<Page>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
Commission File Number 0-25000
ML PRINCIPAL PROTECTION L.P.
----------------------------
(Exact Name of Registrant as
specified in its charter)
Delaware 13-3750642 (Registrant)
- ------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o Merrill Lynch Investment Managers LLC
222 Broadway
27th Floor
New York, NY 10038-2510
-----------------------
(Address of principal executive offices)
(Zip Code)
609-282-6996
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML PRINCIPAL PROTECTION L.P.
(a Delaware Limited Partnership)
STATEMENTS OF FINANCIAL CONDITION
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
(UNAUDITED)
-------------- --------------
ASSETS
Equity in commodity futures trading accounts:
Cash $ 550,965 $ 1,960,792
Investment in MM LLC 16,866,636 16,280,408
Accrued interest receivable 448 2,028
-------------- --------------
TOTAL $ 17,418,049 $ 18,243,228
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable $ 423,020 $ 497,074
Payable to MM LLC 110,625 305,592
-------------- --------------
Total liabilities 533,645 802,666
-------------- --------------
PARTNERS' CAPITAL:
General Partners (156,638 and 1,584 Units) 195,629 185,021
Limited Partners (13,283,447 and 147,723 Units) 16,688,775 17,255,541
-------------- --------------
Total partners' capital 16,884,404 17,440,562
-------------- --------------
TOTAL $ 17,418,049 $ 18,243,228
============== ==============
</Table>
NET ASSET VALUE PER UNIT (NOTE 3)
See notes to financial statements.
2
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ML PRINCIPAL PROTECTION L.P.
(a Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
(unaudited)
<Table>
<Caption>
FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2003 2002 2003 2002
-------------- -------------- -------------- --------------
REVENUES:
Trading profits (loss):
Realized $ 925,557 $ 471,040 $ 2,473,057 $ 75,178
Change in unrealized 151,801 324,397 (704,826) 308,828
-------------- -------------- -------------- --------------
Total trading results 1,077,358 795,437 1,768,231 384,006
-------------- -------------- -------------- --------------
Interest income 49,311 99,868 102,379 200,681
-------------- -------------- -------------- --------------
Total revenues 1,126,669 895,305 1,870,610 584,687
-------------- -------------- -------------- --------------
EXPENSES:
Brokerage commissions 309,891 276,592 611,043 562,690
Administrative fees 10,640 9,219 20,991 18,756
Profit shares 127,631 69,372 230,743 69,708
-------------- -------------- -------------- --------------
Total expenses 448,162 355,183 862,777 651,154
-------------- -------------- -------------- --------------
NET INCOME (LOSS) $ 678,507 $ 540,122 $ 1,007,833 $ (66,467)
============== ============== ============== ==============
NET INCOME (LOSS) PER UNIT:
Weighted average number of General Partner
and Limited Partner units outstanding 13,872,504 178,080 14,265,980 182,169
============== ============== ============== ==============
Net income (loss) per weighted
average Limited Partner and
General Partner Unit $ .0489 $ 3.03 $ .0706 $ (0.36)
============== ============== ============== ==============
</Table>
See notes to financial statements.
Certain 2002 information has been changed to conform to the 2003 presentation.
3
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ML PRINCIPAL PROTECTION L.P.
(a Delaware Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(unaudited)
<Table>
<Caption>
GENERAL LIMITED
UNITS PARTNER PARTNERS TOTAL
-------------- -------------- -------------- --------------
PARTNERS' CAPITAL,
December 31, 2001 191,545 $ 233,900 $ 21,071,380 $ 21,305,280
Net loss -- (179) (66,288) (66,467)
Redemptions (20,106) -- (2,179,047) (2,179,047)
Distributions -- (1,054) (90,321) (91,375)
-------------- -------------- -------------- --------------
PARTNERS' CAPITAL,
June 30, 2002 171,439 $ 232,667 $ 18,735,724 $ 18,968,391
============== ============== ============== ==============
PARTNERS' CAPITAL,
December 31, 2002 149,307 $ 185,021 $ 17,255,541 $ 17,440,562
Conversion of shares 14,633,051 59 5,440 5,499
Net income -- 11,012 996,821 1,007,833
Redemptions (1,342,273) -- (1,524,972) (1,524,972)
Distributions -- (463) (44,055) (44,518)
-------------- -------------- -------------- --------------
PARTNERS' CAPITAL,
June 30, 2003 13,440,085 $ 195,629 $ 16,688,775 $ 16,884,404
============== ============== ============== ==============
</Table>
See notes to financial statements.
4
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ML PRINCIPAL PROTECTION L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly the
financial position of ML Principal Protection L.P. (the "Partnership") as
of June 30, 2003, and the results of its operations for the three and six
months ended June 30, 2003 and 2002. However, the operating results for the
interim periods may not be indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in conformity with accounting principles
generally accepted in the United States have been omitted. It is suggested
that these financial statements be read in conjunction with the financial
statements and notes thereto included in the Partnership's Annual Report on
Form 10-K filed with the Securities and Exchange Commission for the year
ended December 31, 2002.
2. INVESTMENTS
As of June 30, 2003 and December 31, 2002, the Partnership had an
investment in ML Multi-Manager Portfolio LLC ("MM LLC") of $16,866,636 and
$16,280,408, respectively. As of June 30, 2003, and December 31, 2002, the
Partnership's percentage ownership share of MM LLC was 10.73% and 9.39%,
respectively.
A condensed statements of financial condition and statements of operations
for MM LLC are set forth as follows:
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
(UNAUDITED)
-------------------- --------------------
Assets $ 160,592,732 $ 177,485,585
==================== ====================
Liabilities $ 3,434,981 $ 4,031,107
Members' Capital 157,157,751 173,454,478
-------------------- --------------------
Total $ 160,592,732 $ 177,485,585
==================== ====================
<Caption>
FOR THE THREE MONTHS FOR THE THREE MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, 2003 ENDED JUNE 30, 2002 ENDED JUNE 30, 2003 ENDED JUNE 30, 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
-------------------- -------------------- -------------------- --------------------
Revenues $ 5,969,103 $ 5,972,065 $ 10,541,402 $ 4,058,377
Expenses 2,459,957 2,807,537 5,054,477 4,959,006
-------------------- -------------------- -------------------- --------------------
Net Income (Loss) $ 3,509,146 $ 3,164,528 $ 5,486,925 $ (900,629)
==================== ==================== ==================== ====================
</Table>
5
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3. NET ASSET VALUE PER UNIT
Prior to the opening of business on January 2, 2003, Series A through F and
K through N, those series whose guarantee had come to term on or before
December 31, 2002, were consolidated 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 is equal to the aggregate Net Asset Value of their
original Units at December 31, 2002. The consolidation had no economic
effect on the investors. The General Partner 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 Units
each investor received of Series A 2003 for each Unit of their original
series holding.
<Table>
<Caption>
NUMBER
SERIES OF UNITS
------ --------
A 122.021960
B 117.269077
C 115.242141
D 112.085339
E 111.088709
F 104.084994
K 123.799970
L 120.674078
M 122.310644
N 117.973383
</Table>
After the series consolidation, the brokerage commission rate for Series A
2003 was reduced to a monthly rate of 0.604 of 1% (a 7.25% annual rate).
At June 30, 2003 and December 31, 2002, the Net Asset Values of the
different series of Units were:
June 30, 2003
(unaudited)
<Table>
<Caption>
NET ASSET VALUE
NET ASSET VALUE NUMBER OF UNITS PER UNIT
---------------- ---------------- ----------------
Series A 2003 Units $ 14,249,417 13,417,198.0000 $ 1.0620
Series G Units 496,112 4,638.0300 $ 106.97
Series H Units 519,265 5,076.6650 $ 102.28
Series O Units 663,222 5,288.7419 $ 125.40
Series P Units 242,979 1,899.0000 $ 127.95
Series Q Units 195,525 1,653.2408 $ 118.27
Series R Units 460,675 3,856.0000 $ 119.47
Series S Units 57,209 475.0000 $ 120.44
---------------- ----------------
$ 16,884,404 13,440,084.6777
================ ================
</Table>
6
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December 31, 2002
<Table>
<Caption>
NET ASSET VALUE
NET ASSET VALUE NUMBER OF UNITS PER UNIT
---------------- ---------------- ----------------
Series A Units $ 4,554,926 37,329.0000 $ 122.02
Series B Units 361,036 3,079.0000 $ 117.26
Series C Units 754,685 6,550.0000 $ 115.22
Series D Units 2,324,762 20,741.0000 $ 112.09
Series E Units 1,327,640 11,951.4800 $ 111.09
Series F Units 829,625 7,711.3400 $ 107.58
Series G Units 585,224 5,508.0300 $ 106.25
Series H Units 547,940 5,390.6650 $ 101.65
Series K Units 2,302,631 18,619.0000 $ 123.67
Series L Units 1,390,508 11,536.2800 $ 120.53
Series M Units 726,816 5,946.4607 $ 122.23
Series N Units 207,135 1,757.6778 $ 117.85
Series O Units 624,977 5,288.7419 $ 118.17
Series P Units 228,921 1,899.0000 $ 120.55
Series Q Units 185,883 1,667.9408 $ 111.44
Series R Units 433,969 3,856.0000 $ 112.54
Series S Units 53,884 475.0000 $ 113.44
---------------- ----------------
$ 17,440,562 149,306.6162
================ ================
</Table>
4. ANNUAL DISTRIBUTIONS
The Partnership makes annual fixed-rate distributions, payable irrespective
of profitability, of $3.50 per Unit on Units issued prior to May 1, 1997.
The Partnership may also pay discretionary distributions on such Series of
Units of up to 50% of any Distributable New Appreciation, as defined on
such Units. No distributions are payable on Units issued after May 1, 1997.
As of June 30, 2003, the Partnership has made the following distributions:
<Table>
<Caption>
DISTRIBUTION FIXED-RATE DISCRETIONARY
SERIES DATE DISTRIBUTION DISTRIBUTION
---------- ------------ ------------ -------------
2003
----
Series F 1/1/2003 $ 3.50 $ -
Series G 4/1/2003 3.50 -
2002
----
Series B 1/1/2002 $ 3.50 $ -
Series C 4/1/2002 3.50 -
Series D 7/1/2002 3.50 -
Series E 10/1/2002 3.50 -
Series F 1/1/2002 3.50 -
Series G 4/1/2002 3.50 -
Series H 7/1/2002 3.50 -
</Table>
7
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5. FAIR VALUE AND OFF-BALANCE SHEET RISK
The nature of this Partnership has certain risks, which can not be
presented on the financial statements. The following summarizes some of
those risks.
MARKET RISK
Derivative instruments involve varying degrees of off-balance sheet market
risk. Changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the financial instruments
or commodities underlying such derivative instruments frequently result in
changes in the Partnership's net unrealized profit (loss) on such
derivative instruments as reflected in the Statements of Financial
Condition or, with respect to Partnership assets invested in MM LLC, the
net unrealized profit (loss) as reflected in the respective Statements of
Financial Condition of MM LLC. The Partnership's exposure to market risk is
influenced by a number of factors, including the relationships among the
derivative instruments held by the Partnership and MM LLC as well as the
volatility and liquidity of the markets in which such derivative
instruments are traded.
The General Partner, Merrill Lynch Investment Managers LLC ("MLIM LLC"),
has procedures in place intended to control market risk exposure, although
there can be no assurance that they will, in fact, succeed in doing so.
These procedures focus primarily on monitoring the trading of the Advisors
selected from time to time by the Partnership or MM LLC, and include
calculating the Net Asset Value of their respective Partnership accounts
and MM LLC accounts as of the close of business on each day and reviewing
outstanding positions for over-concentrations both on an Advisor-by-Advisor
and on an overall Partnership basis. While MLIM LLC does not itself
intervene in the markets to hedge or diversify the Partnership's market
exposure, MLIM LLC may urge Advisors to reallocate positions, or itself
reallocate Partnership assets, through MM LLC, among Advisors (although
typically only as of the end of a month) in an attempt to avoid
over-concentrations. However, such interventions are unusual. Except in
cases in which it appears that an Advisor has begun to deviate from past
practice or trading policies or to be trading erratically, MLIM LLC's basic
risk control procedures consist simply of the ongoing process of advisor
monitoring and selection with the market risk controls being applied by the
Advisors themselves.
CREDIT RISK
The risks associated with exchange-traded contracts are typically perceived
to be less than those associated with over-the-counter
(non-exchange-traded) transactions, because exchanges typically (but not
universally) provide clearinghouse arrangements in which the collective
credit (in some cases limited in amount, in some cases not) of the members
of the exchange is pledged to support the financial integrity of the
exchange. In over-the-counter transactions, on the other hand, traders must
rely solely on the credit of their respective individual counterparties.
Margins, which may be subject to loss in the event of a default, are
generally required in exchange trading, and counterparties may require
margin in the over-the-counter markets.
The Partnership, through MM LLC, has credit risk in respect of its
counterparties and brokers, but attempts to mitigate this risk by dealing
exclusively with Merrill Lynch entities as clearing brokers.
The Partnership, through MM LLC, in its normal course of business, enters
into various contracts, with Merrill Lynch, Pierce, Fenner & Smith
("MLPF&S") acting as its commodity broker. Pursuant to the brokerage
agreement with MLPF&S (which includes a netting arrangement), to the extent
that such trading results in receivables from and payables to MLPF&S, these
receivables and payables are
8
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offset and reported as a net receivable or payable in the financial
statements of MM LLC in the Equity in commodity futures trading accounts in
the Statements of Financial Condition.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
<Table>
<Caption>
MONTH-END NET ASSET VALUE PER SERIES A UNIT
- --------------------------------------------------------------------------------
JAN. FEB. MAR. APR. MAY JUN.
- --------------------------------------------------------------------------------
2002 $109.41(a) $106.60(a) $108.32(a) $106.88(a) $108.25(a) $112.26(a)
- --------------------------------------------------------------------------------
2003 $1.0331(b) $1.0654(b) $1.0196(b) $1.0262(b) $1.0790(b) $1.0620(b)
- --------------------------------------------------------------------------------
</Table>
(a) After reduction of $29.50 per Series A Unit distributions from inception to
date.
(b) After series consolidation on January 1, 2003.
Performance Summary
All of the Partnership's trading assets are invested in MM LLC. The Partnership
recognizes trading profits or losses as an investor in MM LLC. The following
commentary describes the trading results of MM LLC.
JANUARY 1, 2003 TO JUNE 30, 2003
January 1, 2003 to March 31, 2003
The Partnership experienced gains in the currency, energy, interest rate and
stock index sectors and losses in the agricultural commodity and metals sectors.
Overall, for the quarter, the Partnership experienced gains.
The currency forward and futures trading had the most significant gains for the
quarter. The weakening U.S. dollar was continuing 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.
Energy was a profitable sector for the quarter. With the continuation of the
strike in Venezuela, the tensions with Iraq and the cold winter, long positions
in oil and natural gas were profitable in the beginning of the year. In
February, the best performing month, natural gas prices rose nearly 40% in a
single day citing expected severely cold weather and supply shortages. The
Partnership profited from this event but such volatility caused many of the
Advisors to reduce their long positions. This helped the Partnership retain
profits as prices declined in crude oil and natural gas in March.
Interest rate futures were also profitable for the quarter. February had
significant gains offsetting losses in both January and March. U.S. and European
bonds rallied amid concerns of a global economic slowdown benefiting the
Partnership's long exposures. Selective long/short rate exposure globally was
the main driver to gains generated in the sector. The global fixed income
markets continued their upward climb until mid-March when expectations of a
short conflict triggered the liquidation of many fixed income investments
hurting long exposures.
9
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Trading in stock indices posted slight gains for the quarter. The market was
choppy throughout the quarter making trading difficult. The Partnership was able
to realize some gains in January on short positions as most indices recorded
three-month lows. During the rest of the quarter, choppy markets caused short
positions to be covered to protect against the risk of significant losses.
The metals sector had losses for the quarter. 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 the main driver for the
gold market in January. The Partnership sustained losses in February and March
as the long bias in precious metals hurt the portfolio when gold reversed its
rising trend in February and continued to decline. Gold's appeal as a safe
investment diminished.
Trading in agricultural commodities posted losses for the quarter. The
Partnership held positions in sugar, livestock and the soybean complex.
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.
April 1, 2003 to June 30, 2003
The Partnership was profitable in the financial futures, currencies, interest
rates and stock index sectors, and incurred losses in the physical commodity
sectors, energy, agriculture and metals.
The currency sector was the strongest performer for the Partnership. 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.
The interest rate sector generated strong gains during the second quarter
producing significant profits in May. After a mixed start in April, the bond
market rally continued through May despite the stock market recovery. The U.S.,
European and Japanese bond markets reached new highs in June, as investors were
convinced the Federal Reserve would cut short-term rates by 50 basis points. A
stronger Consumer Price Index and a rate cut of only 25 basis points
disappointed the markets causing bond prices to reverse sharply by the end of
the month.
The stock index sector posted gains for the quarter. Gains were generated in
short-term trading in the U.S. and Europe, primarily the S&P 500 and selected
European indices. Overall exposure to the sector remains relatively light.
The energy markets posted losses for the quarter. 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. The SARS epidemic was expected to reduce the demand for jet fuel,
which the markets extrapolated to affect crude oil prices. Natural gas was very
volatile during June.
Trading in agricultural commodities had losses for the quarter. Gains in April,
mainly from soybeans, which rallied due to revisions crop estimates and weather
overseas, were overshadowed by losses in May and June due to changes in crop
estimates and a volatile livestock market. Losses were posted in livestock,
oil seed and grains.
10
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The metals sector generated the greatest losses for the Partnership this
quarter. Short positions in base metals and precious metals contributed to
losses in the sector. Gold generated losses in June reacting to the U.S. dollar
sell off.
JANUARY 1, 2002 TO JUNE 30, 2002
January 1, 2002 to March 31, 2002
The energy sector was the only profitable trading strategy for the quarter.
Natural gas short positions were profitable as the positions benefited from the
mild weather in the United States. The sector experienced large declines in
February due to increased concerns of the health of world economies. This lead
to price instability. Gains were realized in March in the physical commodity
markets, as fears of increased conflicts in the Middle East could potentially
result in a shortage of oil supplies.
Trading in stock indices resulted in losses for the quarter. Long equity
exposures suffered losses in choppy market conditions as profit forecasts fell
short and concern over the Enron accounting situation deepened. Uncertainty in
the global marketplace prevailed, making for extremely difficult trading
conditions. Long positions appreciated in March, notably in Japan, Germany and
France, but not enough to offset earlier losses.
Conflicting economic reports was the cause for losses in the interest rate
sector. These reports prompted the Advisors to flip exposures from long
positions to short positions in most major international bond markets during the
quarter. European fixed income exposures posted losses under particularly
direction-less markets. Global bond prices declined on growing optimism for a
stronger economic outlook for the remainder of 2002.
Trading in the metals sector was down for the quarter. Short positions in base
metals were unsuccessful early on as base metals prices soared on the hope that
an economic recovery in the United States would boost demand. Precious metal
prices declined as the U.S. economy continued to show signs of stabilizing and
inflation concerns waned. Long gold positioning generated gains as prices rose
above $300 for the first time in two years.
Currency trading resulted in losses for the Partnership. In January, gains were
generated in short Japanese yen positions as the Japanese yen continued to
depreciate against the U.S. dollar due to continued deterioration of economic
fundamentals in Japan. In February, all of the futures traded currencies
appreciated against the U.S. dollar, except the Canadian dollar. March was a
relatively volatile month for G-7 currencies. The U.S. dollar fell from 133 to
127.50 Japanese yen during the first week, and then almost completely reversed
the move by month-end, causing losses.
Agricultural trading was the least successful strategy. During January and
February, coffee prices were in a downward trend. This trend sharply reversed in
March as reduced exports from Mexico and Central America trimmed inventories of
exchange-approved soybeans in U.S. warehouses. As prices rose, the Partnership's
short positions sustained losses.
11
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April 1, 2002 to June 30, 2002
Profits resulting from trading in the currency sector provided the Partnership
with the majority of its gains in the second quarter. The decline in the U.S.
dollar continued through June unabated fueled by the decline in the U.S. equity
markets.
The interest rate sector was profitable for the Partnership despite its slow
start. Yields on major debt-instruments continued to decline. U.S. fixed income
markets have rallied sharply due to the flight-to-safety effect as well as the
conviction that the U.S. Federal Reserve will raise rates later rather than
sooner.
The agricultural commodities sector posted small gains for the quarter. Strong
gains were posted in livestock and grains in April as prices trended downward.
Soybean by-products positions also contributed to the profits in this sector.
The continued weakness in the U.S. dollar and low stockpiles in grains and
soybeans should aid in sustaining a price rally in the summer months.
The metals sector sustained slight losses for the quarter. In June, the uptrend
in gold and silver reversed and losses were sustained on long position
eliminating profits earned earlier in the quarter.
Energy futures experienced whipsaw markets and trading brought in losses for the
Partnership. The market was volatile during the quarter due to continued turmoil
in the Middle East.
Losses were experienced in the stock indices sector. The quarter began with the
stall of the appreciation in the U.S. and European equity markets in April due
to weak recovery expectations. The continued erosion of confidence in the
quarter about corporate earnings and the timing of recovery caused both the U.S.
and European markets to fall back.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
Item 4. Controls and Procedures
Merrill Lynch Investment Managers LLC, the General Partner of ML Principal
Protection L.P., with the participation of the General Partner's Chief Executive
Officer and the Chief Financial Officer, has evaluated the effectiveness of the
design and operation of its disclosure controls and procedures with respect to
the Partnership within 90 days of the filing date of this quarterly 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.
12
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending proceedings to which the Partnership or MLIM LLC
is a party.
Item 2. Changes in Securities and Use of Proceeds
(a) None.
(b) None.
(c) None.
(d) None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
There are no exhibits required to be filed with this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the first six months of
fiscal 2003.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ML PRINCIPAL PROTECTION L.P.
By: MERRILL LYNCH INVESTMENT
MANAGERS LLC
General Partner
Date: August 14, 2003 By /s/ FABIO P. SAVOLDELLI
------------------------
Fabio P. Savoldelli
Executive Vice President, Chief
Investment Officer and Managing
Director - Alternative Strategies
Division (Principal Executive
Officer)
Date: August 14, 2003 By /s/ PATRICK HAYWARD
-------------------
Patrick Hayward
Chief Financial Officer
(Principal Financial and Accounting
Officer)
14
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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 quarterly report on Form 10-Q of ML Principal Protection
L.P.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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;
6. The registrant's other certifying officers and I have indicated in this
quarterly 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: August 14, 2003
- -----------------------
By /s/ FABIO P. SAVOLDELLI
-----------------------
Fabio P. Savoldelli
Executive Vice President, Chief Investment Officer and Managing Director -
Alternative Strategies Division (Principal Executive Officer)
15
<Page>
EXHIBIT 99 (a)
AS ADOPTED TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this quarterly report of ML Principal Protection L.P. on Form
10-Q for the period ended June 30, 2003 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 quarterly 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 quarterly report fairly presents, in all
material respects, the financial condition and results of operations of ML
Principal Protection L.P.
Date: August 14, 2003
- -----------------------
By /s/ FABIO P. SAVOLDELLI
-----------------------
Fabio P. Savoldelli
Executive Vice President, Chief Investment Officer and Managing Director -
Alternative Strategies Division (Principal Executive Officer)
16
<Page>
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 quarterly report on Form 10-Q of ML Principal Protection
L.P.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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;
6. The registrant's other certifying officers and I have indicated in this
quarterly 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: August 14, 2003
- -----------------------
By /s/ PATRICK HAYWARD
-------------------
Patrick Hayward
Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<Page>
EXHIBIT 99 (a)
AS ADOPTED TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this quarterly report of ML Principal Protection L.P. on Form
10-Q for the period ended June 30, 2003 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 quarterly 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 quarterly report fairly presents, in all
material respects, the financial condition and results of operations of ML
Principal Protection L.P.
Date: August 14, 2003
- -----------------------
By /s/ PATRICK HAYWARD
-------------------
Patrick Hayward
Chief Financial Officer
(Principal Financial and Accounting Officer)
18