**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

** **

**FORM 10-Q**

** **

**(Mark One)**

 
| **x**** QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                          |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                 |
| **For the  quarterly period ended September 30, 2008**                                                                                                                                                                                |
| ** **                                                                                                                                                                                                                                 |
| **OR**                                                                                                                                                                                                                                     |
| ** **                                                                                                                                                                                                                                 |
| **o****TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                               |
| ** **                                                                                                                                                                                                                                 |
| **For the  transition period from                    to                 ** |
| ** **                                                                                                                                                                                                                                 |
| **Commission  File Number 0-28928**                                                                                                                                                                                                        |

 

**ML TREND-FOLLOWING FUTURES FUNDL.P.**

(Exact Name of Registrantas

specified in its charter)

 

| **Delaware**                     | ** ** | **13-3887922**                     |
|----------------------------------|------------|------------------------------------|
| (State or other  jurisdiction of |       | (IRS Employer  Identification No.) |
| incorporation or  organization)  |       |                               |

 

**c/oMerrill Lynch Alternative Investments LLC**

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

**New York, New York 10281**

(Address of principal executive offices)

(Zip Code)

 

**212-236-2063**

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

Yes x     No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer or asmaller reporting company.  See thedefinitions of “large accelerated filer,” “accelerated filer” and “smallreporting company” 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 check markwhether registrant is a shell company (as defined by Rule 12b-2 of theExchange Act).

Yes o     No x

 

Indicate by check mark whether the registrant hasfiled all documents and reports required to be filed by Sections 12, 13 or 15(d) ofthe Securities Exchange Act of 1934 subsequent to the distribution ofsecurities under a plan confirmed by a court.

Yes o     No o

 

The limited partnership units of the registrant arenot publicly traded. Accordingly, there is no aggregate market value forregistrant’s outstanding equity that is readily determinable.

 

 

 

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**ML TREND-FOLLOWING FUTURES FUND L.P.**

 

QUARTERLY REPORT FOR SEPTEMBER 30, 2008 ON FORM 10-Q

 
| ** ** | ** ** | PART I                                                                                 | ** ** | **PAGE** |
|------------|------------|---------------------------------------------------------------------------------------------|------------|----------|
|       |       |                                                                                        |       |     |
| Item 1.    |       | Financial Statements                                                                        |       | 2        |
|       |       |                                                                                        |       |     |
| Item 2.    |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |       | 10       |
|       |       |                                                                                        |       |     |
| Item 3.    |       | Quantitative and Qualitative Disclosures About  Market Risk                                 |       | 16       |
|       |       |                                                                                        |       |     |
| Item 4.    |       | Controls and Procedures                                                                     |       | 22       |
|       |       |                                                                                        |       |     |
|       |       | PART II                                                                                |       |     |
|       |       |                                                                                        |       |     |
| Item 1.    |       | Legal Proceedings                                                                           |       | 23       |
|       |       |                                                                                        |       |     |
| Item 1A.   |       | Risk Factor                                                                                 |       | 23       |
|       |       |                                                                                        |       |     |
| Item 2.    |       | Unregistered Sales of Securities and Use of Proceeds                                        |       | 25       |
|       |       |                                                                                        |       |     |
| Item 3.    |       | Defaults Upon Senior Securities                                                             |       | 25       |
|       |       |                                                                                        |       |     |
| Item 4.    |       | Submission of Matters to a Vote of Security Holders                                         |       | 25       |
|       |       |                                                                                        |       |     |
| Item 5.    |       | Other Information                                                                           |       | 25       |
|       |       |                                                                                        |       |     |
| Item 6.    |       | Exhibits                                                                                    |       | 26       |

 

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PART I - FINANCIALINFORMATION

 

Item1.  Financial Statements

 

ML TREND-FOLLOWINGFUTURES FUND L.P.

(a Delaware LimitedPartnership)

 

STATEMENTSOF FINANCIAL CONDITION

 
| ** **                                                                             | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                                                             | ** ** | **2008**               | ** **  | **2007**              | ** ** |
| ** **                                                                             | ** ** | **(unaudited)**        | ** **  | **(unaudited)**       | ** ** |
|                                                                                   |       |                   |        |                  |       |
| **ASSETS:**                                                                            |       |                   |        |                  |       |
| Cash                                                                                   |       | $                      | 364,669     |                  | $          | 225,042 |   |
| Investments in  Portfolio Funds (cost $286,527,792 for 2008 and $347,355,241 for 2007) |       | 331,185,007            |        | 369,982,077           |       |
| Due from  Portfolio Funds                                                              |       | 11,690,454             |        | 17,014,386            |       |
| Other                                                                                  |       | —                 |        | 59,180                |       |
|                                                                                   |       |                   |        |                  |       |
| **TOTAL  ASSETS**                                                                      |       | $                      | 343,240,130 |                  | $          | 387,280,685 |   |
|                                                                                   |       |                   |        |                  |       |
| **LIABILITIES  AND PARTNERS’ CAPITAL**                                            |       |                   |        |                  |       |
| **LIABILITIES:**                                                                       |       |                   |        |                  |       |
| Wrap fee payable                                                                       |       | 1,142,981              |        | 1,290,255             |       |
| Redemptions  payable                                                                   |       | 7,708,674              |        | 15,662,095            |       |
| Other                                                                                  |       | 233,017                |        | 209,053               |       |
|                                                                                   |       |                   |        |                  |       |
| Total  liabilities                                                                     |       | 9,084,672              |        | 17,161,403            |       |
|                                                                                   |       |                   |        |                  |       |
| **PARTNERS’  CAPITAL:**                                                           |       |                   |        |                  |       |
| General Partner  (42,282 and 42,282 Units)                                             |       | 7,385,432              |        | 6,943,734             |       |
| Limited Partners  (1,874,653 and 2,211,461 Units)                                      |       | 326,770,026            |        | 363,175,548           |       |
|                                                                                   |       |                   |        |                  |       |
| Total partners’  capital                                                          |       | 334,155,458            |        | 370,119,282           |       |
|                                                                                   |       |                   |        |                  |       |
| **TOTAL  LIABILITIES AND PARTNERS’ CAPITAL**                                      |       | $                      | 343,240,130 |                  | $          | 387,280,685 |   |
|                                                                                   |       |                   |        |                  |       |
| **NET  ASSET VALUE PER UNIT**                                                          |       |                   |        |                  |       |
| (Based on  1,916,935 and 2,253,743 Units outstanding and unlimited Units authorized)   |       | $                      | 174.32      |                  | $          | 164.22 |   |

 

See notes tofinancial statements.

 

2

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ML TREND-FOLLOWINGFUTURES FUND L.P.

(a Delaware LimitedPartnership)

STATEMENTSOF OPERATIONS

(unaudited)

 
| ** **                                                                        | ** ** | **For the three** | ** **  | **For the three** | ** ** | **For the nine** | ** ** | **For the nine** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                                                        | ** ** | **months ended**       | ** **  | **months ended**       | ** ** | **months ended**      | ** ** | **months ended**      | ** ** |
| ** **                                                                        | ** ** | **September 30,**      | ** **  | **September 30,**      | ** ** | **September 30,**     | ** ** | **September 30,**     | ** ** |
| ** **                                                                        | ** ** | **2008**                    | ** **  | **2007**                    | ** ** | **2008**                   | ** ** | **2007**                   | ** ** |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| **TRADING  PROFIT (LOSS):**                                                       |       |                        |        |                        |       |                       |       |                       |       |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| Realized                                                                          |       | $                           | 5,018,558   |                        | $          | (1,793,797                 | )          | 13,932,860                 |       | $ | (67,736,356 | ) |
| Change in  unrealized                                                             |       | (37,963,154                 | )           | (15,479,082                 | )          | 22,030,379                 |       | (12,289,897                | )          |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| Total trading  profit (loss)                                                      |       | (32,944,596                 | )           | (17,272,879                 | )          | 35,963,239                 |       | (80,026,253                | )          |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| **INVESTMENT  INCOME:**                                                           |       |                        |        |                        |       |                       |       |                       |       |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| Interest                                                                          |       | 4,535                       |        | 8,374                       |       | 8,783                      |       | 13,908,470                 |       |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| **EXPENSES:**                                                                     |       |                        |        |                        |       |                       |       |                       |       |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| Wrap fee                                                                          |       | 3,505,091                   |        | 4,246,211                   |       | 11,236,981                 |       | 6,515,243                  |       |
| Brokerage  commissions                                                            |       | —                      |        | —                      |       | —                     |       | 15,400,942                 |       |
| Ongoing offering  costs                                                           |       | —                      |        | —                      |       | —                     |       | 25,000                     |       |
| Other                                                                             |       | —                      |        | —                      |       | 343,751                    |       | 104,167                    |       |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| Total expenses                                                                    |       | 3,505,091                   |        | 4,246,211                   |       | 11,580,732                 |       | 22,045,352                 |       |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| **NET  INVESTMENT INCOME (LOSS)**                                                 |       | (3,500,556                  | )           | (4,237,837                  | )          | (11,571,949                | )          | (8,136,882                 | )          |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| **INCOME  (LOSS) BEFORE MINORITY INTEREST**                                       |       | (36,445,152                 | )           | (21,510,716                 | )          | 24,391,290                 |       | (88,163,135                | )          |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| Minority  interest in (income) loss                                               |       | —                      |        | —                      |       | —                     |       | 18,048                     |       |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| **NET  INCOME (LOSS)**                                                            |       | $                           | (36,445,152 | )                           | $          | (21,510,716                | )          | 24,391,290                 |       | $ | (88,145,087 | ) |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| **NET  INCOME (LOSS) PER UNIT:**                                                  |       |                        |        |                        |       |                       |       |                       |       |
| Weighted average  number of General Partner and Limited Partner Units outstanding |       | 1,978,863                   |        | 2,818,618                   |       | 2,080,653                  |       | 3,459,229                  |       |
|                                                                              |       |                        |        |                        |       |                       |       |                       |       |
| Net  income (loss) per weighted average General Partner and Limited Partner Unit  |       | $                           | (18.42      | )                           | $          | (7.63                      | )          | $                          | 11.72      |   | $ | (25.48 | ) |
|                                                                                   |            |                             |             |                             |            |                            |            |                            |            |  |  |  |  |

 

See notes tofinancial statements.

 

3

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ML TREND-FOLLOWINGFUTURES FUND L.P.

(a Delaware LimitedPartnership)

 

STATEMENTSOF CHANGES IN PARTNERS’ CAPITAL

For the nine months endedSeptember 30, 2008 and 2007

(unaudited)

 
| ** **                                       | ** ** | **Units**  | ** ** | **General  Partner** | ** ** | **Limited  Partners** | ** ** | **Total**    | ** ** |
|--------------------------------------------------|------------|------------|------------|----------------------|------------|-----------------------|------------|--------------|------------|
|                                             |       |       |       |                 |       |                  |       |         |       |
| PARTNERS’  CAPITAL, December 31, 2006  |       | 4,511,816  |       | $                    | 8,204,766  |                  | $          | 784,098,296  |       | $ | 792,303,062 |   |
|                                             |       |       |       |                 |       |                  |       |         |       |
| Subscriptions                                    |       | 224,956    |       | —               |       | 36,090,161            |       | 36,090,161   |       |
|                                             |       |       |       |                 |       |                  |       |         |       |
| Net income  (loss)                               |       | —     |       | (1,011,673           | )          | (87,133,414           | )          | (88,145,087  | )          |
|                                             |       |       |       |                 |       |                  |       |         |       |
| Redemptions                                      |       | (2,089,877 | )          | (687,108             | )          | (331,923,805          | )          | (332,610,913 | )          |
|                                             |       |       |       |                 |       |                  |       |         |       |
| PARTNERS’  CAPITAL, September 30, 2007 |       | 2,646,895  |       | $                    | 6,505,985  |                  | $          | 401,131,238  |       | $ | 407,637,223 |   |
|                                             |       |       |       |                 |       |                  |       |         |       |
| PARTNERS’  CAPITAL, December 31, 2007  |       | 2,253,743  |       | $                    | 6,943,734  |                  | $          | 363,175,548  |       | $ | 370,119,282 |   |
|                                             |       |       |       |                 |       |                  |       |         |       |
| Subscriptions                                    |       | 62,740     |       | —               |       | 11,285,768            |       | 11,285,768   |       |
|                                             |       |       |       |                 |       |                  |       |         |       |
| Net income  (loss)                               |       | —     |       | 441,698              |       | 23,949,592            |       | 24,391,290   |       |
|                                             |       |       |       |                 |       |                  |       |         |       |
| Redemptions                                      |       | (399,548   | )          | —               |       | (71,640,882           | )          | (71,640,882  | )          |
|                                             |       |       |       |                 |       |                  |       |         |       |
| PARTNERS’  CAPITAL, September 30, 2008 |       | 1,916,935  |       | $                    | 7,385,432  |                  | $          | 326,770,026  |       | $ | 334,155,458 |   |

 

See notes to  financial statements.

 

4

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ML TREND-FOLLOWING FUTURES FUND L.P.

(a Delaware Limited Partnership)

NOTES TO FINANCIALSTATEMENTS

(unaudited)

 

1.                    SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

ML TrendFollowing Futures Fund L.P. (the “Partnership”), formerly knownas ML JWH Strategic Allocation Fund L.P. was organized under the DelawareRevised Uniform Limited Partnership Act on December 11, 1995 and commencedtrading on July 15, 1996.  ThePartnership operates as a “fund of funds”, allocating and reallocating itscapital, under the discretion of Merrill Lynch Alternative Investments LLC (“MLAI”),the general partner of the Partnership, among four underlying FuturesAccessFunds (each a “Portfolio Fund” and collectively the “Portfolio Funds”) (SeeNote 2).

 

In the opinion ofmanagement, the financial statements contain all adjustments necessary topresent fairly the financial position of the Partnership as of September 30,2008 and the results of its operations for the three and nine months ended September 30,2008 and 2007. However, the operating results for the interim periods may notbe indicative of the results for the full year.

 

OnApril 20, 2007, MLAI issued an announcement regarding a restructuring ofthe Partnership, effective June 1, 2007. As part of the restructuring the following occurred:

 

·          ThePartnership changed its name to ML Trend-Following Futures Fund L.P.

 

·          ThePartnership’s assets were reinvested in MLAI-sponsored Portfolio Funds: MLAspect FuturesAccess LLC (“Aspect”), ML Chesapeake FuturesAccess LLC (“Chesapeake”),ML Transtrend DTP Enhanced FuturesAccess LLC (“Transtrend”) and ML WintonFuturesAccess LLC (“Winton”). These Portfolio Funds employ a variety ofsystematic models with an emphasis on a style of investment commonly referredto as “diversified trend following” and the Partnership no longer utilizes theservices of John W. Henry & Company, Inc. as the commoditytrading advisor.

 

·          On May 7,2007, the Partnership was deregistered under the Securities Act of 1933, asamended, but retained its registration under the Securities Act of 1934, asamended (the “Act”). The Portfolio Funds are also registered under the Act.

 

·          Priorto June 1, 2007, the Partnership’s brokerage commissions andadministrative fees constituted a single annual “wrap fee” in an amount of 6.0%of the Partnership’s average month-end Net Asset Value, which covered all ofthe Partnership’s costs and expenses, other than bid-ask spreads and certaintrading fees as well as an annual filing fee payable to the State of New Jerseyand offering costs. After June 1, 2007, the Partnership pays a wrap fee inthe amount of 4.0% of the Partnership’s average month-end Net Asset Value.Other than this 4.0% wrap fee, the only direct expense of the Partnership isthe annual New Jersey filing fee, which is assessed on a per-partner basis witha maximum charge of $250,000 per year.

 

Certaininformation and footnote disclosures normally included in annual financialstatements prepared in conformity with accounting principles generally acceptedin the United States of America (“U.S. GAAP”) have been omitted. It issuggested that these financial statements be read in conjunction with the financialstatements and notes thereto included in the Partnership’s and the PortfolioFunds’ Annual Reports on Form 10-K filed with the Securities and ExchangeCommission for the year ended December 31, 2007.   Certain prior period items have beenreclassified to conform to the current period presentation.

 

5

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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.                    INVESTMENTS IN PORTFOLIO FUNDS

 

MLAI may, in itsdiscretion, change Portfolio Funds at any time. MLAI may vary the percentage ofthe Partnership’s total portfolio allocated to the different Portfolio Funds atMLAI’s discretion. There is no pre-established range for the minimum andmaximum allocations that may be made to any given Portfolio Funds.

 

September 30, 2008

 
| ** **                                                             | ** ** | **Fair Value** | ** **  | **Percentage of  Partners’ Capital** | ** ** |
|------------------------------------------------------------------------|------------|----------------|-------------|-----------------------------------------------------|------------|
| ML Chesapeake  FuturesAccess LLC                                       |       | 78,860,010     |        | 23.59                                               | %          |
| ML Transtrend  DTP Enhanced FuturesAccess LLC                          |       | 84,108,333     |        | 25.16                                               | %          |
| ML Aspect  FuturesAccess LLC                                           |       | 84,108,332     |        | 25.17                                               | %          |
| ML Winton  FuturesAccess LLC                                           |       | 84,108,332     |        | 25.17                                               | %          |
|                                                                   |       |           |        |                                                |       |
| Total Investment  in Portfolio Funds at fair value (cost $286,527,792) |       | $              | 331,185,007 |                                                | 99.09      | % |
|                                                                        |            |                |             |                                                     |            |  |

 

December 31, 2007

 
| ** **                                                             | ** ** | **Fair Value** | ** **  | **Percentage of  Partners’ Capital** | ** ** |
|------------------------------------------------------------------------|------------|---------------------|-------------|-----------------------------------------------------|------------|
| ML Winton  FuturesAccess LLC                                           |       | 92,508,127          |        | 24.99                                               | %          |
| ML Aspect  FuturesAccess LLC                                           |       | 92,508,126          |        | 24.99                                               | %          |
| ML Transtrend  DTP Enhanced FuturesAccess LLC                          |       | 92,485,147          |        | 24.99                                               | %          |
| ML Chesapeake  FuturesAccess LLC                                       |       | 92,480,677          |        | 24.99                                               | %          |
|                                                                   |       |                |        |                                                |       |
| Total Investment  in Portfolio Funds at fair value (cost $347,355,241) |       | $                   | 369,982,077 |                                                | 99.96      | % |
|                                                                        |            |                     |             |                                                     |            |  |

 

6

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3.                    FAIR VALUE OF INVESTMENTS

 

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 Partnership adopted FAS157 as of January 1, 2008. The adoption of FAS 157 did not have a materialimpact on the Partnership’s financial statements.

 

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

 

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

 

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

 

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

 

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

 

Level III – Pricinginputs are unobservable including the Partnership’s own assumptions indetermining the fair value of investments.

 

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

 

The followingtable summarizes the valuation of the Partnership’s investments by the aboveFAS 157 fair value hierarchy levels as of September 30, 2008:

 
| ** **                      | ** ** | **Total** | ** **  | **Level I** | ** ** | **Level II** | ** ** | **Level III** | ** ** |
|---------------------------------|------------|-----------|-------------|------------------|------------|-------------------|------------|--------------------|------------|
| Investments in  Portfolio Funds |       | $         | 331,185,007 |             | N/A        |              | $          | 331,185,007        |       | N/A |   |
|                                 |            |           |             |                  |            |                   |            |                    |            |  |  |

 

7

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4.                    MARKET, CREDIT AND CONCENTRATION RISKS

 

Thenature of this Partnership has certain risks, which cannot be presented on thefinancial statements. Additionally, the Partnership invests in the PortfolioFunds which have similar market risk as mentioned below. The followingsummarizes some of those risks.

 

MarketRisk

 

Derivativeinstruments involve varying degrees of market risk.  Changes in the level or volatility ofinterest rates, foreign currency exchange rates or the market values of thefinancial instruments or commodities underlying such derivative instrumentsfrequently result in changes in the Portfolio Funds’ Net unrealized profit(loss) on such derivative instruments as reflected in the Portfolio Funds’Statements of Financial Condition.  ThePortfolio Funds’ exposure to market risk is influenced by a number of factors,including the relationships among the derivative instruments held by thePortfolio Funds as well as the volatility and liquidity of the markets in whichthe derivative instruments are traded. Investments in foreign markets may alsoentail legal and political risks.

 

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 (but not universally) provide clearinghouse arrangements inwhich the collective credit (in some cases limited in amount, in some casesnot) of the members of the exchange is pledged to support the financialintegrity of the exchange.  Inover-the-counter transactions, on the other hand, traders must rely solely onthe credit of their respective individual counterparties.  Margins, which may be subject to loss in theevent of a default, are generally required in exchange trading, andcounterparties may also require margin in the over-the-counter markets.

 

The credit riskassociated with these instruments from counterparty nonperformance is the Netunrealized profit, if any, included in the Portfolio Funds’ Statements ofFinancial Condition. The PortfolioFunds attempt to mitigate this risk by dealing exclusively with MerrillLynch entities as clearing brokers.

 

The Portfolio Funds, in their normalcourse of business, enter into various contracts, with Merrill Lynch PierceFenner & Smith Inc. (“MLPF&S”) acting as their commoditybroker.  Pursuant to the brokeragearrangement with MLPF&S (which includes a netting arrangement), to theextent that such trading results in receivables from and payables to MLPF&S,these receivables and payables are offset and reported as a net receivable orpayable and included in Net unrealized profit (loss) on open contracts on the Portfolio Funds’ Statements ofFinancial Condition.

 

Concentration Risk

 

The Partnership’s investmentsin the Portfolio Funds are subject to the market and credit risk of thePortfolio Funds. Because the majority of the Partnership’s capital is investedin the Portfolio Funds, any changes in the market conditions that wouldadversely affect the Portfolio Funds could significantly impact the solvency ofthe Partnership.

 

8

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5.                    RECENTACCOUNTING PRONOUNCEMENTS

 

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 Partnership is evaluating the implications of FAS 161 onits financial statements.

 

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

 

9

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Item 2:  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

 

MONTH-END NET ASSET VALUE PER UNIT

 
| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** | **Apr.** | ** ** | **May** | ** ** | **Jun.** | ** ** | **July** | ** ** | **August** | ** ** | **Sept.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------|------------|----------|------------|----------|------------|------------|------------|-----------|------------|
| 2007       |       | $        | 173.44     |     | $          | 164.76   |       | $        | 154.43     |    | $          | 157.93   |       | $        | 157.71     |       | $          | 161.03    |       | $ | 153.47 |   | $ | 143.03 |   | $ | 154.01 |   |
| 2008       |       | $        | 168.36     |     | $          | 184.45   |       | $        | 180.10     |    | $          | 177.98   |       | $        | 182.26     |       | $          | 192.63    |       | $ | 181.10 |   | $ | 174.13 |   | $ | 174.32 |   |

 

PerformanceSummary

 

January 1, 2008 to September 30, 2008

 

January 1, 2008 to March 31, 2008

 

The Partnership postedgains for the first quarter.

 

January was a positivemonth for the Partnership, despite dramatic declines in global stock indices,illustrating the Partnership’s low correlation with equities over a marketcycle. The Portfolio Funds’ Managers had long positions in fixed income andprecious metals, both of which benefited from fears of a U.S. recession, aswell as sharp U.S. Federal Reserve rate cuts totaling 1.25% for the month. Thecontinuing rally in grain markets was another source of profit for thePortfolio Funds. Losses came primarily from energy markets as oil pricesweakened and natural gas rebounded.

 

February was a verystrong month for the Partnership and it continues to be up year to date in2008. As a point of comparison, the Newedge CTA Index returned 4.6% for themonth and was up 6.3% for the year. The bulk of returns were earned in surgingcommodity markets. Grains and softs rallied strongly due to low inventories andpositive forecasts of demand. Energy and metals climbed as these sectors areperceived as an inflation hedge. The other profitable trades included shortcurrency positions against the U.S. dollar. The top performer within thevertical in February was Chesapeake, a long-term trend-follower, whichgained 16.7%. The bottom performer was Transtrend, which gained 5.4%.

 

The Partnership finished March down-2.35%. In comparison, the Newedge CTA Index was down marginally -0.1% inMarch, and is up 6.3% year to date. Transtrend, the most diversified manager inthe vertical, was the top performer in March, gaining 0.6%, while Chesapeakewas the bottom performer, losing -6.6%. For the 1st quarter as a whole,Chesapeake was the top performer in the vertical, up 11.2%, while Transtrendhad the smallest gains, rising 5.7%. The strong trends in commodity markets in February madea sharp reversal in March, hurting most funds in the vertical. After gaining11.7% in February, the CRB Commodity Index fell -6.3% March. The grains andprecious metals sectors recorded particularly large reversals. The Partnershipwas able to participate more in the upward move in February (when itgained 9.6%) than in the March reversal (when it lost -2.0%), therebypreserving its gains for the quarter. The Portfolio Funds’ Managers were ableto limit the damage in March by reducing leverage. and scaling backpositions in inverse proportion to rising volatility in commodity markets.

 

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April 1, 2008 to June 30, 2008

 

The Partnership declined by-1.18% in April. In comparison, the Newedge Commodity Trader Advisor Index wasdown -2.1% for the month, and is up 4.1% for the year. Although most PortfolioFunds made gains in April with their long energy positions, as oil andnatural gas hit historic highs, these were offset by losses from reversals inthe financial futures markets. Most Portfolio Funds came into April withshort positions in the United States dollar, long positions on bonds and shortpositions in equities. However, markets experienced a relief rally in April asinvestors began to believe the end of the credit crisis might be over. Thiscaused the United States dollar to rebound, bonds to fall and equities to rise,resulting in losses.

 

May was a strong monthfor the Partnership and continues to be up year to date. The best performingPortfolio Fund in the vertical was Aspect, which gained 3.0% for the month. Theworst performer was Winton, which gained only 1.4% for the month. All fourPortfolio Funds in the Partnership made gains in their long energy positionswith crude oil up 13% from April and natural gas was up 6.6%, continuingthe trends from previous months.

 

The Partnership returned anestimated 5.69% in June. The Portfolio Funds posted profits in June throughlong positions in commodities and short positions in equities. Chesapeake wasthe best performing Portfolio Fund in the Partnership vertical gaining 7.9%with the longest time horizon and currently the largest exposure to commoditytrades. Meanwhile, Transtrend was the bottom performer in the group, but stillgained 2.3% for the month. Transtrend is the most diversified Portfolio Fundacross markets, trading over 200 standalone markets and 100 synthetic markets.As a result, Transtrend had less risk allocated to those markets which had thestrongest performance.

 

July 1, 2008 to September 30, 2008

 

All four managers’ in theTrend-Following Futures Fund suffered their worst monthly performance of theyear at the beginning of the quarter, as bullish trends in commodities dramaticallyreversed. The managers came into the month of July with long positions inmost of the commodity markets. After having made most of their year to-dategains in commodities, the managers had their largest losses in these markets inJuly. The Goldman Sachs Commodity Index fell for the month and the energysub-index was also down as the correction was particularly severe in naturalgas.

 

All four managers continuedto have a difficult second month of poor performance. There were two majortrend themes that caused them to lose money. The first was the strengthening inthe U.S. dollar, following a long period of declines against most majorcurrencies due to the portfolios’ short positions in the U.S. dollar whichcaused them to lose money. The second big theme was the continued decline incommodities, following the dramatic reversal from July. The Goldman SachsCommodity Index was down for a second month in a row. Most managers within thevertical reduced their commodity exposure however, they were still long formost of the month and their portfolios were down accordingly.

 

September witnessed anextended weakness in financial markets that was manifested in a sharp sell-offin global equities and commodities, including energies, grains, and industrialmetals. The Commodity Research Bureau Futures Index finished the end of thequarter down, bond yields fell moderately, while the U.S. dollar continued itsupward move against other major currencies with the U.S. Dollar Index Future,finishing the month up. In light of September’s market volatility, thePortfolio’s Managers’ performance exhibited a fair amount of variance which wasthe function of the time frame of the underlying strategy.

 

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Performance Summary

 

January 1, 2007 to September 30, 2007

 

January 1, 2007 to March 31, 2007

 

The Partnership posted anoverall loss for the first quarter.

 

The agriculture sectorposted losses for the Partnership. Price instability hurt performance at thebeginning of the quarter as New York coffee fell from a ten month high. Therally in coffee had been fueled by speculation that drought would reduce Brazil’sharvest. The strong trend then suffered a reversal as coffee prices in New Yorksuffered their longest slump in thirteen months on speculation that favorableweather in Brazil might actually boost the harvest. Corn, which suffered asharp reversal by falling 7.2 % in the first two days of the year hurtingperformance, rebounded along with soybeans benefiting from speculation thatcold temperatures in the United States would boost demand for alternative fuelsmade from the nation’s two biggest crops. Corn regained its strength andreached a ten year high on January 17th, while soybeans reachedan eighteen month high on January 18th.   Corn and soybeans continued posting gainsfor the Partnership through mid-quarter as soybeans reached their highest levelsince June 2004, as wet weather threatened to prevent Unites Statesfarmers from planting enough crops to meet surging demand for crop-based fuels.Chicago Board of Trade limited wheat contract gains as it dropped in excess of2 percent after prices had reached $5.09, the highest since December 26,2006, as investors bailed out of the commodity following the global plunge inequities. As a result of the plunge in global equity prices investors bailedout of commodities as the quarter ended and took profits in corn and soybeans,which had just reached multi-year highs. Slight gains were produced in New York coffee as its weakening trendaccelerated due to the fact that coffee fell to its lowest price since November 2006on signs that supply may be exceeding demand as stocks piled up in warehousesmonitored by the New York Coffee, Sugar & Cocoa Exchange.

 

The energy sector also posted losses for thePartnership. Geopolitical events and a record-breaking heat wave in theNortheastern United States caused volatility beginning of the quarter asnatural gas prices fell 6.9% after a government report showed asmaller-than-average decline in inventories of the fuel. Following a governmentreport indicating that the United States supplies of crude oil, gasoline,heating oil and diesel were above the five-year average for the period, crudeoil prices plunged and reached a nineteen month low of $49.90 a barrel.However, forecasts of colder weather throughout February reversed theweakening trend and sent energy prices upward. Despite the volatility withinthe sector, crude oil and London gas oil were able to offset a majority of thelosses.  Natural gas reversed itsstrengthening trend mid-quarter and had its biggest loss in more than six weeksin New York. Larger-than-expected supplies and forecasts of more seasonaltemperatures across the central United States contributed to the reversal.After reaching a two-month high on February 5th for natural gas March deliveryit dropped 7.7 % on February 12th, its biggest one-day percentage declinesince December 26, 2006. The drop in natural gas price March deliverywas spurred by a government report that U.S. gas supplies were 19 percenthigher than the average for the past five years. Crude oil’s reversal also hurtperformance as it rose to $61.79 a barrel, its highest closing price this yearon speculation that U.S. fuel inventories declined because refineries were downfor repairs and also as a result of the increasing tension with Iran. Thequarter ended as natural gas dropped to its lowest price in two months asforecasts for milder weather signaled reduced consumption of the heating fuel.  However, when forecasters predicted a shift inthe weather pattern that would deliver colder-than-normal air to the easternUnited States, the sector experienced losses as natural gas suffered a trendreversal as prices rose to a one-month high. While gains were achieved in crude oil as it continued its weakeningtrend they were limited as crude oil spiked higher and traded near a six-monthhigh after Iran seized 15 British Naval personnel in the Persian Gulf on March 23rd.

 

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The stock indices posted losses for the Partnership.The beginning of the quarter was negative as losses in the NASDAQ E-mini offsetthe gains of the other components in the sector. Although U.S. stocks completedtheir longest stretch of monthly gains in more than a decade, intra-monthvolatility hurt the sectors overall performance. On January 13th, U.S.stocks rose the highest in more than three months. This was due to expectationsthat profits at technology companies, such as Apple Inc. and Microsoft Corp.,would increase as new products would prompt consumers and businesses to spendmore. The NASDAQ had a 2.8 percent increase, a level not seen since February 2001.However, stocks fell towards the end of the first quarter after profit reportsfrom Intel Corp. and IBM caused concern that analysts’ forecasts for earningsat computer-related companies were too high. U.S. stocks had their biggesttumble since 2002 mid-quarter after a plunge in the Chinese equity marketcaused by concern that a government crackdown on investments with borrowedmoney will end a rally that drove benchmarks to records, sparked a global dropin equity prices and raised concerns that investors would unload equities aftera four-year bull market. On February 27th, Chinese stockssuffered their greatest loss in a decade, while the Dow Jones Stoxx 600 Indexdropped 3% and the Dow Jones Industrial Average fell as much as 546 pointsintraday, the most since the first day of trading after September 11th,2001. The Eurostoxx 50 was the sector’s worst performer while the Nikkei 225offset some losses as the sector’s best performer. The quarter ended as theglobal sell-off that began on February 27th caused more than$2.4 trillion in share value to be lost over five days.

 

The metals sector posted losses for the Partnership. Precious metal prices reacted tofluctuations in the U.S. dollar at the beginning of the quarter as reversal inthe U.S. dollar’s weakening trend reduced the appeal of gold as an alternativeinvestment. Gold weakened, falling 3.1% after the U.S. dollar rose to a six-week high as the United Statesannounced higher-than-expected employment figures in December 2006 only torise 3.9% as the U.S. dollar once again weakened and speculation increased thatthe precious metal’s decline was excessive. The London Metal Exchange limitedthe copper sector’s losses as copper prices fell 10% and 35% since reaching arecord high of 8,724 metric tons since May 2006. Copper prices declinedamid expectations that a housing slowdown in the United States, the world’ssecond-largest user of the metal, would continue to reduce demand this year.Base metals suffered strong reversals mid-quarter as copper, which had beenweakening prior to February on reports of rising stockpiles signaledproduction was exceeding demand and rallied on speculation that China, itslargest user, would accelerate its buying. Performance in gold and silver hadlimited losses as prices found further support as they climbed to nine-monthhighs as escalating tension over Iran’s nuclear research program increased andinvestors searched for safe-haven investments. However, as the quarter endedthe drop in price in the equity markets sent precious metals lower, reversingtheir strengthening trend.  Although metalseventually began to rally the quarter ended down 0.5 percent.

 

The interest rate sector posted losses for thePartnership. The quarter began with stronger than expected growth and fears ofincreasing inflation led European ten-year bond yields to reach six-month highsand the U.K. two-year gilt yields to move toward five-year highs. U.K. longgilts slumped, which sent yields soaring after the Bank of England policymakers unexpectedly raised interest rates by a quarter point. Volatility in theten-year Japanese Government bonds limited the sector’s performance after KyodoNews reported that the Bank of Japan was unlikely to raise interest rates atits meeting on January 18th, and the Bank of Japan followed through withno change in rates. The global bond markets reversed their weakening trendmid-quarter as the sell-off in the global equity markets fueled demand forgovernment debt.  The Japanese GovernmentBenchmark ten-year bonds added to the Partnership’s negative performance asspeculation grew that the Bank of Japan, which doubled interest rates, from .25to .50, at its February 21st meeting would pause before raising borrowingcosts any further. This prompted a move higher in the market and the rally wasfurther supported after the Nikkei 225 stock average posted its biggest declinesince June 2006.  Fixed-incomemarkets, which had rallied mid-quarter continued to strengthen as uncertaintyincreased that the drop in equities and the rising defaults among the riskiestmortgages would slow consumer spending and the global economy. Europeangovernment bonds posted their biggest back-to-back weekly decline in threemonths as European Central Bank President Jean-Claude Trichet reassuredinvestors and stated that growth was “broader and sustained” and left “no timefor complacency.”  The quarter ended asthe U.S. ten-year Treasury note surrendered the remainder of 

 

13

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the gains it had amassed after the equity sell-offthat began on February 27th which had driven the yield to aslow as 4.44%.

 

The currency sector posted losses for the Partnership. The quarter began with marketsanticipating the economic data releases and central bank policy announcementsin the hopes of gaining insight into the health of the world’s largesteconomies. On January 3rd, the U.S. dollar rose to its highest level insix months against the Euro on the news that the Institute for SupplyManagement Manufacturing Index came in at a higher than expected 51.4,signaling an expansion of the U.S. economy. The Japanese yen declined to 122.19per U.S. dollar, the lowest in more than four years, due to speculation thatthere would be increased government pressure on policy makers not to raiseborrowing costs. The U.S. dollar had its largest fall mid-quarter against theJapanese yen in more than two months after U.S. Treasury Secretary HenryPaulson said he would be watching the Japanese currency “very carefully”. TheJapanese yen rallied against the U.S. dollar to its highest level in more than 19months amid a correction in U.S. stocks as the investors avoided emergingmarket assets, triggering an unwinding of trades betting on a decline in theJapanese currency. The Japanese yen continued to advance against the U.S.dollar and gained against all 16 of the most-active currencies during the firstweek of March, as global stocks extended a slump. The British pound, the sector’sworst performer fell to its lowest level against the Japanese yen in more thanfour months, as in one month the British pound sterling/Japanese yen impliedvolatility soared to a record high of 11.75 due to concerns of rising risk. Thequarter ended with slight gains produced by the Brazilian Real as the currency’sstrengthening trend remained intact and reached a six-year high on speculationthat the U.S. dollar flows from both financial investments and a trade surpluswould remain strong.

 

April 1, 2007 to June 30, 2007

 

ThePartnership posted a gain for the two months ended May 31, 2007.

 

Theinterest rate sector was the most profitable sector for the period. The sectorwas negative for April as uncertainty grew over the interest rate policyof the central banks of the world’s two largest economies. Both U.S. Treasuriesand Japanese Government 10-year Bonds (JGBs), the sector’s worst performer,were trend-less in April as the markets’ interest rate expectationsshifted with each economic release about the current health of the U.S. andJapanese economies. While uncertainty surrounded the state of these twoeconomies, the strength of the German and British economies was clear. TheGerman Benchmark ten-year bund led performance as stronger growth and increasedfears of inflation sent yields to their highest level since August 2005.The sell-off in European fixed income limited losses within the sector asyields touched multi-year highs.  Thesector had strong performance for May as global interest rates sustainedtheir steady rise as economic growth continued in Europe and as the U.S.housing market began to stabilize. The German Benchmark ten-year bund ledperformance as consumer confidence in the euro region economy climbed to asix-year high. U.S. Treasuries also bolstered performance as the benchmarkten-year bond yield increased 26 basis points since April 30th, itsbiggest monthly increase since March 2006.

 

The currency sector was alsoprofitable for the period. In April, the Euro reached an all-time high againstboth the U.S. dollar and the Japanese yen, while the British pound reached a25-year high against the U.S. dollar. The U.S. dollar weakened as investors speculated that the U.S. FederalReserve Board would cut borrowing costs to strengthen the U.S. economy; at thesame time, expectations grew that the European Central Bank and the Bank ofEngland would raise rates to tame inflation as their economiesstrengthened.  The U.S. dollar reboundedin May from an all time low against the Euro and rose one percent againstthe British pound. The U.S. dollar reversed as signs of economic strengthreduced the likelihood of a cut in interest rates by the Federal Reserve. TheU.S. dollar’s biggest monthly advance against the Euro in more than a yearcaused the Partnership to exit positions. A majority of the sector’s losseswere offset by the U.S. dollar’s strengthening trend against the Japanese yen.

 

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The stock indices sector wasprofitable for the period. Stronger-than-expectedfirst quarter earnings, an increase in mergers and acquisitions, economicgrowth in Europe, and benign inflation in the U.S. drove global equity priceshigher. Equity markets reached new highs during the period due to continuedeconomic growth in Europe and indications from the U.S. Federal Reserve Boardthat growth in the world’s largest economy would accelerate. The entire sectorwas positive as about $1.1 trillion of announced Merger and Acquisition dealsso far this year pushed the S&P 500 past its peak in the year 2000. TheNASDAQ ended the period at 2604.52, its highest level since February 2001.

 

The agricultural commoditiessector posted losses for the period. The sector’s performance at the beginningof the period was slightly positive as gains in N.Y. cotton and coffee werepartially offset by losses in CBOT wheat. Freezing temperatures at the beginning of the period caused damage tothe wheat crop. Wheat, which had been trending lower prior to the cold weather,suffered a reversal due to the resulting global supply concerns. The sectorsuffered its worst losses when coffee futures in N.Y. climbed to their highestlevel in weeks on concern that Brazil’s crop, the world’s largest, will declinedue to frost damage, tightening supplies.

 

The metals sector alsoposted losses for the period. Performance was positive for April as LMEcopper strengthened, trading as high as $8,100 per ton on April 17th, thehighest it has been in more than seven months. Supply disruptions and demandfrom China, the world’s largest user, drove prices higher during the month.Gold also added to performance as the precious metal reached an 11 month highwhen demand for a hedge against the weakness in the U.S. dollar increased.  The sector’s performance was negative in May,as a reversal in precious metals hurt performance as the Partnership exitedpositions. Gold fell to a two-month low in May and was down 2.5 percentfor the month, as a gain in the value of the U.S. dollar reduced demand for theprecious metal as an alternative investment. Silver (which has wider industrialapplications than gold) dropped 0.7 percent in May. Despite the drop, gold hasgained 4.5 percent for the year, while silver has risen 4.1 percent.

 

Theenergy sector was the least profitable for the month as weather andgeopolitical events once again were the driving force behind price movements.Natural gas, the sector’s worst performer, fluctuated throughout the period asweather drove demand. Crude oil also hurt performance as prices fell to $61.34a barrel on April 19th before reversing to $66.70 a barrel on April 27th.This reversal occurred when Saudi Arabian authorities announced the arrest ofmore than 170 suspected terrorists, who were reportedly plotting to attack thecountry’s oil facilities. U.S. oil futures traded between $60 and $67 duringthe period as ample domestic stockpiles tempered the impact of supply shutdownsin Alaska and Nigeria.

 

EffectiveJune 1, 2007, the Partnership became a multi-manager fund of funds withequal weighting to the FuturesAccess managed accounts of Aspect, Chesapeake,Transtrend and Winton. The Partnership returned an estimated +2.1% for themonth of June.

 

During the month of June themost profitable trading across all managers came from the fixed income andcurrency sectors.  Bonds sold off onstrong data and inflation concerns and the managers’ trend following modelswere successful navigating the higher interest rate environment.  In currencies gains were achieved as higheryielding currencies (AUD, NZD, GBP, CAD) continued to appreciate at the expenseof the “funding” currencies of Japan and Switzerland.  Equity markets ended the month lower althoughonly small losses in this sector were realized as risk management systemsreduced exposure to this sector. Commodities were mixed on the month with gains generally coming fromlong positions in grains and agriculturals and short positions in natural gas.  Metals trading produced net negative returns.

 

July 1, 2007 to September 30, 2007

 

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

 

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Longterm market trends continued to unwind mid-quarter as the long positions in theforeign exchange carry trades, long international equities, long energy andlong metals due to a spike in risk aversion on August 16thcaused significant losses in each of these trades posting losses for thePartnership.

 

Thequarter ended with a very strong performance after a turbulent summer. Strongtrends re-emerged in commodities in particular, as wheat gained 21%, and crudeoil rose 11% due to supply factors. In addition, precious metals rallied, withgold up by 10% and silver up by 13% due to the U.S. dollar weakening whichcaused demand for precious metals as a store of value. The U.S Federal Reserve’s50 basis points mid-month rate cut also helped to invigorate investor riskappetite, helping foreign exchange carry trades and boosting global equitymarkets.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

Introduction

 

ThePartnership was a speculative commodity pool through May 31, 2007.Effective June 1, 2007 the Partnership invests in Portfolio Funds that arecommodity pools.  The market sensitiveinstruments held by the Portfolio Funds are acquired for speculative tradingpurposes and all or substantially all of the Portfolio Funds’ assets aresubject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments isintegral, not incidental, to the Partnership’s main line of business.

 

Marketmovements result in frequent changes in the fair market value of the PortfolioFunds’ open positions and, consequently, in their earnings and cash flow.  The Portfolio Funds’ 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 thePortfolio Funds’ open positions and the liquidity of the markets in which theytrade.

 

Value at Risk is ameasure of the maximum amount which the Portfolio Funds could reasonably be expected to lose in a givenmarket sector.  However, the inherentuncertainty of the Portfolio Funds’speculative trading and the recurrence in the markets traded by the Portfolio Funds of market movementsfar exceeding expectations could result in actual trading or non-trading lossesfar beyond the indicated Value at Risk or the Portfolio Funds’ experience to date (i.e., “risk of ruin”).  In light of the foregoing as well as therisks and uncertainties intrinsic to all future projections, the inclusion ofthe quantification in this section should not be considered to constitute anyassurance or representation that the PortfolioFunds’ losses in any market sector will be limited to Value at Risk orby the Portfolio Funds’ attemptsto manage their market risks.

 

Quantifying thePartnership’s Trading Value at Risk

 

Quantitative Forward-Looking Statements

 

Thefollowing quantitative disclosures regarding the Partnership’s market riskexposures contain “forward-looking statements” within the meaning of the safeharbor from civil liability provided for such statements by the PrivateSecurities Litigation Reform Act of 1995 (set forth in Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Act of1934).  All quantitative disclosures inthis section are deemed to be forward-looking statements for purposes of thesafe harbor, except for statements of historical fact.

 

Due to the Partnership’s fund of funds structure, the followingstatements are related to the Portfolio Funds.

 

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

 

In the case of market sensitive instruments which are notexchange-traded (almost exclusively currencies in the case of the PortfolioFunds), the margin requirements for the equivalent futures positions have beenused as Value at Risk.  In those rarecases in which a futures-equivalent margin is not available, dealers’ marginshave been used.

 

100% positive correlation in the different positions held in eachmarket risk category has been assumed. Consequently, the margin requirements applicable to the open contractshave been aggregated to determine each trading category’s aggregate Value atRisk.  The diversification effects (whichwould reduce the Value at Risk estimates) resulting from the fact that thePortfolio Funds’ positions are rarely, if ever, 100% positively correlated havenot been reflected.

 

# **The Partnership’s TradingValue at Risk in Different Market Sectors**

# ** **

The following table indicates the average, highest, and lowest tradingValue at Risk associated with the Partnership’s open positions by marketcategory for the nine months ended September 30, 2008 and 2007, and 5months ended May 31, 2007.

 

**Winton CLASS DT (1)**

**September 30, 2008**

 
| ** **                | ** ** | **Average**                 | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|---------------------------|------------|-----------------------------|------------|----------------------------|------------|------------------------|------------|-----------------------|------------|
| **Market Sector**    | ** ** | **Value at Risk** | ** ** | **Capitalization**         | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| Agricultural  Commodities |       | $                           | 210,848    |                       | 0.23       | %                      | $          | 415,239               |       | $ | 14,972 |   |
| Currencies                |       | 638,225                     |       | 0.70                       | %          | 1,139,168              |       | 131,611               |       |
| Energy                    |       | 228,324                     |       | 0.25                       | %          | 475,878                |       | 50,875                |       |
| Interest Rates            |       | 2,835,664                   |       | 3.09                       | %          | 4,389,100              |       | 1,947,030             |       |
| Metals                    |       | 141,688                     |       | 0.15                       | %          | 273,542                |       | 1,806                 |       |
| Stock Indices             |       | 362,852                     |       | 0.40                       | %          | 1,167,926              |       | 10,537                |       |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| TOTAL                     |       | $                           | 4,417,601  |                       | 4.82       | %                      | $          | 7,860,853             |       | $ | 2,156,831 |   |

 

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(1) Average capitalization of Winton Class DT is $91,789,553

 

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**Chesapeake Class DT(2)**

**September 30, 2008**

 
| ** **                | ** ** | **Average**                 | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|---------------------------|------------|-----------------------------|------------|----------------------------|------------|------------------------|------------|-----------------------|------------|
| **Market Sector**    | ** ** | **Value at Risk** | ** ** | **Capitalization**         | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| Agricultural  Commodities |       | $                           | 722,109    |                       | 0.80       | %                      | $          | 1,553,661             |       | $ | 52,413 |   |
| Energy                    |       | 609,942                     |       | 0.67                       | %          | 1,164,921              |       | 148,521               |       |
| Interest Rates            |       | 5,547,827                   |       | 6.12                       | %          | 7,411,443              |       | 2,662,525             |       |
| Metals                    |       | 311,679                     |       | 0.34                       | %          | 649,969                |       | 23,557                |       |
| Stock Futures             |       | 145,025                     |       | 0.16                       | %          | 272,806                |       | 25,587                |       |
| Currencies                |       | 1,030,812                   |       | 1.14                       | %          | 2,237,366              |       | 50,515                |       |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| TOTAL                     |       | $                           | 8,367,394  |                       | 9.23       | %                      | $          | 13,290,166            |       | $ | 2,963,118 |   |

 

----

(2) Average capitalization of Chesapeake Class DT is$90,610,908

 

**Transtrend CLASS DT (3)**

**September 30, 2008**

 
| ** **                | ** ** | **Average**                 | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|---------------------------|------------|-----------------------------|------------|----------------------------|------------|------------------------|------------|-----------------------|------------|
| **Market Sector**    | ** ** | **Value at Risk** | ** ** | **Capitalization**         | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| Agricultural  Commodities |       | $                           | 215,269    |                       | 0.24       | %                      | $          | 674,101               |       | $ | 10,637 |   |
| Energy                    |       | 350,408                     |       | 0.38                       | %          | 995,085                |       | 6,944                 |       |
| Interest Rates            |       | 3,552,176                   |       | 3.88                       | %          | 5,308,263              |       | 1,238,743             |       |
| Metals                    |       | 166,558                     |       | 0.18                       | %          | 424,722                |       | 6,155                 |       |
| Currencies                |       | 970,445                     |       | 1.06                       | %          | 2,181,241              |       | 34,569                |       |
| Stock Indices             |       | 326,431                     |       | 0.36                       | %          | 647,767                |       | 36,582                |       |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| TOTAL                     |       | $                           | 5,581,287  |                       | 6.10       | %                      | $          | 10,231,179            |       | $ | 1,333,630 |   |

 

----

(3) Averagecapitalization of Transtrend Class DT is $91,576,546

 

18

----

 

**Aspect CLASS DT (4)**

**September 30, 2008**

 
| ** **                | ** ** | **Average**                 | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|---------------------------|------------|-----------------------------|------------|----------------------------|------------|------------------------|------------|-----------------------|------------|
| **Market Sector**    | ** ** | **Value at Risk** | ** ** | **Capitalization**         | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| Agricultural  Commodities |       | $                           | 241,393    |                       | 0.26       | %                      | $          | 947,471               |       | $ | 43,210 |   |
| Currencies                |       | 902,600                     |       | 0.99                       | %          | 2,652,160              |       | 118,809               |       |
| Energy                    |       | 395,254                     |       | 0.43                       | %          | 1,308,260              |       | 64,661                |       |
| Interest Rates            |       | 5,857,216                   |       | 6.40                       | %          | 12,279,096             |       | 2,395,254             |       |
| Metals                    |       | 159,522                     |       | 0.17                       | %          | 600,820                |       | 41,055                |       |
| Stock Indices             |       | 500,335                     |       | 0.55                       | %          | 1,541,995              |       | 109,611               |       |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| TOTAL                     |       | $                           | 8,056,320  |                       | 8.80       | %                      | $          | 19,329,802            |       | $ | 2,772,600 |   |

 

----

(4) Averagecapitalization of Aspect Class DT is $91,566,642

 

**ML Trend Following**

**September 30, 2008**

 
| ** **                | ** ** | **Average**                 | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|---------------------------|------------|-----------------------------|------------|----------------------------|------------|------------------------|------------|-----------------------|------------|
| **Market Sector**    | ** ** | **Value at Risk** | ** ** | **Capitalization**         | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| Agricultural  Commodities |       | $                           | 1,389,619  |                       | 0.38       | %                      | $          | 3,590,471             |       | $ | 121,233 |   |
| Currencies                |       | 3,542,081                   |       | 0.97                       | %          | $                      | 8,209,935  |                  | $          | 335,505 |   |
| Energy                    |       | 1,583,928                   |       | 0.43                       | %          | $                      | 3,944,144  |                  | $          | 271,002 |   |
| Interest Rates            |       | 17,792,884                  |       | 4.87                       | %          | $                      | 29,387,902 |                  | $          | 8,243,553 |   |
| Metals                    |       | 779,447                     |       | 0.21                       | %          | $                      | 1,949,053  |                  | $          | 72,574 |   |
| Stock Indices             |       | 1,334,643                   |       | 0.37                       | %          | $                      | 3,630,494  |                  | $          | 182,316 |   |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| TOTAL                     |       | $                           | 26,422,602 |                       | 7.23       | %                      | $          | 50,711,999            |       | $ | 9,226,183 |   |

 

19

----

 

**May 31, 2007**

 
| ** **             | ** ** | **Average**                 | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|------------------------|------------|-----------------------------|------------|----------------------------|------------|------------------------|------------|-----------------------|------------|
| **Market Sector** | ** ** | **Value at Risk** | ** ** | **Capitalization**         | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                   |       |                        |       |                       |       |                   |       |                  |       |
| Agriculture            |       | $                           | 846,301    |                       | 0.14       | %                      | $          | 2,805,345             |       | $ | — |   |
| Currencies             |       | 9,769,334                   |       | 1.64                       | %          | 17,688,603             |       | 14,804                |       |
| Energy                 |       | 1,595,481                   |       | 0.27                       | %          | 2,699,064              |       | —                |       |
| Interest Rates         |       | 27,474,079                  |       | 4.61                       | %          | 73,672,809             |       | —                |       |
| Metals                 |       | 2,203,184                   |       | 0.37                       | %          | 6,999,047              |       | —                |       |
| Stock Indices          |       | 2,444,700                   |       | 0.41                       | %          | 5,459,142              |       | —                |       |
|                   |       |                        |       |                       |       |                   |       |                  |       |
| TOTAL                  |       | $                           | 44,333,079 |                       | 7.44       | %                      | $          | 109,324,010           |       | $ | 14,804 |   |

 

**Winton CLASS DT(1)***

**September 30, 2007**

 
| ** **                      | ** ** | **Average**                 | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|---------------------------------|------------|-----------------------------|------------|----------------------------|------------|------------------------|------------|-----------------------|------------|
| **Market Sector**          | ** ** | **Value at Risk** | ** ** | **Capitalization**         | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                            |       |                        |       |                       |       |                   |       |                  |       |
|  Agricultural  Commodities |       | $                           | 147,824    |                       | 0.16       | %                      | $          | 211,846               |       | $ | 65,298 |   |
| Currencies                      |       | 725,410                     |       | 0.77                       | %          | 990,261                |       | 299,332               |       |
| Energy                          |       | 143,876                     |       | 0.15                       | %          | 230,579                |       | 9,780                 |       |
| Interest Rates                  |       | 5,327,066                   |       | 5.69                       | %          | 6,697,896              |       | 4,522,247             |       |
| Metals                          |       | 79,633                      |       | 0.08                       | %          | 147,103                |       | 38,809                |       |
| Stock Indices                   |       | 261,979                     |       | 0.28                       | %          | 421,679                |       | 97,040                |       |
|                            |       |                        |       |                       |       |                   |       |                  |       |
| TOTAL                           |       | $                           | 6,685,788  |                       | 7.13       | %                      | $          | 8,699,364             |       | $ | 5,032,506 |   |

 

----

(1) Averagecapitalization of Winton Class DT is $108,300,224

 

**Chesapeake Class DT(2)***

**September 30, 2007**

 
| ** **                | ** ** | **Average**                 | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|---------------------------|------------|-----------------------------|------------|----------------------------|------------|------------------------|------------|-----------------------|------------|
| **Market Sector**    | ** ** | **Value at Risk** | ** ** | **Capitalization**         | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| Agricultural  Commodities |       | $                           | 537,374    |                       | 0.63       | %                      | $          | 738,370               |       | $ | 333,293 |   |
| Energy                    |       | $                           | 245,320    |                       | 0.29       | %                      | $          | 548,358               |       | $ | 29,405 |   |
| Interest Rates            |       | $                           | 788,443    |                       | 0.93       | %                      | $          | 1,081,995             |       | $ | 59,256 |   |
| Metals                    |       | $                           | 14,959,032 |                       | 17.65      | %                      | $          | 20,016,844            |       | $ | 1,810,769 |   |
| Stock Futures             |       | $                           | 260,396    |                       | 0.31       | %                      | $          | 435,814               |       | $ | 63,430 |   |
| Stock Indices             |       | $                           | 402,927    |                       | 0.48       | %                      | $          | 561,749               |       | $ | 213,118 |   |
| Currencies                |       | $                           | 667,479    |                       | 0.79       | %                      | $          | 1,029,757             |       | $ | 165,084 |   |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| TOTAL                     |       | $                           | 17,860,971 |                       | 21.08      | %                      | $          | 24,412,887            |       | $ | 2,674,355 |   |

 

----

(2) Averagecapitalization of Chesapeake Class DT is $106,606,751

 

20

----

 

**Transtrend CLASS DT(3)***

**September 30, 2007**

 
| ** **                | ** ** | **Average**                 | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|---------------------------|------------|-----------------------------|------------|----------------------------|------------|------------------------|------------|-----------------------|------------|
| **Market Sector**    | ** ** | **Value at Risk** | ** ** | **Capitalization**         | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| Agricultural  Commodities |       | $                           | 304,254    |                       | 0.35       | %                      | $          | 993,862               |       | $ | 2,619 |   |
| Energy                    |       | 3,032,800                   |       | 3.50                       | %          | 4,050,216              |       | 955,895               |       |
| Interest Rates            |       | 1,315,053                   |       | 1.52                       | %          | 13,609,078             |       | 50,710                |       |
| Metals                    |       | 5,677,488                   |       | 6.56                       | %          | 1,131,194              |       | 1,706,516             |       |
| Currencies                |       | 818,842                     |       | 0.95                       | %          | 5,634,924              |       | —                |       |
| Stock Indices             |       | 1,867,674                   |       | 2.16                       | %          | 4,278,844              |       | 53,230                |       |
|                      |       |                        |       |                       |       |                   |       |                  |       |
| TOTAL                     |       | $                           | 13,016,111 |                       | 15.04      | %                      | $          | 29,698,118            |       | $ | 2,768,970 |   |

 

----

(3) Averagecapitalization of Transtrend Class DT is $108,300,251

 

**Aspect CLASS DT(4)***

**September 30, 2007**

 
| ** **               | ** ** | **Average**                 | ** ** | **% of Average** | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|--------------------------|------------|-----------------------------|------------|----------------------------|------------|------------------------|------------|-----------------------|------------|
| **Market Sector**   | ** ** | **Value at Risk** | ** ** | **Capitalization**         | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                     |       |                        |       |                       |       |                   |       |                  |       |
| Agricultural Commodities |       | $                           | 225,172    |                       | 0.24       | %                      | $          | 653,832               |       | $ | 40,278 |   |
| Currencies               |       | 918,447                     |       | 0.98                       | %          | 2,630,865              |       | 293,997               |       |
| Energy                   |       | 423,506                     |       | 0.45                       | %          | 1,389,902              |       | 4,864                 |       |
| Interest Rates           |       | 8,432,377                   |       | 8.97                       | %          | 12,935,262             |       | 4,356,269             |       |
| Metals                   |       | 404,741                     |       | 0.43                       | %          | 989,459                |       | 100,288               |       |
| Stock Indices            |       | 412,901                     |       | 0.44                       | %          | 729,071                |       | 35,170                |       |
|                     |       |                        |       |                       |       |                   |       |                  |       |
| TOTAL                    |       | $                           | 10,817,144 |                       | 11.51      | %                      | $          | 19,328,391            |       | $ | 4,830,866 |   |

 

----

(4) Averagecapitalization of Aspect Class DT is $108,302,051

 

 * Class D-TF is now known as Class DTwithin each respective underlying fund.

 

MaterialLimitations on Value at Risk as an Assessment of Market Risk

 

Theface value of the market sector instruments held by the Portfolio Funds aretypically many times the applicable maintenance margin requirement (maintenancemargin requirements generally ranging between approximately 1% and 10% ofcontract face value) as well as many times the capitalization of the PortfolioFunds.  The magnitude of the PortfolioFunds open positions’ creates a “risk of ruin” not typically found in mostother investment vehicles.  Because ofthe size of its positions, certain market conditions — unusual, buthistorically recurring from time to time — could cause the Portfolio Funds toincur severe losses over a short period of time.   The foregoing Value at Risk table — as wellas the past performance of the Portfolio Funds — gives no indication of this “riskof ruin.”

 

21

----

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

The following qualitative disclosures regarding thePartnership’s market risk exposures through the Portfolio Funds after thechange in structure— except for (i) those disclosures that are statementsof  historical fact and (ii) thedescriptions of how the Partnership manages its primary market riskexposures  constitute forward-lookingstatements within the meaning of Section 27A of the Securities Act and Section 21Eof the Securities Exchange Act.  ThePartnership’s primary market risk exposures as well as the strategies used andto be used by MLAI and the trading advisors of the Portfolio Funds for managingsuch exposures are subject to numerous uncertainties, contingencies and risks,any one of which could cause the actual results of the risk controls for thePartnership and for the trading conducted through  Portfolio Funds to differ materially from theobjectives of such strategies. Government interventions, defaults and expropriations, illiquid markets,the emergence of dominant fundamental factors, political upheavals, changes inhistorical price relationships, an influx of new market participants, increasedregulation and many other factors could result in material losses as well as inmaterial changes to the risk exposures and the risk management strategies of thePartnership.  There can be no assurancethat the Partnership’s risk management strategies will not change materially orthat any such strategies will be effective in either the short- orlong-term.  Investors must be prepared tolose all or substantially all of the value of their investment in thePartnership.

 

Item 4. Control and Procedures

 

MLAI, the Sponsorof ML Trend-Following Futures Fund L.P. with the participation of the Sponsor’s Chief Executive Officer and theChief Financial Officer, has evaluated the effectiveness of the design andoperation of its disclosure controls and procedures with respect to thePartnership as of the end of the period of this quarterly report, and, based onthis evaluation, has concluded that these disclosure controls and proceduresare effective.  Additionally, there wereno significant changes in the Partnership’s internal controls or in otherfactors that could significantly affect these controls subsequent to the dateof this evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

22

----

 

PART II - OTHER INFORMATION

 

Item1.  Legal Proceedings

 

None.

 

Item 1A:  RiskFactors

 

PastPerformance Not Necessarily Indicative of Future Results

 

Pastperformance is not necessarily indicative of future results.  The trading advisors’ past performance maynot be representative of how they may trade in the future for the Partnership.

 

VolatileMarkets; Highly Leveraged Trading

 

Futuresand forward trading is highly leveraged, and market price levels are volatileand materially affected by unpredictable factors such as weather andgovernmental intervention.  Thecombination of leverage and volatility creates a high degree of risk.

 

Importanceof General Market Conditions

 

Overallmarket or economic conditions — which neither MLAI nor the trading advisors canpredict or control — have a material effect on the performance of any managedfutures strategy.

 

ForwardTrading

 

ThePortfolio Funds will trade currencies in the forward markets in addition to inthe futures markets.  The forward marketsare over-the-counter, non-exchange markets, and in trading in these markets,the Portfolio Funds will be dependent on the credit standing of the counterpartieswith which they trade, without the financial support of any clearinghousesystem.  In addition, the prices offeredfor the same forward contract may vary significantly among different forwardmarket participants.  Forward marketcounterparties are under no obligation to enter into forward transactions withthe Portfolio Funds, including transactions through which the Portfolio Fundsare attempting to liquidate open positions.

 

IncreasedAssets Under Management

 

Thereappears to be a tendency for the rates of return achieved by managed futuresadvisors to decline as assets under management increase.  The trading advisors have not agreed to limitthe amount of additional equity which they may manage.

 

23

----

 

TradingAdvisors Risk

 

ThePortfolio Funds are subject to the risk of the bad judgment, negligence ormisconduct of their trading advisors. There have been a number of instances in recent years in which privateinvestment funds have incurred substantial losses due to manager misconduct.

 

Changesin Trading Strategy

 

Thetrading advisors may make material changes in its trading strategies withoutthe knowledge of MLAI.

 

IlliquidMarkets

 

Certainpositions held by the Portfolio Funds may become illiquid, preventing thePortfolio Funds’ trading advisors from acquiring positions otherwise indicatedby their strategy or making it impossible for the trading advisors to close outpositions against which the market is moving.

 

Certainfutures markets are subject to “daily price limits,” restricting the maximumamount by which the price of a particular contract can change during any giventrading day.  Once a contract’s price hasmoved “the limit,” it may be impossible or economically non-viable to executetrades in such contract.  From time totime, prices have moved “the limit” for a number of consecutive days, making itimpossible for traders against whose positions the market was moving to preventlarge losses.

 

Tradingon Non-U.S. Exchanges

 

Thetrading advisors may trade extensively on non-U.S. exchanges.  These exchanges are not regulated by anyUnited States governmental agency.  ThePortfolio Funds could incur substantial losses trading on foreign exchanges towhich it would not have been subject had its trading advisors limited itstrading to U.S. markets.

 

Theprofits and losses derived from trading foreign futures and options willgenerally be denominated in foreign currencies; consequently, the PortfolioFunds will be subject to a certain degree of exchange-rate risk in trading suchcontracts.

 

ThePortfolio Funds Could Lose Assets and Have Its Trading Disrupted Due to theBankruptcy of One of the Parties

 

ThePortfolio Funds are subject to the risk of insolvency of a counterparty, anexchange, a clearinghouse or MLPF&S. Portfolio Funds’ assets could be lostor impounded during lengthy bankruptcy proceedings.  Were a substantial portion of the PortfolioFunds’ capital tied up in a bankruptcy, MLAI might suspend or limit trading,perhaps causing the Portfolio Funds to miss significant profit opportunities.There are increased risks in dealing with unregulated trading counterpartiesincluding the risk that assets may not benefit from the protection afforded to “customerfunds” deposited with regulated dealers and brokers.

 

24

----

 

Item 2.                                                        UnregisteredSales of Securities and Use of Proceeds

 

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

 

Duringthe first quarter of 2008 the fund issued Units as set forth in the followingchart:

 

CLASS D

 
| ** ** | ** ** | **Subscription** | ** ** | ** ** | ** ** |
|------------|------------|------------------|------------|------------|------------|
| ** ** | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV (1)** | ** ** |
| Jan-08     |       |             | $          | 35,636     |       | 217 |   | 164.22 |   |
| Feb-08     |       |             | 112,633    |       | 669        |   | 168.36 |   |
| Mar-08     |       |             | 275,922    |       | 1,496      |   | 184.45 |   |
| Apr-08     |       |             | 342,190    |       | 1,900      |   | 180.10 |   |
| May-08     |       |             | 610,081    |       | 3,428      |   | 177.98 |   |
| Jun-08     |       |             | 213,609    |       | 1,172      |   | 182.26 |   |
| Jul-08     |       |             | 1,298,326  |       | 6,740      |   | 192.63 |   |
| Aug-08     |       |             | 5,007,234  |       | 27,649     |   | 181.10 |   |
| Sep-08     |       |             | 3,390,137  |       | 19,469     |   | 174.13 |   |
| Oct-08     |       |             | 2,295,446  |       | 13,168     |   | 174.32 |   |
|            |            |                  |            |            |            |  |  |  |  |

 

----

(1) Beginning of themonth Net Asset Value

 

(b) None.

(c) None.

 

Item 3.                                DefaultsUpon Senior Securities

 

None.

 

Item 4.                                Submissionof Matters to a Vote of Security Holders

 

None.

 

Item5.                                Other Information

 

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

 

25

----

 

Item 6.                                Exhibits

 

The followingexhibits are incorporated by reference or are filed herewith to this QuarterlyReport on Form 10-Q:

31.01 and

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

 

Exhibit 31.01

and 31.02                                              Arefiled herewith.

 

32.01 and

32.02                                                                     Section 1350Certifications

 

Exhibit 32.01

and 32.02                                              Arefiled herewith.

 

26

----

 

**SIGNATURES**

 

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|                          | ML  TREND-FOLLOWING FUTURES FUND L.P. |
|-------------------------------|---------------------------------------|
|                          |                                  |
|                          |                                  | By: | MERRILL  LYNCH ALTERNATIVE |
| ** **                    | ** **                            | ** ** | ** INVESTMENTS LLC** |
|                          |                                  |   |   (General  Partner) |
|                          |                                  |   |   |
|                          |                                  |   |   |
| Date: November 14, 2008  | By                                    | /s/ PAUL MORTON |
|                          |                                  | Paul Morton |
|                          |                                  | Chief  Executive Officer and President |
|                          |                                  | (Principal  Executive Officer) |
|                          |                                  |   |
|                          |                                  |   |
| Date:  November 14, 2008 | By                                    | /s/  BARBRA E. KOCSIS |
|                          |                                  | Barbra  E. Kocsis |
|                          |                                  | Chief  Financial Officer |
|                          |                                  | (Principal Financial and Accounting Officer) |
|                               |                                       |  |  |  |

 

27

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