  Incentive Override of $805,634 was paid to MLIM LLC.

 

Due to affiliate on the  Statement of Financial Condition relates to cash assets held in accounts  relating to a previously liquidated fund and the general partners investment  in that fund.  This amount will be paid  to MLAI upon the legal liquidation of the affiliated fund.                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.     |   | ADVISORY AGREEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | The Partnership and the  Advisors have each entered into Advisory Agreements.  These Advisory Agreements generally renew  one year after they are entered into, subject to certain renewal rights  exercisable by the Partnership. The Advisors determine the commodity futures,  options on futures and forward contract trades to be made on behalf of their  respective Partnership accounts, subject to certain trading policies and to  certain rights reserved by MLAI.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

 

10

----

 
|   |   | Profit Shares, generally  ranging from 20% to 25% of any New Trading Profit, as defined, recognized by  each Advisor considered individually, irrespective of the overall performance  of the Partnership, as of either the end of each calendar quarter or year and  upon the net reallocation of assets away from an Advisor, are paid by the  Partnership to each Advisor.  Profit  Shares are also paid out in respect of Units redeemed as of the end of  interim months, to the extent of the applicable percentage of any New Trading  Profit attributable to such Units. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 5.     |   | WEIGHTED AVERAGE UNITS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | The weighted average  number of Units outstanding is computed for purposes of disclosing net income  (loss) per weighted average Unit.  The  weighted average number of Units outstanding for the years ended December 31,  2005, 2004 and 2003 equals the Units outstanding as of such date, adjusted  proportionately for Units sold and redeemed based on the respective length of  time each was outstanding during the year.                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 6.     |   | UNITIZED AND  NON-UNITIZED SERIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | At December 31, 2005  and 2004, the Net Asset Values of the different unitized series and the  partners holding the non-unitized series of the Partnership are as follows:                                                                                                                                                                                                                                                                                                                                                                                                            |

 
| **December  31, 2005** | ** ** | ** **           | ** **  | ** **           | ** **  | ** **                     | ** ** |
|------------------------|------------|----------------------|-------------|----------------------|-------------|--------------------------------|------------|
| ** **             | ** ** | ** **           | ** **  | ** **           | ** **  | ** **                     | ** ** |
| **Unitized  Series**   | ** ** | ** **           | ** **  | ** **           | ** **  | ** **                     | ** ** |
| ** **             | ** ** | **Net Asset  Value** | ** **  | **Number of  Units** | ** **  | **Net Asset  Value per  Unit** | ** ** |
| ** **             | ** ** | ** **           | ** **  | ** **           | ** **  | ** **                     | ** ** |
| Series A               |       | $                    | 156,419,239 |                 | 168,843,481 |                           | $          | 0.9264 |   |
| Series F               |       | 39,658,470           |        | 178,795              |        | $                              | 221.81     |   |
| Series I               |       | 7,970,098            |        | 8,492,317            |        | $                              | 0.9385     |   |
|                   |       | $                    | 204,047,807 |                 | 177,514,593 |                           |       |   |

 

 
| **Non-unitized  Series**          |   |       |        |   |
|-----------------------------------|--------|------------|-------------|--------|
|                              |   |       |        |   |
|                              |   |       |        |   |
| ML Futures  Investments L.P.      |   | $          | 39,887,435  |   |
| ML Principal Protection L.P.      |   | 10,232,424 |        |
| ML Principal Protection Plus Ltd. |   | 14,418,201 |        |
|                              |   | $          | 64,538,060  |   |
|                              |   |       |        |
| Total partners' capital           |   | $          | 268,585,867 |   |

 

 

 

11

----

 
| **December  31, 2004**  | ** ** | ** **           | ** **  | ** **           | ** **  | ** **                     | ** ** |
|-------------------------|------------|----------------------|-------------|----------------------|-------------|--------------------------------|------------|
| ** **              | ** ** | ** **           | ** **  | ** **           | ** **  | ** **                     | ** ** |
| ** **              | ** ** | **Net Asset  Value** | ** **  | **Number of  Units** | ** **  | **Net Asset  Value per  Unit** | ** ** |
| ** **              | ** ** | ** **           | ** **  | ** **           | ** **  | ** **                     | ** ** |
| Series A                |       | $                    | 100,146,503 |                 | 104,152,884 |                           | $          | 0.9615 |   |
| Series F                |       | 44,347,994           |        | 192,730              |        | $                              | 230.10     |   |
| Series I                |       | 4,855,875            |        | 5,123,442            |        | $                              | 0.9478     |   |
| Total partners' capital |       | $                    | 149,350,372 |                 | 109,469,056 |                           |       |   |

 
|   |   | Effective January 1,  2005, three funds (the “Feeder Funds”) in which MLAI is general partner or  sponsor invested their net assets in a non-unitized series of the  Partnership.  The Feeder Funds are all  closed to new investment and are segregated from other subscriptions as the  non-unitized series.  At the point of  contribution, the total investment by the Feeder Funds was $97,084,491.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 7.     |   | COPPER SETTLEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | The  Partnership, as a member of a class of plaintiffs, received a settlement  payment in February 2005 relating to certain copper trades made by a number  of investors, including the Partnership, during a period in the mid-1990s.  Members of the class were those who purchased or sold Comex copper futures or  options contracts between June 24, 1993 and June 15, 1996.  The amount of the settlement for the  Partnership was $27,888, which is included in Realized under Trading profits  (losses) on the Statement of Operations of the Partnership for the year ended  December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 8.     |   | FAIR VALUE AND OFF-BALANCE  SHEET RISK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | The nature of this  Partnership has certain risks, which cannot all be presented on the financial  statements.  The following summarizes  some of those risks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | Market Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | Derivative instruments  involve varying degrees of off-balance sheet market risk.  Changes in the level or volatility of  interest rates, foreign currency exchange rates or the market values of the  financial instruments or commodities underlying open contracts frequently  result in changes in the Partnership’s net unrealized profit on such  derivative instruments as reflected in the Statements of Financial  Condition.  The Partnership’s exposure  to market risk is influenced by a number of factors, including the  relationships among the derivative instruments held by the Partnership as  well as the volatility and liquidity of the markets in which the derivative  instruments are traded.                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | MLAI has procedures in  place intended to control market risk exposure, although there can be no  assurance that they will, in fact, succeed in doing so.  These procedures focus primarily on  monitoring the trading of the Advisors, calculating the Net Asset Values of  the Partnership as of the close of business on each day and reviewing  outstanding positions for over-concentrations.  While MLAI does not itself intervene in the  markets to hedge or diversify the Partnership’s market exposure, MLAI may  urge the Advisors to reallocate positions in an attempt to avoid  over-concentrations.  However, such  interventions are unusual and unless it appears that the Advisors have begun  to deviate from past practice or trading policies or to be trading  erratically, MLAI’s basic risk control procedures consist simply of the  ongoing process of advisor monitoring, with the market risk controls being  applied by the Advisors themselves. |

 

 

12

----

 
|   |   | Credit Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | The risks associated  with exchange-traded contracts are typically perceived to be less than those  associated with over-the-counter (non-exchange-traded) transactions, because  exchanges typically (but not universally) provide clearinghouse arrangements  in which the collective credit (in some cases limited in amount, in some  cases not) of the members of the exchange is pledged to support the financial  integrity of the exchange.  In  over-the-counter transactions, on the other hand, traders must rely solely on  the credit of their respective individual counterparties.  Margins, which may be subject to loss in  the event of a default, are generally required in exchange trading, and  counterparties may also require margin in the over-the-counter markets. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | The credit risk  associated with these instruments from counterparty nonperformance is the net  unrealized profit on open contracts, included in the Statements of Financial  Condition.  The Partnership attempts to  mitigate this risk by dealing exclusively with Merrill Lynch entities as clearing  brokers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | The Partnership, in its  normal course of business, enters into various contracts with MLPF&S  acting as its commodity broker.   Pursuant to the brokerage agreement with MLPF&S (which includes a  netting arrangement), to the extent that such trading results in receivables  from and payables to MLPF&S, these receivables and payables are offset  and reported as a net receivable or payable and included in Net unrealized  profit on open contracts on the Statements of Financial Condition.                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 9.     |   | SUBSEQUENT EVENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | On February 15, 2006,  Merrill Lynch and BlackRock, Inc (“BlackRock”) announced that they have  reached an agreement to merge the asset management business of MLIM and  BlackRock to create a new independent asset management company.  The transaction has been approved by the  boards of directors of both Merrill Lynch and BlackRock and is expected to  close in the third quarter of 2006.  As  a result of the transaction, the combined company will become the general  partner or sponsor of the Partnership.                                                                                                                                                                                                                                                          |

 

 

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*   *  *   *   *  *   *    *  *   *   *  *   *

 

To the best of theknowledge and belief of the

undersigned, theinformation contained in this

report is accurateand complete.

 

 

 

Michael Pungello

Chief FinancialOfficer

Merrill Lynch AlternativeInvestments LLC

General Partner of

ML Global HorizonsL.P.

 

 

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