-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R2MKcqKRawsth+AAnhmt8adq9xMLxmWzQZ3wRAj4yK7NKCswZovidY3tU+fkTVKo xh3tg48XrBKI7Fi/FCSAyg== 0001047469-05-021480.txt : 20050812 0001047469-05-021480.hdr.sgml : 20050812 20050812151629 ACCESSION NUMBER: 0001047469-05-021480 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050812 DATE AS OF CHANGE: 20050812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ML PRINCIPAL PROTECTION LP CENTRAL INDEX KEY: 0000917259 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133750642 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25000 FILM NUMBER: 051021243 BUSINESS ADDRESS: STREET 1: 6TH FL, SOUTH TOWER, M L WORLD HDQR STREET 2: C/O ML FUTURES INVESTMENT PARTNERS INC CITY: NEW YORK STATE: NY ZIP: 10080-6106 BUSINESS PHONE: 2122364161 MAIL ADDRESS: STREET 1: C/O MERRILL LYNCH INVESTMENT PARTNERS IN STREET 2: WORLD FINANCIAL CENTER S TOWER 6TH FL CITY: NEW YORK STATE: NY ZIP: 10080-6106 FORMER COMPANY: FORMER CONFORMED NAME: ML PRINCIPAL PROTECTION PLUS LP DATE OF NAME CHANGE: 19940616 FORMER COMPANY: FORMER CONFORMED NAME: SECTOR STRATEGY FUND VII LP DATE OF NAME CHANGE: 19940107 10-Q 1 a2162011z10-q.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2005 ------------- OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number 0-25000 ML PRINCIPAL PROTECTION L.P. ---------------------------- (Exact Name of Registrant as specified in its charter) Delaware 13-3750642 (Registrant) - ---------------------------- ----------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) c/o Merrill Lynch Investment Managers LLC 222 Broadway 27th Floor New York, NY 10038-2510 ----------------------- (Address of principal executive offices) (Zip Code) 609-282-6996 ----------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / PART I - FINANCIAL INFORMATION Item 1. Financial Statements ML PRINCIPAL PROTECTION L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2005 DECEMBER 31, (UNAUDITED) 2004 -------------- -------------- ASSETS Equity in commodity futures trading accounts: Cash $ 516,152 $ 509,498 Investment in Global Horizons 11,317,586 - Receivable from MM LLC - 13,053,547 Accrued interest receivable 1,093 964 -------------- -------------- TOTAL ASSETS $ 11,834,831 $ 13,564,009 ============== ============== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Redemptions payable $ 92,166 $ 79,561 Payable to Global Horizons 425,079 430,901 -------------- -------------- Total liabilities 517,245 510,462 -------------- -------------- PARTNERS' CAPITAL: General Partner (160,738 and 146,547 Units) 154,858 160,719 Limited Partners (11,586,554 and 11,758,530 Units) 11,162,728 12,892,828 -------------- -------------- Total partners' capital 11,317,586 13,053,547 -------------- -------------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 11,834,831 $ 13,564,009 ============== ============== NET ASSET VALUE PER UNIT (NOTE 3)
See notes to financial statements. 2 ML PRINCIPAL PROTECTION L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2005 2004 2005 2004 -------------- -------------- -------------- -------------- TRADING PROFITS (LOSSES): Realized $ (57,679) $ (407,303) $ (134,807) $ 944,513 Change in unrealized 11,946 (631,610) (9,734) (911,890) -------------- -------------- -------------- -------------- Total trading profits (losses) (45,733) (1,038,913) (144,541) 32,623 -------------- -------------- -------------- -------------- INVESTMENT INCOME Interest Income 76,600 35,599 148,924 71,592 -------------- -------------- -------------- -------------- EXPENSES: Brokerage commissions 200,310 239,616 411,313 510,915 Administrative fees 6,907 8,262 14,183 17,600 Profit shares 19,699 (126,764) 53,657 48,250 -------------- -------------- -------------- -------------- Total expenses 226,916 121,114 479,153 576,765 -------------- -------------- -------------- -------------- NET INVESTMENT LOSS (150,316) (85,515) (330,229) (505,173) -------------- -------------- -------------- -------------- NET LOSS $ (196,049) $ (1,124,428) $ (474,770) $ (472,550) ============== ============== ============== ============== NET LOSS PER UNIT: Weighted average number of General Partner and Limited Partner Units outstanding 11,893,205 12,841,255 12,261,368 13,357,165 ============== ============== ============== ============== Net loss per weighted average General Partner and Limited Partner Unit $ (0.0165) $ (0.0876) $ (0.0387) $ (0.0354) ============== ============== ============== ==============
Substantially all items of income and expense are derived from the investment in Global Horizons or MM LLC. (Note 2) See notes to financial statements. 3 ML PRINCIPAL PROTECTION L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (unaudited)
GENERAL LIMITED UNITS PARTNER PARTNERS TOTAL -------------- -------------- -------------- -------------- PARTNERS' CAPITAL, December 31, 2003 11,909,517 $ 159,703 $ 15,281,993 $ 15,441,696 Conversion of Units (Note 3) 2,266,687 - 314 314 Net loss - (6,006) (466,544) (472,550) Redemptions (1,543,524) - (1,720,711) (1,720,711) -------------- -------------- -------------- -------------- PARTNERS' CAPITAL, June 30, 2004 12,632,680 $ 153,697 $ 13,095,052 $ 13,248,749 ============== ============== ============== ============== PARTNERS' CAPITAL, December 31, 2004 11,905,077 $ 160,719 $ 12,892,828 $ 13,053,547 Conversion of Units (Note 3) 1,149,203 19 714 733 Net loss - (5,880) (468,890) (474,770) Redemptions (1,306,988) - (1,261,924) (1,261,924) -------------- -------------- -------------- -------------- PARTNERS' CAPITAL, June 30, 2005 11,747,292 $ 154,858 $ 11,162,728 $ 11,317,586 ============== ============== ============== ==============
See notes to financial statements. 4 ML PRINCIPAL PROTECTION L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES In the opinion of management, the financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of ML Principal Protection L.P. (the "Partnership") as of June 30, 2005, and the results of its operations for the three and six months ended June 30, 2005 and 2004. However, the operating results for the interim periods may not be indicative of the results for the full year. Certain information and footnote disclosures normally included in annual financial statements prepared in conformity with accounting principles generally accepted in the United States have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2004. 2. INVESTMENTS Effective December 31, 2004, the Partnership redeemed its entire investment in ML Multi-Manager LLC ("MM LLC") and the proceeds were invested on January 2, 2005 in Global Horizons I L.P. ("Global Horizons"), formerly known as ML Global Horizons L.P. As of June 30, 2005 the Partnership had an investment in Global Horizons of $11,317,586 and the Partnership's percentage ownership share of Global Horizons is 4.05%. Condensed statements of financial condition and statements of operations for Global Horizons LP and MM LLC are set forth as follows:
JUNE 30, 2005 (UNAUDITED) ----------------- Assets $ 284,340,898 ================= Liabilities $ 4,589,392 Partners' Capital 279,751,506 ----------------- Total $ 284,340,898 =================
5
GLOBAL HORIZONS MM LLC GLOBAL HORIZONS MM LLC -------------------- -------------------- -------------------- -------------------- FOR THE THREE MONTHS FOR THE THREE MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS ENDED JUNE 30, 2005 ENDED JUNE 30, 2004 ENDED JUNE 30, 2005 ENDED JUNE 30, 2004 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) -------------------- -------------------- -------------------- -------------------- Trading Profits (Losses) and Interest Income $ 1,418,150 $ 5,969,103 $ 1,581,916 $ 317,226 Expenses 5,061,337 2,459,957 9,895,857 3,386,399 -------------------- -------------------- -------------------- -------------------- Net income (loss) $ (3,643,187) $ 3,509,146 $ (8,313,941) $ (3,069,173) ==================== ==================== ==================== ====================
3. NET ASSET VALUE PER UNIT Prior to the opening of business on January 2, 2005, Series A 2003, Series 2004 and Series S were consolidated into a new series, Series 2005, with a $1.00 Net Asset Value Per Unit. The aggregate Net Asset Value of each investor's new Units is equal to the aggregate Net Asset Value of their original Units at December 31, 2004. The consolidation had no adverse economic effect on the investors. Merrill Lynch Investment Managers LLC ("MLIM LLC"), the General Partner, contributed $733 to the Partnership, the amount necessary due to the effects of rounding, to ensure that all investors received Units equal in value to their original holdings at December 31, 2004. The following is a listing of the number of new Units each investor received of Series 2005 for each Unit of their original series holding:
NUMBER SERIES OF UNITS -------- ---------- A 2003 1.108721 2004 1.005565 S 125.174168
6 Prior to the opening of business on January 2, 2004, Series G, H, and O through R, those series that had come to term on or before December 31, 2003, but after December 31, 2002, were consolidated into a new series, Series 2004, with a $1.00 per Unit Net Asset Value. The aggregate Net Asset Value of each investor's new Units 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. The General Partner contributed $314 to the Partnership, the amount necessary due to the effects of rounding to ensure all investors received Units equal in value to their original holdings at December 31, 2003. The following is a list of the number of new Units each investor received of Series 2004 for each Unit 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
After the series consolidations, the brokerage commission rates for Series 2004 was reduced to a monthly rate of 0.604 of 1% (a 7.25% annual rate). At June 30, 2005 and December 31, 2004, the Net Asset Values of the different series of Units were: June 30, 2005 (unaudited)
NET ASSET VALUE NET ASSET VALUE NUMBER OF UNITS PER UNIT --------------- --------------- --------------- Series 2005 Units $ 11,317,586 11,747,292 $ 0.9634 =============== ===============
December 31, 2004
NET ASSET VALUE NET ASSET VALUE NUMBER 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 $ 125.18 --------------- --------------- $ 13,053,547 11,905,077 =============== ===============
7 4. FAIR VALUE AND OFF-BALANCE SHEET RISK The Partnership invests indirectly in derivative instruments as a result of its investment in Global Horizons, but does not itself hold any derivative instrument positions. The nature of this Partnership has certain risks, which cannot be presented on the financial statements. The following summarizes, resulting from its investment in Global Horizons, some of those risks. MARKET RISK Derivative instruments involve varying degrees of off-balance sheet market risk. Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial instruments or commodities underlying such derivative instruments frequently result in changes in the Partnership's allocation of net unrealized profit/(loss) on such derivative instruments as reflected in the Statements of Financial Condition of Global Horizons. The Partnership's exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by Global Horizons as well as the volatility and liquidity of the markets in which such derivative instruments are traded. MLIM LLC has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so. These procedures focus primarily on monitoring the trading of the advisors selected from time to time by the General Partner of Global Horizons, calculating the net asset value of their respective Partnership's accounts and Global Horizons accounts as of the close of business on each day and reviewing outstanding positions for over-concentrations both on an advisor-by-advisor and on an overall Partnership basis. While MLIM LLC does not itself intervene in the markets to hedge or diversify the Partnership's market exposure, MLIM LLC may urge advisors to reallocate positions, or itself reallocate Partnership assets through Global Horizons among advisors (although typically only as of the end of a month) in an attempt to avoid over-concentrations. However, such interventions are unusual. Except in cases in which it appears that an advisor has begun to deviate from past practice or trading policies or to be trading erratically, MLIM LLC's basic risk control procedures consist simply of the ongoing process of advisor monitoring and selection with the market risk controls being applied by the Advisors themselves. CREDIT RISK The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange. In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties. Margins, which may be subject to loss in the event of a default, are generally required in exchange trading, and counterparties may require margin in the over-the-counter markets. The Partnership, through Global Horizons, has credit risk with respect to non-performance of its counterparties and brokers, but attempts to mitigate this risk by dealing almost exclusively with Merrill Lynch entities as clearing brokers. The Partnership, through Global Horizons, in its normal course of business, enters into various contracts, with Merrill Lynch Pierce Fenner & Smith ("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 8 trading results in receivables from and payables to MLPF&S, these receivables and payables are offset and reported as a net receivable or payable in the financial statements of Global Horizons in the equity in commodity futures trading accounts in the Statements of Financial Condition. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MONTH-END NET ASSET VALUE PER SERIES A 2003 UNIT
JAN. FEB. MAR. APR. MAY JUN. ---------------------------------------------------------------------- 2004 $ 1.1075 $ 1.1504 $ 1.1486 $ 1.1082 $ 1.0940 $ 1.0602
MONTH-END NET ASSET VALUE PER SERIES 2005 UNIT
JAN. FEB. MAR. APR. MAY JUN. ---------------------------------------------------------------------- 2005 $ 0.9659 $ 0.9763 $ 0.9788 $ 0.9514 $ 0.9519 $ 0.9634
Performance Summary All of the Partnership's trading assets are invested in Global Horizons as of January 1, 2005. The Partnership recognizes trading profits or losses as an investor in Global Horizons. The following 2005 commentary describes the trading results of Global Horizons. JANUARY 1, 2005 TO JUNE 30, 2005 January 1, 2005 to March 31, 2005 The Partnership posted a loss for the first quarter. Losses in the currency and global equity sectors outweighed gains experienced in the agricultural sector. The interest rate sector was the best performing sector for the Partnership. The Partnership benefited from long U.S. dollar positions versus the Euro and long Euro and Japanese fixed incomes. Systematic, long-term trend followers also posted gains in the interest rate sector. The energy sector was the second highest performing sector for the Partnership. Gains were experienced in the energy sector as the Partnership benefited from long positions in crude oil and gas as these industries profited. Gains were also posted in long crude oil and heating oil positions. The agricultural sector also performed well for the quarter. Gains were experienced from long positions in cattle and hog markets. Short grain positions and long soybean positions detracted from performance mid-quarter. However, the quarter ended with gains posted due to coffee, which experienced a lack of supply and a growing demand. The metals sector posted a gain for the quarter. The Partnership benefited from long positions in base and precious metals, such as gold, copper and zinc. The stock indices sector posted a loss for the quarter. Losses occurred in the beginning of the quarter due to a trend reversal from long global equities to short global equities. Profits were made through long 9 positions on the FTSE index and Asian equities. Stock indices contributed negatively to performance as the equity markets declined at the end of the quarter. The currency sector posted the greatest loss for the Partnership. Losses at the beginning of the quarter were due to a trend reversal from short U.S. dollar positions to long U.S. dollar positions. Long Japanese yen and Swiss franc positions also experienced losses. With the U.S. Federal Reserve expressing concern about inflation, investors predicted that interest rates and the U.S. dollar would rise. This caused losses as investors fled from emerging currencies. Long Australian dollar and Mexican peso positions also contributed to negative performance. April 1, 2005 to June 30, 2005 The Partnership experienced gains in the interest rates and currencies sectors and losses in the remaining sectors. Trading in interest rates posted gains for the Partnership, despite losses early in the quarter. The Partnership benefited from long positions in the 10-year German Bund. The long positions held by the Partnership in European and Japanese government bonds contributed to gains as well. The currencies sector posted a gain as well for the quarter. Long positions in the British pound and Aussie dollar contributed early on in the quarter. Short positions to the British pound, Swiss franc and Euro enabled the Partnership to capitalize on trend reversals in the market in the latter half of the quarter. Trading in stock indices attributed to overall trading losses for the Partnership despite gains posted in the second two months of the quarter. As equity markets declined, the stock indices market posted losses. Short positions of domestic equities slightly offset some of the gains attributed to global and European equities. Profits from long exposure in the European and U.S. equities were not enough to offset the losses incurred earlier in the quarter. Trading in agricultural commodities posted losses for the quarter. Gains in exposure to hogs and soybeans were not enough to offset trading losses in other commodities. Long exposure to soymeal attributed to the losses as well. Losses were posted throughout the quarter in the metals sector. Long positions in base metals detracted from performance. Complex base metals detracted from performance as well. The energy sector posted the largest losses for the quarter. Crude oil and heating oil declined as crude oil fell in price, which negatively impacted trend followers. JANUARY 1, 2004 TO JUNE 30, 2004 All of the Partnership's assets were invested in MM LLC. The Partnership recognizes trading profits or losses as an investor in MM LLC. The following commentary describes the trading results of MM LLC. January 1, 2004 to March 31, 2004 MM LLC experienced gains in the interest rate, metals, agricultural commodities, energy, and currency sectors and losses in stock indices. Overall, for the quarter, MM LLC experienced gains. The interest sector posted the largest gains for the quarter despite choppy trading conditions early in the quarter. In January, profits were generated from various positions at the short end of the curve in Canada and Europe, while losses were posted at longer points in the curve in both the U.S. and Europe. In 10 February, fixed income markets resumed their slow upward trend. In March, long exposure to most of the major global yield curves proved to generate positive results. The metals sector posted gains for the quarter as well. In January, both precious and industrial metals generated positive returns from the long side. Base metals continued to move higher with the exception of nickel. Copper rose to its highest price in more than six years due to supply disruptions and heavy demand from new home construction. In February, base metals continued their upward move as the sector experienced strong demand, shrinking supply and U.S. dollar weakness, helping to drive prices higher. Strong industrial demand for copper and continued speculative interest pushed the market to a seven year high. In March, industrial metals generated minor losses for MM LLC, while precious metals contributed significantly, particularly, gold and silver. The agricultural commodities sector posted gains early in the quarter as the USDA cut its forecast of the crop supply for both soybeans and corn, which sent prices surging. In February, grain markets extended their long-term rally, with corn and soybeans being pushed to highs on strong demand and low stockpiles. Grain markets continued to extend their long-term rally in March, with corn, soybeans and soymeal being pushed higher on strong demand from Asia and lower estimates of supply from South America. The energy sector posted gains for the quarter. In crude oil and more broad energy markets, weather and OPEC were the dominant factors behind price moves during January. Weather was extremely cold in the Northeast and Midwest U.S., which caused a sharp rally in natural gas and heating oil. Crude oil had a sharp rally in early February and gradually sold-off as the markets became complacent about the OPEC meeting. The market continued this trend, as weather-related demand and tight U.S. inventories continued. In March, the energy sectors posted a small loss under extremely volatile market conditions. The crude oil market had very choppy performance during the month, as did the heating oil market. The currency sector posted slight gains for the quarter. The currency sector began the quarter with gains as it continued its long trend of a weakening U.S. dollar. However, trading was very choppy and gains generated in the early part of January were lost. In February and March, the trend continued as currency trading was very difficult due to the heightened volatility in the markets. Stock indices posted losses despite gains early in the quarter. Stock indices posted a profit for January, as long exposure to global equities from momentum based and fundamental models performed well. In February, long exposure to global equities produced positive performance. In March, stock indices posted a loss that exceeded the gains from earlier in the quarter. Long Nikkei profits were overcome by losses in long exposure to European equities, which later flipped to short positions, by month-end. April 1, 2004 to June 30, 2004 MM LLC experienced an overall loss for the quarter. The energy sector was the only profitable sector for MM LLC. The energy sector posted gains for the quarter despite volatile market conditions. Crude oil and unleaded gas were the main drivers of performance. In May, crude oil prices continued to increase during the month, including refined products, as did market volatility. Political uncertainties in the Middle East added an additional risk premium to the markets. Losses were posted for the month of June. Crude oil and heating oil were the largest contributors to losses as markets sold-off early during the month when OPEC agreed to provide more supply, while U.S. inventory levels showed a gradual increase. MM LLC maintained a long bias in this sector throughout the quarter. The agricultural sector posted a loss for the quarter despite small gains in April and June. Early in the quarter, agricultural markets reversed their upward trend with the fear that demand from China would slow down. Long exposure to the soybean complex outweighed losses in other markets, particularly 11 corn. Large losses were posted in May. Soybean prices collapsed, and sold off close to 20% from highs in April as ideal weather conditions persisted in the Midwest and exports failed to materialize. Demand from China and diminishing supplies had kept prices high for quite some time. Small gains were posted in June, with cotton prices dropping allowing short exposures to generate profits. Corn also posted a significant decline during the month, which caused the portfolio to adjust positions from long to short. Corn experienced a dramatic improvement in estimates of acreage and yields, due to high prices and positive weather conditions. The interest rate sector posted a loss for the quarter with small gains posted in May. In April, the fixed income markets experienced heightened volatility and then fell sharply, followed by a short bounce and then trended down for the rest of the month. The portfolio was long on many of the global yield curves at the start of the month and began reducing exposure and initiating shorts mid month. In May, Eurodollars and short sterling exposure proved profitable during the month, as strong employment figures in the U.S. confirmed a scenario whereby the Federal Reserve will raise rates by this summer and the Bank of England indicated it will raise rates to slow down the growth in the economy. In June, Eurodollars fell early in the month and finally gained 28 basis points from their lows. U.S. fixed income trading was flat, while gains in trading Japanese Government bonds were outweighed by losses in trading the European yield curve. Stock indices posted losses throughout the quarter. In April, equities continued to rally in the early part of the month, but the fear of rate increase based on positive economic news sent equities falling with a steep sell-off towards the end of the month. Equities worldwide stayed weak, on concerns of the imminent rate increases in U.S. interest rates. The Japanese Nikkei experienced a sudden deterioration in sentiment, which sent the market plunging around 5% in one day. The metals sector posted losses for the quarter. In April, both industrial and precious metals generated significant losses for the portfolio. The U.S. dollar strengthening and the fear of higher interest rates, which would curb growth, caused base and precious metals to sell-off. Both industrial and precious metals generated slight losses for the portfolio in May. In June, industrial metals detracted from performance as zinc fell by approximately 11% and copper lost 3%. The currency sector posted the largest losses for the quarter. In April, the U.S. dollar strengthened considerably during the month, with the Euro falling below 120 and the British pound falling to 1.77. The Japanese yen fell sharply after a strong rebound in March. Gains in the British pound and the Euro overcame losses from the Japanese yen and Australian dollar positioning. In May, the U.S. dollar weakened against major currencies except for the Australian dollar after strengthening considerably during the prior month. Losses in the Japanese yen, Australian dollar and the Swiss franc were mitigated by gains in the British pound. In June, most major currencies displayed no clear direction, but exhibited high intra day volatility. Losses were incurred from positions in the Australian dollar, Swiss franc, British pound and other major markets. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable Item 4. Controls and Procedures Merrill Lynch Investment Managers LLC, the General Partner of ML Principal Protection L.P., with the participation of the General Partner's Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Partnership as of the end of the period of this quarterly report, and, based on this evaluation, has concluded that these disclosure controls and procedures are effective. Additionally, there were no significant changes in the Partnership's internal controls or in other factors that could significantly affect these controls subsequent to the date of this evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 13 PART II - OTHER INFORMATION Item 1. Legal Proceedings There are no pending proceedings to which the Partnership, Global Horizons or MLIM LLC is a party. Item 2. Changes in Securities and Use of Proceeds (a) None. (b) None. (c) None. (d) None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits There are no exhibits required to be filed with this report. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the first six months of fiscal 2005. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ML PRINCIPAL PROTECTION L.P. By: MERRILL LYNCH INVESTMENT MANAGERS LLC General Partner Date: August 12, 2005 By /s/ FABIO P. SAVOLDELLI ----------------------- Fabio P. Savoldelli Managing Director and Chief Investment Officer - Alternative Strategies Advisers Division (Principal Executive Officer) Date: August 12, 2005 By /s/ PATRICK HAYWARD ------------------- Patrick Hayward Chief Financial Officer (Principal Financial and Accounting Officer) 15 EX-31.01 2 a2162011zex-31_01.txt EX 31.01 EXHIBIT 31.01 RULE 13a-14(a)/15d-14(a) CERTIFICATIONS I, Fabio P. Savoldelli, certify that: 1. I have reviewed this report on Form 10-Q of ML Principal Protection L.P.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 12, 2005 - ----------------------- By /s/ FABIO P. SAVOLDELLI ----------------------- Fabio P. Savoldelli Managing Director and Chief Investment Officer - Alternative Strategies Advisers Division (Principal Executive Officer) EX-31.02 3 a2162011zex-31_02.txt EX 31.02 EXHIBIT 31.02 RULE 13a-14(a)/15d-14(a) CERTIFICATIONS I, Patrick Hayward, certify that: 1. I have reviewed this report on Form 10-Q of ML Principal Protection L.P.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 12, 2005 - --------------------- By /s/ PATRICK HAYWARD ------------------- Patrick Hayward Chief Financial Officer (Principal Financial and Accounting Officer) EX-32.01 4 a2162011zex-32_01.txt EX 32.01 EXHIBIT 32.01 SECTION 1350 CERTIFICATIONS In connection with this quarterly report of ML Principal Protection L.P. (the "Company") on Form 10-Q for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (this "Report"), I, Fabio Savoldelli, Managing Director and Chief Investment Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant of the Sarbanes-Oxley Act of 2002, that: 1. This Report containing the financial statements fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 12, 2005 - --------------------- By /s/ FABIO P. SAVOLDELLI ------------------------ Fabio P. Savoldelli Managing Director and Chief Investment Officer - - Alternative Strategies and Advisers Division (Principal Executive Officer) EX-32.02 5 a2162011zex-32_02.txt EX 32.02 EXHIBIT 32.02 SECTION 1350 CERTIFICATIONS In connection with this quarterly report of ML Principal Protection L.P. ( the "Company") on Form 10-Q for the period ended June 30, 2005 filed with the Securities and Exchange Commission on the date hereof (this "Report"), I, Patrick Hayward, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant of the Sarbanes-Oxley Act of 2002, that: 1. This Report containing the financial statements fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 12, 2005 - ----------------------- By /s/ PATRICK HAYWARD -------------------- Patrick Hayward Chief Financial Officer (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----