ML PRINCIPAL PROTECTION LP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

/X/ Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the fiscal year ended: December 31, 2002
or
/ / Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934

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 (I.R.S. Employer
incorporation or organization) Identification No.)

C/O MERRILL LYNCH INVESTMENT MANAGERS LLC
222 BROADWAY
27TH FLOOR
NEW YORK, NY 10038-2510
------------------------------------------
(Address of principal executive offices)

Registrant's telephone number, including area code: (609) 282-6996

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Limited Partnership
Units

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 / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant: the registrants are limited partnerships; as
of February 1, 2003, limited partnership units with an aggregate value of
$17,834,963 were outstanding and held by non-affiliates.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant's "2002 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 2002,
is incorporated by reference into Part II, Item 8 and Part IV hereof and filed
as an Exhibit herewith.

ML PRINCIPAL PROTECTION L.P.

ANNUAL REPORT FOR 2002 ON FORM 10-K

TABLE OF CONTENTS

i

PART I

ITEM 1: BUSINESS

(a) GENERAL DEVELOPMENT OF BUSINESS:

ML Principal Protection L.P. (the "Partnership") was organized
under the Delaware Revised Uniform Limited Partnership Act on January 3, 1994
and commenced trading activities on October 12, 1994. The Partnership is a
multi-strategy, multi-market managed futures investment vehicle employing a
range of proprietary strategies diversified across major markets of the global
economy -- financials, currencies, energy, metals and agriculture.

MLIM Alternative Strategies LLC ("MLIM AS LLC"), a wholly-owned
subsidiary of Merrill Lynch Investment Managers, LP ("MLIM"), which, in turn, is
an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch"), was the general partner of the Partnership. As of February 28, 2003,
the general partner interest and the management authority of the Partnership was
assigned from MLIM AS LLC to Merrill Lynch Investment Managers LLC ("MLIM LLC"),
a wholly-owned subsidiary of MLIM, as part of an internal Merrill Lynch
reorganization. This change did not affect the personnel involved in the
management of the Partnership. Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") is the Partnership's commodity broker.

Many of the multi-advisor funds (the "Multi-Advisor Funds")
sponsored by MLIM AS LLC allocate their assets to a number of the same
independent advisors (the "Advisors"). MLIM AS LLC consolidated the trading
accounts of nine of its Multi-Advisor Funds as of June 1, 1998. The
consolidation was achieved by having these Multi-Advisor Funds close their
existing trading accounts and invest in a limited liability company, MM LLC, a
Delaware limited liability company, which opened a single account with each
Advisor selected. On September 1, 2000, the Partnership joined MM LLC in a
similar manner along with another Multi-Advisor Fund sponsored by MLIM AS LLC.
MM LLC has been managed by MLIM AS LLC, and is now being managed by MLIM LLC,
has no investors other than the Multi-Advisor Funds and serves solely as the
vehicle through which the assets of such Multi-Advisor Funds are combined in
order to be managed through single rather than multiple accounts. The placement
of assets into MM LLC did not change the operations or fee structure of the
Partnership; therefore, the following notes also relate to the operation of the
Partnership through its investment in MM LLC. The administrative authority over
the Partnership remains with MLIM LLC. MLIM LLC, on an ongoing basis, may change
the number of Multi-Advisor Funds investing in MM LLC.

The Partnership offers its units of limited partnership interest
("Units"), and receives and processes subscriptions, on a continuous basis
throughout each calendar quarter. Investors whose subscriptions are accepted at
any time during a calendar quarter are admitted to the Partnership as limited
partners as of the beginning of the immediately following quarter, acquiring
Units at $100 per Unit. Investors' customer securities accounts are debited in
the amount of their subscriptions on settlement dates throughout each quarter
shortly after their subscriptions are accepted by MLIM LLC. Subscription
proceeds received during a quarter are held in escrow pending investment in
Units as of the beginning of the following quarter. All interest earned on
subscriptions while held in escrow is paid to the investors on or about the date
that Units are issued to them or their subscription is rejected.

The Units sold, generally, at the beginning of each calendar
quarter, are sold in separate Series, each of which has its own Net Asset Value.
All Series trade pursuant to the same Advisor combination, but because they
begin trading at different times they have different Net Asset Values and may
have different percentages of their capital invested in MM LLC or prior to
September 1, 2000, the ML Principal Protection Trading L.P. (the "Trading
Partnership").

Only the assets attributable to each Series of Units allocated
to trading are allocated to the Advisors for management through MM LLC.

As of December 31, 2002, the Partnership's capitalization was
$17,440,562 and the Net Asset Value per Series A Unit (the initial Series of
Units), originally $100 as of October 12, 1994, had risen to $151.52 (adding
back $29.50 in Distributions).

1

Through December 31, 2002, the highest month-end Net Asset Value
of a Series A Unit was $151.52 (adding back $29.50 in Distributions) (December
31, 2002) and the lowest was $101.04 (December 31, 1994).

The outstanding Series of Units, which have not reached the
Principal Assurance Date, as defined below, are entitled to fixed-rate annual
distributions and may also receive certain discretionary distributions. No
distributions are made on any Series of Units sold after May 1, 1997.

The Partnership is a "principal protected" commodity pool.
Merrill Lynch provides the guarantee described below under 1(c), "Narrative
Description of Business -- Merrill Lynch's 'Principal Protection' Undertaking to
the Partnership" that all Units of any given Series will have a Net Asset Value
- -- after payment of all fixed-rate annual as well as discretionary distributions
on such Units, in the case of Units sold on or prior to May 1, 1997 -- of at
least their initial $100 subscription price as of a specified date after their
issuance (the "Principal Assurance Date" for such Series, seven years after
issuance for all outstanding Series sold before May 1, 1997 and five years after
issuance for all Series sold thereafter). This guarantee does not prevent
substantial losses, but rather serves only as a form of "stop loss," limiting
the maximum loss which investors who retain their Units until such Units'
Principal Assurance Date can incur. In order to protect Merrill Lynch from any
liability under its guarantee, MLIM LLC imposes substantial opportunity costs on
the Partnership by deleveraging its trading, retaining a substantial portion of
the Partnership's assets in the Partnership rather than investing such assets in
the Trading Partnership for allocation to trading. If the Net Asset Value per
Unit of a Series declines to 110% or less of the present value of $100, plus any
fixed-rate annual distributions due on such Series, discounted back from the
Principal Assurance Date, MLIM LLC would terminate trading with respect to such
Series altogether in order to ensure that Merrill Lynch incurred no financial
obligation to the Partnership under Merrill Lynch's guarantee of the minimum Net
Asset Value per Unit of such Series. The Principal Assurance Dates for Series A
through F and K through N came to term on or before December 31, 2002 and were
not renewed. The above Series Units remain outstanding, with 100% of their
assets allocated to trading, without any "principal protection" feature and no
longer pay annual distributions.

In the case of Units sold after May 1, 1997, the potential
opportunity costs of the Partnership's "principal protection" are significantly
increased due to the fact that in the event that MLIM LLC deleverages any Series
of such Units, it must deleverage all Series to the same degree. A Series could
be deleveraged as a result of losses which accrued subsequent to such Series
having recognized profits more than sufficient to offset such losses, but which
were earned before a more recent Series was issued and, consequently, were not
available to offset the same losses incurred by such Series. Conversely, losses
incurred before a particular Series is issued could indirectly cause a further
deleveraging of such Series' trading due to the effect of such losses on the
leverage which MLIM LLC believes is appropriate to use for an earlier-issued
Series.

(b) FINANCIAL INFORMATION ABOUT SEGMENTS:

The Partnership's business constitutes only one segment for
financial reporting purposes, i.e., a speculative "commodity pool." The
Partnership does not engage in sales of goods or services.

(c) NARRATIVE DESCRIPTION OF BUSINESS:

GENERAL

The Partnership trades, through MM LLC, in the international
futures, options on futures, forwards and options on forward markets, with the
objectives of achieving long-term capital appreciation while controlling
performance volatility while assuring investors of at least a predetermined
minimum Net Asset Value per Unit as of the Principal Assurance Date, with
respect to those Series whose Principal Assurance Date has not passed. The
Partnership's investment in MM LLC is allocated and reallocated by MLIM LLC to
the trading management of the Advisors applying proprietary strategies in
numerous markets. MLIM LLC may, from time to time, direct certain individual
Advisors to manage their Partnership accounts as if they were managing up to 50%
more equity than the actual capital allocated to them.

One of the objectives of the Partnership is to provide
diversification for a limited portion of the risk segment of the Limited
Partners' portfolios. Commodity pool performance has historically often
demonstrated a low degree of performance correlation with traditional stock and
bond holdings. Since it began trading, the Partnership's returns have, in fact,
frequently been non-correlated with the United States stock and bond markets.

2

MERRILL LYNCH'S "PRINCIPAL PROTECTION" UNDERTAKING TO THE
PARTNERSHIP

Merrill Lynch agreed to contribute sufficient capital to the
Partnership so that it will have adequate funds, after adjusting for all
liabilities to third parties, that the Net Asset Value per Unit of each Series
will be no less than $100 as of the Principal Assurance Date for such Series
(after the payment of all distributions, if any, on Units of such Series). This
guarantee, which is effective with respect to any given Series as of the
Principal Assurance Date for such Series, is a guarantee only of a return of an
investor's initial investment (plus distributions, if any). It is not a
guarantee against the loss of the time value of such investment or a guarantee
of profit. The Principal Assurance Dates for Series A through F and K through N
came to term on or before December 31, 2002, respectively and were not renewed.
The above Series Units remain outstanding, with 10% of its assets allocated to
trading, without any "principal protection" feature and no longer pay annual
distributions.

OPERATION OF A SERIES AFTER ITS PRINCIPAL ASSURANCE DATE

MLIM LLC may determine to dissolve a Series as of its Principal
Assurance Date, to extend the Merrill Lynch guarantee for a certain period of
time (resetting the minimum Net Asset Value per Unit of such Series guaranteed
by Merrill Lynch) or to continue to operate such Series without a "principal
protection" feature. Series A through F and K through N continue to operate
without the "principal protection" feature.

CONSOLIDATION OF SERIES

MLIM LLC after making the previously announced distributions for
Series F and prior to the opening of business on January 2, 2003, consolidated
those series that had come to term on or before December 31, 2002 (Series A
through F and K through N) into a new series, Series A 2003, with a $1.00 per
Unit Net Asset Value. The aggregate Net Asset Value of each investor's new Units
was equal to the aggregate Net Asset Value of their original Units as of
December 31, 2002. The consolidation had no economic effect on the investors.
MLIM LLC contributed $5,499 to the Partnership, the amount necessary due to the
effects of rounding, to insure all investors received Units equal in value to
their original holdings at December 31, 2002. The following is a listing of the
number of new Series A 2003 Units each investor received for each Unit of their
original series holding.

TWO-TIER STRUCTURE OF THE PARTNERSHIP

Prior to September 1, 2000, the Partnership did not trade in the
futures and forwards markets directly, but rather through the Trading
Partnership. The Partnership's liability for any trading losses was limited to
the Partnership's investment in the Trading Partnership. Effective September 1,
2000, the Partnership consolidated its trading accounts with those of certain
other multi-advisor managed futures funds sponsored by MLIM AS LLC. The Trading
Partnership is no longer trading directly through managed accounts with each of
its advisors, but invested in MM LLC. As of January 1, 2001, the Trading
Partnership was liquidated and the Partnership invested directly into MM LLC.

3

USE OF PROCEEDS AND CASH MANAGEMENT INCOME

SUBSCRIPTION PROCEEDS.

MLIM LLC pays from its own funds the selling commissions
relating to the sale of the Units. Accordingly, 100% of the proceeds of Unit
sales are received in cash by the Partnership and are available for use in its
speculative trading. In such trading, the Partnership's assets are used as
security for and to pay the Partnership's trading losses as well as any expenses
and redemptions. The primary use of the proceeds of the sale of the Units is to
permit the Advisors to trade on a speculative basis in a wide range of different
futures, options on futures, forwards and options on forward markets on behalf
of the Partnership. While being used for this purpose, the Partnership's assets
are also generally available for cash management and to earn interest, as more
fully described below under "Available Assets."

MARKET SECTORS.

The Partnership trades, through MM LLC, in a diversified group
of markets under the direction of multiple independent Advisors. These Advisors
can, and do, from time to time, materially alter the allocation of their overall
trading commitments among different market sectors. Except in the case of
certain trading programs which are purposefully limited in the markets which
they trade, there is essentially no restriction on the commodity interests which
may be traded by any Advisor or the rapidity with which an Advisor may alter its
market sector allocations.

MARKET TYPES.

The Partnership trades, through MM LLC, on a variety of United
States and foreign futures exchanges. Substantially all of the Partnership's
off-exchange trading takes places in the highly liquid, institutionally-based
currency forward markets.

Many of the Partnership's currency trades, through MM LLC, are
executed in the spot and forward foreign exchange markets (the "FX Markets")
where there are no direct execution costs. Instead, the participants, banks and
dealers, in the FX Markets take a "spread" between the prices at which they are
prepared to buy and sell a particular currency and such spreads are built into
the pricing of the spot or forward contracts with the Partnership. In its
exchange of futures for physical ("EFP") trading, the Partnership acquires cash
currency positions through banks and dealers. The Partnership pays a spread when
it exchanges these positions for futures. This spread reflects, in part, the
different settlement dates of the cash and the futures contracts, as well as
prevailing interest rates, but also includes a pricing spread in favor of the
banks and dealers, which may include a Merrill Lynch entity.

As in the case of its market sector allocations, the
Partnership's commitments to different types of markets -- U.S. and non-U.S.,
regulated and non-regulated -- differ substantially from time to time as well as
over time. The Partnership has no policy restricting its relative commitments to
any of these different types of markets.

CUSTODY OF ASSETS.

All of the Partnership's assets are currently held in customer
accounts at Merrill Lynch.

AVAILABLE ASSETS.

Prior to May 26, 2000, the Partnership earned income, as
described below, on its "Available Assets," which could be generally described
as the cash actually held by the Partnership or invested in Treasury bills.
Available Assets were held primarily in U.S. dollars, and to a lesser extent, in
foreign currencies, and were comprised of the following: the Partnership's cash
balances held in the offset accounts (as described below) which include "open
trade equity" (unrealized gain and loss on open positions) on United States
futures contracts, which is paid into or out of the Partnership's account on a
daily basis; and the Partnership's cash balance in foreign currencies derived
from its trading in non-U.S. dollar denominated futures and options contracts,
which includes open trade equity on those exchanges which settle gains and
losses on open positions in such contracts prior to closing out such positions.
Available Assets do not include, and the Partnership does not earn interest on,
the Partnership's gains or losses on its open forward, commodity option and
certain foreign futures positions since such gains and losses are not collected
or paid until such positions are closed out.

4

The Partnership's Available Assets may be greater than, less
than or equal to the Partnership's Net Asset Value (on which the redemption
value of the Units is based) primarily because Net Asset Value reflects all
gains and losses on open positions, as well as accrued but unpaid expenses.

THE PARTNERSHIP'S U.S. DOLLAR AVAILABLE ASSETS MANAGED BY MLIM.

Prior to May 26, 2000, a portion of the Partnership's U.S.
dollar Available Assets were managed directly by MLIM, pursuant to guidelines
established by MLIM AS LLC, for which MLIM assumed no responsibility, in the
Government Securities markets. MLIM AS LLC's objective in retaining MLIM was to
provide cash management services to the Partnership and to enhance the return
earned on the Partnership's U.S. dollar Available Assets managed by MLIM to
slightly above the 91-day Treasury bill rate. On May 26, 2000, the Government
Securities were liquidated and the management agreement with MLIM was
terminated.

INTEREST PAID BY MERRILL LYNCH ON THE PARTNERSHIP'S U.S. DOLLAR
AND NON U.S. DOLLAR ASSETS

The Partnership's U.S. dollar assets are maintained at MLPF&S.
On assets held in U.S. dollars, Merrill Lynch credits the Partnership with
interest at the prevailing 91-day U.S. Treasury bill rate. The Partnership is
credited with interest on any of its assets and net gains actually held by
Merrill Lynch in non-U.S. dollar currencies at a prevailing local rate received
by Merrill Lynch. Merrill Lynch may derive certain economic benefit, in excess
of the interest which Merrill Lynch pays to the Partnership, from possession of
such assets.

Merrill Lynch charges the Partnership directly, and after
September 1, 2000 through MM LLC, Merrill Lynch's cost of financing realized and
unrealized losses on the Partnership's non-U.S. dollar-denominated positions.

CHARGES

The following table summarizes the charges incurred by the
Partnership during 2002, 2001, and 2000 directly or through MM LLC.

Subsequent to September 1, 2000, Brokerage Commissions,
Administrative Fees and Profit Shares were paid by the Partnership through its
investment in MM LLC. During 2002 and 2001, the Partnership had 100% of its
assets invested in MM LLC. The charges incurred by MM LLC are passed through to
the Partnership (see "Description of Current Charges").

The foregoing table does not reflect the bid-ask spreads paid by
the Partnership on its forward trading, or the benefits which may be derived by
Merrill Lynch from the deposit of certain of the Partnership's U.S. dollar
available assets in offset accounts.

The Partnership's average month-end Net Assets during 2002,
2001, and 2000 equaled $18,933,468, $23,799,347 and $32,066,319, respectively.

5

During 2002, 2001 and 2000, the Partnership earned directly or
through its investment in MM LLC $364,235, $847,680, and $1,936,380 in interest
income, or approximately 1.92%, 3.56%, and 6.04% of the Partnership's average
month-end Net Assets.

DESCRIPTION OF CURRENT CHARGES

6

--------------

REGULATION

MLIM LLC, the Advisors and MLPF&S are each subject to regulation
by the Commodity Futures Trading Commission (the "CFTC") and the National
Futures Association ("NFA"). Other than in respect of its periodic reporting
requirements under the Securities Exchange Act of 1934, and the registration of
the Units for continuous public distribution under the Securities Act of 1933,
the Partnership itself is generally not subject to regulation by the Securities
and Exchange Commission (the "SEC"). However, MLIM LLC itself is registered as
an "investment adviser" under the Investment Advisers Act of 1940. MLPF&S is
also regulated by the SEC and the National Association of Securities Dealers.

(i) through (xii)-- not applicable.

(xiii) The Partnership has no employees.

(d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS:

The Partnership does not engage in material operations in
foreign countries, nor is a material portion of the Partnership's revenue
derived from customers in foreign countries. However, the Partnership trades,
through MM LLC, on a number of foreign commodity exchanges. The Partnership does
not engage in the sales of goods or services.

ITEM 2: PROPERTIES

The Partnership does not use any physical properties in the
conduct of its business.

The Partnership's administrative offices are the administrative
offices of MLIM LLC (Merrill Lynch Investment Managers LLC, 222 Broadway, 27th
Floor, New York, NY 10038-2510). MLIM LLC performs all administrative services
for the Partnership from MLIM LLC's offices.

ITEM 3: LEGAL PROCEEDINGS

Merrill Lynch -- a partner of MLIM, which is the sole member of MLIM LLC --
as well as certain of its subsidiaries and affiliates have been named as
defendants in civil actions, arbitration proceedings and claims arising out of
their respective business activities. Although the ultimate outcome of these
actions cannot be predicted at this time and the results of legal proceedings
cannot be predicted with certainty, it is the opinion of management that the
result of these matters will not be materially adverse to the business
operations or financial condition of MLIM LLC or the Partnership.

Neither MLIM LLC itself nor the Partnership has never been the
subject of any material litigation.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Partnership has never submitted any matters to a vote of its
Limited Partners.

7

PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

ITEM 5(a)

(a) MARKET INFORMATION:

There is no established public trading market for the Units, nor
will one develop. Limited Partners may redeem Units as of the end of each month
at Net Asset Value, subject to certain early redemption charges. Units redeemed
prior to the Principal Assurance Date are not entitled to any benefits under the
Merrill Lynch, Inc. guarantee.

(b) HOLDERS:

As of December 31, 2002, there were 1,084 holders of Units,
including MLIM AS LLC.

(c) DIVIDENDS:

For Series issued on or prior to May 1, 1997, the Partnership
makes annual fixed-rate distributions, payable irrespective of profitability, of
$3.50 per Unit. MLIM LLC may also make discretionary distributions of up to 50%
of any Distributable New Appreciation, as defined, recognized as of each
twelve-month anniversary of the issuance of each Series of Units, subject to an
annual limit of 4% of the Net Asset Value per Unit of each Series as of the
beginning of the preceding twelve-month period. Distributions, whether
fixed-rate or discretionary, do not reduce the $100 minimum Net Asset Value per
Unit assured to investors as of the Principal Assurance Date for their Series of
Units. For those Series whose principal protection feature has not been renewed,
currently Series A through F and K through N, the annual fixed rate distribution
has been terminated.

As of December 31, 2002, 2001 and 2000, the Partnership had made the
following distributions:

8

The Partnership does not make any distributions on any Series of
Unit issued subsequent to May 1, 1997.

(d) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
PLANS:

Not applicable.

(e) RECENT SALES OF UNREGISTERED SECURITIES;

Not applicable.

(f) USE OF PROCEEDS FROM REGISTERED SECURITIES

The Partnership has units registered with an aggregate price of
$462,114,000. The Partnership has sold units with an aggregate price of
$164,506,495.

ITEM 5(b)

Not applicable.

ITEM 6: SELECTED FINANCIAL DATA

The following selected financial data has been derived from the audited
financial statements of the Partnership:

9

10

(1) MLIM AS LLC was general partner of the Trading Partnership before it
was dissolved. Because the Partnership owned substantially all of the Trading
Partnership prior to January 1, 2001, Trading Partnership activities are
referred to as Partnership activities in this Report. The minority interest
represents MLIM AS LLC's share, as general partner of the Trading Partnership,
of the Trading Partnership's profit or loss.

(2) Net of aggregate distribution of $29.50 per unit on Series A Units,
$31.50 on Series B Units, $28.50 on Series C Units, $26.50 on Series D Units,
$26.50 on Series E Units, $24.75 on Series F Units, $24.50 on Series G Units and
$24.50 on Series H Units

(3) Net of aggregate distribution of $29.50 per unit on Series A Units,
$28.00 on Series B Units, $25.00 on Series C Units, $23.00 on Series D Units,
$23.00 on Series E Units, $21.25 on Series F Units, $21.00 on Series G Units and
$21.00 on Series H Units

(4) Net of aggregate distribution of $26.00 per unit on Series A Units,
$24.50 on Series B Units, $21.50 on Series C Units, $19.50 on Series D Units,
$19.50 on Series E Units, $17.75 on Series F Units, $17.50 on Series G Units and
$17.50 on Series H Units.

(5) Net of aggregate distribution of $22.50 per unit on Series A Units,
$21.00 on the Series B Units, $18.00 on the Series C Units, $16.00 on the Series
D Units, $16.00 on the Series E Units, $14.25 on the Series F Units, $14.00 on
the Series G Units and $14.00 on the Series H Units.

(6) Net of aggregate distribution of $19.00 per unit on Series A Units,
$17.50 on the Series B Units, $14.50 on Series C Units, $11.50 on Series D
Units, $12.50 on Series E Units, $10.75 on Series F Units, $10.50 on Series G
Units and $9.50 on Series H Units.

ML PRINCIPAL PROTECTION L.P.
DECEMBER 31, 2002

TYPE OF POOL: Multi-Advisor;
Selected Advisor/Publicly-Offered/"Principal Protected"(1)
INCEPTION OF TRADING: October 12, 1994
AGGREGATE SUBSCRIPTIONS: $164,976,175
CURRENT CAPITALIZATION: $17,440,562
WORST MONTHLY DRAWDOWN:(2) (4.00)% (11/01)
WORST PEAK-TO-VALLEY DRAWDOWN:(3) (7.88)% (11/01-2/02)

Rates of Return are presented on a composite, not a Series-by-Series, basis.

-------------------------

11

All Units issued on or prior to May 1, 1997 commenced trading
with 60%, and Units issued after May 1, 1997 with 75%, of their assets allocated
to trading. Beginning May 1, 1998, all Units issued after May 1, 1997 have
initially allocated 85% of their assets to trading.

-------------------------

(1) Pursuant to applicable CFTC regulations, a "Multi-Advisor"
Partnership is defined as one that allocates no more than 25% of its Trading
Assets to any single manager. The Partnership does not currently allocate more
than 25% of its Trading Assets to any single Advisor but may do so in the
future; consequently, it is referred to as a "Multi-Advisor; Selected Advisor"
Partnership. Certain funds, including funds sponsored by MLIM AS LLC, are
structured so as to guarantee to investors that their investment will be worth
no less than a specified amount (typically, the initial purchase price) as of a
date certain after the date of investment. The CFTC refers to such funds as
"Principal Protected." The Merrill Lynch Guarantee and MLIM AS LLC- related
deleveraging of the Partnership's trading provides the "Principal Protection"
feature of the Partnership. The "Principal Protection" feature no longer applies
to Series A through F and K through N as of December 31, 2002.

(2) Worst Monthly Drawdown represents the largest negative
Monthly Rate of Return experienced by the Partnership since January 1, 1998; a
Drawdown is measured on the basis of month-end Net Asset Value only, and does
not reflect intra-month figures.

(3) Worst Peak-to-Valley Drawdown represents the greatest
percentage decline from a month-end cumulative Monthly Rate of Return since
January 1, 1998 without such cumulative Monthly Rate of Return being equaled or
exceeded as of a subsequent month-end. For example, if the Monthly Rate of
Return was (1)% in each of January and February, 1% in March and (2)% in April,
the Peak-to-Valley Drawdown would still be continuing at the end of April in the
amount of approximately (3)%, whereas if the Monthly Rate of Return had been
approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of
the end of February at approximately the (2)% level.

(4) Monthly Rate of Return is the net performance of the
Partnership during the month of determination (including interest income and
after all expenses accrued or paid) divided by the total equity of the
Partnership as of the beginning of such month.

(a) After reduction for the first and second annual distributions of $6.00 each
and the $3.50 per Series A Unit distribution made as of October 1, 1997.

(b) After reduction for the first, second and third annual distribution and the
$3.50 per Series A Unit distribution made on October 1, 1998.

(c) After reduction for the first, second, third and fourth annual distribution
and the $3.50 per Series A Unit distribution made on October 1, 1999.

(d) After reduction for the first, second, third, fourth and fifth annual
distribution and the $3.50 per Series A Unit distribution made on October 1,
2000.

(e) After reduction for the first, second, third, fourth, fifth and sixth annual
distribution and the $3.50 per Series A Unit distribution made on October 1,
2001.

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE TWO-TIER STRUCTURE OF THE PARTNERSHIP

Effective September 1, 2000, the Partnership consolidated its
trading accounts with those of certain other multi-advisor managed future funds
sponsored by MLIM AS LLC. The Trading Partnership is no longer trading directly
through managed accounts with each of its Advisors, but investing in MM LLC.
Prior to September 1, 2000, the

12

Partnership did not trade in the futures and forwards markets directly, but
rather through the Trading Partnership. The Partnership's liability for any
trading losses is still limited to the Partnership's investment in the Trading
Partnership.

Different Series of Units allocate different percentages of
their overall capital to trading, through MM LLC. All trading profits and losses
are shared pro rata among the different series based on their respective
investments in MM LLC.

On January 1, 2001, the Trading Partnership was dissolved. MLIM
AS LLC redeemed its entire investment and the Partnership immediately invested
its redemption proceeds directly into MM LLC, giving the Partnership a direct
investment in MM LLC rather than through the Trading Partnership. This action
did not effect the operation of the Partnership or MM LLC and was done at no
cost to the investors. Any costs have been absorbed by MLIM AS LLC. MLIM LLC (as
successor general partner to MLIM AS LLC) continues to maintain a 1% General
Partner interest in the Partnership.

RESULTS OF OPERATIONS

ADVISOR SELECTIONS

The Partnership's results of operations depend on MLIM LLC's
ability to select Advisors and the Advisors' ability to trade profitably. MLIM
LLC's selection procedures and trading leveraging analysis, as well as the
Advisors' trading methods, are confidential, so that substantially the only
available information relevant to the Partnership's results of operations is its
actual performance record to date. Because of the speculative nature of its
trading, the Partnership's past performance is not necessarily indicative of its
future results.

MLIM AS LLC has made and MLIM LLC expects to continue making
frequent changes to both trading asset allocations among Advisors and Advisor
combinations as well as from time to time adjusting the percentage of the
Partnership's assets committed to trading. All Series of Units trade under the
direction of the same Advisor allocation and combination, and may be changed
from time to time by MLIM LLC.

MLIM LLC's decision to terminate or reallocate assets among
Advisors is based on a combination of numerous factors. Advisors are, in
general, terminated primarily for unsatisfactory performance, but other factors
- -- for example, a change in MLIM LLC's or an Advisor's market outlook, apparent
deviation from announced risk control policies, excessive turnover of positions,
changes in principals, commitment of resources to other business activities,
etc. -- may also have a role in the termination or reallocation decision. The
market judgment and experience of MLIM LLC's principals is an important factor
in its asset allocation decisions.

MLIM LLC has no timetable or schedule for making Advisor changes
or reallocations, and generally makes a medium- to long-term commitment to all
Advisors selected. There can be no assurance as to the frequency or number of
Advisor changes that may take place in the future, or as to how long any of the
current Advisors will continue to manage assets for the Partnership.

General

A number of the Advisors are trend-following traders, whose
programs do not attempt to predict price movements. No fundamental economic
supply or demand analyses are used by these Advisors, and no macroeconomic
assessments of the relative strengths of different national economies or
economic sectors are evaluated. Instead, the programs apply proprietary computer
models to analyzing past market data, and from this data alone attempt to
determine whether market prices are trending. These technical traders base their
strategies on the theory that market prices reflect the collective judgment of
numerous different traders and are, accordingly, the best and most efficient
indication of market movements. However, there are frequent periods during which
fundamental factors external to the market dominate prices.

If a trend-following Advisor's models identify a trend, they
signal positions which follow it. When these models identify the trend as having
ended or reversed, these positions are either closed out or reversed. Due to
their trend-following character, these Advisors' programs do not predict either
the commencement or the end of a price movement. Rather, their objective is to
identify a trend early enough to profit from it and detect its end or reversal
in time to close out the Partnership's positions while retaining most of the
profits made from following the trend.

13

In analyzing the performance of trend-following programs,
economic conditions, political events, weather factors, etc., are not directly
relevant because only market data has any input into trading results.
Furthermore, there is no direct connection between particular market conditions
and price trends. There are so many influences on the markets that the same
general type of economic event may lead to a price trend in some cases but not
in others. The analysis is further complicated by the fact that the programs are
designed to recognize only certain types of trends and to apply only certain
criteria of when a trend has begun. Consequently, even though significant price
trends may occur, if these trends are not comprised of the type of intra-period
price movements which the programs are designed to identify, a trend-following
Advisor may miss the trend altogether.

In the case of the Advisors who implement strategies which rely
more on discretion and market judgment, it is not possible to predict, from
their performance during past market cycles, how they will respond to future
market events.

PERFORMANCE SUMMARY

This performance summary is an outline description of how the
Partnership performed in the past, not necessarily any indication of how it will
perform in the future. In addition, the general causes to which certain price
movements are attributed may or may not in fact have caused such movements, but
simply occurred at or about the same time.

The Advisors, as a group, are unlikely to be profitable in
markets in which such trends do not occur. Static or erratic prices are likely
to result in losses. Similarly, unexpected events (for example, a political
upheaval, natural disaster or governmental intervention) can lead to major
short-term losses, as well as gains.

While there can be no assurance that any Advisor will be
profitable, under any given market condition, markets in which substantial and
sustained price movements occur typically offer the best profit potential for
the Partnership.

2002

During 2002, all of the Partnership's assets were invested in MM
LLC. The Partnership received trading profits as an investor in MM LLC. The
following commentary of 2002 describes the trading results for MM LLC during the
year.

The Partnership's overall trading performance was successful
with gains in interest rates and currency sectors contributing the most profits.

Results from the interest rate sector provided solid positive
performance for the Partnership. Most profits were returned in the third quarter
and the month of December. The yield curve on major debt instruments declined
throughout the third quarter. This market environment was supported by the
increased risk aversion, the continued U.S. stock market decline and the
conflicting reports regarding the pace of the U.S. economic recovery. The
economic news from Europe also pointed to a weak recovery overseas. During
December, trading strategies capitalized on the lowered interest rates by the
European Central Bank, causing the Euribor rates to trend higher.

Profits resulting from trading in the currency sector provided
the Partnership with gains in the second quarter and December, which outweighed
losses sustained during other periods in the year. The decline in the U.S.
dollar during the first half of the year continued through June unabated, fueled
by the decline in the U.S. equity markets. The trading strategies were able to
capitalize on the declining U.S. dollar in December and weather the volatility
of the currency market during the last two weeks of the year.

Agricultural commodities brought in slight trading gains for the
year. A second and third quarter run up was able to offset the losses sustained
in the first quarter and in December. The beginning of the year brought
uncertainty in the global market place creating a difficult trading environment.
The continued weakness in the U.S. dollar and low stockpiles in grains and
soybeans aided in sustaining a price rally in the summer months. Grains and
soybeans rallied to due weather and supply concerns. The summer drought produced
expectations of a reduced harvest this season. The sector returned some gains
later in September, as harvests were not as bad as was feared. The fourth
quarter showed some significant profits in the short sugar positions as prices
dropped hard in October. In December, soybeans had a large sell-off, which had a
large impact on the soybean oil spread trade being held by the

14

Partnership.

The energy sector brought in losses for the year. Recoveries
being made in August and September were completely reversed and worsened in
October and November. Crude oil led the gains in August and September as
continued talk of military action against Iraq built a risk premium into prices.
In October, crude oil reversed sharply as fears over a war with Iraq subsided
and reversed its long trend going from $31 a barrel to $27 during the month. In
November, news of the Iraqi acceptance of the UN resolution for arms inspections
was expected to further drive prices down but unexpectedly failed to do so,
resulting in continued losses in the portfolio of short crude positions.

The metals sector incurred losses for the Partnership despite a
settlement payment in August relating to certain copper trades made by a number
of investors, including the Partnership, during a period in the mid-1990s.
Members of the class were those who purchased or sold Comex copper futures or
options contracts between June 24, 1993 and June 15, 1996. The effect of the
settlement payment was included in the Partnership's performance in August.

The trading in stock indices found profits from its short
positions during the second and third quarters of the year but were unable to
offset losses in the first and last quarter. The strength of U.S. economic data
continued to surprise on the upside, pointing toward a stronger recovery than
expected, but the equity markets remained weak. The downward trending market
created a good environment for the trend following traders, as investors in the
equity markets were still liquidating equity exposure during the third quarter.

2001

During 2001, all of the Partnership's assets were invested in MM
LLC. The Partnership received trading profits as an investor in MM LLC. The
following commentary of 2001 describes the trading results for MM LLC during the
year.

Trading in the interest rate sector was the most successful
strategy for 2001. The impact of the weakening U.S. economy and the Federal
Reserve's move to cut interest rates was felt throughout the futures market, as
Euro futures contracts rose dramatically since December 2000. Eurodollar
positions continued to post gains later in the year. Swiss franc short term
interest rate contract trading and short Sterling 500 positions were also
profitable. In October, the U.S. Treasury's announcement to stop issuing 30 year
debt, coupled with worldwide governments easing of monetary policy, benefited
long positions across the global yield curve.

Despite year long volatility, stock index trading was
profitable. Short positions resulted in gains as global equity markets remained
caught between negative news about corporate earnings, the potential effects of
further monetary easing and the global economic slump would worsen as an
aftermath of the September 11 attacks. The global equity markets improved by
year end, driven by the rebounding technology sector.

Agricultural commodities trading was successful despite losses
sustained early in the year. Excellent growing weather in the U.S., Argentina
and Brazil, concerns about the U.S. export potential and inventories at
historically high levels, kept the markets on the defensive. The cotton market
sank to a 15 year low on short supply and increased demand. Short corn and
cotton positions were profitable at mid year. By October, the soybean complex
posted gains as the crushing capacity tightened up, driving spreads up to
between $0.80-$1.00 in nearby delivery months, crushing spreads had been near
the $0.60 range.

Trading in the metals markets was successful. Silver prices
reversed its earlier trend in February, as short positions were profitable.
Silver trading continued to be volatile as China exports were high due to poor
domestic demand, adversely affecting prices. Short positions in base metals
posted gains in October as a weak economic outlook kept prices depressed. By
year end, base metals reversed their downward trend on expectations of a quick
economic recovery, generating losses on short positions.

Currency trading suffered losses for the Partnership. Long Euro
positions realized losses as the Euro fell back to the $0.90 level, despite
strong fundamentals. The further weakening of the Euro and Japanese yen
displayed how the global economy is not immune to the U.S. economic slowdown.
Long British pound positions were profitable in September as it appreciated
versus the U.S. dollar on concerns of the negative economic implications from
the September 11

15

attacks.

Energy trading was the most unprofitable strategy in 2001. Early
on, crude oil prices were driven lower by both a seasonal downturn in global
energy usage and heavier than normal refinery maintenance work, reducing demand.
The sector continued to fade from downside pressure from a slowing global
economy, inventory surplus and OPEC's decision to leave production levels
unchanged. Oil prices sank in the last quarter as traders feared the attacks
would cripple the airline industry, a major consumer of oil.

2000

Energy trading was successful for the year. Long crude oil and
unleaded gas positions realized gains early in the year despite the possibility
of OPEC increasing oil production. A hike would still leave oil inventories at
levels much below normal during the balance of the year. Prices continued to
rise throughout the year as the International Energy Agency reported the need
for additional oil to prevent a shortage in inventory. During the fourth
quarter, fears of supply shortages pushed prices higher as average winter
temperatures dropped from the previous year.

Currency trading alternated from unprofitable to profitable
throughout the year. The Euro declined against the U.S. dollar early in the year
after officials from the Group of Seven met and failed to express concern about
the low levels of the European currency producing profits. Other factors to the
decline include the slow pace of microeconomic reform in Europe, plans for a
European withholding tax and the scale of direct investment flows outside of
Europe. During the second quarter, gains from short Euro currency and long Swiss
franc positions outweighed losses sustained in other currencies. Despite the
dramatic interest rate hikes by the Swiss National Bank ("SNB") and the weakness
of the Euro, the SNB said it would not keep the Swiss franc from rising. The
British pound was particularly weak in the wake of the Bank of England's
references to "sterling overvaluation." Gains realized on short Japanese yen
positions were outweighed by losses sustained in the Euro positions as it fell
to a record low despite stronger than expected European financial data and the
success of the German tax reform package. Currency trading finished off the year
strong as gains in the Canadian dollar out weighed losses sustained from Euro
positions. Short positions in the Canadian dollar were profitable as the
currency weakened during the month despite worsening U.S. dollar fundamentals, a
large Canadian budget surplus and plans for tax cuts in Canada.

Slight profits were earned during the year in the interest rate
sector. Short Eurodollar trading was profitable as the currency continued to
decline early in the year. The European Union ministers blamed the currency's
slide in January on rapid U.S. growth and fears that the Federal Reserve will
increase U.S. interest rates. These profits were far outweighed by losses in the
U.S. ten year Treasury note positions and long U.S. Treasury positions as the
yield curve fluctuated widely. U.S. bond yields fell during the year as
investors shifted to Treasuries due to increased volatility in the NASDAQ and
other equity markets. Uncertainty surrounding the U.S. Presidential election had
investors favoring the bond markets resulting in gains for the Partnership's
long positions. Strong gains in both Euro and three-month Euribor futures
rallied the sector for the year eliminating previous losses.

Agricultural commodity trading produced losses for the year.
Losses were realized in short corn positions which were due to dry conditions in
Argentina, which led to high corn prices. During the second quarter, long
positions in soybean products were unprofitable as weather and soil conditions
appear favorable for an abundance of supply. The USDA grain crop report
projected a 12% rise in soybean inventories from previous season. Trading on
sugar and live cattle positions was unprofitable during the third quarter,
erasing previous gains in other commodities. Brazil, the world's largest sugar
producer, reduced output and the Asian post crisis recovery period has improved
demand, resulting in a supply/demand imbalance. During the fourth quarter gains
in short coffee positions were not

16

enough to offset previous losses throughout the year. Prices of coffee faced a
seven year low as a result of excess world supply.

Metals trading was unprofitable for the year. Prices rose during
the period in base metals as concerns over higher interest rates and the decline
in stock prices globally created defensive tones in the market. High aluminum
inventories caused prices to decline on the London Metals Exchange. Copper
prices rose over rumors of increased demand from China, having an adverse effect
on the short positions held. During the second quarter, copper trading continued
to result in losses for the sector. A Freeport Indonesia mine announced output
cuts would not be as large as the Indonesian government had forecast, resulting
in losses for the Partnership's long positions. Losses continued through the
quarter as trading in both base and precious metals was unprofitable as losses
were sustained in gold and aluminum positions. The sector sustained losses
during the year as nickel prices declined from slowing demand for stainless
steel in Europe and Asia. The year closed with continued losses as gains in
silver could not out weigh losses in aluminum and gold.

Stock index trading was unprofitable despite gains realized in
IBEX 35(Milan), DAX German Stock Index and CAC 40 Euro futures early in the
year. Losses were sustained in Nikkei 225 and S&P 500 positions. Signs of rising
inflation fueled fears that the Federal Reserve would continue to raise interest
rates aggressively to slow the robust economy.

VARIABLES AFFECTING PERFORMANCE

The principal variables which determine the net performance of
the Partnership are gross profitability and interest income. Gross profitability
is, in turn, effected by the percentage of the Partnership's assets allocated to
trading.

During all periods set forth under "Selected Financial Data,"
the interest rates in many countries were at unusually low levels. The low
interest rates in the United States (although higher than in many other
countries) negatively impacted revenues because interest income is typically a
major component of the Partnership's profitability. In addition, low interest
rates are frequently associated with reduced fixed income market volatility, and
in static markets the Partnership's profit potential generally tends to be
diminished. On the other hand, during periods of higher interest rates, the
relative attractiveness of a high risk investment such as the Partnership may be
reduced as compared to high yielding and much lower risk fixed-income
investments.

The Partnership's Brokerage Commissions and Administrative Fees
are a constant percentage of the Partnership's assets allocated to trading and
total assets, respectively. The only Partnership costs (other than the
insignificant currency trading costs) which are not based on a percentage of the
Partnership's assets (allocated to trading or total) are the Profit Shares
payable to the Advisors on an Advisor-by-Advisor basis. Gross profitability is
in turn effected by the percentages of the Partnership's assets allocated to
trading. During periods when Profit Shares are a high percentage of net trading
gains, it is likely that there has been substantial performance non-correlation
among the Advisors (so that the total Profit Shares paid to those Advisors which
have traded profitably are a high percentage, or perhaps even in excess, of the
total profits recognized, as other Advisors have incurred offsetting losses,
reducing overall trading gains but not the Profit Shares paid to the successful
Advisors) -- suggesting the likelihood of generally trendless, non-consensus
markets.

Unlike many investment fields, there is no meaningful
distinction in the operation of the Partnership between realized and unrealized
profits. Most of the contracts traded by the Partnership are highly liquid and
can be closed out at any time.

Except in unusual circumstances, factors (e.g. regulatory
approvals, cost of goods sold, employee relations and the like) which often
materially affect an operating business have virtually no impact on the
Partnership.

17

THE DIFFERENT SERIES OF UNITS

All Series of Units are invested in MM LLC and are subject to
the same method of calculating their fees. Furthermore, any discretionary action
taken by MLIM AS LLC -- e.g., adjusting trading leverage -- must be done in such
a way that all Units have the same percentage of capital allocated to trading
after the adjustment (this restructuring applies only to Units issued after May
1, 1997). Despite these fundamental similarities among the different Series,
because the Series begin trading at different times they are likely, as a result
of trading profits and losses, to pay different Profit Shares (although to the
same group of Advisors) and have different Net Asset Values. The series offered
since May 1, 1997 have begun trading at 75%-85% of total assets available.
Series issued before May 1, 1997 began trading at 60% of total assets available.

LIQUIDITY; CAPITAL RESOURCES

The Partnership sells no securities other than the Units. The
Partnership borrows only to a limited extent and only on a strictly short-term
basis in order to finance losses on non-U.S. dollar denominated trading
positions pending the conversion of the Partnership's U.S. dollar deposits.
These borrowings are at a prevailing short-term rate in the relevant currency.

The Partnership's assets are held primarily in short-term debt
securities with maturities under one year, as well as in cash. The Net Asset
Value of the Partnership's cash and financial instruments is not materially
affected by inflation. Changes in interest rates, which are often associated
with inflation, could cause the value of certain of the Partnership's debt
securities to decline, but only to a limited extent. More importantly, changes
in interest rates could cause periods of strong up or down price trends, during
which the Partnership's profit potential generally increases. Inflation in
commodity prices could also generate price movements which the strategies might
successfully follow.

The Partnership's assets are held in cash. Accordingly, except
in very unusual circumstances, the Partnership should be able to close out any
or all of its open trading positions and liquidate any or all of its securities
holdings quickly and at market prices. This permits an Advisor to limit losses
as well as reduce market exposure on short notice should its strategies indicate
doing so. In addition, because there is a readily available market value for the
Partnership's positions and assets, the Partnership's monthly Net Asset Value
calculations are precise, and investors need only wait ten business days to
receive the full redemption proceeds of their Units.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

18

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Selected Quarterly Financial Data
ML Principal Protection Plus LP

Net Income by Quarter
Eight Quarters through December 31, 2002

The supplementary financial information ("information about oil
and gas producing activities") specified by Item 302 of Regulation S-K is not
applicable. MLIM AS LLC promoted the Partnership and MLIM LLC is now its
controlling person.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There were no changes in or disagreements with independent
auditors on accounting and financial disclosure.

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

10(a) and 10(b) IDENTIFICATION OF MANAGERS AND EXECUTIVE OFFICERS:

As a limited partnership, the Partnership itself has no officers
or directors and is managed by MLIM LLC. Trading decisions are made by the
Advisors on behalf of the Partnership.

The managers and executive officers of MLIM LLC and their
respective business backgrounds are as follows.

FABIO P. SAVOLDELLI Executive Vice President, Chief Investment Officer and
Managing Director - Alternative Strategies Division

JAMES KASE President

PHILIP L. KIRSTEIN General Counsel

PATRICK HAYWARD Chief Financial Officer

VINAY MENDIRATTA Vice President and Chief Operations Officer - Alternative
Strategies Division

Fabio P. Savoldelli was born in 1961. Mr. Savoldelli is
Executive Vice President, Chief Investment Officer and Managing Director -
Alternative Strategies Division of MLIM LLC. He oversees the Partnership's
investments. Mr. Savoldelli served as Managing Director for Merrill Lynch
Corporate and Institutional Client Group from 1996 to 1999. Prior to joining
Merrill Lynch he served as Chief Investment Officer for the Americas at the
Chase Manhattan Private Bank, responsible for managers investing assets in
international and domestic institutional, private client and ERISA funds.
Previously, he was Deputy Chief Investment Officer and Head of Fixed Income and
Foreign Exchange at Swiss Bank Corp. London Portfolio Management International.
Mr. Savoldelli was educated at the

19

University of Windsor, Canada, and the London School of Economics.

James Kase was born in 1960. Mr. Kase is President of MLIM LLC and
Managing Director & Head of Distribution of Merrill Lynch Investment Managers
L.P. His previous position at Merrill Lynch was selling quantitative-based
equity products to institutional investors for 17 years. Prior to joining
Merrill Lynch, he was Head of Equity Sales and Research for Lehman Brothers,
Asia. He also managed equity derivative sales in the Americas for Lehman from
1995-1998. From 1986-1993, Mr. Kase was in Capital Market Sales at Bankers
Trust. He received his Bachelor of Arts in Political Science from Brown
University.

Philip L. Kirstein was born in 1945. Mr. Kirstein has served as
General Counsel of MLIM LLC since August 2001. He also serves as General Counsel
of MLIM and Fund Asset Management, a position he has held since 1984. He
received his Bachelor of Science from the University of North Carolina, He
received his Juris Doctor from the Syracuse University School of Law and his LLB
from the New York University School of Law.

Patrick Hayward was born in 1967. He has served as Chief
Financial Officer for MLIM Americas Institutional and MLIM LLC since June 2002.
Mr. Hayward previously served as Vice President and Divisional Financial Officer
for Societe Generale. He received his Bachelor of Arts from College of William &
Mary.

Vinay Mendiratta was born in 1967. Mr. Mendiratta is Managing
Director & Chief Operating Officer for Alternative Strategies Division of MLIM
LLC. He is responsible for the management of MLIM's Hedge Fund of Funds
business. Most recently he was MLIM's Alternative Investments product
specialist based in London responsible for the marketing of hedge fund
products to clients in Europe and the Middle East. Prior to joining MLIM, Mr.
Mendiratta was a product specialist for Bankers Trust's quantitaive
investment team. He worked with the portfolio management team to structure
and market a variety of quantitatively managed investment products to
institutional and retail investors. Mr. Mendiratta obtained his Bachelor of
Arts in Economics from Duke University and his MBA in Finance from Columbia
University.

MLIM LLC acts as general partner to three public futures funds
whose units of limited partnership interest are registered under the Securities
Exchange Act of 1934: ML Futures Investments L.P., ML Global Horizons L.P., and
the Partnership. Because MLIM LLC serves as the sole general partner of each of
these funds, the officers and managers of MLIM LLC effectively manage them as
officers and directors of such funds.

(c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES:

None.

(d) FAMILY RELATIONSHIPS:

None.

(e) BUSINESS EXPERIENCE:

See Item 10(a) and (b) above.

(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS:

None.

(g) PROMOTERS AND CONTROL PERSONS:

Not applicable.

ITEM 11: EXECUTIVE COMPENSATION

The managers and officers of MLIM LLC are remunerated by MLIM
LLC in their respective positions. The Partnership does not itself have any
officers, directors or employees. The Partnership pays Brokerage Commissions to
an affiliate of MLIM LLC and Administrative Fees to MLIM LLC. MLIM LLC or its
affiliates may also receive certain economic benefits from holding certain of
the Partnership's U.S. dollar Assets in offset accounts, as described in Item
1(c) above. The directors and officers receive no "other compensation" from the
Partnership, and the managers

20

receive no compensation for serving as managers of MLIM LLC. There are no
compensation plans or arrangements relating to a change in control of either the
Partnership or MLIM LLC.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS:

As of December 31, 2002, no person or "group" is known to be or have
been the beneficial owner of more than 5% of the Units.

(b) SECURITY OWNERSHIP OF MANAGEMENT:

As of December 31, 2002, MLIM AS LLC owned 1,583.93625 Units
(Unit-equivalent general partnership interests), which was approximately 1.1% of
the total Units outstanding.

(c) CHANGES IN CONTROL:

None.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(a) TRANSACTIONS BETWEEN MERRILL LYNCH AND THE PARTNERSHIP

All of the service providers to the Partnership, other than the
Advisors, are affiliates of Merrill Lynch. Merrill Lynch negotiated with the
Advisors over the level of their advisory fees and Profit Shares. However, none
of the fees paid by the Partnership to any Merrill Lynch party were negotiated,
and they are higher than would have been obtained in arm's-length bargaining.

The Partnership indirectly pays Merrill Lynch through MLPF&S and
MLIM LLC, substantial Brokerage Commissions and Administrative Fees,
respectively, as well as bid-ask spreads on forward currency trades. The
Partnership also pays MLPF&S interest on short-term loans extended by MLPF&S to
cover losses on foreign currency positions. Subsequent to September 1, 2000, the
Partnership pays for the above-mentioned items through its investment in MM LLC.

Within the Merrill Lynch organization, MLIM LLC is the direct
beneficiary of the revenues received by different Merrill Lynch entities from
the Partnership. MLIM LLC controls the management of the Partnership and serves
as its promoter. Although MLIM LLC has not sold any assets, directly or
indirectly, to the Partnership, MLIM LLC makes substantial profits from the
Partnership due to the foregoing revenues.

No loans have been, are or will be outstanding between MLIM LLC
or any of its principals and the Partnership.

MLIM AS LLC paid (and MLIM may pay) substantial selling
commissions and trailing commissions to MLPF&S for distributing the Units. MLIM
AS LLC and MLIM LLC are ultimately paid back for these expenditures from the
revenues it receives from the Partnership.

(b) CERTAIN BUSINESS RELATIONSHIPS:

MLPF&S, an affiliate of MLIM AS LLC and MLIM LLC, acts as the
principal commodity broker for the Partnership.

In 2002, MM LLC expensed directly: (i) Brokerage Commissions of
$7,738,731 to MLPF&S, which included $811,106 in consulting fees earned by the
Advisors; and (ii) Administrative Fees of $279,753 to MLIM AS LLC. In addition,
MLIM AS LLC and MLIM LLC and its affiliates may have derived certain economic
benefit from possession of the Partnership's assets, as well as from foreign
exchange and EFP trading.

21

See Item 1(c), "Narrative Description of Business -- Charges"
and "-- Description of Current Charges" for a discussion of other business
dealings between MLIM LLC affiliates and the Partnership.

(c) INDEBTEDNESS OF MANAGEMENT:

The Partnership is prohibited from making any loans, to
management or otherwise.

(d) TRANSACTIONS WITH PROMOTERS:

Not applicable.

ITEM 14: 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 within 90 days of the filing date of
this annual report, and, based on their evaluation, have 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 their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

22

PART IV

ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)2.8(d) FINANCIAL STATEMENT SCHEDULES:

Financial statement schedules not included in this Form 10-K
have been omitted for the reason that they are not required or are not
applicable or that equivalent information has been included in the financial
statements or notes thereto.

(a)3. EXHIBITS:

The following exhibits are incorporated by reference or are
filed herewith to this Annual Report on Form 10-K:

23

10.02 Form of Consulting Agreement between MLPF&S and each Advisor.

EXHIBIT 10.02: Is incorporated herein by reference from Exhibit 10.02 contained in the Registrant's Registration Statement.
- --------------
10.03 Form of Customer Agreement between the Trading Partnership and MLPF&S.

EXHIBIT 10.03: Is incorporated herein by reference from Exhibit 10.03 contained in the Registrant's Registration Statement
- ------------- (as Exhibit B).

10.05 Merrill Lynch & Co., Inc. Guarantee.

EXHIBIT 10.05: Is incorporated herein by reference from Exhibit 10.05 contained in the Registrant's Registration Statement
- -------------- (as Exhibit B).

10.06 Form of Subscription Agreement and Power of Attorney.

EXHIBIT 10.06: Is incorporated herein by reference from Exhibit 10.06 contained in the Registrant's Registration Statement
- -------------- (as Exhibit D).

10.07(a) Foreign Exchange Desk Service Agreement, dated July 1, 1993 among Merrill Lynch International Bank, MLIM AS
LLC, MLPF&S and various MLIM AS LLC funds.

EXHIBIT 10.07(a): Is incorporated herein by reference from Exhibit 10.07 contained in the Registrant's Registration Statement
- ----------------- (as Exhibit D).

10.07(b) Amendment to Foreign Exchange Desk Service Agreement, dated July 14, 1994, among Merrill Lynch Investment
Bank, MLIM AS LLC, MLPF&S and the Partnership.

EXHIBIT 10.07(b): Is incorporated herein by reference from Exhibit 10.07 contained in the Registrant's Registration Statement.
- -----------------
10.08 Investment Advisory Contract between MLPF&S, the Partnership, the Trading Partnership and MLIM AS LLC.

EXHIBIT 10.08: Is incorporated herein by reference from Exhibit 10.08 contained in the Registrant's Registration Statement.
- --------------
10.09(a) Form of Advisory and Consulting Agreement Amendment among MLIM AS LLC, each Advisor, the Partnership and
MLPF&S.

EXHIBIT 10.09(a): Is incorporated herein by reference from Exhibit 10.09(a) contained in the Registrant's report on Form 10-K
- ----------------- for the year ended December 31, 1996.

10.09(b) Form of Amendment to the Customer Agreement among the Partnership and MLPF&S.

EXHIBIT 10.09(b): Is incorporated herein by reference from Exhibit 10.09(b) contained in the Registrant's report on Form 10-K
- ----------------- for the year ended December 31, 1996.

13.01 2002 Annual Report and Independent Auditors' Report.

EXHIBIT 13.01: Is filed herewith.
- --------------
13.01 (a) 2002 Annual Report and Independent Auditors' Report for the following Trading Limited Liability Company
sponsored by MLIM Alternative Strategies LLC:
ML Multi-Manager Portfolio LLC

EXHIBIT 13.01(a): Is filed herewith.
- -----------------
28.01 Prospectus of the Partnership dated January 25, 1996.

24

EXHIBIT 28.01: Is incorporated by reference as filed with the Securities and Exchange Commission pursuant to Rule 424 under
- -------------- the Securities Act of 1933, Registration Statement (File No. 33-73914) on Form S-1 (effective January 25,
1996).

(b) REPORT ON FORM 8-K:
-------------------
No reports on Form 8-K were filed during the fourth quarter of
2002.

25

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

ML PRINCIPAL PROTECTION L.P.

By: MERRILL LYNCH INVESTMENT MANAGERS LLC
General Partner

By: /s/ Fabio P. Savoldelli
-----------------------
Fabio P. Savoldelli
Executive Vice President, Chief Investment
Officer and Managing Director - Alternative
Strategies Division
(Principal Executive Officer)

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed on March 31, 2003 by the
following persons on behalf of the Registrant and in the capacities indicated.

By /s/ Fabio P. Savoldelli
-----------------------
Fabio P. Savoldelli

26

EXHIBIT 99

FORM OF CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63
OF TITLE 180 OF THE UNITED STATES CODE

I, Fabio P. Savoldelli, certify that:

1. I have reviewed this annual report on Form 10-K of ML Principal Protection
L.P.;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures 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 annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

- -----------------------
By /s/ FABIO P. SAVOLDELLI
-----------------------
Fabio P. Savoldelli
Executive Vice President, Chief Investment Officer and Managing Director -
Alternative Strategies Division (Principal Executive Officer)

27

EXHIBIT 99 (a)

AS ADOPTED TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this annual report of ML Principal Protection L.P. on Form
10-K for the period ended December 31, 2002 as filed with the Securities and
Exchange Commission on the date hereof, I, Fabio P. Savoldelli certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant of the Sarbanes-Oxley Act of
2002, that:

1. This annual report fully complies with the requirements of Section 13 or
15(d) of the Securities and Exchange Act of 1934; and

2. The information contained in this annual report fairly presents, in all
material respects, the financial condition and results of operations of ML
Principal Protection L.P.

Date: March 31, 2003

- -----------------------
By /s/ FABIO P. SAVOLDELLI
-----------------------
Fabio P. Savoldelli
Executive Vice President, Chief Investment Officer and Managing Director -
Alternative Strategies Division (Principal Executive Officer)

28

EXHIBIT 99

FORM OF CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63
OF TITLE 180 OF THE UNITED STATES CODE

I, Patrick Hayward, certify that:

1. I have reviewed this annual report on Form 10-K of ML Principal Protection
L.P.;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures 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 annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

a) all significant deficiencies, in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

- -----------------------
By /s/ PATRICK HAYWARD
--------------------
Patrick Hayward
Chief Financial Officer
(Principal Financial and Accounting Officer)

29

EXHIBIT 99 (a)

AS ADOPTED TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this annual report of ML Principal Protection L.P. on Form
10-K for the period ended December 31, 2002 as filed with the Securities and
Exchange Commission on the date hereof, I, Patrick Hayward certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant of the Sarbanes-Oxley Act of 2002,
that:

1. This annual report fully complies with the requirements of Section 13 or
15(d) of the Securities and Exchange Act of 1934; and

2. The information contained in this annual report fairly presents, in all
material respects, the financial condition and results of operations of ML
Principal Protection L.P.

Date: March 31, 2003

- -----------------------
By /s/ PATRICK HAYWARD
--------------------
Patrick Hayward
Chief Financial Officer
(Principal Financial and Accounting Officer)

30

ML PRINCIPAL PROTECTION L.P.

ANNUAL REPORT FOR 2002 ON FORM 10-K

INDEX TO EXHIBITS

EXHIBIT

Exhibit 13.01 2002 Annual Report and Independent Auditors' Report

Exhibit 13.01(a) 2002 Annual Report and Independent Auditors' Report
for the following Trading Limited Liability Company
sponsored by MLIM Alternative Strategies LLC:
ML Multi-Manager Portfolio LLC

31