**Exhibit 13.01**

 

***ML TREND-FOLLOWING FUTURESFUND L.P.***

***(A Delaware Limited Partnership)***

 

 

FinancialStatements as of and for the years ended

December 31,2009, 2008 and 2007

andReport of Independent Registered Public Accounting Firms

 

 

 

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ML TREND-FOLLOWINGFUTURES FUND L.P.

(A DELAWARELIMITED PARTNERSHIP)

 

TABLEOF CONTENTS

 
| ** **                                                                                                  | **Page** |
|-------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                        |     |
| REPORT OF INDEPENDENT  REGISTERED PUBLIC ACCOUNTING FIRMS                                                   | 1        |
|                                                                                                        |     |
| FINANCIAL  STATEMENTS:                                                                                      |     |
|                                                                                                        |     |
| Statements of Financial  Condition as of December 31, 2009 and 2008                                    | 3        |
|                                                                                                        |     |
| Statements of  Operations for the years ended December 31, 2009, 2008 and 2007                         | 4        |
|                                                                                                        |     |
| Statements of Changes  in Partners’ Capital for the years ended December 31, 2009, 2008 and  2007 | 5        |
|                                                                                                        |     |
| Financial Data  Highlights for the years ended December 31, 2009, 2008 and 2007                        | 6        |
|                                                                                                        |     |
| Notes to Financial  Statements                                                                              | 7        |

 

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** **

****

 

**Report of Independent RegisteredPublic Accounting Firm**

 

To****thePartners of

ML Trend-FollowingFutures Fund L.P.:

 

In our opinion, theaccompanying statement of financial condition, and the related statements ofoperations, changes in partners’ capital, and financial data highlights presentfairly, in all material respects, the financial position of ML Trend-FollowingFutures Fund L.P. at December 31, 2009, and the results of its operations,changes in its partners’ capital, and financial data highlights for the yearthen ended,****in conformity with accountingprinciples generally accepted in the United States of America.  These financial statements and the financialdata highlights (hereafter referred to as the “financial statements”) are theresponsibility of the Fund’s management. Our responsibility is to express an opinion on these financialstatements based on our audit.  Weconducted our audit of these statements in accordance with the standards of thePublic Company Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

 

/s/PricewaterhouseCoopersLLP

 

 

March 25,2010

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

 

To the Partners of

ML Trend-Following Futures Fund L.P.:

 

We have audited the accompanying statement offinancial condition of ML Trend-Following Futures Fund L.P. (the “Fund”), as ofDecember 31, 2008, and the related statements of operations, changes inpartners’ capital, and the financial data highlights for each of the two yearsin the period ended December 31, 2008. These financial statements andfinancial data highlights are the responsibility of the Fund’s management. Ourresponsibility is to express an opinion on these financial statements andfinancial data highlights based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements and financial data highlights are freeof material misstatement. The Fund is not required to have, nor were we engagedto perform, an audit of its internal control over financial reporting. Ouraudits included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theFund’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting 

principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements and financialdata highlights referred to above present fairly, in all material respects, thefinancial position of ML Trend-Following Futures Fund L.P. as of December 31,2008, the results of its operations, changes in its partners’ capital, and thefinancial data highlights for each of the two years in the period ended December 31,2008, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

 

March 30, 2009

 

 

2

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ML TREND-FOLLOWINGFUTURES FUND L.P.

(A DELAWARELIMITED PARTNERSHIP)

 

STATEMENTSOF FINANCIAL CONDITION

AS OFDECEMBER 31, 2009 AND 2008

 
| ** **                                                                              | ** ** | **2009**    | ** **  | **2008**    | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
|                                                                                    |       |        |        |        |       |
| **ASSETS:**                                                                             |       |        |        |        |       |
| Cash  and cash equivalents                                                              |       | $           | 236,960     |        | $          | 251,804 |   |
| Investments  in Portfolio Funds (cost $205,798,913 for 2009 and $264,645,269 for 2008.) |       | 252,194,542 |        | 353,161,083 |       |
| Due  from Portfolio Funds                                                               |       | 11,698,600  |        | 11,064,145  |       |
| Accrued  interest recievable                                                            |       | 80          |        | —      |       |
|                                                                                    |       |        |        |        |       |
| **TOTAL ASSETS**                                                                        |       | $           | 264,130,182 |        | $          | 364,477,032 |   |
|                                                                                    |       |        |        |        |       |
| **LIABILITIES AND PARTNERS’ CAPITAL**                                              |       |        |        |        |       |
| **LIABILITIES:**                                                                        |       |        |        |        |       |
| Wrap  fee payable                                                                       |       | $           | 868,235     |        | $          | 1,213,435 |   |
| Redemptions  payable                                                                    |       | 11,251,332  |        | 11,138,285  |       |
| Other  liabilities                                                                      |       | 86,698      |        | 250,804     |       |
|                                                                                    |       |        |        |        |       |
| Total  liabilities                                                                      |       | 12,206,265  |        | 12,602,524  |       |
|                                                                                    |       |        |        |        |       |
| **PARTNERS’ CAPITAL:**                                                             |       |        |        |        |       |
| General  Partner (41,734 Units and 41,734 Units)                                        |       | 8,313,413   |        | 8,313,413   |       |
| Limited  Partners (1,390,359 Units and 1,724,666 Units)                                 |       | 243,610,504 |        | 343,561,095 |       |
|                                                                                    |       |        |        |        |       |
| Total  partners’ capital                                                           |       | 251,923,917 |        | 351,874,508 |       |
|                                                                                    |       |        |        |        |       |
| ** **                                                                              |       |        |        |        |       |
|                                                                                    |       |        |        |        |       |
| **TOTAL LIABILITIES AND PARTNERS’ CAPITAL:**                                       |       | $           | 264,130,182 |        | $          | 364,477,032 |   |
|                                                                                    |       |        |        |        |       |
| **NET ASSET VALUE PER UNIT**                                                            |       |        |        |        |       |
| (Based  on 1,432,093 and 1,766,400 Units outstanding, unlimited Units authorized)       |       | $           | 175.9131    |        | $          | 199.2043 |   |

 

See notes tofinancial statements.

 

3

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ML TREND-FOLLOWINGFUTURES FUND L.P.

(A DELAWARELIMITED PARTNERSHIP)

 

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

 
| ** **                                                                        | ** ** | **2009**    | ** **  | **2008**    | ** ** | **2007**    | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| **TRADING PROFIT (LOSS):**                                                        | ** ** | ** **  |        |        |       |        |       |
|                                                                              |       |        |        |        |       |        |       |
| Realized,  net                                                                    |       | $           | 15,662,881  |        | $          | 20,765,365  |       | $ | (64,586,271 | ) |
| Change  in unrealized, net                                                        |       | (42,120,185 | )           | 65,888,978  |       | 15,318,537  |       |
| Total  trading profit (loss)                                                      |       | (26,457,304 | )           | 86,654,343  |       | (49,267,734 | )          |
|                                                                              |       |        |        |        |       |        |       |
| **INVESTMENT INCOME:**                                                            |       |        |        |        |       |        |       |
| Interest                                                                          |       | 4,357       |        | 10,654      |       | 13,909,510  |       |
|                                                                              |       |        |        |        |       |        |       |
| **EXPENSES:**                                                                     |       |        |        |        |       |        |       |
| Brokerage  commissions                                                            |       | —      |        | —      |       | 15,400,942  |       |
| Administrative  and filing fees                                                   |       | (20,718     | )           | 361,539     |       | 961,273     |       |
| Wrap  fee                                                                         |       | 12,143,045  |        | 14,868,130  |       | 9,947,043   |       |
| Other  Expenses                                                                   |       | —      |        | —      |       | 25,000      |       |
| Total  expenses                                                                   |       | 12,122,327  |        | 15,229,669  |       | 26,334,258  |       |
| ** **                                                                        |       |        |        |        |       |        |       |
| **NET INVESTMENT (INCOME) LOSS**                                                  |       | (12,117,970 | )           | (15,219,015 | )          | (12,424,748 | )          |
| ** **                                                                        |       |        |        |        |       |        |       |
| **INTEREST AND PROFIT SHARE ALLOCATION**                                          |       | (38,575,274 | )           | 71,435,328  |       | (61,692,482 | )          |
|                                                                              |       |        |        |        |       |        |       |
|                                                                              |       |        |        |        |       |        |       |
| Minority  interest                                                                |       | —      |        | —      |       | 18,048      |       |
|                                                                              |       |        |        |        |       |        |       |
| **NET PROFIT (LOSS)**                                                             |       | $           | (38,575,274 | )           | $          | 71,435,328  |       | $ | (61,674,434 | ) |
|                                                                              |       |        |        |        |       |        |       |
| **NET PROFIT (LOSS) PER UNIT:**                                                   |       |        |        |        |       |        |       |
| Weighted  average number of General Partner and Limited Partner Units outstanding |       | 1,637,477   |        | 2,029,868   |       | 3,220,807   |       |
|                                                                              |       |        |        |        |       |        |       |
| Net  proftit (loss) per weighted average General Partner and Limited Partner Unit |       | $           | (23.56      | )           | $          | 35.19       |       | $ | (19.15 | ) |

 

See notes tofinancial statements.

 

4

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ML TREND-FOLLOWINGFUTURES FUND L.P.

(A DELAWARELIMITED PARTNERSHIP)

 

STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

 
| ** **                                     | ** ** | **Units**  | ** ** | **General  Partner** | ** ** | **Limited  Partners** | ** ** | **Total**    | ** ** |
|------------------------------------------------|------------|------------|------------|----------------------|------------|-----------------------|------------|--------------|------------|
|                                           |       |       |       |                 |       |                  |       |         |       |
| PARTNERS’ CAPITAL, December 31, 2006 |       | 4,511,816  |       | $                    | 8,204,766  |                  | $          | 784,098,296  |       | $ | 792,303,062 |   |
|                                           |       |       |       |                 |       |                  |       |         |       |
| Subscriptions                                  |       | 224,986    |       | —               |       | 36,094,976            |       | 36,094,976   |       |
|                                           |       |       |       |                 |       |                  |       |         |       |
| Net Profit (Loss)                              |       | —     |       | (573,924             | )          | (61,100,510           | )          | (61,674,434  | )          |
|                                           |       |       |       |                 |       |                  |       |         |       |
| Redemptions                                    |       | (2,483,059 | )          | (687,108             | )          | (395,917,214          | )          | (396,604,322 | )          |
|                                           |       |       |       |                 |       |                  |       |         |       |
| PARTNERS’ CAPITAL, December 31, 2007 |       | 2,253,743  |       | 6,943,734            |       | 363,175,548           |       | 370,119,282  |       |
|                                           |       |       |       |                 |       |                  |       |         |       |
| Subscriptions                                  |       | 96,444     |       | —               |       | 17,442,303            |       | 17,442,303   |       |
|                                           |       |       |       |                 |       |                  |       |         |       |
| Net Profit (Loss)                              |       | —     |       | 1,369,679            |       | 70,065,649            |       | 71,435,328   |       |
|                                           |       |       |       |                 |       |                  |       |         |       |
| Redemptions                                    |       | (583,787   | )          | —               |       | (107,122,405          | )          | (107,122,405 | )          |
|                                           |       |       |       |                 |       |                  |       |         |       |
| PARTNERS’ CAPITAL, December 31, 2008 |       | 1,766,400  |       | 8,313,413            |       | 343,561,095           |       | 351,874,508  |       |
|                                           |       |       |       |                 |       |                  |       |         |       |
| Subscriptions                                  |       | 78,377     |       | —               |       | 14,730,610            |       | 14,730,610   |       |
|                                           |       |       |       |                 |       |                  |       |         |       |
| Net Profit (Loss)                              |       | —     |       | —               |       | (38,575,274           | )          | (38,575,274  | )          |
|                                           |       |       |       |                 |       |                  |       |         |       |
| Redemptions                                    |       | (412,684   | )          | —               |       | (76,105,927           | )          | (76,105,927  | )          |
|                                           |       |       |       |                 |       |                  |       |         |       |
| PARTNERS’ CAPITAL, December 31, 2009 |       | 1,432,093  |       | $                    | 8,313,413  |                  | $          | 243,610,504  |       | $ | 251,923,917 |   |

 

5

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ML TREND-FOLLOWINGFUTURES FUND L.P.

(A DELAWARELIMITED PARTNERSHIP)

 

FINANCIALDATA HIGHLIGHTS

FORTHE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

 

The following per Unitdata and ratios have been derived from information provided in the financialstatements.

 
| ** **                                                       | ** ** | **2009** | ** ** | **2008** | ** ** | **2,007** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
| **Per Unit Operating Performance:**                              |       |     |       |     |       |      |       |
|                                                             |       |     |       |     |       |      |       |
| Net  asset value, beginning of year                              |       | $        | 199.20     |     | $          | 164.22    |       | $ | 175.61 |   |
|                                                             |       |     |       |     |       |      |       |
| Net  Realized and net unrealized change in trading profit (loss) |       | (15.91   | )          | 42.48    |       | (7.05     | )          |
| Interest  income                                                 |       | 0.00     |       | 0.01     |       | 3.52      |       |
| Minority  interest in Profit (loss)                              |       | —   |       | —   |       | —    | (1)        |
| Expenses  (2)                                                    |       | (7.38    | )          | (7.51    | )          | (7.86     | )          |
|                                                             |       |     |       |     |       |      |       |
| Net  asset value, end of year                                    |       | $        | 175.91     |     | $          | 199.20    |       | $ | 164.22 |   |
|                                                             |       |     |       |     |       |      |       |
| **Total Return:****(4)**                                         |       |     |       |     |       |      |       |
|                                                             |       |     |       |     |       |      |       |
| Total  return                                                    |       | -11.69   | %          | 21.30    | %          | -6.48     | %          |
|                                                             |       |     |       |     |       |      |       |
|                                                             |       |     |       |     |       |      |       |
| **Ratios to Average Net Assets:****(2),(3)**                     |       |     |       |     |       |      |       |
|                                                             |       |     |       |     |       |      |       |
| Expenses                                                         |       | 3.98     | %          | 4.14     | %          | 5.22      | %          |
|                                                             |       |     |       |     |       |      |       |
| Net  investment profit (loss)                                    |       | -3.98    | %          | -4.14    | %          | -2.46     | %          |

 

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(1) Minorityinterest is less than $0.01.

(2) Includesthe impact of brokerage commission expense.

(3) Theratios do not reflect the proportionate share of income and expense of thePortfolio Funds.

(4) The total returncalculations are based on compounded monthly returns and is calculated for eachclass taken as a whole.

An individualmembers’ return may vary from these returns based on timing of capitaltransactions.

 

See notes tofinancial statements.

 

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ML TREND-FOLLOWINGFUTURES FUND L.P.

(A DELAWARELIMITED PARTNERSHIP)

 

NOTESTO FINANCIAL STATEMENTS

 

1.               SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

 

Organization

 

ML Trend-Following Futures Fund L.P. (the “Partnership”) formerly knownas ML JWH Strategic Allocation Fund L.P was organized under the DelawareRevised Uniform Limited Partnership Act on December 11, 1995 and commencedtrading on July 15, 1996.  ThePartnership operates as a “fund of funds”, allocating and reallocating itscapital, under the discretion of Merrill Lynch Alternative Investments LLC (“MLAI”)the general partner of the Partnership, among four underlying FuturesAccessFunds (each a “Portfolio Fund” and collectively the “Portfolio Funds”) (SeeNote 2). The Portfolio Funds are a group of commodity pools sponsored by MLAI,each of which places substantially all of its assets in a managed futures andforward trading account managed by a single or multiple commodity tradingadvisors.  Each of the Portfolio Fundsimplements a different trading strategy.

 

On April 20, 2007, MLAI issued an announcement regarding arestructuring of the Partnership, effective June 1, 2007.  As part of the restructuring the followingoccurred:

 

·                  The Partnership changed itsname to ML Trend-Following Futures Fund L.P.

 

·                  The Partnership’s assetswere reinvested in MLAI-sponsored Portfolio Funds: ML Aspect FuturesAccess LLC(“Aspect”), ML Chesapeake FuturesAccess LLC (“Chesapeake”), ML Transtrend DTPEnhanced FuturesAccess LLC (“Transtrend”) and ML Winton FuturesAccess LLC (“Winton”).  These Portfolio Funds employ a variety ofsystematic models with an emphasis on a style of investment commonly referredto as “diversified trend following” and the Partnership no longer utilized theservices of John W. Henry & Company, Inc. (“JWH®”) as a commodity tradingadvisor.

 

·                  On May 7, 2007, thePartnership was deregistered under the Securities Act of 1933, as amended, butretained its registration under the Securities Act of 1934, as amended.

 

MLAI,the sponsor (“Sponsor”) and general partner of the Partnership, is an indirectwholly-owned subsidiary of Merrill Lynch & Co., Inc. (“MerrillLynch”).  Merrill Lynch, Pierce, Fenner &Smith Incorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch,is the Partnership’s commodity broker. As used herein, the capitalized term “MLAI”also refers to the general partner at times when its name was MLIM AlternativeStrategies LLC, as applicable. On September 15, 2008, Merrill Lynchentered into an Agreement and Plan of Merger (as amended by Amendment No. 1dated as of October 21, 2008, the “Merger Agreement”) with Bank of AmericaCorporation (“Bank of America”). Pursuant to the Merger Agreement, on January 1,2009, a wholly-owned subsidiary of Bank of America merged with and into MerrillLynch, with Merrill Lynch continuing as the surviving corporation and asubsidiary of Bank of America.

 

7

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Interests in the Fund arenot insured or otherwise protected by the Federal Deposit Insurance Corporationor any other government authority. Interests are not deposits or other obligations of, and are notguaranteed by, Bank of America Corporation or any of its affiliates or by anybank.  Interests are subject toinvestment risks, including the possible loss of the full amount invested.

 

Estimates

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America (“U.S. GAAP”)requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from thoseestimates. Certain prior year itemshave been reclassified to conform to the current year presentation.

 

Statement of Cash Flows

 

The Fund is not required to provide a Statement of Cash Flows.

 

Revenue Recognition

 

The Portfolio Funds’ may invest in commodities futures, options onfutures and forward contract transactions are recorded on trade date. Opencontracts are reflected in Net unrealized profit (loss) on open contracts inthe Statements of Financial Condition of the Partnership and each of thePortfolio Funds as the difference between the original contract value and themarket value (for those commodity interests for which market quotations are readilyavailable) or at fair value.  The changein unrealized profit on open contracts from one period to the next is reflectedin Change in unrealized under Trading profit (loss) in the Statements ofOperations of the Partnership and each of the Portfolio Funds.

 

The resulting change betweencost and market value (net of subscription and redemption activity in PortfolioFunds) is reflected in the Statements of Operations as change in unrealizedfrom the Investments in the Portfolio Funds. In addition, when the Partnershipredeems or partially redeems its interest in the Portfolio Funds, it recordsrealized (net profit or loss) under Trading Profit(Loss) for such interests inthe Statements of Operations of the Partnership.

 

ForeignCurrency Transactions

 

The Partnership’sfunctional currency is the U.S. dollar; however, it transacts business incurrencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S.dollar are translated into U.S. dollars at the rates in effect at the dates ofthe Statements of Financial Condition of the Partnership and eachof the Portfolio Funds.  Income and expense items denominated incurrencies other than the U.S. dollar are translated into U.S. dollars at therates in effect during the year.  Gainsand losses resulting from the translation to U.S. dollars are included inTrading Profit (loss) in the Statements of Operations of thePartnership and each of the Portfolio Funds.

 

Ongoing Offering Costs, Operating Expenses and SellingCommissions

 

Prior to June 1, 2007, the Partnership’s brokerage commissions andadministrative fees constituted a single annual “wrap fee” not to exceed 6.5%of the Partnership’s average month-end Net Asset Value, which covered all ofthe Partnership’s costs and expenses, other than bid-ask spreads and certaintrading fees as well as an annual filing fee payable to the State of New Jerseyand offering costs. After June 1, 2007, the Partnership pays MLAI, wrapfee in the amount of 4.0% of the Partnership’s

 

8

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average month-end Net Asset Value. Other than this 4.0% wrap fee, theonly direct expense of the Partnership is the annual New Jersey filing fee,which is assessed on a per-partner basis with a maximum charge of $250,000 peryear.

 

No sellingcommissions have been or are paid directly by the Limited Partners for theyears ended December 31, 2009 and 2008. All selling commissions are paid by MLPF&S.

 

Cash and Cash Equivalents

 

The Fund considers allhighly liquid investments, with a maturity of three months or less whenacquired, to be cash equivalents. Cash equivalents were recorded at amortizedcost which approximated fair value (Level II see Note 3).  Cash was heldat a nationally recognized financial institution.

 

Income Taxes

 

No provision forincome taxes has been made in the accompanying financial statements as eachPartner is individually responsible for reporting income or loss based on suchPartner’s respective share of the Partnership’s income and expenses as reportedfor income tax purposes.

 

The Partnership follows the ASC guidance issued foraccounting for uncertainty in income taxes. This guidance provides how uncertain tax positions should be recognized,measured, presented and disclosed in the financial statements.  This guidance also requires the evaluation oftax positions taken or expected to be taken in the course of preparing thePartnership’s financial statements to determine whether the tax positions are “more-likely-than-not”to be sustained by the applicable tax authority.  Tax positions with respect to tax at thepartnership level not deemed to meet the “more-likely-than-not” threshold wouldbe recorded as a tax benefit or expense in the current year.  The General Partner has analyzed the Fund’stax positions and has concluded that no provision for income tax is required inthe Fund’s financial statements. The following are the major tax jurisdictionsfor the fund and the earliest tax year subject to examination: United States —2006.

 

Distributions

 

The LimitedPartners are entitled to receive, equally per Unit, any distribution which maybe made by the Partnership.  No suchdistributions have been declared for the years ended December 31, 2009,2008 and 2007.

 

Subscriptions

 

Units of thePartnership are offered as of the close of business at the end of eachmonth.  Units are purchased as of thefirst business day of any month at Net Asset Value, but the subscriptionrequest must be submitted at least three calendar days before the end of thepreceding month.  Subscriptions submittedless than three days before the end of a month will be applied to Unitssubscriptions as of the beginning of the second month after receipt, unlessrevoked by MLAI.

 

9

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Redemptions

 

A Member may redeem or exchange some or all of such Member’s Units atNet Asset Value as of the close of business, on the last business day of anymonth, upon ten calendar days’ notice (“notice period”).

 

Redemptionrequests are accepted within the notice period. The Partnership does not accept any redemption requests after the noticeperiod.  All redemption requests receivedafter the notice period will be processed for the following month.

 

Dissolution of thePartnership

 

ThePartnership may terminate if certain circumstances occur as set forth in thelimited partnership agreement, which include but are not limited to thefollowing:

 

(a)                      Bankruptcy,dissolution, withdrawal or other termination of the trading advisors of this Partnership.

(b)                     Any event whichwould make unlawful the continued existence of this Partnership.

(c)                      Determinationby MLAI to liquidate or withdraw from the Partnership.

 

2.               INVESTMENTS INPORTFOLIO FUNDS

 

Thefour Portfolio Funds in which the Partnership is invested as of December 31,2009 and 2008 are: Winton, Aspect, Transtrend and Chesapeake. MLAI may in itsdiscretion, change the Portfolio Funds at any time. MLAI, also at itsdiscretion may vary the percentage of the Partnership’s total portfolioallocated to the different Portfolio Funds. There is no pre-established rangefor the minimum and maximum allocations that may be made to any given PortfolioFund.

 

Theinvestment transactions were accounted for on a trade date basis. Theinvestments in the Portfolio Funds were valued at fair value and was reflectedin the Statements of Financial Condition. In determining fair value, MLAIutilized the net asset value of the underlying Portfolio Funds. The fair valuewas net of all fees relating to the Portfolio Funds, paid or accrued.Additionally, MLAI monitored the performance of the Portfolio Funds. Suchmonitoring procedures included, but were not limited to: monitoring marketmovements in Portfolio Funds’ investments, comparing performance to industrybenchmarks, and in-depth conference calls and site visits with the PortfolioFunds’ Managers.

 

10

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At December 31,2009, Investments in Portfolio Funds at fair value are as follows:

 

**2009**

 
| ** **                                         | ** ** | **Fair  Value** | ** **  | **Percentage  of Partners’  Capital** | ** ** | **Profit  (Loss)** | ** ** | **Cost @  12/31/09** | ** ** | **Management  Fee (1)** | ** **  | **Performance  Fee (1)** | ** ** | **Redemptions  Permitted** | ** ** |
|----------------------------------------------------|------------|-----------------|-------------|--------------------------------------------|------------|--------------------|------------|----------------------|------------|-------------------------|-------------|--------------------------|------------|----------------------------|------------|
| ML  Winton FuturesAccess LLC                       |       | $               | 63,048,635  |                                       | 25.02      | %                  | $          | (5,336,877           | )          | $                       | 49,017,143  |                     | $          | (1,141,376                 | )          | $ | (58 | ) | Monthly |   |
| ML  Aspect FuturesAccess LLC                       |       | 63,048,636      |        | 25.02                                      |       | (9,013,890         | )          | 52,913,668           |       | (1,136,895              | )           | (4,019                   | )          | Monthly                    |       |
| ML  Transtrend DTP Enhanced FuturesAccess LLC      |       | 63,048,635      |        | 25.02                                      |       | (11,662,966        | )          | 49,054,433           |       | (755,300                | )           | (127                     | )          | Monthly                    |       |
| ML  Chesapeake FuturesAccess LLC*                  |       | 63,048,636      |        | 25.02                                      |       | (443,571           | )          | 54,813,669           |       | (764,642                | )           | (49,803                  | )          | Monthly                    |       |
|                                               |       |            |        |                                       |       |               |       |                 |       |                    |        |                     |       |                       |       |
| Total  Investment in Portfolio Funds at fair value |       | $               | 252,194,542 |                                       | 100.08     | %                  | $          | (26,457,304          | )          | $                       | 205,798,913 |                     |       |                       |       |   |   |   |
|                                                    |            |                 |             |                                            |            |                    |            |                      |            |                         |             |                          |            |                            |            |  |  |  |  |  |

 

----

(1) See Note6

* In liquidationas of December 31, 2009

 

December 31, 2008:

 

**2008**

 
| ** **                                         | ** ** | **Fair  Value** | ** **  | **Percentage  of Partners’  Capital** | ** ** | **Profit  (Loss)** | ** ** | **Cost @  12/31/08** | ** ** | **Management  Fee (1)** | ** **  | **Performance  Fee (1)** | ** ** | **Redemptions  Permitted** | ** ** |
|----------------------------------------------------|------------|-----------------|-------------|--------------------------------------------|------------|--------------------|------------|----------------------|------------|-------------------------|-------------|--------------------------|------------|----------------------------|------------|
| ML  Winton FuturesAccess LLC                       |       | $               | 88,290,271  |                                       | 25.09      | %                  | $          | 19,067,176           |       | $                       | 64,048,216  |                     | $          | (1,421,072                 | )          | $ | (3,068,305 | ) | Monthly |   |
| ML  Aspect FuturesAccess LLC                       |       | 88,290,270      |        | 25.09                                      |       | 25,131,209         |       | 65,018,330           |       | (1,429,262              | )           | (4,136,616               | )          | Monthly                    |       |
| ML  Transtrend DTP Enhanced FuturesAccess LLC      |       | 88,290,271      |        | 25.09                                      |       | 25,962,636         |       | 57,629,808           |       | (962,678                | )           | (6,414,299               | )          | Monthly                    |       |
| ML  Chesapeake FuturesAccess LLC                   |       | 88,290,271      |        | 25.09                                      |       | 16,493,322         |       | 77,948,915           |       | (936,971                | )           | (1,725,578               | )          | Monthly                    |       |
|                                               |       |            |        |                                       |       |               |       |                 |       |                    |        |                     |       |                       |       |
| Total  Investment in Portfolio Funds at fair value |       | $               | 353,161,083 |                                       | 100.36     | %                  | $          | 86,654,343           |       | $                       | 264,645,269 |                     |       |                       |       |   |   |   |
|                                                    |            |                 |             |                                            |            |                    |            |                      |            |                         |             |                          |            |                            |            |  |  |  |  |  |

 

----

(1) See Note6

 

11

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Theseinvestments are recorded at fair value and in accordance with Regulation S-X.The following is summarized financial information for each of the PortfolioFunds which requires disclosure.

 
| ** **  | ** ** | **As of December 31,2009**  | ** **    |
|-------------|------------|----------------------------------|---------------|
| ** **  | ** ** | **Total Assets**                 | ** **    | **Total Liabilities** | ** ** | **Total Capital** | ** ** |
| Winton      |       | $                                | 766,300,520   |   | $ | 16,264,053 |   | $ | 750,036,467 |   |
| Aspect      |       | 271,191,373                      |          | 5,562,211 |   | 265,629,162 |   |
| Transtrend  |       | 238,072,475                      |          | 2,171,789 |   | 235,900,686 |   |
| Chesapeake* |       | 163,226,178                      |          | 11,079,623 |   | 152,146,555 |   |
|        |       |                             |          |   |   |   |   |
| Total       |       | $                                | 1,438,790,546 |   | $ | 35,077,676 |   | $ | 1,403,712,870 |   |
|        |       |                             |          |   |   |   |   |
| ** **  | ** ** | **As of December 31, 2008** | ** **    |
| ** **  | ** ** | **Total Assets**                 | ** **    | **Total Liabilities** | ** ** | **Total Capital** | ** ** |
| Winton      |       | $                                | 864,513,961   |   | $ | 60,525,401 |   | $ | 803,988,560 |   |
| Aspect      |       | 346,419,209                      |          | 25,985,403 |   | 320,433,806 |   |
| Transtrend  |       | 234,472,658                      |          | 17,137,534 |   | 217,335,124 |   |
| Chesapeake  |       | 165,463,537                      |          | 6,426,196 |   | 159,037,341 |   |
|        |       |                             |          |   |   |   |   |
| Total       |       | $                                | 1,610,869,365 |   | $ | 110,074,534 |   | $ | 1,500,794,831 |   |

 
| ** **  | ** ** | **For the year ended December 31,2009** | ** **  |
|-------------|------------|----------------------------------------------|-------------|
| ** **  | ** ** | ** **                                   | ** **  | ** ** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **  | ** ** | **Income (Loss)**                            | ** **  | **Commissions** | ** ** | **Other** | ** ** | **Income (Loss)** | ** ** |
| Winton      |       | $                                            | (3,987,344  | ) | $ | (74,896 | ) | $ | (1,274,637 | ) | $ | (5,336,877 | ) |
| Aspect      |       | (7,481,690                                   | )           | (209,136 | ) | (1,323,064 | ) | (9,013,890 | ) |
| Transtrend  |       | (10,334,311                                  | )           | (380,622 | ) | (948,033 | ) | (11,662,966 | ) |
| Chesapeake* |       | 682,793                                      |        | (130,618 | ) | (995,746 | ) | (443,571 | ) |
|        |       |                                         |        |   |   |   |   |   |   |
| Total       |       | $                                            | (21,120,552 | ) | $ | (795,272 | ) | $ | (4,541,480 | ) | $ | (26,457,304 | ) |
|        |       |                                         |        |   |   |   |   |   |   |
| ** **  | ** ** | **For the year ended December 31,2008** | ** **  |
| ** **  | ** ** | ** **                                   | ** **  | ** ** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **  | ** ** | **Income (Loss)**                            | ** **  | **Commissions** | ** ** | **Other** | ** ** | **Income (Loss)** | ** ** |
| Winton      |       | $                                            | 23,922,922  |   | $ | (137,970 | ) | $ | (1,649,471 | ) | $ | 22,135,481 |   |
| Aspect      |       | 31,185,333                                   |        | (245,019 | ) | (1,672,406 | ) | 29,267,907 |   |
| Transtrend  |       | 34,020,230                                   |        | (372,561 | ) | (1,270,734 | ) | 32,376,934 |   |
| Chesapeake  |       | 19,692,117                                   |        | (173,816 | ) | (1,299,420 | ) | 18,218,882 |   |
|        |       |                                         |        |   |   |   |   |   |   |
| Total       |       | $                                            | 108,820,601 |   | $ | (929,366 | ) | $ | (5,892,030 | ) | $ | 101,999,205 |   |

 

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* In liquidationas of December 31, 2009

 

3.               FAIR VALUE OFINVESTMENTS

 

TheFASB’s ASC’s provide authoritative guidance on fair value measurement. Thisguidance defines fair value, establishes a framework for measuring fair valueand expands disclosures about fair value measurements.

 

Fair value of an investment is the amount that wouldbe received to sell the investment in an orderly transaction between marketparticipants at measurement date (i.e. the exit price). Purchase and sale ofinvestments is recorded on a trade date basis. Realized gains and losses oninvestments is recognized 

 

12

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when the investments are sold. Any change in netunrealized gain or loss from the preceding year is reported on the Statementsof Operations.

 

Thefair value measurement guidance established a hierarchal disclosure frameworkwhich prioritizes and ranks the level of market price observability used inmeasuring investments at fair value. Market price observability is impacted bya number of factors, including the type of investment and the characteristicsspecific to the investment. Investments with readily available active quotedprices or for which fair value can be measured from actively quoted prices generallywill have a higher degree of market price observability and a lesser degree ofjudgment used in measuring fair value.

 

Investmentsmeasured and reported at fair value are classified and disclosed in one of thefollowing categories:

 

LevelI — Quoted prices are available in active markets for identical investments asof the reporting date. The type of investments included in Level I are publiclytraded investments. As required by the fair market value measurement guidance,the Fund does not adjust the quoted price for these investments even insituations where the Fund holds a large position and a sale could reasonablyimpact the quoted price.

 

LevelII — Pricing inputs are other than quoted prices in active markets, which areeither directly or indirectly observable as of the reporting date, and fairvalue is determined through the use of generally accepted and understood modelsor other valuation methodologies. Investments which are generally included inthis category are investments valued using market data.

 

LevelIII — Pricing inputs are unobservable and include situations where there islittle, if any, market activity for the investment. Fair value for theseinvestments is determined using valuation methodologies that consider a rangeof factors, including but not limited to the nature of the investment, localmarket conditions, trading values on public exchanges for comparablesecurities, current and projected operating performance and financingtransactions subsequent to the acquisition of the investment. The inputs intothe determination of fair value require significant management judgment. Due tothe inherent uncertainty of these estimates, these values may differ materiallyfrom the values that would have been used had a ready market for these investmentsexisted.

 

In certain cases, the inputs used to measure fair value may fall intodifferent levels of the fair value hierarchy. In such cases, an investment’slevel within the fair value hierarchy is based on the lowest level of inputthat is significant to the fair value measurement. MLAI’s assessment of thesignificance of a particular input to the fair value measurement in itsentirety requires judgment, and considers factors specific to the investment.

 

Following is a description of the valuationmethodologies used for investments, as well as the general classification ofsuch investments pursuant to the valuation hierarchy.

 

Investments in Portfolio Funds are valued using thenet asset value reported by the investment company, which management believesapproximates fair value. These net asset values are the prices used to executetrades with these Portfolio Funds.

 

Although there are monthly transactions in thesePortfolio Funds interests, the Net Asset Value’s (“NAV”) are materially basedon portfolios of Level I and Level II assets and liabilities for which the Fundhas transparency.  As such, thePartnership determined that its investments in these portfolio funds in thiscase, would be classified as Level II.

 

13

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The following table summarizes the valuation of the Partnership’sinvestments by the above fair value hierarchy levels as of December 31,2009 and 2008:

 
| **Net  unrealized**     | ** ** | ** ** | ** **  | ** **  | ** ** | ** **   | ** ** | ** **    | ** **  |
|-------------------------|------------|------------|-------------|-------------|------------|--------------|------------|---------------|-------------|
| **profit  (loss)**      | ** ** | ** ** | ** **  | ** **  | ** ** | ** **   | ** ** | ** **    | ** **  |
| **on  open contracts**  | ** ** | **Total**  | ** **  | **Level I** | ** ** | **Level II** | ** ** | **Level III** | ** **  |
|                    |       |       |        |        |       |         |       |          |        |
| December 31,  2009 |       | $          | 252,194,542 |        | $          | —       |       | $             | 252,194,542 |   | $ | — |   |
| December 31,  2008 |       | $          | 353,161,083 |        | $          | —       |       | $             | 353,161,083 |   | $ | — |   |

 

Effective January 1, 2009, the Partnership adopted the FASB’sguidance on disclosures about derivative instruments and hedging activitieswhich requires qualitative disclosures about objectives and strategies forusing derivatives, quantitative disclosures about fair value amounts of andgains and losses on derivative instruments, and disclosures about credit-risk-relatedcontingent features in derivative agreements. This guidance only expands thedisclosure requirements for derivative instruments and related hedgingactivities and has no impact on Statements of Financial Condition or Statementsof Operations or Statements of Changes in Partners’ Capital. As the Partnershipinvests only in other Portfolio Funds, it does not have any direct investmentsin derivative investments.

 

4.               JOINT VENTURE AGREEMENT

 

The Joint VentureAgreement between the Partnership and JWH® was terminated on May 31, 2007. MLAI wasthe manager of the Joint Venture, while JWH® had sole discretion in determining thecommodity futures, options on futures and forward trades that were made on itsbehalf, which was subject to the trading limitations outlined in the JointVenture Agreement.

 

Pursuant to theJoint Venture Agreement, JWH® and the Partnership shared in the profits ofthe Joint Venture based on equity ownership provided that 20% of thePartnership’s allocable quarterly New Trading Profits, as defined, wereallocated to JWH®. Losses were allocated to JWH® and the Partnership based on equity ownership.

 

5.               RELATED PARTY TRANSACTIONS

 

The Partnership’s and the Portfolio Funds’ U.S. dollar assets aremaintained at MLPF&S.  On assets heldin U.S. dollars, Merrill Lynch credited the Partnership and the Portfolio Funds’with interest at the prevailing 91-day U.S. Treasury bill rate.  The Partnership and the Portfolio Funds arecredited with interest on any of its assets and net gains actually held byMLPF&S in non-U.S. dollar currencies at a prevailing local rate received byMerrill Lynch.  Merrill Lynch may derivecertain economic benefit in excess of the interest which Merrill Lynch pays tothe Partnership and the Portfolio Funds, from possession of such assets.

 

Merrill Lynch charged the Partnership and the Portfolio Funds’, atprevailing local interest rates, for financing realized and unrealized losseson the Partnership’s and each Portfolio Fund’s non-U.S. dollar-denominatedpositions.  Such amounts are nettedagainst interest income due to the insignificance of such amounts.

 

Prior to June 1,2007, the Partnership paid brokerage commissions to MLPF&S at a flatmonthly rate of .479 of 1% (a 5.75% annual rate) of the Joint Venture’s month-endtrading assets. The Joint Venture also paid MLAI a monthly administrative feeof .021 of 1% (a 0.25% annual rate) of the Joint Venture’s month-end tradingassets. The Partnership reimbursed MLAI for payment of the State of New Jerseyannual filing fee that was assessed on a per partner basis with a maximum of$250,000

 

14

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per year which waspaid on its behalf. Month-end trading assets were not reduced for purposes ofcalculating brokerage and administrative fees by any accrued brokeragecommissions, administrative fees, Profit Shares or other fees or charges.

 

Effective June 1,2007, no brokerage commission is charged to investors at the Partnershiplevel, although brokerage commissions are charged to investors at the PortfolioFunds’ level, and investors will be indirectly subject to their *pro rata* share of such fees based on the investment of thePartnership in such underlying Portfolio Funds. Brokerage commissions will bepaid on the completion or liquidation of a trade and are referred to asround-turn commissions, which cover both the initial purchase (or sale) and thesubsequent offsetting sale (or purchase) of a commodity futures contract (a “roundturn” commission).  A portion of thebrokerage fees is paid to Portfolio Funds executing brokers, which includeMLPF&S, as the commission for their execution services. The “round-turn”commissions paid will not exceed $15 per round-turn, except in the case ofcertain foreign contracts on which the rates may be as high as $100 perround-turn due to the large size of the contracts traded.  In general, it is estimated that aggregatebrokerage commission charges will not exceed .75% and should equalapproximately 0.50% per annum of each of the Portfolio Fund’s average month-endassets.

 

MLAI estimatesthat the round-turn equivalent commission rate charged to the Joint Venture byMLPF&S for the period January 1, 2007 through May 31, 2007 was$166 and for the year ended December 31, 2006 was $182 (not including, incalculating round-turn equivalents, forward contracts on a futures-equivalentbasis).

 

Prior to May 7,2007 MLPF&S paid JWH® annual consulting fees of 2% of thePartnership’s average month-end assets, after reduction for a portion of thebrokerage commissions.  The Partnershipno longer pays consulting fees.

 

Interestand Sponsor Fees as seen on the Statements of Operations are all received fromor paid to related parties.

 

The Fund holds cash at an unaffiliated bank which invests such cash ina money market fund which is managed by BlackRock, a related party to MLAI. The Cash and cash equivalents as seen on the Statements of FinancialCondition is the amount held by the related party.

 

6.               ADVISORY AGREEMENT

 

EachPortfolio Fund implements a systematic-based managed future strategy under thedirection of its trading advisors which are listed below:

 
| ** **          | ** ** | ** **                      | ** ** | **Next Renewal Date**     | ** ** | **Management** | ** ** | **Performance** | ** ** |
|---------------------|------------|---------------------------------|------------|---------------------------|------------|----------------|------------|-----------------|------------|
| **Portfolio  Fund** | ** ** | **Advisor**                     | ** ** | **of Advisory Agreement** | ** ** | **Fee Rate**   | ** ** | **Fee Rate**    | ** ** |
| Aspect              |       | Aspect Capital  Management      |       | December 31, 2011    |       | 1.5            | %          | 15              | %          |
| Chesapeake*         |       | Chesapeake Capital  Corporation |       | December 31, 2016    |       | 1              | %          | 20              | %          |
| Transtrend          |       | Transtrend B.V.                 |       | December 31, 2012    |       | 1              | %          | 25              | %          |
| Winton              |       | Winton Capital  Corporation     |       | December 31, 2014    |       | 1.5            | %          | 15              | %          |

 

----

* In liquidation as of December 31, 2009

 

The advisory agreements shall be automatically renewed for successivethree-year periods, on the same terms, unless terminated by either thePortfolio Fund or the respective advisor upon 90 days’ notice to the otherparty.  The advisors determine thecommodity futures, options on futures and forward contract trades to be made onbehalf of their respective Fund accounts, subject to certain trading policiesand to certain rights reserved by MLAI.

 

15

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7.               WEIGHTED AVERAGE UNITS

 

The weightedaverage number of Units outstanding was computed for purposes of disclosing netincome (loss) per weighted average Unit. The weighted average Units outstanding for the years ended December 31,2009, 2008 and 2007 equals the Units outstanding as of such date, adjustedproportionately for Units sold and redeemed based on the respective length oftime each was outstanding during the year/period.

 

8.               RECENTACCOUNTING PRONOUNCEMENTS

 

InJuly 2009, the Financial Accounting Standards Board (“FASB”) issuedAccounting Standards Codification (“ASC”) 105, *GenerallyAccepted Accounting Principles,*(ASC 105), which approved the FASBAccounting Standards Codification (the “Codification”) as the single source ofauthoritative nongovernmental GAAP. The Codification is effective for interimor annual periods ending after September 15, 2009. All existing accountingstandards have been superseded and all other accounting literature not includedin the Codification are considered nonauthoritative. ASC 105 was not intendedto change the accounting literature and did not impact the Partnership’sfinancial condition or results of operations. All accounting references within this report are in accordance with thenew Codification.

 

In April 2009, the FASB issued guidance on determining**fair value when**thevolume**and level of**activity for the asset or liability**have**significantly**decreased**and**identifying**transactions**that**are**not**orderly*.*This provides additional guidancefor estimating fair value in accordance with FASB guidance on fair value measurements, when thevolume and level of activity for the asset or liability have significantlydecreased. This also identifies circumstances that indicate a transaction isnot orderly. The guidance emphasizes that even if there has been a significantdecrease in the volume and level of activity for the asset or liability andregardless of the valuation technique(s) used, the objective of a fairvalue measurement remains the same. Fair value is the price that would bereceived to sell an asset or paid to transfer a liability in an orderlytransaction (that is, not a forced liquidation or distressed sale) betweenmarket participants at the measurement date under current market conditions.The guidance also contains enhanced disclosure requirements whereby fair valuedisclosures as well as certain disaggregated information will be disclosed. Theadoption of this guidance had no impact on the financial statements.

 

In September 2009, the FASB issued *AccountingStandards Update No. 2009-12, Investments in Certain Entities That Calculate Net Asset Value perShare (or Its Equivalent) (the “ASU 2009-12”),*which is effective for interim or annual financial periodsending after December 15, 2009.  Theadoption of this guidance had no impact on the financial statements.

 

In January 2010, the FASB issued an update to the fair valuemeasurements disclosure. Pursuant to this update, additional disclosures in thefinancial statements relating to transfers in and out of Levels 1 and 2 fairvalue measurements and separate disclosure of purchases, sales, issuances, andsettlements in Level 3 rollforward, will be required. In addition, this updateprovides clarifications on i) the level of aggregation of classes of assets andliabilities disclosed in the fair value measurement disclosures and ii)disclosures relating to the inputs and valuation techniques for Level 2 andLevel 3 fair value measurements. The new disclosures and clarifications ofexisting disclosures are effective for annual reporting periods beginning afterDecember 15, 2009, except for the disclosures about purchases, sales,issuances, and settlements in the Level 3 roll forward which are effective forfiscal years beginning after December 15, 2010. This update furtherenhances the fair value disclosures and the Sponsor has determined that theadoption of this update would not have a material impact to the Partnership’sfinancial statements.

 

16

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9.               MARKET AND CREDIT RISKS

 

The nature of this Partnership has certain risks,which cannot be presented on the financial statements.  The following summarizes some of those risks.

 

Market Risk

 

Derivativeinstruments involve varying degrees of market risk.  Changes in the level or volatility ofinterest rates, foreign currency exchange rates or the market values of thefinancial instruments or commodities underlying such derivative instrumentsfrequently result in changes in the Portfolio Funds’ Net unrealized profit (loss)on such derivative instruments as reflected in the Portfolio Funds’ Statement(s) ofFinancial Condition.  The Fund’s exposureto market risk is influenced by a number of factors, including therelationships among the derivative instruments held by the Portfolio Funds aswell as the volatility and liquidity of the markets in which the derivativeinstruments are traded. Investments in foreign markets may also entail legaland political risks.

 

Credit Risk

 

The risksassociated with exchange-traded contracts are typically perceived to be lessthan those associated with over-the-counter (non-exchange-traded) transactions,because exchanges typically (but not universally) provide clearinghousearrangements in which the collective credit (in some cases limited in amount,in some cases none) of the members of the exchange is pledged to support thefinancial integrity of the exchange.  Inover-the-counter transactions, on the other hand, traders must rely solely onthe credit of their respective individual counterparties.  Margins, which may be subject to loss in theevent of a default, are generally required in exchange trading, andcounterparties may also require margin in the over-the-counter markets.

 

The credit risk associated with these instruments from counterpartynonperformance is the net unrealized profit on open contracts, if any, includedin the Portfolio Funds’ Statements of Financial Condition.  The Portfolio Funds attempt to mitigate thisrisk by dealing exclusively with MLPFS as its clearing broker.

 

Pursuant to the brokerage agreement with MLPF&S (which includes anetting arrangement), to the extent that such trading results in receivablesfrom and payables to MLPF&S, these receivables and payables are offset andreported as a net receivable or payable and included in Net unrealized profit(loss) on open contracts on the Portfolio Funds’ Statements of FinancialCondition.

 

Indemnifications

 

In the normal course of business, the Fund has entered, or may in thefuture enter into agreements, that obligate the Fund to indemnify thirdparties, including affiliates of the Fund, for breach of certainrepresentations and warranties made by the Fund. No claims have actually beenmade with respect to such indemnities and any quantification would involve hypotheticalclaims that have not been made. Based on the Fund’s experience, MLAI expectedthe risk of loss to be remote and, therefore, no provision has been recorded.

 

10.         SUBSEQUENT EVENTS

 

Management has evaluated the impact of subsequent events on the Fund andhas determined that there were no subsequent events that require adjustmentsto, or disclosure in, the financial statements.

 

17

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*     *     *    *     *     *    *     *     *    *     *

 

To the best of the knowledge and belief of the

undersigned, theinformation contained in this

report is accurateand complete.

 
|   |                                            |   |
|--------|--------------------------------------------|--------|
|   | Barbra E. Kocsis                           |   |
|   | Chief Financial  Officer                   |   |
|   | Merrill Lynch  Alternative Investments LLC |   |
|   | General Partner  of                        |   |
|   | ML  TREND-FOLLOWING FUTURES FUND L.P.      |   |

 

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