<Page>
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 / /
<Page>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML PRINCIPAL PROTECTION L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL CONDITION
<Table>
<Caption>
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)
</Table>
See notes to financial statements.
2
<Page>
ML PRINCIPAL PROTECTION L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(unaudited)
<Table>
<Caption>
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)
============== ============== ============== ==============
</Table>
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
<Page>
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)
<Table>
<Caption>
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
============== ============== ============== ==============
</Table>
See notes to financial statements.
4
<Page>
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:
<Table>
<Caption>
JUNE 30,
2005
(UNAUDITED)
-----------------
Assets $ 284,340,898
=================
Liabilities $ 4,589,392
Partners' Capital 279,751,506
-----------------
Total $ 284,340,898
=================
</Table>
5
<Page>
<Table>
<Caption>
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)
==================== ==================== ==================== ====================
</Table>
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:
<Table>
<Caption>
NUMBER
SERIES OF UNITS
-------- ----------
A 2003 1.108721
2004 1.005565
S 125.174168
</Table>
6
<Page>
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.
<Table>
<Caption>
NUMBER
SERIES OF UNITS
- --------- ----------
G 110.859969
H 102.336331
O 129.904347
P 132.546751
Q 122.531124
R 123.779041
</Table>
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)
<Table>
<Caption>
NET ASSET VALUE
NET ASSET VALUE NUMBER OF UNITS PER UNIT
--------------- --------------- ---------------
Series 2005 Units $ 11,317,586 11,747,292 $ 0.9634
=============== ===============
</Table>
December 31, 2004
<Table>
<Caption>
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
=============== ===============
</Table>
7
<Page>
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
<Page>
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
<Table>
<Caption>
JAN. FEB. MAR. APR. MAY JUN.
----------------------------------------------------------------------
2004 $ 1.1075 $ 1.1504 $ 1.1486 $ 1.1082 $ 1.0940 $ 1.0602
</Table>
MONTH-END NET ASSET VALUE PER SERIES 2005 UNIT
<Table>
<Caption>
JAN. FEB. MAR. APR. MAY JUN.
----------------------------------------------------------------------
2005 $ 0.9659 $ 0.9763 $ 0.9788 $ 0.9514 $ 0.9519 $ 0.9634
</Table>
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
<Page>
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
<Page>
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
<Page>
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
<Page>
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
<Page>
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
<Page>
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