**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

**FORM 10-Q**

** **

**(MarkOne)**

 

**x**** QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended September 30, 2008**

 

**OR**

 

**o**** TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition period from                to**

 

**CommissionFile Number 0-52505**

 

**MLSYSTEMATIC MOMENTUM LLC**

(Exact Name of Registrantasspecified in its charter)

 

| **Delaware**                    | ** ** | **30-0408228**                    |
|---------------------------------|------------|-----------------------------------|
| (State or other jurisdiction of |       | (IRS Employer Identification No.) |
| incorporation or organization)  |       |                              |

 

**c/o Merrill Lynch Alternative Investments LLC**

**Two World Financial Center, 7thFloor**

**New York, New York 10281**

(Address of principalexecutive offices)

(Zip Code)

 

**212-236-2063**

(Registrant’s telephonenumber, including area code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

Yes x   No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):

 
| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer x |   | Smaller Reporting Company o |
|--------------------------------|--------|--------------------------|--------|------------------------------|--------|----------------------------------|

 

Indicateby check mark whether registrant is a shell company (as defined by Rule 12b-2of the Exchange Act).

Yes o   No x

 

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Sections 12, 13 or 15(d) of the SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a planconfirmed by a court.

Yes o   No o

 

Thelimited partnership units of the registrant are not publicly traded.Accordingly, there is no aggregate market value for registrant’s outstandingequity that is readily determinable.

 

 

 

----

 

**ML SYSTEMATIC MOMENTUM LLC**

 

QUARTERLY REPORT FORSEPTEMBER 30, 2008 ON FORM 10-Q

 

Table of Contents

 
|     | ** **                                                                                  | ** ** | **PAGE** |
|----------|---------------------------------------------------------------------------------------------|------------|----------|
|     | PART I                                                                                 |       |     |
|     |                                                                                        |       |     |
| Item 1.  | Financial Statements                                                                        |       | 1        |
|     |                                                                                        |       |     |
| Item 2.  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       | 11       |
|     |                                                                                        |       |     |
| Item 3.  | Quantitative  and Qualitative Disclosures About Market Risk                                 |       | 15       |
|     |                                                                                        |       |     |
| Item 4.  | Controls and  Procedures                                                                    |       | 22       |
|     |                                                                                        |       |     |
|     | PART II                                                                                |       |     |
|     |                                                                                        |       |     |
| Item 1.  | Legal Proceedings                                                                           |       | 23       |
|     |                                                                                        |       |     |
| Item 1A. | Risk Factors                                                                                |       | 23       |
|     |                                                                                        |       |     |
| Item 2.  | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       | 25       |
|     |                                                                                        |       |     |
| Item 3.  | Defaults Upon  Senior Securities                                                            |       | 26       |
|     |                                                                                        |       |     |
| Item 4.  | Submission of  Matters to a Vote of Security Holders                                        |       | 26       |
|     |                                                                                        |       |     |
| Item 5.  | Other Information                                                                           |       | 26       |
|     |                                                                                        |       |     |
| Item 6.  | Exhibits                                                                                    |       | 26       |

 

----

 

PART I -FINANCIAL INFORMATION

 

Item 1.    FinancialStatements

 

ML SYSTEMATIC MOMENTUM LLC

(a Delaware LimitedLiability Company)

 

STATEMENTS OF FINANCIALCONDITION

 
| ** **                                                                                           | ** ** | **Septmber 30,** | ** **  | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-----------------------|-------------|-----------------------|------------|
| ** **                                                                                           | ** ** | **2008**              | ** **  | **2007**              | ** ** |
| ** **                                                                                           | ** ** | **(unaudited)**       | ** **  | **(unaudited)**       | ** ** |
|                                                                                                 |       |                  |        |                  |       |
| **ASSETS:**                                                                                          |       |                  |        |                  |       |
| Cash                                                                                                 |       | $                     | —      |                  | $          | 94,318 |   |
| Investments in  Portfolio Funds (cost $469,700,927 for 2008 and $106,513,819 for 2007)               |       | 489,869,695           |        | 121,063,894           |       |
| Deferred initial  offering costs                                                                     |       | —                |        | 33,750                |       |
| Receivable from  Portfolio Funds                                                                     |       | 11,779,179            |        | 34,775                |       |
| **TOTAL  ASSETS**                                                                                    |       | $                     | 501,648,874 |                  | $          | 121,226,737 |   |
|                                                                                                 |       |                  |        |                  |       |
| **LIABILITIES  AND MEMBERS’ CAPITAL**                                                           |       |                  |        |                  |       |
| LIABILITIES:                                                                                         |       |                  |        |                  |       |
| Sponsor fee  payable                                                                                 |       | $                     | 793,053     |                  | $          | 177,810 |   |
| Redemptions  payable                                                                                 |       | 8,641,189             |        | 505,214               |       |
| Other                                                                                                |       | 706,222               |        | 319,636               |       |
| Total  liabilities                                                                                   |       | 10,140,464            |        | 1,002,660             |       |
|                                                                                                 |       |                  |        |                  |       |
| MEMBERS’  CAPITAL:                                                                              |       |                  |        |                  |       |
| Members’  Interest (423,068,981 and 111,518,320 Units outstanding, unlimited Units  authorized) |       | 491,508,410           |        | 120,224,077           |       |
| Total members’  capital                                                                         |       | 491,508,410           |        | 120,224,077           |       |
|                                                                                                 |       |                  |        |                  |       |
| **TOTAL  LIABILITIES AND MEMBERS’ CAPITAL**                                                     |       | $                     | 501,648,874 |                  | $          | 121,226,737 |   |

 

**NET ASSETVALUE PER UNIT (NOTE 4)**

 

See notes tofinancial statements.

 

1

----

 

ML SYSTEMATIC MOMENTUM LLC(a Delaware Limited Liability Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 
| ** **                                    | ** ** | **For the three  months ended  September 30,  2008** | ** **  | **For the ****three months ended  September 30,  2007** | ** ** | **For the nine  months ended  September 30,  2008** | ** ** | **For the period April ****2, 2007 (commencement of  operations) to  September 30, 2007** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------------------------------|-------------|-----------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|
| **TRADING  PROFIT (LOSS):**                   |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
|                                          |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| Realized                                      |       | $                                                                        | 6,377,938   |                                                                        | $          | (536,706                                                                | )          | $                                                                                                                                      | 6,436,969  |   | $ | (439,742 | ) |
| Change in  unrealized                         |       | (36,016,486                                                              | )           | (1,792,976                                                                  | )          | 5,618,693                                                               |       | 7,843,209                                                                                                                              |       |
|                                          |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| Total trading  profit (loss)                  |       | (29,638,548                                                              | )           | (2,329,682                                                                  | )          | 12,055,662                                                              |       | 7,403,467                                                                                                                              |       |
|                                          |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| **INVESTMENT  INCOME:**                       |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| Interest                                      |       | 9,056                                                                    |        | 1,872                                                                       |       | 86,587                                                                  |       | 1,872                                                                                                                                  |       |
|                                          |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| **EXPENSES:**                                 |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| Sponsor fee                                   |       | 2,025,866                                                                |        | 82,997                                                                      |       | 4,088,396                                                               |       | 83,772                                                                                                                                 |       |
| Other                                         |       | 241,515                                                                  |        | 116,490                                                                     |       | 787,105                                                                 |       | 216,857                                                                                                                                |       |
|                                          |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| Total expenses                                |       | 2,267,381                                                                |        | 199,487                                                                     |       | 4,875,501                                                               |       | 300,629                                                                                                                                |       |
|                                          |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| **NET  INVESTMENT INCOME (LOSS)**             |       | (2,258,325                                                               | )           | (197,615                                                                    | )          | (4,788,914                                                              | )          | (298,757                                                                                                                               | )          |
|                                          |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| **NET  INCOME (LOSS)**                        |       | $                                                                        | (31,896,873 | )                                                                           | $          | (2,527,297                                                              | )          | $                                                                                                                                      | 7,266,748  |   | $ | 7,104,710 |   |
|                                          |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| **NET  INCOME (LOSS) PER UNIT:**              |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
|                                          |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| Weighted average  number of Units outstanding |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| Class A**                                |       | 31,239,094                                                               |        | 1,489,258                                                                   |       | 18,229,165                                                              |       | 1,489,258                                                                                                                              |       |
| Class C*                                 |       | 240,431,660                                                              |        | 11,964,237                                                                  |       | 158,206,339                                                             |       | 9,060,901                                                                                                                              |       |
| Class D                                  |       | 27,925,749                                                               |        | 67,175,929                                                                  |       | 23,190,809                                                              |       | 73,587,964                                                                                                                             |       |
| Class D1***                              |       | 27,846,118                                                               |        | 5,000,000                                                                   |       | 15,617,620                                                              |       | 5,000,000                                                                                                                              |       |
| Class I*                                 |       | 47,421,103                                                               |        | 1,182,166                                                                   |       | 37,864,668                                                              |       | 889,421                                                                                                                                |       |
|                                          |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| Net income  (loss) per weighted average Unit  |       |                                                                     |        |                                                                        |       |                                                                    |       |                                                                                                                                   |       |
| Class A**                                |       | $                                                                        | (0.0799     | )                                                                           | $          | 0.1147                                                                  |       | $                                                                                                                                      | (0.0129    | ) | 0.1147 |   |
| Class C*                                 |       | $                                                                        | (0.0827     | )                                                                           | $          | 0.0718                                                                  |       | $                                                                                                                                      | 0.0184     |   | $ | 0.0965 |   |
| Class D                                  |       | $                                                                        | (0.0997     | )                                                                           | $          | (0.0525                                                                 | )          | $                                                                                                                                      | 0.0924     |   | $ | 0.0827 |   |
| Class D1***                              |       | $                                                                        | (0.0782     | )                                                                           | $          | (0.0263                                                                 | )          | $                                                                                                                                      | 0.0118     |   | $ | (0.0263 | ) |
| Class I*                                 |       | $                                                                        | (0.0959     | )                                                                           | $          | 0.0862                                                                  |       | $                                                                                                                                      | 0.0596     |   | $ | 0.1151 |   |
|                                               |            |                                                                          |             |                                                                             |            |                                                                         |            |                                                                                                                                        |            |  |  |  |  |  |  |

 

----

* Units Issued on June 1,2007.

** Units Issued on July 1,2007.

*** Class D1 waspreviously known as Class D-SD and issued on July 1, 2007.

 

See notes to financialstatements.

 

2

----

 

ML SYSTEMATIC MOMENTUM LLC(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES INMEMBERS’ CAPITAL

For the nine months ended September 30,2008 and for the period April 2, 2007 (commencement of operations) to September 30,2007(unaudited)

 
| ** **                | ** ** | **Initial Offering** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Members’ Capital  September 30, 2007** | ** ** | **Members’ Capital  December 31, 2007** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Members’ Capital  September 30, 2008** | ** ** |
|---------------------------|------------|---------------------------|------------|-------------------|------------|-----------------|------------|--------------------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|--------------------------------------------------------------|------------|
|                      |       |                      |       |              |       |            |       |                                                         |       |                                                        |       |              |       |            |       |                                                         |       |
| Class A**            |       | —                    |       | 3,546,537         |       | (24,375         | )          | 3,522,162                                                    |       | 5,078,646                                                   |       | 34,024,260        |       | (3,853,230      | )          | 35,249,676                                                   |       |
| Class C*             |       | —                    |       | 23,615,450        |       | (168,741        | )          | 23,446,709                                                   |       | 69,888,701                                                  |       | 242,361,701       |       | (28,265,360     | )          | 283,985,042                                                  |       |
| Class D              |       | 80,000,000                |       | 6,157,415         |       | (48,921,446     | )          | 37,235,969                                                   |       | 16,803,705                                                  |       | 13,750,728        |       | (5,360,215      | )          | 25,194,218                                                   |       |
| Class D1***          |       | —                    |       | 5,000,000         |       | —          |       | 5,000,000                                                    |       | 4,990,154                                                   |       | 26,552,358        |       | —          |       | 31,542,512                                                   |       |
| Class I*             |       | —                    |       | 2,444,308         |       | —          |       | 2,444,308                                                    |       | 14,757,114                                                  |       | 36,754,895        |       | (4,414,476      | )          | 47,097,533                                                   |       |
| Total Members’ Units |       | 80,000,000                |       | 40,763,710        |       | (49,114,562     | )          | 71,649,148                                                   |       | 111,518,320                                                 |       | 353,443,942       |       | (41,893,281     | )          | 423,068,981                                                  |       |

 

----

* Units Issued on June 1, 2007.

** Units Issued on July 1, 2007.

*** Class D1 was previously known as Class D-SD and issued onJuly 1, 2007.

 

See notes to financial statements.

 

3

----

 

ML SYSTEMATIC MOMENTUM LLC(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES INMEMBERS’ CAPITAL

For the nine months ended September 30,2008 and for theperiod April 2, 2007 (commencement of operations) to September 30, 2007(unaudited)

 
| ** **                   | ** ** | **Initial Offering** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Net Income (loss)** | ** **  | **Members’ Capital  September 30, 2007** | ** ** | **Members’ Capital  December 31, 2007** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Net Income (loss)** | ** ** | **Members’ Capital  September 30, 2008** | ** **  |
|------------------------------|------------|---------------------------|------------|-------------------|------------|-----------------|------------|---------------------------------|-------------|--------------------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|---------------------------------|------------|--------------------------------------------------------------|-------------|
|                         |       |                      |       |              |       |            |       |                            |        |                                                         |       |                                                        |       |              |       |            |       |                            |       |                                                         |        |   |   |   |   |   |   |   |   |   |
| Class A**               |       | $                         | —     |              | $          | 3,268,035       |       | $                               | (22,157     | )                                                            | $          | 170,804                                                     |       | $                 | 3,416,682  |            | $          | 5,217,419                       |       | $                                                            | 38,892,082  |   | $ | (4,326,897 | ) | $ | (235,263 | ) | $ | 39,547,341 |   |
| Class C*                |       | —                    |       | 22,962,591        |       | (169,147        | )          | 874,274                         |        | 23,667,718                                                   |       | 74,531,573                                                  |       | 282,546,201       |       | (31,763,063     | )          | 2,917,517                       |       | 328,232,228                                                  |        |
| Class D                 |       | 80,000,000                |       | 6,899,999         |       | (52,390,960     | )          | 6,088,553                       |        | 40,597,592                                                   |       | 19,442,860                                                  |       | 17,492,760        |       | (6,867,030      | )          | 2,143,454                       |       | 32,212,044                                                   |        |
| Class D1***             |       | —                    |       | 5,000,000         |       | —          |       | (131,303                        | )           | 4,868,697                                                    |       | 5,165,016                                                   |       | 30,709,170        |       | —          |       | 183,922                         |       | 36,058,108                                                   |        |
| Class I*                |       | —                    |       | 2,376,523         |       | —          |       | 102,382                         |        | 2,478,905                                                    |       | 15,867,209                                                  |       | 42,489,527        |       | (5,155,165      | )          | 2,257,118                       |       | 55,458,689                                                   |        |
| Total Members’ Interest |       | $                         | 80,000,000 |              | $          | 40,507,148      |       | $                               | (52,582,264 | )                                                            | $          | 7,104,710                                                   |       | $                 | 75,029,594 |            | $          | 120,224,077                     |       | $                                                            | 412,129,740 |   | $ | (48,112,155 | ) | $ | 7,266,748 |   | $ | 491,508,410 |   |
|                              |            |                           |            |                   |            |                 |            |                                 |             |                                                              |            |                                                             |            |                   |            |                 |            |                                 |            |                                                              |             |  |  |  |  |  |  |  |  |  |  |  |

 

----

* Units Issued on June 1, 2007.

** Units Issued on July 1, 2007.

*** Class D1 was previously known as Class D-SD and issued onJuly 1, 2007.

 

See notes to financial statements.

 

4

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ML SYSTEMATIC MOMENTUM LLC

(a Delaware Limited Liability Company)

 

NOTES TO FINANCIALSTATEMENTS

(unaudited)

 

1.     SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

 

ML Systematic MomentumFuturesAccess LLC (the “Fund”) was organized under the Delaware Limited LiabilityCompany Act on March 8, 2007 and commenced trading activities on April 2,2007. The Fund issues new units of limited liability company interest (“Units”)at Net Asset Value per Unit as of the beginning of each calendar month.

 

Merrill Lynch AlternativeInvestments LLC (“MLAI”), an indirect wholly-owned subsidiary of Merrill Lynch &Co., Inc. (“Merrill Lynch”), is the Sponsor (“Sponsor”) and Manager (“Manager”)of the Fund.

 

In the opinion ofmanagement, the financial statements contain all adjustments necessary topresent fairly the financial position of the Fund as of September 30,2008, and the results of its operations for the three and nine months ended September 30,2008 and for the three months ended September 30, 2007 and for the period April 2,2007 (commencement of operations) to September 30, 2007.  However, the operating results for theinterim period may not be indicative of the results for the full year.

 

Certaininformation and footnote disclosures normally included in annual financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America (“U.S. GAAP”) have been omitted.  It is suggested that these financialstatements be read in conjunction with the financial statements and notes theretoincluded in the Fund’s Annual Report on Form 10-K filed with theSecurities and Exchange Commission for the period ended December 31, 2007.

 

The preparation offinancial statements in conformity with U.S. GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actual resultscould differ from those estimates.

 

Certain prior yearitems have been reclassified to conform to the current year presentation.

 

2.     INVESTMENTS IN UNDERLYING FUNDS

 

The eight funds (each a “Portfolio Fund” and collectively “PortfolioFunds”) in which the Fund is invested as of September 30, 2008 are: MLAltis FuturesAccess LLC (“Altis”), ML Aspect FuturesAccess LLC (“Aspect”), MLChesapeake FuturesAccess LLC (“Chesapeake”), ML Blue Trend FuturesAccess LLC (“BlueTrend”), ML GSA FuturesAccess LLC (“GSA”), ML John Locke FuturesAccess LLC (“JohnLocke”) ML Transtrend DTP Enhanced FuturesAccess LLC (“Transtrend”)  and ML Winton FuturesAccess LLC (“Winton”).  MLAI, in its discretion may, change thePortfolio Funds at any time. MLAI, also at its discretion may vary thepercentage of the Fund’s total portfolio allocated to the different PortfolioFunds. There is no pre-established range for the minimum and maximumallocations that may be made to any given Portfolio Fund.

 

5

----

 

At September 30, 2008, Investments in Portfolio Funds at fairvalue are as follows:

 
| ** **                                                              | ** ** | **Fair Value** | ** **  | **Percentage of Members’  Capital** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------|-------------|----------------------------------------------------|------------|
|                                                                    |       |                |        |                                               |       |
| Altis                                                                   |       | $                   | 68,162,742  |                                               | 13.87      | % |
| Transtrend                                                              |       | 78,898,175          |        | 16.05                                              | %          |
| Aspect                                                                  |       | 51,368,056          |        | 10.45                                              | %          |
| Chesapeake                                                              |       | 45,655,391          |        | 9.29                                               | %          |
| Winton                                                                  |       | 75,398,185          |        | 15.34                                              | %          |
| John Locke                                                              |       | 72,799,694          |        | 14.81                                              | %          |
| GSA                                                                     |       | 61,558,290          |        | 12.52                                              | %          |
| Blue Trend*                                                             |       | 36,029,162          |        | 7.33                                               | %          |
|                                                                    |       |                |        |                                               |       |
| Total  Investments in Portfolio Funds at Fair Value (Cost $469,700,927) |       | $                   | 489,869,695 |                                               | 99.66      | % |

 

----

* Blue Trend began it’s operation on September 1, 2008

 

At December 31, 2007, Investments in Portfolio Funds at fair valueare as follows:

 
| ** **                                                              | ** ** | **Fair Value** | ** **  | **Percentage of Members’  Capital** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------|-------------|----------------------------------------------------|------------|
|                                                                    |       |                |        |                                               |       |
| Altis                                                                   |       | $                   | 18,378,819  |                                               | 15.29      | % |
| Transtrend                                                              |       | 17,927,148          |        | 14.91                                              | %          |
| Aspect                                                                  |       | 18,235,954          |        | 15.17                                              | %          |
| Chesapeake                                                              |       | 18,829,228          |        | 15.66                                              | %          |
| Winton                                                                  |       | 17,829,738          |        | 14.83                                              | %          |
| John Locke                                                              |       | 14,914,443          |        | 12.41                                              | %          |
| GSA                                                                     |       | 14,948,564          |        | 12.43                                              | %          |
|                                                                    |       |                |        |                                               |       |
| Total  Investments in Portfolio Funds at Fair Value (Cost $106,513,819) |       | $                   | 121,063,894 |                                               | 100.70     | % |

 

6

----

 

3.     FAIR VALUE OFINVESTMENTS

 

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 157, Fair Value Measurement (“FAS 157”). FAS 157defines fair value, establishes a framework for measuring fair value andexpands disclosures about fair value measurements. The Fund adopted FAS 157 asof January 1, 2008. The adoption of FAS 157 did not have a material impacton the Fund’s financial statements.

 

Fair value of aninvestment is the amount that would be received to sell the investment in anorderly transaction between market participants at the measurement date (i.e.the exit price).

 

FAS 157 established ahierarchal disclosure framework which prioritizes and ranks the level of marketprice observability used in measuring investments at fair value. Market priceobservability is impacted by a number of factors, including the type ofinvestment and the characteristics specific to the investment. Investments withreadily available active quoted prices or for which fair value can be measuredfrom actively quoted prices generally will have a higher degree of market priceobservability and a lesser degree of judgment used in measuring fair value.

 

Investments measured andreported at fair value are classified and disclosed in one of the followingcategories:

 

Level I – Quoted pricesare available in active markets for identical investments as of the reportingdate. The type of investments included in Level I are publicly tradedinvestments.

 

Level II – Pricing inputsare other than quoted prices in active markets, which are either directly orindirectly observable as of the reporting date, and fair value is determinedthrough the use of generally accepted and understood models or other valuationmethodologies. Investments which are generally included in this category areinvestments valued using market data.

 

Level III – Pricinginputs are unobservable including the Fund’s own assumptions in determining thefair value of investments.

 

In certain cases,the inputs used to measure fair value may fall into different levels of thefair value hierarchy. In such cases, an investment’s level within the fairvalue hierarchy is based on the lowest level of input that is significant tothe fair value measurement. The Sponsor’s assessment of the significance of aparticular input to the fair value measurement in its entirety requiresjudgment, and considers factors specific to the investment.

 

The followingtable summarizes the valuation of the Fund’s investment by the above FAS 157fair value hierarchy levels as of September 30, 2008:

 
| ** **                     | ** ** | **Total** | ** **  | **Level I** | ** ** | **Level II** | ** ** | **Level III** | ** ** |
|--------------------------------|------------|-----------|-------------|------------------|------------|-------------------|------------|--------------------|------------|
| Investment in  Portfolio Funds |       | $         | 489,869,695 |             | N/A        |              | $          | 489,869,695        |       | N/A |   |
|                                |            |           |             |                  |            |                   |            |                    |            |  |  |

 

7

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**4.****     NET ASSET VALUEPER UNIT**

 

For financial reportingpurposes, in conformity with U.S. GAAP, the Fund amortizes over a twelve-monthperiod the initial offering costs for purposes of determining Net Asset Value.Such costs initially were paid by MLAI. For all other purposes, including computing Net Asset Value for purposesof member subscription and redemption activity, such costs are amortized over60 months. Consequently, the Net Asset Value and Net Asset Value per Unit ofthe different Classes for financial reporting purposes and for all otherpurposes at September 30, 2008 and December 31, 2007 are as follows:

 

September 30,2008

 
| ** **    | ** ** | **Net Asset Value** | ** **  | ** **                   | ** ** | **Net Asset Value per Unit** | ** ** |
|---------------|------------|-------------------------------|-------------|------------------------------|------------|--------------------------------------------------|------------|
| ** **    | ** ** | **All Other  Purposes**  | ** **  | **Financial Reporting** | ** ** | **Number of Units**                    | ** ** | **All Other  Purposes** | ** ** | **Financial  Reporting** | ** ** |
| Class A  |       | $                             | 39,549,935  |                         | $          | 39,547,341                                       |       | 35,249,676 |   | $ | 1.1220 |   | $ | 1.1219 |   |
| Class C  |       | 328,269,504                   |        | 328,232,228                  |       | 283,985,042                                      |       | 1.1559 |   | 1.1558 |   |
| Class D  |       | 32,274,336                    |        | 32,212,044                   |       | 25,194,218                                       |       | 1.2810 |   | 1.2785 |   |
| Class D1 |       | 36,060,894                    |        | 36,058,108                   |       | 31,542,512                                       |       | 1.1432 |   | 1.1432 |   |
| Class I  |       | 55,468,697                    |        | 55,458,689                   |       | 47,097,533                                       |       | 1.1777 |   | 1.1775 |   |
|          |       | $                             | 491,623,366 |                         | $          | 491,508,410                                      |       | 423,068,981 |   |   |   |   |   |
|               |            |                               |             |                              |            |                                                  |            |  |  |  |  |  |  |  |  |

 

December 31, 2007

 
| ** **    | ** ** | **Net Asset Value** | ** **  | ** **                   | ** ** | **Net Asset Value per Unit** | ** ** |
|---------------|------------|-------------------------------|-------------|------------------------------|------------|--------------------------------------------------|------------|
| ** **    | ** ** | **All Other  Purposes**  | ** **  | **Financial Reporting** | ** ** | **Number of Units**                    | ** ** | **All Other  Purposes** | ** ** | **Financial  Reporting** | ** ** |
| Class A  |       | $                             | 5,219,799   |                         | $          | 5,217,419                                        |       | 5,078,646 |   | $ | 1.0278 |   | $ | 1.0273 |   |
| Class C  |       | 74,560,703                    |        | 74,531,573                   |       | 69,888,701                                       |       | 1.0668 |   | 1.0664 |   |
| Class D  |       | 19,497,806                    |        | 19,442,860                   |       | 16,803,705                                       |       | 1.1603 |   | 1.1571 |   |
| Class D1 |       | 5,167,584                     |        | 5,165,016                    |       | 4,990,154                                        |       | 1.0356 |   | 1.0350 |   |
| Class I  |       | 15,872,806                    |        | 15,867,209                   |       | 14,757,114                                       |       | 1.0756 |   | 1.0752 |   |
|          |       | $                             | 120,318,698 |                         | $          | 120,224,077                                      |       | 111,518,320 |   |   |   |   |   |
|               |            |                               |             |                              |            |                                                  |            |  |  |  |  |  |  |  |  |

 

8

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5.     MARKET, CREDIT AND CONCENTRATION RISKS

 

Thenature of this Fund has certain risks, which cannot be presented on thefinancial statements.  Additionally, theFund invests in other commodity funds with similar market risk as mentionedbelow.  The following summarizes some ofthose risks.

 

MarketRisk

 

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 Net unrealized profit (loss) on such derivativeinstruments as reflected in the Statements of Financial Condition of thePortfolio Funds.  The Fund’s exposure tomarket risk is influenced by a number of factors, including the relationshipsamong the derivative instruments held by the Portfolio Funds as well as thevolatility and liquidity of the markets in which the derivative instruments aretraded. Investments in foreign markets may also entail legal and politicalrisks.

 

Credit Risk

 

 The risks associated with exchange-tradedcontracts are typically perceived to be less than those associated withover-the-counter (non-exchange-traded) transactions, because exchangestypically provide clearinghouse arrangements in which the collective credit (insome cases limited in amount, in some cases not) of the members of the exchangeis pledged to support the financial integrity of the exchange.  In over-the-counter transactions, on theother hand, traders must rely solely on the credit of their respectiveindividual counterparties. Margins, which may be subject to loss in the event ofa default, are generally required in exchange trading, and counterparties mayalso require margin in the over-the-counter markets.

 

The credit riskassociated with these instruments from counterparty nonperformance is the Netunrealized profit, if any, included in the Statements of Financial Condition ofthe Portfolio Funds. The Portfolio Funds attempt to mitigate this risk bydealing exclusively with Merrill Lynch entities as clearing brokers.

 

The Portfolio Funds, in their normal course ofbusiness, enter into various contracts, with Merrill Lynch Pierce, Fenner &Smith Inc., (“MLPF&S”) acting as their commodity broker.  Pursuant to the brokerage arrangement withMLPF&S (which includes a netting arrangement), to the extent that suchtrading results in receivables from and payables to MLPF&S, thesereceivables and payables are offset and reported as a net receivable or payableand included in Equity in commodity futures trading accounts in the Statementsof Financial Condition of the Portfolio Funds.

 

Concentration Risk

 

The Fund’s investments in the Portfolio Funds aresubject to the market and credit risk of the Portfolio Funds. Because themajority of the Fund’s capital is invested in the Portfolio Funds, any changesin the market conditions that would adversely affect the Portfolio Funds couldsignificantly impact the solvency of the Fund.

 

9

----

 

6.     RECENTACCOUNTING PRONOUNCEMENTS

 

In March 2008, theFASB released Statement of Financial Accounting Standards No. 161,Disclosures about Derivative Instruments and Hedging Activities – an amendmentto FASB Statement No. 133 (“FAS 161”). FAS 161 requires qualitativedisclosures about objectives and strategies for using derivatives, quantitativedisclosures about fair value amounts of and gains and losses on derivativeinstruments, and disclosures about credit-risk related contingent features inderivative agreements. The application of FAS 161 is required for fiscal yearsbeginning after November 15, 2008 and interim periods within those fiscalyears. Currently, the Fund is evaluating the implications of FAS 161 on itsfinancial statements.

 

InMay 2008, the FASB issued Statement of Financial Accounting Standards No. 162,“*The Hierarchy of Generally Accepted AccountingPrinciples*” (“FAS 162”). FAS 162 identifies the sources ofaccounting principles and the framework for selecting the accounting principlesused in preparing financial statements of nongovernmental entities that arepresented in conformity with U.S. GAAP. Currently, U.S. GAAP hierarchy is providedin the American Institute of Certified Public Accountants U.S. AuditingStandards (“AU”) Section 411, “*The Meaning of PresentFairly in Conformity With Generally Accepted Accounting Principles*”(“AU Section 411”). FAS 162 is effective 60 days following the SEC’sapproval of the Public Company Accounting Oversight Board’s amendments to AU Section 411.The Fund does not expect the adoption of FAS 162 to have an impact on itsfinancial statements.

 

10

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Item 2.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations

 

MONTH-END NETASSET VALUE PER UNIT

(NON U.S. GAAP)

 

MLAI believes thatthe Net Asset Value used to calculate subscription and redemption value and toreport performance to investors throughout the year is the most valuable to theMembers of the Fund.   Therefore, thecharts below referencing Net Asset Value and performance measurements are basedon the Net Asset Value for all other purposes, as discussed in Note 4 to thefinancial statements.

 

Class A

 
| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** | **Apr.** | ** ** | **May** | ** ** | **Jun.** | ** ** | **July** | ** ** | **Aug.** | ** ** | **Sept.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|
| 2007       |       | N/A      |       | N/A      |       | N/A      |       | N/A      |       | N/A     |       | N/A      |       | $        | 0.9588     |     | $          | 0.9090    |       | $ | 0.9705 |   |
| 2008       |       | $        | 1.0416     |     | $          | 1.1508   |       | $        | 1.1243     |    | $          | 1.1183   |       | $        | 1.1597     |     | $          | 1.2164    |       | $ | 1.1364 |   | $ | 1.1075 |   | $ | 1.1220 |   |
|            |            |          |            |          |            |          |            |          |            |         |            |          |            |          |            |          |            |           |            |  |  |  |  |  |  |  |  |  |

 

Class C

 
| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** | **Apr.** | ** ** | **May** | ** ** | **Jun.** | ** ** | **July** | ** ** | **Aug.** | ** ** | **Sept.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|
| 2007       |       | N/A      |       | N/A      |       | N/A      |       | N/A      |       | N/A     |       | $        | 1.0432     |     | $          | 0.9993   |       | $         | 0.9467     |   | $ | 1.0099 |   |
| 2008       |       | $        | 1.0803     |     | $          | 1.1926   |       | $        | 1.1642     |    | $          | 1.1570   |       | $        | 1.1988     |     | $          | 1.2564    |       | $ | 1.1727 |   | $ | 1.1420 |   | $ | 1.1559 |   |
|            |            |          |            |          |            |          |            |          |            |         |            |          |            |          |            |          |            |           |            |  |  |  |  |  |  |  |  |  |

 

Class D

 
| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** | **Apr.** | ** ** | **May** | ** ** | **Jun.** | ** ** | **July** | ** ** | **Aug.** | ** ** | **Sept.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|
| 2007       |       | N/A      |       | N/A      |       | N/A      |       | $        | 1.0339     |    | $          | 1.0719   |       | $        | 1.1206     |     | $          | 1.0757    |       | $ | 1.0212 |   | $ | 1.0916 |   |
| 2008       |       | $        | 1.1774     |     | $          | 1.3025   |       | $        | 1.2741     |    | $          | 1.2689   |       | $        | 1.3175     |     | $          | 1.3836    |       | $ | 1.2942 |   | $ | 1.2629 |   | $ | 1.2810 |   |
|            |            |          |            |          |            |          |            |          |            |         |            |          |            |          |            |          |            |           |            |  |  |  |  |  |  |  |  |  |

 

Class I

 
| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** | **Apr.** | ** ** | **May** | ** ** | **Jun.** | ** ** | **July** | ** ** | **Aug.** | ** ** | **Sept.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|
| 2007       |       | N/A      |       | N/A      |       | N/A      |       | N/A      |       | N/A     |       | $        | 1.0444     |     | $          | 1.0017   |       | $         | 0.9500     |   | $ | 1.0146 |   |
| 2008       |       | $        | 1.0905     |     | $          | 1.2052   |       | $        | 1.1779     |    | $          | 1.1719   |       | $        | 1.2157     |     | $          | 1.2756    |       | $ | 1.1920 |   | $ | 1.1622 |   | $ | 1.1777 |   |
|            |            |          |            |          |            |          |            |          |            |         |            |          |            |          |            |          |            |           |            |  |  |  |  |  |  |  |  |  |

 

Class D1

 
| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** | **Apr.** | ** ** | **May** | ** ** | **Jun.** | ** ** | **July** | ** ** | **August** | ** ** | **Sept.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------|------------|----------|------------|----------|------------|------------|------------|-----------|------------|
| 2007       |       | N/A      |       | N/A      |       | N/A      |       | N/A      |       | N/A     |       | N/A      |       | $        | 0.9600     |       | $          | 0.9113    |       | $ | 0.9741 |   |
| 2008       |       | $        | 1.0508     |     | $          | 1.1624   |       | $        | 1.1371     |    | $          | 1.1324   |       | $        | 1.1758     |       | $          | 1.2348    |       | $ | 1.1550 |   | $ | 1.1271 |   | $ | 1.1432 |   |
|            |            |          |            |          |            |          |            |          |            |         |            |          |            |          |            |            |            |           |            |  |  |  |  |  |  |  |  |  |

 

11

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PerformanceSummary

 

January 1,2008 to September 30, 2008

 

January 1,2008 to March 31, 2008

 

The Fund is a fund of fundsinvesting in seven separate Portfolio Funds which are domiciled at MerrillLynch FuturesAccess Program. The Fund posted gains for the quarter.

 

January was a positivemonth for the Fund, despite dramatic declines in global stock indices,illustrating the fund’s low correlation with equities over a market cycle.Managers had long positions in fixed income and precious metals, both of whichbenefited from fears of a US recession, as well as sharp Fed rate cuts totaling1.25% for the month. The continuing rally in grain markets was another sourceof profit for managers. Losses came primarily from energy markets as oil pricesweakened and natural gas rebounded. Aspect was the top performer within theFund, gaining 4.7%, while Altis was the main underperformer, declining -4.6%for the month. Going into February, commodities and fixed income are the twolargest risk allocations for most managers. CTAs continue to be long in mostfixed income markets, while in commodities, they generally have long positionsin grains, softs and precious metals, and shorts in livestock. Energy exposurehas been cut back significantly after January’s losses. In equities, there is asmall short bias for most managers, while in FX there is a short USD tiltagainst most currencies except the GBP.

 

February was a verystrong month for the Fund and the Fund continue to remain up for the year 2008.As a point of comparison, the Newedge CTA Index (formerly Calyon FinancialBarclay Index) returned 4.6% for the month and is up 6.3% for the year. Thebulk of returns were earned in surging commodity markets. Grains and softsrallied strongly due to low inventories and positive forecasts of demand.Energy and metals climbed as these sectors are perceived as an inflation hedge.The other profitable trades included short currency positions against the USD.The top performer within the vertical in February was Altis, which gained24.3%. Altis is a medium to short term manager, with higher than averagecommodity exposure and higher than average leverage. The bottom performer wasGSA, which gained 2.1%. GSA is a short term manager with a blend of trendfollowing and econometric models, the latter type faring less well during themonth. Going into March, most managers have increased their risk-taking toabove-average levels. The largest allocation remains in commodities, wheremanagers are long in most markets. In interest rates, most managers are biasedlong, whereas in currencies most are tilted against the USD. Equities have avery low risk allocation.

 

The Fund was unprofitablefor March. GSA, a short term manager was the top performer in the vertical inMarch, gaining 1.5%, while Altis was the bottom performer losing -6.8%. For the1st Quarter as a whole, John Locke was the top performer in the vertical, up12.0%, while GSA had the smallest gains, rising 4.2%. The strong trends incommodity markets in February made a sharp reversal in March, hurting mostfunds in the vertical. After gaining 11.7% in February, the CRB Commodity Indexfell -6.3% March. The grains and precious metals sectors recorded particularlylarge reversals. The Fund was able to participate more in the upward move in February (whenit gained 10.4%) than in the March reversal (when it lost -2.4%), therebypreserving its gains for the quarter. Managers were able to limit the damage inMarch by reducing leverage. Most managers scaled back positions in inverseproportion to rising volatility in commodity markets. By the end of March overallleverage for most managers was about 40% lower than at the start of the month.Losses for the vertical during the month were also mitigated by the positiveperformance of short term managers such as GSA and John Locke, who exploitedopportunities outside of commodities.

 

12

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April 1, 2008to June 30, 2008

 

The Fund is a fund of fundsinvesting in seven separate Portfolio Funds which are domiciled at MerrillLynch FuturesAccess Program. The Fund posted gains for the quarter.

 

The Portfolio Funds madegains in their long energy positions at the beginning of the quarter, as oiland natural gas hit historic highs which were offset by losses from reversalsin financial futures markets. Most of the Portfolio Funds came into April withshort positions in the U.S. dollar, long positions in bonds and short positionsin equities. However, markets experienced a relief rally in April asinvestors began to believe the end of the credit crisis might be over. Thiscaused the U.S. dollar to rebound, bonds to fall and equities to rise, thushurting the Portfolio Funds performance. The Portfolio Funds with more energyexposure did better in the month, as well as the Portfolio Funds who had shortpositions in the financial futures were able to unwind their positions quickly.

 

May was a month whereenergies jumped to record levels. Crude oil was up 13% and natural gas was up6.6%, continuing trends from previous months. The primary drivers ofperformance for the Fund was in the commodities and energy sectors. Altis,which has the largest commodity bias among the seven Portfolio Funds in thevertical, was up 12.8%. Roughly two thirds of Altis gains came from its energypositions. Other Portfolio Funds also benefited from energy exposure, thoughnone to the extent of Altis. Non-commodity markets were mixed as most of theFunds managed to be flat to positive in the financial markets overall. SeveralPortfolio Funds did well in fixed income but then lost money in the equityindices.

 

The Fund gained 4.80% in June andis up 17.77 % year to date. In comparison, the Newedge CTA index gained 2.0%for the month, and is up 8.3% for the year. The Portfolio Funds made moneythrough long positions in commodities and short equities positions. Longer termPortfolio Funds tended to have higher commodity and equity exposure than theirshorter term peers. Short term managers meanwhile were caught out by choppinessin currencies and rates. Altis was the top performer in the vertical with again of 13.5%, benefiting from its higher commodity exposure and higherleverage than other managers. Meanwhile, GSA, a short term manager, fell - 1.6%as some of its relative value trades underperformed.

 

July 1, 2008 to September 30,2008

 

The Fund is a fund of fundsinvesting in eight separate Portfolio Funds which are domiciled at MerrillLynch FuturesAccess Program. The Fund posted a loss for the quarter.

 

The Portfolio Funds postedlosses at the beginning of the quarter as bullish trends in commoditiesdramatically reversed. The Portfolio Funds came into the month of July withlong positions in most of the commodity markets. After having made most oftheir year-to-date gains in commodities, the Portfolio Funds had the largestlosses in these markets. Goldman Sachs Commodity Index was down for the month,as well as the Energy sub-index and the correction was particularly severe in NaturalGas Index which was also down.

 

The Portfolio Funds had asecond month of poor performance in August. There were two major trends thatcaused the Portfolio Funds to lose money. The first was the strengthening inthe U.S. dollar, following a long period of declines against most majorcurrencies. Typically, the Portfolio Funds will be short on the U.S. dollarpositions which caused losses to be posted in the middle of the quarter. Thesecond trend was the continued decline in commodities, following the dramaticreversal from July.

 

The Portfolio Funds postedgains at the end of the quarter. September witnessed an extended weaknessin financial markets that was manifested in a sharp sell-off in global equitiesand commodities, including energies, grains, and industrial metals. Bond yieldsfell moderately, while the U.S. dollar continued its upward move against othermajor currencies. The Portfolio Funds performance exhibited a fair amount of

 

13

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variance which was afunction of the time frame of the underlying strategy. Medium-term trendfollowers, who form the bulk of Systematic Momentum, did quite well as theywere correctly positioned for the market moves. Altis and Transtrend were thebest performers respectively. BlueTrend, a medium-term trend follower added tothe portfolio on September 1, had an impressive debut. Performance oflong-term followers were less impressive as they tended to maintain longpositions in commodities which detracted from performance. Long term managersalso continued to favor weakness of the U.S. dollar and more neutral stances onequities than their medium-term counterparts.

 

April 1, 2007to September 30, 2007

 

April 1, 2007to June 30, 2007

 

The beginning of thequarter through mid-quarter profits were up. However, as the quarter endedthere was a resurgence in market volatility as bonds sold off heavily in thefirst half of the month on growing optimism for global growth and then ralliedin the second half on renewed concerns in the sub-prime lending market.Similarly, equity markets experienced wide swings and ended the month lowerpartly on concerns about the potential for contagion on the back of BearStearns’ troubled credit focused hedge funds.

 

Although the core longterm trend followers performed well throughout the month of June, theout-performance in the portfolio came from the short term models of Winton,Aspect, Alphasimplex, Chesapeake, Transtrend, John Locke, Altis and GSA. Someof these managers captured reversals in equity markets and were able to profitboth long and short over the course of the month. Natural gas shorts alsogenerated positive results. In currencies, most managers were successfulcapturing strength in the Australian dollar, Canadian dollar, and the Britishpound as well as continuing to underweight the persistently weak Japanese yen.

 

Also please read the performance summary of some ofthe underlying in which the Fund invests into.  The Form 10-Q of the following Portfolio Funds have also been filed:Aspect, Chesapeake, Transtrend and Winton.

 

July 1, 2007to September 30, 2007

 

The Fund posted lossesfor the third quarter.

 

Thequarter began with extreme market reversals. Practically all markets which weretrending upward retraced as investors ran for the exit in an attempt to reducerisk. Credit worries and a softening housing market finally caught up to theequity markets and led to a big rally in global bonds. The Japanese Yen, whichhas been persistently weak for years, suddenly rallied against all of itshigher yielding counterparts. As a result of the reversals, losses were postedto the Fund.

 

Long term market trendscontinued to unwind mid-quarter as the long positions in the Foreign Exchangecarry trades, long international equities, long energy and long metals due to aspike in risk aversion on August 16th caused significant losses in each of thesetrades posting losses for the Fund.

 

The quarter ended with avery strong performance after a turbulent summer. Strong trends re-emerged incommodities in particular, as wheat gained 21%, and crude oil rose 11% due tosupply factors. In addition, precious metals rallied, with gold up by 10% andsilver up by 13% due to the U.S. dollar weakening which caused demand forprecious metals as a store of value. The U.S. Federal Reserve’s 50 basis pointsmid-month rate cut also helped to invigorate investor risk appetite, helping FXcarry trades

 

14

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Item 3. Quantitative andQualitative Disclosures About Market Risk

 

Quantitative Forward-Looking Statements

 

The following quantitative disclosures regarding theFund’s market risk exposures contain “forward-looking statement” within themeaning of the safe harbor from civil liability provided for such statements bythe Private Securities Litigation Reform Act of 1995 (set forth in Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934).  All quantitativedisclosures in this section are deemed to be forward-looking statements forpurposes of the safe harbor, except for statements of historical fact.

 

Due to the Fund’s fund of funds structure, thefollowing statements are related to the Portfolio Funds.

 

Maintenance margin requirements have been used by thePortfolio Funds as the measure of their Value at Risk.  Maintenance margin requirements are set byexchanges to equal or exceed the maximum loss in the fair value of any givencontract incurred in 95%-99% of the one-day time periods included in thehistorical sample (generally approximately one year) researched for purposes ofestablishing margin levels.  Themaintenance margin levels are established by dealers and exchanges usinghistorical price studies as well as an assessment of current market volatility(including the implied volatility of the options on a given futures contract)and economic fundamentals to provide a probabilistic estimate of the maximumexpected near-term one-day price fluctuation.

 

In the case of market sensitive instruments which are not exchange-traded(almost exclusively currencies in the case of the Portfolio Funds), the marginrequirements for the equivalent futures positions have been used as Value atRisk.  In those rare cases in which afutures-equivalent margin is not available, dealers’ margins have been used.

 

100% positive correlation in the different positions held in eachmarket risk category has been assumed. Consequently, the margin requirements applicable to the open contractshave been aggregated to determine each trading category’s aggregate Value atRisk.  The diversification effectsresulting from the fact that the Portfolio Funds’ positions are rarely, ifever, 100% positively correlated have not been reflected.  Since the Fund is invested in the PortfolioFunds, the Value at Risk chart for the underlying funds have been provided.

 

The Portfolio Funds’ Trading Value at Risk inDifferent Market Sectors

 

Thefollowing tables indicate the average, highest, and lowest trading Value atRisk associated with the Portfolio Funds’ open positions by market category forthe nine months ended September 30, 2008 and for the period ended September 30,2007.

 

15

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**Altis Class DS (1)  **

 
| ** **                | ** ** | **September 30, 2008** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **Average**                      | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
| **Market Sector**    | ** ** | **Value at Risk**      | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                             |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                                | 626,283    |   | 1.51 | % | $ | 1,458,996 |   | $ | 54,072 |   |
| Energy                    |       | 612,819                          |       | 1.47 | % | 1,866,010 |   | 12,279 |   |
| Interest  Rates           |       | 4,877,108                        |       | 11.72 | % | 9,327,165 |   | 189,485 |   |
| Metals                    |       | 434,400                          |       | 1.04 | % | 1,102,077 |   | 77,059 |   |
| Stock  Indices            |       | 586,752                          |       | 1.41 | % | 2,257,511 |   | 37,656 |   |
| Currencies                |       | 745,373                          |       | 1.79 | % | 3,171,565 |   | 49,042 |   |
|                      |       |                             |       |   |   |   |   |   |   |
| TOTAL                     |       | $                                | 7,882,735  |   | 18.94 | % | $ | 19,183,324 |   | $ | 419,593 |   |

 

----

(1)The average capitalization for Class DS is $41,597,215. 

 

**Transtrend Class DS(2) **

 
| ** **                | ** ** | **September 30, 2008** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **Average**                      | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
| **Market Sector**    | ** ** | **Value at Risk**      | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                             |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                                | 195,372    |   | 0.46 | % | $ | 611,794 |   | $ | 9,653 |   |
| Energy                    |       | 318,020                          |       | 0.75 | % | 903,111 |   | 6,302 |   |
| Interest  Rates           |       | 3,223,854                        |       | 7.62 | % | 4,817,628 |   | 1,124,248 |   |
| Metals                    |       | 151,163                          |       | 0.36 | % | 385,465 |   | 5,586 |   |
| Stock  Indices            |       | 296,259                          |       | 0.70 | % | 587,895 |   | 33,200 |   |
| Currencies                |       | 880,748                          |       | 2.08 | % | 1,979,632 |   | 31,374 |   |
|                      |       |                             |       |   |   |   |   |   |   |
| TOTAL                     |       | $                                | 5,065,416  |   | 11.97 | % | $ | 9,285,525 |   | $ | 1,210,363 |   |

 

----

(2) The average capitalization for Class DS is $42,325,524. 

 

16

----

 

**Aspect Class DS (3) **

** **
| ** **                | ** ** | **September 30, 2008** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **Average**                      | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
| **Market Sector**    | ** ** | **Value at Risk**      | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                             |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                                | 147,425    |   | 0.38 | % | $ | 578,645 |   | $ | 26,389 |   |
| Energy                    |       | 241,392                          |       | 0.63 | % | 798,988 |   | 39,490 |   |
| Interest  Rates           |       | 3,577,155                        |       | 9.32 | % | 7,499,164 |   | 1,462,844 |   |
| Metals                    |       | 97,425                           |       | 0.25 | % | 366,936 |   | 25,073 |   |
| Stock  Indices            |       | 305,568                          |       | 0.80 | % | 941,736 |   | 66,942 |   |
| Currencies                |       | 551,241                          |       | 1.44 | % | 1,619,743 |   | 72,560 |   |
|                      |       |                             |       |   |   |   |   |   |   |
| TOTAL                     |       | $                                | 4,920,206  |   | 12.82 | % | $ | 11,805,212 |   | $ | 1,693,298 |   |

 

----

(3) The average capitalization for Class DS is $38,382,377. 

 

**Chesapeake Class DS(4) **

 
| ** **                | ** ** | **September 30, 2008** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **Average**                      | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
| **Market Sector**    | ** ** | **Value at Risk**      | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                             |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                                | 417,991    |   | 1.10 | % | $ | 899,332 |   | $ | 30,339 |   |
| Energy                    |       | 353,063                          |       | 0.93 | % | 674,311 |   | 85,971 |   |
| Interest  Rates           |       | 3,211,342                        |       | 8.46 | % | 4,290,090 |   | 1,541,194 |   |
| Metals                    |       | 180,414                          |       | 0.48 | % | 376,232 |   | 13,636 |   |
| Stock  Futures            |       | 83,947                           |       | 0.22 | % | 157,913 |   | 14,811 |   |
| Currencies                |       | 596,682                          |       | 1.57 | % | 1,295,092 |   | 29,240 |   |
|                      |       |                             |       |   |   |   |   |   |   |
| TOTAL                     |       | $                                | 4,843,439  |   | 12.76 | % | $ | 7,692,970 |   | $ | 1,715,191 |   |

 

----

(4) The average capitalization for Class DS is $37,962,083.

 

**Winton Class DS (5)**

 
| ** **                | ** ** | **September 30,  2008** |       |
|---------------------------|------------|------------------------------|------------|
| ** **                | ** ** | **Average**                  | ** ** | **% of  Average** | ** ** | **Highest  Value** | ** ** | **Lowest  Value** | ** ** |
| **Market Sector**         | ** ** | **Value at  Risk**           | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                         |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                            | 185,768    |   | 0.44 | % | $ | 365,847 |   | $ | 13,191 |   |
| Energy                    |       | 201,166                      |       | 0.48 | % | 419,274 |   | 44,824 |   |
| Interest  Rates           |       | 2,498,370                    |       | 5.96 | % | 3,867,029 |   | 1,715,436 |   |
| Metals                    |       | 124,834                      |       | 0.30 | % | 241,005 |   | 1,591 |   |
| Stock  Indices            |       | 319,692                      |       | 0.76 | % | 1,029,005 |   | 9,284 |   |
| Currencies                |       | 562,310                      |       | 1.34 | % | 1,006,414 |   | 111,600 |   |
|                      |       |                         |       |   |   |   |   |   |   |
| TOTAL                     |       | $                            | 3,892,140  |   | 9.28 | % | $ | 6,928,574 |   | $ | 1,895,926 |   |

 

----

(5) The average capitalization for Class DS is $41,933,983.

 

17

----

 

**John Locke Class DS (6) **

 
| ** **                | ** ** | **September 30, 2008** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **Average**                      | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
| **Market Sector**    | ** ** | **Value at Risk**      | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                             |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                                | 83,748     |   | 0.23 | % | $ | 264,554 |   | $ | 3,386 |   |
| Energy                    |       | 107,236                          |       | 0.29 | % | 368,725 |   | 9,148 |   |
| Interest  Rates           |       | 2,627,259                        |       | 7.21 | % | 4,922,791 |   | 769,897 |   |
| Metals                    |       | 83,818                           |       | 0.23 | % | 221,857 |   | 24,169 |   |
| Stock  Indices            |       | 68,490                           |       | 0.19 | % | 261,571 |   | 9,144 |   |
| Currencies                |       | 331,685                          |       | 0.91 | % | 588,857 |   | 34,661 |   |
|                      |       |                             |       |   |   |   |   |   |   |
| TOTAL                     |       | $                                | 3,302,236  |   | 9.06 | % | $ | 6,628,355 |   | $ | 850,405 |   |

 

----

(6) The average capitalization for Class DS is $36,454,310.

 

**GSA Class DS (7)**

 
| ** **                | ** ** | **September 30,  2008** |       |
|---------------------------|------------|------------------------------|------------|
| ** **                | ** ** | **Average**                  | ** ** | **% of  Average** | ** ** | **Highest  Value** | ** ** | **Lowest  Value** | ** ** |
| **Market Sector**         | ** ** | **Value at  Risk**           | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                         |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                            | 125,363    |   | 0.36 | % | $ | 432,959 |   | $ | 2,042 |   |
| Energy                    |       | 58,995                       |       | 0.17 | % | 144,115 |   | 73 |   |
| Interest  Rates           |       | 4,149,871                    |       | 11.86 | % | 6,162,630 |   | 1,861,503 |   |
| Metals                    |       | 51,733                       |       | 0.15 | % | 155,802 |   | 1,862 |   |
| Stock  Indices            |       | 948,390                      |       | 2.71 | % | 4,930,657 |   | 32,488 |   |
| Currencies                |       | 470,934                      |       | 1.35 | % | 1,465,722 |   | 14,452 |   |
|                      |       |                         |       |   |   |   |   |   |   |
| TOTAL                     |       | $                            | 5,805,286  |   | 16.60 | % | $ | 13,291,885 |   | $ | 1,912,420 |   |

 

----

(7) The average capitalization for Class DS is $34,985,019.

 

**Blue Trend Class DS (8)**

 
| ** **                | ** ** | **September 30,  2008** |       |
|---------------------------|------------|------------------------------|------------|
| ** **                | ** ** | **Average**                  | ** ** | **% of  Average** | ** ** | **Highest  Value** | ** ** | **Lowest  Value** | ** ** |
| **Market Sector**         | ** ** | **Value at  Risk**           | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                         |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                            | 12,073     |   | 0.03 | % | $ | 12,073 |   | $ | 12,073 |   |
| Energy                    |       | 23,984                       |       | 0.07 | % | 23,984 |   | 23,984 |   |
| Interest  Rates           |       | 1,854,518                    |       | 5.15 | % | 1,854,518 |   | 1,854,518 |   |
| Metals                    |       | 24,924                       |       | 0.07 | % | 24,924 |   | 24,924 |   |
| Stock  Indices            |       | 193,271                      |       | 0.54 | % | 193,271 |   | 193,271 |   |
| Currencies                |       | 35,515                       |       | 0.10 | % | 35,515 |   | 35,515 |   |
|                      |       |                         |       |   |   |   |   |   |   |
| TOTAL                     |       | $                            | 2,144,285  |   | 5.96 | % | $ | 2,144,285 |   | $ | 2,144,285 |   |

 

----

(8) The averagecapitalization for Class DS is $36,029,745.

 

18

----

** **

**Altis Class DS (1)***

 
| ** **                | ** ** | **September 30, 2007** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **Average**                      | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
| **Market Sector**    | ** ** | **Value at Risk**      | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                             |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                                | 130,032    |   | 0.99 | % | $ | 368,402 |   | $ | — |   |
| Energy                    |       | 121,456                          |       | 0.92 | % | 317,058 |   | — |   |
| Interest  Rates           |       | 1,678,509                        |       | 12.78 | % | 2,136,654 |   | 1,107,918 |   |
| Metals                    |       | 102,291                          |       | 0.78 | % | 379,314 |   | — |   |
| Stock  Indices            |       | 112,472                          |       | 0.86 | % | 229,182 |   | 55,183 |   |
| Currencies                |       | 160,831                          |       | 1.22 | % | 353,618 |   | 77,237 |   |
|                      |       |                             |       |   |   |   |   |   |   |
| TOTAL                     |       | $                                | 2,305,591  |   | 17.55 | % | $ | 3,784,228 |   | $ | 1,240,338 |   |

 

----

(1) Average capitalization for class DS is $13,980,880.

 

**Transtrend Class DS (2)***

 
| ** **                | ** ** | **September 30,  2007** |       |
|---------------------------|------------|------------------------------|------------|
| ** **                | ** ** | **Average**                  | ** ** | **% of  Average** | ** ** | **Highest  Value** | ** ** | **Lowest  Value** | ** ** |
| **Market Sector**         | ** ** | **Value at  Risk**           | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                         |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                            | 38,403     |   | 0.05 | % | $ | 169,048 |   | $ | 298 |   |
| Energy                    |       | 123,199                      |       | 0.17 | % | 688,910 |   | 746 |   |
| Interest  Rates           |       | 840,133                      |       | 1.14 | % | 1,823,238 |   | 226,365 |   |
| Metals                    |       | 62,622                       |       | 0.08 | % | 192,407 |   | — |   |
| Stock  Indices            |       | 212,650                      |       | 0.29 | % | 486,090 |   | 10,868 |   |
| Currencies                |       | 254,072                      |       | 0.34 | % | 941,388 |   | 11,957 |   |
|                      |       |                         |       |   |   |   |   |   |   |
| TOTAL                     |       | $                            | 1,531,079  |   | 2.07 | % | $ | 4,301,081 |   | $ | 250,234 |   |

 

----

(2) Average capitalization for class DS is $13,708,296.

 

**Aspect Class DS (3)***

 
| ** **                | ** ** | **September 30,  2007** |       |
|---------------------------|------------|------------------------------|------------|
| ** **                | ** ** | **Average**                  | ** ** | **% of  Average** | ** ** | **Highest  Value** | ** ** | **Lowest  Value** | ** ** |
| **Market Sector**         | ** ** | **Value at  Risk**           | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                         |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                            | 14,780     |   | 0.15 | % | $ | 90,012 |   | $ | 2,209 |   |
| Energy                    |       | 26,304                       |       | 0.27 | % | 191,347 |   | 670 |   |
| Interest  Rates           |       | 679,753                      |       | 6.95 | % | 1,780,786 |   | 599,724 |   |
| Metals                    |       | 28,742                       |       | 0.29 | % | 136,218 |   | 13,807 |   |
| Stock  Indices            |       | 35,164                       |       | 0.36 | % | 100,371 |   | 4,842 |   |
| Currencies                |       | 63,442                       |       | 0.65 | % | 361,170 |   | 21,015 |   |
|                      |       |                         |       |   |   |   |   |   |   |
| TOTAL                     |       | $                            | 848,185    |   | 8.67 | % | $ | 2,659,904 |   | $ | 642,267 |   |

 

----

(3) Averagecapitalization for class DS is $14,351,511.

 

19

----

 

**Chesapeake Class DS (4)***

 
| ** **                | ** ** | **September 30, 2007** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **Average**                      | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
| **Market Sector**    | ** ** | **Value at Risk**      | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                             |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                                | 50,812     |   | 0.58 | % | $ | 101,678 |   | $ | 3,990 |   |
| Energy                    |       | 22,862                           |       | 0.26 | % | 75,512 |   | 349 |   |
| Interest  Rates           |       | 1,461,213                        |       | 16.69 | % | 2,756,439 |   | 249,354 |   |
| Metals                    |       | 26,069                           |       | 0.30 | % | 60,014 |   | 6,300 |   |
| Stock  Indices            |       | 65,524                           |       | 0.75 | % | 141,804 |   | 12,031 |   |
| Stock  Futures            |       | 39,801                           |       | 0.45 | % | 77,356 |   | 7,463 |   |
| Currencies                |       | 78,054                           |       | 0.89 | % | 148,997 |   | 8,129 |   |
|                      |       |                             |       |   |   |   |   |   |   |
| TOTAL                     |       | $                                | 1,744,335  |   | 19.92 | % | $ | 3,361,800 |   | $ | 287,616 |   |

 

----

(4) Average capitalization for class DS is $14,252,644.

 

**Winton Class DS (5)***

 
| ** **                | ** ** | **September 30,  2007** |       |
|---------------------------|------------|------------------------------|------------|
| ** **                | ** ** | **Average**                  | ** ** | **% of  Average** | ** ** | **Highest  Value** | ** ** | **Lowest  Value** | ** ** |
| **Market Sector**         | ** ** | **Value at  Risk**           | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                         |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                            | 15,634     |   | 0.15 | % | $ | 28,898 |   | $ | 5,328 |   |
| Energy                    |       | 14,200                       |       | 0.00 | % | 31,453 |   | 1,334 |   |
| Interest  Rates           |       | 732,314                      |       | 0.16 | % | 913,665 |   | 616,883 |   |
| Metals                    |       | 10,472                       |       | 0.00 | % | 20,066 |   | 5,294 |   |
| Stock  Indices            |       | 38,216                       |       | 0.01 | % | 57,522 |   | 13,237 |   |
| Currencies                |       | 81,293                       |       | 0.02 | % | 135,273 |   | 39,173 |   |
|                      |       |                         |       |   |   |   |   |   |   |
| TOTAL                     |       | $                            | 892,129    |   | 0.34 | % | $ | 1,186,877 |   | $ | 681,249 |   |

 

----

(5) Average capitalization for class DS is $14,329,688.

 

**John Locke Class DS(6)***

 
| ** **                | ** ** | **September 30,  2007** |       |
|---------------------------|------------|------------------------------|------------|
| ** **                | ** ** | **Average**                  | ** ** | **% of  Average** | ** ** | **Highest  Value** | ** ** | **Lowest  Value** | ** ** |
| **Market Sector**         | ** ** | **Value at  Risk**           | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                         |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                            | 24,955     |   | 0.28 | % | $ | 62,746 |   | $ | 1,134 |   |
| Energy                    |       | 35,150                       |       | 0.39 | % | 77,712 |   | 6,359 |   |
| Interest  Rates           |       | 490,273                      |       | 5.48 | % | 837,912 |   | 279,802 |   |
| Metals                    |       | 25,881                       |       | 0.29 | % | 70,896 |   | 1,381 |   |
| Stock  Indices            |       | 77,638                       |       | 0.87 | % | 290,112 |   | 12,552 |   |
| Currencies                |       | 122,324                      |       | 1.36 | % | 241,873 |   | 23,203 |   |
|                      |       |                         |       |   |   |   |   |   |   |
| TOTAL                     |       | $                            | 776,221    |   | 8.67 | % | $ | 1,581,251 |   | $ | 324,431 |   |

 

----

(6) Averagecapitalization for class DS is $9,945,177.

 

20

----

 

**GSA Class DS (7)***

 
| ** **                | ** ** | **September 30, 2007** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **Average**                      | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
| **Market Sector**    | ** ** | **Value at Risk**      | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|                      |       |                             |       |   |   |   |   |   |   |
| Agricultural  Commodities |       | $                                | 1,842      |   | 0.02 | % | $ | 3,707 |   | $ | 264 |   |
| Energy                    |       | 1,686                            |       | 0.02 | % | 4,998 |   | 112 |   |
| Interest  Rates           |       | 1,457,850                        |       | 19.54 | % | 1,680,785 |   | 1,172,265 |   |
| Metals                    |       | 3,685                            |       | 0.05 | % | 10,233 |   | 901 |   |
| Stock  Indices            |       | 65,390                           |       | 0.88 | % | 79,077 |   | 42,441 |   |
| Currencies                |       | 33,516                           |       | 0.45 | % | 51,028 |   | 2,614 |   |
|                      |       |                             |       |   |   |   |   |   |   |
| TOTAL                     |       | $                                | 1,563,969  |   | 20.96 | % | $ | 1,829,828 |   | $ | 1,218,597 |   |

 

----

(7) Average capitalization for class DS is $8,868,926.

 

**AlphaSimplex Class DS (8)***

 
| ** **        | ** ** | **September 30,  2007** |       |
|-------------------|------------|------------------------------|------------|
| ** **        | ** ** | **Average**                  | ** ** | **% of  Average** | ** ** | **Highest  Value** | ** ** | **Lowest  Value** | ** ** |
| **Market Sector** | ** ** | **Value at  Risk**           | ** ** | **Capitalization** | ** ** | **At Risk** | ** ** | **At Risk** | ** ** |
|              |       |                         |       |   |   |   |   |   |   |
| Interest  Rates   |       | $                            | 178,278    |   | 3.88 | % | $ | 477,006 |   | $ | 2,002 |   |
| Metals            |       | —                       |       | 0.00 | % | — |   | — |   |
| Stock  Indices    |       | 19,300                       |       | 0.42 | % | 51,031 |   | — |   |
| Currencies        |       | 21,331                       |       | 0.46 | % | 48,551 |   | 4,816 |   |
|              |       |                         |       |   |   |   |   |   |   |
| TOTAL             |       | $                            | 218,909    |   | 4.76 | % | $ | 576,588 |   | $ | 6,818 |   |

 

----

(8) Average capitalization for class DS is $3,506,843.

 

Alpha Simplex was liquidated as of December 31, 2007.

 

*Class DS was previously known as class D-SM or class D withineach respective underlying fund.

 

Material Limitations on Value at Riskas an Assessment of Market Risk

 

The face value of the market sectorinstruments held by the Portfolio Funds is typically many times the applicablemaintenance margin requirement (maintenance margin requirements generallyranging between approximately 1% and 10% of contract face value) as well asmany times the capitalization of the Portfolio Funds.  The magnitude of the Portfolio Funds’ openpositions creates a “risk of ruin” not typically found in most other investmentvehicles.  Because of the size of itspositions, certain market conditions — unusual, but historically recurring fromtime to time — could cause the Portfolio Funds to incur severe losses over ashort period of time.   The foregoingValue at Risk table — as well as the past performance of the Portfolio Funds —gives no indication of this “risk of ruin.”

 

**Non-TradingRisk**

 

ForeignCurrency Balances; Cash on Deposit with MLPF&S

 

ThePortfolio Funds have non-trading market risk on its foreign cash balances notneeded for margin. However, these balances (as well as the market risk theyrepresent) are immaterial.

 

The Portfolio Funds alsohave non-trading market risk on the approximately 90%-95% of its assets whichare held in cash at MLPF&S. The value of this cash is not interest ratesensitive, but there is cash flow risk in that if interest rates decline sowill the cash flow generated on these monies. This cash flow risk isimmaterial.

 

21

----

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

Thefollowing qualitative disclosures regarding the Portfolio Funds’ market riskexposures — except for (i) those disclosures that are statements ofhistorical fact and (ii) the descriptions of how the Portfolio Fundsmanage their primary market risk exposures — constitute forward-lookingstatements within the meaning of Section 27A of the Securities Act and Section 21Eof the Securities Exchange Act. The Portfolio Funds’ primary market riskexposures as well as the strategies used and to be used by Portfolio Funds’managers for managing such exposures are subject to numerous uncertainties,contingencies and risks, any one of which could cause the actual results of thePortfolio Funds’ risk controls to differ materially from the objectives of suchstrategies. Government interventions, defaults and expropriations, illiquidmarkets, the emergence of dominant fundamental factors, political upheavals,changes in historical price relationships, an influx of new marketparticipants, increased regulation and many other factors could result inmaterial losses as well as in material changes to the risk exposures and therisk management strategies of the Portfolio Funds. There can be no assurancethat the Portfolio Funds’ current market exposure and/or risk managementstrategies will not change materially or that any such strategies will beeffective in either the short- or long-term. Investors must be prepared to loseall or substantially all of the time value of their investment in the Fund.

 

Item 4. Controls and Procedures

 

MLAI, the Sponsorof ML Systematic Momentum LLC, with the participation of the Sponsor’s ChiefExecutive Officer and the Chief Financial Officer, has evaluated theeffectiveness of the design and operation of its disclosure controls andprocedures with respect to the Fund as of the end of the period of thisquarterly report, and, based on this evaluation, has concluded that thesedisclosure controls and procedures are effective.  Additionally, there were no significantchanges in the Fund’s internal controls or in other factors that couldsignificantly affect these controls subsequent to the date of this evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

22

----

 

PART II - OTHER INFORMATION

 

Item 1.            LegalProceedings

 

None.

 

Item 1A.    RiskFactors

 

## PastPerformance Not Necessarily Indicative of Future Results

##  

Past performance is not necessarily indicativeof future results.  The trading advisor’spast performance may not be representative of how it may trade in the futurefor the Fund.

 

## VolatileMarkets; Highly Leveraged Trading

##  

Futures and forward trading is highly leveraged,and market price levels are volatile and materially affected by unpredictablefactors such as weather and governmental intervention.  The combination of leverage and volatilitycreates a high degree of risk.

 

## Importanceof General Market Conditions

##  

Overall market or economic conditions — whichneither MLAI nor the trading advisor can predict or control — have a materialeffect on the performance of any managed futures strategy of the PortfolioFunds.

 

## ForwardTrading

##  

The Portfolio Funds may trade currencies in theforward markets in addition to in the futures markets.  The forward markets are over-the-counter,non-exchange markets, and in trading in these markets, the Portfolio Funds willbe dependent on the credit standing of the counterparties with which theytrade, without the financial support of any clearinghouse system.  In addition, the prices offered for the sameforward contract may vary significantly among different forward marketparticipants.  Forward marketcounterparties are under no obligation to enter into forward transactions witha Fund, including transactions through which the Portfolio Funds are attemptingto liquidate open positions.

 

## IncreasedAssets Under Management

##  

There appears to be a tendency for the rates ofreturn achieved by managed futures advisors to decline as assets undermanagement increase.  The tradingadvisors have not agreed to limit the amount of additional equity which theymay manage.

 

## TradingAdvisor Risk

##  

The Portfolio Funds are subject to the risk ofthe bad judgment, negligence or misconduct of its trading advisor.  There have been a number of instances inrecent years in which private investment funds have incurred substantial lossesdue to manager misconduct.

 

23

----

##  

## Changesin Trading Strategy

##  

The trading advisors may make materialchanges in their trading strategies without the knowledge of MLAI.

 

## IlliquidMarkets

##  

Certain positions held by the Portfolio Fundsmay become illiquid, preventing the Portfolio Funds’ trading advisor fromacquiring positions otherwise indicated by its strategy or making it impossiblefor the trading advisor to close out positions against which the market ismoving.

 

Certain futures markets are subject to “dailyprice limits,” restricting the maximum amount by which the price of aparticular contract can change during any given trading day.  Once a contract’s price has moved “the limit,”it may be impossible or economically non-viable to execute trades in suchcontract.  From time to time, prices havemoved “the limit” for a number of consecutive days, making it impossible fortraders against whose positions the market was moving to prevent large losses.

 

## Tradingon Non-U.S. Exchanges

##  

A trading advisor may trade extensively onnon-U.S. exchanges.  These exchanges arenot regulated by any United States governmental agency.  A Portfolio Fund could incur substantiallosses trading on foreign exchanges to which it would not have been subject hadits trading advisor limited its trading to U.S. markets.

 

The profits and losses derived from tradingforeign futures and options will generally be denominated in foreigncurrencies; consequently, the Portfolio Funds will be subject to a certaindegree of exchange-rate risk in trading such contracts.

 

The Portfolio Funds Could Lose Assets and Have Their Trading DisruptedDue to the Bankruptcy of One of the Parties

 

The Portfolio Funds aresubject to the risk of insolvency of a counterparty, an exchange, aclearinghouse or MLPF&S. Portfolio Funds’ assets could be lost or impoundedduring lengthy bankruptcy proceedings. Were a substantial portion of the Portfolio Funds’ capital tied up in abankruptcy, MLAI might suspend or limit trading, perhaps causing the PortfolioFunds to miss significant profit opportunities. There are increased risks indealing with unregulated trading counterparties including the risk that assetsmay not benefit from the protection afforded to “customer funds” deposited withregulated dealers and brokers.

 

24

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Item 2.                                   UnregisteredSales of Equity Securities and Use of Proceeds

 

(a) Issuanceto accredited investors pursuant to Regulation D and Section 4(6) underthe Securities Act.  The selling agent ofthe following Class of Units was MLPF&S.

 

**CLASS A**

 
| ** ** | ** ** | **Subscription** | ** ** | ** ** | ** ** |
|------------|------------|------------------|------------|------------|------------|
| ** ** | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV (1)** | ** ** |
|       |       |             |       |       |       |   |   |
| Jan-08     |       | $                | 490,879    |       | 477,602    |   | $ | 1.0278 |   |
| Feb-08     |       | 765,834          |       | 735,248    |       | 1.0416 |   |
| Mar-08     |       | 2,265,597        |       | 1,968,714  |       | 1.1508 |   |
| Apr-08     |       | 9,401,839        |       | 8,361,650  |       | 1.1243 |   |
| May-08     |       | 1,921,834        |       | 1,718,532  |       | 1.1183 |   |
| Jun-08     |       | 5,368,433        |       | 4,629,157  |       | 1.1597 |   |
| Jul-08     |       | 7,312,229        |       | 6,011,369  |       | 1.2164 |   |
| Aug-08     |       | 6,108,039        |       | 5,374,902  |       | 1.1364 |   |
| Sep-08     |       | 5,257,398        |       | 4,747,086  |       | 1.1075 |   |
| Oct-08     |       | 3,535,993        |       | 3,151,509  |       | 1.1220 |   |
|            |            |                  |            |            |            |  |  |  |  |

 

**CLASS C**

 
| ** ** | ** ** | **Subscription** | ** ** | ** ** | ** ** |
|------------|------------|------------------|------------|------------|------------|
| ** ** | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV (1)** | ** ** |
|       |       |             |       |       |       |   |   |
| Jan-08     |       | $                | 9,676,279  |       | 9,070,378  |   | $ | 1.0668 |   |
| Feb-08     |       | 10,615,351       |       | 9,826,299  |       | 1.0803 |   |
| Mar-08     |       | 13,574,098       |       | 11,381,937 |       | 1.1926 |   |
| Apr-08     |       | 59,470,138       |       | 51,082,407 |       | 1.1642 |   |
| May-08     |       | 28,399,000       |       | 24,545,376 |       | 1.1570 |   |
| Jun-08     |       | 33,020,433       |       | 27,544,572 |       | 1.1988 |   |
| Jul-08     |       | 24,702,976       |       | 19,661,713 |       | 1.2564 |   |
| Aug-08     |       | 44,522,346       |       | 37,965,674 |       | 1.1727 |   |
| Sep-08     |       | 58,565,580       |       | 51,283,345 |       | 1.1420 |   |
| Oct-08     |       | 24,917,384       |       | 21,556,695 |       | 1.1559 |   |
|            |            |                  |            |            |            |  |  |  |  |

 

**CLASS D1**

 
| ** ** | ** ** | **Subscription** | ** ** | ** ** | ** ** |
|------------|------------|------------------|------------|------------|------------|
| ** ** | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV (1)** | ** ** |
|       |       |             |       |       |       |   |   |
| Jan-08     |       | —           |       | —     |       | $ | 1.0356 |   |
| Feb-08     |       | 11,999           |       | 11,419     |       | 1.0508 |   |
| Mar-08     |       | —           |       | —     |       | 1.1624 |   |
| Apr-08     |       | 899,999          |       | 791,487    |       | 1.1371 |   |
| May-08     |       | 12,100,000       |       | 10,685,270 |       | 1.1324 |   |
| Jun-08     |       | 3,853,340        |       | 3,277,206  |       | 1.1758 |   |
| Jul-08     |       | 5,005,971        |       | 4,054,074  |       | 1.2348 |   |
| Aug-08     |       | 5,055,000        |       | 4,376,623  |       | 1.1550 |   |
| Sep-08     |       | 3,782,861        |       | 3,356,279  |       | 1.1271 |   |
| Oct-08     |       | 242,090          |       | 211,765    |       | 1.1432 |   |
|            |            |                  |            |            |            |  |  |  |

 

**CLASS D**

 
| ** ** | ** ** | **Subscription** | ** ** | ** ** | ** ** |
|------------|------------|------------------|------------|------------|------------|
| ** ** | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV (1)** | ** ** |
|       |       |             |       |       |       |   |   |
| Jan-08     |       | —           |       | —     |       | $ | 1.1603 |   |
| Feb-08     |       | —           |       | —     |       | 1.1774 |   |
| Mar-08     |       | 1,270,999        |       | 975,814    |       | 1.3025 |   |
| Apr-08     |       | 974,999          |       | 765,246    |       | 1.2741 |   |
| May-08     |       | 11,777,257       |       | 9,281,470  |       | 1.2689 |   |
| Jun-08     |       | —           |       | —     |       | 1.3175 |   |
| Jul-08     |       | —           |       | —     |       | 1.3836 |   |
| Aug-08     |       | 994,999          |       | 768,814    |       | 1.2942 |   |
| Sep-08     |       | 2,474,506        |       | 1,959,384  |       | 1.2629 |   |
| Oct-08     |       | 6,343,408        |       | 4,951,919  |       | 1.2810 |   |
|            |            |                  |            |            |            |  |  |  |

 

**CLASS I**

 
| ** ** | ** ** | **Subscription** | ** ** | ** ** | ** ** |
|------------|------------|------------------|------------|------------|------------|
| ** ** | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV (1)** | ** ** |
|       |       |             |       |       |       |   |   |
| Jan-08     |       | $                | 175,293    |       | 162,972    |   | $ | 1.0756 |   |
| Feb-08     |       | 15,517,918       |       | 14,230,094 |       | 1.0905 |   |
| Mar-08     |       | 2,540,369        |       | 2,107,841  |       | 1.2052 |   |
| Apr-08     |       | 12,073,337       |       | 10,249,883 |       | 1.1779 |   |
| May-08     |       | 921,474          |       | 786,308    |       | 1.1719 |   |
| Jun-08     |       | 2,655,553        |       | 2,184,381  |       | 1.2157 |   |
| Jul-08     |       | 3,975,738        |       | 3,116,759  |       | 1.2756 |   |
| Aug-08     |       | 3,116,252        |       | 2,614,305  |       | 1.1920 |   |
| Sep-08     |       | 1,513,593        |       | 1,302,352  |       | 1.1622 |   |
| Oct-08     |       | 796,921          |       | 676,676    |       | 1.1777 |   |
|            |            |                  |            |            |            |  |  |  |  |

 

----

(1) Net Asset Value for all other purposes

 

(b)         None.

(c)          None.

 

25

----

 

Item 3.            DefaultsUpon Senior Securities

 

                       None.

 

Item 4.            Submissionof Matters to a Vote of Security Holders

 

                       None.

 

Item 5.            OtherInformation

 

On September 15, 2008,Merrill Lynch & Co., Inc. (“Merrill Lynch”) and Bank of AmericaCorporation (“Bank of America”) entered into an Agreement and Plan of Merger(the “Merger Agreement”).  The Merger Agreement provides that, on theterms and conditions set forth therein, a wholly owned subsidiary of Bank ofAmerica will merge into Merrill Lynch and Merrill Lynch will continue as thesurviving corporation as a wholly owned subsidiary of Bank of America (the “Merger). The Merger has been approved by the board of directors of each of Merrill Lynchand Bank of America and is scheduled to close in the first quarter of 2009 orearlier, subject to shareholder approval at both companies, customary closingconditions and standard regulatory approvals.

 

Item 6.            Exhibits

 

The following exhibits are incorporated by referenceor are filed herewith to this Quarterly Report on Form 10-Q:

 

31.01 and

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

 

Exhibit 31.01

and 31.02:      Are filed herewith.

 

32.01 and

32.02               Section 1350 Certifications

 

Exhibit 32.01

and 32.02       Are filed herewith.

 

26

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                          |   |   | ML  SYSTEMATIC MOMENTUM LLC                                                                                     |
|-------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------|
|                          |   |   |                                                                                                            |
|                          |   |   |                                                                                                            |
|                          |   |   | By:                                                                                                             | MERRILL LYNCH ALTERNATIVE |
|                          |   |   |                INVESTMENTS  LLC      |
|                          |   |   |                  (Manager) |
|                          |   |   |                                                                                                            |
|                          |   |   |                                                                                                            |
| Date: November 14, 2008  |   |   | By                                                                                                              | /s/ PAUL MORTON |
|                          |   |   |                                                                                                            | Paul Morton |
|                          |   |   |                                                                                                            | Chief  Executive Officer and President |
|                          |   |   |                                                                                                            | (Principal  Executive Officer) |
|                          |   |   |                                                                                                            |
|                          |   |   |                                                                                                            |
| Date:  November 14, 2008 |   |   |                                                                                                            |
|                          |   |   | By                                                                                                              | /s/  BARBRA E. KOCSIS |
|                          |   |   |                                                                                                            | Barbra  E. Kocsis |
|                          |   |   |                                                                                                            | Chief  Financial Officer |
|                          |   |   |                                                                                                            | (Principal Financial and Accounting Officer) |

 

27

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