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, 2004

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/

Indicate by check mark whether registrant is an accelerated filer (as defined by
Rule 12b-2 of the Act).
Yes / / No /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, 2005, limited partnership units with an aggregate value of
$12,529,623 were outstanding and held by non-affiliates.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant's "2004 Annual Report and Report of Independent Registered Public
Accounting Firm," the annual report to security holders for the fiscal year
ended December 31, 2004, is incorporated by reference into Part II, Item and
Part IV hereof and filed as an Exhibit herewith. The Annual Report is available
free of charge by contacting Alternative Investments Client Services at
1-877-465-8435.

ML PRINCIPAL PROTECTION L.P.

ANNUAL REPORT FOR 2004 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.

Merrill Lynch Investment Mangers, LLC ("MLIM LLC") is the
general partner of the Partnership and is a wholly-owned subsidiary of
Merrill Lynch Investment Managers, LP ("MLIM") which, in turn, is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch").
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a wholly-owned
subsidiary of Merrill Lynch, is the Partnership's commodity broker. Prior to
February 28, 2003, the general partner of the Partnership was MLIM
Alternative Strategies LLC ("MLIM AS LLC"). On February 28, 2003, MLIM AS LLC
assigned the general partnership interest and the management authority to
MLIM LLC as part of an internal Merrill Lynch reorganization.

Many of the multi-advisor funds (the "Multi-Advisor Funds")
sponsored by MLIM LLC allocate their assets to a number of the same independent
advisors (the "Advisors"). MLIM 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 ML Multi-Manager Portfolio LLC, a Delaware limited liability company,
("MM LLC") 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 LLC. MM LLC had been managed by
MLIM AS LLC, before being managed by MLIM LLC, and MM LLC had no investors other
than the Multi-Advisor Funds and served 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.

Effective after the close of business on December 31, 2004, MM
LLC liquidated and the Partnership invested in Global Horizons I L.P. Global
Horizons I L.P. is a MLIM LLC managed limited partnership that has an investment
strategy similar to MM LLC.

The Units were 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.

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, 2004, the Partnership's capitalization was
$13,053,547 and the Net Asset Value per Series A 2003 Unit (the combined initial
Series of Units), originally $1.000 as of January 1, 2003, had risen to $1.1087.

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

From January 1, 2003 through December 31, 2004, the highest
month-end Net Asset Value of a Series A Unit was $ 1.1504 (February 29, 2004)
and the lowest was $1.0196 (March 31, 2003).

1

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 Item 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
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 S came
to term on or before December 31, 2004 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 traded, through its investment in 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 was 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.
Effective after the close of business on December 31, 2004, the Partnership
trades its investments through Global Horizons I L.P.

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 S came to term on
or before December 31, 2004, respectively and were not renewed. The above Series
Units remain outstanding, with 100% 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 R 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 issuance of the new series was
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
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.

Immediately following the distribution announcement and 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. MLIM LLC contributed $314 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, 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.

3

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 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, 2004. The consolidation had no adverse economic effect on
the investors. The General Partner contributed $733 to the Partnership, the
amount necessary due to the effects of rounding, to insure that all investors
received Units equal in value to their original holdings at December 31, 2004.
The issuance of the new series was exempt from registration pursuant to Section
4(2) of the Securities Act of 1933. 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.

USE OF PROCEEDS AND INTEREST INCOME

MARKET SECTORS.

The Partnership traded, through MM LLC (and now trades through
Global Horizons I L.P.), 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 traded, through MM LLC (and now trades through
Global Horizons I L.P.), on a variety of United States and foreign futures
exchanges. Substantially all of the Partnership's off-exchange trading takes
place in the highly liquid, institutionally based currency forward markets.

Many of the Partnership's currency trades 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.

4

CUSTODY OF ASSETS.

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

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

All of the Partnership's U.S. dollar assets invested in MM LLC
were maintained at MLPF&S. On assets held in U.S. dollars, Merrill Lynch
credited MM LLC with interest at the prevailing 91-day U.S. Treasury bill rate.
MM LLC was 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 paid to MM LLC, from possession of
such assets.

Merrill Lynch charged the Partnership through MM LLC, Merrill
Lynch's cost of financing realized and unrealized losses on MM LLC's non-U.S.
dollar-denominated positions.

Effective after the close of business on December 31, 2004,
the Partnership invests through Global Horizons I L.P. MLPF&S's and Merrill
Lynch's arrangements with Global Horizons I L.P. are similar to the arrangements
with MM LLC as outlined in the preceding two paragraphs.

CHARGES

The following table summarizes the charges incurred by the
Partnership during 2004, 2003, and 2002 allocated from MM LLC.

The Partnership's average month-end Net Assets during 2004,
2003, and 2002 equaled $13,826,437, $16,639,849, and $18,933,468, respectively.

During 2004, 2003 and 2002, the Partnership earned directly or
primarily through its investment in MM LLC $173,439, $180,856, and $364,235 in
interest income, or approximately 1.25%, 1.09%, and 1.92% of the Partnership's
average month-end Net Assets.

5

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 traded
through its former investment in MM LLC (and trades through its present
investment in Global Horizons I L.P.), 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 offices are the offices of MLIM LLC (Merrill
Lynch Investment Managers LLC, 222 Broadway, 27th Floor, New York, NY
10038-2510). MLIM LLC performs administrative services for the Partnership from
MLIM LLC's offices.

ITEM 3: LEGAL PROCEEDINGS

Neither the Partnership nor MLIM LLC has ever been the subject
of material litigation. Merrill Lynch is the 100% indirect owner of MLIM LLC,
MLIM, MLPF&S and all other Merrill Lynch entities involved in the operation of
the Partnership. Merrill Lynch 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.

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

None.

7

PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF SECURITIES

ITEM 5(a)

(a) MARKET INFORMATION:

There is no established public trading market for the Units,
nor is it anticipated that one will 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, 2004, there were 647 holders of Units,
including MLIM 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 S, the annual fixed rate distribution has been
terminated.

As of December 31, 2004, 2003 and 2002, 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;

See Item 1(c) "Business-Narrative Description of
Business-Consolidation of Series".

ITEM 5(b)
Not applicable.

ITEM 5(c)
Not applicable.

ITEM 6: SELECTED FINANCIAL DATA

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

(1) MLIM AS LLC was general partner of the ML Principal Protection
Trading LP ("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 $28.00 per unit on Series G Units
and $28.00 on Series H Units.

(3) 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.

(4) 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.

(5) 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.

10

ML PRINCIPAL PROTECTION L.P.
DECEMBER 31, 2004

TYPE OF POOL: Multi-Advisor; Selected Advisor/Publicly-Offered/"Principal
Protected"(1)
INCEPTION OF TRADING: October 12, 1994
AGGREGATE SUBSCRIPTIONS:$164,914,392
CURRENT CAPITALIZATION: $13,053,547
WORST MONTHLY DRAWDOWN:(2) (4.04)% (03/03)
WORST PEAK-TO-VALLEY DRAWDOWN:(3) (7.88)% (11/01-02/02)

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

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 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 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 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 S as of December 31, 2004.

(2) Worst Monthly Drawdown represents the largest negative
Monthly Rate of Return experienced by the Partnership since January 1, 2000; 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, 2000 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

11

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.

MONTH-END NET ASSET VALUE PER SERIES A UNIT
(SERIES A 2003 AFTER JANUARY 1, 2003)

(a) 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.

(b) 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.

(c) 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.

12

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

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 LLC has made 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.

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.

13

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.

2004

During 2004 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 2004 describes the trading results for MM LLC during the
year.

The Partnership's overall trading performance was successful
with trading in the interest rate sector proving to be the most profitable.

The interest rate sector was the most profitable for the
Partnership, despite choppy trading conditions early in the year. Long exposure
early in the year to most of the major global yield curves proved to generate
positive results though overall exposure was light compared to historical
exposure. Bond markets were fairly range bound during the second quarter
however, yields on the U.S. ten-year note reached their highest levels since
July 2002. U.S. Treasury markets reacted to the employment data during the third
quarter with a strong sell-off, which caused the sector to reduce the long
exposure to change to a net short bias. The Federal Reserve raised key interest
rates by 25 basis points on September 21st and softer economic data eventually
pushed longer-term maturities higher by the end of the quarter. The U.S. fixed
income markets, particularly the front end, reversed their sell-off, which
started in November, but rallied during the first week of December, only to
reverse that trend during the last two weeks of the year.

The energy sector had the second highest gains for this
Partnership. The upward trend in crude oil prices and related products continued
in their secular bull market trend, in a very volatile fashion. Colder than
expected winter months in the Northeast and Midwest U.S., instability with
Russian suppliers, fears of worldwide terrorism, and active hurricane season in
the U.S., all contributed to keeping prices high throughout the year. The end of
the year did see a pull back from the all time highs in energy prices, due to
both fundamental and technical factors, such as increased stockpiles and
speculators trading the market.

Trading in agricultural commodities posted gains for the
Partnership. In the beginning of the year, the USDA cut its forecast of the crop
supply for both soybeans and corn, which sent prices surging. This long term
rally continued through the second quarter on strong demand from Asia and lower
estimates of supply from South America. 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. The USDA gave a low crop
estimate as there were forecasts of an early freeze following a cool summer and
slow crop development all surprising the market and posting losses as the short
positions were covered. Cocoa had a volatile move in November as the political
situation in the Ivory Coast deteriorated. The year ended with fundamental
factors continuing to drive coffee prices higher, reaching over $1 per pound, a
level not seen since July 2000.

The metals sector was not profitable for the Partnership.
Despite gains in the first quarter and third quarter, the year was not
profitable. The second quarter generated significant losses in both industrial
and precious metals. The U.S. dollar strengthening and the fear of higher
interest rates which would curb growth, caused base and precious metals to
sell-off. Industrial metals, particularly copper, added to performance in the
third quarter while exposure to precious metals contributed a small gain. Copper
rallied primarily based on increasing demand from China and tight supply
conditions. The year ended with the metals sector posting a loss, as gains in
long industrials were outweighed by losses in long precious metal exposure. Gold
experienced its first decline in six months.

14

Stock indices posted a loss for the Partnership. The market
was choppy throughout the year making trading difficult. The Partnership was
able to realize some gains in the beginning of the year on long exposure to
global equities from momentum based and fundamental models performing well.
However, stock indices posted a loss that exceeded the gains from earlier in the
first quarter. In April, the Japanese Nikkei experienced a sudden deterioration,
which sent that market plunging approximately 5% in one day. Losses in the U.S.
outweighed moderate gains in some of the international markets late in the third
quarter. However, stock indices posted a strong gain the end of the year, as
markets continued the upward trend on positive economic data, a decline in
energy prices and increased overall confidence. Gains were made across the U.S.,
Asia and Europe.

The currency sector was the least profitable for the
Partnership. The currency markets continued its long trend of a weakening U.S.
dollar. However, trading was very choppy and gains generated in the beginning of
the first quarter were lost. Early U.S. dollar strength reversed towards the end
of the first quarter and at the quarter's close the U.S. dollar fell to a four
year low against the Japanese yen. The U.S. dollar rebounded at the beginning of
the second quarter only to weaken at the end of the quarter. The currency
markets remained range bound versus the U.S. dollar throughout the third
quarter. The year ended with the U.S. dollar continuing to decline against
various other currencies.

2003

During 2003 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 2003 describes the trading results for MM LLC during the
year.

The Partnership's overall trading performance was successful
with trading in the currency sector proving to be the most profitable. The
Partnership experienced gains in all sectors.

The currency sector had the most significant gains for the
year. The weakening U.S. dollar continued to decline as it has for over a year
and the Partnership was well positioned to capitalize on its U.S. dollar
positions against other currencies. The largest gains versus the U.S. dollar
during January and February were with the Australian dollar and Canadian dollar.
In March, on hopes that the war with Iraq would be short, the U.S. dollar
strengthened and returned some of the profits earned early in the year. The U.S.
dollar depreciated against most major currencies throughout most of the second
quarter. The currency markets judged the developments in the Middle East as
negative for the U.S. economy and trade, and the U.S. dollar sold off against
most major currencies. The U.S. dollar continued to weaken significantly during
the month of May when Treasury Secretary Snow indicated he was comfortable with
current declines and that a cheaper U.S. dollar would increase exports. The U.S.
dollar strengthened against most major currencies late June, reversing some
earlier profits. During the middle of the third quarter, the U.S. dollar
appreciated relative to the European currencies. In the fourth quarter the U.S.
dollar declined against other major currencies, as concerns over the widening
trade deficits persisted. Gains in trading the Australian dollar and Euro
outweighed smaller losses in other markets during the fourth quarter.

Trading in stock indices posted a gain for the year. The
market was choppy throughout the year making trading difficult. The Partnership
was able to realize some gains in January on short positions as most indices
recorded three-month lows. At the beginning of the third quarter, the equities
were fairly quiet with strong gains being generated in trading global stock
indices, primarily the Nikkei 225. During the middle of the third quarter, the
losses in the S&P 500 and Dow Jones futures outweighed gains in other markets.
However, the Japanese Nikkei was the strongest performer as it gained over 8% on
strong economic numbers. In December, a profit was posted as long exposure to
global equities from momentum based models performed well as equities closed the
year out with positive performance. The main drives to performance in this
sector were the DAX and the S&P500.

The metals sector was also profitable for the year. Gold drove
profits in January as it continued its run up. The general perception of risks
in the financial markets and the geopolitical situation unfolding was a main
driver for the gold market in January. Gold generated losses in March through
June as gold's appeal as a safe investment diminished. At the closing of the
third quarter, both the industrial and metal complex sectors benefited from
increases in valuation. In November, gold rallied and prices reached a six-year
high and was one of the main drivers of performance for the sector. The year
ended with strong physical demand from Asia accelerating the up trend in base
metals, particularly, nickel and copper, which benefited our long exposure to
these markets.

15

Interest rate futures were profitable for the year.
Significant gains in February and May as well as in July due to the massive
sell-off in bonds, offset losses throughout the remainder of the year. U.S. and
European bonds rallied until the beginning of the third quarter when the U.S.
bond market suffered losses after the U.S. government announced its intentions
to borrow a record amount to finance the huge deficit. European bonds were
weaker, but generally outperformed U.S. bonds during such period. Despite a
record $60 billion refunding program in the U.S., bonds managed a timid recovery
after making new lows. Trading conditions remain choppy in this sector and
overall exposure continues to remain low, since no clear trends have emerged at
the end of the year.

Energy was a profitable sector for the year. In February, the
best performing month, natural gas prices rose nearly 40% in a single day in
connection with expected severely cold weather and supply shortages. This helped
the Partnership retain profits as prices declined in crude oil and natural gas
in March. The markets in April and May were dominated by the developments in the
Middle East, especially OPEC's reaction to the developments in Iraq. Production
was not being resumed as initially estimated even though the destruction of the
oilfields was smaller than expected. Natural gas was very volatile during June.
During the middle of the third quarter, crude oil and most of the other energy
markets were almost unchanged with high volatility throughout this period. The
volatility was mainly due to the uncertainty in supply and estimates of demand
that were projected to increase. This was partly offset by expectations of the
possible resumption of oil production by Iraq. Strong gains were generated
trading unleaded gas and crude oil, only to be reversed in September. The year
ended with losses posted in the fourth quarter primarily due to milder weather
in the U.S., which lead to a downward trend in natural gas. Prices were volatile
after the arrest of Saddam Hussein and by a potential increase of OPEC quotas.

Trading in agricultural commodities posted small gains for the
year. Livestock markets were off in February as Russia imposed an import limit
to help its domestic production. Sugar was to blame for losses in March as
prices reversed and hit a two-month low. Gains in April, mainly from soybeans,
which rallied due to revisions in crop estimates and weather overseas, were
overshadowed by losses in May and June due to changes in crop estimates and a
volatile livestock market. In the beginning of the third quarter, short exposure
in corn generated strong profits as the U.S. government forecasted a record crop
for this year. Supply and demand continued to drive the cattle market as prices
rose sharply in the beginning of the third quarter. Weather drove prices up due
to very little rain in the Midwest, where a substantial portion of the U.S.
crops grow. By the end of the third quarter, supply concerns drove the corn and
soybean markets due to the fact the USDA reported a better than expected yield
on corn and lower yields on soybeans. The fourth quarter began with posted gains
as grain export data was very bullish for most grain markets and soybeans. Later
in the fourth quarter, the discovery of the first case of mad cow disease
contributed to the posting of losses.

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.

16

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 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.

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.

17

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.

THE DIFFERENT SERIES OF UNITS

During 2004 all Series of Units were invested in MM LLC and
were subject to the same method of calculating their fees (and effective after
the close of business on December 31, 2004, all Series of Units are invested in
Global Horizons I L.P. and are subject to the same method of calculating their
fees). Furthermore, any discretionary action taken by MLIM 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.

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 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.

(The Partnership has no off-balance sheet arrangements or contractual
obligations of the type described in Items 303(a)(4) and 303(a)(5) of Regulation
S-K.)

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 LP

Net Income by Quarter
Eight Quarters through December 31, 2004

The supplementary financial information ("information about
oil and gas producing activities") specified by Item 302 of Regulation S-K is
not applicable.

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.

ITEM 9A: 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.

ITEM 9B: OTHER INFORMATION

Not applicable.

19

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.

VINAY MENDIRATTA Managing Director and Chief Operating Officer - Alternative Strategies and
Quantitative Advisers Division

FABIO P. SAVOLDELLI Managing Director and Chief Investment Officer - Alternative Strategies Division

JAMES KASE President and Chief Marketing Officer

ANDREW DONAHUE General Counsel

PATRICK HAYWARD Chief Financial Officer

Vinay Mendiratta was born in 1967. Mr. Mendiratta is Managing
Director and Chief Operating Officer, Alternative Strategies and Quantitative
Advisers divisions since August 2003. Mr. Mendiratta served as Chief Operating
Officer of MLIM LLC's Alternative Investments division since March 2003. Prior
to that he was MLIM's Alternative Investments product specialist based in London
responsible for the marketing hedge fund products to clients in Europe and the
Middle East. Prior to joining Merrill Lynch, Mr. Mendiratta was a product
specialist for Bankers Trust's quantitative investment team and has ten years of
investment experience. Mr. Mendiratta obtained his Bachelor of Arts in Economics
from Duke University and his MBA in Finance from Columbia.

Fabio P. Savoldelli was born in 1961. Mr. Savoldelli is
Managing Director and Chief Investment Officer of Alternative Strategies
Division of MLIM LLC since March 2003. He has been a Managing Director since
January 2000. 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 - Americas for Chase
Manhattan Bank from 1995 to 1996 and as Director at Swiss Bank Portfolio
Management from 1990 to 1995. Mr. Savoldelli was educated at the University of
Windsor, Canada, and the London School of Economics.

James Kase was born in 1960. Mr. Kase is President and Chief
Marketing Officer of MLIM LLC since March 2003. Mr. Kase has been a managing
director of MLIM LLC since March 2000. In addition, Mr. Kase is managing
director and Head of Americas Institutional Channel for Merrill Lynch Investment
Managers, L.P. and Fund Asset Management, L.P. Prior to joining MLIM LLC, he
served as managing director and business head for Lehman Brothers from 1995
through 2000. He received his Bachelor of Arts in Political Science from Brown
University.

Andrew Donahue was born in 1950. Mr. Donahue is the General
Counsel of MLIM LLC, Merrill Lynch Investment Managers, L.P. and Fund Asset
Management, L.P. since March 2003. Previously, Mr. Donahue worked at
Oppenheimer Funds, Inc., where he most recently served as executive vice
president and general counsel responsible for the firm's legal and compliance
functions and regulatory matters. He received his Bachelor of Arts from Hofstra
University and his Judicial Degree from New York University School of Law.

Patrick Hayward was born in 1967. Mr. Hayward has been the
Chief Financial Officer for MLIM Americas Institutional and Registrant since
June 2002. Mr. Hayward previously served as Vice President and Divisional
Financial Officer for Societe Generale from December 2001 to June 2002; Vice
President and Controller of SG Cowen Asset Management, Inc. from December 1999
to December 2001; Controller and Operations Manager for Compass Group, LLC from
July 1997 to November 1999; Controllers Associate for Morgan Stanley & Co. from
April 1993 to July 1997; and Senior Accountant for Ernst & Young from September
1989 to April 1993. He received his Bachelor of Arts from College of William &
Mary.

20

As of December 31, 2004, the principals of MLIM LLC had no
investment in the Partnership, and MLIM LLC's general partner interest in the
Partnership was valued at $160,719. Since February 28, 2003 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.

(h) AUDIT COMMITTEE FINANCIAL EXPERT:

Not applicable. (Neither the Partnership nor MLIM LLC
has an audit committee.)

CODE OF ETHICS:

The Partnership has adopted a code of ethics, as of the end of
the period covered by this report, which applies to the Partnership's (MLIM
LLC's) principal executive officer and principal financial officer or persons
performing similar functions on behalf of the Partnership. A copy of the code of
ethics is available to any person, without charge, upon request by calling
1-800-637-3863.

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 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, 2004, 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:

21

As of December 31, 2004, MLIM LLC owned 146,547 Units
(Unit-equivalent general partnership interests), which was approximately 1.23%
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.

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 LLC paid substantial selling commissions and trailing
commissions to MLPF&S for distributing the Units. MLIM LLC is ultimately paid
back for these expenditures from the revenues it receives from the Partnership.

(b) CERTAIN BUSINESS RELATIONSHIPS:

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

In 2004, MM LLC expensed directly: (i) Brokerage Commissions
of $5,788,977 to MLPF&S, which included $658,558 in consulting fees earned by
the Advisors; and (ii) Administrative Fees of $175,085 to MLIM LLC. In addition,
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.

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.

22

ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

(a) AUDIT FEES

Aggregate fees billed for professional services rendered by
Deloitte & Touche LLP in connection with the audit of the Partnership's
financial statements as of and for the year ended December 31, 2004 were
$23,550.

Aggregate fees billed for these services for the year ended
December 31, 2003 were $25,500.

(b) AUDIT-RELATED FEES

There were no other audit-related fees billed for the years
ended December 31, 2004 or 2003 related to the Partnership.

(c) TAX FEES

Aggregate fees billed for professional services rendered by
Deloitte Tax LLP in connection with the tax compliance, advice and preparation
of the Partnerships tax returns for the year ended December 31, 2004 were
$66,000.

Aggregate fees billed for these services for the year ended
December 31, 2003 were $120,000.

(d) ALL OTHER FEES

No fees were billed to Deloitte & Touche LLP nor Deloitte Tax
LLP during the years ended December 31, 2004 or 2003 for any other professional
services in relation to the Partnership.

Neither the Partnership nor MLIM LLC has an audit committee to
pre-approve principal accountant fees and services. In lieu of an audit
committee, the managers and the principal financial officer pre-approve all
billings prior to the commencement of the performance of such services.

23

PART IV

ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

2. 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.

3. EXHIBITS:

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

24

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 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
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 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 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 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 2004 Annual Report and Report of Independent
Registered Public Accounting Firm.

EXHIBIT 13.01: Is filed herewith.

13.01 (a) 2004 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.

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).

25

31.01 and 31.02 Rule 13a-14(a)/15d-14(a) Certifications

EXHIBIT 31.01
AND 31.02: Are filed herewith.

32.01 and 32.02 Section 1350 Certifications

EXHIBIT 32.01
AND 32.02: Are filed herewith.

26

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/VINAY MENDIRATTA
----------------------
Vinay Mendiratta
Managing Director and Chief Operating Officer
- Alternative Strategies and Quantitative Advisers Divisions
(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, 2005 by the
following persons on behalf of the Registrant and in the capacities indicated.

(Being the principal executive officer, the principal financial and accounting
officer and a majority of the directors of MLIM Alternative Strategies LLC)

MERRILL LYNCH INVESTMENT General Partner of Registrant March 31, 2005
MANAGERS LLC

By: /s/ Vinay Mendiratta
--------------------
Vinay Mendiratta
Managing Director and Chief Operating Officer
- Alternative Strategies and Quantitative Advisers Divisions
(Principal Executive Officer)

27

EXHIBIT 31.01

RULE 13a-14(a)/15d-14(a) CERTIFICATIONS

I, Vinay Mendiratta, certify that:

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

2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

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

a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.

Date: March 31, 2005
- -----------------------

By /s/ VINAY MENDIRATTA
--------------------
Vinay Mendiratta
Managing Director and Chief Operating Officer
- - Alternative Strategies and Quantitative Advisers Divisions
(Principal Executive Officer)

28

EXHIBIT 31.02

RULE 13a-14(a)/15d-14(a) CERTIFICATIONS

I, Patrick Hayward, certify that:

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

2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

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

a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.

Date: March 31, 2005
- -----------------------

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

29

EXHIBIT 32.01

SECTION 1350 CERTIFICATION

In connection with this annual report of ML Principal Protection L.P. (the
"Company") on Form 10-K for the fiscal year ended December 31, 2004 as filed
with the Securities and Exchange Commission on the date hereof (this "Report"),
I, Vinay Mendiratta, Managing Director and Chief Operating Officer-Alternative
Strategies and Quantitative Advisors Divisions of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant of the Sarbanes-Oxley Act of
2002, that:

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

2. The information contained in this Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

Date: March 31, 2005
- -----------------------

By /s/ VINAY MENDIRATTA
--------------------
Vinay Mendiratta
Managing Director and Chief Operating Officer
- - Alternative Strategies and Quantitative Advisers Divisions
(Principal Executive Officer)

30

EXHIBIT 32.02

SECTION 1350 CERTIFICATION

In connection with this annual report of ML Principal Protection L.P. (the
"Company") on Form 10-K for the fiscal year ended December 31, 2004 as filed
with the Securities and Exchange Commission on the date hereof (this "Report"),
I, Patrick Hayward, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant of the Sarbanes-Oxley Act of 2002,
that:

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

2. The information contained in this Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

Date: March 31, 2005
- -----------------------

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

31

ML PRINCIPAL PROTECTION L.P.

ANNUAL REPORT FOR 2004 ON FORM 10-K

INDEX TO EXHIBITS