[ART OF MERRILL LYNCH INVESTMENT PARTNERS INC. APPEARS HERE]
ML Principal
Protection L.P.
Monthly Statement December 1998
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[LOGO OF MERRILL LYNCH APPEARS HERE]
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ML Principal Protection L.P.
Dear Limited Partner,
The Net Asset Value ("NAV") of ML Principal Protection L.P. (the "Fund")
increased during December. Please see the accompanying summary financial
information for the NAV of your series of Units.
Quarterly Market Summary
During the fourth quarter of 1998, the Fund's NAV increased through profitable
trading in the currency, stock index, energy and interest rate markets, which
offset losses in the agricultural and metals markets.
The flight to quality which began in the third quarter continued into the fourth
quarter, and global financial markets experienced extreme volatility as yield
curves and spreads went through exaggerated swings in early October. Losses at
various hedge funds continued in October, and Wall Street firms began to
announce cost-cutting measures and layoffs. The Federal Reserve lowered interest
rates on October 15 and again on November 17, causing investor optimism and a
rise in stock prices. Stocks soared to record highs at the end of November,
surpassing the peaks of summer 1998, further buoyed by the announcements of
several major corporate mergers and acquisitions. Eleven European nations
simultaneously cut interest rates to a uniform low level to keep their economies
from stalling while showing a decided move toward economic union and the
upcoming conversion to the euro currency. Then, in mid-December, stock markets
declined as major companies began to report disappointing earnings and sales
expectations, and more job reductions and capital spending cuts were announced.
Currency trading during the quarter proved profitable for the Fund with gains
from long positions in Japanese yen, despite the Japanese economy's deepening
recession and credit crunch. Additional profits were generated by Swiss franc
trading.
Profits in energy resulted from short positions in natural gas, unleaded gas and
heating oil. In early December, oil and natural gas prices dropped sharply,
causing continued problems for many emerging market countries that depend on
commodity exports for economic growth and government financing. These price
pressures were mainly due to excessive supply availability and near-term weather
indications, which indicated that inventories would remain at more than
adequate levels even in the event of a cold Northern Hemisphere winter. Also in
December, the U.S. air attack on Iraq failed to cause damage to oil pumping and
shipping operations, and oil prices fell over 10%.
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In U.S. interest rate markets, investors pushed the yields on U.S. Treasury
bonds to a 31-year low in early October. The long bond yield fell about 75 basis
points in 1998 as the world economy slowed more than expected, inflation
continued to fall, the anticipated small U.S. budget deficit turned into
substantial surplus, Treasuries enjoyed a flight to quality, and the Fed lowered
the rate on fed funds by 75 basis points. In Japan, the Japanese Government Bond
market fell sharply from the end of November through the end of December, with
the yield on the 10-year JGB moving from less than 0.8% at the start of October
to the 2.0% range by the end of 1998. Profitable positions in Japanese bonds
offset losses in U.S. Treasuries for the Fund.
Soybean trading produced losses in the agriculture sector as the Fund was caught
on the short side. The soybean supply surplus became more manageable following
the November 10th USDA reports, causing soybean prices to gain upward momentum.
Additional losses were experienced in sugar and coffee trading.
Metals trading was unprofitable, as gold was unable to achieve any significant
rally, partly due to falling oil prices and resulting pressure on the weakened
CRB index. Similarly, silver markets continued to remain range-bound, while also
experiencing a significant selloff in November, and aluminum traded at its
lowest levels since 1994, with many aluminum smelters operating at a loss.
__________________________
Special Reminder
As tax season approaches and Merrill Lynch Investment Partners Inc. ("MLIP")
prepares for distribution of the Fund's tax information for 1998 on Schedule
K-1, investors should take steps to confirm that MLIP has their current address.
Please notify MLIP in writing of any recent or impending change of address by
notice mailed to Merrill Lynch Investment Partners Inc., World Financial Center,
South Tower, 6th Floor, New York, NY 10080, Attention: Winston Clinton. Thank
you.
MLIP plans to mail the Schedule K-1 to investors during the month of February.
__________________________
Effective January 1, 1999, the fund's allocations to each of ARA Portfolio
Management Company, L.L.C., John W. Henry & Company, Inc., and Allied Irish
Capital Management Ltd. were terminated and the following advisor began trading
on behalf of the Fund:
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E.D. & F. Man Investment Products (America) Corporation began trading its AHL
Alpha Program with an allocation of 9.9% of the Fund's traded assets. E.D. & F.
Man currently manages a total of approximately $104.8 million in this systematic
program and a total of $119.2 million overall. For the period from June 1, 1997
(inception) through October 31, 1998, the Program's worst monthly rate of return
was down 5.3% and the best monthly return was 14.0%. The Program's annualized
standard deviation of return was 16.3%. The Program's worst peak to valley
drawdown was down 5.3% in August, 1997.
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As of January, 1, 1999, the Fund's assets were allocated as follows:
Trading Advisor % Allocation
- --------------- ------------
Bridgewater Associates, Inc. 8.36
Dominion Capital Management, Inc. 8.36
Grinham Managed Futures Pty Ltd. 8.36
Millennium Global Investment ltd. 8.36
Quantitative Financial Strategies, Inc 8.36
Sunrise Capital Partners, L.L.C. 8.36
ED & F Man Investment Products Ltd. 8.34
Graham Capital Management, L.P. 8.02
Millburn Ridgefield Corporation 6.41
Hill Financial Group, Ltd. 4.64
Range Wise, Inc. 4.22
Fundamental Futures, Inc. 2.62
Cash 15.59*
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100.00
*Reflects blended allocations of the different series.
1998 Year-to-Date
Gross Total Trading Results*
Through December 31
Agriculture $ (967,695)
Currencies 2,085,218
Energy (882,409)
Financial Instruments 7,116,337
Metals (1,482,985)
Stock Indices 824,905)
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Total $ 6,693,371
*Before deduction of any fees and charges
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We were gratified with the Fund's ability to generate a small profit during the
fourth quarter, which experienced continued unprecedented volatility in many
major markets. We look forward to the new year and opportunities it may present,
and wish you the best in 1999.
Sincerely,
John R. Frawley, Jr.
President & Chief Executive Officer
Merrill Lynch Investment Partners Inc.
(General Partner)
FOR THE EXCLUSIVE USE OF INVESTORS IN ML PRINCIPAL PROTECTION L.P. THIS MONTHLY
REPORT IS NOT AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES. AN OFFER CAN ONLY BE MADE BY A CURRENT PROSPECTUS, AS SUPPLEMENTED,
TOGETHER WITH SUMMARY FINANCIAL INFORMATION FOR THE FUND CURRENT WITHIN 60 DAYS.
THESE MATERIALS CONTAIN IMPORTANT INFORMATION ABOUT RISK FACTORS, PERFORMANCE
AND OTHER ASPECTS OF THE FUND AND MUST BE READ CAREFULLY BEFORE INVESTING.
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THIS MONTHLY REPORT MUST NOT BE REPRODUCED OR DISTRIBUTED IN ANY MANNER.
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ML Principal Protection L.P.
December 31, 1998
Statement of Changes
in Net Asset Value
(unaudited)
Net Asset Value (737,706.9528 Units) at
November 30, 1998 $ 80,410,940
Net Income/(Loss) for December 1998 163,727
Redemptions of 13,268.1800 Units (1,467,829)
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Net Asset Value (724,438.7728 Units) at
December 31, 1998 $ 79,106,838
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Net Asset Value at December 31, 1998:
Series A Units $ 115.74*
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Series B Units $ 113.99*
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Series C Units $ 108.92*
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Series D Units $ 111.45*
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Series E Units $ 111.14*
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Series F Units $ 108.95*
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Series G Units $ 107.67*
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Series H Units $ 107.81*
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Series K Units $ 109.61
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Series L Units $ 106.81
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Series M Units $ 108.34
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Series N Units $ 104.43
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Series O Units $ 104.77
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Series P Units $ 106.92
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Series Q Units $ 98.86
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* The Net Asset Value per Unit does not include the annual distributions paid to
Unitholders.
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Statement of Income/(Loss)
(unaudited)
December
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Revenues:
Realized Profit/(Loss) $ 802,157
Change in Unrealized Profit/(Loss) (525,308)
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Total Trading Results 276,849
Interest Income 352,222
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Total Revenues 629,071
Expenses:
Brokerage Commissions 402,923
Administrative Fees 16,960
Allocation of New Profit Share 43,998
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Total Expenses 463,881
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Net Income/(Loss) Before Minority Interest 165,190
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Minority Interest (1,463)
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Net Income/(Loss) $ 163,727
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To the best of the knowledge and belief of the undersigned the information
contained in this report is accurate and complete.
/s/ Jo Ann Di Dario
Jo Ann Di Dario
Chief Financial Officer
Merrill Lynch Investment Partners Inc.
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Please notify the following of any address changes:
Merrill Lynch Investment Partners Inc.
Merrill Lynch World Headquarters
South Tower
World Financial Center
New York, New York 10080-6106
1-800-765-0995
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