**Exhibit 13.01**

 
| *** *** | ***ML PRINCIPAL PROTECTION 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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ML PRINCIPAL PROTECTION L.P.

 (A DelawareLimited Partnership)

 

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                                                                              | 6-12     |

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

 

To the Partners of

  ML PrincipalProtection L.P.:

 

We have audited the accompanying statements offinancial condition of ML Principal Protection L.P. (the “Partnership”) as of December 31, 2005 and 2004, and the related statements of operations and changesin partners’ capital for each of the three years in the period ended December 31,2005 and the financial data highlights for the year ended December 31, 2005.These financial statements and financial data highlights are the responsibilityof the Partnership’s management. Our responsibility is to express an opinion onthese financial statements and financial data highlights based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements and financial data highlightsare free of material misstatement. The Partnership is not required to have, norwere we engaged to perform, an audit of its internal control over financialreporting. Our audits included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Partnership’s internal control over financial reporting. Accordingly,we express no such opinion. An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

In our opinion, such financial statements andfinancial data highlights present fairly, in all material respects, thefinancial position of ML Principal Protection L.P. as of December 31, 2005and 2004, and the results of its operations, changes in its partners’ capitaland the financial data highlights for each of the periods presented inconformity with accounting principles generally accepted in the United Statesof America.

 
| /s/ Deloitte & Touche LLP |   |
|-------------------------------|--------|

 

New York, New York

March 6, 2006

 

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ML PRINCIPAL PROTECTION L.P.

 (A DelawareLimited Partnership)

 

STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31, 2005 AND 2004

 
| ** **                                          | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-----------------------------------------------------|------------|------------|------------|------------|------------|
|                                                |       |       |       |       |       |
| **ASSETS:**                                         |       |       |       |       |       |
| Equity in commodity futures  trading accounts:      |       |       |       |       |       |
| Cash                                                |       | $          | —     |       | $          | 509,498 |   |
| Investment in Global  Horizons                      |       | 10,232,424 |       | —     |       |
| Receivable from MM LLC                              |       | —     |       | 13,053,547 |       |
| Receivable from Global  Horizons                    |       | 192,138    |       | —     |       |
| Accrued interest  receivable                        |       | —     |       | 964        |       |
|                                                |       |       |       |       |       |
| **TOTAL ASSETS**                                    |       | $          | 10,424,562 |       | $          | 13,564,009 |   |
|                                                |       |       |       |       |       |
| **LIABILITIES AND PARTNERS’  CAPITAL**         |       |       |       |       |       |
| **LIABILITIES:**                                    |       |       |       |       |       |
| Redemptions payable                                 |       | $          | 192,138    |       | $          | 79,561 |   |
| Payable to MM LLC                                   |       | —     |       | 430,901    |       |
|                                                |       |       |       |       |       |
| Total liabilities                                   |       | 192,138    |       | 510,462    |       |
|                                                |       |       |       |       |       |
| **PARTNERS’ CAPITAL:**                         |       |       |       |       |       |
| General Partner  (160,738 and 146,547 Units)        |       | 154,642    |       | 160,719    |       |
| Limited Partners  (10,475,025 and 11,758,530 Units) |       | 10,077,782 |       | 12,892,828 |       |
|                                                |       |       |       |       |       |
| Total partners’ capital                        |       | 10,232,424 |       | 13,053,547 |       |
|                                                |       |       |       |       |       |
| **TOTAL LIABILITIES AND PARTNERS’  CAPITAL**   |       | $          | 10,424,562 |       | $          | 13,564,009 |   |
|                                                |       |       |       |       |       |
| **NET ASSET VALUE PER UNIT (Note  7)**              |       |       |       |       |       |

 

See notes tofinancial statements.

 

2

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ML PRINCIPAL PROTECTION L.P.

(A Delaware Limited Partnership)

 

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND2003

 
| ** **                                                                        | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-----------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **TRADING PROFITS (LOSSES):**                                                     |       |       |       |       |       |       |       |
| Realized                                                                          |       | $          | (22,414    | )          | $          | 1,783,605  |       | $ | 3,053,369 |   |
| Change in unrealized                                                              |       | 50,090     |       | (626,506   | )          | (28,995    | )          |
|                                                                              |       |       |       |       |       |       |       |
| Total trading profits  (losses)                                                   |       | 27,676     |       | 1,157,099  |       | 3,024,374  |       |
|                                                                              |       |       |       |       |       |       |       |
| **INVESTMENT INCOME:**                                                            |       |       |       |       |       |       |       |
| Interest                                                                          |       | 353,414    |       | 173,439    |       | 180,856    |       |
|                                                                              |       |       |       |       |       |       |       |
| **EXPENSES:**                                                                     |       |       |       |       |       |       |       |
| Brokerage commissions                                                             |       | 792,797    |       | 974,435    |       | 1,166,016  |       |
| Administrative fees                                                               |       | 27,338     |       | 33,581     |       | 40,027     |       |
| Profit Shares                                                                     |       | 55,410     |       | 216,979    |       | 437,466    |       |
|                                                                              |       |       |       |       |       |       |       |
| Total expenses                                                                    |       | 875,545    |       | 1,224,995  |       | 1,643,509  |       |
|                                                                              |       |       |       |       |       |       |       |
| **NET INVESTMENT LOSS**                                                           |       | (522,131   | )          | (1,051,556 | )          | (1,462,653 | )          |
|                                                                              |       |       |       |       |       |       |       |
| **NET INCOME (LOSS)**                                                             |       | $          | (494,455   | )          | $          | 105,543    |       | $ | 1,561,721 |   |
|                                                                              |       |       |       |       |       |       |       |
| **NET INCOME (LOSS) PER UNIT:**                                                   |       |       |       |       |       |       |       |
|                                                                              |       |       |       |       |       |       |       |
| Weighted average number  of General Partner and Limited Partner Units outstanding |       | 11,688,691 |       | 12,844,606 |       | 13,571,725 |       |
|                                                                              |       |       |       |       |       |       |       |
| Net income per weighted  average General Partner and Limited Partner Unit         |       | $          | (0.0423    | )          | $          | 0.0082     |       | $ | 0.1151 |   |

 

Substantially all items of income and expense arederived from the investment in Global Horizons for year ended December 31,2005

and MM LLC for the years ended December 31, 2004and 2003.

 

See notes to financial statements.

 

3

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ML PRINCIPAL PROTECTION L.P.

(A Delaware Limited Partnership)

 

STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND2003

 
| ** **                                      | ** ** | ** ** | ** ** | **General** | ** ** | **Limited**  | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|------------|------------|-------------|------------|--------------|------------|------------|------------|
| ** **                                      | ** ** | **Units**  | ** ** | **Partner** | ** ** | **Partners** | ** ** | **Total**  | ** ** |
|                                            |       |       |       |        |       |         |       |       |       |
| PARTNERS’ CAPITAL, DECEMBER 31,  2002 |       | 149,307    |       | $           | 185,021    |         | $          | 17,255,541 |       | $ | 17,440,562 |   |
|                                            |       |       |       |        |       |         |       |       |       |
| Consolidation of Units  (Note 7)                |       | 14,633,051 |       | 59          |       | 5,440        |       | 5,499      |       |
|                                            |       |       |       |        |       |         |       |       |       |
| Net income                                      |       | —     |       | 18,243      |       | 1,543,478    |       | 1,561,721  |       |
|                                            |       |       |       |        |       |         |       |       |       |
| Distributions                                   |       | —     |       | (653        | )          | (61,634      | )          | (62,287    | )          |
|                                            |       |       |       |        |       |         |       |       |       |
| Redemptions                                     |       | (2,872,841 | )          | (42,967     | )          | (3,460,832   | )          | (3,503,799 | )          |
|                                            |       |       |       |        |       |         |       |       |       |
| PARTNERS’ CAPITAL, DECEMBER 31,  2003 |       | 11,909,517 |       | 159,703     |       | 15,281,993   |       | 15,441,696 |       |
|                                            |       |       |       |        |       |         |       |       |       |
| Consolidation of Units  (Note 7)                |       | 2,266,687  |       | —      |       | 314          |       | 314        |       |
|                                            |       |       |       |        |       |         |       |       |       |
| Net income                                      |       | —     |       | 1,016       |       | 104,527      |       | 105,543    |       |
|                                            |       |       |       |        |       |         |       |       |       |
| Redemptions                                     |       | (2,271,127 | )          | —      |       | (2,494,006   | )          | (2,494,006 | )          |
|                                            |       |       |       |        |       |         |       |       |       |
| PARTNERS’ CAPITAL, DECEMBER 31,  2004 |       | 11,905,077 |       | 160,719     |       | 12,892,828   |       | 13,053,547 |       |
|                                            |       |       |       |        |       |         |       |       |       |
| Consolidation of Units  (Note 7)                |       | 1,149,203  |       | 19          |       | 714          |       | 733        |       |
|                                            |       |       |       |        |       |         |       |       |       |
| Net loss                                        |       | —     |       | (6,096      | )          | (488,359     | )          | (494,455   | )          |
|                                            |       |       |       |        |       |         |       |       |       |
| Redemptions                                     |       | (2,418,517 | )          | —      |       | (2,327,401   | )          | (2,327,401 | )          |
|                                            |       |       |       |        |       |         |       |       |       |
| PARTNERS’ CAPITAL, DECEMBER 31,  2005 |       | 10,635,763 |       | $           | 154,642    |         | $          | 10,077,782 |       | $ | 10,232,424 |   |

 

See notes to financialstatements.

 

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ML PRINCIPAL PROTECTION L.P.

(A Delaware Limited Partnership)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE YEAR ENDED DECEMBER 31, 2005

 

The following per Unit data and ratios have beenderived from information provided in the financial statements.

 
| ** **                          | ** ** | **Series 2005*** | ** ** |
|-------------------------------------|------------|-----------------------|------------|
| **Per Unit Operating Performance:** |       |                  |       |
|                                |       |                  |       |
| Net  asset value, beginning of year |       | $                     | 1.0000     |   |
|                                |       |                  |       |
| Total  trading profits              |       | 0.0055                |       |
| Interest  income                    |       | 0.0301                |       |
| Expenses                            |       | (0.0735               | )          |
|                                |       |                  |       |
| Net  asset value, end of year       |       | $                     | 0.9621     |   |
|                                |       |                  |       |
| **Total return:**                   |       |                  |       |
|                                |       |                  |       |
| Total  return before Profit Shares  |       | -3.35                 | %          |
| Profit  Shares                      |       | -0.46                 | %          |
| Total  return after Profit Shares   |       | -3.79                 | %          |
|                                |       |                  |       |
| **Ratios to Average Net Assets:**   |       |                  |       |
|                                |       |                  |       |
| Expenses  (excluding Profit Shares) |       | 7.21                  | %          |
| Profit  Shares                      |       | 0.49                  | %          |
| Expenses  (including Profit Shares) |       | 7.70                  | %          |
|                                |       |                  |       |
| Net  investment loss                |       | -4.59                 | %          |

 

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*Series 2005 units were issued on January 2, 2005 (See Note7).

 

See notes to financial statements.

 

5

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 ML PRINCIPALPROTECTION L.P.

(A Delaware Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS

 

# 1.               SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization

 

ML Principal Protection L.P (the “Partnership”) wasorganized as an open-end fund under the Delaware Revised Uniform LimitedPartnership Act on January 3, 1994 and commenced trading activities on October 12,1994. The Partnership engages currently, through a limited liability company,Global Horizons I L.P. (“Global Horizons”) in the speculative trading offutures, options on futures and forward contracts on a wide range ofcommodities. Through December 31, 2004, the Partnership traded, through asimilar limited liability company, ML Multi-Manager Portfolio LLC (“MM LLC”). EffectiveDecember 31, 2004, after the close of business, MM LLC redeemed all of thePartnership’s units and the proceeds were invested in Global Horizons, whichhas an investment strategy similar to MM LLC. Merrill Lynch AlternativeInvestments LLC (“MLAI”) is the general partner of the Partnership and is awholly-owned subsidiary of Merrill Lynch Investment Managers LP (“MLIM”), whichin turn, is an indirect wholly-owned subsidiary of Merrill Lynch & Co.Inc. (“Merrill Lynch”). Merrill Lynch, Pierce, Fenner & SmithIncorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch, is thePartnership’s commodity broker. Prior to December 1, 2005, Merrill LynchInvestment Managers LLC (“MLIM LLC”) was the general partner of thePartnership. All of the Partnership’s assets are held in accounts maintained atMLPF&S. MLAI intends to maintain a general partner’s interest of at least1% of the total capital in each series of units. MLAI and the LimitedPartners share in the trading revenues and interest income of the Partnershipin proportion to the respective interests in the Partnership.

 

The following notes relate to the operations of thePartnership through its investments in Global Horizons and MM LLC. As of December 31,2005, the Partnership’s percentage of ownership share of Global Horizons was 3.81%.As of December 31, 2004 (prior to MM LLC liquidation) and 2003, thePartnership’s percentage of ownership share of MM LLC was 13.44% and 11.02%,respectively. MLAI selects independent trading advisors (“Advisors”) to manage GlobalHorizons’ assets, and allocates and reallocates such trading assets among existing,replacement and additional Advisors.

 

Estimates 

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom those estimates.

 

Revenue Recognition

 

Commodity futures, options on futures and forwards arerecorded on the trade date and open contracts are reflected in Net unrealizedprofit (loss) on open contracts in the Statements of Financial Condition of GlobalHorizons (MM LLC as of December 31, 2004) at the difference between theoriginal contract value and the market value (for those commodity interests forwhich market quotations are readily available) or at fair value. The change inunrealized profit (loss) on open contracts from one period to the next isreflected in Change in unrealized under Trading profits (losses) in theStatements of Operations of Global Horizons (MM LLC for the years ended December 31,2004 and 2003).

 

6

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Foreign Currency Transactions

 

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 aretranslated into U.S. dollars at the rates in effect at the dates of theStatements of Financial Condition. Income and expense items denominated incurrencies other than the U.S. dollar are translated into U.S. dollars at therates in effect during the period. Gains and losses resulting from thetranslation to U.S. dollars are reported in Realized under Trading profit(loss) on the Statements of Operations of Global Horizons (MM LLC for the yearsended December 31, 2004 and 2003).

 

Operating Expenses and Selling Commissions 

 

MLAI pays all routine operating costs (includinglegal, accounting, printing, postage and similar administrative expenses) ofthe Partnership. MLAI receives an administrative fee as well as a portion of thebrokerage commissions paid by the Partnership through Global Horizons(previously MM LLC).

 

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

 

Income Taxes

 

No provision for income taxes has been made in theaccompanying financial statements as each Partner is individually responsiblefor reporting income or loss based on such Partner’s respective share of thePartnership’s income and expenses as reported for income tax purposes.

 

Redemptions

 

A Limited Partner may redeem some or all of suchPartner’s Units at Net Asset Value as of the close of business on the lastbusiness day of any month upon ten calendar days’ notice.

 

Dissolution of the Partnership

 

The Partnership will terminate on December 31,2024 or at an earlier date if certain conditions occur, as well as undercertain other circumstances as set forth in the Limited Partnership Agreement.

 

Indemnifications

 

In the normal course of business, the Partnershipenters into contracts and agreements that contain a variety of representationsand warranties and which provide general indemnifications. The Partnership’smaximum exposure under these arrangements is unknown, as this would involvefuture claims that may be made against the Partnership that have not yetoccurred. The Partnership expects the risk of any future obligation under theseindemnifications to be remote.

 

2.               INVESTMENT IN GLOBALHORIZONS/RECEIVABLE FROM MM LLC

 

The financial statements of Global Horizons and MM LLCfor the years ended December 31, 2005 and

 

7

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2004, respectively, are bound together with thisreport and should be read in conjunction with the Partnership’s financialstatements. Effective December 31, 2004, MM LLC liquidated and the fairvalue of the Partnership’s investment in MM LLC is reflected in Receivable fromMM LLC on the Statement of Financial Condition.

 

The investment in Global Horizons as of December 31,2005 is reflected in the financial statements at fair value based upon thePartnership’s proportionate interest in Global Horizons. Fair value of theinvestment in Global Horizons is equal to the market value of the net assets ofGlobal Horizons allocable to the Partnership as an investor.

 

All income and expense for the Partnership was derivedfrom its investment in Global Horizons or MM LLC, based on the Partnership’sproportionate share of Global Horizons’ or MM LLC’s revenues and expenses.

 

3.               RELATED PARTYTRANSACTIONS.

 

The Partnership’s U.S. dollar assets are maintained atMLPF&S through Global Horizons and previously MM LLC. On assets held inU.S. dollars, Merrill Lynch credits the Partnership with interest at theprevailing 91-day U.S. Treasury bill rate. The Partnership is credited withinterest on any of its net gains actually held by Merrill Lynch in non-U.S.dollar currencies at a prevailing local rate received by Merrill Lynch. MerrillLynch may derive certain economic benefits, in excess of the interest,which Merrill Lynch pays to the Partnership, from possession of such assets. ThePartnership indirectly receives this interest through its investment in GlobalHorizons (MM LLC for the years ended December 31, 2004).

 

Merrill Lynch charges the Partnership, through itsinvestment in Global Horizons (MM LLC for the years ended December 31,2004 and 2003), Merrill Lynch’s cost of financing realized and unrealizedlosses on the Partnership’s non-U.S. dollar-denominated positions. Such amountsare netted against interest income. These amounts are not significant to thefinancial statements of the Partnership.

 

Through its investment in Global Horizons andpreviously MM LLC, the Partnership pays brokerage commissions to MLPF&S ata flat monthly rate of .604 of 1% (a 7.25% annual rate) of month-end tradingassets invested in Global Horizons (MM LLC for the years ended December 31,2004 and 2003). Through its investment in Global Horizons and previously MMLLC, the Partnership also pays MLAI, and previously MLIM LLC, a monthlyadministrative fee of .021 of 1% (a 0.25% annual rate) of the Partnership’stotal month-end trading assets. Assets committed to trading are not reduced forpurposes of calculating brokerage commissions and administrative fees by anyaccrued brokerage commissions, administrative fees, Profit Shares or other feesor charges.

 

MLPF&S pays the Advisors annual consulting fees upto 2.50% of the Partnership’s average month-end trading assets allocated to aspecific Advisor for management, after reduction for a portion of the brokeragecommissions accrued with respect to such assets.

 

8

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# 4.               ANNUAL DISTRIBUTIONS

 

The Partnership made annualfixed-rate distributions, payable irrespective of profitability, of $3.50 perUnit on Units issued prior to May 1, 1997 until the Principal AssuranceDate. No distributions are payable on Units issued after May 1, 1997. Forthe years ended December 31, 2005, 2004 and 2003, the Partnership made thefollowing distributions:

 
| ** ** | ** **    | ** ** | **Distribution** | ** ** | **Fixed-Rate**   | ** ** | **Discretionary** | ** ** |
|------------|---------------|------------|------------------|------------|------------------|------------|-------------------|------------|
| ** ** | **Series**    | ** ** | **Date**         | ** ** | **Distribution** | ** ** | **Distribution**  | ** ** |
|       |          |       |             |       |             |       |              |       |
| 2005       |          |       |             |       |             |       |              |       |
|       | none          |       |             |       |             |       |              |       |
|       |          |       |             |       |             |       |              |       |
| 2004       |          |       |             |       |             |       |              |       |
|       | none          |       |             |       |             |       |              |       |
|       |          |       |             |       |             |       |              |       |
| 2003       |          |       |             |       |             |       |              |       |
|       | Series F |       | 1/1/2003         |       | $                | 3.50       |              | $          | — |   |
|       | Series G |       | 4/1/2003         |       | 3.50             |       | —            |       |
|       | Series H |       | 7/1/2003         |       | 3.50             |       | —            |       |
|            |               |            |                  |            |                  |            |                   |            |  |  |

 

5.               ADVISORY AGREEMENTS

 

Global Horizons (MM LLCfor the years ended December 31, 2004 and 2003) and the Advisors have eachentered into Advisory Agreements. These Advisory Agreements generally renewannually after they are entered into, subject to certain rights exercisable bythe Partnership. The Advisors determine the commodity futures, options onfutures and forwards trades to be made on behalf of their respective accounts,subject to certain rights reserved by MLAI.

 

Profit Shares, generallyranging from 20% to 25% of any New Trading Profit, as defined, recognized byeach Advisor individually, irrespective of the overall performance of anyseries, either as of the end of each calendar quarter or year and upon the netreallocation of assets away from an Advisor, including Unit redemptions, arepaid by Global Horizons (MM LLC for the years ended December 31, 2004 and2003) to the appropriate Advisors to the extent of the applicable percentage ofany New Trading Profit attributable to such Units.

 

6.               COPPER SETTLEMENT

 

ThePartnership, as a member of a class of plaintiffs, received a settlementpayment in February 2005 relating to certain copper trades made by anumber of investors, including the Partnership, during a period in the mid-1990s.Members of the class were those who purchased or sold COMEX, a subsidiaryof the New York Mercantile Exchange, copper futures or options contractsbetween June 24, 1993 and June 15, 1996. The amount of the settlementfor the Partnership was $6,070, which is included in Realized under Tradingprofits (losses) on the Statement of Operations of the Partnership for the yearended December 31, 2005.

 

9

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7.               NET ASSET VALUE PERUNIT

 

Prior to the opening ofbusiness on January 2, 2005, Series A 2003, Series 2004 and Series Swere consolidated into a new series, Series 2005, with a $1.00 Unit NetAsset Value. The aggregate Net Asset Value of each investor’s new Units wasequal to the aggregate Net Asset Value of their original Units at December 31,2004. The consolidation had no adverse economic effect on the investors. MLIMLLC contributed $733 to the Partnership, the amount necessary due to theeffects of rounding, to insure that all investors received Units equal in valueto their original holdings at December 31, 2004. The following is alisting of the number of new Units each investor received of Series 2005for each Unit of their original series holding.

 
| ** ** | ** ** | **Number**   | ** ** |
|------------|------------|--------------|------------|
| **Series** | ** ** | **of Units** | ** ** |
| A  2003    |       | 1.108721     |       |
| 2004       |       | 1.005565     |       |
| S          |       | 125.174168   |       |

 

Priorto the opening of business on January 2, 2004, Series G, H, and Othrough R, were consolidated into a new series, Series 2004, with a $1.00per Unit Net Asset Value. The aggregate Net Asset Value of each investor’s newUnits is equal to the aggregate Net Asset Value of their original Units at December 31,2003. The consolidation had no adverse economic effect on the investors. MLIMLLC contributed $314 to the Partnership, the amount necessary due to theeffects of rounding, to insure all investors received Units equal in value totheir original holdings at December 31, 2003. The following is a listingof the number of new Units each investor received of Series 2004 for eachUnit of their original series holding.

 
| ** ** | ** ** | **Number**   | ** ** |
|------------|------------|--------------|------------|
| **Series** | ** ** | **of Units** | ** ** |
| G          |       | 110.859969   |       |
| H          |       | 102.336331   |       |
| O          |       | 129.904347   |       |
| P          |       | 132.546751   |       |
| Q          |       | 122.531124   |       |
| R          |       | 123.779041   |       |

 

10

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Prior to the opening of business on January 2,2003, Series A through F and K through N, were consolidated into a newseries, Series A 2003, with a $1.00 per Unit Net Asset Value. Theaggregate Net Asset Value of each investor’s new Units is equal to theaggregate Net Asset Value of their original Units at December 31, 2002. Theconsolidation had no adverse economic effect on the investors. MLIM LLCcontributed $5,499 to the Partnership, the amount necessary due to the effectsof rounding, to insure that all investors received Units equal in value totheir original holdings at December 31, 2002. The following is a listingof the number of new Units each investor received of Series A 2003 foreach Unit of their original series holding.

 
| ** ** | ** ** | **Number**   | ** ** |
|------------|------------|--------------|------------|
| **Series** | ** ** | **of Units** | ** ** |
| A          |       | 122.021960   |       |
| B          |       | 117.269077   |       |
| C          |       | 115.242141   |       |
| D          |       | 112.085339   |       |
| E          |       | 111.088709   |       |
| F          |       | 104.084994   |       |
| K          |       | 123.799970   |       |
| L          |       | 120.674078   |       |
| M          |       | 122.310644   |       |
| N          |       | 117.973383   |       |

 

At December 31, 2005, the Net Asset Value of theUnits is as follows:

 
| ** **              | ** ** | ** **          | ** ** | **Number**   | ** ** | **Net Asset Value** | ** ** |
|-------------------------|------------|---------------------|------------|--------------|------------|---------------------|------------|
| ** **              | ** ** | **Net Asset Value** | ** ** | **of Units** | ** ** | **per Unit**        | ** ** |
|                    |       |                |       |         |       |                |       |
| Series 2005  Units |       | $                   | 10,232,424 |         | 10,635,763 |                | $          | 0.9621 |   |
|                         |            |                     |            |              |            |                     |            |  |  |

 

At December 31, 2004, the Net Asset Values ofthe different series of Units are as follows:

 
| ** **                | ** ** | ** **          | ** ** | **Number**   | ** ** | **Net Asset Value** | ** ** |
|---------------------------|------------|---------------------|------------|--------------|------------|---------------------|------------|
| ** **                | ** ** | **Net Asset Value** | ** ** | **of Units** | ** ** | **per Unit**        | ** ** |
|                      |       |                |       |         |       |                |       |
| Series A  2003 Units |       | $                   | 11,000,919 |         | 9,922,463  |                | $          | 1.1087 |   |
| Series 2004  Units   |       | 1,993,167           |       | 1,982,139    |       | 1.0056              |       |
| Series S  Units      |       | 59,461              |       | 475          |       | 125.17              |       |
|                      |       | $                   | 13,053,547 |         | 11,905,077 |                |       |   |
|                           |            |                     |            |              |            |                     |            |  |  |

 

8.               WEIGHTED AVERAGEUNITS

 

Weighted average number of Units outstanding iscomputed for purposes of computing 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, adjustedproportionately for Units redeemed or issued based on the respective length oftime each was outstanding during the year.

 

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# 9.                FAIR VALUE AND OFF-BALANCE SHEET RISK

 

The Partnership invests indirectly in derivativeinstruments as a result of its investment in Global Horizons (MM LLC as of December 31,2004), but does not itself hold any derivative instrument positions. The natureof this Partnership has certain risks, which cannot be presented on thefinancial statements.

 

Market Risk

 

Derivative instruments involve varying degrees of off-balancesheet market risk. Changes in the level or volatility of interest rates,foreign currency exchange rates or the market values of the financialinstruments or commodities underlying such derivative instruments frequentlyresult in changes in the Partnership’s net unrealized profit on such derivativeinstruments as reflected in Statements of Financial Condition of GlobalHorizons (MM LLC as of December 31, 2004). The Partnership’s exposure tomarket risk is influenced by a number of factors, including the relationshipsamong the derivative instruments held by Global Horizons (MM LLC as of December 31,2004) as well as the volatility and liquidity of the markets in which suchderivative instruments are traded.

 

10.         SUBSEQUENT EVENT

 

On February 15, 2006, Merrill Lynch andBlackRock, Inc (“BlackRock”) announced that they have reached an agreement tomerge the asset management business of MLIM and BlackRock to create a newindependent asset management company. The transaction has been approved by theboards of directors of both Merrill Lynch and BlackRock and is expected toclose in the third quarter of 2006. As a result of the transaction, thecombined company will become the general partner or sponsor of the Partnership.

 

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* * * * * * * * * *

 

To the best of the knowledge and belief of the

undersigned, theinformation contained in this

report is accurate andcomplete.

 

 

Michael Pungello

Chief Financial Officer

Merrill Lynch AlternativeInvestments, LLC

General Partner of

ML Principal ProtectionL.P.

 

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