** **

** **

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

**FORM 10-Q**

** **

**(MarkOne)**

 

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

** **

**For thequarterly period ended June 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 0-52700**

 

# **ML CHESAPEAKE FUTURESACCESSLLC**

(Exact Name of Registrantas

specified in its charter)

 

| **Delaware**                    | ** ** | **30-040823**                     |
|---------------------------------|------------|-----------------------------------|
| (State or other jurisdiction of |       | (IRS Employer Identification No.) |
| incorporation or organization)  |       |                              |

 

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

**Two World Financial Center, 7th Floor**

**New York, New York 10281**

(Address of principalexecutive offices)

(Zip Code)

 

**212-236-1974**

(Registrant’s telephonenumber, including area code)

 

**Hopewell Corporate Campus,Building No. 2**

**1200 Merrill Lynch Drive-Firstfloor, Pennington, New Jersey 08534**

(Former name, formeraddress and former fiscal year, if changed since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.        Yes  x   No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, a non-acceleratedfiler.  See the definitions of “acceleratedfiler “large accelerated filer”, “accelerated filer” and “smaller reportingcompany” in Rule 12b-2 of the Exchange Act. (Check one):

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

 

Indicate by checkmark whether registrant is a shell company (as defined by Rule 12b-2 ofthe Exchange Act).     Yes  o   No  x

 

Indicate by check markwhether the registrant has filed all documents and reports required to be filedby Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by a court.     Yes o   No  o

 

The limited partnershipunits of the registrant are not publicly traded. Accordingly, there is noaggregate market value for registrant’s outstanding equity that is readilydeterminable.

 

 

** **

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**ML CHESAPEAKE FUTURESACCESS LLC**

 

QUARTERLY REPORT FOR JUNE30, 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 |       | 10         |
|       |       |                                                                                        |       |       |
| Item 3.    |       | Quantitative  and Qualitative Disclosures About   Market Risk                          |       | 14         |
|       |       |                                                                                        |       |       |
| Item 4.    |       | Controls and  Procedures                                                                    |       | 17         |
|       |       |                                                                                        |       |       |
|       |       | PART II                                                                                |       |       |
|       |       |                                                                                        |       |       |
| Item 1.    |       | Legal Proceedings                                                                           |       | 18         |
|       |       |                                                                                        |       |       |
| Item 1A.   |       | Risk Factors                                                                                |       | 18         |
|       |       |                                                                                        |       |       |
| Item 2.    |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       | 20         |
|       |       |                                                                                        |       |       |
| Item 3.    |       | Defaults Upon  Senior Securities                                                            |       | 21         |
|       |       |                                                                                        |       |       |
| Item 4.    |       | Submission of  Matters to a Vote of Security Holders                                        |       | 21         |
|       |       |                                                                                        |       |       |
| Item 5.    |       | Other Information                                                                           |       | 21         |
|       |       |                                                                                        |       |       |
| Item 6.    |       | Exhibits                                                                                    |       | 21         |

 

----

 

PART I -FINANCIAL INFORMATION

 

Item 1.    FinancialStatements

 

ML CHESAPEAKEFUTURESACCESS LLC

(a Delaware LimitedLiability Company)

STATEMENTS OFFINANCIAL CONDITION

(unaudited)

 
| ** **                                                                                          | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                          | ** ** | **2008**          | ** **  | **2007**              | ** ** |
| ** **                                                                                          | ** ** | **(unaudited)**   | ** **  | ** **            | ** ** |
| **ASSETS:**                                                                                         |       |              |        |                  |       |
| Equity  in commodity futures trading accounts:                                                      |       |              |        |                  |       |
| Cash  (included restricted cash of $18,436,739 for 2008 and $15,889,005 for 2007)                   |       | $                 | 153,540,998 |                  | $          | 113,195,547 |   |
| Net  unrealized profit (loss) on open contracts                                                     |       | 9,937,970         |        | 5,301,489             |       |
| Cash                                                                                                |       | 123,326           |        | 82,836                |       |
| Deferred  initial offering costs                                                                    |       | —            |        | 12,500                |       |
| Accrued  interest                                                                                   |       | 212,197           |        | 391,180               |       |
| Other                                                                                               |       | 142,804           |        | —                |       |
|                                                                                                |       |              |        |                  |       |
| **TOTAL ASSETS**                                                                                    |       | $                 | 163,957,295 |                  | $          | 118,983,552 |   |
| ** **                                                                                          |       |              |        |                  |       |
| **LIABILITIES AND MEMBERS’ CAPITAL**                                                           |       |              |        |                  |       |
| LIABILITIES:                                                                                        |       |              |        |                  |       |
| Brokerage  commissions payable                                                                      |       | $                 | 39,353      |                  | $          | 41,616 |   |
| Management  fee payable                                                                             |       | 186,319           |        | 114,949               |       |
| Performance  fee payable                                                                            |       | 5,427,965         |        | —                |       |
| Initial  offering costs payable                                                                     |       | 50,000            |        | 50,000                |       |
| Sponsor  fee payable                                                                                |       | 782               |        | 300                   |       |
| Redemptions  payable                                                                                |       | 4,598,328         |        | 7,298,096             |       |
| Other                                                                                               |       | —            |        | 21,218                |       |
|                                                                                                |       |              |        |                  |       |
| Total  liabilities                                                                                  |       | 10,302,747        |        | 7,526,179             |       |
|                                                                                                |       |              |        |                  |       |
| MEMBERS’  CAPITAL:                                                                             |       |              |        |                  |       |
| Members’  Capital (119,894,193 and 108,911,153 Units outstanding, unlimited Units  authorized) |       | 153,654,548       |        | 111,457,373           |       |
| Total  members’ capital                                                                        |       | 153,654,548       |        | 111,457,373           |       |
|                                                                                                |       |              |        |                  |       |
| **TOTAL LIABILITIES AND MEMBERS’ CAPITAL**                                                     |       | $                 | 163,957,295 |                  | $          | 118,983,552 |   |
| ** **                                                                                          |       |              |        |                  |       |
| **NET ASSET VALUE PER UNIT (NOTE 3)**                                                               |       |              |        |                  |       |

 

1

----

 

ML CHESAPEAKEFUTURESACCESS LLC

(a Delaware LimitedLiability Company)

 

STATEMENTS OFOPERATIONS

(unaudited)

 
| ** **                                    | ** ** | **For the three** | ** ** | **For the six**   | ** ** | **For the period April 2, 2007** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                    | ** ** | **months ended**       | ** ** | **months ended**       | ** ** | **(commencement of operations)**                | ** ** |
| ** **                                    | ** ** | **June 30, 2008** | ** ** | **June 30, 2008** | ** ** | **to June 30, 2007**                       | ** ** |
| **TRADING PROFIT (LOSS):**                    |       |                        |       |                        |       |                                                      |       |
|                                          |       |                        |       |                        |       |                                                      |       |
| Realized                                      |       | $                           | 10,982,975 |                        | $          | 31,212,804                                                |       | $ | 309,482 |   |
| Change  in unrealized                         |       | 10,458,617                  |       | 4,636,481                   |       | 1,122,360                                                 |       |
| Brokerage  commissions                        |       | (81,632                     | )          | (161,303                    | )          | (126,027                                                  | )          |
|                                          |       |                        |       |                        |       |                                                      |       |
| Total  trading profit (loss)                  |       | 21,359,960                  |       | 35,687,982                  |       | 1,305,815                                                 |       |
|                                          |       |                        |       |                        |       |                                                      |       |
| **INVESTMENT INCOME:**                        |       |                        |       |                        |       |                                                      |       |
| Interest                                      |       | 598,018                     |       | 1,488,550                   |       | 612,139                                                   |       |
|                                          |       |                        |       |                        |       |                                                      |       |
| **EXPENSES:**                                 |       |                        |       |                        |       |                                                      |       |
| Management  fee                               |       | 487,016                     |       | 856,451                     |       | 162,372                                                   |       |
| Performance  fee                              |       | 4,161,669                   |       | 5,666,916                   |       | 221,557                                                   |       |
| Sponsor  fee                                  |       | 1,540                       |       | 2,529                       |       | —                                                    |       |
| Other                                         |       | 62,098                      |       | 109,292                     |       | 45,658                                                    |       |
|                                          |       |                        |       |                        |       |                                                      |       |
| Total  expenses                               |       | 4,712,323                   |       | 6,635,188                   |       | 429,587                                                   |       |
|                                          |       |                        |       |                        |       |                                                      |       |
| **NET INVESTMENT INCOME (LOSS)**              |       | (4,114,305                  | )          | (5,146,638                  | )          | 182,552                                                   |       |
| ** **                                    |       |                        |       |                        |       |                                                      |       |
| **NET INCOME (LOSS)**                         |       | $                           | 17,245,655 |                        | $          | 30,541,344                                                |       | $ | 1,488,367 |   |
| ** **                                    |       |                        |       |                        |       |                                                      |       |
| **NET INCOME (LOSS) PER UNIT:**               |       |                        |       |                        |       |                                                      |       |
| ** **                                    |       |                        |       |                        |       |                                                      |       |
| Weighted  average number of Units outstanding |       |                        |       |                        |       |                                                      |       |
| Class  A*                                     |       | 74,399                      |       | 51,948                      |       | —                                                    |       |
| Class  C**                                    |       | 158,625                     |       | 141,144                     |       | —                                                    |       |
| Class  DS***                                  |       | 38,481,671                  |       | 29,456,353                  |       | 12,036,203                                                |       |
| Class  DT****                                 |       | 80,433,849                  |       | 83,504,573                  |       | 107,754,341                                               |       |
| Class  I**                                    |       | 20,548                      |       | 18,790                      |       | —                                                    |       |
|                                          |       |                        |       |                        |       |                                                      |       |
| Net  income (loss) per weighted average Unit  |       |                        |       |                        |       |                                                      |       |
| Class  A*                                     |       | $                           | 0.1743     |                        | $          | 0.3223                                                    |       | $ | — |   |
| Class  C**                                    |       | $                           | 0.1487     |                        | $          | 0.2829                                                    |       | $ | — |   |
| Class  DS***                                  |       | $                           | 0.1482     |                        | $          | 0.2665                                                    |       | $ | 0.1052 |   |
| Class  DT****                                 |       | $                           | 0.1430     |                        | $          | 0.2710                                                    |       | $ | 0.0021 |   |
| Class  I**                                    |       | $                           | 0.1246     |                        | $          | 0.2328                                                    |       | $ | — |   |

 

----

| *                                   | Class A commenced on September 1, 2007.                                    |
|-------------------------------------|----------------------------------------------------------------------------|
| **                                  | Class C and Class I commenced on July 1, 2007.                             |
| ***                                 | Class DS was previously known as Class D-SM.                               |
| ****                                | Class DT was previously know as Class D-TF and  commenced on June 1, 2007. |
|                                |                                                                       |
| See notes to financial  statements. |

 

2

----

 

ML CHESAPEAKE FUTURESACCESS LLC

(a Delaware LimitedLiability Company)

 

STATEMENTS OFCHANGES IN MEMBERS’ CAPITAL

For the six months ended June 30,2008 and the period April 2, 2007 (commencement of operations) to June 30,2007 (cont.)

(unaudited)

 
| ** **                 | ** ** | ** **                | ** ** | ** **        | ** ** | ** **      | ** ** | **Members’ Capital** | ** ** | **Members’ Capital**  | ** ** | ** **        | ** ** | ** **      | ** ** | **Members’ Capital** | ** ** |
|----------------------------|------------|---------------------------|------------|-------------------|------------|-----------------|------------|--------------------------------|------------|---------------------------------|------------|-------------------|------------|-----------------|------------|--------------------------------|------------|
| ** **                 | ** ** | **Initial Offering** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **June 30, 2007**    | ** ** | **December 31, 2007** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **June 30, 2008**    | ** ** |
|                       |       |                      |       |              |       |            |       |                           |       |                            |       |              |       |            |       |                           |       |
| Class A*                   |       | —                    |       | —            |       | —          |       | —                         |       | 29,496                          |       | 64,615            |       | (21,433         | )          | 72,678                         |       |
| Class C**                  |       | —                    |       | —            |       | —          |       | —                         |       | 111,004                         |       | 169,873           |       | (33,622         | )          | 247,255                        |       |
| Class DS***                |       | 12,000,000                |       | 54,304            |       | (140,939        | )          | 11,913,365                     |       | 18,218,323                      |       | 26,511,377        |       | —          |       | 44,729,700                     |       |
| Class DT****               |       | —                    |       | 107,754,341       |       | (469,473        | )          | 107,284,868                    |       | 90,542,330                      |       | 2,587,759         |       | (18,306,077     | )          | 74,824,012                     |       |
| Class I**                  |       | —                    |       | —            |       | —          |       | —                         |       | 10,000                          |       | 10,548            |       | —          |       | 20,548                         |       |
|                       |       |                      |       |              |       |            |       |                           |       |                            |       |              |       |            |       |                           |       |
| Total Members’  Units |       | 12,000,000                |       | 107,808,645       |       | (610,412        | )          | 119,198,233                    |       | 108,911,153                     |       | 29,344,172        |       | (18,361,132     | )          | 119,894,193                    |       |

 

----

| *                                   | Class  A commenced on September 1, 2007.                                   |
|-------------------------------------|----------------------------------------------------------------------------|
| **                                  | Class  C and Class I commenced on July 1, 2007.                            |
| ***                                 | Class  DS was previously known as Class D-SM.                              |
| ****                                | Class  DT was previously know as Class D-TF and commenced on June 1, 2007. |
|                                |                                                                       |
| See  notes to financial statements. |

 

3

----

 

ML CHESAPEAKE FUTURESACCESS LLC

(a Delaware LimitedLiability Company)

 

STATEMENTS OFCHANGES IN MEMBERS’ CAPITAL

For the six months ended June 30,2008 and the period April 2, 2007 (commencement of operations) to June 30,2007

(unaudited)

 
| ** **                    | ** ** | ** **                | ** ** | ** **        | ** ** | ** **      | ** ** | ** **                      | ** ** | **Members’ Capital** | ** ** | **Members’ Capital**  | ** ** | ** **        | ** **  | ** **      | ** ** | ** **                      | ** ** | **Members’ Capital** | ** ** |
|-------------------------------|------------|---------------------------|------------|-------------------|------------|-----------------|------------|---------------------------------|------------|--------------------------------|------------|---------------------------------|------------|-------------------|-------------|-----------------|------------|---------------------------------|------------|--------------------------------|------------|
| ** **                    | ** ** | **Initial Offering** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Net Income (Loss)** | ** ** | **June 30, 2007**    | ** ** | **December 31, 2007** | ** ** | **Subscriptions** | ** **  | **Redemptions** | ** ** | **Net Income (Loss)** | ** ** | **June 30, 2008**    | ** ** |
|                          |       |                      |       |              |       |            |       |                            |       |                           |       |                            |       |              |        |            |       |                            |       |                           |       |
| Class A*                      |       | $                         | —     |              | $          | —          |       | —                          |       | $                              | —     |                            | $          | —            |        | $               | 35,885     |                            | $          | 87,539                         |       | $ | (31,922 | ) | $ | 16,741 |   | $ | 108,243 |   |
| Class C**                     |       | —                    |       | —            |       | —          |       | —                          |       | —                         |       | 102,301                         |       | 174,996           |        | (36,907         | )          | 39,936                          |       | 280,326                        |       |
| Class DS***                   |       | 12,000,000                |       | 55,960            |       | (152,919        | )          | 1,261,192                       |       | 13,164,233                     |       | 18,829,228                      |       | 30,473,859        |        | —          |       | 7,849,897                       |       | 57,152,984                     |       |
| Class DT****                  |       | —                    |       | 116,913,460       |       | (510,363        | )          | 227,175                         |       | 116,630,272                    |       | 92,480,677                      |       | 2,947,716         |        | (21,969,454     | )          | 22,630,395                      |       | 96,089,334                     |       |
| Class I**                     |       | —                    |       | —            |       | —          |       | —                          |       | —                         |       | 9,282                           |       | 10,004            |        | —          |       | 4,375                           |       | 23,661                         |       |
|                          |       |                      |       |              |       |            |       |                            |       |                           |       |                            |       |              |        |            |       |                            |       |                           |       |
| Total Members’  Interest |       | $                         | 12,000,000 |              | $          | 116,969,420     |       | $                               | (663,282   | )                              | $          | 1,488,367                       |       | $                 | 129,794,505 |            | $          | 111,457,373                     |       | $                              | 33,694,114 |   | $ | (22,038,283 | ) | $ | 30,541,344 |   | $ | 153,654,548 |   |
|                               |            |                           |            |                   |            |                 |            |                                 |            |                                |            |                                 |            |                   |             |                 |            |                                 |            |                                |            |  |  |  |  |  |  |  |  |  |  |

 

----

| *                                   | Class  A commenced on September 1, 2007.                                   |
|-------------------------------------|----------------------------------------------------------------------------|
| **                                  | Class  C and Class I commenced on July 1, 2007.                            |
| ***                                 | Class  DS was previously known as Class D-SM.                              |
| ****                                | Class  DT was previously know as Class D-TF and commenced on June 1, 2007. |
|                                |                                                                       |
| See  notes to financial statements. |

 

4

----

 

ML CHESAPEAKEFUTURESACCESS LLC

(a Delaware LimitedLiability Company)

 

NOTES TO FINANCIALSTATEMENTS

(unaudited)

 

1.             SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

 

ML ChesapeakeFuturesAccess 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. The Fund engages in the speculative trading offutures, options on futures and forward contracts on a wide range ofcommodities. Chesapeake Capital Corporation (“Chesapeake”) is the tradingadvisor of the Fund.

 

Merrill Lynch AlternativeInvestments LLC (“MLAI”) is the Sponsor (“Sponsor”) and Manager (“Manager”) ofthe Fund. MLAI is an indirect wholly-owned subsidiary of Merrill Lynch &Co., Inc. (“Merrill Lynch”). Merrill Lynch, Pierce, Fenner & Smith Incorporated(“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch, is the Fund’scommodity broker.

 

In the opinion of management, the financial statementscontain all adjustments necessary to present fairly the financial position ofthe Fund as of June 30, 2008 and the results of its operations for thethree and six months ended June 30, 2008 and for the period April 2,2007 (commencement of operations) to June 30, 2007. However, the operatingresults for the interim period may not be indicative of the results for thefull year.

 

Certaininformation and footnote disclosures normally included in annual financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America (“U.S. GAAP”) have been omitted.  It is suggested that these financialstatements be read in conjunction with the Fund’s financial statement and notesthereto included in Fund’s Annual Report on Form 10-K filed with theSecurities Exchange Commission.

 

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.  Actualresults could differ from those estimates

 

2.             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.

 

Fairvalue of an investment is the amount that would be received to sell theinvestment in an orderly transaction between market participants at themeasurement date (i.e. the exit price).

 

FAS157 established a hierarchal disclosure framework which prioritizes and ranksthe level of market price observability used in measuring investments at fairvalue. Market price observability is impacted by a number of factors, includingthe type of investment and the characteristics specific to the investment.Investments with readily available active quoted prices or for which fair valuecan be measured from

 

5

----

 

activelyquoted prices generally will have a higher degree of market price observabilityand a lesser degree of judgment used in measuring fair value.

 

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

 

Level I – Quoted prices are available in activemarkets for identical investments as of the reporting date. The type ofinvestments included in Level I are publicly traded investments. As required byFAS 157, the Fund does not adjust the quoted price for these investments evenin situations where the Fund holds a large position and a sale could reasonablyimpact the quoted price.

 

Level II – Pricing inputs are other than quoted pricesin active markets, which are either directly or indirectly observable as of thereporting date, and fair value is determined through the use of models or othervaluation methodologies. Investments which are generally included in thiscategory are investments valued using market data.

 

Level III – Pricing inputs are unobservable andinclude situations where there is little, if any, market activity for theinvestment. Fair value for these investments is determined using valuation methodologiesthat consider a range of factors, including but not limited to the price atwhich the investment was acquired, the nature of the investment, local marketconditions, trading values on public exchanges for comparable securities,current and projected operating performance and financing transactionssubsequent to the acquisition of the investment. The inputs into thedetermination of fair value require significant management judgment. Due to theinherent uncertainty of these estimates, these values may differ materiallyfrom the values that would have been used had a ready market for theseinvestments existed. Investments that are included in this category generallyare privately held debt and equity securities.

 

In certain cases, the inputs used to measure fairvalue may fall into different levels of the fair value hierarchy. In suchcases, an investment’s level within the fair value hierarchy is based on thelowest level of input that is significant to the fair value measurement. TheSponsor’s assessment of the significance of a particular input to the fairvalue measurement in its entirety requires judgment, and considers factorsspecific to the investment.

 

The following table summarizes the valuation of theFund’s investment by the above FAS 157 fair value hierarchy levels as of June 30,2008:

 
| ** **                                     | ** ** | **Total** | ** ** | **Level I** | ** ** | **Level II** | ** ** | **Level III** | ** ** |
|------------------------------------------------|------------|-----------|------------|------------------|------------|-------------------|------------|--------------------|------------|
| Net unrealized  profit (loss) on open contract |       | $         | 9,937,970  |             | $          | 9,937,970         |       | N/A                |       | N/A |   |
|                                                |            |           |            |                  |            |                   |            |                    |            |  |  |

 

6

----

 

3.             NET ASSET VALUE PERUNIT

 

For financial reporting purposes, in conformity withU.S. GAAP, the Fund amortizes over a twelve-month period the initial offeringcosts for purposes of determining Net Asset Value. For all other purposes,including computing Net Asset Value for purposes of member subscription andredemption activity, such costs are amortized over 60 months. Consequently, theNet Asset Value and Net Asset Value per Unit of the different Classes forfinancial reporting purposes and for all other purposes at June 30, 2008 andDecember 31, 2007 are as follows:

 

June 30, 2008

 
| ** ** | ** ** | **Net Asset Value**    | ** **  | ** **    | ** ** | **Net Asset Value per Unit** | ** ** |
|------------|------------|----------------------------------|-------------|---------------|------------|--------------------------------------------------|------------|
| ** ** | ** ** | ** **                       | ** **  | **Financial** | ** ** | **Number of**                               | ** ** | **All Other** | ** ** | **Financial** | ** ** |
| ** ** | ** ** | **All Other Purposes** | ** **  | **Reporting** | ** ** | **Units**                                        | ** ** | **Purposes** | ** ** | **Reporting** | ** ** |
| Class A    |       | $                                | 108,247     |          | $          | 108,243                                          |       | 72,678 |   | $ | 1.4894 |   | $ | 1.4893 |   |
| Class C    |       | 280,349                          |        | 280,326       |       | 247,255                                          |       | 1.1338 |   | 1.1338 |   |
| Class DS   |       | 57,156,886                       |        | 57,152,984    |       | 44,729,700                                       |       | 1.2778 |   | 1.2777 |   |
| Class DT   |       | 96,122,900                       |        | 96,089,334    |       | 74,824,012                                       |       | 1.2847 |   | 1.2842 |   |
| Class I    |       | 23,662                           |        | 23,661        |       | 20,548                                           |       | 1.1515 |   | 1.1515 |   |
|       |       | $                                | 153,692,044 |          | $          | 153,654,548                                      |       | 119,894,193 |   |   |   |   |   |
|            |            |                                  |             |               |            |                                                  |            |  |  |  |  |  |  |  |  |

 

December 31, 2007

 
| ** ** | ** ** | **Net Asset Value** | ** **  | ** **    | ** ** | **Net Asset Value per Unit** | ** ** |
|------------|------------|-------------------------------|-------------|---------------|------------|--------------------------------------------------|------------|
| ** ** | ** ** | **All Other**            | ** **  | **Financial** | ** ** | **Number of**                               | ** ** | **All Other** | ** ** | **Financial** | ** ** |
| ** ** | ** ** | **Purposes**                  | ** **  | **Reporting** | ** ** | **Units**                                        | ** ** | **Purposes** | ** ** | **Reporting** | ** ** |
| Class A    |       | $                             | 35,888      |          | $          | 35,885                                           |       | 29,496 |   | $ | 1.2167 |   | $ | 1.2166 |   |
| Class C    |       | 102,319                       |        | 102,301       |       | 111,004                                          |       | 0.9218 |   | 0.9216 |   |
| Class DS   |       | 18,831,754                    |        | 18,829,228    |       | 18,218,323                                       |       | 1.0337 |   | 1.0335 |   |
| Class DT   |       | 92,508,127                    |        | 92,480,677    |       | 90,542,330                                       |       | 1.0217 |   | 1.0214 |   |
| Class I    |       | 9,283                         |        | 9,282         |       | 10,000                                           |       | 0.9283 |   | 0.9282 |   |
|       |       | $                             | 111,487,371 |          | $          | 111,457,373                                      |       | 108,911,153 |   |   |   |   |   |
|            |            |                               |             |               |            |                                                  |            |  |  |  |  |  |  |  |  |

 

7

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4.             MARKET AND CREDIT RISKS

 

The nature of this Fund has certain risks, which cannot be presented onthe financial statements.  The followingsummarizes some of those risks.

 

Market Risk

 

Derivative instruments involve varying degrees of market risk.  Changes in the level or volatility ofinterest rates, foreign currency exchange rates or the market values of the financialinstruments or commodities underlying such derivative instruments frequentlyresult in changes in the Fund’s Net unrealized profit (loss) on such derivativeinstruments as reflected in the Statements of Financial Condition.  The Fund’s exposure to market risk isinfluenced by a number of factors, including the relationships among thederivative instruments held by the Fund as well as the volatility and liquidityof the markets in which the derivative instruments are traded. Investments inforeign markets may also entail legal and political risks.

 

MLAI has procedures inplace intended to control market risk exposure, although there can be noassurance that they will, in fact, succeed in doing so.  These procedures focus primarily onmonitoring the trading of Chesapeake, calculating the Net Asset Value of theFund as of the close of business on each day and reviewing outstandingpositions for over-concentrations.  WhileMLAI does not intervene in the markets to hedge or diversify the Fund’s marketexposure, MLAI may urge Chesapeake to reallocate positions in an attempt toavoid over-concentrations.  However, suchinterventions are expected to be unusual. It is expected that MLAI’s basic risk control procedures will consist ofthe ongoing process of advisor monitoring, with the market risk controls beingapplied by Chesapeake.

 

Credit Risk

 

The risks associated withexchange-traded contracts are typically perceived to be less than thoseassociated with over-the-counter (non-exchange-traded) transactions, becauseexchanges typically provide clearinghouse arrangements in which the collectivecredit (in some cases limited in amount, in some cases not) of the members ofthe exchange is pledged to support the financial integrity of the exchange. Inover-the-counter transactions, on the other hand, traders must rely solely onthe credit of their respective individual counterparties. Margins, which may besubject to loss in the event of a default, are generally required in exchangetrading, and counterparties may also require margin in the over-the-countermarkets.

 

The credit riskassociated with these instruments from counterparty nonperformance is the Netunrealized profit, if any, included in the Statements of Financial Condition.The Fund attempts to mitigate this risk by dealing exclusively with MerrillLynch entities as clearing brokers.

 

The Fund, in itsnormal course of business, enters into various contracts, with MLPF&Sacting as its commodity broker.  Pursuantto the brokerage arrangement with MLPF&S (which includes a nettingarrangement), to the extent that such trading results in receivables from andpayables to MLPF&S, these receivables and payables are offset and    reported as a net receivable or payable andincluded in Equity in commodity futures trading accounts in the Statements ofFinancial Condition.

 

8

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5.             RECENT ACCOUNTINGPRONOUNCEMENTS

 

In March 2008,the FASB 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.

 

In May 2008, the FASB issued Statement ofFinancial Accounting Standards No. 162, “*TheHierarchy of Generally Accepted Accounting Principles*” (“FAS 162”).FAS 162 identifies the sources of accounting principles and the framework forselecting the accounting principles used in preparing financial statements ofnongovernmental entities that are presented in conformity with U.S. GAAP.Currently, U.S. GAAP hierarchy is provided in the American Institute ofCertified Public Accountants U.S. Auditing Standards (“AU”) Section 411, “*The Meaning of Present Fairly in Conformity With Generally AcceptedAccounting Principles*” (“AU Section 411”). FAS 162 is effective60 days following the SEC’s approval of the Public Company Accounting OversightBoard’s amendments to AU Section 411. The Fund does not expect theadoption of FAS 162 to have an impact on its financial statements.

 

9

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Item2.  Management’s Discussion and Analysis of Financial Condition andResults of Operations

 

MONTH-END NET ASSET VALUEPER UNIT

(NON U.S. GAAP)

 

MLAI believes that the Net Asset Value used tocalculate subscription and redemption value and to    report performance to investors throughoutthe year is the most valuable to the Members of the Fund.   Therefore, the charts below referencing NetAsset Value and performance measurements are based on the Net Asset Value forall other purposes, as discussed in Note 2 to the financial statements.

 

Class A

 

| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** | **Apr.** | ** ** | **May** | ** ** | **Jun.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------|------------|----------|------------|
| 2007       |       | n/a      |       | n/a      |       | n/a      |       | n/a      |       | n/a     |       | n/a      |       |
| 2008       |       | $        | 1.2427     |     | $          | 1.4514   |       | $        | 1.3446     |    | $          | 1.3505   |       | $ | 1.3731 |   | $ | 1.4894 |   |
|            |            |          |            |          |            |          |            |          |            |         |            |          |            |  |  |  |  |  |  |

 

Class C

 

| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** | **Apr.** | ** ** | **May** | ** ** | **Jun.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------|------------|----------|------------|
| 2007       |       | n/a      |       | n/a      |       | n/a      |       | n/a      |       | n/a     |       | n/a      |       |
| 2008       |       | $        | 0.9406     |     | $          | 1.0978   |       | $        | 1.0249     |    | $          | 1.0335   |       | $ | 1.0510 |   | $ | 1.1338 |   |
|            |            |          |            |          |            |          |            |          |            |         |            |          |            |  |  |  |  |  |  |

 

Class DS

 

| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** | **Apr.** | ** ** | **May** | ** ** | **Jun.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------|------------|----------|------------|
| 2007       |       | n/a      |       | n/a      |       | n/a      |       | $        | 1.0305     |    | $          | 1.0850   |       | $ | 1.1056 |   |
| 2008       |       | $        | 1.0570     |     | $          | 1.2362   |       | $        | 1.1451     |    | $          | 1.1530   |       | $ | 1.1755 |   | $ | 1.2778 |   |
|            |            |          |            |          |            |          |            |          |            |         |            |          |            |  |  |  |  |  |  |

 

Class DT

 

| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** | **Apr.** | ** ** | **May** | ** ** | **Jun.** | ** **   |
|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------|------------|----------|--------------|
| 2007       |       | n/a      |       | n/a      |       | n/a      |       | n/a      |       | n/a     |       | $        |  1.0871 |   |
| 2008       |       | $        | 1.0457     |     | $          | 1.2239   |       | $        | 1.1391     |    | $          | 1.1516   |         | $ | 1.1779 |   | $ | 1.2847 |   |
|            |            |          |            |          |            |          |            |          |            |         |            |          |              |  |  |  |  |  |  |

 

Class I

 

| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** | **Apr.** | ** ** | **May** | ** ** | **Jun.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------|------------|----------|------------|
| 2007       |       | n/a      |       | n/a      |       | n/a      |       | n/a      |       | n/a     |       | n/a      |       |
| 2008       |       | $        | 0.9484     |     | $          | 1.1081   |       | $        | 1.0269     |    | $          | 1.0367   |       | $ | 1.0580 |   | $ | 1.1515 |   |
|            |            |          |            |          |            |          |            |          |            |         |            |          |            |  |  |  |  |  |  |

 

10

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PerformanceSummary

 

January 1,2008 to June 30, 2008

 

January 1,2008 to March 31, 2008

 

TheFund posted gains for the quarter with the agriculture, currencies, energy,interest rates, and metals sectors posting gains while stock futures sectorposted losses for the Fund.

 

The agriculture sectorposted profits to the Fund. At the beginning of the quarter, profits wereposted to the Fund due to continuing trends in the grain markets resulting instrong performance in the grain sector. Higher prices across this sectorbenefited corn, soybean, soybean oil, soybean meal and wheat positions.Additional commodity profits came from the softs as higher prices proved to bebeneficial for the Fund’s position in London coffee as well as the London andU.S. cocoa positions, with cocoa prices reaching a five-year high duringJanuary. The grain sector netted the largest profits posted to the Fund in themiddle of the quarter as a result of record prices in the soybean and wheatmarkets. The soybean oil position produced the largest gain as pricesexperienced their largest monthly increase in nearly 25 years. The soybean andsoybean meal positions also continued to benefit from higher prices withsoybeans recording their biggest monthly gain in nearly 3 years. Additionalprofits were posted to the Fund in the grain complex in the wheat positions asprices surged to record levels and also from the Fund’s corn position as pricesclimbed more than 10% in the month of February. The food and fiber sector alsorecorded profits posted to the Fund due to a strong performance in cocoa,coffee, cotton and sugar. After a strong start in 2008 with profitableperformance in January and February, the Fund gave up some of those earlyyear gains resulting in losses posted to the Fund at quarters end.  After trading at record levels in February,the grain sector recorded the largest give back as the Fund’s soybean oil,soybean and soybean meal positions suffered as a result of dropping prices.Performance in the food and fiber sector also posted losses to the Fund due tothe coffee, cocoa, sugar and cotton positions experienced losses as the resultof weakening prices. Quarter ended with losses being posted to the Fund.

 

The currency sector postedprofits to the Fund. The currency sectors recorded mixed performance at thebeginning of the quarter resulting in losses for the Fund. The U.S. dollarpositions posted gains while the currency cross rate positions collectivelyposted losses. The currency rate sector provided the largest gains mid-quarterfor the Fund. In the currency markets the most profitable positions were theFund’s Euro versus Czech krona, Norwegian krone, Australian dollar, Brazilianreal and Russian ruble positions. The currency positions continued itsprofitability for the Fund as the quarter ended. The Fund’s Euro, Euro/Britishpound, Swiss franc, Japanese yen and Russian ruble positions recorded thebiggest gains.

 

The energy sector postedprofits for the Fund. Market weakness in the energy markets resulted in lossesfor the Fund’s energy positions at the beginning of the quarter.  Gains were posted to the Fund mid-quarter dueto the Fund’s London gas oil, heating oil and crude oil positions allexperienced sold gains. The energy sector continued to post gains to the Fundat quarter’s end.

 

The interest rate sectorposted profits for the Fund. Led by the Fund’s U.S. and European positions, theinterest rate sector was profitable at the beginning of the quarter. TheAustralian and U.S. positions collectively accounted for the majority of theprofits being posted to the Fund at mid-quarter. Due to a volatile marketperformance in the interest rate sector was negative which caused losses to beposted to the Fund at the end of the quarter.

 

11

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The metals sector alsoposted profits for the Fund. At the beginning of the year performance in themetals sector was mixed although profits posted to the Fund from the gold andsilver positions more than offset the loss from the Fund’s aluminum position.Gold rose to record levels mid-quarter in London and New York while silverprices reached their highest level since October 1980 posting profits tothe Fund. The quarter ended with the Fund’s gold, silver and aluminum positionsposting losses. Gold prices dropped more than 5% for the month and sufferedtheir biggest weekly drop in 25 years during the third week of March. Silverprices followed the same pattern and dropped nearly 9% in March afterreaching a 28 year high in February. For the quarter, gold prices rose over 10%while silver prices closed the quarter up over 20%.

 

The stock indices postedlosses for the Fund. The stock sector suffered the largest losses among thefinancial sectors as global equities experienced sharp losses to begin the NewYear. Despite the overall volatility in global equities, the stock sectorposted a small gain for the Fund mid-quarter. The quarter ended with lossesbeing posted to the Fund due to the volatility in the financial sectors.

 

April 1, 2008 to June 30,2008

 

TheFund posted gains for the quarter with the energy, agriculture, currencies,metals and stock indices sectors posting gains while the interest rate sectorposted losses for the Fund.

 

The energy sector postedprofits for the Fund. Profits were posted to the Fund at the beginning of thequarter as higher oil prices continued to benefit from the Fund’s energy positions.Even though crude oil prices dropped almost $4 a barrel over the last twotrading days of April after reaching a record level of nearly $120 abarrel in April 28, crude oil prices closed the month nearly 75% higherthan a year ago. Profits continued to be posted to the Fund mid-quarter ascrude prices climbed to $135 a barrel in New York trading on May 22ndbefore closing the month slightly above the $127 level. Crude oil pricescontinued to escalate, crossing the $143 a barrel level in late June tradingbefore closing the month around the $140 level, an increase of nearly $13 abarrel from the end of May.  Brent crude,light crude and natural gas positions recorded the largest gains in the energysector at the end of the quarter.

 

The agriculture sectorposted profits to the Fund. At the beginning of the quarter, profits wereposted to the Fund. In the grain sector, the Fund’s corn position was the mostprofitable as prices rose for the eighth straight month. Other profits in thegrain sector came from soybean oil, soymeal and soybean positions. Over thepast twelve months corn and soybean prices have soared over 50%. Grain sectorsfinished the month of May with relatively flat performance while the softsand meat sectors experienced negative performance. Profits were posted to theFund at the end of the quarter as prices moved higher in cocoa, coffee andsugar. Cocoa prices strengthened in June as news broke that the quality ofthe current crop in the Ivory Coast, the world’s biggest grower, had worsened.

 

The currency sector postedprofits to the Fund. The currency sectors recorded mix performance at thebeginning of the quarter resulting in losses for the Fund. The largest gainsamong the Fund’s currency positions were the Brazilian real, Mexican peso, andAustralian dollar positions while the largest losses were from the Japaneseyen, South African rand and Swiss franc positions. Profits were posted to theFund mid-quarter due to a rally in the U.S. dollar positions. Profits continuedto be posted to the Fund as the quarter ended.

 

The metals sector alsoposted profits for the Fund. Losses were posted to the Fund at the beginning ofthe quarter as gold prices fell for the second straight month and led thelosses among the metal positions. Losses continued to be posted throughmid-quarter due to a relatively flat performance in metals. The quarter endedwith profits posted to the Fund due to the Gold positions recording the largestgain in the metals sector as prices climbed about 4% for the month. Also,copper, aluminum and silver also benefited from higher prices as the quarterended.

 

12

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The stock indices postedprofits for the Fund. Profits were posted to the Fund at the beginning of thequarter through the mid-quarter despite the overall volatility in globalequities. The quarter ended with losses being posted to the Fund as thevolatility in the financial markets continued.

 

The interest rate sectorposted losses for the Fund. Losses were posted at the beginning of the quarterwith the exception of the Aussie bank bill and Aussie ten year bond positions,all interest rate positions were unprofitable. Losses continued to be postedmid-quarter which came collectively from the Fund’s U.S. positions in theinterest rate sector. The quarter ended with profits being posted to the Fund.

 

Performance Summary

 

April 2,2007  to June 30, 2007

 

Chesapeake recorded apositive return for the second quarter primarily due to significant gains inthe financial sectors. Strong performance in global stocks led performance forthe quarter followed by the interest rate and the currency cross ratesectors.  Overall performance in thecommodity sectors was mixed for the quarter with energies and grains generatingsmall gains and the metal sector netting the largest loss.  The following is an overview for each month:

 

The portfolio postedstrong performance in April as seven of its nine sectorswere profitable.  All financial sectorsrecorded gains for the month, led by stocks, while the metal sector wasthe most profitable among the commodities.

 

The stock sectorcontributed significantly to April’s return as many of the major indexesexperienced strong rallies for the month.  Collectively, our Non-USindex positions led performance with our DAX, Share Price, CAC-40 and EuroStoxx 50 index positions all posting solid gains.   U.S. stock markets also experienced strongrallies in April, which proved profitable for our Dow, S&P and NASDAQ indexpositions.  Performance in the currencysectors was driven by our yen related cross rate positions including ourEuro-Yen, Aussie-Yen, Canadian dollar-Yen, Sterling-Yen and Franc-Yenpositions.  Other notable profitablecurrency positions for the month were our New Zealand dollar, Swedish Krona,Euro, Yen and British pound positions. Performance in the interest rate sector was mixed for the month withgains coming primarily from our European positions.

 

The commodity sectorsproduced mixed results in April with the metal, energy and soft sectorsrecording gains and the meat and grain sectors netting losses.  Our nickelposition was the most profitable within the metal sector followed by aluminumand gold.  Gains in the energy sectorcame primarily from our light crude position.   Other positivecontributors in April were our cotton, sugar and soybean oil positionswhile some of the notable losing positions included our cocoa, soymeal,soybean, corn and K.C. wheat positions.

 

The portfolio added toits yearly gain with strong performance in May. The financial sectors contributed significantly to May’s return led bythe stock and interest rate sectors.  Thegrain sector also boosted performance while other commodity sectors had minimalimpact on May’s return.

 

Global equities ledperformance in the portfolio for the second straight month. The stock sectorhad a significant impact on May’s return as all index positions recorded gainsfor the month.  The largest gains camefrom our S&P Canada-60, IBEX-35 Stock Index (Spain) and DAX Index positions.  The interest rate sector also recorded strongprofits in May with our European positions collectively having the biggestimpact.  The currency sectors had littleeffect on May’s performance although a number of positions including ourBrazilian real and Canadian dollar-yen positions posted solid gains.

 

Overall, the commoditysectors made a positive contribution in May. The grain and energy sectors were profitable for the month, while themeat, softs and metals sectors suffered losses. Despite sharp price declines near month-end in many of the agriculturalmarkets, higher prices for the month in the grain s sector resulted in profitsfor our soybean, soymeal, soybean oil, and corn positions.  Our cocoa and Light crude positions alsobenefited from favorable price movement.

 

13

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Losses for the month cameprimarily from the metals sectors as metal prices weakened in May amidconcerns of a potential slowdown in Chinese demand due to recent governmentactions.  Other losses in May camefrom our cattle, coffee and cotton positions.

 

Thefavorable trading environment that the portfolio experienced over the first twomonths of the second quarter continued into June.  For the month, six of nine sectors wereprofitable.

 

Overall, the financialmarkets accounted for the majority of profits in June.  The currency sectors collectively recordedthe largest gain for the month led by our Yen and Australian dollar relatedpositions.   The interest rate sectoralso had a positive impact on the period’s return with European positionscollectively posting the largest gains. Additional profits came from our Australian interest rate positionswhile our U.S. and Canadian positions added marginally to profits for the month.  The stock sector had mixed performance forthe period and our Far East Index positions netted a gain by month end.  Our European and U.S. Index positionscollectively recorded losses.

 

Performance in thecommodity sectors was mixed for the month. The softs, meats and grain sectors posted small gains in June whilethe metals and energy sectors incurred losses. The metal sector posted the largest loss as falling prices adverselyaffected our nickel, zinc, aluminum, silver and gold positions.

 

Item3.   Quantitative and QualitativeDisclosures About Market Risk

 

Introduction

 

The Fund is a speculativecommodity pool. The market sensitive instruments held by it are acquired forspeculative trading purposes and all or substantially all of the Fund’s assetsare subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments isintegral, not incidental, to the Fund’s main line of business.

 

Market movements resultin frequent changes in the fair market value of the Fund’s open positions and,consequently, in its earnings and cash flow. The Fund’s market risk isinfluenced by a wide variety of factors, including the level and volatility ofinterest rates, exchange rates, equity price levels, the market value offinancial instruments and contracts, the diversification effects among the Fund’sopen positions and the liquidity of the markets in which it trades.

 

The Fund, under thedirection of the trading advisors, rapidly acquires and liquidates both longand short positions in a wide range of different markets.  Consequently, it is not possible to predicthow a particular future market scenario will affect performance, and the Fund’spast performance is not necessarily indicative of its future results.

 

Value at Risk is ameasure of the maximum amount which the Fund could reasonably be expected tolose in a given market sector. However, the inherent uncertainty of the Fund’sspeculative trading and the recurrence in the markets traded by the Fund ofmarket movements far exceeding expectations could result in actual trading ornon-trading losses far beyond the indicated Value at Risk or the Fund’sexperience to date (i.e., “risk of ruin”). In light of the foregoing, as wellas the risks and uncertainties intrinsic to all future projections, thequantifications included in this section should not be considered to constituteany assurance or representation that the Fund’s losses in any market sectorwill be limited to Value at Risk or by the Fund’s attempts to manage its marketrisk.

 

14

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Quantifying The Fund’sTrading Value At Risk

 

QuantitativeForward-Looking Statements.

 

The followingquantitative disclosures regarding the Fund’s market risk exposures contain “forward-lookingstatement” within the meaning of the safe harbor from civil liability providedfor such statements by the Private Securities Litigation Reform Act of 1995(set forth in Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to beforward-looking statements for purposes of the safe harbor, except forstatements of historical fact.

 

The Fund’s risk exposurein the various market sectors traded by Chesapeake is quantified below in termsof Value at Risk.  Due to the Fund’smark-to-market accounting, any loss in the fair value of the Fund’s openpositions is directly reflected in the Fund’s earnings (realized or unrealized)and cash flow (at least in the case of exchange-traded contracts in whichprofits and losses on open positions are settled daily through variationmargin)

 

Exchange maintenancemargin requirements have been used by the Fund as the measure of its Value atRisk.  Maintenance margin requirementsare set by exchanges to equal or exceed the maximum loss in the fair value ofany given contract incurred in 95%-99% of the one-day time periods included inthe historical sample (generally approximately one year) researched forpurposes of establishing margin levels. The maintenance margin levels are established by dealers and exchangesusing historical price studies as well as an assessment of current marketvolatility (including the implied volatility of the options on a given futurescontract) and economic fundamentals to provide a probabilistic estimate of themaximum expected near-term one-day price fluctuation.

 

In the case of market sensitive instruments which are notexchange-traded (almost exclusively currencies in the case of the Fund), themargin requirements for the equivalent futures positions have been used asValue at Risk.  In those rare cases inwhich a futures-equivalent margin is not available, dealers’ margins have beenused.

 

100% positive correlation in the different positions held in each marketrisk 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 Fund’s positions are rarely, if ever, 100%positively correlated have not been reflected.

 

15

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The Fund’s Trading Value at Risk in Different Market Sectors

 

The following table indicates the average, highest and lowest tradingValue at Risk associated with the Fund’s open positions by market category forthe fiscal period. For the six months ended June 30, 2008, the Fund’saverage month-end Net Asset value for all other purposes was $126,596,653. Forthe three months ended June 30, 2007, the Fund’s average month-end NetAsset value for all other purposes was $41,774,098.

 

**June 30, 2008**

 

 
| ** **                | ** ** | **Average**                 | ** ** | **%**** of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|---------------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------------|------------|-----------------------|------------|
| **Market Sector**    | ** ** | **Value at Risk** | ** ** | **Capitalization**             | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
| ** **                | ** ** | ** **                  | ** ** | ** **                     | ** ** | ** **             | ** ** | ** **            | ** ** |
| Agricultural  Commodities |       | $                           | 1,522,683  |                           | 1.20       | %                      | $          | 2,492,604             |       | $ | 569,859 |   |
| Energy                    |       | 1,138,613                   |       | 0.90                           | %          | 1,868,932              |       | 888,405               |       |
| Interest Rates            |       | 8,518,679                   |       | 6.73                           | %          | 11,890,492             |       | 4,271,602             |       |
| Metals                    |       | 562,672                     |       | 0.44                           | %          | 1,042,773              |       | 297,967               |       |
| Stock Futures             |       | 277,480                     |       | 0.22                           | %          | 437,674                |       | 144,462               |       |
| Currencies                |       | 2,022,157                   |       | 1.60                           | %          | 3,580,503              |       | 1,193,175             |       |
|                      |       |                        |       |                           |       |                   |       |                  |       |
| TOTAL                     |       | $                           | 14,042,284 |                           | 11.09      | %                      | $          | 21,312,978            |       | $ | 7,365,470 |   |

 

**June 30, 2007**

 
| ** **                | ** ** | **Average**                 | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|---------------------------|------------|-----------------------------|------------|----------------------------|------------|------------------------|------------|-----------------------|------------|
| **Market Sector**    | ** ** | **Value at Risk** | ** ** | **Capitalization**         | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
| ** **                | ** ** | ** **                  | ** ** | ** **                 | ** ** | ** **             | ** ** | ** **            | ** ** |
| Agricultural  Commodities |       | $                           | 211,318    |                       | 0.51       | %                      | $          | 560,788               |       | $ | 32,895 |   |
| Energy                    |       | 16,743                      |       | 0.04                       | %          | 33,382                 |       | 2,880                 |       |
| Interest Rates            |       | 8,937,074                   |       | 21.39                      | %          | 22,462,646             |       | 2,055,678             |       |
| Metals                    |       | 200,589                     |       | 0.48                       | %          | 494,759                |       | 51,938                |       |
| Stock Futures             |       | 258,917                     |       | 0.62                       | %          | 637,727                |       | 61,527                |       |
| Stock Indices             |       | 459,699                     |       | 1.10                       | %          | 1,169,033              |       | 99,185                |       |
| Currencies                |       | 501,618                     |       | 1.20                       | %          | 1,224,309              |       | 128,903               |       |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| TOTAL                     |       | $                           | 10,585,958 |                       | 25.34      | %                      | $          | 26,582,643            |       | $ | 2,433,006 |   |

 

Material Limitations on Value at Riskas an Assessment of Market Risk

 

The face value of the market sectorinstruments held by the Fund is typically many times the applicable maintenancemargin requirement (maintenance margin requirements generally ranging betweenapproximately 1% and 10% of contract face value) as well as many times thecapitalization of the Fund.  Themagnitude of the Fund’s open positions creates a “risk of ruin” not typicallyfound in most other investment vehicles. Because of the size of its positions, certain market conditions —unusual, but historically recurring from time to time — could cause the Fund toincur severe losses over a short period of time.   The foregoing Value at Risk table — as wellas the past performance of the Fund — gives no indication of this “risk ofruin.”

 

16

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**Non-TradingRisk**

** **

ForeignCurrency Balances; Cash on Deposit with MLPF&S

 

TheFund has non-trading market risk on its foreign cash balances not needed formargin. However, these balances (as well as the market risk they represent) areimmaterial.

 

TheFund also has non-trading market risk on the approximately 90%-95% of itsassets which are held in cash at MLPF&S. The value of this cash is notinterest rate sensitive, but there is cash flow risk in that if interest ratesdecline so will the cash flow generated on these monies. This cash flow risk isimmaterial.

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

Thefollowing qualitative disclosures regarding the Fund’s market risk exposures —except for (i) those disclosures that are statements of historical factand (ii) the descriptions of how the Fund manages its primary market riskexposures — constitute forward-looking statements within the meaning of Section 27Aof the Securities Act and Section 21E of the Securities Exchange Act. TheFund’s primary market risk exposures as well as the strategies used and to beused by MLAI and Chesapeake for managing such exposures are subject to numerousuncertainties, contingencies and risks, any one of which could cause the actualresults of the Fund’s risk controls to differ materially from the objectives ofsuch strategies.

 

Governmentinterventions, defaults and expropriations, illiquid markets, the emergence ofdominant fundamental factors, political upheavals, changes in historical pricerelationships, an influx of new market participants, increased regulation andmany other factors could result in material losses as well as in materialchanges to the risk exposures and the risk management strategies of the Fund.There can be no assurance that the Fund’s current market exposure and/or riskmanagement strategies will not change materially or that any such strategieswill be effective in either the short- or long-term. Investors must be preparedto lose all or substantially all of the time value of their investment in theFund.

 

Item 4. Controls and Procedures

 

MLAI, the Sponsorof ML Chesapeake FuturesAccess LLC, with the participation of the Sponsor’sChief Executive 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.

 

17

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PART II - OTHERINFORMATION

 

Item1.                                   LegalProceedings

 

None.

 

Item 1A.                         Risk Factors

 

## Past Performance 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.

 

## Volatile Markets; 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.

 

## Importance of 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.

 

## Forward Trading

##  

The Fund will trade currencies in the forwardmarkets in addition to in the futures markets. The forward markets are over-the-counter, non-exchange markets, and intrading in these markets, the Fund will be dependent on the credit standing ofthe counterparties with which they trade, without the financial support of anyclearinghouse system.  In addition, theprices offered for the same forward contract may vary significantly amongdifferent forward market participants. Forward market counterparties are under no obligation to enter intoforward transactions with a Fund, including transactions through which the Fundis attempting to liquidate open positions.

 

## Increased Assets Under Management

##  

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

 

## Trading Advisor Risk

##  

The Fund is subject to the risk of the badjudgment, 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.

 

18

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## Changes in Trading Strategy

##  

The trading advisor may make materialchanges in its trading strategies without the knowledge of MLAI.

 

## Illiquid Markets

##  

Certain positions held by the Fund may becomeilliquid, preventing the Fund’s trading advisor from acquiring positionsotherwise indicated by its strategy or making it impossible for the tradingadvisor to close out positions against which the market is moving.

 

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.

 

## Trading on Non-U.S. Exchanges

##  

The trading advisor may trade extensively onnon-U.S. exchanges.  These exchanges arenot regulated by any United States governmental agency.  The Fund could incur substantial lossestrading on foreign exchanges to which it would not have been subject had itstrading 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 Fund will be subject to a certain degree ofexchange-rate risk in trading such contracts.

 

TheFund Could Lose Assets and Have Its Trading Disrupted Due to the Bankruptcy ofOne of the Parties

 

The Fund issubject to the risk of insolvency of a counterparty, an exchange, a clearinghouse or MLPF&S.Fund assets could be lost or impounded during lengthy bankruptcyproceedings.  Were a substantial portionof the Fund’s capital tied up in a bankruptcy, MLAI might suspend or limittrading, perhaps causing the Fund to miss significant profit opportunities. There are increased risks in dealing withunregulated trading counterparties including the risk that assets may notbenefit from the protection afforded to “customer funds” deposited withregulated dealers and brokers.

 

19

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Item2.                                   UnregisteredSales of Equity Securities and Use of Proceeds

 

(a)          Issuance to accreditedinvestors pursuant to Regulation D and Section 4(6) under theSecurities Act.  The selling agent of thefollowing Class of Units was MLPF&S.

** **

CLASS A

 
| ** ** | ** ** | **Subscription** | ** ** | ** ** | ** ** |
|------------|------------|------------------|------------|------------|------------|
| ** ** | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV ****(1)** | ** ** |
|       |       |             |       |       |       |   |   |
| Jan-08     |       |             | $          | —     |       | — |   | $ | 1.2168 |   |
| Feb-08     |       |             | —     |       | —     |   | 1.2427 |   |
| Mar-08     |       |             | —     |       | —     |   | 1.4514 |   |
| Apr-08     |       |             | 32,192     |       | 23,941     |   | 1.3446 |   |
| May-08     |       |             | 29,999     |       | 22,213     |   | 1.3505 |   |
| Jun-08     |       |             | 25,348     |       | 18,461     |   | 1.3731 |   |
| Jul-08     |       |             | 73,124     |       | 49,096     |   | 1.4894 |   |
|            |            |                  |            |            |            |  |  |  |  |  |

 

CLASS C

 
| ** ** | ** ** | **Subscription** | ** ** | ** ** | ** ** |
|------------|------------|------------------|------------|------------|------------|
| ** ** | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV ****(1)** | ** ** |
|       |       |             |       |       |       |   |   |
| Jan-08     |       |             | $          | 22,000     |       | 23,866 |   | $ | 0.9218 |   |
| Feb-08     |       |             | —     |       | —     |   | 0.9406 |   |
| Mar-08     |       |             | —     |       | —     |   | 1.0978 |   |
| Apr-08     |       |             | —     |       | —     |   | 1.0249 |   |
| May-08     |       |             | 26,999     |       | 26,124     |   | 1.0335 |   |
| Jun-08     |       |             | 125,997    |       | 119,883    |   | 1.0510 |   |
| Jul-08     |       |             | 383,987    |       | 338,673    |   | 1.1338 |   |
|            |            |                  |            |            |            |  |  |  |  |  |

 

CLASS I

 
| ** ** | ** ** | **Subscription** | ** ** | ** ** | ** ** |
|------------|------------|------------------|------------|------------|------------|
| ** ** | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV ****(1)** | ** ** |
|       |       |             |       |       |       |   |   |
| Jan-08     |       |             | $          | —     |       | — |   | $ | 0.9283 |   |
| Feb-08     |       |             | 10,004     |       | 10,548     |   | 0.9484 |   |
| Mar-08     |       |             | —     |       | —     |   | 1.1081 |   |
| Apr-08     |       |             | —     |       | —     |   | 1.0269 |   |
| May-08     |       |             | —     |       | —     |   | 1.0367 |   |
| Jun-08     |       |             | —     |       | —     |   | 1.0580 |   |
| Jul-08     |       |             | 23,378     |       | 20,302     |   | 1.1515 |   |
|            |            |                  |            |            |            |  |  |  |  |  |

 

 

CLASS DS

 
| ** ** | ** ** | **Subscription** | ** ** | ** ** | ** ** |
|------------|------------|------------------|------------|------------|------------|
| ** ** | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV ****(1)** | ** ** |
|       |       |             |       |       |       |   |   |
| Jan-08     |       |             | $          | 808,530    |       | 782,171 |   | $ | 1.0337 |   |
| Feb-08     |       |             | 1,663,127  |       | 1,573,441  |   | 1.0570 |   |
| Mar-08     |       |             | 1,415,132  |       | 1,144,744  |   | 1.2362 |   |
| Apr-08     |       |             | 11,871,999 |       | 10,367,653 |   | 1.1451 |   |
| May-08     |       |             | 7,543,674  |       | 6,542,648  |   | 1.1530 |   |
| Jun-08     |       |             | 7,171,397  |       | 6,100,720  |   | 1.1755 |   |
| Jul-08     |       |             | 4,035,171  |       | 3,157,905  |   | 1.2778 |   |
|            |            |                  |            |            |            |  |  |  |  |  |

 

CLASS DT

 
| ** ** | ** ** | **Subscription** | ** ** | ** ** | ** ** |
|------------|------------|------------------|------------|------------|------------|
| ** ** | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV ****(1)** | ** ** |
|       |       |             |       |       |       |   |   |
| Jan-08     |       |             | $          | —     |       | — |   | $ | 1.0217 |   |
| Feb-08     |       |             | —     |       | —     |   | 1.0457 |   |
| Mar-08     |       |             | —     |       | —     |   | 1.2239 |   |
| Apr-08     |       |             | 2,947,716  |       | 2,587,759  |   | 1.1391 |   |
| May-08     |       |             | —     |       | —     |   | 1.1516 |   |
| Jun-08     |       |             | —     |       | —     |   | 1.1779 |   |
| Jul-08     |       |             | —     |       | —     |   | 1.2847 |   |
|            |            |                  |            |            |            |  |  |  |  |  |

 

----

(1) Net Asset Value for all other purposes. 

 

(b)  None.

(c)  None.

 

20

----

 

Item3.                                   DefaultsUpon Senior Securities

 

None.

 

Item4.                                   Submissionof Matters to a Vote of Security Holders

 

None.

 

Item5.                                   OtherInformation

 

None.

 

Item6.                                   Exhibits

 

The following exhibitsare incorporated by reference or are filed herewith to this Quarterly Report onForm 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.                               |

 

21

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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 CHESAPEAKE  FUTURESACCESS LLC |
|-----------------------------------|----------------------------------|
|                              |                             |
|                              |                             |
|                              | By:                              | MERRILL LYNCH  ALTERNATIVE |   |
|                              |                             | INVESTMENTS LLC |   |
|                              |                             | (Manager) |   |
|                              |                             |   |
|                              |                             |   |
| Date:   August 13, 2008 | By                               | /s/ PAUL MORTON |   |
|                              |                             | Paul Morton |
|                              |                             | Chief Executive  Officer, President and Manager |
|                              |                             | (Principal Executive  Officer) |
|                              |                             |
|                              |                             |
| Date:  August 13, 2008  |                             |
|                              |                             |
|                              | By                               | /s/ BARBRA E. KOCSIS |   |
|                              |                             | Barbra E. Kocsis |
|                              |                             | Chief Financial Officer |
|                              |                             | (Principal Financial and Accounting Officer) |
|                                   |                                  |  |  |  |

 

22

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